PRINTCAFE SOFTWARE INC - 10-K Annual Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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 FISCAL YEAR ENDED DECEMBER 31, 2002

OR

[ ] 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 0-49710
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PRINTCAFE SOFTWARE, INC.
(Exact Name of Registrant as Specified in its Charter)

DELAWARE 25-1854529
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)

FORTY 24TH STREET, PITTSBURGH, PENNSYLVANIA 15222
(Address of Principal Executive Offices, Including Zip Code)

(412) 456-1141
(Registrant's telephone number, including area code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.0001 PER SHARE
(Title of Class)

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 the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

Indicate by check mark whether the registration is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [ ] No [X]

The aggregate market value of common stock held by non-affiliates of the
registrant on March 17, 2003 computed by reference to the closing price of such
stock, as quoted on the NASDAQ's National Market System, was $8.8 million.
Shares of common stock held by each executive officer and director and by each
person who beneficially owns more than 5% of the outstanding common stock have
been excluded from the computation.

The number of shares of the registrant's common stock outstanding as of the
close of business on March 17, 2003 was 10,634,098.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Definitive Proxy Statement to be filed by the registrant in
connection with its 2003 Annual Meeting of Stockholders are incorporated by
reference into Items 10, 11, 12 and 13 of Part III.
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INDEX

PART I
Item 1 Business.................................................... 3
Item 2 Property.................................................... 10
Item 3 Legal Proceedings........................................... 10
Item 4 Submission of Matters to a Vote of Security Holders......... 11

PART II
Item 5 Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 11
Item 6 Selected Consolidated Financial Data........................ 12
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 12
Item 7A Qualitative And Quantitative Disclosures About Market
Risk........................................................ 29
Item 8 Financial Statements and Supplementary Data................. 30
Item 9 Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure.................................... 31

PART III
Item 10 Directors and Executive Officers of the Registrant.......... 31
Item 11 Executive Compensation...................................... 31
Item 12 Security Ownership of Certain Beneficial Owners and
Management.................................................. 31
Item 13 Certain Relationships and Related Transactions.............. 31
Item 14 Controls and Procedures..................................... 31

PART IV
Item 15 Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 31
Signatures............................................................ 33
Certifications........................................................ 34

1

SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION

This Annual Report on Form 10-K ("Form 10-K") contains forward-looking
statements in "Item 7 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Item 7A -- Quantitative and Qualitative
Disclosures About Market Risk," and elsewhere. These statements involve known
and unknown risks, uncertainties, and other factors that may cause our actual
results, performance, or achievements to be materially different from any future
results, performances, or achievements expressed or implied by the
forward-looking statements. In some cases, you can identify forward-looking
statements by terms such as "may," "might," "will," "should," "could," "would,"
"plan," "expect," "intend," "believe," "goal," "estimate," "anticipate,"
"predict," "potential," or the negative of these terms, and similar expressions
intended to identify forward-looking statements. These statements reflect our
current views with respect to future events and are based on assumptions and
subject to risks and uncertainties. Given these uncertainties, you should not
place undue reliance on these forward-looking statements. Also, these
forward-looking statements represent our estimates and assumptions only as of
the date of this Form 10-K and we undertake no duty to update this information.
You should read this Form 10-K completely and with the understanding that our
actual future results may be materially different from what we currently expect.
We qualify all of our forward-looking statements by these cautionary statements.
Factors that might cause or contribute to such a discrepancy include, but are
not limited to, those discussed under the heading "Risk Factors That May Affect
Future Results and Market Price of Stock" elsewhere in this Form 10-K.

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PART I

ITEM 1. BUSINESS.

OVERVIEW

Printcafe Software, Inc. is a leading provider of software solutions
designed specifically for the printing industry supply chain. Our enterprise
resource planning and collaborative supply chain software solutions enable
printers and print buyers to lower costs and improve productivity. Our
procurement applications, which are designed for print buyers, facilitate
collaboration between printers and print buyers over the Web. Our software
solutions have been installed by more than 4,000 customers in over 8,000
facilities worldwide, including 24 of the 25 largest printing companies in North
America and over 50 businesses in the Fortune 1000.

On February 26, 2003, we entered into a merger agreement with Electronics
for Imaging, Inc., or EFI. If the merger is completed, Printcafe would become a
wholly-owned subsidiary of EFI. Under the terms of the merger agreement, each
share of our common stock will be converted into $2.60 of consideration which
will be paid, at the election of each of our stockholders, in shares of EFI's
common stock or cash. EFI's common stock is traded on the NASDAQ National Market
under the symbol "EFII". Our board of directors has approved the merger with EFI
and has called a special meeting of our stockholders to vote on the merger. The
merger will be adopted if the holders of a majority of our outstanding shares of
common stock vote for the proposed merger with EFI.

INDUSTRY BACKGROUND

Based on U.S. Department of Commerce data and other industry sources, we
estimate that the printing industry supply chain is at least a $240 billion
market in the United States. We use the term printing industry supply chain to
describe the supply chain consisting of printers, print buyers, who buy products
and services offered by printers, and print industry raw material suppliers, who
supply the raw materials used by printers in the printing process.

Based on industry sources, we believe that there are an estimated 50,000
printing facilities in the United States. Printers can be divided into three
principal market segments -- commercial printers, publication printers, and
retail printers -- based on the type of their equipment, the size and complexity
of their print jobs, and the nature of their customers. Commercial printing
includes the printing of brochures, direct mail materials, posters, promotional
materials, business forms, customized packaging and labels. Publication printing
involves the printing of larger quantities of more complex materials, such as
newspapers, catalogs, magazines, books, and retail inserts. Retail printers
offer customers many of the same products as a small commercial printer offers
its customers but typically also offer "walk up" service where a customer may
have a job produced on demand.

Print buyers in nearly all markets require a wide variety of printed
materials and typically place customized orders with short lead times and
frequently request last minute changes. As a result, printers face unpredictable
demand, making it difficult to sustain high equipment utilization. The
unforeseen customer requirements placed on printers by customers also make it
difficult for print industry raw material suppliers to respond to printers'
needs. These characteristics of the printing industry lead to production
inefficiencies throughout the printing industry supply chain.

The competitive environment in the printing industry requires printers and
print industry raw material suppliers to differentiate themselves by offering
superior quality, price, and customer service. Printers and print industry raw
material suppliers need solutions that increase revenues, reduce operating
costs, improve productivity, and increase customer satisfaction and loyalty.
Print buyers also seek to interact efficiently with printers in order to reduce
printing costs, improve productivity, and shorten production times.

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THE TRADITIONAL PRINT PRODUCTION PROCESS

The production of printed material is complex and requires collaboration
among multiple parties throughout the process to ensure that the final product
accurately reflects the print buyer's design and meets its quality, cost, and
delivery expectations. Printing jobs are often highly customized, requiring
numerous interactions among print buyers, printers, and print industry raw
material suppliers. The production process itself can be divided into three
separate stages: design and specification; purchasing; and manufacturing and
distribution.

Design and specification. A print buyer designs printed material through a
collaborative process involving a print buyer's in-house and external design,
purchasing, sales, marketing, and creative personnel. The print buyer must then
communicate the print job specifications to the printer, using industry-specific
terminology, so that the printer can evaluate the specifications. Typically, the
print buyer specifies the print job manually and communicates it by telephone,
facsimile, or e-mail. The traditional design and specification process is
inherently inefficient. These inefficiencies result from the manual process of
data communication, input, and retrieval, the lack of appropriate error-checking
mechanisms, and the need for print buyers to understand the intricacies of the
print process and its industry-specific terminology in order to submit an
accurate request for a quote.

Purchasing. Purchasing a print job begins with the transmission of the
specifications to one or more printers to obtain and evaluate quotes that
estimate the cost, timing, and other elements of the project. A printer cannot
estimate the cost of a print job until the print buyer has completed the
specification phase, by defining paper, content, configuration, binding, and
distribution requirements. After evaluating the specification details, the
printer will determine its selling price, either manually or by a computer-based
process, and prepare a quote for the job. Once the printer provides a quote, the
print buyer then uses this information to modify job designs and specifications
and to select a printer. Without a consistent means of specifying a print job,
printers may misinterpret and inaccurately reply to quote requests, and print
buyers may not adhere to internal corporate policies and spending limits. In
addition, depending on a number of factors, such as the equipment available to
produce the print job, the cost of producing the same print job can vary
significantly from printer to printer. These miscommunications and
inefficiencies often lead to higher costs, delays, and customer dissatisfaction.

Manufacturing and distribution. This stage encompasses management of the
entire supply chain and production process, from purchasing and inventory of raw
materials through order management, preparation, printing, binding, finishing,
distribution, invoicing, and payment processing. The manufacturing and
distribution process has traditionally required manual preparation of job
instructions, which can result in inconsistent and inaccurate print
specifications, errors in the production process, delays in project completion,
and an inability to track the current status of inventories and jobs, leading to
high costs, production errors, delays, and customer dissatisfaction. In
addition, the difficulty associated with implementing customer change orders,
and a lack of integration between the systems that are used to plan and design
print projects, lead to further complications, inefficiencies, and errors in the
manufacturing and distribution processes.

THE IMPACT OF NEW TECHNOLOGIES ON THE PRINTING INDUSTRY SUPPLY CHAIN

The Web and other new technologies provide opportunities for businesses
across all industries to improve efficiency by extending their enterprise
software applications to include customers, partners, and suppliers. Businesses
seek software solutions that incorporate industry best practices, standard
processes, industry-specific terminology, and other functionality that has been
designed for their particular industry. Most enterprise software applications,
however, are not designed for the needs of a particular industry. We believe
that industry-specific software solutions can be easier to implement and
facilitate deeper collaboration among supply chain participants. These software
solutions are particularly in demand in industries, such as printing, with a
complex production process and rapidly changing job specifications.

The printing process involves a high degree of customization to meet the
needs of participants in the printing industry supply chain, causing them to
utilize industry-specific enterprise resource planning systems to maximize
process efficiency. Some businesses have turned to in-house solutions to address
these needs.
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More recently, vendors have developed a variety of software applications
designed for use in many industries, including procurement and enterprise
resource planning systems. We believe that these applications, which are often
designed for a standard assembly process, utilizing catalog-derived parts, do
not meet the complex needs of the printing industry with its job-specific custom
requirements. The complexities and inefficiencies inherent in the traditional
print process create an opportunity for an integrated software solution specific
to the printing industry supply chain that eliminates redundant and manual
processes and enhances communication and collaboration.

THE PRINTCAFE SOLUTION

We believe that we offer the only integrated software solutions that enable
printers and print buyers to increase efficiency in each stage of the printing
process -- from specification and purchasing to manufacturing and
distribution -- by providing enterprise resource planning systems, purchasing
systems, and collaborative supply chain planning and execution systems. Since
our inception in 1987, we have continually developed our software, targeted to
the specific needs of the printing industry supply chain, by drawing on our
years of experience in the printing industry and leveraging our relationships
with our strategic partners and customers.

Benefits to printers

Our software solutions enable printers to maximize productivity, increase
revenues, improve production management, and increase customer satisfaction and
loyalty. Printers use our software solutions to:

- increase responsiveness by automating the quotation process, quoting
accurate prices, and receiving and fulfilling orders electronically for
almost any type of print project;

- automate the manufacturing process and control print production
equipment, including scheduling the execution of print jobs and
collecting data on print jobs in process;

- manage inventory, resource planning, purchasing, accounting, and
invoicing;

- communicate and collaborate with multiple parties throughout the printing
process; and

- leverage their technology leadership to increase revenues by increasing
business with existing customers and generating new customer
opportunities.

Benefits to print buyers

Our software solutions enable print buyers to increase productivity and
reduce costs in the printing industry supply chain. By automating the print
specification and purchasing processes, our products allow print buyers to
replace inefficient manual processes with online collaboration capabilities.
Print buyers use our software solutions to:

- centrally manage and enforce company-wide print purchasing policies;

- specify, estimate the cost of, order, and track changes to, virtually any
type of print project by collaborating with printers of their choice;

- purchase print more effectively by allowing the print buyer to select the
most suitable printer for each print job;

- reduce print job production time by communicating and collaborating with
multiple parties throughout the printing process; and

- track the current status of a project from specification through delivery
and reconcile invoices to orders and change orders.

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PRODUCTS

Our software solutions automate the print production process; facilitate
collaboration, order fulfillment, data collection and analysis, and inventory
management; and provide financial accounting functions for printers. Our
products, developed specifically for the printing industry supply chain, are
designed to reduce costs, increase customer satisfaction, and overcome
inefficiencies in the traditional print production process. Our products can be
deployed together as an integrated solution or purchased separately and used on
a stand-alone basis.

We offer four categories of products:

- enterprise resource planning and supply chain planning products, which
facilitate efficient and accurate fulfillment of each print production
job by automating purchasing, operations, and financial functions;

- collaboration and procurement products, which enable print buyers to
communicate with printers at every stage of the print production process,
thereby reducing errors, production time, and costs;

- self-service applications, which enable printers to establish a Web
storefront and provide other online services to their customers,
facilitating interaction with their customers and potential customers by
improving collaboration and project management; and

- manufacturing and supply chain execution products, which enable
commercial and publication printers to plan and adjust their production
capacity by analyzing data collected from the production floor.

