<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
Commission file number: 0-29733
IPRINT.COM, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 77-0436465
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
1450 ODDSTAD DRIVE
REDWOOD CITY, CA 94063
(Address of principal executive offices)
Registrant's telephone number, including area code: (650) 298-8500
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 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 at least the past 90 days. Yes X No __
As of October 31, 2000, 30,060,064 shares of the Registrant's common stock were
outstanding, at $0.001 par value.
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IPRINT.COM, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 30, 2000
TABLE OF CONTENTS
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Page
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Condensed Balance Sheets at September 30, 2000 and December 31,
1999..........................................................................................3
Condensed Statements of Operations for the three months and nine months ended
September 30, 2000 and 1999...................................................................4
Condensed Statements of Cash Flows for the nine months ended September 30, 2000 and
1999..........................................................................................5
Notes to Condensed Financial Statements.......................................................6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................................................10
Item 3. Quantitative and Qualitative Disclosures About Market Risks..................................17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................................17
Item 2. Changes in Securities and Use of Proceeds....................................................17
Item 3. Default Upon Senior Securities...............................................................17
Item 4. Submission of Matters to Vote of Security Holders............................................18
Item 5. Other Information............................................................................18
Item 6. Exhibits and Reports on Form 8-K.............................................................18
Exhibits................................................................................18
Reports on Form 8-K.....................................................................18
SIGNATURE ............................................................................................19
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IPRINT.COM, INC.
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
----------------- -----------------
(UNAUDITED) (AUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 20,204 $ 15,080
Short-term investments 11,907 -
Restricted cash 100 -
Accounts and other receivables, net 2,828 255
Prepaid expenses and other current assets 1,848 892
----------------- -----------------
Total current assets 36,887 16,227
Property and equipment, net 4,449 2,136
Deposits and other assets 775 -
----------------- -----------------
$ 42,111 $ 18,363
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,513 $ 935
Accrued and other current liabilities 3,520 2,121
Current portion of bank borrowings and capital lease 196 96
----------------- -----------------
Total current liabilities 6,229 3,152
Non-current portion of loan and lease 14 119
Redeemable convertible preferred stock - 30,793
Stockholders' equity:
Common stock and additional paid-in capital 83,877 4,080
Notes receivable from stockholder (655) (655)
Deferred compensation, net (2,691) (3,239)
Accumulated deficit (44,654) (15,887)
Accumulated other comprehensive income (loss) (9) -
----------------- -----------------
Total stockholders' equity 35,868 (15,701)
----------------- -----------------
$ 42,111 $ 18,363
================= =================
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS.
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IPRINT.COM, INC.
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- --------------------------------
2000 1999 2000 1999
------------------------------- --------------------------------
(Unaudited) (Unaudited) (Unaudited) (Audited)
<S> <C> <C> <C> <C>
Revenues:
Printed products $ 4,728 $ 969 $ 11,905 $ 1,698
Other 227 37 631 61
--------------- --------------- ---------------- --------------
Total revenues 4,955 1,006 12,536 1,759
Cost of sales:
Printed products 3,437 692 8,936 1,185
Other 5 17 37 20
--------------- --------------- ---------------- --------------
Total cost of sales 3,442 709 8,973 1,205
Operating expenses:
Research and development (net of stock-based
compensation expense of $105 and $34 for the
three months ended September 30, 2000 and 1999, and
$341 and $65 for the nine months ended September 30,
2000 and 1999) 1,418 972 4,895 2,204
Sales and marketing (net of stock-based
compensation expense of $180 and $59 for the three
months ended September 30, 2000 and 1999, and $585
and $111 for the nine months ended September 30,
2000 and 1999) 5,979 2,094 21,829 3,636
General and administrative (net of stock-based
compensation expense of $215 and $71 for the
three months ended September 30, 2000 and 1999,
and $723 and $133 for the nine months ended
September 30, 2000 and 1999) 1,697 606 5,596 1,199
Amortization of deferred compensation 500 164 1,649 309
--------------- --------------- ---------------- --------------
Total operating cost and expenses 9,594 3,836 33,969 7,348
Other income, net 719 38 1,639 129
--------------- --------------- ---------------- --------------
Net loss (7,362) (3,501) (28,767) (6,665)
Forgiveness of mandatory redemption right of
redeemable convertible preferred stock - - - 470
--------------- --------------- ---------------- --------------
Net loss attributable to common stock $ (7,362) $ (3,501) $ (28,767) $ (6,195)
=============== =============== ================ ==============
Basic and diluted net loss per share $ (0.25) $ (0.47) $ (1.17) $ (0.86)
=============== =============== ================ ==============
Shares used to compute basic and diluted net loss per
share 30,034 7,386 24,606 7,169
=============== =============== ================ ==============
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS.
