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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 JUNE 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 No X
--- ---
As of July 31, 2000, 29,974,492 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 JUNE 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 June 30, 2000 and December 31, 1999......................... 3
Condensed Statements of Operations for the three months and six months ended June 30,
2000 and 1999........................................................................... 4
Condensed Statements of Cash Flows for the six months ended June 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............................. 16
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds............................................... 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>
JUNE 30, DECEMBER 31,
2000 1999
----------------- -----------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 21,752 $ 15,080
Short-term investments 17,304 -
Restricted cash 163 -
Accounts and other receivables, net 1,321 255
Prepaid expenses and other current assets 2,199 892
----------------- -----------------
Total current assets 42,739 16,227
Property and equipment, net 4,792 2,136
Deposits and other assets 886 -
----------------- -----------------
$ 48,417 $ 18,363
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,584 $ 935
Accrued and other current liabilities 2,283 2,061
Current portion of bank borrowings and capital lease 196 96
Software licensing - 60
----------------- -----------------
Total current liabilities 6,063 3,152
Non-current portion of loan and lease 15 119
Redeemable convertible preferred stock - 30,793
Stockholders' equity:
Common stock and additional paid-in capital 83,894 4,080
Notes receivable from stockholder (655) (655)
Deferred compensation, net (3,534) (3,239)
Accumulated deficit (37,292) (15,887)
Accumulated other comprehensive income (loss) (74) -
----------------- -----------------
Total stockholders' equity 42,339 (15,701)
----------------- -----------------
$ 48,417 $ 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)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ ------------------------------
2000 1999 2000 1999
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
Revenues:
Printed products $ 4,318 $ 453 $ 7,177 $ 729
Other 231 14 404 24
-------------- -------------- -------------- --------------
Total revenues 4,549 467 7,581 753
Cost of sales:
Printed products 3,323 306 5,499 493
Other 17 2 32 3
-------------- -------------- -------------- --------------
Total cost of sales 3,340 308 5,531 496
Operating expenses:
Research and development (net of stock-based
compensation expense of $86 and $26 for the three
months ended June 30, 2000 and 1999, and $236 and
$31 for the six months ended June 30, 2000 and 1999) 1,867 677 3,477 1,232
Sales and marketing (net of stock-based
compensation expense of $147 and $45 for the three
months ended June 30, 2000 and 1999, and $405 and
$52 for the six months ended June 30, 2000 and 1999) 7,120 987 15,850 1,542
General and administrative (net of stock-based
compensation expense of $176 and $53 for the three
months ended June 30, 2000 and 1999, and $508 and
$62 for the six months ended June 30, 2000 and 1999) 2,003 310 3,899 593
Amortization of deferred compensation 409 124 1,149 145
-------------- -------------- -------------- --------------
Total operating cost and expenses 11,399 2,098 24,375 3,512
Other income (expense), net 648 72 920 91
-------------- -------------- -------------- --------------
Net loss (9,542) (1,867) (21,405) (3,164)
Forgiveness of mandatory redemption right of
redeemable convertible preferred stock - - - 470
-------------- -------------- -------------- --------------
Net loss attributable to common stock $(9,542) $(1,867) $(21,405) $(2,694)
============== ============== ============== ==============
Basic and diluted net loss per share $ (0.32) $ (0.26) $ (0.98) $ (0.38)
============== ============== ============== ==============
Shares used to calculate net loss per share 29,951 7,081 21,892 7,049
============== ============== ============== ==============
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS.
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IPRINT.COM, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
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<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------------------
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (21,405) $ (2,694)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization 947 63
Amortization of deferred compensation 1,149 124
Changes in assets and liabilities:
Accounts receivable (1,066) (19)
Current and other long-term assets (2,472) 9
Accounts payable 2,649 66
Accrued liabilities 222 102
--------------- ----------------
Net cash used in operating activities (19,976) (2,349)
--------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of short-term investments (17,378) -
Capital expenditures (3,487) (443)
--------------- ----------------
Net cash used in investing activities (20,865) (443)
--------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds (payments) from bank loans (4) 234
Payment of notes payable (60) (43)
Proceeds from issuance of preferred and common stock, net of issuance costs 47,577 7,130
--------------- ----------------
Net cash provided by financing activities 47,513 7,321
--------------- ----------------
Net change in cash and cash equivalents 6,672 4,529
Cash and cash equivalents at beginning of period 15,080 299
--------------- ----------------
Cash and cash equivalents at end of period $ 21,752 $ 4,828
=============== ================
SUPPLEMENTARY INFORMATION:
Interest paid $ 10 $ 17
FINANCING ACTIVITY:
Forgiveness of accretion of redeemable convertible preferred stock $ - $ 470
Deferred compensation related to stock options $ 1,511 $ 847
Conversion of redeemable preferred stock into common stock $ 30,793 $ -
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS.
