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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE YEAR ENDED DECEMBER 31, 1999
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 0-78271
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IMAGEX.COM, INC.
(Exact name of registrant as specified in its charter)
WASHINGTON 91-1727170
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
10800 NE 8TH STREET, SUITE 200 98004
BELLEVUE, WA (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (425) 452-0011
Securities registered pursuant to Section 12(b) of the act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.01 Par Value
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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 the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K / /
The aggregate market value of the voting stock held by non affiliates of the
registrant at March 17, 2000 was $374,013,794 (based on the closing sale price
of $20.25 per share on the Nasdaq National Market on such date.)
The number of shares outstanding of the registrant's common stock of
March 14, 2000 was 22,169,843.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement for the 2000 Annual Meeting of
Shareholders to be held on May 2, 2000 are incorporated by reference into
Part III of this Form 10-K.
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TABLE OF CONTENTS
PAGE
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PART I:
Item 1. Business.................................................... 3
Item 2. Properties.................................................. 16
Item 3. Legal Proceedings........................................... 16
Item 4. Submission of Matters to a Vote of Security Holders......... 16
PART II:
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters....................................... 17
Item 6. Selected Financial Data..................................... 19
Item 7. Management's Discussion and Analysis of Operations.......... 20
Item 7A. Quantitative and Qualitative Disclosures.................... 38
Item 8. Financial Statements........................................ F-1
Item 9. Change in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. II-1
PART III:
Item 10. Directors and Executive Officers of the Registrant.......... II-1
Item 11. Executive Compensation...................................... II-1
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ II-1
Item 13. Certain Relationships and Related Transactions.............. II-1
PART IV:
Item 14. Exhibits, Financial Statement Schedules..................... II-1
The company's annual meeting is scheduled for 8:00 a.m. on May 2, 2000 at
the Hyatt Regency Bellevue at Bellevue Place, 900 Bellevue Way N.E., Bellevue,
Washington 98004. Matters to be voted on will be included in the company's proxy
statement to be filed with the Securities and Exchange Commission and
distributed to Shareholders prior to the meeting.
2
PART I
ITEM 1--BUSINESS
THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS. THESE
STATEMENTS RELATE TO FUTURE EVENTS OR OUR FUTURE FINANCIAL PERFORMANCE. IN SOME
CASES, YOU CAN IDENTIFY FORWARD-LOOKING STATEMENTS BY TERMINOLOGY SUCH AS MAY,
WILL, SHOULD, EXPECT, PLAN, INTEND, ANTICIPATE, BELIEVE, ESTIMATE, PREDICT,
POTENTIAL OR CONTINUE, THE NEGATIVE OF SUCH TERMS OR OTHER COMPARABLE
TERMINOLOGY. THESE STATEMENTS ARE ONLY PREDICTIONS. ACTUAL EVENTS OR RESULTS MAY
DIFFER MATERIALLY. IN EVALUATING THESE STATEMENTS, YOU SHOULD SPECIFICALLY
CONSIDER VARIOUS FACTORS, INCLUDING THE RISKS OUTLINED IN THE "FACTORS AFFECTING
IMAGEX.COM'S OPERATING RESULTS" BELOW. THESE FACTORS MAY CAUSE OUR ACTUAL
RESULTS TO DIFFER MATERIALLY FROM ANY FORWARD-LOOKING STATEMENT.
ALTHOUGH WE BELIEVE THAT THE EXPECTATIONS REFLECTED IN THE FORWARD-LOOKING
STATEMENTS ARE REASONABLE, WE CANNOT GUARANTEE FUTURE RESULTS, LEVELS OF
ACTIVITY, PERFORMANCE OR ACHIEVEMENTS. MOREOVER, NEITHER WE NOR ANY OTHER PERSON
ASSUMES RESPONSIBILITY FOR THE ACCURACY AND COMPLETENESS OF THE FORWARD-LOOKING
STATEMENTS. WE ARE UNDER NO DUTY TO UPDATE ANY OF THE FORWARD-LOOKING STATEMENTS
AFTER THE DATE OF THIS ANNUAL REPORT TO CONFORM SUCH STATEMENTS TO ACTUAL
RESULTS OR TO CHANGES IN OUR EXPECTATIONS.
OVERVIEW
ImageX.com is a leading business-to-business Internet market maker for
printed business materials. We offer end-to-end solutions that streamline the
procurement process for business printing customers, graphic designers,
corporate employees and end users of printed products, printing manufacturers
and raw material suppliers to the printing industry. We provide e-commerce
solutions that improve the way businesses acquire marketing communications
materials, ranging from business cards to high-end printed materials.
ImageX.com's nationwide Web-based services include:
- the Corporate Online Printing Center, which allows medium to large size
businesses to access their own customized, secure Web site that contains a
digital catalog of their custom-printed business materials;
- the Small Business Printing Center, which provides quick and easy access
via the Internet to a wide range of personalized printed business
materials based on standard templates at competitive prices;
- PrintBid.com, an online bidding system for over 3,800 print buyers and
more than 4,000 printers;
- PaperDeals.com, a live eMarket site for fine commercial paper stock with
approximately 280 registered paper mills and printers; and
- Printplace.com, an online vertical marketplace for the graphic arts
industry.
ImageX.com, Inc. was incorporated on August 21, 1995 and is headquartered in
Bellevue, Washington. On April 13, 1999, we acquired substantially all of the
assets of a commercial printer, Fine Arts Engravers Company, Inc. ("Fine Arts
Graphics" or "Fine Arts"), a privately owned Oregon corporation. On
September 21, 1999, we acquired all the common stock of a print broker, Image
Press, Inc. ("Image Press"), a privately owned California corporation. On
December 9, 1999, we merged with PrintBid.com, Inc. ("PrintBid" or
"PrintBid.com"), a privately owned Oregon corporation that operates PrintBid.com
and PaperDeals.com.
Our customer and revenue base has grown rapidly since we introduced the
commercial version of the ImageX.com Online Printing Center solution in
October 1997. Our top ten Corporate Online Printing Center customers, based on
1999 revenues, are Automated Data Processing (ADP), Bell Atlantic Mobile, CB
Richard Ellis, CIBC World Markets, Donaldson, Lufkin & Jenrette, Merck & Co.,
New Energy Ventures, PricewaterhouseCoopers, United Behavioral Health, and
Waddell & Reed. These customers represent approximately 45% of 1999 revenues.
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As of December 31, 1999, we had approximately 280 employees and offices in
15 metropolitan markets across the country. We also have 52 patent applications
pending on our proprietary Corporate Online Printing Center technology.
IMAGEX.COM PRODUCTS AND SERVICES
Our end-to-end Web-based solutions include several services that address
specific customer needs and inefficiencies in the print industry workflow. These
services streamline and can reduce the cost of the print management procurement,
manufacturing and fulfillment processes.
The ImageX.com CORPORATE ONLINE PRINTING CENTER allows medium to large size
businesses to access their own customized, secure Web site that contains a
digital catalog of their custom-printed business materials--from marketing
brochures to stationery and business cards. Each user can modify, proof, procure
and manage their printed business materials from any Windows-based,
Internet-enabled personal computer.
Our Corporate Online Printing Center simplifies procurement, eliminates
certain pre-press steps, and reduces opportunities for errors, resulting in
rapid delivery of consistent, high-quality printed business materials.
Specifically, our Corporate Online Printing Center offers our customers the
following key features:
- EXPEDIENCY--Shortens the time required for customers to order printed
business materials from weeks to minutes, eliminating the need to send
markups and proofs to and from the printer.
- ACCURACY--Enables our customers to directly access their corporate
information online through a color- consistent and dimensionally accurate
screen rendering. Customers can order their products from their own
digital online catalog that includes employee data, company graphics and
logos, delivery information, reporting requirements and prototypes of the
customer's printed business materials. We believe our system reduces
errors associated with data reentry, typesetting and the use of outdated
document versions.
- SINGLE SOURCE--Eliminates the need for customers to engage several
different printers to supply their printing needs. Individual printers are
typically constrained to a limited range of products that can be supported
by their equipment. Through our network of commercial printing vendors and
two owned facilities, we are able to provide a wide range of printed
business materials from one source. All printed materials are shipped to
the customer in an ImageX.com branded carton. The ImageX.com solution is
technology-neutral and geography-neutral, aggregating a broad set of
printing needs from our customers.
- SECURITY AND CONTROL--Enables customers to monitor print orders through a
password protected, secure Web site. Authorized customer employees can
individually access a wide variety of printed business materials within
the centralized parameters and rules established by the customer
organization. This brings a uniform look to a customer's printed business
materials and helps to maintain consistency of the customer's corporate
identity.
- CONVENIENCE--Allows customers to modify and order their printed business
materials, at any time, on any day, without any degradation of services;
provides online order status reports; and enables central order management
which allows customers to queue their orders and release them in batches
to take advantage of volume pricing.
- SCALABILITY--Scales to a large number of new employees and new products,
providing the ability to handle increasing order volume without
compromising system integrity and performance.
- STREAMLINED MANUFACTURING--Eliminates the typesetting process and certain
pre-press manufacturing steps by providing our commercial printing vendors
with print-ready files that are routed directly to their printing systems.
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To date, we have derived substantially all our revenues from our Corporate
Online Printing Center and from customers obtained through acquisitions.
TRADITIONAL PRINT PROCUREMENT PROCESS
[GRAPHIC]
[Graphic:--traditional print production process flow chart. Subheadings for
elements within graphics: Customer Process/Manufacturing Process; Need for a
Printed Product, Order Placement, Contact with Printer, Initiate Job Ticket,
Typesetting, Send to Customer, Customer Reviews Proof, Customer Makes
Corrections, Printer Typesets Corrections, Corrected Proof Sent Back to
Customer, Customer Re-Proofs Corrections, This part of the process is repeated
until a corrected proof is approved by customer, Customer Approves Proof,
Pre-Press/Imaging, Job to Press, Printed Product Delivered.]
IMAGEX.COM SOLUTION
[GRAPHIC]
[Graphic: ImageX.com print production process flow chart. Subheadings for
elements within graphics: Customer Process/Manufacturing Process; Need for a
Variety of Printed Materials, Customer Logs In, Customer Modifies Proofs, &
Releases Order Online, Printer Receives Press-Ready Digital Files and Electronic
Job Ticket, Press-Ready Digital Files Sent Directly to Imaging, Job to a Variety
of Presses, A Variety of Printed Products Delivered.]
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The ImageX.com SMALL BUSINESS PRINTING CENTER provides quick and easy access
via the Internet to a wide range of personalized printed business materials
based on standard templates at competitive prices for small and home-based
businesses. Customers can streamline the purchase of high-quality, custom-
printed materials, including business cards, labels, letterhead, envelopes and
more from a common, rather than customized Web site. Customers can work through
a complete layout and design process for their materials, including choosing
desired formats, color and paper while having immediate proofing and ordering
capability. In January 2000, we established an alliance with
InfoSpace.com, Inc. in order to facilitate increased traffic on our Small
Business Printing Center as well as all other ImageX.com Internet solutions.
PRINTBID.COM is an Internet-based bidding service designed to link thousands
of print buyers with thousands of printers. The solution helps commercial print
customers identify a short list of manufacturers for their print jobs based on a
defined set of job specifications and obtain quotes from targeted vendors.
Through PrintBid.com we enable our customers seeking individual, one-time print
jobs to achieve the best pricing conditioned to the customer's specifications.
By matching the specifications of print jobs against a nationwide database of
printers and their specific combinations of equipment, PrintBid.com enables
customers to find the ideal suppliers for their work. PrintBid.com helps
printers achieve visibility to print buyers by offering detailed profiles on the
printer's in-house equipment, product specialties, employee base and provides
free links to their Web sites. We are currently developing additional services
to allow print buyers and suppliers to source print materials and information.
Our PAPERDEALS.COM Web site, which is a live eMarket site for fine
commercial paper stock, is designed to provide commercial printers access to
paper mills, merchants, distributors, converters, brokers, import/exporters,
publishing companies and major corporations. This Web site allows print
suppliers to auction different categories and grades of paper to print buyers
and also allows print buyers to post a paper requirement for suppliers to post
bids. PaperDeals.com is developing further functionality to facilitate
efficiencies, reduced costs and one-stop shopping for paper and supplies.
Launched by ImageX.com on February 29, 2000, PRINTPLACE.COM is a vertical
marketplace designed to provide supply chain value all the way from print users,
graphic designers, print buyers and printers to suppliers within the entire
graphic arts industry. This marketplace offers functionality for procurement,
print management, bidding services, auctions, exchanges and workflow management
systems. PrintPlace.com also offers content, news and industry links to help
facilitate the full service needs required throughout the industry. Our primary
goal is to focus on providing the content, community and commerce that visitors
to the PrintPlace.com site value. To that end, we will align with companies that
bring value to the graphic arts industry marketplace.
BUSINESS STRATEGY
Our objective is to be the leading business-to-business Internet market
maker and vertical industry marketplace for printed business materials. The
following are the key components of our strategy:
- EXPLOIT FIRST MOVER ADVANTAGE AS THE LEADING END-TO-END PRINTING
SOLUTION--We believe that, as the first company providing an integrated
Internet solution for procurement of printed business materials, we have
the opportunity to establish ourselves as the leading commercial printing
brand on the Internet.
- ACQUIRE ENABLING TECHNOLOGY AND BROADEN OUR SERVICE OFFERINGS--We believe
acquiring complementary Internet-based commerce capabilities and entering
into strategic alliances with other e-procurement companies with
complementary product offerings or attractive customer bases will allow us
to broaden our service offerings for existing and new customers.
Additionally, we believe doing so will increase the functionality and
power of our Web site to deliver business products and services to
customers.
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- ENHANCE LEADERSHIP POSITION WITH THE NEW MARKETPLACE--We intend to provide
an online vertical marketplace that includes content, community and
commerce for the graphic arts industry. This marketplace is intended to
attract additional customers and develop new e-commerce opportunities.
- EXPAND OUR DIRECT SALES FORCE--We intend to expand our direct sales force
to rapidly increase our customer base in both new and existing markets and
to expand the use of our services by our customers. We intend to further
extend the geographic presence of our sales force to acquire customers in
new markets.
- EXTEND MARKET REACH THROUGH STRATEGIC ALLIANCES--We intend to leverage and
extend our technology alliances into marketing alliances and build a
structured partner program for marketing and referrals. We believe these
alliances will generate more leads and revenue.
- GROW CUSTOMER BASE THROUGH ACQUISITIONS--We intend to actively pursue
acquisitions of print brokers and commercial printers with strong customer
relationships and seek to convert the acquired customers to our Corporate
Online Printing Center and other ImageX.com services. By acquiring
existing customer relationships, we gain immediate revenue and the
opportunity to leverage those relationships to convert those customers to
our online procurement system.
- INCREASE REVENUES FROM EXISTING CUSTOMERS--We believe that substantial
opportunity exists for us to grow by selling additional products and
services to our existing customers. We also believe that broadening our
product and service offerings through acquisitions and alliances to
encompass a wider range of printing and related procurement requirements
will allow us to increase our customer and revenue base and become the
single-source provider of printed materials to our customers.
- BUILD BRAND NAME AWARENESS--We believe that promoting our brand name and
reputation as the leading electronic commerce provider in our industry
will build awareness among our potential customers, attract new customers,
and increase loyalty and usage of our services by our existing customers.
- ENHANCE PRODUCT AND TECHNOLOGY LEADERSHIP--We intend to continue our
leadership position by pursuing technology initiatives designed to enhance
our product and service offerings. We consistently research and reassess
customer needs and preferences when developing new products and
technologies to achieve customer satisfaction.
CUSTOMERS AND MARKETS
Printed business materials, which include promotional marketing materials
and general office products, are employed throughout business organizations
today. Based on data provided by CAP Ventures, sales in the U.S. printing
industry totaled $292 billion in 1998. Of that amount, $58 billion was derived
from the commercial print industry, including sales of printed business
materials for corporate and small office/home office print buyers.
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[GRAPHIC]
[Graphic: Two pie charts representing (1) breakdown of U.S. Publishing and
Printing between (a) publishing and specialty ($186.3 billion) and (b) printing
$105.5 billion and (2) breakdown of the U.S. printing market between (a) forms,
printers and other ($47.3 billion) and (b) commercial ($58.2 billion). Cap below
graphic: ImageX.com 12-month revenues ending December 31, 1999 were $11.5
million, which represents an immaterial percentage of the commercial printing
industry. Over 30,000 printers compete in this industry.]
Our target customers for the Corporate Online Printing Center are medium-to
large-sized businesses with more than 100 employees in major markets nationwide.
At December 31, 1999, we had obtained over 195 target customers through our
direct sales efforts and through conversion of acquired customers to our
Corporate Online Printing Center. During the quarter ended December 31,1999, we
added 39 customers who have agreed to implement our online procurement system,
including two of the top five Fortune 500 companies. Most of such customers are
in the process of having their Web sites implemented. In addition to online
customers, we also have customers acquired through acquisitions who order
printed business materials from us through traditional means. Our goal is to
convert as many such customers as possible to our online system. In addition,
customers who are in the process of establishing Corporate Online Printing
Center sites often continue to purchase through traditional means during this
transition period. Fine Arts Graphics and Image Press, which we acquired in
April and September 1999, respectively, sold printed business materials to over
an aggregate of 760 customers in 1999.
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SALES AND MARKETING
ORGANIZATION
We sell the ImageX.com Corporate Online Printing Center through our direct
sales force. As of December 31, 1999, our sales and marketing team consisted of
35 employees. We had a Director of Sales in Bellevue, Washington and 22 sales
representatives covering 15 sales regions throughout the United States. We
continue to expand our direct sales force into additional major markets across
the country in order to expand our customer base.
PROMOTION
We market the Corporate Online Printing Center solution to senior purchasing
and marketing departments of our customers. Our solution allows employees and
purchasing departments to quickly process their orders for general office
materials, such as business cards, stationery and labels, and marketing
departments to more efficiently provide promotional marketing materials, such as
brochures and sell sheets, to their sales organizations, channel partners and
customers.
Multiple integrated marketing tools are used to build brand awareness,
generate leads, and, ultimately, gain new customers rapidly and efficiently:
- TELEMARKETING--Telemarketing has been our most effective tool for targeted
lead generation since we began telemarketing efforts in September 1998.
Telemarketing has allowed us to efficiently find the appropriate contact
within an organization. From targeted marketing lists, telemarketers
qualify leads by using creative scripts and online demonstrations. The
qualified sales leads, some with prescheduled meetings, are then passed on
to our direct sales force.
- ONLINE DEMONSTRATIONS--Online demonstrations are used to showcase our
products. Links at complementary Web sites, such as InfoSpace.com, direct
customers to our Web site. Web seminars, self-running demos and other
technologies are also utilized.
- PRINT MEDIA/PUBLIC RELATIONS--Print media/public relations build awareness
of our solution in major markets and draw target customers to our Web
site. ImageX.com uses advertising and public relations agencies to
integrate all marketing programs and ensure efficient and effective
spending.
- TRADE SHOWS/EVENT SPEAKERSHIPS/E-COMMERCE SUMMITS--Key e-commerce and
industry events reach a broader market and facilitate market education and
lead generation. They also accelerate the sales cycle time from
lead-to-closure.
STRATEGIC ALLIANCES
We are actively pursuing strategic relationships with other
business-to-business e-procurement solutions providers in order to generate
leads and referral business from the alliance partners, attract additional
customers to our Web site, strengthen our brand, reinforce our role in the
eBusiness continuum, expand the range of products and services available to our
customers and generate additional sources of revenue.
We have established strategic relationships with Internet-based businesses
in six general categories:
- Companies having technology critical to our product and services, such as
webMethods and Oracle.
- Internet service businesses and linked marketplaces, such as
InfoSpace.com.
- Businesses that offer brand management products and services related to
ours or targeted at a similar customer base, such as Corporate Express,
eCompanyStore.com and ePromos.com. Also included in this group are
businesses that provide products and services to end users who operate
within the graphic arts and printing industry, such as Getty Images Inc's
EyeWire.
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- Electronic procurement solution providers, such as Ariba, Commerce One and
Concur Technologies.
- Vendors that provide eBusiness application solutions that generate a need
for corporate print, such as Marketing Automation, Partner/Channel
Management, ERP etc., including On Demand Inc.
- Systems Integrators (typically already partnered with many of those
vendors in categories cited above) who can deliver our solutions in
complex installations, handling the enterprise integration challenges for
the customer, such as Questra.
Ideal candidates for strategic relationships are companies with a national
sales capacity, market leadership position and extensive contact with the
purchasing and marketing managers of their customers.
Our strategic relationships are new and as yet unproven. We can not be
certain that those relationships will result in significant revenue. Some of
these relationships involve revenue sharing or transaction fees on the part of
ImageX.com and the Infospace.com agreement involves fixed arrival fees
regardless of revenue.
CUSTOMER SERVICE
We are committed to providing a high level of service and support to our
customers. Because our Internet services are available to users 24 hours a day,
our network support services are likewise continuously available. We value
frequent communication and feedback from our customers to continually improve
our services and products. To facilitate this communication, we have established
a customer advisory board with which our sales representatives meet quarterly.