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IPRINT.COM, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------------
2000 1999
--------------- ----------------
(Unaudited) (Audited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (28,767) $ (6,665)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization 1,504 123
Amortization of deferred compensation 1,624 309
Maintenance and training expense related to software licensing - 62
Interest and marketing expense related to issuance of warrants - 35
Changes in assets and liabilities:
Accounts receivable (2,573) (89)
Current and other long-term assets (1,331) (297)
Accounts payable 1,578 892
Accrued liabilities 1,399 603
--------------- ----------------
Net cash used in operating activities (26,566) (5,027)
--------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments (11,916) -
Capital expenditures (3,589) (918)
--------------- ----------------
Net cash used in investing activities (15,505) (918)
--------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (payments) from bank loans (5) 199
Repayment of financing arrangement - (184)
Proceeds from issuance of preferred and common stock, net of issuance costs 47,200 19,638
--------------- ----------------
Net cash provided by financing activities 47,195 19,653
--------------- ----------------
Net change in cash and cash equivalents 5,124 13,708
Cash and cash equivalents at beginning of period 15,080 299
--------------- ----------------
Cash and cash equivalents at end of period $ 20,204 $ 14,007
=============== ================
SUPPLEMENTARY INFORMATION:
Interest paid $ 14 $ 29
FINANCING ACTIVITY:
Forgiveness of accretion of redeemable convertible preferred stock $ - $ 470
Deferred compensation related to stock options $ 1,086 $ -
Receivable from redeemable convertible preferred stock $ - $ 8,000
Software acquired through a financing arrangement $ - $ 169
Conversion of redeemable preferred stock into common stock $ 30,793 $ -
Valuation of common stock warrants $ 728 $ -
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS.
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IPRINT.COM, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements of iPrint.com, inc.
("iPrint" or the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information and pursuant to
the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
such financial statements do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the Company's opinion, all adjustments, consisting of normal
recurring accrual adjustments, considered necessary for a fair presentation have
been included. Operating results for the three and nine month periods ended
September 30, 2000 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2000.
These financial statements and notes should be read in conjunction with the
audited financial statements and notes to those financial statements for the
year ended December 31, 1999 included in our Registration Statement on Form S-1
(Registration No. 333-91841 dated March 7, 2000).
2. NET LOSS PER SHARE
The following table presents the calculation of basic and diluted net loss per
common share.
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------------- -------------------------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 2000 1999 2000 1999
--------------- --------------- --------------- ---------------
NUMERATOR:
<S> <C> <C> <C> <C>
Net loss $ (7,362) $ (3,501) $ (28,767) $ (6,665)
Preferred stock-forgiveness of mandatory redemption - - - 470
--------------- --------------- --------------- ---------------
Numerator for basic earnings per share - loss
attributable to common stockholders (7,362) (3,501) (28,767) (6,195)
DENOMINATOR:
Denominator for basic and diluted earnings per share -
weighted average shares 30,034 7,386 24,606 7,169
Basic and diluted net loss per share $ (0.25) $ (0.47) $ (1.17) $ (0.86)
=============== =============== =============== ===============
</TABLE>
The computation of basic and diluted earnings per share does not include options
to purchase 2,114,975 shares of common stock at exercise prices ranging from
$0.01 to $15.688 and warrants to purchase 172,500 shares of common stock at
exercise prices ranging from $0.80 to $16.925 as their effect would be
antidilutive.
3. COMPREHENSIVE INCOME
Statement of Financial Accounting Standards ("SFAS") No. 130 REPORTING
COMPREHENSIVE INCOME, establishes standards of reporting and display of
comprehensive income and its components of
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net income and "Other Comprehensive Income." "Other Comprehensive Income" refers
to revenues, expenses, gains and losses that are not included in net income but
rather are recorded directly in stockholders' equity.
The components of comprehensive (loss) for the three and nine month periods
ended September 30, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
Three months ended September Nine months ended September
30, 30,
------------------------------- -------------------------------
(IN THOUSANDS) 2000 1999 2000 1999
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net loss $(7,362) $(3,501) $(28,767) $(6,665)
Unrealized gains (loss) on securities (9) - (9) -
Foreign currency translation adjustment - - - -
=============== =============== =============== ===============
Comprehensive income (loss) $(7,371) $(3,501) $(28,776) $(6,665)
=============== =============== =============== ===============
</TABLE>
Accumulated other comprehensive income (loss) at September 30, 2000 consisted of
unrealized (loss) on securities of ($9,000). There were no unrealized gains
(loss) transactions for the same period in 1999.
4. DEFERRED STOCK-BASED COMPENSATION
The Company uses the intrinsic value method of accounting for its employee
stock-based compensation plans. Accordingly, no compensation cost is recognized
for any of its stock options when the exercise price of each option equals or
exceeds the fair value of the underlying common stock as of the grant date for
each stock option. With respect to the stock options granted since inception
through September 30, 2000, the Company recorded deferred stock-based
compensation of $5.0 million for the difference at the grant date between the
exercise price and the fair value of the common stock underlying the options.
This amount is being amortized in accordance with Financial Accounting Standards
Board (FASB) Interpretation No. 28 over the vesting period of the individual
options, generally 4 years. Amortization of deferred compensation for the three
and nine month periods ended September 30, 2000 were $500,000 and $1.6 million
compared to $164,000 and $309,000 for the same periods in 1999.