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IPRINT.COM, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 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 six month periods ended
June 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 Six months ended
June 30, June 30,
------------------------------- -------------------------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 2000 1999 2000 1999
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
NUMERATOR:
Net loss $ (9,542) $ (1,867) $ (21,405) $ (3,164)
Preferred stock-forgiveness of mandatory redemption - - - 470
--------------- --------------- --------------- ---------------
Numerator for basic earnings per share - loss
attributable to common stockholders (9,542) (1,867) (21,405) (2,694)
DENOMINATOR:
Denominator for basic and diluted earnings per share
- weighted average shares 29,951 7,081 21,892 7,049
Basic and diluted net loss per share $(0.32) $(0.26) $(0.98) $(0.38)
=============== =============== =============== ===============
</TABLE>
The computation of basic and diluted earnings per share does not include options
to purchase 2,264,998 shares of common stock at exercise prices ranging from
$0.01 to $15.688 and warrants to purchase 184,500 shares of common stock at
exercise prices ranging from $0.80 to $16.925 as their effect would be
antidilutive.
3. COMPREHENSIVE INCOME
SFAS No. 130 REPORTING COMPREHENSIVE INCOME, establishes standards of reporting
and display of comprehensive income and its components of net income and "Other
Comprehensive Income."
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"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 six-month periods ended
June 30, 2000 and 1999 are as follows:
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<CAPTION>
Three months ended June 30, Six months ended June 30,
------------------------------- -------------------------------
(IN THOUSANDS) 2000 1999 2000 1999
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net loss $(9,542) $(1,867) $(21,405) $(3,164)
Unrealized gains (loss) on securities (74) - (74) -
Foreign currency translation adjustment - - - -
--------------- --------------- --------------- ---------------
Comprehensive income (loss) $(9,616) $(1,867) $(21,479) $(3,164)
=============== =============== =============== ===============
</TABLE>
Accumulated other comprehensive income (loss) at June 30, 2000 consisted of
unrealized (loss) on securities of ($74,000). 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 June 30, 2000, the Company recorded deferred stock-based compensation of
$5.3 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 six
month periods ended June 30, 2000 were $409,000 and $1.1 million compared to
$124,000 and $145,000 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 were
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 six month periods ended June 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 co-labeled third parties. The Company accounts for
barter transactions in accordance with 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 preceding
the barter transactions. Revenues from barter transactions for the three and six
month periods ended June 30, 2000 amounted to $151,000 and $300,000 compared to
$51,000 and $80,000 for the same periods in 1999.
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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. The Print Center
is promoted in Yahoo!'s online properties and allows access to print services
offered on the iPrint.com website. As part of the agreement, iPrint.com
offers free business cards to new registrants of Yahoo!'s email service.
Under the terms of the agreement, iPrint is obligated to pay Yahoo! a fee of
eight million dollars in installments over four fiscal quarters. As of June
30, 2000, iPrint had paid $3.1 million in connection with this agreement. The
remaining $4.9 million is payable as follows: two payments of $1.3 million
each in the third and fourth quarters of 2000, and one payment of $2.3
million in the first quarter of 2001. iPrint has recorded amortization
expense of $1.3 million for the three months ended June 30, 2000 related to
this agreement. The Company also issued Yahoo! a warrant to purchase 75,000
shares of common stock at an exercise price of $16.925 per share with an
expiration date of April 5, 2003.
8. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board 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.
In December 1999, the SEC issued Staff Accounting Bulletin, 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.
9. 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
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financings or from other sources. The inability to obtain additional financing
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.
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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 June 30, 2000, we accumulated net losses of
$37.3 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. 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.