CUSTOMERS

Our software solutions for the printing industry supply chain have been
installed by more than 4,000 printer customers in over 8,000 facilities
worldwide, including 24 of the 25 largest publication and commercial printers in
North America and more than 50 businesses in the Fortune 1000. During 2002, no
single customer accounted for ten percent or more of our revenue.

SALES AND MARKETING

We sell our products and services through:

- Our 43 person sales force, which currently generates most of our new
sales;

- sales representatives of Creo, one of our strategic partners, which
currently generates less than 2% of our total sales;

- co-marketing agreements with Accenture, AT Kearney and SMARTworks; and

- the sales forces of some of our printer customers, who recommend our
products to their print buyer customers.

Our marketing programs are designed to promote our brand, educate our
existing and potential customers about the features and benefits of our
software, and generate sales leads. As of December 31, 2002, our sales and
marketing team consisted of 56 professionals. Our marketing activities include
participation in industry trade shows and seminars, hosting an annual user
conference attended by over 700 participants, hosting regional user meetings,
direct mailings, trade journal advertising, and public relations activities.

PROFESSIONAL SERVICES AND CUSTOMER SUPPORT

Our customer service professionals configure and implement our software
solutions and provide technical support, consulting, and training to our
customers. As of December 31, 2002 we employed 126 professionals in our customer
service organization. Our customer service professionals are available by
telephone, over the Web, or by e-mail to assist with customer support requests
24 hours a day, seven days a week.

In addition to professional services, we offer product maintenance to our
customers. Maintenance contracts are typically subject to an annual, renewable
fee and are typically priced as a percentage of product license fees. Customers
under maintenance service contracts receive technical product support and
product upgrades as they are released throughout the life of the maintenance
contracts.

TECHNOLOGY AND PRODUCT ARCHITECTURE

We design software solutions for participants in the global printing
industry supply chain. Our products are designed to be easily adaptable, secure,
and scalable for global businesses, as well as capable of handling multiple data
sources and a large number of transactions. Our products are implemented through
two technology platforms: client/server software applications and hosted Web-
based products. With our modular,
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object-oriented development approach, we have developed client/server-based
enterprise resource planning systems and supply chain planning and execution
software that work with a variety of databases and operating systems. Our
Web-based products are developed using readily-available Web development tools
and are deployed on an Oracle database. If we are unable to maintain our
licenses with Oracle, we could be required to obtain substitute technology of
lower quality or performance standards, or at additional cost, and our business
could be harmed. We continually refine our client/server software applications
and our Web-based products in order to improve their interoperability and to
extend the reach of our products throughout the printing industry supply chain.

Our product architecture is designed to support today's rapidly changing
technology standards by providing the following features:

Layered architecture. Our client/server software applications are written
using an object-oriented architecture, which enables our developers to construct
and modify discrete applications efficiently and cost-effectively. Our hosted
Web-based software applications are developed using multi-tier architecture,
which provides for ease of deployment, application management, support, and
scalability.

Flexible, open systems architecture. Our open architecture benefits both
our internal software development process and the customers who use our
solutions. Our developers are able to pre-configure software to address in
separate solutions the specialized needs of the different types of participants
in the printing industry supply chain, which simplifies and accelerates the
software development process. We are able to offer products which are
appropriate for customers ranging from small, single-facility print shops to
large, enterprise-wide implementations. In addition, our architecture supports a
number of different operating systems, such as Windows, Macintosh, AS/400, and
UNIX.

Scalability. We use a distributed application framework, which leverages
separate applications working together, rather than a single, complex system, to
minimize product complexity and facilitate product updates and maintenance. We
ensure optimal scalability in our Web-based products by managing application
replication software on multiple servers, coupled with load management software
and hardware, which provides redundancy and additional peak use capacity. Our
multi-tier architecture allows for rapid response to demands for increased
capacity resulting in an environment that is highly scalable.

Security. Our Web-based products are protected from intrusion and
compromise through multiple industry-standard security measures. Our multi-tier
architecture isolates the major components of the system from one another -- the
publicly-accessible tiers include user interface components and business logic
modules, while the data layer resides in a separate, secure, private tier. By
segregating data from the interface and business logic, we protect the data
repository from infiltration over the public Web. We also rely upon
industry-standard security protocols, such as secure socket layer connections,
digital signatures, and encryption, to protect essential customer data from
exposure and corruption.

INTELLECTUAL PROPERTY

We rely primarily on a combination of copyright, trademark, trade secret,
and patent laws and contractual restrictions to protect the proprietary aspects
of our technology. These legal protections afford only limited protection for
our technology. We seek to protect the source code for our software,
documentation, and other written materials under trade secret and copyright
laws. We license our software pursuant to license agreements, which impose
restrictions on the licensee's ability to utilize the software. We also require
employees and consultants with access to our proprietary information to execute
confidentiality agreements. We have obtained eight patents in the United States
on aspects of our technology and business processes. Four of these patents are
scheduled to expire within the next two years and the remaining four patents
expire at different times between 2005 and 2017. We do not view the expiration
of these patents to be material. We have also filed applications for additional
patents. We expect that, if granted, the duration of these patents will be 20
years from the date of filing the application. We own various trademarks that
are used in connection with our business, some of which have been registered
with the United States Patent and Trademark Office. The duration of those
trademarks is unlimited, subject to continuous use.

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We license several patents for our Web-based solutions from the owners of
the respective patents. The license agreements grant us a non-exclusive license
to use in our products the process covered by U.S. Patent No. 4,839,829, No.
6,353,483, No. 6,362,895, and No. 6,429,947. The licenses remain in effect until
the expiration of the respective patents. We also license technology owned by
Creo Inc. for use in the Web-based solutions which we offer to printers. Creo
can terminate this license agreement if a third party purchases more than fifty
percent of our outstanding stock or our strategic alliance agreement with Creo
is terminated.

Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use information
that we regard as proprietary. In addition, the laws of many countries do not
protect our proprietary rights to as great an extent as do the laws of the
United States. Litigation may be necessary in the future to enforce our
intellectual property rights and to determine the validity and scope of the
proprietary rights of others. Our failure to adequately protect our intellectual
property could have a material adverse effect on our business and operating
results.

COMPETITION

Traditionally, both printers and print buyers would internally create their
own methodologies to manage their printing industry supply chain needs, often
using manual processes. In the absence of commercially-available printing
industry supply chain software, some companies developed software for their own
internal use. The market for software focused specifically on the printing
industry supply chain is relatively new and is evolving rapidly.

In this market, we encounter competition from software application vendors
that specifically target the printing industry, which are typically small,
privately-owned companies, and from larger vendors who currently offer or are
seeking to develop printer-focused enterprise resource planning products, such
as Heidelberg and SAP. We are unaware of any competing integrated suite of
software products focused specifically on the print industry supply chain
similar to our comprehensive software solutions. In the future, we could
potentially face competition from other software vendors with related
functionality in enterprise resource planning, supply chain management, and
procurement who decide to target the printing industry, including Ariba, i2,
Manugistics, Microsoft, Oracle, and PeopleSoft, and other software vendors
focused on specific aspects of supply chain planning and execution, such as
Manhattan Associates, Retek, and Vastera. We believe that the principal
competitive factors affecting our market include adoption by a significant
number of print buyers and printers, product quality and performance, customer
service, core technology, product features, price, and the value of services.

EMPLOYEES

As of December 31, 2002, we had 330 full-time employees. Of these
employees, 56 were in sales and marketing, 108 were in research and development,
126 were in customer support, and 40 were in general and administrative services
and operations. Our employees are not represented by a labor union, and we
consider our employee relations to be good.

EXECUTIVE OFFICERS

The following table shows information about our executive officers:

Marc D. Olin has served as our Chief Executive Officer since October 2001,
as our Co-Chief Executive Officer from July 2000 to September 2001, as our
President and a director since February 2000 and as our chairman of the board
from January 2003. Mr. Olin also served as our Co-Chairman from February 2000 to

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March 2000, and as our Chief Operating Officer from March 2000 to August 2001.
From April 1999 to February 2000, Mr. Olin served as the Chairman, President,
and Chief Executive Officer of Prograph Systems, Inc., one of our predecessor
companies. From 1992 to April 1999, Mr. Olin served as President of Prograph
Management Systems, one of our predecessor companies, which he co-founded in
1987. He received a B.S. from Carnegie Mellon University. Mr. Olin was a
director of the Graphic Arts Technical Foundation.

Joseph J. Whang has served as our Chief Financial Officer since February
2000 and as our Chief Operating Officer since August 2001. From October 1998 to
February 2000, Mr. Whang was a Managing Director of McDonald Investments, an
investment banking firm. Mr. Whang was a founding partner of Carleton, McCreary,
Holmes & Co., an investment banking firm, and served as a Managing Director from
May 1996 to October 1998. Previously, Mr. Whang was President of Practisys,
Inc., a health care company, and a Certified Public Accountant with Price
Waterhouse. He received a B.S. from the Wharton School of the University of
Pennsylvania.

Ronald F. Hyland, Sr. has served as our Senior Vice President and Chief
Technology Officer since February 2000. Mr. Hyland was Chief Technology Officer
of Prograph Systems, Inc. from April 1999 to February 2000. Mr. Hyland was
President of Prograph Bindery Systems, one of our predecessor companies, from
1996 to April 1999 and the Vice President and Chief Operating Officer of
Prograph Bindery Systems from 1994 to 1996. From 1988 to 1994, Mr. Hyland was
Manager of Advanced Technology for Time Warner.

ITEM 2. PROPERTIES.

Our headquarters are located in Pittsburgh, Pennsylvania, where we lease
approximately 25,000 square feet of office space. The lease expires in November
2003, unless we elect to extend the term for up to an additional two years.
These facilities are used for executive office space, including sales and
marketing, finance and administration, research and design, Web hosting, and
customer support. In addition, we have offices in Arizona, California,
Connecticut, Illinois, Minnesota, and New Hampshire in the United States, and
New Windsor in the United Kingdom.

Our principal executive offices are located at Forty 24th Street,
Pittsburgh, PA 15222, and our telephone number at that location is (412)
456-1141. Our Web site address is www.printcafe.com. The information contained
on our Web site is not a part of this Form 10-K. Unless the context requires
otherwise, references in this Form 10-K to "we," "our," and "us" refer to
Printcafe Software, Inc. and its subsidiaries.

ITEM 3. LEGAL PROCEEDINGS.

Legal Proceedings. On February 19, 2003, Creo commenced an action in The
Court of Chancery of the State of Delaware in and for New Castle County
captioned Creo, Inc. v. Printcafe Software, Inc., Electronics For Imaging, Inc.,
Marc D. Olin, Charles J. Billerbeck, Victor A. Cohn and Thomas J. Gill. Creo
requested a temporary restraining order with respect to (a) triggering,
exercising or otherwise giving effect to the stockholders' rights plan we
adopted, (b) enforcing any action taken or to be taken by us "with the intent or
effect of impeding the operation of market forces in an open bidding contest for
Printcafe," (c) taking any steps or actions to enforce the fee provided for in
the letter agreement we entered into with EFI, (d) taking any steps or any
actions to enforce the option we granted to EFI, (e) taking any steps or actions
to enforce the no solicitation provisions of the standby credit letter that we
entered into with EFI, (f) engaging in any "conduct intended to cause or having
the effect of causing Printcafe to forgo the opportunity to explore and enter
into economically more favorable transactions" and (g) entering into, or
purporting to enter into, a merger agreement between EFI and us before the court
finally rules on the action. On February 21, 2003 the court denied Creo's
request for a temporary restraining order. The matter is still pending in the
Delaware Chancery Court with respect to the other relief sought by Creo. We
intend to vigorously defend ourselves in this matter. If this lawsuit is
resolved unfavorably to us, our business and financial condition could be
adversely affected and we may not be able to complete the merger.

From time to time, we may be involved in various lawsuits and legal
proceedings that arise in the ordinary course of business, including claims from
third parties alleging that our products infringe their proprietary rights.
These claims, with or without merit, could be time-consuming and costly, divert
management's
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attention, cause product shipment delays, require us to develop non-infringing
technology, or enter into royalty or licensing agreements. Royalty or licensing
agreements, if required, may not be available on acceptable terms, if at all.
Based on our investigation to date, we do not believe that the ultimate outcome
of any of these claims would have a material adverse effect on our business.
However, if any of these disputes are resolved unfavorably to us, our business
and financial condition could be adversely affected.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

Shares of our common stock have been traded on Nasdaq National Market under
the symbol "PCAF" since June 18, 2002, the date of our initial public offering.

The following table shows the high and low sales price for shares of our
common stock for the periods indicated:

On March 17, 2003 the last reported sale price for shares of our common
stock on the Nasdaq National Market was $2.55 per share.

There were 112 holders of record of our common stock as of March 17, 2003.

We have not paid or declared any cash dividends on our common stock since
inception and we do not currently intend to pay any cash dividends on our common
stock. We expect to retain future earnings, if any, to fund the development and
operation of our business. Our board of directors will determine future
dividends, if any. Our existing loan agreements contain restrictive covenants
that limit our ability to pay cash dividends.

The following table sets forth information as of December 31, 2002 with
respect to compensation plans under which our equity securities are authorized
for issuance.