5. INITIAL PUBLIC OFFERING
During the first quarter of 2000, the Company completed the initial public
offering of its common stock. On March 8, 2000, the Company sold 4,500,000
shares and on March 16, 2000, the Company sold an additional 675,000 shares in
connection with the exercise of the underwriters' over-allotment option, for a
total of 5,175,000 shares of common stock registered under the Registration
Statement on Form S-1 (No. 333-91841). The Company received $48.1 million in
cash, net of underwriting discounts and commissions. The net proceeds are
predominately held in commercial paper, government agency securities and money
market funds. Upon the closing of the offering, all of the Company's preferred
stock automatically converted into an aggregate of 16,070,581 shares of common
stock.
6. BARTER TRANSACTIONS
For the three and nine month periods ended September 30, 2000, the Company had
advertising barter transactions whereby its advertisements were placed on
co-labeled third parties' websites in exchange for certain of its products
offered to customers of the co-labeled third parties. The Company accounts for
barter transactions in accordance with Emerging Issues Task Force ("EITF")
99-17, "Accounting for Advertising Barter Transactions." Barter transactions are
recorded at the fair value of goods provided or advertising services received,
whichever is more readily determinable in the circumstances and only if there is
verifiable objective evidence provided by sufficient cash transactions within
six months
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preceding the barter transactions. Revenues from barter transactions for the
three and nine month periods ended September 30, 2000 amounted to $125,000 and
$466,000 compared to $95,000 and $175,000 for the same periods in 1999.
7. ADVERTISING AND PROMOTION AGREEMENT
On April 6, 2000, iPrint entered into a fifteen month agreement with Yahoo!,
a global Internet communications, commerce and media company, to include
iPrint.com as a featured merchant in Yahoo!'s Print Center. iPrint has
recorded amortization expense of $2.9 million for the nine months ended
September 30, 2000 related to this agreement. Payments to Yahoo! under this
agreement that were due on or prior to September 30, 2000, as previously
disclosed in the Company's Form 10-Q for the quarter ended June 30, 2000 have
been made.
On November 13, 2000, iPrint and Yahoo! agreed to amend the original
agreement to provide for its termination as of December 31, 2000. Under this
amendment a final payment to Yahoo! of $133,000 will occur in the fourth
quarter of 2000.
8. CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash and cash equivalents,
short-term investments and accounts receivable. The Company invests its excess
cash in U.S. government securities and commercial paper. These investments
typically bear minimal risk. This diversification of risk is consistent with the
Company's policy to ensure safety of principal.
The Company maintains cash and cash equivalents and short-term investments with
a major financial institution in the United States. The Company has not
experienced any losses on its deposits of cash and cash equivalents.
The Company sells a variety of printed products to end user customers. The
products and services are available to our customers through the following
channels: iPrint.com website, specialized print services, iPrint.com marketing
relationships and co-labeled websites, and private-label websites. One customer
accounted for 14% of total revenue for the three month period ended September
30, 2000 and another customer accounted for 10% of total revenue for the nine
month period ended September 30, 2000. The loss of a significant customer or a
significant reduction in such a customer's orders could have an adverse effect
on our sales.
9. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133 "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards requiring that every derivative
instrument be recorded on the balance sheet as either an asset or liability
measured at its fair value. SFAS No. 133 is effective for fiscal years beginning
after June 30, 2000. Because the Company does not currently hold any derivative
instruments and does not engage in hedging activities, management does not
believe that the adoption of SFAS No. 133 will have a material impact on its
financial position or results of operations.
-8-
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In December 1999, the SEC issued Staff Accounting Bulletin 101, or SAB 101,
"Revenue Recognition," which provides guidance on the recognition, presentation,
and disclosure 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 disclosure related to revenue recognition policies. The Company has
adopted SAB 101 in the second quarter of 2000 and does not expect the adoption
of SAB 101 to have a material effect on its financial position, results of
operations or cash flows.
In March 2000, the FASB issued 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 (a) the
definition of an employee for purposes of applying Opinion 25, (b) the criteria
for determining whether a plan qualifies as a noncompensatory plan, (c) the
accounting consequence of various modifications to the terms of a previously
fixed stock option or award and (d) the accounting for an exchange of stock
compensation awards in a business combination. FIN 44 is effective July 1, 2000
but certain conclusions cover specific events that occur after either December
15, 1998 or January 12, 2000. Management believes that the impact of FIN 44 will
not have a material effect on the financial position or results of operations of
the Company.
10. LIQUIDITY AND FINANCIAL VIABILITY
In the course of its growth and development activities, the Company has
sustained continuing operating losses. Future capital uses and requirements
depend on numerous factors, including growth associated with product and service
offerings, potential geographic expansion, the size, timing and structure of any
acquisitions that the Company may complete, its rate of revenue growth, its
operating losses, the cost of obtaining new customers and technical capabilities
and the cost of upgrading and maintaining its network infrastructure and other
systems. Such capital uses and requirements may increase in future periods.