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For the three and six months ended June 30, 2000, approximately 15% and 18%
of our revenues were derived from shipping and handling fees compared to 26%
and 14% 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 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 $151,000 and $300,000,
which represented approximately 3% and 4% of our revenues, from barter
transactions for the three and six months ending June 30, 2000. For the three
and six months ended June 30, 1999, we derived $51,000 and $80,000 from
barter transactions, which represented approximately 11% (for both periods)
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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of sales 73.4 66.0 73.0 65.9
------------ ------------ ------------ ------------
Gross margins 26.6 34.0 27.0 34.1
Operating expenses:
Research and development 41.0 145.0 45.9 163.6
Sales and marketing 156.6 211.2 209.0 204.7
General and administrative 44.0 66.4 51.4 78.8
Amortization of deferred
compensation 9.0 26.6 15.2 19.3
------------ ------------ ------------ ------------
Total operating expenses 250.6 449.2 321.5 466.4
Loss from operations (224.0) (415.2) (294.5) (432.3)
Other income (expense), net 14.2 15.4 12.1 12.1
------------ ------------ ------------ ------------
Net loss (209.8)% (399.8)% (282.4)% (420.2)%
</TABLE>
REVENUES
We derive our revenues from the sales of various printed products and related
services. Revenues were $4.5 million and $0.5 million for the three months
ending June 30, 2000 and 1999, representing an increase of $4.0 million, or
874%, in 2000 over the comparable period in 1999. Revenues for the six months
ended June 30, 2000 were $7.6 million compared to $0.8 million for the same
period in 1999, representing an increase of $6.8 million, or 907%. The growth in
revenues was due to a higher number of orders, which resulted from our
promotional offers and specialized print services, as well as increased customer
activity on our iPrint.com, co-labeled and private-labeled websites.
The following table sets forth percentage of revenues by channel for the periods
indicated.
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<TABLE>
<CAPTION>
PERCENTAGE OF REVENUES BY CHANNEL: THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
2000 1999 2000 1999
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
iPrint.com website 43% 64% 49% 59%
Marketing relationship and co-labeled
websites 13 26 15 29
Private labeled websites 4 10 4 12
Specialized print services 40 - 32 -
---------- ---------- ---------- -----------
Total 100% 100% 100% 100%
</TABLE>
COST OF SALES
Cost of sales increased to $3.3 million and $5.5 million for the three and six
months ending June 30, 2000 from $0.3 million and $0.5 million for the same
periods in 1999. The increase was primarily due to increased orders placed by
customers through all our distribution channels.
GROSS MARGINS
Gross margins were 26.6% for the three months ended June 30, 2000, as compared
to 34.0% for the same period in 1999, representing a decrease of 7.4%. For the
six months ended June 30, 2000 and 1999, gross margins were 27.0% and 34.1%,
representing a decrease of 7.1%. The decrease in gross margins for quarter ended
June 30, 2000 as compared to the same period in 1999 consists primarily of a
shift in product mix to lower margin items which accounted for 1% of this
decrease and increased specialized print services revenue at lower margins than
our other distribution channels which accounted for 8.8% of this decrease. These
decreases were offset by revenue from web advertising sales and other business
development deals which accounted for an increase of 2.4%. The decrease in gross
margins for the six-month period ended June 30, 2000 as compared to the same
period in 1999 consists primarily of a shift in product mix to lower margin
items which accounted for 3.6% of this decrease and increased specialized print
services revenue at lower margins than our other distribution channels which
accounted for 6.4% of this decrease. These decreases were offset by revenue from
web advertising sales and other business development deals which accounted for
an increase of 2.9%.
RESEARCH AND DEVELOPMENT
Research and development expenses were $1.9 million for the three months ended
June 30, 2000, as compared to $677,000 for the same period in 1999, representing
an increase of $1.2 million or 176%. For the six months ended June 30, 2000 and
1999, research and development expenses were $3.5 million and $1.2 million,
representing an increase of $2.3 million or 182%. The increases in research and
development expenses for the comparable three and six-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 $7.1 million and $1.0 million for the three
months ended June 30, 2000 and 1999, representing an increase of $6.1
million, or 621%. During the six months ending June 30, 2000, sales and
marketing expenses were $15.9 million, representing an increase of 928% over
sales and marketing expenses of $1.5 million for the same period in 1999. The
increases in sales and marketing expenses for the quarter ended June 30, 2000
as compared to the same period in 1999 was primarily the result of a $3.2
million increase in advertising and promotional spending and $570,000 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 $1.5 million. The
increases in sales and marketing expenses for the six-month period ended June
30, 2000 as compared to the same period in 1999 was primarily the result of a
$9.0 million increase in advertising
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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 $3.1 million. We expect our sales and marketing
expenses to decrease on an absolute dollar basis for the remainder of 2000.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the three months ended June 30, 2000
increased to $2.0 million , or 546%, from $310,000 for the same period in 1999.
