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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2000
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________to__________
Commission File Number 0-78271
IMAGEX.COM, INC.
(Exact name of registrant as specified in its charter)
WASHINGTON 91-1727170
(State of Incorporation) (IRS Employer Identification No.)
10210 NE POINTS DR., SUITE 200
KIRKLAND, WA 98033
(Address of principal executive offices)
(425) 576-6500
(Registrant's telephone number)
Indicated by check mark whether the registrant has (1) filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
The number of shares of common stock, $.01 par value, outstanding on August
4, 2000 was 26,490,977.
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IMAGEX.COM, INC.
CONTENTS
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PAGE NO.
PART I -- FINANCIAL INFORMATION
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Item 1. Condensed Consolidated Financial Statements...................................................... 2
Consolidated Balance Sheets as of June 30, 2000 and December 31, 1999........................... 2
Consolidated Statements of Operations for the Three and Six Months Ended
June 30, 2000 and June 30, 1999............................................................ 3
Consolidated Statement of Shareholders' Equity for the Six Months Ended
June 30, 2000.............................................................................. 4
Consolidated Statements of Cash Flows for the Six Months Ended June 30,
2000 and June 30, 1999..................................................................... 5
Notes To Consolidated Financial Statements....................................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................................. 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk....................................... 13
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings................................................................................ 15
Item 2. Changes in Securities and Use of Proceeds........................................................ 15
Item 4. Submission of Matters to a Vote of Security Holders.............................................. 16
Item 6. Exhibits and Reports on Form 8-K................................................................. 17
SIGNATURES................................................................................................ 18
</TABLE>
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PART I -- FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
IMAGEX.COM, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
(UNAUDITED)
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JUNE 30, DECEMBER 31,
2000 1999
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ASSETS
Current assets
Cash and cash equivalents $ 60,161 $ 18,257
Accounts receivable (net of allowances for doubtful accounts and returns totaling
$1,310 and $126 at June 30, 2000 and December 31, 1999 respectively) 9,594 3,427
Inventories 5,750 653
Prepaid expenses and other current assets 1,448 610
---------- ------------
Total current assets 76,953 22,947
Restricted cash 2,413 1,625
Property and equipment, net 19,582 6,613
Goodwill, net 43,052 2,132
Other assets, net 12,765 2,351
---------- ------------
Total assets $ 154,765 $ 35,668
========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 7,468 $ 3,500
Accrued liabilities
4,364 1,394
---------- ------------
Total current liabilities 11,832 4,894
---------- ------------
Total liabilities 11,832 4,894
---------- ------------
Shareholders' equity
Preferred stock, 30,000,000 shares authorized
Series A convertible preferred stock, $0.01 par value; 1,500,000 shares
authorized; no shares outstanding
Common stock, $0.01 par value; 70,000,000 shares authorized; 26,375,197 and
17,381,639 shares issued and outstanding June 30, 2000 and
December 31, 1999 respectively 264 174
Additional paid-in capital 198,434 67,118
Unearned compensation (1,501) (2,518)
Notes receivable from shareholders (124) (168)
Accumulated deficit (54,140) (33,832)
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Total shareholders' equity 142,933 30,774
---------- ------------
Total liabilities and shareholders' equity $ 154,765 $ 35,668
========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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IMAGEX.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
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THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
2000 1999 2000 1999
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Revenue $ 7,134 $ 2,841 $ 12,702 $ 3,326
Cost of sales 4,759 2,137 8,950 2,512
------------ ------------ ------------ ------------
Gross profit 2,375 704 3,752 814
Operating expenses
General and administrative 5,743 2,003 10,903 3,120
Sales and marketing 5,308 1,265 9,303 1,896
Product development 1,773 527 3,548 922
Amortization of unearned
compensation, goodwill and other intangibles 712 339 1,419 737
In-process research and development 1,062 1,062
------------ ------------ ------------ ------------
Total operating expenses 14,598 4,134 26,235 6,675
------------ ------------ ------------ ------------
Loss from operations (12,223) (3,430) (22,483) (5,861)
------------ ------------ ------------ ------------
Interest income (expense), net 1,454 (40) 2,175 (64)
