U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark one)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 2000.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______________ to _________________.
Commission file number 000-14614
PRINTONTHENET.COM, INC.
-----------------------
(Exact name of small business issuer as specified in its charter)
Delaware 65-0896930
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4491 South State Road 7, Suite 214, Ft. Lauderdale, FL 33314
------------------------------------------------------------ ----------
Address of principal executive offices) (Zip Code)
(954) 581-4233
-------------------
(Issuer's telephone number, including area code)
Check whether the (issuer) (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 12 months (or such shorter
period that registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Applicable only to corporate issuers
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 106,322,851 as of November 10, 2000.
Transitional Small Business Disclosure Format
(Check one):
Yes [ ] No: [X]
<PAGE>
PRINTONTHENET.COM, INC. AND SUBSIDIARY
Contents
Page
Part I. Financial Information
Item 1. Consolidated Financial Statements (Unaudited)
Balance sheet as of September 30, 2000 ............................ 2
Statements of operations for the three and nine months ended
September 30, 2000 and 1999 .................................. 3
Statements of cash flows for the nine months ended September 30,
2000 and 1999 ................................................. 4
Notes to financial statements ..................................... 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Operations .................................................... 10
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K ................................. 13
<PAGE>
PRINTONTHENET.COM, INC. AND SUBSIDIARY
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet (Unaudited)
September 30, 2000
ASSETS
Current assets:
Cash $ 2,649,000
Accounts receivable, net of allowance for
doubtful accounts of $66,000 337,000
Inventories 100,000
Prepaid expenses 68,000
Other receivables (including due from
stockholders of $170,000) 225,000
------------
Total current assets 3,379,000
Property and equipment, net of accumulated
depreciation and amortization of $145,000 543,000
Goodwill and other intangible assets, net of
accumulated amortization of $240,000 835,000
Other assets 17,000
------------
$ 4,774,000
============
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable, current portion $ 147,000
Capital lease obligations, current portion 28,000
Accounts payable 435,000
Accrued expenses 65,000
------------
Total current liabilities 675,000
Notes payable, noncurrent portion 399,000
Capital lease obligations, noncurrent portion 113,000
------------
1,187,000
------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value, 10,000,000
shares authorized, none issued --
Common stock, $.001 par value, 225,000,000
shares authorized, 106,322,851 shares
issued and outstanding 106,000
Additional paid-in capital 23,860,000
Deferred compensation (4,260,000)
Treasury stock (resale or retirement restricted):
13,361,111 shares (1,114,000)
Accumulated deficit (15,005,000)
------------
3,587,000
------------
$ 4,774,000
============
See notes to financial statements.
2
<PAGE>
PRINTONTHENET.COM, INC. AND SUBSIDIARY
Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales $ 571,000 $ 444,000 $ 1,867,000 $ 1,776,000
Cost of sales 482,000 283,000 1,438,000 1,191,000
------------ ------------ ------------ ------------
Gross profit 89,000 161,000 429,000 585,000
Selling, general and administrative expenses 568,000 444,000 2,321,000 1,113,000
Stock based compensation expense 399,000 651,000
Software development expenses 458,000 159,000 658,000 159,000
Fair value of warrants issued 9,990,000
------------ ------------ ------------ ------------
Loss from operations (1,336,000) (442,000) (13,191,000) (687,000)
Plant closure expenses (276,000) (276,000)
Interest income (expense), net 21,000 (52,000) (17,000) (114,000)
------------ ------------ ------------ ------------
Net loss $ (1,591,000) (494,000) $(13,484,000) $ (801,000)
============ ============ ============ ============
Net loss per common share:
Basic and diluted $ (.02) $ (.02) $ (.33) $ (.03)
============ ============ ============ ============
Weighted average shares outstanding 83,160,000 27,425,000 40,770,000 24,447,000
============ ============ ============ ============
</TABLE>
See notes to financial statements.