While the Company has developed an operating plan that it believes may enable
the business to operate without securing additional financing, its inability to
execute to this plan may require the Company to raise additional capital to fund
its operations prior to reaching profitability through equity or debt financings
or from other sources. The inability to obtain additional financing, on
reasonable terms or at all, may require the Company to limit the marketing of
its products, license to third parties the rights to commercialize products or
technologies that it would otherwise seek to develop and market itself, or
delay, scale back or eliminate some or all of its research and product
development programs. Any of these alternatives would hurt the Company's
operations and may cause the price of its stock to fall.
As part of its business strategy, the Company assesses opportunities to enter
joint ventures; to acquire or sell businesses, products or technologies; and to
engage in other like transactions.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF OUR FINANCIAL CONDITION AND RESULTS OF
OPERATIONS SHOULD BE READ IN CONJUNCTION WITH OUR CONDENSED FINANCIAL STATEMENTS
AND RELATED NOTES INCLUDED ELSEWHERE IN THIS REPORT, AND IN CONJUNCTION WITH THE
CORRESPONDING DISCUSSION INCLUDED IN OUR FINAL PROSPECTUS IN CONNECTION WITH OUR
INITIAL PUBLIC OFFERING. IN ADDITION TO HISTORICAL INFORMATION, THIS DISCUSSION
CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES, IN PARTICULAR RELATING TO OUR EXPECTATIONS REGARDING OUR FUTURE
OPERATING EXPENSES AND CAPITAL REQUIREMENTS. OUR ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE ANTICIPATED BY THESE FORWARD-LOOKING STATEMENTS DUE TO
FACTORS, INCLUDING BUT NOT LIMITED TO, THOSE SET FORTH OR INCORPORATED BY
REFERENCE UNDER "FACTORS THAT MAY AFFECT FUTURE RESULTS AND MARKET PRICE OF
STOCK" AND ELSEWHERE IN THIS REPORT.
OVERVIEW
We are an online provider of print and private-labeled print services focused on
the business market. Our online print shops offer customers a one-stop shop for
addressing their printing needs.
Since our inception, we have incurred significant net losses primarily as a
result of costs associated with developing our websites and our marketing
efforts. From inception through September 30, 2000, we accumulated net losses of
$44.7 million. As we seek to expand our business, our operating expenses may
increase as a result of financial commitments related to enhancements to our
iPrint.com and related websites, the development of additional marketing
channels, expanded advertising and promotional campaigns, relationships with
destination websites to increase traffic to our website and other capital
expenditures. We expect that we will incur losses and generate negative cash
flow from operations through the end of next year. Our ability to achieve
profitability depends upon our ability to substantially increase our sales,
increase our gross margins, and reduce our operating expenses as a percentage of
revenue. Because we are an Internet company engaged in electronic commerce, our
business is subject to significant changes in technology and marketing
techniques. In view of our limited operating history, we believe that
period-to-period comparisons of our operating results, including our operating
expenses as a percentage of sales, are not necessarily meaningful and should not
be relied upon as an indication of our future performance.
We generate revenues from the sale of a variety of printed products to end user
customers. Our products and services are available to our customers through the
following channels:
- iPrint.com website, a self-service print shop where customers can order
a wide array of short-run printed products.
- Specialized print services, offering unique, project-oriented print
jobs that vary in quantity from our existing website or are not offered
in our self-service print shops.
- iPrint.com marketing relationships and co-labeled websites that provide
our online print services to a variety of online organizations. The
co-labeled websites promote the iPrint.com brand and the co-labeled
party's brand.
- Private-labeled websites that enable commercial printers and office
supply chains to provide their customers with our online print
services. These websites run on our web servers and utilize our
technology, but each one is accessed from within the private-labeled
party's website and displays only the private-labeled party's brand.
We do not recognize revenues until the product has shipped, collection of the
receivable is probable, and our commercial print vendors have fulfilled all of
our contractual obligations to the customer. We take title to all products that
we instruct our commercial print vendors to produce. We believe that purchases
by businesses account for a majority of our revenues and purchases by consumers
account for a significant portion of our revenues.
For the three and nine months ended September 30, 2000, approximately 14% and
16% of our revenues were derived from shipping and handling fees compared to 22%
and 22% of our revenues for the same periods in 1999. We record sales net of
discounts. We have recorded the cost of promotional products that we give away
for free as a sales and marketing expense. A portion of our revenue is generated
through barter transactions with participants in our co-labeled program in which
we sell printed products
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in exchange for online advertising. Barter transaction revenues and related
advertising costs are recorded at the fair value of the goods or services
provided or received, whichever is more readily determinable in the
circumstances. Revenues from barter transactions are included in revenues and
the associated advertising expenses are recorded as sales and marketing
expense. The cost of printed products sold in barter transactions is included
in cost of sales. We derived $125,000 and $466,000, which represented
approximately 3% and 4% of our revenues, from barter transactions for the
three and nine months ended September 30, 2000. For the three and nine months
ended September 30, 1999, we derived $95,000 and $175,000 from barter
transactions, which represented 9% and 10% of our revenues. Substantially all
of our revenues are generated from sources within the United States and all
sales to date have been in United States dollars.