------------ ------------ ------------ ------------
Net loss $ (10,769) $ (3,470) $ (20,308) $ (5,925)
============ ============ ============ ============
Basic and diluted net loss per share $ (0.48) $ (2.77) $ (0.97) $ (5.20)
============ ============ ============ ============
Weighted-average shares outstanding 22,453,920 1,250,659 20,888,692 1,152,655
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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IMAGEX.COM, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(IN THOUSANDS EXCEPT SHARE DATA)
(UNAUDITED)
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NOTES
COMMON STOCK ADDITIONAL RECEIVABLE
--------------------- PAID-IN UNEARNED FROM ACCUMULATED
SHARES AMOUNT CAPITAL COMPENSATION SHAREHOLDERS DEFICIT TOTAL
---------- -------- ---------- ------------ ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1, 2000 17,381,639 $ 174 $ 67,118 $ (2,518) $ (168) $ (33,832) $ 30,774
Net proceeds from follow-on offering
(net of offering costs of $6,446) 4,695,595 47 101,405 101,452
Issuance of common stock upon exercise of
stock options 303,350 3 61 64
Issuance of common stock upon exercise of
warrants 187,762 2 568 570
Issuance of common stock pursuant to
Employee Stock Purchase Plan 53,033 1 371 372
Issuance of common stock and options for
acquisitions 3,753,818 37 28,911 28,948
Amortization of unearned compensation 1,017 1,017
Collection of notes receivable
44 44
Net loss
(20,308) (20,308)
---------- -------- ---------- ------------ ------------ ----------- --------
Balances, June 30, 2000 26,375,197 $ 264 $ 198,434 $ (1,501) $ (124) $ (54,140) $142,933
========== ======== ========== ============ ============ =========== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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IMAGEX.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
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SIX MONTHS ENDED
JUNE 30,
----------------------
2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (20,308) $ (5,925)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization 2,085 492
Amortization of unearned compensation 1,017 702
Interest expense for warrants issued in connection with bridge financing 115
Issuance of stock options to consultant 200
Write-off of acquired in process research and development 1,062
Change in operating assets and liabilities 244 194
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Net cash used in operating activities (15,900) (4,222)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (9,785) (1,426)
Deposits of restricted cash (788)
Purchase of Creativepro.com, net of cash acquired (13,381)
Purchase of Howard Press, net of cash acquired (12,494)
Purchase of Fine Arts net, of cash acquired (4,810)
--------- ---------
Net cash used in investing activities (36,448) (6,236)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of notes payable 2,283
Principal payments on notes payable (321)
Repayment of letter of credit (96)
Proceeds from issuance of Preferred stock net of offering costs 24,740
Proceeds from exercise of warrants and options 635 30
Deferred offering costs (510)
Proceeds from issuance of common stock in follow-on offering (net of
offering costs of $6,547) 101,452
Repayment of debts assumed in Creativepro.com and Howard Press acquisitions (8,251)
Proceeds from issuance of common stock related to
the Employee Stock Purchase Plan 372
Proceeds from repayment of notes receivable from shareholders 44
--------- ---------
Net cash provided by financing activities 94,252 26,126
--------- ---------
Net increase in cash and cash equivalents 41,904 15,668
Cash and cash equivalents at
Beginning of period 18,257 967
--------- ---------
End of period $ 60,161 $ 16,635
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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IMAGEX.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION
ImageX.com, Inc. ("the Company") was incorporated on August 21, 1995 and is
headquartered in Kirkland, Washington. The Company is an Internet-based
business-to-business provider of printed business materials. The Company caters
to the unique needs of every type of printing customer - individuals, small
businesses, corporations, graphic art professionals, printing industry suppliers
and manufacturers. The Company has filed for 83 patents for its Web-based,
"just-in-time" printing manufacturing technology, which facilitates the entire
workflow process from creative concept to delivery of the final product. The
Company's e-procurement solution includes the following services:
- Corporate Online Printing Center, a customized, secure Web site for
larger corporate customers containing an online catalog of their
repeat-ordered printed business materials;
- Small Business Printing Center, a small office/home office service
through which customers order personalized printed materials from a
non-customer site with online templates;
- PrintBid.com, an online bidding service in which print customers can
obtain bids from numerous participating vendors on a specific set of
job criteria;
- PrintPlace.com, an online vertical marketplace for the graphic arts
industry;
- Creativepro.com, a web portal offering industry news, reviews,
e-stores for graphic design professionals; and
- Extensis productivity software including Portfolio(TM) media asset
manager and Suitcase(R) font manager.