3
<PAGE>
PRINTONTHENET.COM, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(13,484,000) $ (801,000)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 184,000 101,000
Fair value of warrants issued to Bank
and sold to investors 9,990,000
Stock based compensation expense 651,000
Fair value of warrants issued for services 209,000
Write off leasehold improvements 231,000
Issuances of stock for services 2,000 16,000
Deferred income taxes 11,000
Changes in other operating assets and liabilities (750,000) 198,000
------------ ------------
Net cash used in operating activities (2,967,000) (475,000)
Cash flows from investing activities:
Purchases of property and equipment (17,000) (261,000)
Repurchase of accounts receivable previously
sold to Factor (346,000)
Net cash used for acquisitions (150,000)
------------ ------------
Net cash used in investing activities (363,000) (411,000)
------------ ------------
Cash flows from financing activities:
Bank overdraft (25,000) 32,000
Proceeds from stockholder loans (net of repayments) 286,000 739,000
Net proceeds from sale of securities 6,812,000
Proceeds from sale of warrants 160,000
Proceeds from issuance of common stock 26,000
Borrowings under notes payable 65,000
Principal repayments on notes payable (118,000) (51,000)
Principal repayments on capital lease obligations (23,000)
Capital contributions 75,000
Purchase of treasury stock (1,113,000)
------------ ------------
Net cash provided by financing activities 5,979,000 886,000
------------ ------------
Net increase in cash and cash equivalents 2,649,000 --
Cash and cash equivalents - beginning of year -- --
------------ ------------
Cash and cash equivalents - end of year $ 2,649,000 $ --
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the periods for:
Interest $ 59,000 $ 114,000
Supplemental schedule of noncash investing and
financing activities:
Capital lease obligations 17,000 --
Stockholder loans and due to affiliate contributed
to capital 1,314,000 --
</TABLE>
See notes to financial statements.
4
<PAGE>
PRINTONTHENET.COM, INC. AND SUBSIDIARY
Notes to Financial Statements
September 30, 2000
NOTE A - THE COMPANY AND BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements include
the accounts of PrintOnTheNet.Com, Inc. and its subsidiary ("POTN" or the
"Company") and have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
related to the Company's organization, significant accounting policies and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. These unaudited condensed consolidated financial statements reflect, in
the opinion of management, all material adjustments (which include only normal
recurring adjustments) necessary to fairly state the financial position and the
results of operations for the periods presented and the disclosures herein are
adequate to make the information presented not misleading. Operating results for
interim periods are not necessarily indicative of the results that can be
expected for a full year. These interim financial statements should be read in
conjunction with the Company's audited consolidated financial statements and
notes thereto included in the Company's most recent Annual Report on Form
10-KSB.
The Company provides printing services for small to medium sized businesses and
consumers in the South Florida region. The Company intends to provide the same
printing services through the Internet and is currently developing its website
and the related software. Customers will have access to a private customized
secure website containing a digital catalog of their custom printed materials,
with which they can modify and proofread their orders using any Internet enabled
personal computer. These orders will be printed at the Company's printing
facilities.
On December 30, 1999, the Company acquired PrintAmerica Interactive, Inc.
("PrintAmerica") for 1,000,000 shares of common stock. The acquisition was
recorded at the historical cost of PrintAmerica's assets and liabilities in a
manner similar to a pooling of interests for accounting purposes since
PrintAmerica was owned by the parents of the Company's two principal
stockholders who collectively owned approximately 86% of the common stock of
POTN on the date of the acquisition. PrintAmerica was merged into POTN in
January 2000.
The accompanying financial statements include (i) the historical accounts of
POTN for the nine months ended September 30, 2000 and from January 27, 1999
(date incorporated) through September 30, 1999, and (ii) the historical accounts
of PrintAmerica and its wholly owned subsidiary Denny Printing Corp. for the
nine months ended September 30, 2000 and 1999. All significant intercompany
balances and transactions have been eliminated.
NOTE B - STOCKHOLDER LOANS and DUE TO AFFILIATE
During 1999 and the quarter ended March 31, 2000, Benjamin Rogatinsky and Samual
Rogatinsky (the "Rogatinskys") funded the Company's operations with personal
loans including amounts borrowed through National Holding Company, Inc.'s
("National Holding", affiliated with the Company through common ownership)
account with Merrill Lynch Business Financial Services, Inc. ("Merrill Lynch").