On June 18, 2002, we completed the initial public offering of our common
stock. The managing underwriters in the offering were UBS Warburg LLC, Robertson
Stephens Inc., U.S. Bancorp Piper Jaffray Inc. and McDonald Investments Inc. The
shares of the common stock sold in the offering were registered under the
Securities Act of 1933, as amended, on a Registration Statement on Form S-1 (No.
333-82646). The Securities and Exchange Commission declared the Registration
Statement effective on June 18, 2002. The initial public offering price was
$10.00 for an aggregate initial public offering of $37.5 million.

11

We paid a total of $1.6 million in underwriting discounts and commissions
and approximately $2.2 million for costs and expenses related to the offering.
None of the costs and expenses related to the offering were paid directly or
indirectly to any of our directors, officers, general partners or their
associates, persons owning 10 percent or more of any class of our equity
securities or any of our affiliates.

After deducting the underwriting discounts and commissions and the offering
expenses, we received net proceeds of approximately $33.0 million. We used
approximately $17.8 million of the net proceeds from the offering to repay
related party debt. A portion of the remaining amount has been used for general
corporate purposes, to provide working capital to develop products and to expand
our operations and for the acquisition of the assets and intellectual property
of printChannel, Inc. Funds that have not been used have been invested in money
market funds, certificate of deposits and other investment grade securities. We
may also use a portion of the net proceeds to acquire or invest in business,
technologies, products or services.

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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.

The following selected consolidated financial data should be read in
conjunction with "Management's discussion and analysis of financial condition
and results of operations" and our consolidated financial statements and related
notes appearing elsewhere in this Form 10-K.

- ---------------

(1) Effective January 1, 2002, we adopted SFAS No. 142, Goodwill and Other
Intangible Assets. As a result, we do not amortize goodwill after December
31, 2001. Goodwill amortization for the years ended December 31, 2002, 2001,
2000, 1999 and 1998 was $0, $19,576, $16,653, $774 and $0, respectively, or
$0.00, $121.30, $113.86, $6.83 and $0.00 per diluted common share.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

The information in this discussion contains forward-looking statements that
involve risks and uncertainties. These statements involve known and unknown
risks, uncertainties, and other factors that may cause our actual results,
performance, or achievements to be materially different from any future results,
performances, or achievements expressed or implied by the forward-looking
statements. In some cases, you can identify forward-looking statements by terms
such as "may," "might," "will," "should," "could," "would," "plan," "expect,"
"intend," "believe," "goal," "estimate," "anticipate," "predict," "potential,"
or the negative of these terms, and similar expressions intended to identify
forward-looking statements. These statements reflect our current views with
respect to future events and are based on assumptions and subject to risks and
uncertainties. Given these uncertainties, you should not place undue reliance on
these forward-looking statements. Also, these forward-looking statements
represent our estimates and assumptions only as of the date of this Form 10-K.
You should read this Form 10-K completely and with the understanding that our
actual future results may be materially different from what we currently expect.
We qualify all of our forward-looking statements by these cautionary statements.
Factors that might cause or contribute to such a discrepancy include, but are
not limited to, those discussed under the heading "Risk Factors That May Affect
Future Results and Market Price of Stock" elsewhere in this Form 10-K.

OVERVIEW

GENERAL

We have focused on developing software solutions designed specifically for
the printing industry supply chain since our inception in 1987. In February
2000, Prograph Systems, our predecessor company, changed its name to printCafe,
Inc., and we launched our Web-based products to complement our enterprise
resource planning software. From February through April 2000, we acquired five
complementary businesses for an aggregate purchase price of $137.3 million. We
have also committed significant resources to develop, integrate, and market our
products, expand our management team, and hire additional personnel. On June 18,
2002, we completed our initial public offering by issuing 3,750,000 shares of
our common stock at a price of $10.00 per share. We incurred a net loss of $95.7
million, $70.0 million and $40.8 million in 2000, 2001 and 2002 respectively and
had an accumulated deficit of $234.7 million as of December 31, 2002.

The acquisitions we completed in early 2000 generated goodwill of $57.7
million, of which $22.5 million remained unamortized as of December 31, 2002,
and other intangible assets of $86.4 million, of which $5.5 million remained
unamortized as of December 31, 2002. In accordance with SFAS No. 142, we have
performed the required impairment tests of goodwill and indefinite-lived
intangible assets as of January 1, 2002 and December 31, 2002, and have
determined that no impairment loss is required to be recognized. The other
intangible assets are being amortized over a three-year period, Any future
write-off of goodwill or other intangible assets as a non-cash charge could be
significant and would likely harm our operating results. In addition, any future
impairment loss recognition may adversely affect our ability to comply with the
financial covenants in our installment note with National City Bank. As of
December 31, 2002, we were not in compliance with the debt service coverage
covenants of the installment note. We have received a waiver with

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respect to this default from National City Bank, which expires January 1, 2004.
As of December 31, 2002, the outstanding principal balance of this note was $0.3
million.

We acquired substantially all the assets and intellectual property of
printChannel, Inc. in October 2002. This transaction did not have a material
impact on fourth quarter financial results or our financial position as of
December 31, 2002.

On February 26, 2003, we entered into a merger agreement with EFI. Upon
completion of the merger, we would become a wholly-owned subsidiary of EFI. Our
board of directors has approved the merger with EFI and has called a special
meeting of our stockholders to vote on the merger. The merger will be adopted if
the holders of a majority of our outstanding shares of common stock vote for the
proposed merger with EFI. We will incur significant costs associated with the
merger, including legal, accounting, financial printing and financial advisory
fees. Many of these fees must be paid regardless of whether the merger is
completed. We also may incur significant costs in defending ourselves in the
lawsuit brought against us by Creo in February 2003 related to our transactions
with EFI. In addition, our relationships with customers may be disrupted because
of the diversion of management attention while negotiating the merger and as a
result of any perceived uncertainty regarding the outcome of the merger. If
customers delay decisions to license our products due to this uncertainty, our
results of operations would be adversely affected.

SOURCES OF REVENUE

Our revenue is derived principally from licenses and subscriptions of our
products, maintenance contracts, and professional and other services, including
implementation, consulting, and training. Our products are typically purchased
under either a perpetual license or a time-based or usage-based subscription. We
offer our enterprise resource planning and other client/server software to
printers and print buyers under license agreements. We offer our Web-based
products to printers and print buyers under subscription agreements, which
typically have a term of three years. Our print buyer customers pay a
subscription fee for our Web-based products based on the number of users of the
website. Our printer customers can purchase either an unlimited subscription or
a limited subscription for our Web-based products. The fee for the limited
subscription is based on the value of print orders processed through the
customer's website. Maintenance contracts are sold to customers, usually at the
time of sale of a software license, under annual agreements that provide for
automatic renewal, unless the customer cancels. We also provide professional
services, which are offered at an hourly rate.

We have derived most of our revenue from licenses of our software and the
sale of related maintenance to printers. In the first quarter of 2001, we began
to recognize revenue from the sale of our Web-based products to printers and
began to market our Web-based solutions for print buyers.

For the years ended December 31, 2000, 2001 and 2002, revenues from foreign
customers approximated 5%, 11% and 15% respectively, of our total revenues.

CRITICAL ACCOUNTING POLICIES

Our discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires management
to make estimates and judgments that affect the reported amount of assets,
liabilities, revenues, and expenses, and related disclosure of contingent assets
and liabilities. Our actual results may differ from those estimates.

The following critical accounting policies affect the significant judgments
and estimates we use in preparing our consolidated financial statements.

REVENUE RECOGNITION

We recognize revenue on our software products in accordance with Statement
of Position (SOP) 97-2, Software Revenue Recognition, which provides for
recognition of revenue when persuasive evidence of an arrangement exists,
delivery of the product has occurred, no significant obligations remain on our
part with
15

regard to implementation, the fee is fixed and determinable, and collectibility
is probable. SOP 97-2 generally requires revenue earned on software arrangements
involving multiple elements to be allocated to each element based on the
relative fair value of each element. Revenue recognized from multiple-element
arrangements is allocated to undelivered elements of the arrangement, such as
maintenance and professional services, based on the relative fair value of each
element. Our determination of fair value of each element in multi-element
arrangements is based on vendor-specific objective evidence (VSOE). We limit our
assessment of VSOE for each element to either the price charged when the same
element is sold separately or the price established by management for an element
not yet sold separately. We have VSOE for maintenance services and professional
services.

If evidence of fair value of all undelivered elements exists but evidence
does not exist for one or more delivered elements, then revenue is recognized
using the residual method. Under the residual method, the fair value of the
undelivered elements is deferred and the remaining portion of the total fee is
recognized as revenue. We generally recognize license revenue under the residual
method upon delivery of our software to the customer, provided collection is
probable. Revenue allocated to maintenance is recognized ratably over the
maintenance term and revenue allocated to training and other service elements is
recognized as the services are performed. Revenue from Web-based products is
recognized ratably over the term of the subscription for unlimited subscriptions
and is recognized based on usage, subject to a fixed term, for limited
subscriptions. Many of our agreements include warranty provisions. Historically,
these provisions have not had a significant impact on our revenue recognition.
In those instances where customer acceptance may be in question, all revenue
relating to that arrangement is deferred until the warranty period has expired.

CONTINGENCIES

We are involved in disputes and litigation in the normal course of
business. We are required to assess the likelihood of any adverse judgments or
outcomes to these matters as well as potential ranges of probable losses. A
determination of the amount of reserves required, if any, for these
contingencies are made after careful analysis of each individual issue. The
required reserves may change in the future due to new developments in each
matter or changes in insurance coverage or our approach, such as a change in
settlement strategy.

STOCK-BASED COMPENSATION

We have elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations for our
employee stock options because the alternative fair value accounting provided
under SFAS No. 123, Accounting for Stock Based Compensation (SFAS 123), requires
use of valuation models that were not developed for use in valuing employee
stock options.

In the first quarter of 2002, we granted options to purchase 766,520 shares
of common stock, with an exercise price of $4.21 per share, to employees and
directors. As a result, we recorded approximately $4.4 million of deferred
compensation. This amount represents the difference between the exercise price
and the fair market value of our common stock on the date we granted these stock
options. We will record stock-based compensation expense of approximately $1.1
million annually over the vesting period of these options, which is generally
four years. If the merger with EFI is completed, the vesting of these options
will be accelerated by six months.

In April 2002, we granted options to purchase 381,603 shares of common
stock, with an exercise price of $15.54 per share, to employees. We did not
record any stock-based compensation expense related to these options as the
exercise price was above the then current fair market value. We also granted
options to purchase 92,910 shares of common stock to employees in June 2002,
with an exercise price of $2.00 per share. As a result, we will record
approximately $0.2 million of stock-based compensation expense annually over the
vesting period of these options, which is three years.

For the years ended December 31, 2000, 2001 and 2002, we recorded $5.1
million, $1.1 million and $1.4 million, respectively, of stock-based
compensation expense.

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WARRANTS

We account for equity instruments issued to nonemployees and pursuant to
strategic alliance agreements in accordance with the provisions of SFAS 123,
Emerging Issues Task Force No. 96-18, Accounting for Equity Instruments that are
Issued to Other than Employees for Acquiring or in Conjunction with Selling
Goods or Services, and Emerging Issues Task Force No. 01-9, Accounting for
Consideration Given by Vendor to a Customer or a Reseller of the Vendor's
Product. Warrant expense represents charges associated with the issuance of
warrants to purchase our common stock. To the extent that we derive revenue from
agreements entered into in connection with the issuance of warrants, we offset
this revenue by the expense associated with these warrants. Any amount of
expense that exceeds revenue is recorded in sales and marketing, general and
administrative, or interest expense, based upon the nature of the agreement. The
amount of expense is equal to the fair value of vested warrants determined using
Black-Scholes pricing models. The following table sets forth the amount of
expense and reduction to revenue associated with the issuance of these warrants
for the year ended December 31, 2000, 2001 and 2002, respectively (in
thousands):

As of December 31, 2002, we had unvested warrants to purchase 43,899 shares
of common stock, which have exercise prices ranging from $266.40 to $592.07 and
vest upon attainment of performance criteria. Upon the vesting of warrants to
purchase 13,119 of these shares of common stock, we will record warrant expense
based upon fair value for each warrant, and upon the vesting of warrants to
purchase 30,780 of these shares of common stock, we will reduce revenue
generated from the warrant holder during the period when vesting occurs. We
cannot predict the timing or amount of this reduction in revenue and increase in
expense because the amount is calculated using the fair market value at the time
of vesting.

INCOME TAXES

Deferred income taxes are recognized for all temporary differences between
tax and financial bases of our assets and liabilities, using the tax laws and
statutory rates applicable to the periods in which the differences are expected
to affect taxable income. As of December 31, 2002, we had significant net
operating loss carryforwards available to offset future taxable income. The net
operating loss carryforwards will expire beginning 2015 through 2021. Federal
and state tax rules impose substantial restrictions on the utilization of net
operating loss and tax credit carryforwards in situations where changes occur in
the stock ownership of a company. Utilization of our carryforwards is limited
because of past ownership changes. In the event that we have a future change in
ownership, utilization of these carryforwards could be further limited.

We have established a 100% valuation allowance against deferred tax assets
due to the uncertainty that future tax benefits can be realized from our net
operating loss carryforwards and other deferred tax assets.