The accompanying unaudited consolidated financial statements have been
prepared in conformity with generally accepted accounting principles and reflect
all adjustments that, in the opinion of management, are necessary for a fair
presentation of the results for the periods shown. Certain information and note
disclosures normally included in the financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted in
accordance with the rules and regulations of the Securities and Exchange
Commission. Portions of the accompanying financial statements are derived from
the audited financial statements as of and for the year ended December 31, 1999.
The results of operations for interim periods are not necessarily indicative of
the results expected for the full fiscal year or for any future period.
Generally accepted accounting principles require management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates and
assumptions.
The accompanying unaudited consolidated financial statements should be read
in conjunction with the audited financial statements in our annual report filed
on Form 10-K for the fiscal year ended December 31, 1999 and the notes thereto.
The financial statements of the Company are consolidated and include the
accounts of the Company and its wholly-owned subsidiaries. Significant
intercompany transactions and balances have been eliminated.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition", which
provides guidance on the recognition, presentation and disclosures of revenue in
financial statements filed with the SEC. SAB 101 outlines the basic criteria
that must be met to recognize revenue and provides guidance for disclosures
related to revenue recognition policies, and will be effective starting from the
fourth quarter of 2000. Management believes that the impact of SAB101 will
have no material effect on the financial position and results of operations
of the Company.
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In March 2000, the Financial Accounting Standard Board ("FASB") issued FASB
Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions Involving
Stock Compensation, an Interpretation of APB Opinion No. 25". FIN 44 clarifies
the application of Opinion 25 for certain issues such as the definition of
"employee", criteria for determining noncompensatory plan, as well as accounting
for modification to fixed stock options and exchange of stock compensation
awards in a business combination. FIN 44 became effective on July 1, 2000.
Management believes that the impact of FIN 44 will have no material effect on
the financial position and results of operations of the Company.
2. INVENTORIES
Inventories consisted of the following at:
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June 30, December 31,
2000 1999
(in thousands) (in thousands)
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Raw materials & Supplies $ 1,550 $ 225
Work-in-process 890 176
Finished goods 3,310 252
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$ 5,750 $ 653
=============== ===============
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3. NET LOSS PER SHARE
Net loss per share is computed using the weighted-average number of common
shares outstanding excluding shares subject to repurchase.
Net loss for the six months ended June 30, 1999 has been increased by
accretion of preferred stock of $73,000 in computing earnings per share.
All options to purchase common stock, as described below, were excluded
from the 2000 and 1999 EPS calculation because they were anti-dilutive as a
result of the net loss incurred by the Company. Options to purchase 3,352,925
and 2,130,825 shares of common stock at $0.04 to $33.75 per share and $0.20 to
$12 per share, were outstanding as of June 30, 2000 and 1999 respectively.
4. ACQUISITIONS
On June 21, 2000 the Company completed the acquisition of
Creativepro.com, Inc., an Oregon corporation. The acquisition was recorded
using the purchase method of accounting under APB Opinion No. 16. The Company
issued 3,541,195 shares of stock and $11.5 million in cash resulting in an
aggregate purchase price of $45.2 million, including transaction cost of $2.8
million.
On June 27, 2000 the Company completed the acquisition of certain assets
and liabilities of Howard Press Limited Partnership, a Delaware limited
partnership. The acquisition was recorded using the purchase method of
accounting under APB Opinion No. 16. The Company issued 212,623 shares of
stock and $12.6 million in cash resulting in an aggregate purchase price of
$19.3 million, including transaction cost of $0.3 million.
In accordance with the provisions of APB No. 16, all identifiable assets
and liabilities were assigned a portion of the cost of the acquisitions based
on their respective fair values. The estimated values of identifiable
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intangibles were determined by independent valuations. The determination of the
allocation of the purchase price is based on certain preliminary data and
estimates at June 30, 2000. Identifiable intangible assets and goodwill are
included in "Intangibles and other assets" in the accompanying consolidated
balance sheets. Intangible assets are amortized over their estimated useful
lives, ranging from 3 to 10 years.
The pro forma consolidated financial information reflects the results of
operations of the Company for the six months ended June 30, 2000 and 1999 as
if the acquisitions of Fine Arts Graphics (acquired April 13, 1999), Image
Press (acquired September 21, 1999), Creativepro.com, and Howard Press had
occurred at the beginning of each year. The pro forma information gives effect
to certain adjustments, including amortization of allocated costs of assembled
and trained work force, customer relationship, web portal, existing technology
and goodwill. The pro forma adjustments exclude the effect of the nonrecurring
charge of $1.1 million for purchased in-process research and development
recorded by the Company in second quarter of 2000 following the acquisitions.