By offering customers a compelling and personalized service, we seek to
strengthen customer relationships, to encourage repeat visits and purchases and
to extend customer retention. Our technical support and our customer service
desks are staffed during normal business hours. Inquiries come to us through our
Web site, via e-mail and telephone. As of December 31, 1999, we had 83 employees
engaged in customer service and operations.
ACQUISITIONS
We are pursuing a two-pronged acquisition strategy of targeting
print-related companies and Internet-related companies with complementary
technologies or service offerings. The primary goals of this two-pronged
strategy are to increase our customer and revenue base, broaden our product and
service offerings, increase the functionality and power of our online
procurement system and further our overall objective of being the leading
Internet-based marketplace for commercial printing.
Along with direct sales, acquisitions are an important part of our growth
strategy because they offer an efficient way to access high-quality customers.
We believe the first element of our acquisition strategy, acquiring print
brokers, printers, direct mail houses, fulfillment houses and service bureaus,
offers the following strategic advantages:
- enables us to more quickly acquire desirable customers in existing and new
markets and avoid a lengthy direct sales cycle;
- allows us to acquire an established and knowledgeable sales force;
- builds the ImageX.com brand by introducing our solution to a broader
audience of customers and a wider range of geographic markets;
- provides us with valuable expertise in integrating our technology with
other printers' systems and equipment.
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The second element of our acquisition strategy is to acquire Internet-based
companies with technologies that are complementary to ours or who offer related
products or services to businesses through the Internet. We believe these
acquisitions will offer us the following strategic advantages:
- expand the range of products and services available to our customers
through our Web site;
- build the ImageX.com brand in the Internet-based business procurement
marketplace;
- broaden our customer base and increase sales from existing customers;
- augment our core technology.
We believe that acquiring Internet companies with complementary technologies
and service offerings for business procurement is critical to achieving our goal
of being the leading Internet-based marketplace for commercial printing.
TECHNOLOGY
The technology behind the ImageX.com solutions is based on an integrated
view of the entire print procurement and manufacturing process. Other systems
seek to automate either the printer's manufacturing process or the customer's
ordering process. ImageX.com's solutions address four specific, yet broad
application areas in the commercial printing marketplace:
- Corporate print procurement,
- small office/home office print ordering,
- print project bidding,
- paper purchasing.
The ImageX.com corporate print procurement solution combines both the print
manufacturing process and the customer procurement process into one coherent
system, and drives the entire ordering and manufacturing processes. The solution
was designed as a scalable manufacturing system to process thousands of printing
orders daily.
ImageX.com hosts substantially all elements of the system for all customers
and print vendors. Customers use standard Internet browsers to access the
system. We install and configure a small amount of software onsite for key
vendor partners.
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[GRAPHIC]
[GRAPHIC--Depiction of the ImageX.com system. The order and composition
Engine (ILIAD) appears at the middle of the graphic, surrounded by the Online
Printing Center, the Digital Library, the Specialists and the Manufacturing
System. These components are grouped in a circle and labeled as the "ImageX.com
core Technology." Outside the circle are icons showing the relationship between
the ImageX.com technology, the Internet, Goods Delivered, Business Card
Printers, Stationery Printers and Brochure Printers.]
The Image.X.com corporate print procurement solution runs on a distributed
Oracle database that holds and manages all ordering rules, content information
and process data. The system utilizes Microsoft's Internet Information Server,
Transaction Server and Message Queue Server. Finally Adobe PDF technology is
utilized for online proofing of materials prior to ordering. Every component of
the ImageX.com corporate print procurement solution architecture was chosen with
scalability as the primary consideration. By using scalable technologies from
Oracle, Microsoft and Adobe, the ImageX.com solution is able to leverage
innovations and capabilities from those vendors on an incremental basis, without
impacting other elements of the system or its fundamental architecture.
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PrintBid.com's first-generation technology, which is presently visible on
the PrintBid.com Web site, was developed largely through contracts with outside
software development firms and represents a fraction of the company's software
technology. The current PaperDeals.com Web site is a first-generation site,
developed largely by outside software contractors, and utilizes Moai
Technology's LiveExchange 2.0 eAuction software for part of its functionality.
We have an ongoing development effort to upgrade the features and functionality
of both PrintBid.com and PaperDeals.com.
PrintPlace.com's first-generation technology was developed by Mpl2, an
Internet development company, based in Bellevue, Washington. The current site
utilizes Microsoft's Internet Information Server, NT Server, and Microsoft
Sequel Server 7.0. We have an ongoing development effort to upgrade the features
and functionality of the PrintPlace.com site.
OPERATIONS
The operations strategies for the Corporate Online Printing Center and the
Small Business Printing Center are directly tied to the business model for those
services. The Corporate Online Printing Center leverages a network of
approximately 40 commercial printing vendors and two facilities that we own. Our
network of commercial printing vendors includes printers located across the
United States, all of whom can ship nation wide. A substantial majority of our
vendors are small, regional operators. With this network of vendors and the
facilities that we own, we are able to deliver printed business material nation
wide. We believe that the Corporate Online Printing Center offers improved
corporate utilization within our vendor network, direct cost and overhead cost
reduction and improved vendor management.
In contrast, the Small Business Printing Center is completely outsourced.
The Web site, customer service, and manufacturing are all performed by a
third-party provider. The third-party sets up templates for every new class of
product on the site and integrates, manufactures and fulfills orders either
through their own manufacturing facility or through a subcontractor.
PRODUCT DEVELOPMENT
Our future success will depend on our ability to maintain and develop
competitive technologies, to continue to enhance our current services, and to
develop and introduce new services in a timely and cost-effective manner that
meet evolving customer needs, new competitive service offerings, emerging
industry standards and rapidly changing technology. We maintain a customer
advisory board that meets quarterly to provide feed back on product and service
enhancements. We have a dedicated product development organization that creates
new features and functionality for our existing services, as well as the
software that supports new services. The product development team has expertise
in database systems, network technology, digital print imaging systems, Internet
protocols and security, distributed computing and computer-integrated
manufacturing. At December 31, 1999, we had 42 employees engaged in product
development. Product development expenses were $3.8 million for the year ended
December 31, 1999, $2.8 million in 1998 and $1.3 million in 1997. We expect to
continue making substantial expenditures on product development in the future.
INTELLECTUAL PROPERTY
We rely on intellectual property laws in the United States and other
jurisdictions to protect our proprietary rights. We have filed trademark
applications for the ImageX.com name in the U.S., Canada and other key foreign
countries. We currently have fifty-two U.S. patent applications on our
technology relating to the Corporate Online Printing Center. We own copyrights
in the computer software and online materials that we have developed, and we
currently hold limited licenses to use software in which third parties own
copyrights, including software for data base management and electronic
pre-press.
13
COMPETITION
The market for printed business materials is very competitive. We compete
primarily with local and regional commercial printers, which are either
independent or owned by print industry consolidators, and with print brokers or
other Internet-based print providers. The U.S. commercial printing industry is
highly fragmented, with over 30,000 local and regional commercial printers
operating nationwide in 1998. These printers compete aggressively for business
printing orders in the market they serve.
Traditional commercial printers often have long-standing relationships with
customers. We face challenges in convincing businesses to consider alternatives
to their traditional printer. Commercial printers compete primarily on product
pricing, product and service quality and, to a lesser extent, on innovation in
printing technologies and techniques. To attract new customers and retain our
existing customers, we must compete effectively in each of these areas.
We also face direct competition from printing services brokers who offer
customers a relatively wide variety of products and services and are able to
obtain favorable pricing for their customers by soliciting bids from a variety
of printers. Like local and regional printers, printing services brokers often
have long-standing customer relationships.
We also face competition from other Internet-based companies that offer
business printing services, as well as from others who may develop such services
in the future. Potential developers of competing electronic commerce services
may include consumer printing services providers, office service providers,
equipment manufacturers and financial printers and publishers.
OUR EXECUTIVE OFFICERS
The name, age and position, as of March 1, 2000, of each of our executive
officers is as follows:
NAME AGE POSITION
- ---- -------- ------------------------------------------
Richard P. Begert......................... 43 President, Chief Executive Officer and
Director
Robin L. Krueger.......................... 49 Chief Financial Officer, Treasurer and
Assistant Secretary
F. Joseph Verscheeren..................... 48 Chairman of the Board
Eric J. Bean.............................. 41 Vice President, Products and Technology
Cory E. Klatt............................. 31 Chief Technology Officer
Dana F. Manciagli......................... 39 Vice President, Sales and Marketing
John R. Higgins........................... 34 Vice President, Finance and Acquisitions
and Assistant Secretary
Mariam J. Naini........................... 36 Vice President, General Counsel and
Secretary
Leslie Kain............................... 55 Vice President, Business Development
Richard P. Begert has been President, Chief Executive Officer and director
of ImageX.com since November 1998. From 1993 to 1998, Mr. Begert was Regional
President of AT&T Wireless Services (and its predecessor, McCaw Cellular
Communications, Inc.), a telecommunications company. From 1986 to 1993,
Mr.Begert held various other positions at McCaw Cellular. Mr. Begert received
his B.A. in business administration from the University of Washington.
Robin L. Krueger has been Chief Financial Officer since July 1999 and
Treasurer and Assistant Secretary since December 1999. From 1994 to July 1999,
Ms. Krueger was Vice President of Finance and
14
Treasurer of Alaska Airlines, Inc., a commercial airline. From 1987 to 1994,
Ms. Krueger served as Alaska Airlines' Assistant Vice President and Treasurer
and from 1984 to 1987 as Assistant Treasurer. Ms. Krueger received her B.B.A.
from the University of Washington and her M.B.A. from The George Washington
University.
F. Joseph Verschueren, a co-founder of ImageX.com, has been a director of
ImageX.com since its inception in 1995 and has served as Chairman of the Board
since August 1997. In addition, he served as President from September 1996 to
November 1998 and Chief Executive Officer from August 1997 to November 1998.
Mr.Verschueren served as Chief Executive Officer of Parallel
Communications Inc., an advertising agency, from 1992 to 1996 and as Chairman of
the Board of Parallel Communications until July 1999. Mr. Verschueren received
his B.A. in English and a B.A. in philosophy from Gonzaga University.
Eric J. Bean has been Vice President, Products and Technology, of ImageX.com
since July 1998. From June 1991 to July 1998, Mr. Bean held several positions,
including Director of Product Management and Business Line Manager, with Adobe
Systems Inc., a software company (and Aldus Corporation, which was acquired by
Adobe Systems in 1994). Mr. Bean received his M.B.A. from the University of
Washington, his master's degree in software engineering from Seattle Pacific
University, and his B.S. in mathematics from Pacific Lutheran University.
Cory E. Klatt, a co-founder of ImageX.com, served as a director of
ImageX.com from August 1995 to December 1996, as Secretary from September 1996
to August 1997 and from July 1998 to December 1999, as Assistant Secretary from
August 1997 to July 1998, as Treasurer from July 1998 to December 1999, as Chief
Technology Officer since August 1997. From 1995 to 1996, Mr. Klatt was Chief
Technology Officer of Parallel Communications. From 1992 to 1995, Mr. Klatt was
a general partner of Practical Applications, Inc., a software development
company.
Dana F. Manciagli has been Vice President, Sales and Marketing, of
ImageX.com since May 1998. From August 1996 to May 1998, Ms. Manciagli was Vice
President of Worldwide Marketing of the Kodak Professional Division of Eastman
Kodak Company, a photographic equipment and supply company. From June 1991 to
July 1996, she was Director of Marketing for Europe and Asia of Sea-Land
Service, Inc., a subsidiary of CSX Corporation, a transportation company, in
Hong Kong. Ms. Manciagli received her B.A. in political science from the
University of California, Santa Barbara and her master's degree in international
management from the American Graduate School of International Management.
John R. Higgins has been Vice President, Finance and Acquisitions, of
ImageX.com since May 1999 and Assistant Secretary since December 1999. He served
as Director of Business Development and Acquisitions from June 1998 to
May 1999. From November 1996 to January 1998, Mr. Higgins was Business Manager
of the International Group of Simpson Investment Company and Simpson Paper
Company, a forest products manufacturer. From June 1994 to November 1996, he
served as a Senior Business Analyst in Simpson Paper Company's Commercial
Printing Business Unit. Mr. Higgins received his B.S. in chemistry from the
United States Military Academy at West Point and his M.B.A. with distinction
from Harvard University.
Mariam J. Naini has been Vice President, General Counsel, of ImageX.com
since November 1999 and Secretary since December 1999. From April 1999 to
October 1999, Ms. Naini was an Associate General Counsel at Amazon.com, Inc.
From April 1998 to March 1999, she was Of Counsel with Irell & Manella LLP's Los
Angeles, California office. From July 1994 to March 1998, Ms. Naini was a senior
associate with Morgan, Lewis & Bockius LLP's Washington, D.C. office, and from
December 1988 to June 1994, she was with Howrey & Simon LLP's Washington D.C.
office. Ms. Naini received her B.A. degree with honors, in three years, from
Wellesley College and her Juris Doctorate degree from Georgetown University Law
Center.
15
Leslie Kain has been Vice President of Business Development for ImageX.com
since February 2000. From October 1998 to January 2000, Ms. Kain served as
Vice President of Business Development of Carleton Corporation, a customer data
mart company. From October 1996 to October 1998, Ms. Kain served as Senior
Director of Business Alliances at International Software Group, a data access
tool company. From January 1993 to October 1996, she served as a Strategic
Management Consultant for the Concord Corporation, a management consulting
company. Ms. Kain received her B.A., Phi Beta Kappa, Durant Scholar (Highest
Honors) from Wellesley College and her M.B.A., magna cum laude, from Boston
University.
EMPLOYEES
As of December 31, 1999, we had 280 employees. We also employ a limited
number of independent contractors and temporary employees on a periodic basis.
None of our employees are represented by a labor union, and we consider our
labor relations to be good. We believe our success depends to a significant
extent on our ability to attract, motivate and retain highly skilled management
and employees. To this end, we focus on incentive programs such as employee
stock options, competitive compensation and benefits for our employees.
ITEM 2--PROPERTIES
We are headquartered in Bellevue, Washington, where we lease approximately
18,000 square feet, pursuant to a term lease that expires on March 31, 2002.
These facilities are used for executive office space, including sales and
marketing, finance and administration, and customer support. Additionally, we
have signed a term lease for 44,044 square feet of office space in Kirkland,
Washington, which expires on December 31, 2004. The space consists of three
suites. We moved into the first of the suites in February 2000.
Through the acquisition of Fine Arts Graphics, we have added an
approximately 40,000 square-foot production facility and administrative office
in Tualatin, Oregon, and an approximately 15,000 square-foot production facility
and administrative office in Union, New Jersey. We have added an approximately
4,811 square-foot administrative office in San Leandro, California through our
acquisition of Image Press and an approximately 9,495 square-foot administrative
office in Portland, Oregon through our acquisition of PrintBid.com.
ITEM 3--LEGAL PROCEEDINGS
We are involved from time to time in claims, proceedings and litigation
arising in the ordinary course of business. We do not believe that any such
claim, proceeding or litigation, either alone or in the aggregate, will have a
material adverse effect on our financial position or results of operations.
ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of 1999.
16
PART II
ITEM 5--MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Our common stock has been quoted on the Nasdaq National Market under the
symbol "IMGX" since August 26, 1999, the date of our initial public offering.
Prior to that time, there was no public market for our stock.
The following table sets forth, for the periods indicated, the high and low
sales prices per share of our common stock as reported on the Nasdaq National
Market.
1999 FISCAL YEAR HIGH LOW
- ---------------- -------- --------
Third Quarter (since Aug.26, 1999).......................... $23.00 $10.25
Fourth Quarter.............................................. $45.00 $ 7.75
On March 17, 2000, the company had 252 shareholders of record. The last
reported sale price per share on March 17, 2000, was $20.25.
We have never paid dividends on our common stock. We currently intend to
retain any future earnings to fund the development and growth of our business.
Therefore, we do not currently anticipate declaring or paying cash dividends in
the foreseeable future.
RECENT SALES OF UNREGISTERED SECURITIES
During the fiscal year ended December 31, 1999, we issued and sold
unregistered securities as follows:
(1) On January 11, 1999, we issued 401,257 shares of Series D Preferred stock,
which were convertible into 200,629 shares of common stock, to two
investors, Eli Wilner and Barbara A. Brennan. The aggregate consideration
received for such shares was $802,514.
(2) On April 8, 1999, we issued 8,641,666 shares of Series E Preferred Stock,
which were convertible into 4,320,840 shares of common stock, to 28
investors, Internet Ventures, LLC, Nicholas Brigham Temple, Jr., Eli Wilner,
Barbara A. Brennan, Eric S. Temple, Galaxy Investment Partners, Harold
Kawaguchi, Ironwood Capital, LLC, Philip J. Hooper, John Durbin, Michael and
Pam Towers, Nicholas B. Temple, Rich and Cindy Sonstelie, Rufus Lumry,
SunAmerica Investments, Inc., Tom A. Alberg, Thomas J. Cable, Western
Investments Capital LLC, Howse Family Partnership, Alta California Partners
II, L.P., Alta Embarcadero Partners II, LLC, Arthur W. Harrigan, WS
Investment Company 99A, Steven Scherba Jr. and Elaine P. Scherba, Scott
Drum, William C. Krueger, Brian and Jami Holman and David Valle. The
aggregate consideration received for such shares was $18,147,498.60 or $2.10
per share. We also issued warrants to purchase 42,768 shares of common stock
at an exercise price of $4.20 per share to two investors, Eli Wilner and
Barbara A. Brennan. The aggregate consideration received for such warrants
was $855.35.
(3) On April 13, 1999, we issued warrants to purchase 75,000 shares of common
stock at an exercise price of $4.00 per share to Nicholas J. Stanley. The
aggregate consideration received for such warrants was $100.
(4) On April 15, 1999, we issued 3,263,095 shares of Series E Preferred Stock,
which were convertible into 1,631,550 shares of common stock, to 12
investors, Technology Partners Fund VI, L.P., Kellett Partners LP, Clear Fir
Partners, LP, Gary Sledge, Carl Stork, Nanda Nishit Mehta and Nishit
Kantilal Mehta, VBW Raptor Fund, LLC, Robert L. and Leslie A. Hobart JTWROS,
Hambrecht & Quist California, Hambrecht & Quist Employee Venture Fund, L.P.
II, Access Technology Partners, L.P. and Access Technology Partners Brokers
Fund, L.P. The aggregate consideration received for such shares was
$6,852,499.50, or $2.10 per share.
17
(5) On April 21, 1999, we issued warrants to purchase 48,165 shares of common
stock at an exercise price of $4.20 per share to SG Cowen Securities
Corporation for services rendered in connection with the registrant's
issuance of Series E Preferred Stock.
(6) On April 21, 1999, we issued warrants to purchase 25,000 shares of common
stock at an exercise price of $6.00 per share to Kindling I, L.L.C. in
connection with a consulting agreement for intellectual property consulting
services.
(7) On October 1, 1999, we issued an aggregate of 16,394 shares of common stock
to Glen R. and Anne S. Douglas and Stanley F. and Marina Lynne Poitras in
connection with our acquisition of all of the outstanding capital stock of
Image Press, Inc. The shares represented $300,000 of the $3,120,000 purchase
price.
(8) On December 9, 1999 we acquired Printbid.com, Inc. pursuant to an agreement
and plan of merger among ImageX.com, Printbid.com and Orcas Acquisition
Corp., a wholly owned subsidiary of ImageX.com. The shareholders of
Printbid.com were issued an aggregate of approximately 568,778 shares of our
common stock in exchange for all of the outstanding capital stock of
Printbid.com.
(9) From January 1, 1999 to August 25, 1999, the registrant granted stock
options to purchase 930,880 shares of common stock, with exercise prices
ranging from $0.04 to $12.00. Of those options, options for 38,825 shares
have been canceled without being exercised, options for 192,410 shares have
been exercised and options for 2,000,000 shares remain outstanding.
The sales and issuances of these securities were exempt from registration
under the Securities Act, pursuant to Section 4(2) of the Securities Act, on the
basis that the transactions did not involve a public offering, or pursuant to
Rule 701 under the Securities Act, on the basis that these options were offered
and sold either pursuant to a written compensatory benefit plan or pursuant to
written contracts relating to consideration, as provided by Rule 701.
18
ITEM 6--SELECTED FINANCIAL DATA
You should read the following selected financial data in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the consolidated financial statements and related notes of
ImageX.com. Separate historical and proforma financial statements and related
notes are incorporated herein by reference to ImageX.com, Inc.'s Registration
Statement on Form S-1 and all amendments thereto, filed with the Securities and
Exchange Commission on January 13, 2000 (File Number 333-94639).