Benjamin Rogatinsky was the Chairman and CEO of the Company through June 8, 2000
and was an officer of PrintAmerica. Samuel Rogatinsky was President of POTN
through June 8, 2000 and was an officer of PrintAmerica. These loans were
interest free and had no fixed due date. PrintAmerica had co-guaranteed the
National Holding debt to Merrill Lynch. In March 2000, Merrill Lynch commenced
an action against National Holding and the guarantors seeking repayment of the
loans; in June 2000 the lawsuit was settled and the guaranties released (see
Note E). As part of the lawsuit settlement and guaranty release, the stockholder
loans (amounting to $1,263,000) were contributed to capital in June 2000.
During the period from 1998 through March 31, 2000, the Company purchased
printing services from National Lithographers & Publishers, Inc. ("National
Lithographers"), a wholly owned subsidiary of National Holding, and provided
printing services to National Lithographers. Additionally, the Company paid
certain expenses on behalf of National Lithographers during the quarter ended
March 31, 2000. The net cumulative effect of all such transactions was a payable
to National Lithographers of $51,000, which was, pursuant to the settlement,
also contributed to capital in June 2000.
5
<PAGE>
PRINTONTHENET.COM, INC. AND SUBSIDIARY
Notes to Financial Statements
September 30, 2000
NOTE C - STOCKHOLDERS' EQUITY
During the quarter ended September 30, 2000 the Company issued 7,000 shares of
common stock to Leavy Racing Enterprises, Inc. for consulting services. Such
shares were valued at $2,100 and recorded as a selling, general and
administrative expense.
Under the terms of the August 1999 acquisition of Ivan's Quick Print, Inc
("Ivans"), the Company was contingently liable for the issuance of additional
shares of the Company's common stock if the value of 66,034 shares issued to the
seller of Ivan's (the "Seller") upon acquisition was worth less than $75,000 as
of August 27, 2000 (based on the closing market price of the stock). The value
of such shares was $29,000 as of August 27, 2000 based on a closing price of
$.4375, and the Company issued an additional 105,395 shares to the seller during
the quarter ended September 30, 2000.
In June 2000 the Company granted options to purchase 1,315,250 shares of common
stock under the Company's 1999 Stock Incentive Plan to certain outside
consultants for services relating to development of the Company's web site;
1,100,000 of these warrants are exercisable at $.40 per share, and the remainder
are exercisable at $.30 per share. The vesting of such options is contingent
upon the achievement of certain milestones to be met in defined increments
through the first quarter of 2001. Certain milestones were met through September
30, 2000 resulting in vesting of 630,589 shares. These vested options were
valued at $209,000 using the Black-Scholes pricing model and recorded as
software development expense during the quarter ended September 30, 2000.
There were other effects to stockholders' equity during the nine months ended
September 30, 2000 as follows: (i) the Company received equity financing (Note
F); (ii) the Company issued warrants relating to certain litigation matters (see
Note E); (iii) the Company issued warrants and stock options to certain officers
that are discussed in detail in the Company's Form 10-QSB for the quarterly
period ended June 30, 2000; and (iv) shareholder loans and due to affiliate were
contributed to capital of the Company during the quarter ended June 30, 2000
(Note B).
NOTE D - COMMITMENTS AND CONTINGENCY
In March 2000, the prior management of the Company determined that the Company
was subject to certain corporate guaranties of the obligations of certain
corporate affiliates (see Note E). Neither the private placement memorandum used
in connection with the February 2000 offering of the Company's securities (see
Note F), nor documents filed with the Securities and Exchange Commission related
to the PrintAmerica merger, disclosed the existence of these corporate
guaranties. These guaranties were subsequently released by the financial
institutions which were the beneficiaries thereof (see Note E). The Company may
be subject to claims based on alleged securities laws violations and such
actions may be initiated by the federal authorities, state authorities, or
certain persons who bought or sold the Company's securities during the relevant
time period. No specific allegations have been made; therefore, no conclusion
can be reached as to what impact, if any, any inquiries may have on the Company
or its operations. As previously reported in the Company's Form 8-K dated August
2, 2000, the Company is the subject of a continuing informal inquiry by the
Southeast Regional Office of the Securities and Exchange Commission (the "SEC
Regional Office"). The SEC Regional Office's inquiry is confidential and
should not be construed as an indication by the staff of that office that any
violation of law has occurred, or as a reflection of any person, entity or
security that may be involved. The Company has provided certain documentary
evidence to the SEC in this regard.
The Company offered the investors in the February 2000 private placement the
right to rescind their investment (see Note F(1)).