IDENTIFIED INTANGIBLE ASSETS, PURCHASED TECHNOLOGY AND GOODWILL

Our identified intangible assets, purchased technology and goodwill are
related mainly to our business acquisitions. We amortize identified intangible
assets and purchased technology on a straight-line basis over the estimated
useful lives (generally three years) of the remaining assets. Goodwill
represents the excess of cost over the fair value of net intangible and
identifiable intangible assets of acquired businesses. Effective January 1,
2002, we adopted Statement of Financial Accounting Standards No. 142, Goodwill
and Other Intangible Assets (SFAS No. 142). Before we adopted SFAS No. 142, we
amortized goodwill over its estimated useful life of three years. Upon adoption
of SFAS No. 142, we performed an initial impairment analysis. Under SFAS No.
142, goodwill is no longer amortized to expense, but is instead subjected to a
periodic impairment test at least annually. The impairment test is a two-step
process, which analyzes whether or not goodwill has been impaired. Step one
requires that the fair value be compared to book value. If the fair

17

value is higher than the book value, no impairment is indicated and there is no
need to perform the second step of the process. If the fair value is lower than
the book value, step two must be evaluated. Step two requires the fair value to
be allocated to assets and liabilities in a manner similar to a purchase price
allocation in order to determine the implied fair value of the goodwill. This
implied fair value is then compared with the carrying amount, and if it were
less, we would then recognize an impairment loss. We test goodwill for
impairment annually in the fourth quarter.

IMPAIRMENT OF LONG-LIVED ASSETS

Effective January 1, 2002, we adopted SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets (SFAS No. 144). SFAS No. 144
supersedes or amends existing accounting literature related to the impairment
and disposal of long-lived assets.

Whenever events or changes in circumstances indicate that the carrying
amount of long-lived assets may not be recoverable, we review our long-lived
assets for impairment by first comparing the carrying value of the assets to the
sum of the undiscounted cash flows expected to result from the use and eventual
disposition of the assets. If the carrying value exceeds the sum of the assets'
undiscounted cash flows, we estimate an impairment loss by taking the difference
between the carrying value and fair value of the assets. No impairment charge
has been recorded in any of the periods presented.

RECENT ACCOUNTING PRONOUNCEMENTS

DEBT EXTINGUISHMENT COSTS

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements
No. 4, 44 and 62, Amendment of FASB Statement No. 13 and Technical Corrections.
SFAS No. 145, which becomes effective for financial statements issued for fiscal
years beginning after May 15, 2002 and requires gains and losses on
extinguishment of debt to be classified as income or loss from continuing
operations rather than as extraordinary items as previously required under the
provisions of Accounting Principles Board Opinion No. 30, Reporting the Results
of Operations -- Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and Transactions.
As of December 31, 2002, we early adopted SFAS No. 145 and reclassified an
extraordinary loss of $1.1 million recognized in the second quarter of 2002 as
other expense.

EXIT AND DISPOSAL ACTIVITIES

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities, which became effective for exit or disposal
activities that are initiated after December 31, 2002. SFAS No. 146 addresses
financial accounting and reporting for costs associated with exit or disposal
activities and requires that a liability for a cost associated with an exit or
disposal activity be recognized at fair value when the liability is incurred,
rather than at the date of an entity's commitment to an exit plan. We do not
believe that SFAS No. 146 will have a material impact on its financial position
and results of operations.

STOCK-BASED COMPENSATION

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation -- Transition and Disclosure. SFAS No. 148 amends SFAS No. 123,
Accounting for Stock-Based Compensation, to provide alternative methods of
transition for a voluntary change to the fair value method of accounting for
stock-based employee compensation. In addition, SFAS No. 148 amends the prior
disclosure guidance and requires prominent disclosures in both annual and
interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results. For
entities that voluntarily change to the fair value based method of accounting
for stock-based employee compensation, the transition provisions are effective
for fiscal years ending after December 15, 2002. For all other companies, the
disclosure provisions are effective for interim and annual periods beginning
after December 15, 2002.

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GUARANTEES

In November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others (FIN 45). FIN 45 clarifies and expands on
existing disclosure requirements for guarantees, including loan guarantees. It
also would require that, at the inception of a guarantee, we may need to
recognize a liability for the fair value of our obligation under that guarantee.
The initial fair value recognition and measurement provisions will be applied on
a prospective basis to guarantees issued or modified after December 31, 2002.
The disclosure provisions are effective for financial statements of periods
ending after December 15, 2002. The adoption of FIN 45 did not impact our
financial position, results of operations or cash flows.

RESTRUCTURING

In September 2000, we initiated a restructuring plan that was designed to
reduce our cost structure and eliminate redundant job tasks that existed as a
result of the acquisitions made in early 2000. As part of this plan, we reduced
our workforce by 78 employees through elimination of some positions and the
consolidation of other redundant job tasks. The restructuring resulted in a
charge for the year ended December 31, 2000 of $1.2 million, which consisted
primarily of severance and other benefits related to the discharged employees.
Our cash flow from operations was adversely impacted by these costs during the
fourth quarter of 2000 and the first six months of 2001.

In May 2001, we announced a restructuring that primarily related to the
consolidation of client support operations into existing facilities, resulting
in a restructuring charge of $2.1 million. The plan included terminations of 45
employees and the reduction of leased office space. As of December 31, 2002,
less than $0.1 million remained in the reserve related to lease obligations. All
remaining cash expenditures relating to these lease obligations will have been
made by March 31, 2003.

In August 2002, we announced a restructuring effecting an organizational
realignment of our product management and customer service and support
operations. This resulted in a restructuring charge of $0.5 million in the
quarter ended September 30, 2002. This charge consisted primarily of severance
and benefits including involuntary termination and COBRA benefits, outplacement
costs, and payroll taxes for the approximately 40 employees impacted by this
restructuring. As of December 31, 2002, we had expended substantially all of the
reserve.

These restructuring plans focused on reducing our cost structure and
improving the efficiency of our operations to respond to changing market
conditions and to realize the anticipated benefits of the acquisitions made in
early 2000. We believe that these actions will not adversely impact our
operations in the future because we have undertaken initiatives to manage and
monitor our client and employee relations during the execution of these plans
and subsequent to their completion.

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RESULTS OF OPERATIONS

The following table presents selected financial data for the periods
indicated as a percentage of our total revenue:

COMPARISON OF YEARS ENDED DECEMBER 31, 2001 AND DECEMBER 31, 2002

TOTAL REVENUE

Total revenue increased from $41.9 million in 2001 to $46.5 million in
2002, an increase of 11%. The increase in license and subscription revenue was
primarily due to increased sales of licenses of our enterprise resource planning
products, which represented 32% of our total revenue for the twelve months ended
December 31, 2002, resulting from an increase in sales and marketing initiatives
focusing on these products. These sales and marketing initiatives also led to
additional maintenance contracts associated with these new license sales and
additional training and consulting services. An increase in subscription and
transaction fees generated by our Web-based products resulting from contract
renewals and an increase in transactional volume processed through these
products also contributed to the increase in revenue.

20

TOTAL COST OF REVENUE

Cost of revenue includes direct labor and other direct costs relating to
the delivery of our products and services. The cost of license and subscription
revenue is primarily related to third party licenses that we resell with
licenses and subscriptions of our products, as well as any hosting and
communication costs. Cost of revenue decreased from $11.6 million in 2001 to
$10.4 million in 2002, a decrease of 11%. This decrease was the result of lower
third party license costs and a reduction in the number of employees in our
client and professional services area resulting from the restructuring of
operations in the second quarter of 2001 and the third quarter of 2002. Cost of
revenue as a percentage of revenue decreased from 28% in 2001 to 22% in 2002,
resulting from the increase in revenue and the reduction in costs.

OPERATING EXPENSES

We classify our operating expenses into six general categories, based on
the nature of the expenditure: sales and marketing, research and development,
general and administrative, depreciation, amortization, and stock-based
compensation and warrants. We allocate our total costs for overhead and
facilities to each of the functional areas of our business that use these
services based upon estimated usage. These allocated charges include general
overhead items such as administrative salaries, professional fees, building
rent, equipment leasing costs, and telecommunication charges.

Sales and marketing. Sales and marketing expenses consist primarily of
costs related to sales and marketing, employee compensation, travel, public
relations, trade shows, and advertising. Sales and marketing expenses decreased
from $19.1 million in 2001 to $17.0 million in 2002, a decrease of 11%. Sales
and marketing expenses as a percentage of revenue decreased from 46% in 2001 to
37% in 2002. The decrease in absolute dollars was primarily due to a reduction
in the number of sales and marketing employees resulting from the restructuring
of operations in the second quarter of 2001 and reductions in travel,
advertising, promotion, public relations, and general marketing expenses related
to initiatives that were focused on reducing expenses.

Research and development. Research and development expenses consist
primarily of expenses related to the development and upgrade of our existing
proprietary software and expenses related to research and development for new
product offerings. These expenses include employee compensation for research and
development expenses and third-party contract development costs. Research and
development expenses decreased from $12.2 million in 2001 to $12.0 million in
2002, a decrease of 1%. The decrease was primarily due to a reduction in outside
consulting expenses. Research and development expenses as a percentage of
revenue decreased from 29% in 2001 to 26% in 2002.

General and administrative. General and administrative expenses consist
primarily of compensation for executive and administrative personnel, travel
expenses, professional advisory fees, and general overhead expenses that are not
allocated to cost of revenue, product development, or sales and marketing.
General and administrative expenses decreased from $7.6 million in 2001 to $6.2
million in 2002, a decrease of 19%. General and administrative expenses as a
percentage of revenue decreased from 18% in 2001 to 13% in 2002. The decrease
was primarily due to a reduction in general and administrative employees.

Depreciation. Depreciation expense consists primarily of the depreciation
of equipment, furniture, fixtures, and leasehold improvements that are not
directly related to the generation of revenue. Depreciation expense decreased
from $3.8 million in 2001 to $2.9 million in 2002, a decrease of 24%. The
decrease is primarily attributable to computer equipment becoming fully
depreciated and new equipment being purchased at a slower rate compared to prior
periods.

Amortization. Amortization expense consists of the amortization of
intangible assets such as goodwill, purchased technology, customer lists, and
patents. Amortization expense decreased from $49.1 million in 2001 to $29.5
million in 2002, a decrease of 40%. The decrease was primarily the result of the
adoption of Statement of Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets, effective January 1, 2002. We have performed the
required impairment tests of goodwill and indefinite-lived intangible

21

assets as of January 1, 2002 and December 31, 2002, and determined that no
impairment loss was required to be recognized.

Stock-based compensation and warrants. Stock-based compensation expense
relates to grants of employee stock options and issuances of stock with exercise
prices lower than the deemed fair value of the underlying shares at the time of
grant or issuance and issuance of stock in consideration of salary. Stock-based
compensation and warrants expense increased from $1.1 million in 2001 to $1.4
million in 2002. The increase was primarily the result of stock-based
compensation expense related to options to purchase 766,520 shares of common
stock at an exercise price of $4.21 that were issued during the first quarter of
2002 to employees and directors.

OTHER INCOME (EXPENSE)

Other income (expense) consists primarily of interest expense related to
our borrowings and amortization of debt origination fees, offset by interest
income received from the investment of proceeds from our financing activities.
Interest expense decreased from $5.3 million in 2001 to $3.6 million in 2002, a
decrease of 31%. The decrease is primarily due to the repayment of $17.8 million
of indebtedness upon completion of our initial public offering, offset by a
higher weighted average interest rate on outstanding indebtedness during the
first two quarters of 2002 as compared to the same periods of 2001. During 2002,
amortization of debt origination fees of $3.3 million was recorded as a result
of the restructuring of debt during the second quarter and the write-off of $1.1
million of debt origination fees associated with a warrant issued to a lender.
Amortization expense related to debt origination fees will be approximately $0.9
million per quarter through December 31, 2003. Other income (expense) for the
twelve months ended December 31, 2002 also includes a fair value adjustment to
reflect a decline in the value of the collateral for notes receivable from
stockholders.

INCOME TAXES

During the twelve months ended December 31, 2001 and 2002, we incurred net
losses for federal and state tax purposes and have not recognized any tax
provision or benefits. At December 31, 2002, we had significant accumulated net
operating loss carryforwards for federal and state tax purposes. The federal tax
carryforwards expire in various years beginning in 2015 through 2021.
Utilization of net operating loss carryforwards is subject to limitations.
Events which cause limitations on the amount of net operating losses that we may
use in any one year include, but are not limited to, a cumulative ownership
change of more than 50% over a three-year period.

COMPARISON OF YEARS ENDED DECEMBER 31, 2000 AND DECEMBER 31, 2001

The inclusion for the year 2001 of the results of the companies we acquired
in early 2000 had an incremental effect on our results of operations. The more
significant reasons for the changes year over year are described below.

TOTAL REVENUE

Total revenue increased from $25.3 million in 2000 to $41.9 million in
2001, an increase of 65%. The increase in license and subscription revenue was
primarily due to increased sales of licenses of our enterprise resource planning
products, which represented 32% of our total revenue in 2001, resulting from an
increase in sales and marketing initiatives focusing on these products. These
sales and marketing initiatives also led to additional maintenance contracts
associated with these new license sales and additional training and consulting
services. To a lesser extent, revenue also increased because we began to
recognize revenue from subscriptions for our Web-based products for printers in
the first quarter of 2001.