RESULTS OF OPERATIONS
The following table sets forth certain statements of operations data as a
percentage of revenues for the periods indicated.
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUES: THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of sales 69.5 70.5 71.6 68.5
------------ ------------ ------------ ------------
Gross margins 30.5 29.5 28.4 31.5
Operating expenses:
Research and development 28.6 96.6 39.0 125.3
Sales and marketing 120.7 208.2 174.1 206.7
General and administrative 34.2 60.2 44.6 68.2
Amortization of deferred
compensation 10.1 16.3 13.2 17.6
------------ ------------ ------------ ------------
Total operating expenses 193.6 381.3 270.9 417.8
Loss from operations (163.1) (351.8) (242.5) (386.3)
Other income (expense), net 14.5 3.8 13.0 7.3
------------ ------------ ------------ ------------
Net loss (148.6)% (348.0)% (229.5)% (379.0)%
</TABLE>
REVENUES
We derive our revenues from the sales of various printed products and related
services. Revenues were $5.0 million and $1.0 million for the three months ended
September 30, 2000 and 1999, representing an increase of $4.0 million, or 400%,
in 2000 over the comparable period in 1999. Revenues for the nine months ended
September 30, 2000 were $12.5 million compared to $1.8 million for the same
period in 1999, representing an increase of $10.7 million, or 594%. The increase
in revenues was due to the Company's growth in its specialized print services,
as well as increased customer activity on our iPrint.com and co-labeled
websites.
The following table sets forth percentage of revenues by channel for the periods
indicated.
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUES BY CHANNEL: THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
2000 1999 2000 1999
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
iPrint.com website 28% 55% 41% 56%
Marketing relationship and co-labeled
websites 14 13 15 20
Private labeled websites 3 25 3 20
Specialized print services 55 7 41 4
---------- ---------------------- -----------
Total 100% 100% 100% 100%
</TABLE>
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COST OF SALES
Cost of sales increased to $3.4 million and $9.0 million for the three and nine
months ended September 30, 2000 from $0.7 million and $1.2 million for the same
periods in 1999. The increase was primarily due to increased revenue through all
our distribution channels.
GROSS MARGINS
Gross margins were 30.5% for the three months ended September 30, 2000, as
compared to 29.5% for the same period in 1999, representing an increase of 1.0%.
For the nine months ended September 30, 2000 and 1999, gross margins were 28.4%
and 31.5%, representing a decrease of 3.1%. The increase in gross margin for
quarter ended September 30, 2000 as compared to the same period in 1999 was the
result of higher margins through our iPrint.com website and marketing
relationship and co-labeled websites, which accounted for 6.4% of this increase
and revenue from web advertising sales and other business development deals,
which accounted for 3.1% of this increase. These increases were offset by a
shift in product mix to lower margin specialized print services revenue. The
decrease in gross margin for the nine month period ended September 30, 2000
compared to the same period in 1999 was primarily due to a shift in product mix
to lower margin specialized print services revenue, which accounted for 6.4% of
the decrease. This decrease was offset by an increase in web advertising and
other business development deals.
RESEARCH AND DEVELOPMENT
Research and development expenses were $1.4 million for the three months ended
September 30, 2000, as compared to $972,000 for the same period in 1999,
representing an increase of $446,000 or 46%. For the nine months ended September
30, 2000 and 1999, research and development expenses were $4.9 million and $2.2
million, representing an increase of $2.7 million or 123%. The increases in
research and development expenses for the comparable three and nine month
periods in 2000 were primarily attributable to increases in the number of
research and development personnel and in consultant and outside contractor
costs as we increased the functionality of our iPrint.com and related websites
and broadened our product offerings. The increases were also due to increased
overhead support charges. We believe that continued investment in research and
development is critical to attaining our strategic objectives. As a result, we
expect research and development expenses to increase on an absolute dollar basis
for the remainder of 2000.
SALES AND MARKETING
Sales and marketing expenses were $6.0 million and $2.1 million for the three
months ended September 30, 2000 and 1999, representing an increase of $3.9
million, or 186%. During the nine months ended September 30, 2000, sales and
marketing expenses were $21.8 million, representing an increase of 506% over
sales and marketing expenses of $3.6 million for the same period in 1999. The
increase in sales and marketing expenses for the quarter ended September 30,
2000 as compared to the same period in 1999 was primarily the result of a $2.6
million increase in advertising and promotional spending and $292,000 for
promotional products given away for free. Also contributing to this increase was
growth in our direct marketing, business development and customer support
staffs, with personnel related costs increasing by $715,000. The increase in
sales and marketing expenses for the nine month period ended September 30, 2000
as compared to the same period in 1999 was primarily the result of an $11.0
million increase in advertising and promotional spending and $1.2 million for
promotional products given away for free. Also contributing to this increase was
growth in our direct marketing, business development and customer support
staffs, with personnel related costs increasing by $3.8 million. We expect our
sales and marketing expenses to increase on an absolute dollar basis for the
remainder of 2000.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the three months ended September 30,
2000 increased to $1.7 million, or 180%, from $606,000 for the same period in
1999. During the nine months ended September 30, 2000, general and
administrative expenses were $5.6 million, representing an increase of 367% over
general and administrative expenses of $1.2 million for the same period in 1999.