NOTE E - GUARANTIES AND LITIGATION MATTERS
Subsequent to its merger with PrintAmerica, the Company's prior management
became aware that PrintAmerica had guaranteed up to $7,500,000 in obligations of
National Lithographers to First Southern Bank (the "Bank"). In January 2000, the
Company had also guaranteed this indebtedness to the Bank. In March 2000 the
underlying indebtedness secured by these guaranties went into default and there
were insufficient assets of National Lithographers to satisfy the debt.
Subsequently, National Lithographers filed for an assignment for the benefit of
creditors.
6
<PAGE>
PRINTONTHENET.COM, INC. AND SUBSIDIARY
Notes to Financial Statements
September 30, 2000
PrintAmerica had also guaranteed the obligations of National Holding to Merrill
Lynch. On March 15, 2000, National Holding's indebtedness to Merrill Lynch of
approximately $1,045,000 was in default and Merrill Lynch instituted a lawsuit
against the borrowers and all the guarantors including PrintAmerica (and by
operation of law of the Company) to collect the amount owed.
In June 2000, the Company, the Rogatinskys, Merrill Lynch and the Bank settled
their disputes and the Company obtained a release from Merrill Lynch and the
Bank with respect to the guaranties and dismissal of the Merrill Lynch action as
against the Company. As of this date, pursuant to the settlement:
(a) All shares of POTN common stock owned by the Rogatinskys, their
families and related entities are pledged to the Bank and the Company was
assigned a second priority lien on the same; the Bank has a first priority lien
on the shares repurchased by, or otherwise returned to the Company in (b), (c),
(d), and (h) below.
(b) The Company has purchased 12,361,111 shares of its common stock for
$1,112,500 ($0.09 per share) from the Rogatinskys. The proceeds received by the
Rogatinskys from the sale of these shares were paid to Merrill Lynch and the
Bank. Such shares are classified as treasury stock in the accompanying balance
sheet.
(c) The Rogatinskys have agreed to personally satisfy the balance owed
to Merrill Lynch; the Company was released from any further obligation. On or
before June 30, 2001, the Rogatinskys, at their option, may sell to the Company
that number of shares necessary (based on a formula described below) to generate
proceeds of $142,500 on June 30, 2001, and the proceeds from this transaction
will be paid directly to Merrill Lynch. The price per share with respect to each
such sale will be the lower of $0.09 per share, or one-half of the then current
market price per share.
(d) The Company purchased a printing press from National Lithographers
(and obtained an assignment of lien from Merrill Lynch), which was owned by
National Lithographers, for $225,000. In June 2000 the Company sold the press
for gross proceeds of approximately $55,000; the Rogatinskys are obligated to
cover the shortfall from $225,000, at the Company's option, by either (i)
transferring to the Company such additional number of shares of POTN common
stock at the lesser of $0.09 per share, or one-half of the then current market
price per share to make up the shortfall, or (ii) under certain circumstances,
selling enough shares to generate proceeds sufficient to pay the shortfall. As
of September 30, 2000 the Company had not received the proceeds from the sale of
the equipment, and recorded a receivable of $225,000 (which includes $170,000
due from the Rogatinskys). The Company received the $55,000 proceeds from the
equipment sale in October 2000.
(e) In order to provide certain anti-dilution protection to the Bank
with respect to the shares pledged to it by the Rogatinskys, the Company has
agreed to issue additional shares of common stock to the Rogatinskys if (i) the
Company sells (in certain circumstances) its common stock for less than $.30 per
share, and (ii) if, at the time of such issuance, the Company's common stock
trades for less than $.30 per share. These additional shares will be issued only
as collateral to secure the Bank's position and will also be subject to the
pledge (described in (a) above); the Rogatinskys will not have any voting
control thereof, and when and if the Rogatinskys indebtedness is repaid to the
Bank, the shares issued pursuant to this anti-dilution protection will be
returned to the Company.
(f) The Company issued to the Bank two-year warrants to purchase
5,000,000 shares of the Company's common stock at $0.30 per share. These
warrants were valued at $2,150,000 using the Black-Scholes pricing model and
recorded as a `fair value of warrants issued' charge during the quarter ended
June 30, 2000.