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31,
-------------------------------------------
1996 1997 1998(2) 1999(3)
-------- -------- -------- ----------
STATEMENT OF OPERATIONS DATA:
Revenues............................................ $ 79 $ 97 $ 968 $ 11,499
Cost of sales....................................... 99 100 998 8,541
------- -------- -------- ----------
Gross profit (loss)................................. (20) (13) (30) 2,958
------- -------- -------- ----------
Operating expenses:
Sales and marketing............................... -- 1,018 2,207 6,765
Product development............................... 300 1,316 2,750 3,770
General and administrative........................ 146 1,285 3,549 11,002
Amortization of unearned compensation............. -- -- 380 2,284
Amortization of goodwill and other intangibles.... -- -- -- 213
------- -------- -------- ----------
Total operating expenses...................... 446 3,619 8,886 24,034
------- -------- -------- ----------
Loss from operations................................ (466) (3,632) (8,916) (21,076)
Other income (expense), net......................... 3 62 (48) 241
------- -------- -------- ----------
Net profit (loss)................................... (463) (3,570) (8,964) (20,835)
Preferred stock accretion........................... -- -- (221) (84)
------- -------- -------- ----------
Net profit (loss) used in calculating per share..... $ (463) $ (3,570) $ (9,185) $ (20,919)
======= ======== ======== ==========
Basic and diluted net loss per share(1)............. $(13.60) $ (14.14) $ (12.25) $ (3.07)
======= ======== ======== ==========
Shares used in computation of basic and diluted net
loss per share(1)................................. 34,042 252,425 749,987 6,805,098
======= ======== ======== ==========
DECEMBER 31,
------------------------------
1997 1998(2) 1999(3)
-------- -------- --------
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 186 $ 967 $ 18,257
Working capital (deficit)................................... (616) (293) 18,053
Total assets................................................ 938 2,469 35,668
Long-term obligations, net of current portion............... 300 454 --
Mandatorily redeemable convertible preferred stock.......... 3,459 -- --
Accumulated deficit......................................... (4,033) (12,997) (33,832)
Total shareholders' equity (deficit)........................ (3,642) (10,887) 30,774
- ------------------------
(1) See Note 1 to ImageX.com Financial Statements for an explanation of the
method used in computing basic and diluted net loss per share.
(2) During December 1999, ImageX.com acquired PrintBid.com. The acquisition was
accounted for under the pooling-of-interest method and all consolidated
financial statements of ImageX.com have been restated to include the results
and balances of PrintBid.com for all periods presented.
(3) The 1999 results include the operations of Fine Art Graphics and Image
Press, which ImageX.com acquired in April 1999 and September 1999
respectively. See Note 13 to ImageX.com's financial
statements.
19
ITEM 7--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
When you read this section of our Form 10-K, it is important that you also
read the financial statements and related notes included elsewhere in this
report. This section of this report contains forward-looking statements that
involve risks and uncertainties, such as statements of our plans, objectives,
expectations and intentions. We use words such as "anticipate," "believe,"
"expect," "future" and "intend" and similar expressions to identify
forward-looking statements. Our actual results could differ materially from
those anticipated in these forward-looking statements for many reasons,
including the factors described below and in the section entitled, "Factors
Affecting ImageX.com's Operating Results." You should not place undue reliance
on these forward-looking statements, which apply only as of the date of this
report. We do not assume any obligation to revise forward looking statements.
OVERVIEW
ImageX.com is an Internet-based business-to-business e-commerce company in
the U.S. commercial printing industry. We derive substantially all our revenues
from the sale of printed business materials in both the marketing/promotional
and general office categories. Such products include business cards, stationary,
letterhead and other general office products, as well as color marketing
brochures, sell sheets and similar products.
Our e-procurement solution includes five services:
- Corporate Online Printing Center, a customized, secure Web site for larger
corporate customers containing an online catalog of their repeat-ordered
printed business materials;
- Small Business Printing Center, a small office/home office service through
which customers order personalized printed materials from a non-custom
site with online templates;
- PrintBid.com, an online bidding service in which print customers can
obtain bids from numerous participating vendors based on a specific set of
job criteria;
- PaperDeals.com, an online auction service for commercial paper stock aimed
at raw materials suppliers and print manufacturers; and
- PrintPlace.com, an online vertical marketplace for the graphic arts
industry.
For orders we receive through our Corporate Online Printing Center, we
charge customers for the printed products they order in accordance with
customer-specific pricing arrangements negotiated with each account. Orders are
fulfilled through our network of approximately 40 vendors and two company-owned
facilities and shipped directly to customers under the ImageX.com brand. To
date, we have derived substantially all of our revenues from our Corporate
Online Printing Center and from customers we obtained through acquisitions.
Orders placed through our Small Business Printing Center are fulfilled by a
private label supplier and shipped under the ImageX.com brand. We receive a
percentage of the purchase price paid by customers for each order placed through
the Small Business Printing Center. As of December 31, 1999, the Small Business
Printing Center had not generated significant revenues.
For our PrintBid.com bidding service, we intend to charge a transaction fee
for each print provider who bids on a job, although to date PrintBid.com has
been offered free of charge in order to generate traffic and use of the service.
For PaperDeals.com commercial paper auctions we charge a transaction fee to the
auction originator. As of December 31, 1999, PrintBid.com and PaperDeals.com had
not generated any revenues. PrintPlace.com currently does not generate any
revenue; however we intend to charge a link commission or a transaction or
subscription fee depending on the service plan the users of the site participate
in.
20
As an element of our sales and marketing strategy we enter into strategic
alliances with various parties. In certain of these arrangements we have agreed
to share revenue or pay transaction fees on revenue derived from the
relationship, and in one case to pay a fixed monthly fee regardless of revenue
generated. These relationships have not generated any material revenues to date.
In our Corporate Online Printing Center and Small Business Printing Center
and through our wholly owned subsidiaries, Image Press and Fine Arts Graphics,
we recognize product revenues when the order is shipped to the customer and we
have fulfilled all of our contractual obligations. We expect to recognize
revenue from our PrintBid.com, PaperDeals.com and PrintPlace.com services when
the service is performed and we bill the customer.
In the commercial printing industry, prices tend to move in correlation with
paper prices. We generally have been able to pass fluctuations in paper pricing
through to our customers, although this cannot be assured in the future. We also
offer volume discounts to customers, which we expect will continue.
Our customers include a wide variety of businesses, from Fortune 500
companies to small office operations. A substantial portion of our revenue has
been derived from customers that have come to ImageX.com by means of our
acquisitions of Fine Art Graphics, a commercial printer, in April 1999 and Image
Press, a print broker, in September 1999. Our goal in such acquisitions is to
convert acquired customers to our online print procurement system. Although we
generally expect that a majority of the historical revenue of acquired companies
will migrate to our online procurement system, such conversions require
significant time and effort, and we expect that customers who elect to convert
to online procurement will continue to order printing from us through
traditional means while they transition to e-procurement. In addition, there
will be customers that continue to use traditional procurement practices.
Currently, a substantial majority of our revenue is generated from acquired
customers ordering through traditional offline means. Although we may support
such traditional procurement after an acquisition, we intend to encourage our
acquired customers to order online over the long-term. To the extent we complete
additional acquisitions of print providers, the percentage of our revenue
generated by traditional offline procurement will likely increase, offset by any
customers and revenue that we convert to online procurement. Depending on the
number, size and frequency of acquisitions we may complete, revenue generated
through traditional means could continue to account for a significant percentage
of our total revenue.
For products sold through our Corporate Online Printing Center that are
produced by our network of vendors, gross profit is calculated as the selling
price of a specific product less the price our vendor charges us. For products
sold through our Corporate Online Printing Center that we produce in our own
facilities, gross profit is calculated as the selling price of the product
(including freight), less manufacturing costs, freight costs and certain
allocated overhead. For revenue generated through our Small Business Printing
Center, our cost of goods sold are not material. We expect that cost of goods
sold on revenue we may generate through the PrintBid.com and PaperDeals.com will
be minimal.
Our business incurs operating expenses in three broad expense categories:
sales and marketing, product development and general and administrative. We
expect our expenses in each of these categories to rise as our revenue grows. As
is typical of early-stage technology companies, most of our historical
expenditures have been in the product development and general and administrative
categories, as we have focused on building the ImageX.com online printing system
and an infrastructure suitable for future growth. In the future, we intend to
focus on acquiring new customers, converting customers of businesses we may
acquire to our online system and increasing our revenue base. As a result, we
expect that sales and marketing expenses and the general and administrative
expenses associated with our manufacturing operations will account for a
relatively larger percentage of our operating expenses. We expect our
infrastructure and development costs will decline over time as a percentage of
sales.
21
Our future success will depend on our ability to expand our customer base in
both existing and new geographic markets, improve the lifetime gross profit we
earn from our customers and lower our costs of customer acquisition. We intend
to focus on these three objectives to recoup our infrastructure and technology
investments and achieve profitability.
We are pursuing an aggressive growth strategy that includes building our
direct sales force, acquiring printing businesses that have strong customer
relationships and e-commerce companies with complimentary technologies or
services, and seeking alliance partners to co-market our services. In connection
with this growth strategy, we anticipate incurring substantial additional
operating expenses in the immediate future as we:
- expand our sales force and marketing organization in both existing and new
geographic markets and enter into strategic alliances;
- promote awareness of our brand name;
- hire additional programmers to further our product development efforts;
- execute and integrate any additional acquisitions; and
- expand the infrastructure needed to support the growth of our business.
We also anticipate incurring additional general and administrative costs to
the extent we are successful in growing our business. As a result of these
increased expenditures and other related factors, we expect to continue to incur
losses during the foreseeable future.
ACQUISITIONS
ImageX.com commercially launched its services in 1997 and had minimal
revenues in fiscal 1997 and 1998. We acquired Fine Arts Graphics, a commercial
printer focused exclusively on general office printing, which includes primarily
business cards, stationery and letterhead, in April 1999. Fine Arts Graphics'
historical revenue for fiscal 1998 was $10.5 million. In September 1999 we
acquired Image Press, a print broker, which had historical revenue for fiscal
1998 of $6.6 million. In December 1999, we acquired PrintBid.com, a provider of
online auction services in the commercial print procurement and paper markets.
PrintBid.com, which operates two businesses, PrintBid.com and PaperDeals.com,
had an accumulated deficit of approximately $2.2 million as of September 30,
1999. We expect that the operations of PrintBid.com and PaperDeals.com will
increase our losses for the foreseeable future. We incurred goodwill of
approximately $1.4 million and $914,000 in the acquisitions of Fine Arts
Graphics and Image Press, respectively, whereas the acquisition of PrintBid.com
was accounted for as a pooling of interests. We expect that we will incur
additional goodwill in the future to the extent we complete other acquisitions,
which may have a negative effect on our results of operations in future periods.
To the extent we acquire additional e-commerce companies or other businesses
that are losing money, our operating results will likely be adversely affected.
22
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain statement
of operations data expressed as a percentage of revenues. Historical periods
have been restated to reflect our acquisition of PrintBid.com in December 1999,
which was accounted for using the pooling-of-interest method. Pro forma
consolidated data giving effect to the acquisitions of Fine Arts Graphics and
Image Press as if each had occurred at the beginning of the period presented is
incorporated herein by reference to ImageX.com's Registration Statement or
Form S-1 and all amendments thereto filed with the Securities and Exchange
Commission on January 13, 2000 (File Number 333-94639).
SELECTED STATEMENT OF OPERATIONS DATA
YEAR ENDED DECEMBER 31,
--------------------------------------------
1996 1997 1998 1999
-------- -------- -------- --------
Revenues.................................................. 100% 100% 100% 100%
Cost of sales............................................. 126 115 103 74
---- ------ ---- ----
Gross margin.............................................. (26) (15) (3) 26
---- ------ ---- ----
Operating expenses:
Sales and marketing..................................... -- 1,167 228 59
Product development..................................... 382 1,509 284 33
General and administrative.............................. 186 1,474 367 96
Amortization of unearned compensation................... -- -- 39 20
Amortization of goodwill and other intangibles........ -- -- -- 2
---- ------ ---- ----
Total operating expenses............................ 568 4,150 918 210
---- ------ ---- ----
Loss from operations...................................... (594) (4,165) (921) (184)
Other income (expense), net............................... 4 71 (5) 2
---- ------ ---- ----
Net loss.................................................. (590)% (4,094)% (926)% (182)%
==== ====== ==== ====
We have incurred significant net losses since our inception. As of
December 31, 1999, we had accumulated a deficit of $33.8 million. Our limited
operating history and the uncertain and emerging nature of our market make it
difficult to assess our prospects or predict our future results of operations.
Therefore, you should not consider our recent revenue growth as an indication of
our future rate of revenue growth, if any. Our prospects are subject to the
risks and uncertainties frequently encountered in establishing a new business
enterprise, particularly in the new and rapidly evolving markets for online
products and services. Because of our short operating history, period-to-period
comparisons of our results of operations are not necessarily meaningful. As a
result, you should not rely on such comparisons as indications of our future
performance.
YEARS ENDED DECEMBER 31, 1999 AND 1998
REVENUES
Revenues were $968,000 and $11.5 million for the years ended December 31,
1998 and 1999, respectively, representing an increase of $10.5 million, 1,088%,
over the prior year. This increase was primarily due to the acquisition of Fine
Arts Graphics and Image Press customers in 1999 and to an increased number of
customers using our online system, from approximately 80 customers at
December 31, 1998 to approximately 200 customers at December 31, 1999. The
increase in the number of customers contributes to both increased product and
service revenues.
23
GROSS PROFIT
Gross profits/(loss) were ($30,000) and $3.0 million for the years ended
December 31, 1998 and 1999, respectively, representing an increase of
$3.0 million in 1999 over the prior year. The increase in gross profit was
primarily due to our expanded customer base and consequent increased sales
volumes, increased product pricing to our customers, and decreased costs due to
renegotiated supplier pricing with several of our key commercial print vendors.
SALES AND MARKETING EXPENSES
Sales and marketing expenses consist primarily of salaries and related
benefits for sales and marketing personnel, advertising expenses, marketing
expenses, and travel expenses. Sales and marketing expenses were $2.2 million
and $6.8 million for the years ended December 31, 1998 and 1999, respectively,
representing an increase of $4.6 million, or 208%, over the prior year. The
increase in sales and marketing expenses resulted primarily from hiring new
sales representatives and marketing personnel, travel expenses, and marketing
expenses, including public relations, company Web site maintenance,
telemarketing expenses, and printed marketing materials. We expect that sales
and marketing expenses will continue to grow as we pursue an aggressive growth
strategy and hire additional sales and marketing personnel.
PRODUCT DEVELOPMENT EXPENSES
Product development expenses consist primarily of salaries and benefits for
developers, product managers, and quality assurance personnel. Product
development expenses were $2.8 million and $3.8 million for the years ended
December 31, 1998 and 1999, respectively, representing an increase of
$1.0 million or 37%, over the prior year. The increase in product development
expenses was due to an increase in amortization resulting from the
capitalization of certain software development costs relating to our Corporate
Online Printing Center, increased salary and benefit related expenses from
hiring new personnel and the inclusion of product development expenses
associated with PrintBid.com. We believe that continued investment in product
development is critical to attaining our goals and the dollar amount of product
development expenses will increase in future periods, although they may decline
as a percent of total revenues.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses consist primarily of salaries and
benefits for executive, finance, administrative and information technology
personnel as well as outside professional services and facilities related
expenses. General and administrative expenses were $3.5 million and
$11.0 million for the years ended December 31, 1998 and 1999, respectively,
representing an increase of $7.5 million, or 210%, over the prior year. The
increase in general and administrative expenses was primarily due to our hiring
additional executive, finance, administrative and information technology
personnel as well as outside contractors to support the growth of our business.
In addition, we have had higher expenses resulting from depreciation, software
maintenance expenses, and professional fees. Increases in general and
administrative expenses were also a result of the inclusion of PrintBid.com's
expenses. We believe that our general and administrative expenses will continue
to increase as a result of the continued expansion of our administrative staff
and the expenses associated with becoming a public company, including, but not
limited to, annual and other public-reporting costs, directors' and officers'
liability insurance, investor-relations programs and professional services fees.
AMORTIZATION
The amortization of unearned compensation was $380,000 and $2.3 million for
the years ended December 31, 1998 and 1999, respectively, representing an
increase of $1.9 million, or 501%, over the prior year. This total unearned
compensation amount represents the difference between the fair value of our
common stock for accounting purposes at the date of grant and the exercise or
purchase price of such
24
securities, as applicable. The unamortized portion of this total unearned
compensation amount is reflected as a reduction of shareholders' equity and will
be amortized over the remaining vesting period of the applicable stock or
options. The unearned compensation is being amortized in accordance with
Financial Accounting Standards Board Interpretation No. 28 over the vesting
period of the individual options, generally four years.
The amortization of goodwill and other intangibles is $0 and $213,000 for
the years ended December 31, 1998 and 1999, respectively, representing an
increase of $213,000, or 100%, over the prior year. The goodwill and other
intangibles arose as a result of the acquisition of Fine Arts Graphics and Image
Press.
OTHER INCOME (EXPENSE), NET
Other income and expense consist primarily of interest income and interest
expense. The net other income/expense were an expense of $48,000 and income of
$241,000 for the years ended December 31, 1998 and 1999, respectively,
representing an increase of $289,000, over the prior year. The expense for the
year ended December 31, 1998 was interest on debt outstanding. With the proceeds
of our public offering in August 1999, all existing debt was paid off and the
remaining proceeds were invested which resulted in a net interest income for the
year ended December 31, 1999.
INCOME TAXES
No provision for federal income taxes has been recorded to date because we
incurred net operating losses from inception through December 31, 1999. As of
December 31, 1999, we had approximately $31.2 million of net operating loss
carryforwards for federal income tax purposes, expiring in 2011 through 2019.
These losses are available to offset future taxable income. Given our limited
operating history, losses incurred to date and the difficulty in accurately
forecasting our future results, we do not believe that the realization of the
related deferred income tax assets meets the criteria required by generally
accepted accounting principles and, accordingly, no deferred tax asset has been
recorded.
NET LOSS
The net loss was $9.0 million and $20.8 million for the years ended
December 31, 1998 and 1999, respectively, representing an increase of
$11.8 million, or 132%, over the prior year. The $11.8 million increase in net
loss for the year ended December 31, 1999 was as a result of increased spending
in all categories--sales and marketing, product development, general and
administrative, and amortization; as we have completed three acquisitions and
had significant growth overall during the year ended December 31, 1999.
YEARS ENDED DECEMBER 31, 1998 AND 1997
REVENUES
Revenues for 1998 increased 1,013% to $968,000 from $87,000 in 1997. Product
revenues for 1998 increased 1,117% to $913,000 from $75,000 for 1997, while our
service revenues increased 358% to $55,000 from $12,000 for 1997. The increase
in revenues was due to the commercial launch of the ImageX.com system in
October 1997, the addition of new customers and launching the sale of marketing
promotional materials in 1998.
GROSS PROFIT
We experienced a negative gross profit of $30,000 in 1998 compared to
$13,000 in 1997. Negative gross margin for 1998 was 3% compared to 15% for 1997.
The improvement was a result of higher pricing to our customers and lower vendor
costs.
25
SALES AND MARKETING EXPENSES
Sales and marketing expenses for 1998 increased 117% to $2.2 million from
$1.0 million for 1997. This increase resulted from a $487,000 increase in salary
expense, a $229,000 increase in promotional marketing expenditures and a
$171,000 increase in advertising expenditures. In addition, we did not commence
commercial marketing efforts until the last quarter of 1997.
PRODUCT DEVELOPMENT EXPENSES
Product development expenses for 1998 increased 109% to $2.8 million
from$1.3 million for 1997. The increase resulted primarily from the addition of
software developers to our team and our investment in equipment to maintain and
upgrade our proprietary software and infrastructure systems.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for 1998 increased 176% to $3.5 million
from $1.3 million for 1997. The increase resulted primarily from a $531,000
increase in salary expense, a $283,000 increase in contract labor, a $213,000
increase in professional fees and a $147,000 increase in recruiting expense.
OTHER INCOME (EXPENSE), NET
Interest expense, net for 1998 decreased to an expense of $48,000 from
income of $62,000 for 1997 as a result of establishing and using a working
capital line and other bank credit facilities.
NET LOSS
Net loss increased substantially to $9.0 million for the year ended
December 31, 1998 from $3.6 million for the year ended December 31, 1997 as a
result of increased sales and marketing, product development and general and
administrative expenses. These increased expenses resulted from the commercial
launch of the ImageX.com system in October 1997. Net loss also increased as a
result of the inclusion of PrintBid.com's operating expenses in 1998. As a
percentage of sales, net loss decreased to 926% for the year ended December 31,
1998 from 4,103% for the year ended December 31, 1997. The decrease in net loss
as a percentage of sales was primarily due to an $881,000 increase in our
revenue base.
LIQUIDITY AND CAPITAL RESOURCES
Prior to our initial public offering, we financed our operations primarily
through sales of equity securities and, to a lesser degree, through the use of
long-term debt. As of December 31, 1999, we had raised approximately
$36.7 million, net of offering costs, from private placements of preferred stock
and approximately $4.1 million from borrowings under convertible notes and bank
credit facilities. As of December 31, 1999, these borrowings under convertible
notes and bank credit facilities were fully paid off. In August 1999, we
completed our initial public offering and issued 3,450,000 shares of common
stock at an initial public offering price of $7.00 per share. We received
approximately $21.0 million in cash proceeds, net of underwriting discounts,
commissions and other offering costs.
As of December 31, 1999, we had cash and cash equivalents of $18.3 million,
representing an increase of $17.3 million from cash and cash equivalents held as
of December 31, 1998. Our working capital at December 31, 1999 was
$18.1 million, compared to a working capital deficit of ($293,000) at
December 31, 1998.