The pro forma adjustments would have resulted in revenues of $ 33.8 million
and $34.1 million, net loss of $25.1 million and $8.9 million, and basic and
diluted loss per share of $1.03 and $1.79 for the six months ended June 30,
2000 and 1999. This unaudited pro forma information is presented for
illustrative purposes only and is not necessarily indicative of the results of
future operations or results that would have been achieved if ImageX.com had
made these acquisitions during the specified periods.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. THIS ACT
PROVIDES A "SAFE HARBOR" FOR FORWARD-LOOKING STATEMENTS TO ENCOURAGE COMPANIES
TO PROVIDE PROSPECTIVE INFORMATION ABOUT THEMSELVES SO LONG AS THEY IDENTIFY
THESE STATEMENTS AS FORWARD-LOOKING AND PROVIDE MEANINGFUL CAUTIONARY STATEMENTS
IDENTIFYING IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER FROM THE
PROJECTED RESULTS. ALL STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACT WE
MAKE IN THIS FORM 10-Q ARE FORWARD-LOOKING. IN PARTICULAR, THE STATEMENTS HEREIN
REGARDING INDUSTRY PROSPECTS AND OUR FUTURE RESULTS OF OPERATIONS OR FINANCIAL
POSITION ARE FORWARD-LOOKING STATEMENTS. FORWARD-LOOKING STATEMENTS REFLECT OUR
CURRENT EXPECTATIONS AND ARE INHERENTLY UNCERTAIN. OUR ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS FOR
MANY REASONS, INCLUDING THE FACTORS DESCRIBED BELOW AND IN THE SECTION ENTITLED
"FACTORS AFFECTING IMAGEX.COM'S OPERATING RESULTS" FROM OUR FORM 10-K FOR OUR
FISCAL YEAR ENDED DECEMBER 31, 1999. YOU SHOULD NOT PLACE UNDUE RELIANCE ON
THESE FORWARD-LOOKING STATEMENTS, WHICH APPLY ONLY AS OF THE DATE OF THIS
REPORT. WE DO NOT ASSUME ANY OBLIGATION TO REVISE FORWARD-LOOKING STATEMENTS.
OVERVIEW
GENERAL
ImageX.com is an Internet-based business-to-business e-commerce company in
the U.S. commercial printing industry. We derive substantially all our revenues
from the sale of printed business materials in both the marketing/promotional
and general office categories. Such products include business cards, stationery,
letterhead and other general office products, as well as color marketing
brochures, sell sheets and similar products.
By June 30, 2000, we had
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- grown to 287 online customers
- expanded our sales regions beyond Seattle to include Los Angeles, San
Francisco, New York City, Chicago, New Jersey, Portland, Washington
DC, Orange County, San Jose, Atlanta, Dallas, Philadelphia, Miami, San
Leandro, Boston, Tampa, Connecticut, Denver, Baltimore, Phoenix, and
Detroit;
- 83 patent applications pending on our proprietary corporate Online
Printing Center technology;
- launched PrintPlace.com a vertical marketplace designed to provide
supply chain value all the way from print users, graphic designers,
print buyers and printers to suppliers within the entire graphic arts
industry;
- expanded our product offerings to include a broad range of marketing
promotional materials and general office materials;
- acquired Creativepro.com to bring significant new corporate customers
and technology used by more than one million graphic arts
professionals;
- acquired Howard Press to add to ImageX.com's existing Fortune 1000
customer base, as well as an experienced sales force and additional
web-based fulfillment capabilities;
- grown to 772 employees (including employees from the acquisition of
Fine Arts Graphics, Image Press, PrintBid, Creativepro.com, and Howard
Press).
On February 11, 2000, we completed our follow-on offering and the
underwriters exercised their over-allotment options in full on March 14, 2000
for a total of 4,695,595 shares of additional common stock. The net proceeds
were approximately $101.5 million.
Our extremely limited operating history and the uncertain and emerging
nature of the market in which we compete make it difficult to assess our
prospects or predict our future results of operations. Therefore, you should not
consider our recent revenue growth as an indication of our future rate of
revenue growth, if any. Our prospects are subject to the risks and uncertainties
frequently encountered in establishing a new business enterprise, particularly
in the new and rapidly evolving markets for online products and services.