(g) The shares pledged to the Bank by the Rogatinskys are initially
restricted from sale for a period of one year. Thereafter, such shares may be
liquidated by the Bank pursuant to terms of the settlement agreement which
limits the number of shares the Bank may sell in each 90-day period to that
number of shares which represents in value up to 25%
7
<PAGE>
PRINTONTHENET.COM, INC. AND SUBSIDIARY
Notes to Financial Statements
September 30, 2000
of the outstanding principal balance of the indebtedness (plus accrued interest
and expenses) of the Rogatinskys to the Bank. Additionally, daily sales by the
Bank may not exceed 5% of the average daily trading volume of the Company's
common stock over the preceding 20 business days. The Rogatinskys and the
Company have a right of first refusal with respect to the sale by the Bank of
the pledged common stock.
(h) All of the shares issued to the sellers in connection with the
acquisition of PrintAmerica (see Note A) have been returned to the Company, in
exchange for the special release of the sellers of PrintAmerica to the Company.
Such shares are included in treasury stock in the accompanying balance sheet.
(i) Effective June 8, 2000, the Rogatinskys have resigned as officers
and directors of the Company.
(j) All amounts payable by the Company pursuant to stockholder loans
(totaling $1,263,000) and due to affiliate (totaling $51,000) (see Note B) were
contributed to the capital of the Company.
(k) The Company obtained releases from all of the parties to the
omnibus settlement described above.
NOTE F - PRIVATE PLACEMENTS
[1] February 2000 private placement:
In February 2000, the Company raised $3,040,000 ($2,677,000 net of fees and
offering costs) in a private placement offering of units (the "February 2000
private placement"). Each unit was sold for $100,000 and consisted of 28,409
shares of Series A Convertible Preferred Stock (with each preferred share being
convertible into 10 shares of common stock); an aggregate of 863,633 shares of
Preferred Stock were issued. Upon recognition by prior management of the Company
that certain guaranties had not been previously disclosed in the private
placement memorandum circulated for this offering (see Notes D and E), the
Company offered rescission to the subscribers of the units. An aggregate of
$1,140,000 in cash was returned to subscribers pursuant to the rescission offer
and the other subscribers reinvested their funds in the June Private Placement
described below.
[2] June 2000 private placement:
In June 2000 the Company raised $7,020,000 and in July 2000 an additional
$845,000 (which includes $1,900,000 reinvested by subscribers in the February
2000 private placement), and received proceeds of $6,812,000 net of fees and
offering costs, in a second private placement offering of units (the "June 2000
private placement"). Each unit was sold for $100,000 and consisted of 50,000
shares of Series B Convertible Preferred Stock (with each preferred share being
convertible into 20 shares of common stock) having a liquidation value of $2.00
per share. An aggregate of 3,932,500 shares of Series B Convertible Preferred
Stock (convertible into 78,650,000 shares of Common Stock) were issued. All
subscribers to the February 2000 private placement were offered the option to
convert their investment into this offering. Commonwealth received fees of 10%
of the gross proceeds in excess of $3,040,000 and warrants to purchase
13,548,600 shares of common stock at an exercise price of $0.10 per share. The
warrants issued to the Placement Agent in connection with the February 2000
offering have been canceled. In addition, in April and May 2000, at the
Company's request due to lack of working capital, the placement agent, Robert
Priddy and Neal Polan, purchased from the Company for $160,000, five-year
warrants to purchase 16,000,000 shares of common stock at an exercise price of
$0.10 per share. These warrants were valued at $7,840,000 using the
Black-Scholes pricing model and recorded as an expense during the quarter ended
June 30, 2000 (included in the classification `fair value of warrants issued' in
the accompanying statement of operations). Subsequent to the closing
8
<PAGE>
PRINTONTHENET.COM, INC. AND SUBSIDIARY
Notes to Financial Statements
September 30, 2000
of this offering Mr. Priddy joined the Company as Chairman of the Board of
Directors and Mr. Polan was appointed Chief Executive Officer.
On July 27, 2000 the 3,932,500 shares of Series B preferred stock were converted
to 78,650,000 shares of common stock pursuant to the terms of the June Private
Placement Memorandum.
NOTE G - PLANT CLOSURES and RELOCATION
In August 2000 the Company canceled its leases for its two main operating
facilities (effective December 3, 2000), and vacated a third operating facility.