TOTAL COST OF REVENUE

Cost of revenue increased from $10.7 million in 2000 to $11.6 million in
2001, an increase of 9%. Cost of revenue as a percentage of revenue decreased
from 42% in 2000 to 28% in 2001. The decrease as a percentage of revenue
primarily resulted from an increase in revenue and a decrease in the number of
customer and
22

professional service employees as a result of the restructurings of operations
in the third quarter of 2000 and the second quarter of 2001.

OPERATING EXPENSES

Sales and marketing. Sales and marketing expenses decreased from $20.5
million in 2000 to $19.1 million in 2001, a decrease of 7%. Sales and marketing
expenses as a percentage of revenue decreased from 81% in 2000 to 46% in 2001.
The decrease in absolute dollars was primarily due to a reduction in the number
of sales and marketing employees resulting from restructurings of operations in
the third quarter of 2000 and the second quarter of 2001 and reductions in
travel, advertising, promotion, public relations, and general marketing expenses
related to initiatives that were focused on reducing expenses.

Research and development. Research and development expenses increased from
$11.3 million in 2000 to $12.2 million in 2001, an increase of 8%. The increase
was primarily due to continued investment in the development of our software and
Web-based products. Research and development expenses as a percentage of revenue
decreased from 45% in 2000 to 29% in 2001.

General and administrative. General and administrative expenses decreased
from $24.5 million in 2000 to $7.6 million in 2001, a decrease of 69%. General
and administrative expenses as a percentage of revenue decreased from 97% in
2000 to 18% in 2001. The decrease was primarily due to a decrease in general and
administrative employees and the consolidation of facilities as a result of
restructurings of operations in the third quarter of 2000 and the second quarter
of 2001. Also contributing to the decrease were expense reductions in travel and
professional fees as a result of initiatives that were focused on reducing
expenses.

Depreciation. Depreciation expense increased from $2.1 million in 2000 to
$3.8 million in 2001. The increase is primarily due to the purchase of
additional computer equipment and software related to the development of our
Web-based products.

Amortization. Amortization expense increased from $39.5 million in 2000 to
$49.1 million in 2001, an increase of 24%, reflecting a full year of
amortization in 2001.

Stock-based compensation and warrants. Stock-based compensation and
warrants expense was $5.1 million in 2000 and $1.1 million in 2001. This
decrease is the result of a decrease in warrant expense and, to a lesser extent,
a reduction in the number of stock options being granted in 2001 at exercise
prices below their deemed fair value.

OTHER INCOME (EXPENSE)

Other expense decreased from $6.2 million in 2000 to $5.3 million in 2001,
a decrease of 14%. The decrease is a result of a reduction in outstanding
indebtedness as well as a decrease in interest rates.

INCOME TAXES

During 2001, we incurred net losses for federal and state tax purposes and
have not recognized any tax provisions or benefits.

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2002, we had $8.8 million in cash and cash equivalents,
compared to $8.6 million as of December 31, 2001. The change resulted from our
receipt of $33.0 million in net proceeds from our initial public offering in
June 2002 offset by debt repayments of $17.8 million, principal prepayment fees
of $3.7 million and cash used by operations during the period.

Net cash used by operating activities totaled $10.6 million for 2002,
compared to $17.9 million of net cash used by operating activities for 2001. Net
cash used in operating activities for 2002 is primarily attributable to the net
loss for the period (less non-cash expenses) in addition to an increase in
accounts receivable as well as decreases in accounts payable, accrued
liabilities and the restructuring reserve. The

23

increase in accounts receivable is principally due to extended payment terms in
agreements with significant customers.

Net cash used by investing activities totaled $1.0 million for 2002,
compared to $2.5 million of net cash used by investing activities for 2001. Cash
used by investing activities during 2002 was primarily the result of the
purchase of computer equipment and software licenses associated with the
implementation of a new customer relationship management system and the
acquisition of substantially all of the assets and intellectual property of
printChannel, Inc. Cash used by investing activities in 2001 included payment
for the license of a patent acquired in 2000, purchase of computer equipment and
software, and the acquisition of technology-related assets of another business.

Net cash provided by financing activities was $11.8 million for 2002,
compared to $13.8 million of net cash provided by financing activities for 2001.
Cash from financing activities during 2002 was primarily attributable to our
receipt of $33.0 million in net proceeds from our initial public offering in
June 2002 offset, in part, by debt repayments of $17.8 million and principal
prepayment fees of $3.7 million. Cash from financing activities in 2001 was
primarily attributable to the issuance of shares of our common and preferred
stock, offset, in part, by the repayment of indebtedness.

We have a $2.0 million demand line of credit with National City Bank, all
of which was drawn as of December 31, 2002. Borrowings under the facility bear
interest, which is payable monthly, at the prime rate. We also have entered into
a $0.9 million commercial installment note with National City Bank, which is
payable monthly and matures on July 1, 2004. Borrowings under the installment
note bear interest, which is payable monthly, at the annual rate of 7.62%. As of
December 31, 2002, the outstanding principal balance of this note was $0.3
million. The installment note contains restrictive covenants, including a
limitation on our ability to incur additional indebtedness or grant security
interests in our assets, as well as requirements that we satisfy various
financial conditions, including minimum tangible net worth and debt service
coverage. As of December 31, we were not in compliance with the debt service
coverage covenant of the installment note. We have received a waiver with
respect to this default from National City Bank, which expires January 1, 2004.
If we violate any of these financial covenants and are unable to obtain a waiver
from National City Bank, then National City Bank could declare all amounts
outstanding, together with accrued interest, to be immediately due and payable.
Obligations under the installment note and line of credit are secured by all of
our tangible and intangible personal property.

On May 31, 2002 and June 10, 2002, we executed agreements with certain of
our debt holders to modify the terms of related-party debt, effective upon the
completion of our initial public offering. An amendment to the promissory note
issued to the former shareholders of M Data, Inc. dated as of May 31, 2002,
provided for an increase in the principal amount of the note to $4.2 million
from $4.0 million in return for a reduction in the annual interest rate to 8.0%
from 12.0%. Principal payments are due in 24 equal monthly installments
commencing January 2003. Interest is payable monthly and commenced in June 2002.
Obligations under the note are secured by all of the intellectual property of
our subsidiary, M Data, Inc.

An amendment to the credit agreement with Iris Graphics, dated as of June
10, 2002: (i) reduced the annual interest rate to a fixed rate of 4.0%; (ii)
provided for the payment of a total of $11.8 million of the outstanding
principal balance of $23.6 million at March 31, 2002 and all accrued and
deferred interest upon the completion of our initial public offering; and (iii)
eliminated the financial covenants. In return, we paid a $3.7 million
restructuring fee upon completion of the initial public offering. The $11.8
million remaining principal balance is due in one installment on January 2,
2004. Interest is payable quarterly and commenced in June 2002. The agreement
includes restrictive covenants customary for agreements of this type. If we fail
to comply with these restrictive covenants, then the lender could declare all
outstanding amounts, together with accrued interest, to be immediately due and
payable. Obligations under this agreement are secured by substantially all of
our assets.

Under an amendment to the loan agreement with the former shareholders of
Hagen Systems, dated as of June 10, 2002, we were not required to prepay $2.0
million of the $8.0 million otherwise due upon an initial public offering and
the annual interest rate was reduced to 8.0%, in return for an increase of $0.4
million to the remaining principal balance of the loan. The remaining principal
amount due under the restructured
24

agreement is $2.4 million, which is due on January 2, 2004. Interest at an
annual rate of 8.0% is payable monthly and commenced in June 2002. The agreement
includes restrictive covenants customary for agreements of this type. If we fail
to comply with these restrictive covenants, then the lender could declare all
outstanding amounts, together with accrued interest, to be immediately due and
payable. Obligations under this agreement are secured by substantially all of
our assets.

We believe that, based on current levels of operations and anticipated
growth, our cash from operations, together with cash currently available, will
suffice to fund our operations for the next 12 months. Poor financial results,
unanticipated expenses or unanticipated opportunities that require financial
commitments could give rise to additional financing requirements sooner than we
expect. If we do not complete the merger with EFI or complete a similar
transaction with a third party, we do not expect to have sufficient cash to
repay the $14.2 million of our outstanding debt which becomes due and payable in
January 2004 without securing additional debt or equity financing; we do not
expect that additional debt or equity financing would be available to us. If we
are unable to pay these amounts when due, the lenders could proceed against the
collateral.

RISK FACTORS THAT MAY AFFECT FUTURE RESULTS AND MARKET PRICE OF STOCK

In addition to other information in this Form 10-K, the following risk
factors should be carefully considered in evaluating our business because such
factors currently may have a significant impact on our business, operating
results and financial condition. As a result of the risk factors set forth below
and elsewhere in this Form 10-K and in any other documents we file with the SEC,
actual results could differ materially from those projected in any
forward-looking statements.

IF WE FAIL TO COMPLETE THE MERGER WITH EFI, WE MAY BE UNABLE TO REPAY OUR
DEBT OBLIGATIONS AND OUR STOCK PRICE MAY FALL. WE WILL INCUR COSTS ASSOCIATED
WITH THE MERGER.

We entered into a merger agreement with EFI in February 2003. Under the
terms of the merger agreement, if the merger is completed we will become a
wholly-owned subsidiary of EFI and EFI will assume all our outstanding
liabilities, including our debt obligations. The merger is subject to standard
closing conditions, including the approval of the holders of a majority of our
outstanding shares of common stock. If we do not complete the merger with EFI or
complete a similar transaction with a third party, we do not expect to have
sufficient cash to repay the $14.2 million of our outstanding debt which becomes
due and payable in January 2004 without securing additional debt or equity
financing; we do not expect that debt or equity financing would be available. In
addition, we will incur significant costs associated with the merger, including
legal, accounting, financial printing and financial advisory fees; many of these
fees must be paid regardless of whether the merger is completed.

Under the terms of the EFI merger agreement, our stockholders will receive
$2.60 per share in cash or EFI common stock at the closing of the merger. If EFI
does not complete the merger for any reason, our stock price would decline to
the extent that the price of our stock prior to an announcement that the merger
is terminated reflects an assumption that the merger will be completed.

OUR PROPOSED MERGER WITH EFI MAY ADVERSELY AFFECT OUR SALES DUE TO CONCERNS
OF OUR CUSTOMERS ABOUT OUR PRODUCT OFFERINGS AFTER COMPLETION OF THE MERGER.

We receive a significant amount of our new sales from commercial printers.
Although EFI is a leading provider of imaging solutions for network printing,
EFI does not have a substantial base of customers in the commercial printing
industry. The announcement of our merger with EFI may result in commercial
printers delaying their decision to license our enterprise resource planning
software, which would adversely impact our sales revenue. In addition, our
relationships with employees, including our ability to attract and retain key
employees and our relationships with customers and suppliers may be disrupted
because of the diversion of management attention while the merger is pending.

25

THE SLOWDOWN IN THE ECONOMY HAS AFFECTED THE MARKET FOR INFORMATION
TECHNOLOGY SOLUTIONS, INCLUDING DEMAND FOR OUR SOFTWARE PRODUCTS, AND OUR FUTURE
FINANCIAL RESULTS MAY DEPEND, IN PART, UPON WHETHER THIS SLOWDOWN CONTINUES.

A downturn in the demand for information technology products among our
current and potential customers may result in decreased revenues or a lower
growth rate for us. Potential customers may delay or forego the purchase of our
products or may demand lower prices in order to purchase our products. A
reduction in the demand for our software products or in the average selling
price of our products would reduce our operating margins and adversely affect
our operating results.

IF OUR SOFTWARE PRODUCTS DO NOT ACHIEVE BROAD MARKET ACCEPTANCE, WE MAY NOT
BECOME PROFITABLE AND OUR STOCK PRICE COULD DECLINE.

Most print buyers, printers, and print industry raw material suppliers
currently coordinate the design, specification, purchasing, and manufacture of
print orders either through a combination of telephone, facsimile, e-mail, and
paperwork or through proprietary software solutions. Web-based products are
relatively new and rapidly evolving, and these products change the way in which
print buyers, printers, and print industry raw material suppliers interact with
one another. Widespread commercial acceptance of our Web-based products is
important to our future success. If the market for Web-based print management
products fails to grow or grows more slowly than we anticipate, then our
operating results could be adversely affected. To date, most of our sales have
been to printers, and our future growth is dependent upon our ability to
increase sales to print buyers. The growth of our business also depends on our
ability to enhance and develop our software products and to identify and develop
new products that serve the needs of our customers. If our existing and
potential customers do not adopt our software products, we may be unable to
continue to grow our business and increase our revenues. As a result, we may not
become profitable, or maintain profitability, and our stock price could decline.

THE SALES CYCLE FOR MANY OF OUR PRODUCTS IS LONG, WHICH COULD CAUSE OUR
REVENUE AND OPERATING RESULTS TO VARY SIGNIFICANTLY AND INCREASE THE RISK OF AN
OPERATING LOSS FOR ANY GIVEN FISCAL QUARTER.

A customer's decision to purchase and implement many of our products often
involves a significant commitment of its resources and a lengthy product
evaluation and qualification process. Approval at a number of management levels
within a customer's organization is typical for many of our products. Companies
often consider a wide range of issues before committing to purchase our
software, including anticipated benefits and cost savings, ease of installation,
ability to work with existing computer systems, functionality, and reliability.
Many of our potential customers may be addressing these issues for the first
time, and the use of our products may represent a significant change in their
current print management practices. As a result, we often devote significant
time and resources to educate potential customers about the use and benefits of
our products. The sales process for most of our products frequently takes
several months to complete, which may have an adverse impact on the timing of
our revenue, and our operating results could be adversely affected.