Because of our short operating history, period-to-period comparisons of our
results of operations are not necessarily meaningful. As a result, you should
not rely on such comparisons as indications of our future performance.
REVENUES
During 1999 and the first half of 2000, we derived substantially all our
revenues from the sale of printed products in both the marketing/ promotional
and office stationery categories. Our revenues, which consist of product and
service revenues, total $7.1 million for the second quarter 2000 and $12.7
million for the six months ended June 30, 2000. We recognize product revenues
when we ship an order to the customer. We also generate revenues from services
related to the setup and management of each customer's customized Online
Printing Center. Even though service revenues constitute only a small portion of
overall revenues, we charge for constructing the Online Printing Center website,
creating and revising the printed materials in the customer's customized
website. We also charge annual maintenance fees.
GROSS PROFIT
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For products that are produced by our commercial printing vendor network,
gross profit is the selling price of a specific product less the price our
vendor charges us. For products that we produce in our own facilities, gross
profit is calculated as the selling price of the product, less manufacturing
costs including certain allocated overhead.
OPERATING EXPENSES
Our business incurs operating expenses in three broad expense categories:
sales and marketing, product development and general and administrative. As is
typical of early-stage technology companies, most of our historical expenditures
have been in the product development and general and administrative categories,
as we have focused on building the ImageX.com online printing system and an
infrastructure suitable for future growth. In the future, we intend to focus on
acquiring new customers, converting customers of businesses we may acquire to
our online system and increasing our revenue base. As a result, we expect that
sales and marketing expenses and the general and administrative expenses
associated with our manufacturing operations will account for a relatively
larger percentage of our operating expenses. We expect our infrastructure and
development costs will decline as a percentage of sales over time.
AMORTIZATION
Amortization consists of the amortization of unearned compensation,
goodwill and other intangible assets. The amortization of unearned compensation
is a result of recording the excess, if any, of the fair market value of our
common stock at the date of grant over the exercise or purchase price of such
securities, as applicable. The unearned compensation is amortized over the
remaining vesting period of the applicable stock or options using an accelerated
method. The amortization of goodwill and other intangible assets are a result of
the acquisitions of Fine Arts Graphics, Image Press, Creativepro.com, and Howard
Press. The amortization of goodwill is over a 10-year period and the
amortization of other intangible assets range from 3 to 8 years.
NET LOSS
Net loss is calculated as gross profit less operating expenses and is a
function of revenues, cost of sales and other expenses, namely, sales and
marketing, product development, general and administrative and amortization of
unearned compensation, goodwill and other intangible assets. We have incurred
significant net losses since our inception. As of June 30, 2000, we had
accumulated a deficit of $54.1 million.
RESULTS OF OPERATIONS
REVENUE
Revenues were $7.1 million and $2.8 million for the three month periods
ended June 30, 2000 and 1999, respectively, representing an increase of $4.3
million. Revenues totaled $12.7 million and $3.3 million for the six months
ended June 30, 2000 and 1999 respectively. These increases were primarily due to
the acquisition of Fine Arts Graphics and Image Press customers in 1999 and to
an increased number of additional customers using our online system, from 124
customers as of June 30, 1999 to 287 customers as of June 30, 2000. The increase
in the number of customers contributes to both increased product and service
revenues.
GROSS PROFIT
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Gross profit was $2.4 and $0.7 million for the three month period ended
June 30, 2000 and 1999, respectively, representing a increase of $1.7 million.
Gross margin was 33% for the three month period ended June 30, 2000 and 25% for
the three month period ended June, 30 1999. For the six months ending June 30,
2000, gross profit was $3.8 million, comparing to $0.8 million from the same
period in 1999, and gross margin increased to 30% from 24%. The increases in
gross profit and gross margin were primarily due to higher volume, increased
prices, and acquisitions.
SALES AND MARKETING EXPENSES
Sales and marketing expenses consist primarily of salaries and related
benefits for sales and marketing personnel, advertising expenses, marketing
expenses and travel expenses. Sales and marketing expenses were $5.3 million and
$1.3 million for the three months ended June 30, 2000 and 1999, respectively, an
increase of $4 million. For the six months ended June 30, 2000 and 1999, these
expenses were $9.3 million and $1.9 million, an increase of $7.4 million. The
increases in sales and marketing expenses resulted primarily from hiring new
sales representatives and marketing personnel, travel expenses, and marketing
expenses including advertising, public relations, company website maintenance,
print media insertions, and telemarketing expenses.