Net cash used in operating activities was $17.3 million and $7.4 million for
the years ended December 31, 1999 and 1998, respectively. The operating cash
outflows were primarily attributable to significant expenditures on product
development, sales and marketing and general and administrative expenses, all of
which led to operating losses. The cash outflows resulting from operating losses
and increases in accounts receivable, inventories and prepaid expenses were
partially offset by increases in current liabilities, including trade payables.
26
Net cash used in investing activities was $11.6 million and $895,000 for the
years ended December 31, 1999 and 1998, respectively, and consisted of capital
expenditures, including equipment and the acquisitions of Fine Arts Graphics and
Image Press.
Net cash provided by financing activities was $46.1 million for the year
ended December 31, 1999 and consisted primarily of $21.3 million in net proceeds
from the issuance of common stock and $24.7 million in net proceeds from the
issuance of convertible preferred stock.
Net cash provided by financing activities was $9.1 million for the year
ended December 31, 1998 primarily from the issuance of convertible preferred
stock and borrowings pursuant to convertible notes and bank credit facilities.
We anticipate a substantial 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,
geographic expansion and integration of any new acquired businesses. We expect
to substantially increase our operating expenses, which will consume a material
amount of our cash resources; however, we believe that our existing cash and
cash equivalents are sufficient to meet our anticipated cash needs for working
capital and capital expenditures for at least the next 12 months. However, our
future capital requirements will depend on many factors that are difficult to
predict, including the size, timing and structure of any acquisitions that we
complete, our rate of revenue growth, our operating losses, the cost of
obtaining new customers and technical capabilities, and the cost of upgrading
and maintaining our network infrastructure and other systems. We expect that we
will need to raise additional capital in the future to fund our operations and
to pursue our growth strategy. We have no commitments for additional financing,
and we may experience difficulty in obtaining additional funding on favorable
terms, if at all. Any difficulty in obtaining additional financial resources
could force us to curtail our operations or prevent us from pursuing our growth
strategy. Any future funding may dilute the ownership of our existing
shareholders.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use." SOP 98-1 is effective for financial
statements for years beginning after December 15, 1998. SOP 98-1 provides
guidance on accounting for computer software developed or obtained for internal
use, including a requirement to capitalize specified costs and amortize such
costs. We adopted this statement effective January 1, 1999. As of December 31,
1999, we had capitalized computer software costs of $1,078,000 and had recorded
the related amortization expense of $758,000 for the year ended December 31,
1999.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition", which
provides guidance on the recognition, presentation and 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 disclosures
related to revenue recognition policies. Management believes that the impact of
SAB 101 will have no material effect on the financial position or results of
operations of the Company.
AMORTIZATION OF UNEARNED COMPENSATION, GOODWILL AND OTHER INTANGIBLES
Amortization consists of the amortization of unearned compensation, goodwill
and other intangible assets. The amortization of unearned compensation is a
result of recording the difference between the fair value of our common stock at
the date of grant and the exercise or purchase price of such securities, as
applicable. The unearned compensation is amortized over the remaining vesting
period of the applicable stock or options. The amortization of goodwill and
other intangible assets is a result of the acquisitions of Fine Arts Graphics
and Image Press. The amortization of goodwill is over a 10-year period and the
amortization periods of other intangible assets range from 3 to 8 years.
27
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded to
accept only two-digit entries in the date code field. In order to distinguish
21st century dates from 20th century dates, the date code field needed to be
expanded to 4 digits. As a result, many companies' software and computer systems
were upgraded or replaced in order to comply with these Year 2000 requirements.
The use of software and computer systems that are not Year 2000 compliant could
have resulted in system failures or miscalculations resulting in disruptions of
operations, including among other things, a temporary inability to process
transactions, send invoices, or engage in normal business activities. To date,
we have not suffered any disruptions in our computer systems or software when
the expanded date code field was first used on January 1, 2000. In addition, to
date, we have not been made aware that any third-party systems we rely on, the
manufacturing systems of our vendors or the systems our customers use to order
our services have suffered disruptions in their systems.
IMPACT OF INFLATION
Although the company has not attempted to calculate the effect of inflation,
management does not believe inflation has had a material effect on the company's
results of operations. In the future, increases in costs and expenses,
particularly raw materials and labor costs may have a significant impact on the
company's operating results to the extent that such cost increases cannot be
passed along to the customers.
SUBSEQUENT EVENTS
On February 11, 2000, we completed a public offering of our common stock
pursuant to a registration statement on Form S-1, file number 333-94639. The
managing underwriters of the offering were Chase Securities, Inc., Banc of
America Securities, LLC, Prudential Securities Incorporated and SG Cowen
Securities Corporation. The offering consisted of 4,695,595 shares of our common
stock, including 695,595 shares of common stock pursuant to the exercise of the
underwriter's over-allotment option. The aggregate price of the shares offered
and sold was $107,998,685. After accounting for approximately $5.6 million in
underwriting discounts and commissions and $729,790 in other expenses, we
received proceeds of approximately $101.6 million.
The principal purposes of this offering were to obtain additional capital
and to enhance our ability to acquire other businesses, products or
technologies. We intend to use the proceeds for working capital, capital
expenditures and other general corporate purposes. We may also use a portion of
the net proceeds to acquire or invest in businesses, technologies or products
that are complementary to our business. We currently have no commitments or
agreements with respect to any acquisitions.
The amounts that we actually require for working capital will vary
significantly depending on a number of factors, including future revenue growth,
if any, the amount of cash we generate from operations and the timing and terms
of any acquisitions we may complete. As a result, we will retain broad
discretion in allocating the net proceeds of this offering. Pending the uses
described above, we will invest the net proceeds in short-term,
interest-bearing, investment-grade securities.
FACTORS AFFECTING IMAGEX.COM'S OPERATING RESULTS
You should carefully consider the risks described below and the other
information in this report. While we have attempted to identify all risks that
are material to our business, additional risks that we have not yet identified
or that we currently think are immaterial may also impair our business
operations. The trading price of our common stock could decline due to any of
these risks. In assessing these risks, you should also refer to the other
information in this report, including the consolidated financial statements and
related notes.
28
WE HAVE A LIMITED OPERATING HISTORY AND ARE SUBJECT TO THE RISKS OF NEW
ENTERPRISES. We began operations in 1996 and commercially introduced our
Internet-enabled printing services in October 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 sales efforts, acquisitions of printers and print brokers
and strategic alliances;
- significantly expand our sales and marketing organization;
- convert customers of businesses we may acquire to the ImageX.com online
system;
- retain our existing customers and increase sales to these customers;
- significantly increase our gross margins;
- manage our growth effectively, assuming we succeed in expanding our
business;
- raise additional capital;
- anticipate and respond to competitive developments;
- enhance our product and service offerings
- develop and upgrade our internal control systems; and--identify, attract,
retain and motivate qualified personnel.
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
December 31, 1999, we had an accumulated deficit of $33.8 million. Although we
have experienced revenue growth in recent periods, our revenues may not continue
at their current level or increase in the future. We expect to continue to incur
operating losses for the foreseeable future. Moreover, we currently expect to
increase our operating expenses significantly in connection with:
- expanding our sales and marketing organization;
- continuing to develop our services and technology;
- hiring additional personnel;
- upgrading our information and internal control systems; and
- pursuing acquisitions as part of our growth strategy.
If we are unable to rapidly increase our revenues and operating margins, 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 eventually become profitable.
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 characterized by individual orders
from customers for specific printing projects rather than long-term contracts.
Continued engagement for successive jobs depends on the
29
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, quarterly
fluctuations may also result from:
- our ability to obtain new customers and upgrade acquired customers to the
ImageX.com online system;
- changes in our operating expenses and capital expenditure requirements;
- our ability to retain our existing customers and increase sales to them;
- the timing of announcement and completion of any acquisitions we pursue;
- changes in the mix of printing services we sell;
- the timing of customer orders;
- 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. Moreover, because of our
short operating history and our acquisitions of Fine Arts Graphics in
April 1999, Image Press in September 1999 and PrintBid.com in December 1999,
period-to-period comparisons of our operating results are not necessarily
meaningful. As a result, you should not rely on such comparisons as indications
of our future performance.
OBTAIN NEW CUSTOMERS, WE MUST OVERCOME LONG STANDING CUSTOMER RELATIONSHIPS
AND LONG SALES CYCLES. Many of the potential customers that we pursue through
our direct sales process have long-standing business relationships and personal
ties with their existing printers, which they are reluctant to disrupt.
Customers are also often reluctant to change their existing ordering and
production processes to take advantage of our Internet-based printing services.
To successfully sell our products, we generally must educate our potential
customers on the use and benefits of our system, which can require significant
time and resources. Consequently, we must incur substantial expenses in
acquiring new customers and converting them to the ImageX.com online system. The
period between initial contact and the purchase of our products through our
online system is often long and subject to delays associated with the lengthy
approval and competitive evaluation processes that typically accompany a
customer's decision to change its outsourcing relationships. For typical
customers, the sales cycle takes between two to twelve weeks, but for large
customers, the sales cycle may require more than one year.
A substantial majority of our revenue is derived from customers that we have
obtained through acquisitions of print providers. A substantial majority of such
revenue is currently generated through traditional offline orders rather than
through our online procurement system. To the extent we complete additional
acquisitions of print providers, the percentage of our revenue generated by
traditional offline procurement will likely increase, offset by any customers
and revenue that we convert to our online procurement system. In order for our
business to be successful, we must increase the percentage of our revenue from
online ordering while increasing our revenue in absolute terms. There can be no
assurance that we will be able to convert acquired customers fast enough to
accomplish this.
WE MAY NOT BE ABLE TO GROW SUCCESSFULLY THROUGH ACQUISITIONS. To expand our
business and our customer base, we intend to pursue acquisitions of other
commercial printers and print brokers as well as companies with complementary
technologies or who offer complementary products or services to businesses
through the Internet.
To date, we have acquired Fine Arts Graphics, a commercial printer, in
April 1999, Image Press, a commercial print broker, in September 1999, and
PrintBid.com, an Internet-based provider of commercial
30
printing services, in December 1999. We may not be able to successfully
negotiate definitive agreements with, or to successfully complete and integrate
any acquisitions of, any future acquisition candidates.
To the extent we complete acquisitions using cash rather than stock, we may
need to raise additional capital in order to continue operations after we expend
our existing capital resources. We cannot assure you that our strategy of
achieving customer and revenue growth through acquisitions of businesses will be
successful. To be successful we must be able to:
- identify printing businesses with strong customers and sound economics and
operations and companies with complementary technologies or product and
service offerings;
- effectively compete with numerous other potential acquirers, particularly
a number of large companies that are aggressively seeking to consolidate
segments of the printing industry, and other e-commerce companies seeking
such technologies or service offerings;
- succeed in converting key acquired customers to the ImageX.com system, to
increase their purchases of print products and services and to minimize
customer attrition;
- motivate, train and retain the sales forces and other key personnel of
acquired businesses;
- maintain or improve the profit margins and cash flow of acquired
businesses;
- integrate the operations, procedures and technologies of acquired
businesses with our own systems and infrastructure;
- minimize disruptions to our operations and distractions to our management;
- maintain consistent product standards and policies and adequate internal
controls;
- successfully dispose of or find alternative uses for excess facilities and
manufacturing capacity; and
- maximize the usefulness of acquired technologies in our business.
We cannot predict whether pursuing acquisitions will allow us to grow
rapidly enough to recover the large investments we have made, and must continue
to make, in our technology and systems. Our business model depends on rapid
growth of revenues to achieve profitability. The integration of acquired
businesses is often difficult, time-consuming and expensive. If acquiring
businesses proves too costly or time-consuming, or if we are unable to
successfully retain the customers or personnel of acquired businesses, our
growth rate may not be sufficient to achieve profitability in the foreseeable
future, if ever. In addition, the amortization of goodwill and other intangible
assets, or other charges resulting from the cost of business acquisitions, could
adversely affect our operating results.
THERE ARE RISKS ASSOCIATED WITH OUR NEW BUSINESSES. In December 1999, we
acquired PrintBid.com, an online bidding service for individual print jobs, and
its affiliate PaperDeals.com, an online auction site for commercial paper stock.
The success of PrintBid.com and PaperDeals.com will depend in large part on our
ability to build a critical mass of print and paper buyers and suppliers. To
attract and maintain print suppliers, we must build a critical mass of print
buyers. However, print buyers must perceive value in our procurement solution
and this, in part, depends on the breadth of our print supplier base. If we are
unable to increase the number of print suppliers and draw more print buyers to
the PrintBid.com and PaperDeals.com sites, we will not be able to benefit from
any network effect, where the value to each participant in those marketplaces
increases with the addition of each new participant. As a result, the value of
those sites and the success of our business could be harmed. Our failure to
create and maintain this network effect would negatively affect our business,
revenues, financial condition and results of operations.
PrintBid.com is currently operating free-of-charge to print buyers and
printers. With the introduction of its enhanced version, PrintBid.com has
advised printers participating in the system that a transaction fee will be
charged for bids submitted and contracts won. Once we start charging a
transaction fee for PrintBid.com's services, it is possible that the number of
printers participating in the system will decrease
31
or will not increase to the extent necessary to build the critical mass of print
buyers necessary for our PrintBid.com business to succeed.
WE MAY NOT BE ABLE TO SUCCESSFULLY EXPAND OUR SALES AND CUSTOMER SUPPORT
INFRASTRUCTURE, WHICH COULD LIMIT OUR GROWTH. To date, we have sold our products
primarily through our direct sales force and have supported our customers with
our customer support personnel. Our ability to expand our business will depend
in part on recruiting and training additional direct sales and customer support
personnel, including additional personnel in new geographic markets into which
we might expand. Competition for qualified personnel in these areas is intense.
Although we are an Internet-based business-to-business intermediary,
face-to-face contact is a key component of our sales process. As a result,
geographic expansion of our sales force is important to our ability to acquire
new customers. We may not be able to successfully expand our direct sales force,
which would limit our ability to expand our customer base. We may be unable to
hire highly trained customer support personnel, which would make it difficult
for us to meet customer demands. In addition, we plan to rely on our sales and
marketing and customer support personnel to retain the customers of printers and
print brokers that we may acquire in the future and convert these customers to
our online printing system. As a result, any difficulties we may have in
expanding our sales and marketing or customer support organizations will have a
negative impact on our ability to successfully capitalize on any acquisitions we
may complete.
WE WILL NEED TO RAISE ADDITIONAL CAPITAL IN THE FUTURE, WHICH CAN CAUSE
DILUTION. We expect that we will need to raise additional capital in the future,
in order to fund our operations and pursue our growth strategy. We believe our
existing cash and cash equivalents, will be sufficient to meet our anticipated
cash needs for working capital and capital expenditures for at least the next
12 months. However, our future capital requirements will depend on many factors
that are difficult to predict, including the size, timing and structure of any
acquisitions that we complete, our rate of revenue growth, our operating losses,
the cost o obtaining new customers and technical capabilities, and the cost of
upgrading and maintaining our network infrastructure and other systems. As a
result, we cannot predict with certainty the timing or amount of our future
capital needs. We have no commitments for additional financing, and we may
experience difficulty in obtaining additional funding on favorable terms, if at
all. Any difficulty in obtaining additional financial resources could force us
to curtail our operations or prevent us from pursuing our growth strategy.
Any future funding may dilute the ownership of our shareholders.
Shareholders could experience additional dilution if we issue shares of our
stock to pay for acquisitions of other businesses or assets. In addition, our
board of directors has broad discretion to determine the rights and preferences
of securities issued to investors or shareholders of acquired businesses in the
future. If we issue securities with senior or superior rights and powers,
existing shareholders may be adversely affected.
FAILURE TO ADDRESS STRAIN ON OUR RESOURCES CAUSED BY RAPID GROWTH COULD MAKE
IT DIFFICULT TO MANAGE OUR BUSINESS. Our business has grown rapidly in the last
year and must continue to do so for us to become profitable. Our recent rapid
growth has placed and, if sustained, will continue to place, a significant
strain on our management and operations. Accordingly, our future operating
results will depend on the ability of our officers and other key employees to
continue to implement and improve our operational, customer service and internal
control systems, and to effectively expand, train and manage our employee base.
We are in the process of implementing new financial and reporting enterprise
application systems on a company-wide basis to support our anticipated growth
and integrate the operations of acquired businesses with those of ImageX.com. We
cannot be sure that these systems will be adequate for our immediate needs. In
addition, we may encounter problems, delays or additional costs in implementing
these systems. We cannot be certain that we will be able to manage any future
expansion. If we fail to effectively plan and manage future growth in our
business, we could face a loss of business and customers, and a deterioration of
our financial outlook.
32
WE MAY NOT BE ABLE TO ESTABLISH OUR BRAND NAME, WHICH COULD LIMIT OUR
ABILITY TO COMPETE EFFECTIVELY. We have not yet developed a strong brand name on
a national basis. We believe that establishing and maintaining a strong brand
name is a critical aspect of attracting and expanding our customer base in
existing and new markets. Strong branding is also critical to maintaining and
building on the competitive advantage of being the first company to provide
businesses with an integrated, Internet-based marketplace for printing
solutions. The importance of brand name recognition will increase with
competition. We will need to devote substantial financial and management
resources to promoting and enhancing our brand, particularly as we expand into
new geographic markets through direct sales, acquisitions and/or strategic
alliances. There is a risk that the costs associated with our brand promotion
strategy may exceed the benefits we may receive from those efforts. If we select
the wrong channels to promote the ImageX.com brand, fail to develop and target
an effective customer message or otherwise fail to successfully promote and
maintain our brand name, we will not be able to realize the benefits of strong
brand recognition. Any failure to develop a strong brand will prevent us from
exploiting our first-mover advantage in our market and will leave us more
susceptible to competition from other Internet-based printing service providers.
INCREASES IN PAPER PRICES AND SHORTAGES IN PAPER SUPPLY COULD ADVERSELY
AFFECT OUR GROSS MARGINS AND OPERATING RESULTS. The cost of paper is a principal
factor in the pricing we receive from our network of commercial printing vendors
and our own pricing through our two production facilities. We are generally able
to pass increases in the cost of paper on to customers, while decreases in paper
costs generally result in lower prices to customers. In the last three years,
paper prices have fluctuated dramatically. If we are unable to pass future paper
cost increases on to our customers, or if our customers reduce their order
volume, our profit margins and cash flows could be adversely affected.
In recent years, increases or decreases in demand for paper have led to
corresponding pricing changes. In periods of high demand, certain paper grades
have been in short supply, including grades we and our commercial printing
vendors use. Any loss of the sources for paper supply or any disruption in our
suppliers' businesses or their failure to meet our product needs on a timely
basis could cause, at a minimum, temporary shortages in needed materials, which
could have a material adverse effect on our operating results, sales, profit
margins and cash flows.
WE MAY BE EXPOSED TO ENVIRONMENTAL LIABILITIES AND MAY FACE INCREASED COSTS
OF COMPLIANCE WITH ENVIRONMENTAL LAWS AND REGULATIONS. The printing business
generates substantial quantities of inks, solvents and other waste products
requiring disposal. The printing facilities that we operate are subject to
federal and state environmental laws and regulations concerning emissions into
the air, discharges into waterways and the generation, handling and disposal of
waste materials. We believe our facilities are in substantial compliance with
these laws and regulations at this time. However, changes to these laws and
regulations could increase the cost of our doing business or otherwise have a
material adverse effect on our business, financial condition and operating
results. In addition, although we maintain commercial property insurance at all
our facilities, this insurance may not be adequate to cover any claims against
us for environmental liabilities.
TECHNOLOGY DEVELOPMENTS COULD REDUCE THE DEMAND FOR OUR PRODUCTS AND
SERVICES. In recent years, the market for printed business materials has
experienced significant changes due to advances in computer and communication
technologies. Certain products that were once commercially printed are now
generated on computers through word processing or desktop publishing software.
In addition, some information is now disseminated in a digital or electronic
format rather than in a paper format. These trends could continue in the future,
resulting in decreased demand for our products and services.
IF WE CANNOT RETAIN OUR KEY MANAGEMENT PERSONNEL AND HIRE ADDITIONAL
QUALIFIED MANAGEMENT AND TECHNICAL PERSONNEL, WE WILL NOT BE ABLE TO
SUCCESSFULLY MANAGE OUR OPERATIONS AND PURSUE OUR STRATEGIC OBJECTIVES. Our
future success depends on the continued services of certain key management
personnel, particularly our President and Chief Executive Officer, Richard P.
Begert and our Chief Technology
33
Officer, Cory E. Klatt. We also must identify, attract and retain additional
qualified management and technical personnel to manage and support our business.
Competition for top management and technical personnel is intense, and we may
not be able to recruit and retain the personnel we need. Our future success
depends to a significant extent on the ability of our executive officers and
other members of our management team to operate effectively, both individually
and as a group. We cannot be certain that we will be able to satisfactorily
allocate responsibilities and that the new members of our executive team will
succeed in their roles. The loss of any one of our key management personnel,
particularly Mr. Begert, or the inability to attract, retain and integrate
additional qualified personnel would make it difficult for us to successfully
manage our operations and pursue our strategic objectives.