AN ADVERSE RULING IN CREO'S LAWSUIT AGAINST US COULD RESULT IN OUR
INABILITY TO CONSUMMATE THE MERGER WITH EFI, WHICH MAY HAVE AN ADVERSE EFFECT ON
OUR STOCK PRICE

In February 2003 Creo commenced an action in The Court of Chancery of the
State of Delaware in and for New Castle County seeking a temporary restraining
order and other relief as further described in "Item 3 -- Legal Proceedings" of
this Form 10-K. Although the court denied Creo's request for a temporary
restraining order, the matter is still pending with respect to the other relief
sought by Creo. We intend to defend ourselves vigorously in this matter. If this
lawsuit is resolved unfavorably to us, our business and financial condition
could be adversely affected and we may not be able to complete the merger with
EFI.

CREO'S LAWSUIT AND THE PLANNED MERGER WITH EFI COULD DIVERT THE ATTENTION
OF OUR KEY MANAGEMENT AND ADVERSELY AFFECT OUR OPERATING RESULTS

Our success depends on the services of our current key management
personnel, including Marc D. Olin, our Chairman, President and Chief Executive
Officer, and Joseph J. Whang, our Chief Financial Officer and Chief Operating
Officer. The lawsuit filed by Creo and the planned merger with EFI could divert
the attention

26

of our management and resources from our business, which could adversely affect
our operating results. In addition, the litigation with Creo could be expensive
which would adversely impact our operating results.

COMPETITION IN THE PRINTING INDUSTRY SUPPLY CHAIN FOR SOFTWARE PRODUCTS IS
INTENSE, AND WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY.

Our current and potential competitors include companies that offer software
products and services to the printing industry supply chain, and companies that
offer software products for enterprise resource planning, supply chain
management, and procurement that are not customized for the printing industry.
We expect competition to increase in the future. Some of our current or
potential competitors have longer operating histories, larger customer bases,
greater brand recognition, and significantly greater financial, marketing, and
other resources. As a result, these competitors may be able to devote greater
resources to the development, promotion, sale, and support of their products. In
addition, these companies may adopt aggressive pricing policies and leverage
their customer bases to gain market share. Moreover, our current and potential
competitors may develop software products that are superior to or achieve
greater market acceptance than ours. If we are unable to offer competitive
software products and services, then our revenues will decline.

UNPLANNED SYSTEM INTERRUPTIONS, CAPACITY CONSTRAINTS, OR SECURITY BREACHES
COULD DISRUPT OUR BUSINESS AND DAMAGE OUR REPUTATION.

We must offer customers of our Web-based products reliable, secure, and
continuous service to attract and retain customers and persuade them to increase
their reliance on our software products. As the volume of data traffic on our
hosted Web sites increases, we must continually upgrade and enhance our
technical infrastructure to accommodate the increased demands placed on our
systems. Our operations also depend in part on our ability to protect our
systems against physical damage from fire, earthquakes, power loss,
telecommunications failures, computer viruses, unauthorized user access,
physical break-ins, and similar events. Any interruption or increase in response
time of our software products could damage our reputation, reduce customer
satisfaction, and decrease usage of our services and the purchase of our
products. The secure transmission of confidential information over public
networks is a fundamental requirement for online communications and
transactions. Third parties may attempt to breach our security or that of our
customers. Any breach in our online security could make us liable to our
customers, damage our reputation, and cause a decline in our revenues. We may
need to spend significant resources to license technologies to protect against
security breaches or to address problems caused by a security breach.

IF OUR TECHNOLOGIES CONTAIN UNDETECTED ERRORS OR DEFECTS, WHICH INTERRUPT
OUR OPERATIONS OR THOSE OF OUR CUSTOMERS, OUR BUSINESS COULD BE HARMED.

Our technologies are highly technical and may contain undetected software
code or other errors or suffer unexpected failures. Because of their nature, our
client/server-based enterprise resource planning and other products can only be
fully tested when deployed in our customers' networks. These errors or failures
may disrupt our operations or those of our customers, damage our reputation, and
result in loss of, or delay in, market acceptance of our software products. We
may discover software errors in new releases of our software products after
their introduction. We may experience delays in release, legal action by our
customers, lost revenues, and customer frustration during the period required to
correct these errors. Any of these problems could adversely affect our operating
results.

IF WE FAIL TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, OUR COMPETITIVE
POSITION COULD BE HARMED.

We regard our patents, copyrights, service marks, trademarks, trade
secrets, and similar intellectual property as critical to our success. We rely
on patent, trademark, and copyright law, trade secret protection, and
confidentiality and/or license agreements with our employees, customers, and
strategic partners to protect our proprietary rights. These precautions may not
prevent misappropriation or infringement of our intellectual property. In
addition, the status of United States patent protection in the software and Web
industries is not well defined and will evolve as the United States Patent and
Trademark Office grants additional patents. We do not know if any of our future
patent applications will result in a patent being issued within the scope of the
claims we seek, if at all, or whether any patents we may receive will be
challenged or invalidated. In addition,

27

the laws in foreign countries may not protect our proprietary rights to the same
extent as laws in the United States.

WE MAY FACE INTELLECTUAL PROPERTY CLAIMS THAT COULD BE COSTLY TO DEFEND AND
COULD PREVENT US FROM SELLING OUR SOFTWARE PRODUCTS

Third parties may infringe or misappropriate our intellectual property or
assert infringement claims against us. In addition, because the contents of
patent applications in the United States are not publicly disclosed until the
patent is issued, applications may have been filed by others that relate to our
software products. From time to time we receive communications from third
parties asserting that our products infringe, or may infringe, the intellectual
property rights of third parties. Intellectual property litigation is expensive
and time consuming and could divert management's attention from our business
operations. This litigation could also require us to develop non-infringing
technology or enter into royalty or license agreements with third parties. These
royalty or license agreements, if required, may not then be available on
acceptable terms, if at all. If we cannot develop or license non-infringing
technology, then our operating results could be adversely affected.

CREO COULD SUBSTANTIALLY INFLUENCE CORPORATE ACTIONS THAT CONFLICT WITH THE
INTERESTS OF OUR PUBLIC STOCKHOLDERS. WE ALSO HAVE COMMERCIAL AGREEMENTS WITH
CREO THAT ARE IMPORTANT TO OUR BUSINESS.

Creo Inc. is our largest stockholder, has two representatives on our board
of directors, and is a party to several commercial agreements with us. Creo
beneficially owns 4,736,135 shares of our common stock which represents 44.5% of
the voting power of our outstanding common stock. In addition, the two members
of our board of directors appointed by Creo, Amos Michelson and Judi Hess, are
executive officers of Creo. Creo could use its stock ownership or representation
on our board of directors to substantially influence corporate actions that
conflict with the interests of our public stockholders.

In addition to the loan agreement we have with Iris Graphics, an affiliate
of Creo, we have a strategic alliance agreement and a software license agreement
with Creo. Under the strategic alliance agreement, we agreed with Creo to
undertake joint sales and marketing efforts, not to compete with each other's
business, and not to solicit the employment of each other's employees. In
addition, we granted Creo an exclusive and perpetual right to provide, and a
right of first refusal to develop, any content management and workflow products
for us. Because we have granted these rights to Creo, we may not be able to
obtain terms as favorable as those that might otherwise be available if we were
able to negotiate freely with third parties. Under the software license
agreement, Creo licenses us software which is used in our printChannel Classic
product and which will be used in our printChannel I/O product. Creo may
terminate the software license agreement in certain circumstances, including the
termination of the strategic alliance agreement and the acquisition by a third
party of more than fifty percent of our outstanding common stock. The strategic
alliance agreement does not specify a termination date. Creo may also terminate
the strategic alliance agreement or the software license agreement if we breach
any provision of the agreements and do not remedy that breach within a specified
period of time. If the agreements were to terminate, we could lose access to
Creo's sales force and the other benefits derived from our joint marketing
efforts, and Creo would be permitted to compete with us. Additionally, we would
be required to develop software to replace the functionality licensed to us by
Creo in our printChannel Classic product. The termination of the strategic
alliance agreement and software license agreements and the resulting loss of
these benefits could, among other things, reduce our revenues and significantly
harm our business.

WE MAY FAIL TO MEET QUARTERLY FINANCIAL EXPECTATIONS, WHICH MAY CAUSE THE
MARKET PRICE OF OUR COMMON STOCK TO DECLINE.

Our operating results are difficult to predict and may vary significantly
from quarter to quarter in the future. Our historical financial results are not
indicative of our future results. Our quarterly operating results may fluctuate
as a result of many factors, including, but not limited to:

- the size and timing of sales and deployment of our products;

- market acceptance of and demand for our products;

28

- variation in capital spending budgets of our customers;

- the mix of distribution channels through which our products are sold;

- the impairment of goodwill related to our past acquisitions;

- the costs of integrating acquired companies;

- technical difficulties or system outages;

- the amount and timing of operating costs and capital expenditures
relating to expansion of our business;

- the announcement or introduction of new products or services by our
competitors;

- changes in our pricing structure or that of our competitors; and

- the relatively fixed nature of our operating expenses.

As a result of the above factors, our quarterly operating results may fall
below market analysts' expectations in future quarters, which could lead to a
decline in the market price of our common stock.

IF OUR SOFTWARE PRODUCTS DO NOT INTEGRATE WITH OUR CUSTOMERS' EXISTING
SYSTEMS, ORDERS FOR OUR SOFTWARE PRODUCTS WILL BE DELAYED OR CANCELED, WHICH
WOULD HARM OUR BUSINESS.

Many of our customers require that our software products be designed to
integrate with their existing systems. We may be required to modify our software
product designs to achieve a sale, which may result in a longer sales cycle,
reduced operating margins, and increased research and development expense. In
some cases, we may be unable to adapt or enhance our software products to meet
these challenges in a timely and cost-effective manner, or at all. If our
software products do not integrate with our customers' existing systems,
implementations could be delayed or orders for our software products could be
canceled, which would harm our business, financial condition, and results of
operations.

IF WE FAIL TO DEVELOP AND SELL NEW PRODUCTS THAT MEET THE EVOLVING NEEDS OF
OUR CUSTOMERS, OR IF OUR NEW PRODUCTS FAIL TO ACHIEVE MARKET ACCEPTANCE, OUR
BUSINESS AND RESULTS OF OPERATIONS WOULD BE HARMED.

Our success depends on our ability to anticipate our customers' evolving
needs and to develop and market products that address those needs. The timely
development of these products, as well as any additional new or enhanced
products, is a complex and uncertain process. We may experience design,
marketing, and other difficulties that could delay or prevent our development,
introduction, or marketing of these and other new products and enhancements. We
may not have sufficient resources to anticipate technological and market trends,
or to manage long development cycles. The introduction of new or enhanced
products also requires that we manage the transition from existing products to
these new or enhanced products in order to minimize disruption in customer
ordering patterns. We are currently in the process of developing software for
print industry raw material suppliers. If we are unable to attract raw material
suppliers as customers, then our Web-based products may not be as attractive to
printers and print buyers and our business may be harmed. If we are not able to
develop new products or enhancements to existing products on a timely and
cost-effective basis, or if our new products or enhancements fail to achieve
market acceptance, our ability to continue to sell our products and grow our
business would be harmed.

IF WE ARE UNABLE TO OBTAIN LICENSES OF THIRD-PARTY TECHNOLOGY ON ACCEPTABLE
TERMS, OUR BUSINESS WOULD BE HARMED

We integrate third-party licensed technology with our products. For
example, our Web-based products are deployed on an Oracle database. From time to
time we may be required to license additional technology from third parties to
develop new products or product enhancements. Third-party licenses may not be
available or continue to be available to us on acceptable terms. Our inability
to maintain or acquire any third-party licenses required in our current
products, including licenses from Oracle, or required to develop new products
and product enhancements could require us to obtain substitute technology of
lower quality or performance standards or at additional cost, which could
seriously harm our business, financial condition, and results of operations.

29

INCREASING GOVERNMENTAL REGULATION OF THE WEB AND LEGAL UNCERTAINTIES COULD
DECREASE DEMAND FOR OUR WEB-BASED PRODUCTS OR INCREASE OUR COST OF DOING
BUSINESS.

In addition to regulations applicable to businesses generally, we are
subject to laws and regulations directly applicable to the Web. Although there
are currently few laws and regulations governing the Web, federal, state, local,
and foreign governments are considering a number of legislative and regulatory
proposals. As a result, a number of laws or regulations may be adopted
regarding:

- the pricing and taxation of goods and services offered over the Web;

- intellectual property ownership; and

- the characteristics and quality of goods and services offered over the
Web.

Existing laws regarding property ownership, copyright, trademark, and trade
secrets may be applied to the Web. The adoption of new laws or the adaptation of
existing laws to the Web may decrease the growth in the use of the Web, which
could in turn decrease the demand for our Web-based products, increase our cost
of doing business, or otherwise adversely impact our ability to become
profitable.