PRODUCT DEVELOPMENT EXPENSES
Product development expenses consist primarily of salaries and benefits for
developers, product managers, and quality assurance personnel. Product
development expenses were $1.8 million and $0.5 million for the three months
ended June 30, 2000 and 1999, an increase of $1.3 million. For the six months
ended June 30, 2000 and 1999, these expenses were $3.5 million and $0.9 million,
an increase of $2.6 million. The increases in product development expenses were
due to increased salary and benefit related expenses from increased staffing,
including software development personnel. We believe that continued investment
in product development is critical to attaining our goals and that the dollar
amount of product development expenses will increase in future periods, although
they may decline as a percentage of total revenues.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses consist primarily of salaries and
benefits for executive, finance, administrative and information technology
personnel as well as outside professional services and facilities related
expenses. General and administrative expenses were $4.7 million and $1.8 million
for the three months ended June 30, 2000 and 1999, an increase of $2.9 million.
For the six months ended June 30, 2000 and 1999, these expenses were $9.2
million and $2.8 million, an increase of $6.4 million. The increase was
primarily due to our hiring additional executive, finance, administrative and
information technology personnel to support the growth of our business. In
addition, we have had higher expenses resulting from depreciation, professional
fees, rent and other office expenses. We believe that our general and
administrative expenses will continue to increase as a result of the continued
expansion of our administrative staff.
AMORTIZATION
The amortization of unearned compensation was $0.5 million and $0.3 million
for the three months ended June 30, 2000 and 1999, respectively. For the six
months ended June 30, 2000 and 1999, these expenses were $1 million and $0.7
million. The unamortized portion of this total unearned compensation amount is
reflected as a reduction of shareholders' equity, and will be amortized over the
remaining vesting period of the applicable stock or options. The unearned
compensation is being amortized over the vesting period of the individual
options, generally four years, using an accelerated method.
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The amortization of goodwill and other intangibles was $261,000 and $35,000
for the three month periods ended June 30, 2000 and 1999, respectively. For the
six months ended June 30, 2000 and 1999, these expenses were $402,000 and
$35,000. The intangible assets being amortized result primarily from
acquisitions.
IN PROCESS RESEARCH AND DEVELOPMENT
Among the assets purchased in the Creativepro.com, Inc. acquisition were
two software projects under development, Preflight Online and Suitcase 9.0 for
Windows. Both of these new products were between 85% and 90% completed at the
date of acquisition and have no alternative use if not completed successfully.
We expect that both products will be completed during the third quarter and will
generate revenue in the second half of 2000. These projects were valued using a
discounted cash flow analysis (19% discount rate) by independent consultants.
The $1,062,000 of value derived from the analysis was expensed in the second
quarter of 2000.
INTEREST INCOME (EXPENSE) NET
The net interest income (expense) were $1.5 million and ($40,000) for the
three month period ended June 30, 2000 and 1999, respectively. Net interest
income (expense) were $2.2 million and ($64,000) for the six month period ended
June 30, 2000 and 1999. The expense for the first quarter and first half of 1999
resulted primarily from interest on short-term debt. As a result of the cash
received in our public offering in August 1999 and our follow-on offering in
February 2000, we have net interest income for the three and six month periods
ended June 30, 2000.
INCOME TAXES
No provision for federal and state income taxes has been recorded to
date because we incurred net operating losses from inception through June 30,
2000. As of June 30, 2000, we had approximately $50.1 million of net operating
loss carryforwards for federal income tax purposes, expiring in 2011 through
2020. These losses are available to offset future taxable income. Given our
limited operating history, losses incurred to date and the difficulty in
accurately forecasting our future results, we do not believe that the
realization of the related deferred income tax assets meets the criteria
required by generally accepted accounting principles and, accordingly, no
deferred tax asset has been recorded.
LIQUIDITY AND CAPITAL RESOURCES
In February and March, 2000 we completed our follow-on offering of common
stock and issued an additional 4,695,595 shares at $23 per share. The net
proceeds from this offering were approximately $101.5 million, net of
underwriting discounts, commissions and other offering costs.
As of June 30, 2000, we had cash and cash equivalents of $60.2 million,
representing an increase of $41.9 million from cash and cash equivalents held as
of December 31, 1999. Our working capital at June 30, 2000 was $65.1 million,
compared to $18.1 million at December 31, 1999.