The increase in general and administrative expenses for the comparable three and
nine month periods were primarily attributable to an increase in the number of
finance, accounting, legal, human resources, plant management, web
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operations and information technology personnel, an increase in fees paid to
outside professional service providers and increased facility costs. We believe
general and administrative expenses will increase modestly on an absolute dollar
basis for the remainder of 2000.
AMORTIZATION OF STOCK-BASED COMPENSATION
During the three and nine months ended September 30, 2000, amortization of
stock-based compensation increased to $500,000 and $1.6 million from $164,000
and $309,000 for the same periods in 1999. Deferred stock-based compensation
primarily represents the difference between the exercise price and the deemed
fair value of our common stock for accounting purposes on the date certain stock
options were granted. This amount is included as a component of stockholders'
equity and is being amortized on an accelerated basis by charges to operations
over the vesting period of the options, consistent with the method described in
Financial Accounting Standards Board Interpretation No. 28. As of September 30,
2000, we had a remaining balance of $2.7 million of deferred compensation to be
amortized.
OTHER INCOME, NET
Other income, net increased to $719,000 and $1.6 million for the three and nine
months ended September 30, 2000 from $38,000 and $129,000 for the same periods
in 1999. The increases were primarily due to interest income earned from higher
average cash balances as a result of proceeds from our initial public offering
that was completed during March 2000.
NET LOSS
Net loss increased to $7.4 million and $28.8 million for the three and nine
months ended September 30, 2000 from $3.5 million and $6.7 million for the same
periods in 1999. The $3.9 million and $22.0 million increases in net loss were
the result of increased spending in research and development, sales and
marketing, and general and administrative, and increases in the amount of
amortized of deferred compensation, partly offset by higher gross profit and
interest income.
LIQUIDITY AND CAPITAL RESOURCES
Prior to our initial public offering, we funded our operations primarily with
$32.3 million raised through the private sale of our equity securities. On March
8, 2000, we sold 4,500,000 shares of common stock as part of our initial public
offering and completed the offering on March 16, 2000 when we sold an additional
675,000 shares in connection with the exercise of the underwriters'
over-allotment option for a total of 5,175,000 shares of common stock issued and
sold at a price of $10.00 per share. As a result, we received approximately
$48.1 million in cash proceeds, net of underwriting discounts and commissions.
As of September 30, 2000, we had cash, cash equivalents, short-term investments
and restricted cash of $32.2 million. At December 31, 1999 we had a term loan of
$225,000 with Silicon Valley Bank. This loan was completely paid off during the
quarter ended March 31, 2000 and we have no further credit arrangements with
Silicon Valley Bank. We currently have a $2.0 million line of credit with
Imperial Bank that expires on February 16, 2001. As of September 30, 2000, we
had $190,000 in borrowings against this line of credit.
Net cash used in operations for the nine months ended September 30, 2000 was
$27.3 million compared with $5.0 million for the same period in 1999, primarily
the result of net losses of $28.8 million, adjusted for depreciation and
amortization charges. Cash outflow for the nine month ended September 30, 2000
was primarily for operating activities, including growth in our accounts
receivable due to higher specialized print service sales, and increases in
prepaid expenses. Cash usage was partially offset by increases in accounts
payable and accrued liabilities related primarily to higher cost of product
sales.
Net cash used in investing activities was $15.5 million for the nine months
ended September 30, 2000 compared with $918,000 for the same period in 1999.
Cash used in investing activities during this period was related to
short-term investment purchases of $17.3 million and $3.6 million for
purchases of property and equipment.
Net cash provided by financing activities was $47.9 million for the nine months
ended September 30, 2000, compared to $19.7 million for the same period in 1999.
Cash provided by financing activities was primarily from net proceeds of the
initial public offering of our common stock and exercises of stock options.
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On April 6, 2000, iPrint entered into a fifteen month agreement with Yahoo!,
a global Internet communications, commerce and media company, to include
iPrint.com as a featured merchant in Yahoo!'s Print Center. iPrint has
recorded amortization expense of $2.9 million for the nine months ended
September 30, 2000 related to this agreement. Payments to Yahoo! under this
agreement that were due on or prior to September 30, 2000, as previously
disclosed in the Company's Form 10-Q for the quarter ended June 30, 2000 have
been made.
On November 13, 2000, iPrint and Yahoo! agreed to amend the original
agreement to provide for its termination as of December 31, 2000. Under this
amendment a final payment to Yahoo! of $133,000 will occur in the fourth
quarter of 2000.