The growth of Web-based commerce has been attributed by some to the lack of
sales and value-added taxes on interstate sales of goods and services over the
Web. 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 Non-Discrimination Act prevents imposition of such taxes through November
2003. If the federal moratorium on state and local taxes on Web sales is not
renewed, or if it is terminated before its expiration, then sales of goods and
services over the Web could be subject to multiple overlapping tax schemes,
which could substantially hinder the growth of Web-based commerce, including
sales of subscriptions to our Web-based products.

WE HAVE LIMITED EXPERIENCE OPERATING INTERNATIONALLY, WHICH MAY MAKE IT
DIFFICULT AND COSTLY TO EXPAND IN OTHER COUNTRIES

To date, we have derived almost all of our revenue from sales to customers
in North America. As part of our business strategy, we plan to expand our
international operations, focusing initially on the European market. We face
many barriers to competing successfully internationally, including:

- varying technology standards and capabilities;

- insufficient or unreliable telecommunications infrastructure and Web
access;

- difficulties staffing and managing foreign operations;

- fluctuations in currency exchange rates;

- reduced protection for intellectual property rights in some countries;
and

- import and export restrictions and tariffs.

As a result of these factors, we may not be able to successfully market,
sell, or deliver our products in international markets.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

For the twelve months ended December 31, 2002, revenue from foreign
customers approximated 15% of our total revenue. We have not had any material
exposure to factors such as changes in foreign currency exchange rates in
foreign markets. However, in future periods, we expect to increase sales in
foreign markets, including Canada and Europe. As our sales are made in U.S.
dollars, a strengthening of the U.S. dollar could cause our products to be less
attractive in foreign markets. At December 31, 2002, a total of $2.0 million of
outstanding debt accrues interest based on the prime rate. Most of our cash
equivalents, short-term investments, and capital lease obligations are at fixed
interest rates. Therefore, the fair value of these investments is affected by
changes in the market interest rates. However, because our investment portfolio
is primarily composed of investments in money market funds and high-grade
commercial paper with short
30

maturities, we do not believe an immediate 10% change in market interest rates
would have a material effect on the fair market value of our portfolio.
Therefore, we would not expect our operating results or cash flows to be
affected to any significant degree by the effect of a sudden change in market
interest rates on our investment portfolio.

31

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

F-1

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders
Printcafe Software, Inc.

We have audited the accompanying consolidated balance sheets of Printcafe
Software, Inc. and its subsidiaries as of December 31, 2001 and 2002 and the
related consolidated statements of operations, stockholders' (deficit) equity,
and cash flows for each of the three years in the period ended December 31,
2002. 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 in accordance with auditing standards generally
accepted in the United States. Those standards 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. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Printcafe
Software, Inc. and its subsidiaries at December 31, 2001 and 2002 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2002 in conformity with accounting
principles generally accepted in the United States.

As discussed in Note 1 to the consolidated financial statements, in 2002,
the Company changed its method of accounting for goodwill and other intangible
assets.

/s/ ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
March 10, 2003

F-2

PRINTCAFE SOFTWARE, INC.

CONSOLIDATED BALANCE SHEETS

See accompanying notes.
F-3

PRINTCAFE SOFTWARE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

See accompanying notes.
F-4

PRINTCAFE SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY

F-5

PRINTCAFE SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY -- (CONTINUED)

F-6

PRINTCAFE SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY -- (CONTINUED)

See accompanying notes.

F-7

PRINTCAFE SOFTWARE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

See accompanying notes.
F-8

PRINTCAFE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS

Printcafe Software, Inc. (the Company) provides software solutions designed
specifically for the printing industry supply chain. The Company's procurement
applications, which are designed for print buyers, integrate with its software
solutions designed for printers, and facilitate collaboration between printers
and print buyers over the Web. The Company's enterprise resource planning and
collaborative supply chain software solutions are designed to enable printers
and print buyers to lower costs and improve productivity.

BASIS OF PRESENTATION

The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries after the elimination of all significant
intercompany balances and transactions. Amounts within the financial statements
and footnote disclosures have been recorded in thousands except for the share
and per share data.

REVENUE RECOGNITION

The Company's revenue recognition policy is governed by Statement of
Position (SOP) 97-2, Software Revenue Recognition, issued by the American
Institute of Certified Public Accountants (AICPA). The Company derives its
revenues from licenses and subscriptions for its products as well as from the
provision of related services, including installation and training, consulting,
customer support, and maintenance contracts. Revenues are recognized only if
persuasive evidence of an agreement exists, delivery has occurred, all
significant vendor obligations are satisfied, the fee is fixed, determinable,
and collectible and there is vendor-specific objective evidence (VSOE) to
support the allocation of the total fee to a multi-element arrangement. The
Company does not have VSOE for the license component or the fixed price
installation component and these have historically been sold bundled together
with post-contract support. Therefore, the Company follows the residual method
as outlined in SOP 98-9, Modification of SOP 97-2, Software Revenue Recognition
with Respect to Certain Transactions, under which revenue is allocated to the
undelivered elements and the residual amounts of revenue are allocated to the
delivered elements. Many of the Company's agreements include warranty
provisions. Historically, these provisions have not had a significant impact on
the Company's revenue recognition. In those instances where customer acceptance
may be in question, all revenue relating to that arrangement is deferred until
the warranty period has expired. Additional revenue recognition criteria by
revenue type are listed below.

License and subscription revenue

License and subscription revenue includes fees for perpetual licenses and
periodic subscriptions. The Company recognizes revenues on license fees after a
license agreement has been signed, the product has been delivered, the fee is
fixed, determinable and collectible, and there is VSOE to support the allocation
of the total fee to a multielement arrangement (if applicable). If VSOE cannot
be obtained for certain elements of the contract, the Company recognizes revenue
using the residual method under which revenue is allocated to the undelivered
elements and the residual amounts of revenue are allocated to the delivered
elements. The Company recognizes revenues on periodic subscriptions over the
subscription term for unlimited subscriptions and based on the value of orders
processed for its customers through the system for limited subscriptions.
Revenue is recognized for subscription orders processed through resellers over
the subscription term of the underlying agreement, beginning upon installation.

Maintenance revenue

Maintenance revenue is derived from the sale of maintenance and support
contracts, which provide customers with the right to receive maintenance
releases of the licensed products and access to customer
F-9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

support staff. Maintenance revenue is recognized on a straight-line basis over
the term of the contract, which is typically one year. Payments for maintenance
revenue are normally received in advance and are nonrefundable.

Professional services and other revenue

Professional services and other revenue is derived from variable fees for
installation, training, and consulting. Revenue for professional services such
as installation and training, system integration projects, and consulting is
primarily recognized as the services are performed. If these services are part
of a multielement contract under which VSOE cannot be obtained for certain
elements, they may be deferred either until acceptance of any related software
or over the license period.

SHIPPING AND HANDLING COSTS

Shipping and handling costs are expensed as incurred and are included in
license and subscription cost of revenue.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash and interest-bearing money market
deposits with financial institutions having original maturities of 90 days or
less. The balance at December 31, 2001 included approximately $7,200 of cash
received on January 2, 2002 in connection with the issuance of Series F
preferred stock (Note 12). Cash equivalents are stated at cost, which
approximates market value. The amounts held by major financial institutions may
exceed the amount of insurance provided on such deposits. These deposits may
generally be redeemed upon demand and, therefore, are subject to minimal risk.

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 relative short maturity period. On May 31,
2002 and June 10, 2002, the Company entered into new agreements for its related
party debt (Note 9). As a result, the carrying amount of this debt approximates
market value as of fiscal year end 2002. The carrying amount of the line of
credit approximates market value because it has an interest rate that varies
with market interest rates. The fair values of the obligations under capital
leases are estimated based on current interest rates available to the Company
for debt instruments with similar terms, degrees of risk, and remaining
maturities. The carrying values of these obligations approximate their
respective fair values. The estimated fair values may not be representative of
the actual values of these financial instruments that could have been realized
as of the period end or that will be realized in the future.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation is computed using
the straight-line and accelerated methods over the estimated useful lives of the
related assets (generally three to five years). Leasehold improvements are
amortized over the lesser of their useful lives or the remaining term of the
lease. Amortization of assets recorded under capital leases is included in
depreciation expense. Upon disposal, assets and related accumulated depreciation
are removed from the Company's accounts and the resulting gains or losses are
reflected in the statement of operations.

IDENTIFIED INTANGIBLE ASSETS, PURCHASED TECHNOLOGY AND GOODWILL

Identified intangible assets, purchased technology and goodwill are related
mainly to the business acquisitions discussed in Note 3. Amortization of
identified intangible assets and purchased technology is recorded on a
straight-line basis over the estimated useful lives (generally three years) of
the remaining assets. Goodwill represents the excess of cost over the fair value
of net intangible and identifiable intangible assets of
F-10

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

acquired businesses. Effective January 1, 2002, the Company adopted Statement of
Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets
(SFAS No. 142). Prior to the adoption of SFAS No. 142, the Company amortized
goodwill over its estimated useful life of three years. Upon adoption of SFAS
No. 142, the Company performed an initial impairment analysis. Under SFAS No.
142, goodwill is no longer amortized to expense, but is instead subjected to a
periodic impairment test at least annually. The impairment test is a two-step
process, which analyzes whether or not goodwill has been impaired. Step one
requires that the fair value be compared to book value. If the fair value is
higher than the book value, no impairment is indicated and there is no need to
perform the second step of the process. If the fair value is lower than the book
value, step two must be evaluated. Step two requires the fair value to be
allocated to its assets and liabilities in a manner similar to a purchase price
allocation in order to determine the implied fair value of the goodwill. This
implied fair value is then compared with the carrying amount, and if it were
less, the Company would then recognize an impairment loss. Annually, the
goodwill is tested for impairment in the fourth quarter.

IMPAIRMENT OF LONG-LIVED ASSETS

Effective January 1, 2002, the Company adopted SFAS No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets (SFAS No. 144). This Statement
supercedes or amends existing accounting literature related to the impairment
and disposal of long-lived assets.

In accordance with SFAS No. 144, whenever events or changes in
circumstances indicate that the carrying amount of long-lived assets may not be
recoverable, the Company reviews its long-lived assets for impairment by first
comparing the carrying value of the assets to the sum of the undiscounted cash
flows expected to result from the use and eventual disposition of the assets. If
the carrying value exceeds the sum of the assets' undiscounted cash flows, the
Company estimates an impairment loss by taking the difference between the
carrying value and fair value of the assets. No impairment charge has been
recorded in any of the periods presented.

STOCK-BASED COMPENSATION AND WARRANTS

The Company has adopted SFAS No. 148, Accounting for Stock-Based
Compensation--Transition and Disclosure (SFAS No. 148) and the disclosure-only
provisions of SFAS No. 123, Accounting for Stock-Based Compensation (SFAS No.
123). SFAS No. 123 permits the Company to continue accounting for stock-based
compensation as set forth in APB Opinion No. 25, Accounting for Stock Issued to
Employees, provided the Company discloses the pro forma effect on net income and
earnings per share of adopting the full provisions of SFAS No. 123. Accordingly,
the Company continues to account for stock-based compensation under APB Opinion
No. 25 and has provided the required pro forma disclosures. The Company accounts
for equity instruments issued to nonemployees and pursuant to strategic alliance
arrangements in accordance with the provisions of SFAS No. 123, Emerging Issues
Task Force (EITF) No. 96-18, Accounting for Equity Instruments that are Issued
to Other than Employees for Acquiring or in Conjunction with Selling Goods or
Services, and Emerging Issues Task Force (EITF) No. 01-9, Accounting for
Consideration Given by Vendor to a Customer or a Reseller of the Vendor's
Product.

F-11

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table illustrates the effect on net loss and loss per share
if the Company had applied the fair value recognition provisions of SFAS No. 123
to employee stock-based awards (Note 13).

SOFTWARE DEVELOPMENT COSTS

Costs for the development of new software products and substantial
enhancements to existing software products are expensed as incurred until
technological feasibility has been established, at which time any additional
costs would be capitalized in accordance with SFAS No. 86, Computer Software to
be Sold, Leased or Otherwise Marketed. Because the Company believes its current
process for developing software is essentially completed concurrently with the
establishment of technological feasibility, no costs have been capitalized to
date, with the exception of the technology acquired from acquisitions (Note 3).
The value of the purchased technology was capitalized and is being amortized on
a straight-line basis over three years (its estimated useful life).

INCOME TAXES

The Company follows the liability method of accounting for income taxes
pursuant to 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
the periods in which the differences are expected to reverse. The Company
provides for a valuation allowance to reduce deferred tax assets to their
estimated realizable value.

CONCENTRATION OF CREDIT RISK

For the years ended December 31, 2000, 2001, and 2002, revenues from
foreign customers approximated 5%, 11%, and 15%, respectively, of the Company's
total revenues.

The Company does not require collateral from its customers. Credit losses
related to such customers historically have been minimal and within management's
expectations.

ADVERTISING

Advertising and promotion costs are expensed as incurred and totaled
approximately $1,829, $1,437, and $1,146 for the years ended December 31, 2000,
2001, and 2002, respectively.