IF BUSINESSES DO NOT ACCEPT THE INTERNET AS A MEANS OF PROCURING PRINTED
BUSINESS MATERIALS, OUR BUSINESS WILL FAIL. For us to succeed, the Internet must
continue to be adopted as an important means of buying and selling products and
services. In particular, Internet electronic commerce must evolve beyond its
current role as a consumer retail channel and become a leading
business-to-business purchasing tool. Because online procurement of business
products and services is still in its nascent stage, it is difficult to estimate
the size of this market and its growth rate, if any. To date, many businesses
have been deterred from using the Internet for procurement for a number of
reasons, including:
- security concerns;
- unavailability of cost-effective, high-speed Internet access;
- inconsistent quality of service;
- potentially inadequate development of the global Internet infrastructure;
and
- the difficulty of integrating existing business software applications with
online purchasing systems.
Even if the Internet is widely adopted for business procurement, it may not
achieve broad market acceptance for printing services procurement. Companies
that have already invested substantial resources in traditional methods of
printed business materials procurement may be reluctant to adopt new Internet-
based ordering systems.
We have expended, and will continue to expend, significant resources
educating potential customers about our services, capabilities and benefits. We
may not be successful in achieving market acceptance of the ImageX.com system or
in achieving significant market share before competitors offer products,
applications or services with features similar or superior to our current or
proposed offerings.
IF WE ARE UNABLE TO COMPETE SUCCESSFULLY AGAINST TRADITIONAL PRINTING
COMPANIES OR OTHER BUSINESSES OFFERING INTERNET-BASED PRINTING SERVICES, OUR
BUSINESS WILL FAIL. The market for printed business materials is intensely
competitive. We compete primarily with local and regional printers, which are
either independent or owned by print industry consolidators. The U.S. commercial
printing industry is highly fragmented, with over 30,000 local and regional
commercial printers operating nationwide in 1998. These local and regional
printers typically have significant excess production capacity. Therefore, they
compete aggressively for business printing orders in the markets they serve.
Traditional commercial printers often have long-standing relationships with
customers. We face substantial challenges in convincing businesses to consider
alternatives to their traditional printers. In addition, printers typically have
extensive local sales forces that regularly canvass and solicit businesses in he
areas they serve. Commercial printers compete primarily on product pricing,
product and service quality and, to a lesser extent, on innovation in printing
technologies and techniques. To attract new customers and retain our existing
customers, we must compete effectively in each of these areas.
We also face substantial competition from printing services
brokers--companies that contract with businesses to select and procure printing
services from a variety of printers. Brokers are able to offer customers a
relatively wide variety of products and services, and are often able to obtain
favorable pricing
34
for their customers by soliciting bids from a variety of printers. Like local
and regional printers, printing services brokers often have long-standing
customer relationships and extensive local direct sales forces.
We also face direct competition from other companies that market integrated
Internet-based business printing services similar to ours. Potential developers
of competing electronic commerce services may include:
- consumer printing services providers, including Internet-based providers;
- office services providers;
- equipment manufacturers; and
- financial printers and publishers.
Many of our current and potential future competitors have substantially
greater financial, marketing and other resources than we do. As a result, they
may be able to market their products, services and branding more aggressively
than we are able to, and may be able to significantly undercut our pricing for
extended periods of time. They may also be able to respond more quickly and
effectively to emerging new technologies and to changes in customer requirements
and preferences.
WE DERIVE A SUBSTANTIAL PORTION OF OUR REVENUES FROM A SMALL NUMBER OF
CUSTOMERS, ANY OF WHICH COULD REDUCE THEIR PURCHASES AT ANY TIME. A small number
of our customers account for a substantial percentage of our revenues. We have
not entered into long-term agreements with any of our customers. Any of our
significant customers could stop purchasing printing services from us, or
significantly reduce their purchases, at any time. Our largest customer, CB
Richard Ellis, accounted for 13% of our revenues for the year ended
December 31, 1999. In addition, our combined top 10 customers accounted for 45%
of our revenues for the year ended December 31, 1999.
IF WE CANNOT CONTINUOUSLY ENHANCE OUR TECHNOLOGY AND SERVICES IN RESPONSE TO
RAPID CHANGES IN CUSTOMER NEEDS, COMPETITIVE OFFERINGS, INDUSTRY STANDARDS AND
TECHNOLOGY, OUR BUSINESS WILL FAIL. Our future success will depend on our
ability to maintain and develop competitive technologies, to continue to enhance
our current services, and to develop and introduce new services in a timely and
cost-effective manner. W must be able to continuously adapt to changing
conditions, including evolving customer needs, new competitive service
offerings, emerging industry standards and rapidly changing technology. Both the
business printing services market and the general Internet commerce sector are
subject to rapidly changing technology and standards, changes in customer
requirements and frequent new product introductions and enhancements. We may be
unable to develop and market, on a timely basis, if at all, service enhancements
or new services that respond to changing market conditions or that will be
accepted by buyers of printed business materials. Any failure by us to
anticipate or respond quickly to changing market conditions, or any significant
delays in service development or introduction, could cause customers to delay or
decide against purchasing our services.
DIFFICULTIES WITH THIRD-PARTY SERVICES AND TECHNOLOGIES COULD DISRUPT OUR
BUSINESS AND UNDERMINE OUR REPUTATION. Our success in attracting and retaining
customers and convincing them to increase their reliance on our Internet-based
printing services depends on our ability to offer customers reliable, secure and
continuous service. This in turn requires us to ensure continuous and error-free
operation of our systems and network infrastructure. We rely on third parties to
provide key components of our networks and systems. For instance, we rely on a
third-party Internet services provider for the high-speed connections that link
our Web servers and office systems to the Internet. We also rely on third-party
communications services providers to provide secure connections to relay
customer order information to our network of commercial printing vendors. Few of
our systems have redundant backup systems capable of mitigating the effect of
service disruptions. Any Internet or communications systems failure or
interruption could result in disruption of our service or loss or compromise of
customer orders and data. Such failures,
35
especially if they are prolonged or repeated, would make our services less
attractive to customers and tarnish our reputation.
As the volume of data traffic on our Web site, network and other systems
increases, we must continuously upgrade and enhance our technical infrastructure
to accommodate the increased demands placed on our systems. If we fail to
rapidly scale up the speed and data capacity of our systems, our customers may
experience a deterioration of response times from our systems or periodic
systems failures. Such difficulties would reduce customer loyalty and use of our
services.
In addition, significant components of the technologies employed in our
software and systems, including our Corporate Online Printing Center, are
licensed from third parties. We may be required to license additional software
and technologies from others as we expand and enhance our services. We cannot
ensure that the third-party technologies we need will be made available to us on
reasonable terms, if at all. We also cannot predict whether the technologies we
license from others will prove to have defects and errors that could disrupt our
business. Third-party technologies could also be subject to claims of
infringement of proprietary rights of others, which could force us to
discontinue using these technologies and force an interruption or reduction in
the scope of our services until alternative technologies are identified and
implemented.
POSSIBLE ELECTRONIC COMMERCE SECURITY BREACHES, SYSTEMS FAILURES OR DAMAGE
TO OUR FACILITIES COULD HARM OUR BUSINESS. We rely on encryption and
authentication technology to effect secure transmission of confidential
information, such as payment instruction sets. It is possible that advances in
computer capabilities, new discoveries in the field of cryptography, or other
events or developments will result in a compromise or breach of the codes used
by us to protect customer transaction data. If any such compromise of our
security were to occur, it could have a material adverse effect on our
reputation and on our ability to conduct business. It also could expose us to a
risk of loss or litigation and possible liability. It is possible that our
security measures will not prevent security breaches.
The performance of our computer and telecommunications equipment is critical
to our reputation and to our ability to achieve market acceptance of our
services. Any system failure, including any network, software or hardware
failure, that causes interruption or an increase in response time of our online
services could decrease usage of our services. Frequent systems failures could
reduce the attractiveness of our services to our customers. An increase in the
volume of printing orders could strain the capacity of our hardware, which could
lead to slower response time or systems failures. Our operations also depend In
part on our ability to protect our operating systems against physical damage
from fire, earthquakes, power loss, telecommunications failures, computer
viruses, hacker attacks, physical break-ins and similar events.
We are in the process of moving our information and communications systems
to an offsite location. If we fail to manage this move effectively, it could
interrupt service to our customers, which could tarnish our reputation and
decrease usage of our services.
POTENTIAL IMPOSITION OF GOVERNMENTAL REGULATION ON ELECTRONIC COMMERCE AND
LEGAL UNCERTAINTIES COULD LIMIT OUR GROWTH. The adoption of new laws or the
adaptation of existing laws to the Internet may decrease the growth in the use
of the Internet, which could in turn decrease the demand for our services,
increase our cost of doing business or otherwise have a material adverse effect
on our business, financial condition and operating results. Few laws or
regulations currently directly apply to access to commerce on the Internet.
Federal, state, local and foreign governments are considering a number of
legislative and regulatory proposals relating to Internet commerce. As a result,
a number of laws or regulations may be adopted regarding Internet user privacy,
taxation, pricing, quality of products and services, and intellectual property
ownership. How existing laws will be applied to the Internet in areas such as
property ownership, copyright, trademark, trade secret, obscenity and defamation
is uncertain. The recent growth of Internet commerce has been attributed by some
to the lack of sales and value-added taxes on interstate sales of goods and
services over the Internet. Numerous state and local authorities have expressed
a desire to impose such taxes on sales to consumers and businesses in their
jurisdictions. The Internet Tax Freedom
36
Act of1998 prevents imposition of such taxes through October 2001. If the
federal moratorium on state and local taxes on Internet sales is not renewed, or
if it is terminated before its expiration, sales of goods and services over the
Internet could be subject to multiple overlapping tax schemes, which could
substantially hinder the growth of Internet-based commerce, including sales of
our products and services.
POSSIBLE INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS COULD HARM OUR
BUSINESS. Legal standards relating to the protection of intellectual property
rights in Internet-related industries are uncertain and still evolving. As a
result, the future viability or value of our intellectual property rights, as
well as those of other companies in the Internet industry, is unknown. We
currently have no issued patents. We have 52 U.S. patent applications pending,
but we cannot be certain that any patent will ultimately be issued. We have
registered the trademark "ImageX" in the United States and the European Union
and have applied for the same mark in Canada and other foreign countries. We
have also registered the trademarks "Your online printing resource" and "We
didn't invent printing. We reinvented it." We have additional trademark
applications pending.
We cannot be certain that the steps we have taken to protect our
intellectual property rights will be adequate or that third parties will not
infringe or misappropriate our proprietary rights, nor can we be sure that
competitors will not independently develop technologies that are substantially
equivalent or superior to the proprietary technologies employed in our Web-based
services. In addition, we cannot be certain that our business activities will
not infringe on the proprietary rights of others or that other parties will not
assert infringement claims against us. Any claim of infringement of proprietary
rights of others, even if ultimately decided in our favor, could result in
substantial costs and diversion of resources. If a claim is asserted that we
infringed the intellectual property of a third party, we may be required to seek
licenses to such third-party technology. We cannot be sure that licenses to
third-party technology will be available to us at a reasonable cost, if at all.
If we were unable to obtain such a license on reasonable terms, we could be
forced to cease using the third-party technology.
FAILURE TO MAINTAIN AND EXPAND OUR VENDOR NETWORK ACROSS A BROAD GEOGRAPHIC
TERRITORY MAY HINDER FULFILLMENT OF ORDERS. We rely to a large extent on
independent vendors to fulfill orders placed through our Corporate Online
Printing Center. Our future success will depend in part on our ability to
maintain and expand our vendor network at levels commensurate with our order
volume. If we are unable to maintain a vendor network of sufficient capacity,
our ability to fulfill orders in a timely and cost-effective manner may be
hindered, which could result in decreased adoption and use of our print
procurement solutions and revenues.
A large number of our current print vendors are located in Washington state.
This geographic concentration may make it more difficult for us to deliver
customer orders in a timely and cost-effective manner. A disruption of
transportation systems (air or ground) may create difficulty in fulfilling our
orders in a timely manner or increase our costs in meeting delivery commitments.
Any disruption in our ability to timely deliver orders to customers could
materially undermine our customer relationships and our business. Because a
large percentage of our vendors are located in Washington state, we may incur
increased shipping charges associated with delivery of print orders to customers
in a given time frame. To the extent that we are not able to pass such charges
on to customers, our gross margins and operating results could be adversely
affected.
Our arrangements with vendors are not long-term and may be cancelled by
either party on relatively short notice, so we have no contractual assurance
that these vendors will fulfill orders in a timely way, or that they will not
decide to cease doing business with us. Although we believe that alternative
vendors are readily available to replace any vendor who terminates its
relationship with us, or that is not performing up to our standards, adding new
vendors requires time and effort. If we were to encounter excessive vendor
turnover, it could undermine our business by diverting personnel and other
resources to increased vendor management needs.
37
OUR STOCK PRICE MAY BE VOLATILE. We cannot predict the market price of our
common stock. The market price for our shares of common stock is likely to be
very volatile due to a number of factors, including
- actual or anticipated variations in quarterly operating results;
- the gain or loss of significant customers;
- the timing of any acquisitions we may complete;
- changes in revenue and earning estimates by analysts;
- announcements of technological innovations or new products by us or our
competitors;
- general conditions in the Internet commerce and printing industries; and
- other events or factors that negatively affect the stock market.
In addition, the stock market in general has experienced extreme price and
volume fluctuations that have been unrelated to the operating performance of
particular companies. This is particularly characteristic of many companies in
the technology and emerging growth sectors. These broad market fluctuations
could materially adversely affect the market price of our common stock. In the
past, companies that have experienced volatility in the market price of their
stock have been subject to securities class-action litigation. If we were the
subject of securities class-action litigation, it could be costly and divert our
management's attention and resources.
OUR ARTICLES OF INCORPORATION AND BYLAWS AND WASHINGTON LAW CONTAIN
PROVISIONS THAT COULD DISCOURAGE A TAKEOVER. Certain provisions of our articles
of incorporation, our bylaws and Washington law could make it more difficult for
a third party to obtain control of ImageX.com, even if doing so might be
beneficial to our shareholders.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to financial market risks, including changes in interest
rates. We typically do not attempt to reduce or eliminate our market exposures
on our investment securities because the majority of our investments are
short-term. We do not have any derivative instruments.
The fair value of our investment portfolio or related income would not be
significantly impacted by either a 100 basis point increase or decrease in
interest rates due mainly to the short-term nature of the major portion of our
investment portfolio.
All of the potential changes noted above are based on sensitivity analysis
performed on our balances as of December 31, 1999.
38
ITEM 8--FINANCIAL STATEMENTS
Financial statements of ImageX.com, Inc. are as follows
PAGE
--------
Report of PricewaterhouseCoopers LLP, independent
accountants............................................... F-2
Consolidated Balance Sheets as of December 31, 1998 and
1999...................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1997, 1998 and 1999.......................... F-4
Consolidated Statements of Shareholders' Equity (Deficit)
for the years ended December 31, 1997, 1998 and 1999...... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999.......................... F-6
Notes to Consolidated Financial Statements.................. F-7
The separate historical financial statements and Related Notes of Fine Arts
Graphics, Image Press and PrintBid.com and the unaudited pro forma statement of
operations data for the year ended December 31, 1999 giving effect to the
acquisitions of Fine Arts Graphics and Image Press as if those acquisitions had
occurred at the beginning of the period are incorporated herein by reference to
ImageX.com, Inc.'s Form S-1 Registration Statement and all amendments thereto,
filed with the Securities and Exchange Commission on January 13, 2000 (File
Number 333-94639).
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
ImageX.com, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of shareholders' equity (deficit) and of
cash flows present fairly, in all material respects, the financial position of
ImageX.com, Inc. and subsidiaries (the "Company") at December 31, 1998 and 1999,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As described in Note 1, the loss per share amounts for 1997 and 1998 have
been revised.
PRICEWATERHOUSECOOPERS LLP
Seattle, Washington
February 1, 2000, except for paragraph 2
of Note 14, as to which the date is March 14, 2000
F-2
IMAGEX.COM, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 967 $18,257
Accounts receivable (net of allowance for doubtful
accounts of $15 and $126 at December 31, 1998 and 1999,
respectively)........................................... 234 3,427
Inventories............................................... 653
Prepaid expenses.......................................... 58 610
------- -------
Total current assets.................................... 1,259 22,947
Restricted cash............................................. 25 1,625
Property and equipment, net................................. 1,140 6,613
Goodwill (net of accumulated amortization of $145).......... 2,132
Other assets (net of accumulated amortization of $68 at
December 31, 1999)........................................ 45 2,351
------- -------
Total assets............................................ $ 2,469 $35,668
======= =======
LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of notes payable.......................... $ 453 $
Line of credit payable.................................... 96
Accounts payable.......................................... 762 3,500
Accrued liabilities....................................... 241 1,394
------- -------
Total current liabilities............................... 1,552 4,894
Notes payable, net of current portion....................... 454
------- -------
Total liabilities....................................... 2,006 4,894
------- -------
Commitments
Series B mandatorily redeemable convertible preferred stock,
$0.01 par value; 3,500,000 shares authorized, issued and
outstanding at December 31, 1998; aggregate liquidation
preference of $3,500...................................... 3,459
Series C mandatorily redeemable convertible preferred stock,
$0.01 par value; 4,040,000 shares authorized, 4,000,000
issued and outstanding at December 31, 1998; aggregate
liquidation preference of $6,000.......................... 5,109
Series D mandatorily redeemable convertible preferred stock,
$0.01 par value; 1,925,000 shares authorized, 1,385,493
issued and outstanding at December 31, 1998, respectively;
aggregate liquidation preference of $2,771................ 2,635
Value ascribed to mandatorily redeemable convertible
preferred stock warrants.................................. 147
-------
Total mandatorily redeemable convertible preferred
stock.................................................. 11,350
-------
Shareholders' equity (deficit):
Preferred stock, 30,000,000 shares authorized:
Series A convertible preferred stock, $0.01 par value;
1,500,000 shares authorized, issued and outstanding at
December 31, 1998; aggregate liquidation preference of
$1,500................................................. 15
Common stock, $0.01 par value; 70,000,000 shares
authorized; 2,081,974 and 17,381,639 shares issued and
outstanding at December 31, 1998 and 1999,
respectively............................................ 21 174
Additional paid-in capital................................ 4,263 67,118
Unearned compensation..................................... (1,961) (2,518)
Notes receivable from shareholders (including $20 from a
director)............................................... (228) (168)
Accumulated deficit....................................... (12,997) (33,832)
------- -------
Total shareholders' equity (deficit).................... (10,887) 30,774
------- -------
Total liabilities, mandatorily redeemable convertible
preferred stock and shareholders' equity (deficit)........ $ 2,469 $35,668
======= =======
The accompanying notes are an integral part of these financial statements.
F-3
IMAGEX.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED
DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
Revenues.................................................... $ 87 $ 968 $ 11,499
Cost of sales............................................... 100 998 8,541
------- ------- --------
Gross profit (loss)................................... (13) (30) 2,958
------- ------- --------
Operating expenses:
General and administrative................................ 1,285 3,549 11,002
Sales and marketing....................................... 1,018 2,207 6,765
Product development....................................... 1,316 2,750 3,770
Amortization of unearned compensation, goodwill and other
intangibles............................................. 380 2,497
------- ------- --------
Total operating expenses............................ 3,619 8,886 24,034
------- ------- --------
Loss from operations................................ (3,632) (8,916) (21,076)
Other income:
Interest income (expense), net............................ 62 (48) 241
------- ------- --------
Net loss............................................ $(3,570) $(8,964) $(20,835)
======= ======= ========
Basic and diluted net loss per share--revised. See Note 1... $(14.14) $(12.25) $ (3.07)
======= ======= ========
The accompanying notes are an integral part of these financial statements.
F-4
IMAGEX.COM, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
PREFERRED NOTES
SERIES A COMMON STOCK ADDITIONAL RECEIVABLE
--------------------- --------------------- PAID-IN UNEARNED FROM
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION SHAREHOLDERS
---------- -------- ---------- -------- ---------- ------------ ------------
Balances, December 31, 1996........ 1,500,000 $ 15 1,050,000 $ 11 $ 363
Issuance of common stock for notes
receivable....................... 150,000 1 29 $ (30)
Collection of notes receivable..... 2
Net loss...........................
---------- ---- ---------- ---- ------- ------- -----
Balances, December 31, 1997........ 1,500,000 15 1,200,000 12 392 (28)
Value ascribed to common stock
warrants issued in conjunction
with sale of Series C Preferred
Stock............................ 1,038
Issuance of common stock for notes
receivable....................... 500,000 5 195 (200)
Repurchase of common stock......... (100,000) (1) (1)
Issuance of stock options to
consultants...................... 169
Issuance of common stock upon
exercise of stock options........ 8,520 2
Issuance of common stock to
Printbid shareholders............ 473,454 5 319 $ (6)
Issuance of common stock warrants
related to Series A convertible
debt............................. 35 --
Unearned compensation.............. 2,335 (2,335)
Amortization of unearned
compensation..................... 380
Accretion of mandatorily redeemable
convertible preferred stock...... (221)
Net loss...........................