As of September 30, 2000, we had an aggregate of $4.3 million in future
operating lease obligations of which $1.0 million is to be paid within the next
twelve months. These leases are for 24,100 square feet of office space for our
Redwood City facilities and 23,400 square feet of office space for our Menlo
Park facility. In March 2000, we entered into an agreement with Bohannon
Development Company under which we have leased the facilities in Menlo Park,
California for a term of five years. On June 26, 2000, we entered into an
agreement with a third party whereby we subleased 10,540 square feet of office
space in our Redwood City facility for a term of one year beginning July 1, 2000
with an option to renew for an additional six months. On September 15, 2000, the
sublease agreement was amended to allow for a second option to renew for an
additional six months, a quarterly commitment to purchase printed products from
iPrint, and the reduction of rent under the original sublease agreement. We
expect to generate cash inflow of approximately $1.2 million from the sublease
agreement over the next twelve months assuming the first option to renew is
exercised.
We have developed an operating plan that we believe will accelerate our timeline
to profitability. If we are able to achieve this accelerated timeline, we
believe our existing cash, cash equivalents and short-term investments together
with cash generated from product sales will be sufficient to fund our operating
expenses, debt obligations and capital requirements. In the event that this
timeline is extended, we believe we have sufficient cash to fund our operations
for the next twelve to fifteen months. We may incur an increase in our capital
expenditures and lease commitments consistent with anticipated growth in
operations, infrastructure and personnel, including growth associated with
product and service offerings, potential geographic expansion and integration of
any businesses we may acquire. 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 may 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 currently have no commitments for
additional financing, and we may be unable to obtain 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
stockholders.
As part of its business strategy, the Company assesses opportunities to enter
joint ventures; to acquire or sell businesses, products or technologies; and to
engage in other like transactions.
FACTORS THAT MAY AFFECT FUTURE RESULTS AND MARKET PRICE OF STOCK
In this report and from time to time, we may make forward looking statements
which reflect our current beliefs and estimates with respect to future events
and our strategy, growth plans, and future financial performance and operations.
The words "expect," "anticipate," "believe," "plan" and similar expressions
identify forward-looking statements. These forward-looking statements are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Forward looking statements address matters which are subject
to a number of risks and uncertainties which could cause our actual results to
differ materially from those anticipated by these forward-looking statements,
including the risks and uncertainties set forth under the heading "Risk Factors"
in the final prospectus included in our
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registration statement on Form S-1 (No. 333-91841) on file with the SEC, all of
which are incorporated here by reference, and the following:
OUR QUARTERLY RESULTS ARE DIFFICULT TO PREDICT AND ARE LIKELY TO FLUCTUATE,
WHICH MAY HAVE AN IMPACT ON OUR STOCK PRICE.
Our quarterly revenues, expenses and operating results have varied significantly
in the past and are likely to vary significantly from quarter to quarter in the
future. We have historically competed in the general commercial printing sector,
which is generally characterized by individual orders from customers for
specific printing projects rather than long-term contracts. Continued engagement
for successive jobs depends on the customers' satisfaction with the services
provided. As a result, we cannot predict the number, size and profitability of
printing jobs in a given period. Our operating results may fall below market
analysts' expectations in some future quarters, which could lead to a
significant decline in the market price of our stock. In addition to the risk
factors described elsewhere or incorporated by reference in this report,
quarterly fluctuations may also result from:
- our ability to obtain new customers, retain our existing customers and
increase sales to our existing customers;
- changes in our operating expenses and capital expenditure
requirements, in particular as a result of increased promotional and
advertising expenses and purchases of computer and communications
equipment to support website expansion and increased traffic;
- the decline in price of, or demand for, the printing services we
offer;
- changes in the mix of printing services we sell;
- the timing of customer orders, in particular orders for specialized
print services;
- increased competition; and
- general or industry-specific economic conditions.
Based on all these factors, we believe that our quarterly revenues, expenses and
operating results will be difficult to predict.
WE HAVE A LIMITED OPERATING HISTORY AND ARE SUBJECT TO THE RISKS OF NEW
ENTERPRISES.
We began operations in August 1996 and commercially introduced our
Internet-enabled printing services in January 1997. We have had limited revenues
to date, and our customers have been doing business with us for only a short
time. Our 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 operating results. 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 the establishment of a new business enterprise, particularly in the new and
rapidly evolving markets for Internet products and services. To be successful,
we must, among other things:
- obtain substantial numbers of new customers rapidly and efficiently
through direct marketing and sales efforts, acquisitions and strategic
alliances;
- retain our existing customers and increase sales to these customers;
- decrease spending as a percentage of revenue;
- increase our gross margins;
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- manage our growth effectively, assuming we succeed in expanding our
business;
- anticipate and respond to competitive developments;
- enhance our product and service offerings;
- develop and upgrade our internal control systems;
- identify, attract, retain and motivate qualified personnel; and
- evaluate additional financing alternatives as needed.