During the six months ended June 30, 2000, general and administrative expenses
were $3.9 million, representing an increase of 558% over general and
administrative expenses of $593,000 for the same period in 1999. The increases
in general and administrative expenses for the comparable three and six-month
periods were primarily attributable to an increase in the number of finance,
accounting, legal, human resources, plant management, web 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 six months ending June 30, 2000, amortization of
stock-based compensation increased to $409,000 and $1.1 million from $124,000
and $145,000 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 June 30, 2000,
we had a remaining balance of $3.5 million of deferred compensation to be
amortized.
OTHER INCOME (EXPENSE), NET
Other income (expense), net increased to $648,000 and $920,000 for the three and
six months ending June 30, 2000 from $72,000 and $91,000 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 $9.5 million and $21.4 million for the three and six
months ending June 30, 2000 from $1.9 million and $2.7 million for the same
periods in 1999. The $7.6 million and $18.7 million increase in net loss were
the result of increased spending in research and development, sales and
marketing, general and administrative, and amortization 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 June 30, 2000, we had cash, cash equivalents, short-term investments and
restricted cash of $39.2 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
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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 June 30, 2000, we had
$190,000 in borrowings against this line of credit.
Net cash used in operations for the six months ending June 30, 2000 was $20.0
million compared with $2.3 million for the same period in 1999, primarily the
result of net losses of $21.4 million, adjusted for depreciation and
amortization charges. Cash outflow for the six month period ended June 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 and deposits. 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 $20.9 million for the period ended
June 30, 2000 compared with $443,000 for the same period in 1999. Cash used in
investing activities during this period was related to short-term investment
purchases of $17.4 million and $3.5 million for purchases of property and
equipment.
Net cash provided by financing activities was $47.5 million for the quarter
ended June 30, 2000, compared to $7.3 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.
In April 2000, we entered into an agreement with Yahoo! under which iPrint.com
is a featured merchant in Yahoo!'s Print Center (see Note 7 of Notes to
Consolidated Financial Statements). Under the terms of the agreement, we are
obligated to pay Yahoo! a fee of eight million dollars payable in installments
over four fiscal quarters. As of June 30, 2000, $3.1 million had been paid and
the remaining $4.9 million is to be paid over the next three quarters.
As of June 30, 2000, we had an aggregate of $4.5 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 new 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. We expect to generate cash inflow
of approximately $1.2 million from the sublease agreement over the next twelve
months.
We have developed an operating plan that we believe will significantly
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 indefinitely. In the event that this timeline is extended, we
believe we have sufficient cash to fund our operations for the next fifteen to
eighteen 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.
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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 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 compete 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 AN EXTREMELY 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
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us for only a short time. 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 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;
- 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 June 30, 2000, we had an accumulated deficit of $37.3 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.
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.
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PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) Sales of Unregistered Securities.
During the quarter ended June 30, 2000, iPrint.com issued and sold the
following unregistered securities:
- Warrants to Yahoo! to purchase 75,000 shares of our common stock,
with an expiration date of April 5, 2003. The warrants were issued
on April, 2000 in connection with an Advertising and Promotion
Agreement between Yahoo! and the Company. No cash consideration
was paid for the warrants. The warrants are exercisable at any
time until expiration at a price per share of $16.93, and includes
a net exercise provision under which the holder may surrender some
or all of the warrants for shares equivalent in value to the
difference between the exercise price and the then fair market
value of the common stock.
In issuing the warrants, the recipient represented that it was an
accredited investor, and we relied on the exemption from registration provided
under Section 4(2) of the Securities Act of 1933.
(d) 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.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
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.
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)
* Incorporated by reference to the corresponding exhibit to our registration
statement on Form S-1 (No. 333-91841)
** Previously filed
*** Confidential Treatment Requested. The confidential portions have been
filed separately with the Securities and Exchange Commission.
(b) Reports on Form 8-K.
We did not file any Reports on Form 8-K during the quarter ended
June 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: August 11, 2000
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