Net cash used in operating activities was $15.9 million and $4.2 million
for the six month periods ended June 30, 2000 and 1999, respectively. The
operating cash outflows were primarily attributable to significant expenditures
on product development, sales and marketing and general and administrative
expenses, all of which led to operating losses. The cash outflows resulting from
operating losses and increases in accounts receivable were partially offset by
increases in current liabilities, including trade payables.
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Net cash used in investing activities was $36.4 million and $6.2 million
for the six month periods ended June 30, 2000 and 1999, respectively, and
consisted primarily of acquisitions described elsewhere and capital
expenditures, including equipment.
Net cash provided by financing activities was $94.3 million for the six
month period ended June 30, 2000 and consisted primarily of $101.5 million in
net proceeds from the issuance of common stock in our follow-on offering. Net
cash provided by financing activities was $26.1 million for the six month period
ended June 30, 1999 and was primarily from the issuance of convertible preferred
stock and borrowings pursuant to our bank credit facilities.
We anticipate continued capital expenditures and lease commitments
consistent with anticipated growth in operations, infrastructure and personnel,
including growth associated with product and service offerings, geographic
expansion and integration of any new acquired businesses. We may increase our
operating expenses which will consume a material amount of our cash resources;
however, we believe that our existing cash and cash equivalents together with
available credit facilities, will be sufficient to meet our anticipated cash
needs for working capital and capital expenditures for at least the next 12
months. However, our future capital requirements will depend on many factors
that are difficult to predict, including the size, timing and structure of any
acquisitions that we complete, our rate of revenue growth, our operating losses,
the cost of obtaining new customers and technical capabilities, and the cost of
upgrading and maintaining our network infrastructure and other systems. We have
no commitments for additional financing, and we may experience difficulty in
obtaining additional funding on favorable terms, if at all. Any difficulty in
obtaining additional financial resources could force us to curtail our
operations or prevent us from pursuing our growth strategy. Any future funding
may dilute the ownership of our existing shareholders.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARD
In December 1999, SEC issued SAB 101, "Revenue Recognition", which provides
guidance on the recognition, presentation and disclosures of revenue in
financial statements filed with the SEC. SAB 101 outlines the basic criteria
that must be met to recognize revenue and provides guidance for disclosures
related to revenue recognition policies. Management believes that the impact of
SAB101 will have no material effect on the financial position and results of
operations of the Company.
In March 2000, FASB issued FIN 44, "Accounting for Certain Transactions
Involving Stock Compensation, an Interpretation of APB Opinion No. 25". FIN 44
clarifies the application of Opinion 25 for certain issues such as the
definition of "employee", criteria for determining noncompensatory plan, as well
as accounting for modification to fixed stock options and exchange of stock
compensation awards in a business combination. FIN 44 became effective on July
1, 2000. Management believes that the impact of FIN 44 will have no material
effect on the financial position and results of operations of the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to financial market risks, including changes in interest
rates. We typically do not attempt to reduce or eliminate our market exposures
on our investment securities because the majority of our investments are cash
and cash equivalents. We do not have any derivative instruments.
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The fair value of our investment portfolio or related income would not be
significantly impacted by either a 100 basis point increase or decrease in
interest rates due mainly to the short-term nature of the major portion of our
investment portfolio.
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PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On May 30, 2000, Markzware, a California corporation, filed a lawsuit in
federal court against Creativepro.com, Inc., a wholly owned subsidiary of
ImageX.com alleging patent infringement. The complaint seeks actual, statutory
and injunctive relief. Although Creativepro.com, Inc disputes each and every
allegation of wrongdoing in this complaint and is aggressively defending itself
in this action, there can be no assurance that it will prevail in this lawsuit.
From time to time, ImageX.com and its affiliate companies are subject to other
legal proceedings and claims in the ordinary course of business. The Company
currently is not aware of any such legal proceedings or claims that it believes
will have, individually or in the aggregate, a material adverse effect on its
business, prospects, financial condition and operating results.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) Recent Sales of Unregistered Securities
On June 21, 2000, the Company acquired Creativepro.com, Inc. in exchange
for the issuance of 3,541,137 shares of common stock and $11.5 million cash.
Options and warrants to purchase Creativepro.com common stock were assumed by
the Company and converted into options and warrants to purchase a total of
approximately 765,941 shares of Company common stock on the same vesting terms
and on substantially the same other terms and conditions of Creativepro's stock
option plan and warrants. No underwriters were used and the recipients of the
Company's Common Stock were the shareholders of the acquired company. The shares
were not registered under the Securities Act pursuant to the exemption set forth
in Section 3(a)(10) thereof.