---------- ---- ---------- ---- ------- ------- -----
Balances, December 31, 1998........ 1,500,000 15 2,081,974 21 4,263 (1,961) (228)
Redemption of common stock......... (42,000) (1) (7) 8
Purchase of treasury stock......... (38,212) (1) (1)
Issuance of stock options to
consultants...................... 155
Issuance of common stock upon
exercise of stock options........ 164,775 2 62 (15)
Issuance of common stock for Fine
Arts............................. 93,750 1 374
Warrants issued in conjunction with
Series E bridge financing........ 115
Warrants issued in conjunction with
issuance of Series E preferred
stock............................ 130
Issuance of common stock warrants
in exchange for consulting
services......................... 33
Issuance of common stock warrants
related to Series A convertible
debt............................. 517
Unearned compensation related to
issuance of options to
consultant....................... 339
Accretion of mandatorily redeemable
preferred stock.................. (84)
Net proceeds from initial public
offering (net of offering costs
of............................... 3,450,000 35 20,996
Collection of notes receivable..... 67
Issuance of common stock for Image
Press............................ 16,394 1 299
Transfer value ascribed to
preferred stock warrants......... 147
Conversion of preferred stock to
common stock upon initial public
offering......................... (1,500,000) (15) 11,351,132 113 35,799
Issuance of common stock upon
exercise of warrants............. 170,290 2 217
Unearned compensation.............. 2,841 (2,841)
Amortization of unearned
compensation..................... 2,284
Issuance of common stock to
PrintBid shareholders............ 133,536 1 1,070
Compensation related to common
stock, subject to repurchase,
issued to advisors............... 295
Write-off of unamortized discount
on convertible debt.............. (442)
Net loss...........................
---------- ---- ---------- ---- ------- ------- -----
Balances, December 31, 1999........ -- $ -- 17,381,639 $174 $67,118 $(2,518) $(168)
========== ==== ========== ==== ======= ======= =====
ACCUMULATED
DEFICIT TOTAL
----------- --------
Balances, December 31, 1996........ $ (463) $ (74)
Issuance of common stock for notes
receivable.......................
Collection of notes receivable..... 2
Net loss........................... (3,570) (3,570)
-------- --------
Balances, December 31, 1997........ (4,033) (3,642)
Value ascribed to common stock
warrants issued in conjunction
with sale of Series C Preferred
Stock............................ 1,038
Issuance of common stock for notes
receivable.......................
Repurchase of common stock......... (2)
Issuance of stock options to
consultants...................... 169
Issuance of common stock upon
exercise of stock options........ 2
Issuance of common stock to
Printbid shareholders............ 318
Issuance of common stock warrants
related to Series A convertible
debt............................. 35
Unearned compensation..............
Amortization of unearned
compensation..................... 380
Accretion of mandatorily redeemable
convertible preferred stock...... (221)
Net loss........................... (8,964) (8,964)
-------- --------
Balances, December 31, 1998........ (12,997) (10,887)
Redemption of common stock.........
Purchase of treasury stock......... (2)
Issuance of stock options to
consultants...................... 155
Issuance of common stock upon
exercise of stock options........ 49
Issuance of common stock for Fine
Arts............................. 375
Warrants issued in conjunction with
Series E bridge financing........ 115
Warrants issued in conjunction with
issuance of Series E preferred
stock............................ 130
Issuance of common stock warrants
in exchange for consulting
services......................... 33
Issuance of common stock warrants
related to Series A convertible
debt............................. 517
Unearned compensation related to
issuance of options to
consultant....................... 339
Accretion of mandatorily redeemable
preferred stock.................. (84)
Net proceeds from initial public
offering (net of offering costs
of............................... 21,031
Collection of notes receivable..... 67
Issuance of common stock for Image
Press............................ 300
Transfer value ascribed to
preferred stock warrants......... 147
Conversion of preferred stock to
common stock upon initial public
offering......................... 35,897
Issuance of common stock upon
exercise of warrants............. 219
Unearned compensation..............
Amortization of unearned
compensation..................... 2,284
Issuance of common stock to
PrintBid shareholders............ 1,071
Compensation related to common
stock, subject to repurchase,
issued to advisors............... 295
Write-off of unamortized discount
on convertible debt.............. (442)
Net loss........................... (20,835) (20,835)
-------- --------
Balances, December 31, 1999........ $(33,832) $ 30,774
======== ========
The accompanying notes are an integral part of these financial statements.
F-5
IMAGEX.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED
DECEMBER 31,
------------------------------------
1997 1998 1999
-------- -------------- --------
Cash flows from operating activities:
Net loss.................................................. $(3,570) $(8,964) $(20,835)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 121 423 1,947
Amortization of unearned compensation................... 380 2,284
Interest expense for warrants issued in connection with
bridge financing...................................... 30 115
Issuance of stock options to consultant................. 169 155
Amortization of discount on convertible debentures...... 2
Write-off of unamortized discount on convertible debt... (442)
Non-cash compensation expense related to consultants.... 61 1,151
Services exchanged for common stock warrants............ 33
Services exchanged for common stock..................... 252
Provision for doubtful accounts......................... 15 111
Changes in operating assets and liabilities, net of
effects of purchase of Fine Arts and Image Press:
Accounts receivable..................................... (19) (231) (2,340)
Inventories............................................. (624)
Prepaid expenses........................................ (33) (528)
Other assets............................................ (39) (6) (558)
Accounts payable and accrued liabilities................ 459 480 2,226
------- ------- --------
Net cash used in operating activities................... (3,048) (7,422) (17,305)
------- ------- --------
Cash flows from investing activities:
Purchases of property and equipment..................... (797) (870) (2,476)
Deposits of restricted cash............................. (25) (1,600)
Purchase of Fine Arts including acquisition costs of
$185.................................................. (4,542)
Purchase of Image Press including acquisition costs of
$136.................................................. (2,956)
Purchases of investments of available for sale
securities............................................ (975)
Proceeds from sale of investments of available for sale
securities............................................ 975
------- ------- --------
Net cash used in investing activities................... (797) (895) (11,574)
------- ------- --------
Cash flows from financing activities:
Proceeds from issuance of notes payable................. 600 601 2,932
Principal payments on notes payable..................... (24) (285) (2,071)
Proceeds from borrowings on line of credit.............. 96
Repayment on line of credit............................. (796)
Proceeds from issuance of Series C Preferred stock (net
of offering costs of $89)............................. 5,935
Proceeds from issuance of Series D Preferred stock (net
of offering costs of $29 and $8 for the years ended
December 31, 1998 and 1999, respectively)............. 2,743 795
Proceeds from issuance of Series E Preferred stock (net
of offering costs of $1,055).......................... 23,945
Repurchase of common stock.............................. (2) (2)
Proceeds from issuance of common stock.................. 10 268
Proceeds from issuance of common stock related to public
offering (net of offering costs of $3,119)............ 21,031
Proceeds from repayment on notes receivable from
shareholders.......................................... 2 67
------- ------- --------
Net cash provided by financing activities............... 578 9,098 46,169
------- ------- --------
Net increase (decrease) in cash and cash equivalents.... (3,267) 781 17,290
Cash and cash equivalents at beginning of period........ 3,453 186 967
------- ------- --------
Cash and cash equivalents at end of period.............. $ 186 $ 967 $ 18,257
======= ======= ========
The accompanying notes are an integral part of these financial statements.
F-6
IMAGEX.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
THE COMPANY
ImageX.com, Inc. (the "Company," formerly ImageX, Inc.) was incorporated on
August 21, 1995 and is headquartered in Bellevue, Washington. The Company is an
Internet-based business-to-business provider of printed business materials. The
Company's customers access an Corporate Online Printing Center that contains a
digital catalog of all of their custom-printed business materials--from
marketing brochures to stationery and business cards. From the Company's
Corporate Online Printing Center, each customer can modify, proof, procure and
manage its printed business materials from any Internet-enabled personal
computer. The Company markets its printed business materials domestically. With
the acquisition of PrintBid.com, Inc. the Company has expanded its services to
include an on-line bidding system for print buyers and an online auction site
for commercial paper.
As described in Note 13 on December 9, 1999, the Company merged with
PrintBid.com, Inc. in a transaction accounted for as a pooling of interests.
These consolidated financial statements give retroactive effect to the merger of
the Company with PrintBid.com, Inc.
Prior to 1998, the Company operated as a development-stage enterprise.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries after elimination of all significant
intercompany accounts and transactions.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
RESTRICTED CASH
Restricted cash consists of certificates of deposit which collateralize
letters of credit as required by the Company's office lease agreements.
INVENTORIES
Inventories consists of raw materials, work-in-process and finished goods,
which are stated at the lower of cost or market. Cost is determined using a
method which approximates the first-in, first-out method. Work-in-process
includes direct labor, materials and allocated overhead.
F-7
IMAGEX.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is provided on the
straight-line method for financial statement purposes. Estimated useful lives of
the assets are as follows:
ASSETS YEARS
------ -----
Computer software...................................... 3
Computer hardware...................................... 3 - 5
Vehicles............................................... 5
Office furniture and equipment......................... 5 - 10
Machinery and equipment................................ 7 - 12
Leasehold improvements................................. Life of lease or
useful lives,
whichever is shorter,
ranging from 3 to 5
Expenditures for additions and improvements are capitalized; expenditures
for maintenance and repairs are charged to expense as incurred. When assets are
retired or otherwise disposed of, the cost of the assets and related accumulated
depreciation are eliminated from the accounts and any resulting gain or loss is
reflected in the results of operations.
COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE
Costs of computer software developed or obtained for internal use are
capitalized while in the application development stage and are expensed while in
the preliminary stage and the post-implementation stage. During 1999, the
Company capitalized approximately $1,078,000 and recognized the related
amortization expense of approximately $758,000. These costs are included in
property and equipment in the accompanying consolidated balance sheet.
GOODWILL
Goodwill represents the excess of the cost of purchased subsidiaries over
the estimated fair value of the net assets acquired as of the date of
acquisition and is being amortized using the straight line method over 10 years.
During 1999, the Company recognized the related amortization expense of
approximately $145,000.
OTHER ASSETS
Other assets consist primarily of a customer list, which is being amortized
using the straight-line method over 3 years and an assembled and trained
workforce, which is being amortized using the straight-line method over 8 years.
During 1999, the Company recognized the related amortization expense of
approximately $50,000 for the customer list and $18,000 for the assembled and
trained workforce.
VALUATION OF LONG-LIVED ASSETS
The Company periodically evaluates the carrying value of long-lived assets
to be held and used, including, but not limited to, property and equipment,
goodwill and other assets, when events and
F-8
IMAGEX.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
circumstances warrant such a review. The carrying value of a long-lived asset is
considered impaired when the anticipated undiscounted cash flow from such asset
is separately identifiable and is less than its carrying value. In that event, a
loss is recognized based on the amount by which the carrying value exceeds the
fair value of the long-lived asset. Fair value is determined primarily using the
anticipated cash flows discounted at a rate commensurate with the risk involved.
Loss on long-lived assets to be disposed of is determined in a similar manner,
except that fair values are reduced for the cost to dispose.
STOCK ISSUANCE COSTS
Proceeds from issuances of capital stock are presented net of specific
external costs directly attributable to the related offering.
STOCK-BASED COMPENSATION
The Company follows SFAS No. 123, "Accounting for Stock-Based Compensation"
which establishes financial accounting and reporting standards for stock-based
employee compensation plans and for the issuance of equity instruments to
acquire goods and services from nonemployees.
The Company has elected to apply the disclosure only provision of SFAS No.
123 for employee stock-based compensation plans. Accordingly, the Company
accounts for stock-based compensation to employees using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. Compensation expense
for stock options is measured as the excess, if any, of the fair value of the
Company's common stock at the date of grant over the exercise price. The Company
records the fair value of equity instruments issued to nonemployees in
accordance with the provisions of SFAS No. 123.
REVENUE RECOGNITION
The Company has derived substantially all of its revenues from the Corporate
Online Printing Center and from customers they obtained through acquisition. The
Company's range of products include business cards, stationery, letterhead, and
other general office products, as well as color marketing brochures, sell sheets
and similar products. In our Corporate Online Printing Center and Small Business
Printing Center and through our wholly owned subsidiaries, Image Press and Fine
Arts Graphics, the Company recognizes product revenues when the order is shipped
to the customer and when the Company has fulfilled all of its contractual
obligations.
For orders received through the Corporate Online Printing Center service,
the Company charges customers for the printed products they order in accordance
with customer-specific pricing arrangements negotiated with each account. Orders
are fulfilled through a network of vendors and company-owned facilities and
shipped directly to the customers under the ImageX.com brand. Revenues are
recognized on a gross basis when the products are shipped.
For orders received through the Small Business Printing Center service, the
Company utilizes a private label supplier and the products are shipped under the
ImageX.com brand. The Company receives a transaction fee based upon a percentage
of the purchase price which is recognized when the products are shipped to the
end customer.
F-9
IMAGEX.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
For PrintBid.com bidding services, the Company intends to charge a
transaction fee to each print provider who bids on a job. For PrintBid.com's
commercial paper auctions (PaperDeals.com), the Company intends to charge a
transaction fee to the auction originator. Transaction fees will be recognized
in the period the bid occurs and the Company and its subsidiaries have fulfilled
all of its contractual obligations to the customer.
PRODUCT DEVELOPMENT COSTS
Product development costs represent research and development expenditures,
which are charged to operations as incurred.
ADVERTISING
The Company expenses advertising costs as incurred. Advertising expenses for
the years ended December 31, 1997, 1998 and 1999 were approximately $5,300,
$192,000, and $1,249,000, respectively.
COMPREHENSIVE INCOME
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130") effective
January 1, 1998. SFAS No. 130 requires the disclosure of comprehensive income
and its components in a full-set of general purpose financial statements.
Comprehensive income is the change in equity from transactions and other events
and circumstances other than those resulting from investments by owners and
distributors to owners. SFAS No. 130 had no impact on the Company and,
accordingly, a separate statement of comprehensive income has not been
presented.
NET LOSS AND PRO FORMA NET LOSS PER SHARE
Statement of Financial Accounting Standards No. 128 (SFAS No. 128),
"Earnings Per Share," requires the presentation of basic and diluted earnings
(loss) per share for all periods presented.
In accordance with SFAS No. 128, basic net loss per share has been computed
using the weighted-average number of shares of common stock outstanding during
the period, except that pursuant to Securities and Exchange Commission Staff
Accounting Bulletin No. 98, if applicable, common shares issued in each of the
periods presented for nominal consideration have been included in the
calculation as if they were outstanding for all periods presented.
Pro forma basic and diluted net loss per share is computed using the
weighted-average number of common shares outstanding, including the pro forma
effects of the automatic conversion of the Company's mandatorily redeemable
convertible preferred stock into shares of the Company's common stock effective
upon the closing of the Company's initial public offering as if such conversion
occurred on the date the shares were originally issued.
The historical basic and diluted net loss per share for 1997 and 1998 have
been revised to exclude the effect of stock subject to repurchase from the
weighted average shares of common stock outstanding. The basic and diluted net
loss per share for 1999 have been computed to exclude such effects.
F-10
IMAGEX.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
The amount labelled as previously reported for 1998 and 1999 includes the
effect of the acquisition of PrintBid.com which was accounted for as a pooling
of interests. There was no pooling effect for 1997 as PrintBid.com did not exist
at that time.
A reconciliation of shares used in the calculation of basic and diluted and
pro forma basic and diluted net loss per share follows (in thousands, except
share and per share data):
YEAR ENDED
DECEMBER 31,
-----------------------------------
1997 1998 1999
---------- -------- -----------
Net loss.................................................. $ (3,570) $ (8,964) $ (20,835)
Accretion of mandatorily redeemable convertible preferred
stock................................................... -- (221) (84)
---------- -------- -----------
Net loss for common stock................................. $ (3,570) (9,185) (20,919)
==========
Effect of pro forma conversion of securities:
Accretion of mandatorily redeemable convertible
preferred stock....................................... 221 84
-------- -----------
$ (8,964) $ (20,835)
======== ===========
Weighted average shares of common stock outstanding
(shares used in computing basic and diluted net loss per
share)
as previously reported.................................. 1,137,260 749,987 6,805,098
========== ======== ===========
as revised.............................................. 252,425 749,987 6,805,098
========== ======== ===========
Basic and diluted net loss per share
as previously reported.................................. $ (3.14) $ (12.25) $ (3.07)
========== ======== ===========
as revised.............................................. $ (14.14) $ (12.25) $ (3.07)
========== ======== ===========
Shares used in computing basic and diluted net loss per
share................................................... 6,805,098
Weighted average effect of pro forma securities:
Preferred stock adjustment Series A, B, C, D, E......... 5,332,394
-----------
Share used in computing pro forma basic and diluted net
loss per share.......................................... 12,137,492
===========
Pro forma basic and diluted net loss per share............ $ (1.72)
===========
Dilutive securities include options, warrants, preferred stock as if
converted and restricted stock subject to repurchase. Potentially dilutive
securities totaling 3,530,390, 8,192,063 and 3,603,796 for the years ended
December 31, 1997, 1998 and 1999, respectively, were excluded from historical
basic and diluted loss per share because of their antidilutive effect.
INCOME TAXES
The Company follows the liability method of accounting for income taxes
pursuant to Statement of Financial Accounting Standards No. 109 (SFAS No. 109),
"Accounting for Income Taxes." Under SFAS No. 109, deferred tax assets and
liabilities are determined based on differences between financial reporting and
tax bases of assets and liabilities and are measured using the enacted tax laws
and rates applicable to
F-11
IMAGEX.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
the periods in which the differences are expected to reverse. The Company
provides for a valuation allowance, if necessary, to reduce deferred tax assets
to their estimated realizable value.
CONCENTRATIONS OF CREDIT RISK
The Company reviews the credit histories of potential customers prior to
extending credit and maintains allowances for potential credit losses. For the
year ended December 31, 1998, no single customer accounted for a significant
amount of the Company's revenues and there were no significant accounts
receivable from a single customer. For the year ended December 31, 1999, one
customer accounted for 13% of revenues. The Company maintains its cash and cash
equivalents in bank accounts in amounts, which, at times, may exceed Federally
insured limits. The Company has not experienced any losses in such accounts.
FAIR VALUE OF FINANCIAL INSTRUMENTS
For certain financial instruments, including cash and cash equivalents,
accounts receivable, accounts payable and accrued liabilities, recorded amounts
approximate fair value due to the relatively short maturity period.
The carrying amount of notes payable and the line of credit approximate
their market value because they have interest rates that vary with market
interest rates.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CONVERTIBLE DEBT WITH WARRANTS
Proceeds from debt issued with stock purchase warrants are allocated between
the debt and the warrants based on their relative fair values. Convertible debt
with detachable warrants is shown in the financial statements net of the
unamortized debt discount. Upon debt issuance, a discount is recorded equivalent
to the fair value of the warrants. The fair value of the warrants is determined
using the Black Scholes pricing model. The debt discount is amortized using the
effective interest method.
SEGMENT INFORMATION
The Company has adopted Statement of Financial Accounting Standards No. 131
("SFAS No. 131") "Disclosures about Segments of an Enterprise and Related
Information," which is effective for fiscal years beginning after December 31,
1997. SFAS No. 131 supersedes SFAS No. 14, "Financial Reporting for Segments of
a Business Enterprise", replacing the "industry segment" approach with the
"management" approach. The management approach designates the internal
organization that is used by management for making operating decisions and
assessing performance as the source of the Company's reportable segments. SFAS
No. 131 also requires disclosures about products and services, geographic areas
and major customers. The Company operates in one segment.
F-12
IMAGEX.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for
Derivative Instruments and Hedging Activities", which establishes accounting and
reporting standards for derivative instruments and hedging activities. SFAS No.
133, which will be effective for the Company for fiscal years and quarters
beginning after June 15, 2000, requires that an entity recognize all derivatives
as either assets or liabilities in the statement of financial position and
measure those instruments at fair value. The Company is assessing the
requirements of SFAS No. 133 and the effects, if any, on the Company's financial
position, results of operations and cash flows.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition", which
provides guidance on the recognition, presentation and 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 disclosures
related to revenue recognition policies. Management believes that the impact of
SAB 101 will have no material effect on the financial position or results of
operations of the Company.
2. INVENTORIES
Inventories consisted of the following at December 31, 1999 (in thousands):
DECEMBER 31,
1999
------------
Paper stock and supplies.................................... $225
Work-in-process............................................. 176
Finished goods.............................................. 252
----
$653
====
3. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following at December 31, 1998 and
1999 (in thousands):
DECEMBER 31,
-------------------
1998 1999
-------- --------
Computer hardware........................................... $ 794 $3,683
Office furniture and equipment.............................. 300 733
Computer software........................................... 560 2,413
Leasehold improvements...................................... 32 185
Production machinery and equipment.......................... -- 2,076
------ ------
1,686 9,090
Less accumulated depreciation and amortization.............. (546) (2,477)
------ ------
Property and equipment, net................................. $1,140 $6,613
====== ======
Depreciation and amortization expense for the years ended December 31, 1997,
1998 and 1999 was $121,314, $424,221 and $1,742,538, respectively.