WE HAVE A HISTORY OF LOSSES AND EXPECT LOSSES WILL CONTINUE.
We have never been profitable, and we anticipate that we will continue to incur
net losses in future periods. To become profitable, we must significantly
increase our revenues by obtaining new customers and generating additional
revenues from existing customers, control our costs and improve our gross
margins. As of September 30, 2000, we had an accumulated deficit of $44.7
million. Although we have experienced revenue growth in recent periods, our
revenues may not continue at their current level or increase in the future. If
we are unable to rapidly increase our revenues and operating margins, and
decrease our operating expenses, our operating losses may continue to increase
in future periods. Increased competition or other changes in printing industry
economics may also adversely affect our ability to become profitable.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have operated primarily in the United States and all sales to date have been
made in United States dollars. Accordingly, we have not had any material
exposure to foreign currency exchange rates. We have a bank loan that is
sensitive to movement in interest rates. Interest income from our investments is
sensitive to changes in the general level of U.S. interest rates, particularly
since the majority of our investments are in short-term instruments. Due to the
nature of our short-term investments, we have concluded that there is no
material market risk exposure. Therefore, no quantitative tabular disclosures
are required.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Sales of Unregistered Securities.
None
(b) Use of Proceeds.
On March 8, 2000, we completed the initial public offering of our
common stock. The managing underwriters in the offering were Credit Suisse First
Boston, Robertson Stephens, U.S. Bancorp Piper Jaffray, and WR Hambrecht & Co.
The shares of the common stock sold in the offering were registered under the
Securities Act of 1933, as amended, on a Registration Statement on Form S-1 (No.
333-91841). The Securities and Exchange Commission declared the Registration
Statement effective on March 7, 2000.
The offering commenced on March 7, 2000 and closed on March 16, 2000
after we had sold all of the 5,175,000 shares of common stock registered under
the Registration Statement (including 675,000 shares sold in connection with the
exercise of the underwriters' over-allotment option). The initial public
offering price was $10 per share for an aggregate initial public offering of
$51,750,000.
We incurred the following expenses in connection with the offering:
<TABLE>
<S> <C>
Underwriting discounts and commissions $3,622,500
------------------------------------------------------------ -----------------
Other expenses 1,647,652
------------------------------------------------------------ -----------------
Total $5,270,152
------------------------------------------------------------ -----------------
</TABLE>
After deducting the underwriting discounts and commissions and other
offering expenses of $1.6 million, the net proceeds available to iPrint from the
offering were approximately $46.5 million. None of the amounts shown was paid
directly or indirectly to any director, officer, general partner of iPrint or
their associates, persons owning 10 percent or more of any class of equity
securities of iPrint or an affiliate of iPrint.
The net offering proceeds have been used for general corporate
purposes, to provide working capital to develop products, capital expenditures
and to fund key business relationships. Funds that have not been used have been
invested in money market funds, certificate of deposits, corporate bonds and
other investment grade securities. We also may use a portion of the net proceeds
to acquire or invest in businesses, technologies, products or services.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
In October 2000, Talbot Harty, our former Chief Information Officer,
resigned as an employee and officer of iPrint.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
<TABLE>
<S> <C>
2.2* Form of Agreement and Plan of Merger between iPrint, Inc., a California corporation, and
iPrint.com, inc., a Delaware corporation
3.1* Restated Certificate of Incorporation of Registrant
3.2* Bylaws of Registrant
3.4* Form of Certificate of Amendment of Restated Certificate of Incorporation
4.1* Second Amended and Restated Rights Agreement dated September 30, 1999 between the
Registrant and certain stockholders
10.12** Business Park Lease, dated March 7, 2000, between
Bohannon Development Company and iPrint.com (PREVIOUSLY
FILED AS AN EXHIBIT TO THE COMPANY'S REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000)
10.13** Advertising and Promotion Agreement dated April 6, 2000 by and between iPrint.com and Yahoo! Inc.
10.14 Sublease Agreement dated June 26, 2000 by and between iPrint.com and Napster, Inc.
10.15 Amendment to Sublease Agreement dated September 15, 2000 by and between iPrint.com and Napster, Inc.
27.1 Financial Data Schedule (EDGAR - filed version only)
99.0** Risk Factors from the Registrant's 424(b) Prospectus (PREVIOUSLY FILED AS AN EXHIBIT TO THE
COMPANY'S REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000)
</TABLE>
* Incorporated by reference to the corresponding exhibit to our
registration statement on Form S-1 (No. 333-91841)
** Previously filed
(b) Reports on Form 8-K.
We did not file any Reports on Form 8-K during the quarter ended
September 30, 2000.
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SIGNATURE
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.
iPrint.com, inc.
By: /s/ Royal P. Farros
----------------------------------------
Royal P. Farros
President, Chief Executive Officer and
Chairman of the Board of Directors
By: /s/ James P. McCormick
----------------------------------------
James P. McCormick
Chief Operating Officer and
Chief Financial Officer
Date: November 14, 2000
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