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On June 27, 2000, the Company acquired Howard Press Limited Partnership in
exchange for the issuance of 212,623 shares of Company Common Stock and $12.6
million cash. No underwriters were used and the recipients of the Company's
Common Stock were the partners of the acquired partnership. The shares were not
registered under the Securities Act pursuant to the exemption set forth in
Section 4(2) thereof.
(d) Use of Proceeds
During February 2000, our registration statement on Form S-1/A, file number
333-94639, became effective. The offering date was February 11, 2000. The
offering has terminated as a result of all of the shares offered being sold. The
managing underwriters were Chase H&Q, Bank of America Securities LLC, Prudential
Volpe Technology and SG Cowen. The offering consisted of 5,750,000 shares of our
common stock, including 750,000 shares of common stock pursuant to the exercise
of the underwriter's over-allotment option. Of these shares 1,054,405 shares
were sold on behalf of existing shareholders. The aggregate price of the shares
offered and sold for the Company was $108 million. After accounting for
approximately $5.6 million in underwriting discounts and commissions and
$912,000 in other expenses, we received proceeds of $101.5 million.
None of the net offering proceeds were paid, and none of the follow-on
offering expenses related to payments, directly or indirectly, to directors,
officers or general partners of ImageX.com or their associates, persons owning
10% or more of any class of our securities, or affiliates of ImageX.com.
Included in other expenses were costs related to the 1,054,405 shares sold for
shareholders of ImageX.com.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual stockholders' meeting held on May 2, 2000, the following
proposals were adopted by the margin indicated:
1. To elect eight directors to our board of directors to serve for terms
described in the proxy statement filed on March 22, 2000.
<TABLE>
<CAPTION>
NOMINEE SHARES SHARES
FOR WITHHELD
-------------------------------------------------------------------------------
<S> <C> <C>
John E. Ardell 17,148,840 19,782
Garrett P. Gruener 17,149,840 18,782
F. Joseph Verschueren 17,149,840 18,782
Elwood D. Howse, Jr. 17,149,840 18,782
Bernee D. L. Strom 17,149,840 18,782
Richard P. Begert 17,149,840 18,782
Wayne M. Perry 17,150,140 18,482
Richard R. Sonstelie 17,149,840 18,782
-------------------------------------------------------------------------------
</TABLE>
2. To approve of an amendment increasing the number of shares of common stock
reserved for issuance under our 1996 Amended and Restated Stock Incentive
Compensation Plan and qualifying it for exemption under Section 162(m) of
the Internal Revenue Code.
Shares Voting:
------------------
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For 12,586,801
Against 1,240,253
Abstain 18,586
Broker Non-Votes 3,325,690
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.1* Amended and Restated 1996 Stock Incentive Compensation Plan
*Incorporated by reference to Exhibit 99.1 to the Company's
Registration Statement on Form S-8 (No. 333-39868) filed June 22,
2000.
10.1* Amended and Restated Extensis Corporation 1994 Stock Incentive Plan
*Incorporated by reference to Exhibit 99.1 to the Company's
Registration Statement on Form S-8 (No. 333-39864) filed June 22,
2000.
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K
We filed an amendment to our Current Report on Form 8-K dated December 22,
1999 relating to our completion of the acquisition of 100% of PrintBid.com,
Inc., an Oregon corporation and providing certain financial information, which
information was impracticable to provide at the time ImageX.com filed the
Current Report on Form 8-K dated December 22, 1999.
We filed a Current Report on Form 8-K on February 7, 2000 announcing our
31-day post-merger combined financial results following our business combination
with PrintBid.com, Inc., pursuant to the U.S. Securities and Exchange Commission
(SEC) regulations (Accounting Staff Release No. 135, as amended by Staff
Accounting Bulletins Nos. 65 and 76) in order for affiliates to be able to sell
their shares in our public offering.
We filed a Current Report on Form 8-K on July 5, 2000 under item 2 and 7
announcing our acquisition of Creativepro.com, Inc., an Oregon corporation.
We filed a Current Report on Form 8-K on July 12, 2000 under item 2 and 7
announcing our acquisition of Howard Press Limited Partnership, a Delaware
Limited Partnership.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IMAGEX.COM, INC.
(Registrant)
Date: August 10, 2000 By /s/ Robin L. Krueger
-------------------------------
Robin L. Krueger
Chief Financial Officer
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