F-13
IMAGEX.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. ACCRUED LIABILITIES
Accrued liabilities consisted of the following at December 31, 1998 and 1999
(in thousands):
DECEMBER 31,
-------------------
1998 1999
-------- --------
Accrued payroll and related benefits........................ $ 93 $ 713
Taxes payable............................................... 29 216
Accrued professional services and other..................... 119 465
---- ------
$241 $1,394
==== ======
5. NOTES PAYABLE AND LINE OF CREDIT:
Notes payable consisted of the following at December 31, 1998 (in
thousands):
DECEMBER 31,
1998
------------
Note payable to bank, interest at prime (7.75% at December
31, 1998) plus 2%, monthly principal payments of $25 due
December 1999, and collateralized by substantially all of
the Company's assets...................................... $ 274
Note payable to bank, interest at prime (7.75% at December
31, 1998) plus 2%, due in 36 equal monthly principal
payments, due January 2002, and collateralized by
substantially all of the Company's assets................. 450
Uncollateralized note payable to business advisor, no
interest, due on March 1, 1999............................ 41
Convertible subordinated notes payable to investor, interest
at 8%, interest and principal due in a single payment two
years after issuance...................................... 142
-----
907
Less: current portion....................................... (453)
-----
$ 454
=====
During 1998, the Company obtained a new line of credit in the amount of
$300,000 in conjunction with its note payable to a bank of $450,000. The line of
credit includes various restrictive covenants, effective from January 31, 1999,
which, among other things, require the Company to maintain minimum working
capital and net worth amounts. The line of credit accrues interest at prime
(7.75% at December 31, 1998) plus 1% and matured on September 18 1999. The
outstanding balance as of December 31, 1998 and 1999 was $96,440 and $0,
respectively. The line of credit was collateralized by substantially all of the
Company's assets. The line of credit was cancelled during 1999.
The convertible note agreements contain a conversion option, which entitles
the holder to convert the unpaid principal and interest into capital stock of
the same issue and at the same price as the first equity financing issue of $2
million or more. The option to convert expires on the maturity date of the note.
The Company may not redeem the notes prior to maturity. The convertible notes
are subordinate to the repayment rights of all other debtors, except other
subordinated note holders. The convertible note agreement converted to equity
securities upon the acquisition of PrintBid.
On April 30, 1999, Fine Arts entered into a credit agreement with a bank for
a $1 million working capital line and a $1.5 million term loan that is
collateralized by substantially all of the assets of Fine Arts.
F-14
IMAGEX.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. NOTES PAYABLE AND LINE OF CREDIT: (CONTINUED)
The credit line accrues interest at prime rate plus 0.5% for drawn amounts and a
commitment fee of 0.25% on any unused portion of the line and matures on
April 29, 2000 with an option to renew for subsequent 364 day periods. The term
loan accrues interest at prime rate plus 0.25% to 1% based on the Debt to EBITDA
ratio of the Company on a consolidated basis. The credit agreement includes
various restrictive covenants, which among other things, require the Company to
maintain certain financial ratios and net worth amounts. The Company used the
proceeds from the initial public offering to pay off the line of credit and term
loan.
On April 30, 1999, Fine Arts entered into a revolving note with a bank for
$500,000 that is collateralized by substantially all of the assets of Fine Arts.
The note accrues interest at LIBOR plus 2.25% for drawn amounts and matures on
April 28, 2000. The note includes various restrictive covenants, which among
other things, require the Company to maintain certain financial ratios and net
worth amounts. The Company used the proceeds from the initial public offering to
pay off the line of credit and term loan.
6. FEDERAL INCOME TAXES:
At December 31, 1999, the Company had accumulated net operating loss
carryforwards for tax purposes of approximately $31,241,000, which will expire
beginning in 2011 through 2019. Utilization of net operating loss carryforwards
may be subject to certain limitations under Section 382 of the Internal Revenue
Code.
The following is a reconciliation of the income tax benefit to the amount
based on the statutory Federal rate:
YEARS ENDED
DECEMBER 31,
--------------------------------
1997 1998 1999
-------- -------- --------
Federal income tax benefit at statutory rate................ (34)% (34)% (34)%
Change in valuation allowance............................... 34 % 34 % 32 %
Amortization of deferred compensation....................... -- -- 2 %
--- --- ---
-- -- --
=== === ===
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax
F-15
IMAGEX.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. FEDERAL INCOME TAXES: (CONTINUED)
purposes. Significant components of the Company's deferred tax assets and
liabilities are approximately as follows (in thousands):
DECEMBER 31,
-------------------
1998 1999
-------- --------
Deferred income tax assets:
Tax loss carryforwards...................................... $4,030 $10,622
Accrued compensation and benefits........................... 82 152
Provision for doubtful accounts............................. 5 77
Depreciation................................................ 123 177
Other....................................................... 15 14
------ -------
4,255 11,042
Deferred income tax liabilities:
Valuation allowance......................................... (4,255) (11,042)
------ -------
Net deferred tax assets..................................... $ -- $ --
====== =======
A full valuation allowance has been recorded at December 31, 1998 and 1999
based on management's determination that the recognition criteria for
realization of the net deferred tax assets has not been met.
7. RELATED PARTY TRANSACTIONS:
The original founders of the Company, one of whom is an officer and a
director of the Company, are the owners of 100% of the outstanding capital stock
of Parallel Communications, Inc. ("Parallel"), which serves as the Company's
advertising agency pursuant to an Advertising Agency Service Agreement, dated
August 26, 1997. In 1997, 1998 and 1999, the Company paid Parallel approximately
$152,000, $521,000 and $957,000 respectively, for services performed on behalf
of the Company.
As of December 31, 1998, the Company had a payable to Parallel of $21,088.
As of December 31, 1999, the Company had no payables to Parallel.
In August 1999, Parallel was sold to an unrelated party.
In August 1999, PrintBid issued Series A convertible notes totaling $50,000
with 12,500 detachable warrants to a shareholder in exchange for online
advertising. PrintBid also issued Series A convertible notes totaling $48,000
with 12,000 detachable warrants to two shareholders during May and August 1999
in exchange for cash. These notes, totaling $146,000 plus accrued interest, are
due two years after issuance, unless converted to stock in accordance with the
Series A subordinated convertible note agreement. The convertible notes
converted to equity securities upon the acquisition of PrintBid.
8. EMPLOYEE BENEFITS:
DEFINED CONTRIBUTION PLAN
The Company has a 401(k) Retirement Plan (the "Plan") which covers
substantially all eligible employees. The Plan is a defined contribution profit
sharing plan in which all eligible participants may elect to have a percentage
of their compensation contributed to the Plan, subject to certain guidelines
F-16
IMAGEX.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. EMPLOYEE BENEFITS: (CONTINUED)
issued by the Internal Revenue Service. The Company can contribute to the Plan
at the discretion of the Board of Directors. There were no contributions made by
the Company during 1997, 1998 or 1999.
EMPLOYEE STOCK PURCHASE PLAN
In April 1999, the Board of Directors adopted, subject to shareholder
approval, the 1999 Employee Stock Purchase Plan ("Stock Purchase Plan") and
authorized for issuance under the Stock Purchase Plan a total of 250,000 shares
of common stock plus automatic annual increases to be added on the first day of
the Company's fiscal year beginning on January 1, 2001, equal to the least of
(1) 100,000 shares, (2) 0.5% of the average common shares outstanding as used to
calculate fully diluted earnings per share as reported in the Company's
financial statements for the preceding year and (3) a lesser amount as
determined by the Board of Directors. The Stock Purchase Plan was approved by
the Company's shareholders in August 1999.
STOCK OPTION PLAN
The Company has adopted a stock incentive compensation plan (the "Plan"),
which provides for the issuance of stock awards and nonqualified and incentive
stock options for officers, directors, employees, and consultants. As of
December 31, 1998, the Company had reserved a total of 1,550,000 shares of
common stock for issuance pursuant to the Plan. In April 1999, the Board of
Directors increased the total number of shares reserved under the Plan to
2,800,000 shares, plus an automatic annual increase, to be added on the first
day of each fiscal year beginning on January 1, 2001, equal to least of
(1) 1,000,000 shares, (2) 5% of the average number of common shares outstanding
as used to calculate fully diluted earnings per share as reported in the
Company's financial statements for the preceding year and (3) a lesser amount
determined by the Board of Directors. The increase was approved by the Company's
shareholders in August 1999. Options under the Plan will generally expire 10
years from the date of grant. Under the Plan, the Plan administrator will fix
the conditions for the exercise of the options. Generally, options vest over
four years.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). The Company has chosen to account for
stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations. Accordingly, compensation cost for stock
awards and options is measured as the excess, if any, of the fair value of the
Company's stock at the date of the grant over the amount an employee must pay to
acquire the stock. The unearned compensation is being amortized in accordance
with Financial Accounting Standards Board Interpretation No. 28 over the vesting
period of the individual options.
Compensation expense of $0, $378,507 and $2,284,000 has been recorded for
stock options granted during the years ended December 31, 1997, 1998 and 1999,
respectively, because the exercise prices of the stock options granted were less
than the fair value of the related shares at the time of grant. The fair value
per share used to calculate unearned compensation was determined by the
Company's Board of Directors based on a number of factors, including, among
other things, appraisals by an outside valuation firm and by reference to the
preferred stock values reduced by a nominal discount factor.
F-17
IMAGEX.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. EMPLOYEE BENEFITS: (CONTINUED)
Option activity for the years ended December 31, 1997, 1998 and 1999 is as
follows:
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
Options outstanding, January 1, 1997........................ 0
Granted..................................................... 355,750 $0.20
Canceled.................................................... (46,000) 0.20
Options outstanding, December 31, 1997...................... 309,750 0.20
Granted..................................................... 1,043,300 0.42
Exercised................................................... (508,520) 0.40
Canceled.................................................... (194,175) 0.24
---------
Options outstanding, December 31, 1998...................... 650,355 0.38
Granted..................................................... 1,189,796 7.51
Exercised................................................... (164,775) 0.39
Canceled.................................................... (49,625) 1.41
---------
Options outstanding, December 31, 1999...................... 1,625,751 5.57
Options exercisable at December 31, 1999.................... 352,585
---------
Stock awards and options available for grant at December 31,
1999...................................................... 682,668
The following table summarizes information about options outstanding at
December 31, 1999:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ---------------------------------------------------------------------- --------------------------
WEIGHTED AVERAGE
REMAINING WEIGHTED WEIGHTED
RANGE OF NUMBER CONTRACTUAL LIFE AVERAGE NUMBER AVERAGE
EXERCISE PRICES OF SHARES (IN YEARS) EXERCISE PRICE OF SHARES EXERCISE PRICE
- ---------------------- --------- ---------------- -------------- --------- --------------
$ 0.040--$0.040 196,027 9.57 $ 0.04 90,623 $ 0.04
$ 0.200--$0.300 390,835 7.84 $ 0.28 159,670 $ 0.28
$ 0.400--$0.400 20,220 8.84 $ 0.40 5,180 $ 0.40
$ 0.650--$0.660 93,687 7.47 $ 0.65 36,817 $ 0.65
$ 1.200--$1.200 74,628 7.55 $ 1.20 32,733 $ 1.20
$ 2.400--$3.600 30,750 8.74 $ 3.21 2,062 $ 3.60
$ 4.200--$6.000 303,623 9.30 $ 5.85 12,500 $ 6.00
$ 7.000--$10.190 322,870 9.59 $ 7.96 500 $10.00
$ 12.000--$17.000 58,000 9.70 $14.18 0 $ 0.00
$ 25.940--$25.940 135,111 9.96 $25.94 12,500 $25.94
- ---------------------- --------- -------
$ 0.040--$25.940 1,625,751 8.91 $ 5.57 352,585 $ 1.49
====================== ========= =======
F-18
IMAGEX.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. EMPLOYEE BENEFITS: (CONTINUED)
The weighted average fair values and weighted average exercise prices per
share at the date of grant for options granted were as follows:
YEAR ENDED
DECEMBER 31,
-------------------
1998 1999
-------- --------
Weighted average fair value of options granted with exercise
price less than the fair value of the stock on the date of
grant..................................................... $2.04 $7.30
===== =====
Weighted average fair value of options granted with exercise
price equal to the fair value of the stock on the date of
grant..................................................... $ -- $7.08
===== =====
Weighted average exercise price of options granted with
exercise price less than the fair value of the stock on
the date of grant......................................... $0.42 $0.24
===== =====
Weighted average exercise price of options granted with
exercise price equal to the fair value of the stock on the
date of grant............................................. $ -- $9.86
===== =====
Pro forma information regarding net loss as required by SFAS No. 123 has
been determined as if the Company had accounted for its employee stock options
under the minimum value method using the following weighted-average assumptions:
1997 1998 1999
-------------- -------------- -------------
Risk free interest rate...................... 5.82% to 6.87% 4.60% to 5.65% 5.58%
Expected lives............................... 5 to 10 years 5 to 10 years 5 to 10 years
Expected dividends........................... $0 $0 $0
Volatility................................... -- -- 88%
The following table presents net loss and per share amounts as if the
Company accounted for compensation expense related to stock options under the
fair value method prescribed by SFAS No. 123 (in thousands, except per share
data):
YEAR ENDED
DECEMBER 31,
-------------------
1997 1998 1999
-------- -------- --------
Net loss--as reported....................................... $(3,570) $(8,964) $(20,835)
======= ======= ========
Net loss--pro forma......................................... $(3,574) $(9,031) $(22,046)
======= ======= ========
Loss per share--as reported................................. $(14.14) $(12.25) $ (3.07)
======= ======= ========
Loss per share--pro forma................................... $(14.16) $(12.34) $ (3.25)
======= ======= ========
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period.
F-19
IMAGEX.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK:
During 1996, the Company issued 3,500,000 shares of Series B Preferred
Stock, $0.01 par value. During 1998, the Company issued 4,000,000 shares of
Series C Preferred Stock, $0.01 par value and 1,385,493 shares of Series D
Preferred Stock, $0.01 par value. During January 1999, the Company issued an
additional 401,257 shares of Series D preferred stock for $802,514. During April
1999, the Company issued 11,904,761 shares of Series E preferred stock for
$25,000,000. Of the 11,904,761 shares issued, 579,745 shares were issued as a
result of the conversion of the convertible subordinated promissory notes issued
to investors in January 1999 aggregating $1,197,486 plus accrued interest of
$19,979. All holders of Preferred Stock were entitled to vote on all matters on
an "as if converted" basis. The holders of Preferred Stock shall be entitled to
receive dividends prior and in preference to any declaration or payment of any
dividend on the Series A Preferred Stock and common stock of the Company.
Each share of Preferred Stock is convertible at the option of the holder or
automatically upon either (a) sale of the Company's common stock in a public
offering in which the offering price of the common stock is not less than $10.00
per share and the gross proceeds are at least $15,000,000, as described in the
Company's Restated Articles of Incorporation or (b) upon the election by a
majority of the holders of Preferred Stock to convert their shares of Preferred
Stock into common stock. The conversion price is subject to weighted average
anti-dilution protection and proportional adjustments in the event of stock
splits and similar events. The Preferred Stock, other than Series A Preferred
Stock, is redeemable, at the option of the holders of more than 50% of the
outstanding shares thereof, beginning on or after April 2004. The redemption
price for each share of Preferred Stock shall be the original issue price plus
all accrued and unpaid dividends, adjusted for stock splits. Upon liquidation or
dissolution, holders of Preferred Stock will receive preference over holders of
Series A Preferred Stock and common stock. The redemption value of the
mandatorily redeemable convertible Preferred Stock is being accreted over the
period from issuance to the earliest redemption date using the effective
interest method.
At December 31, 1999, the following warrants to purchase mandatorily
redeemable convertible preferred stock were outstanding:
PRICE PER SHARE,
SUBJECT TO
NUMBER OF SHARES ADJUSTMENT EXPIRATION DATE
---------------- ---------------- ---------------
Series D Preferred Stock...................... 108,904 $2.00 October 1, 2005
Series E Preferred Stock...................... 85,535 $2.10 April 8, 2004
In August 1998, the Company issued warrants to two of its investors to
purchase 40,000 shares of Series C Preferred Stock in connection with bridge
financing arrangements. The Company executed convertible subordinated promissory
notes aggregating $600,000 which, with accrued interest, were converted into
302,993 shares of Series D Preferred Stock upon closing of the sale of Series D
Preferred Stock in October 1998. These warrants are exercisable at $1.50 per
share through August 28, 2005. The warrants were ascribed a value of $29,889.
All warrants were exercised during 1999.
In connection with the issuance of Series D Preferred Stock, the Company
issued warrants to its investors to purchase 138,250 shares of Series D
Preferred Stock. These warrants are exercisable at $2.00 per share and are
exercisable through October 1, 2005. The warrants were ascribed a value of
$116,951. During 1999, 29,346 warrants were exercised.
F-20
IMAGEX.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK: (CONTINUED)
In connection with the issuance of Series E preferred stock, the Company
issued warrants to its investors to purchase 85,535 shares of Series E preferred
stock. These warrants are exercisable at $2.10. The warrants were ascribed a
value of $129,645.
10. SHAREHOLDERS' EQUITY (DEFICIT):
COMMON STOCK
As of December 31, 1998, the Company was authorized to issue 22,500,000
shares of voting common stock, $0.01 par value. In April 1999, the Company's
Articles of Incorporation were amended to increase the number of authorized
shares of common stock to 50,000,000 shares. At its discretion, the Board of
Directors may declare dividends on shares of common stock. Upon liquidation,
holders of common stock will be paid only after the Preferred Stock preferences
have been satisfied.
In June 1999, the Company's Board of Directors approved an increase of the
number of authorized shares of common stock to 70,000,000 shares, subject to
shareholder approval.
The Company issued 1,000 shares of common stock to its four founding
shareholders (the "Founders") for $2,000 upon the formation of the Company on
August 21, 1995. Pursuant to an agreement dated May 1, 1996, the Founders, all
of whom are shareholders of Parallel (see Note 6), contributed technology to the
Company in exchange for 49,000 shares of common stock. Such technology was
purchased by the Founders from Parallel. The technology was valued at $300,000
and has been credited as a contribution to capital. The transferred technology
was considered to be in-process research and development; accordingly, the
$300,000 was charged to research and development expense in 1996. In December
1996, the Founders exchanged all of their 50,000 shares of common stock for
1,500,000 shares of Series A Preferred Stock.
In December 1996, the Company issued 1,050,000 shares of common stock to
certain Founders and a director of the Company for consideration of $400 and
services to be performed in the future. The shares are subject to repurchase by
the Company for $0.02 per share over the thirty-six month period following the
issuance of the shares. Such shares subject to repurchase will be reduced for
each completed month of employment with the Company by the Founders and the
director. During 1998, the Company repurchased 100,000 shares from one of the
Founders of the Company in accordance with an employment termination agreement.
Pursuant to the Company's stock incentive compensation plan (see Note 8),
the Company issued 150,000 shares of common stock (100,000 shares were to a
director of the Company) at a purchase price of $0.20 per share for an aggregate
purchase price of $30,000, which was satisfied by notes receivable totaling
$30,000. One note in the amount of $10,000 bears interest at 5.70% and is due in
February 2001. The other note in the amount of $20,000 bears interest at the
rate of 7.00% and is due in April 2000. The 150,000 shares are subject to
repurchase by the Company for $0.20 per share, as follows:
1. 50,000 shares will be subject to repurchase through February 2001,
with the number of shares being subject to repurchase reduced by 1,000 each
month following the original issuance of the shares.
2. 100,000 shares will be subject to repurchase through April 2000,
with the number of shares being subject to repurchase reduced by 2,778
shares each month following the original issuance of the shares. During the
repurchase period, the individual who purchased the 100,000 shares is
required to perform management services for the Company.
F-21
IMAGEX.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. SHAREHOLDERS' EQUITY (DEFICIT): (CONTINUED)
In November 1998, the Company issued 500,000 shares of common stock to an
officer of the Company at a purchase price of $0.40 per share pursuant to a
promissory note in the amount of $200,000. The note bears interest at 7% and is
due in January 2003. These shares are subject to repurchase by the Company for
$0.40 per share through January 15, 2003, with the shares being subject to
repurchase reduced by 120,000 shares after November 15, 1999, and reduced by
10,000 shares each month following November 15, 1999. The 650,000 shares have
been included in the stock options activity (see Note 8). At December 31, 1999,
the notes receivable from shareholders totaled $168,000 and are included in
shareholders' equity (deficit) on the accompanying balance sheet.
In June of 1998, upon formation of PrintBid, the Founders of PrintBid
received 302,650 of ImageX.com's shares in exchange for certain technology and
know-how. Of the shares issued, 151,325 were subject to repurchase for up to
three years. These shares have been recorded at fair value at the date of
issuance and the amount associated with the shares subject to repurchase has
been deferred and is being amortized over the restriction period.
In June of 1998, 75,662 of ImageX.com's restricted shares were issued to
outside advisors of PrintBid. The Company may repurchase these shares at par
value (.01) if the advisory relationship is terminated during the restriction
period. Compensation costs associated with these shares based on the fair value
at the date of grant, are being recognized as expense over the restriction
period.