The two main facilities are being leased from an entity related to the
Rogatinskys. In October 2000 the Company entered into an agreement to lease
approximately 18,500 square feet of office and warehouse space in Miramar,
Florida beginning in November 2000. In connection with the planned relocation,
during the quarter ended September 30, 2000 the Company wrote off $231,000 of
leasehold improvements and recorded a charge of $45,000 for future noncancelable
lease expenses and certain other expenses.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Operations
The Management's Discussion and Analysis of Financial Condition and Results of
Operations included herein should be read in conjunction with the Consolidated
Financial Statements and Notes to Financial Statements of POTN and subsidiary
included in Item 1. above. Such Unaudited Consolidated Financial Statements
include (i) the historical accounts of POTN for the nine months ended September
30, 2000 and from January 27, 1999 (date incorporated) through September 30,
1999, and (ii) the historical accounts of PrintAmerica for the nine months ended
September 30, 2000 and 1999. All significant intercompany balances and
transactions have been eliminated. The Company's Financial Statements have been
prepared in accordance with generally accepted accounting principles in the
United States.
The financial information in Management's Discussion and Analysis of Financial
Condition and Results of Operations refers to continuing operations.
Results of Operations
Sales were $571,000 and $1,867,000 during the three and nine months ended
September 30, 2000, compared to sales of $444,000 and $1,776,000 during the
three and nine months ended September 30, 1999. The increase in sales from 1999
to 2000 was partially attributable to an acquisition made in May 1999 and the
two acquisitions made in August 1999. During the respective three and nine
months ended September 30, 2000, a significant amount of management's time was
devoted to efforts to resolve issues related to certain guaranties and
litigation matters (see Notes D and E of Notes to Financial Statements). Given
the limited amount of management resources then available, this adversely
affected sales and operations, particularly during the second and third quarters
of 2000.
Cost of Sales was $482,000 (84.4% of sales) and $1,438,000 (77.0% of sales)
during the three and nine months ended September 30, 2000, respectively,
compared to $283,000 (63.7% of sales) and $1,191,000 (67.1% of sales) during the
three and nine months ended September 30, 1999. Cost of sales for the three and
nine months ended September 30, 1999 related substantially to the operations of
PrintAmerica, which was a privately held company during that period. The
increased cost of sales as a percentage of sales during 2000 is a result of
several factors, including increased pricing from vendors and, to a large
extent, management's efforts to resolve non-operating issues as discussed above.
Management is presently evaluating its operations, including its current plant
facilities and staffing structure. As discussed in Note G of Notes to Financial
Statements, the Company expects to consolidate all of its production operations
into a single facility during the fourth quarter of 2000.
Software development expenses were $458,000 and $658,000 during the three and
nine months ended September 30, 2000. Such costs relate to development of our
web site and internet strategy. Included in such expenses during the three and
nine months ended September 30, 2000 was $209,000 relating to the value placed
on warrants issued to certain outside vendors (see Note C of Notes to Financial
Statements). Software development expenses were $159,000 during the three and
nine months ended September 30, 1999.
Selling, general and administrative ("SG&A") expenses were $568,000 and
$2,321,000 during the three and nine months ended September 30, 2000,
respectively, versus $444,000 and $1,113,000 during the three and nine months
ended September 30, 1999, respectively. The increase from 1999 to 2000 is
attributable to several factors, including (i) the incurrence of significant
professional fees and other costs relating to certain corporate guaranty and
related litigation matters, (ii) professional fees and other costs associated
with being a publicly-traded company, and (iii) increased infrastructure costs
incurred in preparing for future growth both internally and through
acquisitions, and relating to implementation of our website and Internet
strategy.
Stock based compensation expense, amounting to $399,000 and $651,000 during the
three and nine months ended September 30, 2000, relates to amortization of
employment related warrants and options issued in June 2000 (details of which
are disclosed in the Company's Form 10-QSB for the quarterly period ended June
30, 2000). The Company will record a quarterly charge of $399,000 through the
second quarter of 2003 in connection with these warrants and options.
10
<PAGE>
The Company recorded a charge classified as "fair value of warrants issued"
amounting to $9,990,000 during the quarter ended June 30,2000. This charge
relates to warrants issued to the Bank (see Note E of Notes to Financial
Statements) and warrants sold (see Note F of Notes to Financial Statements).