On June 16, 1999, the Board of Directors approved a one-for-two reverse
stock split of the Company's common stock. The reverse stock split became
effective on August 18, 1999. All references in the consolidated financial
statements and all related notes thereto referring to shares, share prices, per
share amounts and other share information have been retroactively adjusted for
the reverse stock split.
During 1996, the Company issued 150,000 shares of common stock of $0.20 per
share in exchange for a note receivable of $30,000. During January 1999, the
Company redeemed 42,000 shares of common stock in exchange for cancellation of
the outstanding remaining principal amount of the note receivable.
On August 26, 1999, the Company issued 3,000,000 shares of its common stock
at an initial public offering price of $7.00 per share. An additional 450,000
shares were issued upon the exercise of the underwriters' overallotment option.
The net proceeds to the Company from the offering, net of offering costs of
approximately $3.1 million were approximately $21.0 million. Concurrent with the
initial public offering, each outstanding share of the Company's convertible
preferred stock was automatically converted into common stock.
SERIES A PREFERRED STOCK
As of December 31, 1998, the Company was authorized to issue 10,965,000
shares of preferred stock. In April 1999, the Articles of Incorporation were
amended to increase the number of authorized shares of preferred stock to
30,000,000 shares. The holders of Series A Preferred Stock shall be entitled to
receive dividends prior and in preference to any declaration or payment of any
dividend on the common stock of the Company. Each share of Series A Preferred
Stock is convertible at the option of the holder or automatically upon sale of
the Company's common stock in a public offering in which the offering price of
the common stock is not less than $5 per share and the gross proceeds are at
least $15,000,000, as described in the Company's Restated Articles of
Incorporation.
F-22
IMAGEX.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. SHAREHOLDERS' EQUITY (DEFICIT): (CONTINUED)
The conversion price is subject to weighted average anti-dilution protection
and proportional adjustments in the event of stock splits and similar events.
WARRANTS
At December 31, 1999, the following warrants to purchase common stock were
outstanding:
PRICE PER SHARE,
SUBJECT TO
NUMBER OF SHARES ADJUSTMENT EXPIRATION DATE
- ---------------- ---------------- ---------------------------
744,400.......................... $3.00 January 8, 2005
290,000.......................... $7.50 January 8, 2005
21,500.......................... $6.00 April 21, 2004
48,165.......................... $4.20 April 21, 2004
75,000.......................... $4.00 April 13, 2006
67,446............................ $4.36 May 3, 2008-October 9, 2009
1,246,511.........................
During 1998 in connection with the sale of Series C Preferred Stock, the
Company sold warrants to purchase 1,180,000 shares of common stock for
consideration of $23,600 to investors. Of the warrants issued, 890,000 warrants
are exercisable at $3.00 per share. The remaining 290,000 warrants are
exercisable at $7.50 per share. The warrants are exercisable through January 8,
2005. A certain number of warrants are subject to repurchase by the Company, as
defined in the warrant agreements. The period in which the Company is entitled
to repurchase the warrants is January 1, 2001 through March 31, 2001. The
repurchase price is $0.02 per warrant. The warrants were ascribed a value of
$1,038,094. One of the investors has entered into an agreement with the Company
to perform certain management services for the Company.
11. COMMITMENTS:
OPERATING LEASES
The Company leases its facilities under noncancelable operating leases which
expire between February 28, 2001 and December 31, 2004. The Company pays taxes,
insurance, normal maintenance and certain other operating expenses. At
December 31, 1999 the approximate future rental payments due under these leases
for the remainder of the lease terms were as follows (in thousands):
YEAR ENDING DECEMBER 31,
- ------------------------
2000........................................................ $ 3,266
2001........................................................ 3,229
2002........................................................ 2,711
2003........................................................ 1,381
2004........................................................ 1,235
-------
$11,822
=======
Total rent expense incurred under operating leases for the years ended
December 31, 1997, 1998 and 1999 was approximately $158,000, $333,000 and
$793,000, respectively.
F-23
IMAGEX.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. CASH FLOW INFORMATION:
Disclosure of cash flow information is summarized below for the years ended
December 31, 1997, 1998 and 1999 (in thousands):
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
Cash paid during the year for interest...................... $ 12 $ 59 $ 160
Non-cash financing activities:
Unearned compensation....................................... 2,335 2,841
Issuance of common stock for note receivable................ 30 200
Value ascribed to common stock warrants issued in
conjunction with sale of Series C Preferred Stock......... 1,038
Value ascribed to Series C Preferred Stock warrants issued
in connection with bridge financing....................... 30
Value ascribed to Series D Preferred Stock warrants issued
in conjunction with sale of Series D Preferred Stock...... 117
Value ascribed to Series E Preferred Stock warrants issued
in conjunction with sale of Series E Preferred Stock...... 130
Accretion on Series C Preferred Stock....................... 213 64
Accretion on Series D Preferred Stock....................... 9 8
Accretion on Series E Preferred Stock....................... 12
Acquisition of Fine Arts (see Note 13):
Fair value of assets acquired............................... 4,985
Issuance of common stock.................................... 375
Assumption of liabilities................................... 1,156
Assumption of acquisition costs............................. 185
Acquisition of Image Press (see Note 13):
Fair value of assets acquired............................... 3,120
Issuance of common stock.................................... 300
Assumption of liabilities................................... 565
Conversion of Series A, B, C, D and E Preferred Stock to
common stock in connection with the initial public
offering.................................................. 35,897
Issuance of common stock warrant related to convertible
debt...................................................... 35
Convertible debt issued in exchange for services to be
performed................................................. 25
Issuance of common stock.................................... 7
Reclassification of preferred stock warrants from temporary
equity.................................................... 147
Conversion of debt to equity securities..................... 1,069
13. ACQUISITIONS:
On April 13, 1999, the Company acquired substantially all of the assets of
Fine Arts Engravers Company, Inc. ("Fine Arts Graphics" or "Fine Arts"), a
privately owned Oregon corporation. Fine Arts is in the printing business. The
acquisition was accounted for using the purchase method. The aggregate purchase
price of $5,000,000 consists of $375,000 of common stock for 93,750 shares
issued to the seller and $4,625,000 of cash payment. The aggregate purchase was
allocated to the net assets acquired, based upon their respective fair market
values. The excess of the purchase price over the fair market value of the
F-24
IMAGEX.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. ACQUISITIONS: (CONTINUED)
assets acquired of $1,356,000 has been allocated to goodwill and will be
amortized over 10 years using the straight line method.
In connection with the acquisition, liabilities were assumed as follows (in
thousands):
Fair value of assets acquired............................... $4,985
Cash paid................................................... (4,625)
Common stock issued......................................... (375)
Goodwill.................................................... 1,356
Acquisition costs assumed................................... (185)
------
Liabilities assumed......................................... $1,156
======
On September 21, 1999, the Company acquired all of the common stock of Image
Press, Inc. ("Image Press"), a privately owned California corporation. Image
Press is a broker of printed paper products. The acquisition was accounted for
using the purchase method. The aggregate purchase price of $3,120,000 consists
of $300,000 of common stock for 16,394 shares issued to the seller and
$2,820,000 of cash payment. The aggregate purchase price was allocated to the
net assets acquired, based upon their respective fair market values. The excess
of the purchase price over the fair market value of the assets acquired of
$914,000 has been allocated to goodwill and will be amortized over 10 years
using the straight line method.
On December 9, 1999, the Company merged with PrintBid.com, Inc. ("PrintBid"
or "PrintBid.com"), a privately owned Oregon corporation. PrintBid is an
Internet-based provider of commercial printing services. The acquisition was
accounted for using the pooling-of-interest method. The Company issued 568,778
shares of common stock to the shareholders of PrintBid in conjunction with this
transaction.
The following presents the separate results, in each of the periods
presented since the inception of PrintBid in 1998, of the Company and PrintBid
(in thousands):
THE COMPANY PRINTBID TOTAL
----------- -------- --------
For the year ended December 31, 1998
Revenues.................................................. $ 968 $ -- $ 968
======== ======= ========
Net loss.................................................. $ (8,600) $ (364) $ (8,964)
======== ======= ========
For the year ended December 31, 1999
Revenues.................................................. $ 11,493 $ 6 $ 11,499
======== ======= ========
Net loss.................................................. $(17,503) $(3,332) $(20,835)
======== ======= ========
The following summarizes the unaudited pro forma results of operations, on a
combined basis, as if the Company's acquisition of Fine Arts and Image Press
occurred as of the beginning of each of the
F-25
IMAGEX.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. ACQUISITIONS: (CONTINUED)
periods presented, after including the impact of certain adjustments such as
amortization of goodwill (in thousands):
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999
----------------- -----------------
(UNAUDITED) (UNAUDITED)
Revenues.................................................... $17,983 $ 19,346
======= ========
Pro forma net loss.......................................... $(8,919) $(21,021)
======= ========
Pro forma basic and diluted net loss per share.............. $ (9.24) $ (3.13)
======= ========
The unaudited pro forma results are not necessarily indicative of the
results of operations which would actually have been reported had the
acquisition occurred prior to the beginning of the periods presented. In
addition, they are not intended to be indicative of future results.
14. SUBSEQUENT EVENTS
On January 5, 2000, the Company entered into a strategic alliance with an
internet company whereby the Company is committed to paying $100,000 per month
for a period of one year from the date of signing for promotional links and
shared advertising revenues.
On February 11, 2000, the Company sold 4,000,000 shares of common stock in a
secondary public offering. On March 14, 2000, pursuant to underwriters'
over-allotment option, the Company sold an additional 695,595 shares of common
stock. Net proceeds from the secondary offering, including the over-allotment
option, amounted to approximately $102 million and will be used to fund the
Company's growth.
F-26
ITEM 9--CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
ITEM 10--DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding our executive officers is included in Part I hereof
under the caption, "Our Executive Officers." The information required by this
Item concerning our directors and nominees for directors is incorporated herein
by reference to our Proxy Statement for our 2000 Annual Meeting of Shareholders,
to be held on May 2, 2000. The proxy statement will be filed within 120 days of
December 31, 1999.
ITEM 11--EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference to
our Proxy Statement for our 2000 Annual Meeting of Shareholders to be held on
May 2, 2000. The proxy statement will be filed within 120 days of December 31,
1999.
ITEM 12--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference to
our Proxy Statement for our 2000 Annual Meeting of Shareholders to be held on
May 2, 2000. The proxy statement will be filed within 120 days of December 31,
1999.
ITEM 13--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference to
our Proxy Statement for our 2000 Annual Meeting of Shareholders to be held on
May 2, 2000. The proxy statement will be filed within 120 days of December 31,
1999.
PART IV
ITEM 14--EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report are as follows:
1. Consolidated Financial Statements.
See Index to Consolidated Financial Statements included at Item 8 of this
report.
2. Financial Statement Schedules.
All schedules are omitted because they are inapplicable or the requested
information is shown in the consolidated financial statements or related notes
of ImageX.com.
3. Exhibits:
NUMBER DESCRIPTION
- ------ -----------
3.1 Amended and Restated Articles of Incorporation of the
registrant, as further amended by Articles of Amendment.(1)
3.2 Amended and Restated Bylaws of the registrant.(1)
10.1 Amended and Restated Investor Rights Agreement, dated as of
April 8, 1999, by and among the registrant and certain of
the registrant's shareholders named therein.(1)
II-1
NUMBER DESCRIPTION
- ------ -----------
10.2 Stock Vesting Agreement, dated as of December 20, 1996, by
and between the registrant and F. Joseph Verschueren.(1)
10.3 Stock Vesting Agreement, dated as of December 20, 1996, by
and between the registrant and Cory E. Klatt.(1)
10.4 Stock Vesting Agreement, dated as of December 20, 1996, by
and between the registrant and Elwood D. Howse, Jr.(1)
10.5 Stock Subscription and Repurchase Agreement, dated as of
August 7, 1997, by and between the registrant and Elwood D.
Howse, Jr.(1)
10.6 Stock Vesting and Pledge Agreement, dated as of November 16,
1998, by and between the registrant and Richard P.
Begert.(1)
10.7 Offer of Employment, dated as of November 12, 1998, from the
registrant to Richard P. Begert.(1)
10.8 Lease Agreement, dated as of January 31, 1997, by and
between the registrant and Bellevue Associates, L.P.(1)
10.9 Lease Agreement, dated as of May 15, 1998, by and between
the registrant and Spieker Properties, L.P.(1)
10.10 Lease Agreement, dated as of October 19, 1998, by and
between the registrant and Spieker Properties, L.P.(1)
10.11 Lease Agreement, dated as of April 22, 1999, by and between
the registrant and Spieker Properties, L.P.(1)
10.12 Lease Agreement, dated as of November 4, 1999, by and
between the Registrant and The Plaza at Yarrow Bay, LLC.(4)
10.13 Lease Assignment and Assumption, dated as of April 13, 1999,
by and between the Keystone Acquisition Corporation, a
wholly owned subsidiary of the registrant, and Fine Arts
Graphics Company, Inc.(1)
10.14 Lease Assignment and Assumption, dated as of April 13, 1999,
by and between Keystone Acquisition Corporation, a wholly
owned subsidiary of the registrant, and Fine Arts Graphics
Company, Inc.(1)
10.15 Amended and Restated 1996 Stock Incentive Compensation
Plan.(1)
10.16 1999 Employee Stock Purchase Plan.(1)
10.17 1999 Stock Option Grant Program for Nonemployee
Directors.(1)
10.18 Form of Indemnification Agreement.(1)
10.19 Asset Purchase and Sale Agreement, dated as of February 23,
1999, by and among the registrant, Keystone Acquisition
Corp., Fine Arts Engravers Company, Inc. and Nicholas J.
Stanley.(1)
10.20 Stock Purchase Agreement dated September 21, 1999, among
ImageX.com, Inc., Stanley F. and Marina Lynne Poitras,
individually and as Trustees of the Poitras Family Trust
dated November 22, 1993, Glen R. and Anne Douglas, as
community property.(2)
10.21 Agreement and Plan of Merger dated November 17, 1999 among
ImageX.com, Inc., Orcas Acquisition Corp. and PrintBid.com,
Inc.(3)
II-2
NUMBER DESCRIPTION
- ------ -----------
10.22 First Amendment to Agreement and Plan of Merger dated
November 30, 1999, among ImageX.com, Inc., Orcas Acquisition
Corp. and PrintBid.com, Inc.(3)
21.1 Subsidiaries of the registrant.(4)
23.1* Consent of PricewaterhouseCoopers LLP, independent
accountants.
27.1* Financial Data Schedule.
- ------------------------
* Filed herewith.
(1) Incorporated by Reference herein to the Registration Statement on Form S-1
and all amendments thereto filed with the Securities and Exchange Commission
on May 12, 1999. (File No. 333-78271).
(2) Incorporated by Reference herein to the Current Report on Form 8-K and all
amendments thereto filed with the Securities and Exchange Commission on
September 30, 1999. (File No. 000-26837).
(3) Incorporated by Reference herein to the Current Report on Form 8-K and all
amendments thereto filed with the Securities and Exchange Commission on
December 22, 1999. (File No. 000-26837).
(4) Incorporated by Reference herein to the Registration Statement on Form S-1
and all amendments thereto filed with the Securities and Exchange Commission
on January 13, 2000 (File No. 333-94639).
(b) Reports on Form 8-K
We filed a current Report on Form 8-K on December 22, 1999 relating to our
merger with PrintBid.com, Inc. Supplemental consolidated financial information
relating to the merger was filed by amendment to the December 22, 1999
Form 8-K, which was filed on February 7, 2000.
(c) Exhibits
See Item 14 (a) above.
(d) Financial Statements and Schedules
See Item 14 (a) above.
II-3
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf of the undersigned, thereunto duly authorized.
IMAGEX.COM, INC.
By: /s/ RICHARD P. BEGERT
-----------------------------------------
Richard P. Begert
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1934, this Report has
been signed by the following persons in the capacities indicated below on the
22nd day of March, 2000.
/s/ RICHARD P. BEGERT
- ------------------------------------------- President and Chief Executive Officer
Richard P. Begert (Principal Executive Officer)
/s/ ROBIN L. KRUEGER Chief Financial Officer, Treasurer and
- ------------------------------------------- Assistant Secretary (Principal Financial and
Robin L. Krueger Accounting Officer)
/s/ F. JOSEPH VERSCHUEREN
- ------------------------------------------- Chairman of the Board
F. Joseph Verschueren
/s/ JOHN E. ARDELL
- ------------------------------------------- Director
John E. Ardell
/s/ GARRETT P. GRUENER
- ------------------------------------------- Director
Garrett P. Gruener
/s/ ELWOOD D. HOWSE, JR.
- ------------------------------------------- Director
Elwood D. Howse, Jr.
/s/ WAYNE M. PERRY
- ------------------------------------------- Director
Wayne M. Perry
/s/ RICHARD R. SONSTELIE
- ------------------------------------------- Director
Richard R. Sonstelie
/s/ BERNEE D. L. STROM
- ------------------------------------------- Director
Bernee D. L. Strom
II-4
INDEX TO EXHIBITS
NUMBER DESCRIPTION
- ------ -----------
3.1 Amended and Restated Articles of Incorporation of the
registrant, as further amended by Articles of Amendment.(1)
3.2 Amended and Restated Bylaws of the registrant.(1)
10.1 Amended and Restated Investor Rights Agreement, dated as of
April 8, 1999, by and among the registrant and certain of
the registrant's shareholders named therein.(1)
10.2 Stock Vesting Agreement, dated as of December 20, 1996, by
and between the registrant and F. Joseph Verschueren.(1)
10.3 Stock Vesting Agreement, dated as of December 20, 1996, by
and between the registrant and Cory E. Klatt.(1)
10.4 Stock Vesting Agreement, dated as of December 20, 1996, by
and between the registrant and Elwood D. Howse, Jr.(1)
10.5 Stock Subscription and Repurchase Agreement, dated as of
August 7, 1997, by and between the registrant and Elwood D.
Howse, Jr.(1)
10.6 Stock Vesting and Pledge Agreement, dated as of November 16,
1998, by and between the registrant and Richard P.
Begert.(1)
10.7 Offer of Employment, dated as of November 12, 1998, from the
registrant to Richard P. Begert.(1)
10.8 Lease Agreement, dated as of January 31, 1997, by and
between the registrant and Bellevue Associates, L.P.(1)
10.9 Lease Agreement, dated as of May 15, 1998, by and between
the registrant and Spieker Properties, L.P.(1)
10.10 Lease Agreement, dated as of October 19, 1998, by and
between the registrant and Spieker Properties, L.P.(1)
10.11 Lease Agreement, dated as of April 22, 1999, by and between
the registrant and Spieker Properties, L.P.(1)
10.12 Lease Agreement, dated as of November 4, 1999, by and
between the Registrant and The Plaza at Yarrow Bay, LLC.(4)
10.13 Lease Assignment and Assumption, dated as of April 13, 1999,
by and between the Keystone Acquisition Corporation, a
wholly owned subsidiary of the registrant, and Fine Arts
Graphics Company, Inc.(1)
10.14 Lease Assignment and Assumption, dated as of April 13, 1999,
by and between Keystone Acquisition Corporation, a wholly
owned subsidiary of the registrant, and Fine Arts Graphics
Company, Inc.(1)
10.15 Amended and Restated 1996 Stock Incentive Compensation
Plan.(1)
10.16 1999 Employee Stock Purchase Plan.(1)
10.17 1999 Stock Option Grant Program for Nonemployee
Directors.(1)
10.18 Form of Indemnification Agreement.(1)
10.19 Asset Purchase and Sale Agreement, dated as of February 23,
1999, by and among the registrant, Keystone Acquisition
Corp., Fine Arts Engravers Company, Inc. and Nicholas J.
Stanley.(1)
NUMBER DESCRIPTION
- ------ -----------
10.20 Stock Purchase Agreement dated September 21, 1999, among
ImageX.com, Inc., Stanley F. and Marina Lynne Poitras,
individually and as Trustees of the Poitras Family Trust
dated November 22, 1993, Glen R. and Anne Douglas, as
community property.(2)
10.21 Agreement and Plan of Merger dated November 17, 1999 among
ImageX.com, Inc., Orcas Acquisition Corp. and PrintBid.com,
Inc.(3)
10.22 First Amendment to Agreement and Plan of Merger dated
November 30, 1999, among ImageX.com, Inc., Orcas Acquisition
Corp. and PrintBid.com, Inc.(3)
21.1 Subsidiaries of the registrant.(4)
23.1* Consent of PricewaterhouseCoopers LLP, independent
accountants.
27.1* Financial Data Schedule.
- ------------------------
* Filed herewith.
(1) Incorporated by Reference herein to the Registration Statement on Form S-1
and all amendments thereto filed with the Securities and Exchange Commission
on May 12, 1999. (File No. 333-78271).
(2) Incorporated by Reference herein to the Current Report on Form 8-K and all
amendments thereto filed with the Securities and Exchange Commission on
September 30, 1999. (File No. 000-26837).
(3) Incorporated by Reference herein to the Current Report on Form 8-K and all
amendments thereto filed with the Securities and Exchange Commission on
December 22, 1999. (File No. 000-26837).
(4) Incorporated by Reference herein to the Registration Statement on Form S-1
and all amendments thereto filed with the Securities and Exchange Commission
on January 13, 2000 (File No. 333-94639)