During the three months ended September 30, 2000 the Company recorded a charge
classified as "plant closure expense" of $276,000 relating to the planned
relocation of its operating facilities during the fourth quarter of 2000. See
Note G of Notes to Financial Statements.
During the three and nine months ended September 30, 2000, the Company had a net
loss of $1,591,000, or $.02 basic and diluted loss per share, and $13,484,000,
or $.33 basic and diluted earnings per share, respectively. During the three and
nine months ended September 30, 1999, the Company had a net loss of $494,000, or
$.02 basic and diluted loss per share, and $801,000, or $.03 basic and diluted
earnings per share, respectively. The principal reasons for the significant
increase in net loss from 1999 to 2000 are discussed above.
Liquidity and Capital Resources
Net cash used in operating activities was $2,967,000 during the nine months
ended September 30, 2000. The most significant components include a loss of
$13,484,000, offset by depreciation and amortization expenses of $184,000, a
non-cash charge for fair value of warrants issued and sold of $9,990,000, a
non-cash charge to compensation expense of $651,000, a non-cash charge of
$209,000 relating to fair value of warrants issued for consulting services,
write-off of leasehold improvements of $231,000, and decreased cash of $750,000
resulting from changes in operating assets and liabilities.
During the 2000 period net cash used for investing activities was $363,000,
relating primarily to a repurchase of $346,000 of accounts receivable in
connection with the termination of the Company's factoring arrangement with
First Southern Bank (see the Company's Form 10-QSB for the quarterly period
ended March 31, 2000).
During the 2000 period net cash provided by financing activities was $5,979,000,
consisting primarily of $6,812,000 of net proceeds from the private placements,
offset by the repurchase of stock for $1,113,000 in connection with the
litigation settlements.
At September 30, 2000, we had working capital of $2,704,000 (including cash of
$2,649,000). The Company anticipates incurring approximately $100,000 in costs
relating to relocating its operating facilities during the fourth quarter of
2000. The majority of such costs will be accounted for as leasehold
improvements. Additionally, the Company expects to incur minimum cash
expenditures of $400,000 between the fourth quarter of 2000 and the first
quarter of 2001 relating to development of its web site.
Forward Looking Statements
Except for historical information contained herein, certain matters discussed
herein are forward-looking statements made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. All
statements, other than statements of historical facts, that address future
activities, events or developments, including such things as the prompt and
satisfactory resolution of governmental inquires regarding certain historical
financial and other corporate disclosures, future revenues, website and product
development, and market acceptance thereof, production and office consolidation
and relocation, responses from competitors, capital expenditures (including the
amount and nature thereof), business strategy and measures to implement
strategy, competitive strengths, goals, expansion and growth of our business and
operations, plans, references to future success and other such matters, are
forward-looking statements. The words anticipates, believes, estimates, expects,
plans, intends, should, seek, will, and similar expressions are intended to
identify these forward-looking statements, but are not the exclusive means of
identifying them. These statements are based on certain historical trends,
current conditions and expected future developments as well as other factors we
believe are appropriate in the circumstances. However, whether actual results
will conform to our expectations and predictions is subject to a number of risks
and uncertainties that may cause actual results to differ materially, our
success or failure to implement our business strategy, our ability to market
successfully our on-line printing and publishing concept, changes in consumer
demand, changes in general economic conditions, the opportunities (or lack
thereof) that may be presented to and pursued by us, changes in laws or
regulations, changes in technology, the rate of acceptance of the Internet as a
commercial vehicle, competition in the Internet printing and publishing business
and other factors, many of which are beyond our control. Consequently, all of
the forward-looking statements made in this Report are qualified by these
cautionary statements and there can be no assurance that the
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actual results we anticipate will be realized or, even if substantially
realized, that they will have the expected consequences to or effects on us or
our business or operations. We assume no obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise.
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PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit Description
------- -----------
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K
A Form 8-K was filed on August 2, 2000 announcing an Item 5 Event.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRINTONTHENET.COM, INC.
Date: November 14, 2000 By: /S/ NEAL J. POLAN
Neal J. Polan
Chief Executive Officer
Date: November 14, 2000 By: /S/ ROBERT NORRIS
Robert Norris
Chief Financial Officer
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EXHIBIT INDEX
EXHIBIT DESCRIPTION
------- -----------
27.1 Financial Data Schedule
15