FOREIGN CURRENCY TRANSLATION

The functional currency of the Company's foreign subsidiaries is the local
currency. The Company translates all assets and liabilities to U.S. dollars at
the current exchange rates as of the applicable balance

F-12

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

sheet date. Revenue and expenses are translated at the average of the beginning
and ending exchange rate prevailing during the period. Gains and losses
resulting from the translation of the foreign subsidiaries' financial statements
are reported as a separate component of total other comprehensive loss in
stockholder's equity. Net gains and losses resulting from foreign exchange
transactions, which are recorded in the consolidated statements of operations,
were not significant during any of the periods presented.

COMPREHENSIVE LOSS

The Company reports comprehensive income or loss in accordance with the
provisions of SFAS No. 130, Reporting Comprehensive Income. Comprehensive income
or loss, as defined, includes all changes in equity (net assets) during a period
from nonowner sources. Tax effects of other comprehensive income or loss are not
considered material for any period.

RECENT ACCOUNTING PRONOUNCEMENTS

Debt extinguishment costs

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements
No. 4, 44 and 62, Amendment of FASB Statement No. 13 and Technical Corrections
(SFAS No. 145). SFAS No. 145, which becomes effective for financial statements
issued for fiscal years beginning after May 15, 2002 and requires gains and
losses on extinguishments of debt to be classified as income or loss from
continuing operations rather than as extraordinary items as previously required
under the provisions of Accounting Principles Board Opinion No. 30, Reporting
the Results of Operations -- Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions. As of December 31, 2002, the Company early adopted SFAS No. 145
and reclassified an extraordinary loss of $1,143 recognized in the second
quarter of 2002 to other expense.

Exit and disposal activities

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities (SFAS No. 146), which becomes effective for
exit or disposal activities that are initiated after December 31, 2002. SFAS No.
146 addresses financial accounting and reporting for costs associated with exit
or disposal activities and requires that a liability for a cost associated with
an exit or disposal activity be recognized at fair value when the liability is
incurred, rather than at the date of an entity's commitment to an exit plan. The
Company does not believe that SFAS No. 146 will have a material impact on its
financial position and results of operations.

Stock-Based Compensation

In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, Accounting for Stock-Based Compensation -- Transition and
Disclosure (SFAS No. 148). SFAS No. 148 amends FASB Statement No. 123,
Accounting for Stock-Based Compensation, to provide alternative methods of
transition for a voluntary change to the fair value method of accounting for
stock-based employee compensation. In addition, SFAS No. 148 amends the prior
disclosure guidance and requires prominent disclosures in both annual and
interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results. For
entities that voluntarily change to the fair value based method of accounting
for stock-based employee compensation, the transition provisions are effective
for fiscal years ending after December 15, 2002. For all other companies, the
disclosure provisions are effective for interim and annual periods beginning
after December 15, 2002. The Company has complied with the disclosure provisions
of this standard in the consolidated financial statements.

F-13

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Guarantees

In November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others (FIN No. 45). FIN No. 45 clarifies and
expands on existing disclosure requirements for guarantees, including loan
guarantees. It also would require that, at the inception of a guarantee, the
Company may need to recognize a liability for the fair value, of its obligation
under that guarantee. The initial fair value recognition and measurement
provisions will be applied on a prospective basis to certain guarantees issued
or modified after December 31, 2002. The disclosure provisions are effective for
financial statements of periods ending after December 15, 2002. The adoption of
FIN No. 45 did not have a material impact on the Company's financial position,
results of operations or cash flows.

LOSS PER SHARE

Basic and diluted loss per share have been computed using the weighted
average number of shares of common stock outstanding during the period.
Potential common shares from conversion of convertible preferred stock and
exercise of stock options and warrants are excluded from historical diluted net
loss per share because they would be antidilutive. The total number of shares
excluded from diluted net loss per share relating to these securities was
5,037,288, 6,892,403, and 2,125,833 shares for the years ended December 31,
2000, 2001, and 2002, respectively.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.

2. INITIAL PUBLIC OFFERING

In June 2002, the Company issued 3,750,000 shares of its common stock at a
price of $10.00 per share in its initial public offering. The company received
approximately $32,950 in proceeds, net of underwriting discounts, commissions,
and offering expenses. Simultaneously with the closing of the initial public
offering, each outstanding share of preferred stock was automatically converted
into common stock based upon the applicable conversion ratio (see Note 12). In
connection with the offering, the Company repaid approximately $17,800 of
related party debt (see Note 9)

3. ACQUISITIONS

The number of shares of common stock and the valuations thereof, included
in the acquisition information presented below, has been adjusted to reflect the
one-for-thirty reverse split and the 1-for-2.22 reverse split that occurred in
January 2002 and May 2002, respectively, and certain share calculations have
been rounded.

Programmed Solutions, Inc.

On February 9, 2000, the Company acquired the outstanding common stock of
Programmed Solutions, Inc. (PSI), a provider of software for the printing
industry. The aggregate purchase price of $25,130 (including transaction costs
of $130) consisted of 25,887 shares of common stock valued at $386.28 per share
and $15,000 in cash. This transaction was accounted for as a purchase in
accordance with APB 16. The excess of the purchase price over the fair value of
assets acquired and liabilities assumed in the acquisition of $6,309 is
classified as goodwill.

F-14

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The estimated fair value of the assets acquired and liabilities assumed of
PSI are as follows:

A.H.P. Systems, Inc.

On March 8, 2000, the Company acquired the outstanding common stock of
A.H.P. Systems, Inc. (AHP), a provider of software for the printing industry.
The aggregate purchase price of $4,446 (including transaction costs of $144)
consisted of 5,954 shares of common stock valued at $588.08 per share and $800
in cash. This transaction was accounted for as a purchase in accordance with APB
16. The excess of the purchase price over the fair value of assets acquired and
liabilities assumed in the acquisition of $4,429 is classified as goodwill.

The estimated fair value of the assets acquired and liabilities assumed of
AHP are as follows:

Hagen Systems, Inc.

On March 9, 2000, the Company acquired the outstanding common stock of
Hagen Systems, Inc. (Hagen), a provider of software for the printing industry.
The aggregate purchase price of $40,561 (including transaction costs of $161)
consisted of 34,689 shares of common stock valued at $588.08 per share, notes
payable of $12,000 and $8,000 in cash. This transaction was accounted for as a
purchase in accordance with APB 16. The excess of the purchase price over the
fair value of assets acquired and liabilities assumed in the acquisition of
$15,406 is classified as goodwill.

F-15

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The estimated fair value of the assets acquired and liabilities assumed of
Hagen are as follows:

M Data, Inc. d/b/a PrintSmith

On March 10, 2000, the Company acquired the outstanding common stock of M
Data, Inc. (M Data), a provider of software for the printing industry. The
aggregate purchase price of $11,174 (including transaction costs of $124)
consisted of 2,555 shares of common stock valued at $782.55 per share, $7,000 in
notes payable and $2,050 in cash. This transaction was accounted for as a
purchase in accordance with APB 16. The excess of the purchase price over the
fair value of assets acquired and liabilities assumed in the acquisition of
$2,669 is classified as goodwill.

The estimated fair value of the assets acquired and liabilities assumed of
M Data are as follows:

Logic Associates, Inc.

On April 7, 2000, the Company acquired the outstanding common stock of
Logic Associates, Inc. (Logic), a provider of software for the printing
industry. The aggregate purchase price of $55,991 (including transaction costs
of $223) consisted of 9,800 shares of common stock valued at $782.55 per share
and $48,099 in notes payable. This transaction was accounted for as a purchase
in accordance with APB 16. The excess of the purchase price over the fair value
of assets acquired and liabilities assumed in the acquisition of $19,824 is
classified as goodwill.

F-16

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The estimated fair value of the assets acquired and liabilities assumed of
Logic are as follows:

Had these acquisitions taken place at the beginning of fiscal 2000 the
unaudited pro forma results of operations would have been as follows for the
year ended December 31, 2000.

The unaudited pro forma results are not necessarily indicative of the
results of operations, which would have been reported had the acquisitions
occurred prior to the beginning of the periods presented, and they are not
intended to be indicative of future results.

4. ALLOWANCE FOR DOUBTFUL ACCOUNTS

Activity in the allowance for doubtful accounts is as follows:

F-17

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. RECEIVABLES

Receivables consist of the following:

Unbilled receivables represent recorded revenue that is billable by the
Company at future dates based on contractual payment terms.

6. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

7. IDENTIFIED INTANGIBLE ASSETS, PURCHASED TECHNOLOGY AND GOODWILL

Identified intangible assets, purchased technology and goodwill relate
mainly to the business acquisitions consummated in early 2000. Amortization is
recorded on a straight-line basis over the estimated useful lives (generally
three years) of the remaining assets and consists of the following as of
December 31, 2001 and 2002:

Effective July 1, 2001 and January 1, 2002, the Company adopted SFAS No.
141, Business Combinations (SFAS No. 141), and SFAS No. 142, Goodwill and Other
Intangible Assets (SFAS No. 142), respectively. SFAS No. 141 requires business
combinations initiated after June 30, 2001 to be accounted for using the
purchase method of accounting. It also specifies the types of acquired
intangible assets that are required to be recognized and reported separate from
goodwill. SFAS No. 142 requires that goodwill and

F-18

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

certain intangibles no longer be amortized, but instead tested for impairment at
least annually. There was no impairment of goodwill upon adoption of SFAS No.
142 in 2002.

As required by SFAS 142, prior year results have not been restated. A
reconciliation of the previously reported net loss and loss per common share for
the years ended December 31, 2000 and 2001, as if SFAS No. 142 had been adopted
as of January 1, 2000, is as follows:

8. LINE OF CREDIT

The Company's line of credit agreement has a maximum borrowing capacity of
$2,000. The line of credit accrues interest at prime (4.25% at December 31,
2002). Interest is due monthly and the principal balance is due on demand. The
line of credit is collateralized by substantially all of the Company's assets.
As of December 31, 2001 and 2002, the entire $2,000 was outstanding.

F-19

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. DEBT AND RELATED PARTY DEBT

Long-term debt consists of the following:

The note payable to the bank includes various restrictive covenants, which
among other things require the Company to maintain a certain debt service
coverage ratio. At December 31, 2001 and 2002, the Company was not in compliance
with this covenant. The bank waived compliance with this covenant through
January 1, 2004.

During 2001, the Company received bridge loans in the amount of $4,500 from
certain Series B, C, D, and E-1 preferred stockholders. The bridge loans bore
interest at 12% and converted into $2,250 of long-term stockholder debt and
562,500 shares of Series F preferred stock at $4.00 per share on December 31,
2001. The Company issued warrants to purchase 9,382 shares of common stock and
75,000 shares of Series E-1 preferred stock shares in conjunction with these
bridge loans which were valued at $1,161, using the Black-Scholes valuation
model with the following assumptions: volatility of 1.0; no expected dividend
yield; risk-free interest rate of 5.09%; and an estimated life of ten years
(Note 14). The estimated fair value of these warrants was recorded as interest
expense in 2001.

F-20

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

At the close of business on December 31, 2001, the Company entered into new
agreements for its related-party debt. Notes payable to stockholders issued in
connection with the acquisition of Logic totaling $23,604 were repaid along with
$4,000 of the outstanding notes payable to stockholders issued in connection
with the acquisition of Hagen. In addition, new agreements were entered into
with the former stockholders of Hagen and M Data. Accordingly, new payment
periods and interest rates related to the remaining $8,000 of debt for Hagen and
$4,000 of debt for M Data were established as disclosed above. Funds used for
the repayments were obtained from a $23,600 note payable issued to Iris
Graphics, a subsidiary of one of the Company's stockholders, and the issuance of
3,722,096 shares of Series F preferred stock at $4 per share (Note 12). The
financial statements reflect these transactions as of December 31, 2001, in
accordance with the terms of the agreements described above. The related cash
transfers occurred on January 2, 2002. The Iris Graphics note included financial
covenants based on cash flows and revenues. At December 31, 2001, the Company
was not in compliance with the quarterly cash flow covenant, which would have
resulted in an additional 3% of interest until the default was cured. Iris
Graphics waived compliance with this covenant through March 31, 2002. In
conjunction with incurrence of the debt, Iris Graphics was also issued a warrant
to purchase 570,874 shares of Series F preferred stock at an exercise price of
$.01 per share. The estimated fair value of this warrant of $2,283 will be
recorded to interest expense over the term of the related debt (Note 14).

On May 31, 2002 and June 10, 2002, the Company executed agreements with
certain of its debt holders to modify the terms of certain related-party debt,
effective upon the completion of the Company's initial public offering. An
amendment to the promissory note issued to the former shareholders of M Data,
dated as of May 31, 2002, provided for an increase in the principal amount of
the note to $4,200 from $4,000 in return for a reduction in the annual interest
rate to 8.0% from 12.0%. Principal payments are due in 24 equal installments
commencing January 2003. Interest is payable monthly beginning June 2002. The
$200 increase in principal was accounted for as deferred interest and will be
amortized as interest expense in addition to the 8.0% stated rate over the
remaining term of the loan (resulting in an effective annual interest rate of
approximately 11.1%).

An amendment to the credit agreement with Iris Graphics, dated as of June
10, 2002: (i) reduced the annual interest rate to a fixed rate of 4.0%; (ii)
provided for the payment of a total of $11,800 of the outstanding principal
balance of $23,600 at December 31, 2001 and all accrued and deferred interest
upon the completion of the Company's initial public offering; and (iii)
eliminated the financial condition covenants associated with the original loan.
In return, the Company agreed to pay a $3,700 restructuring fee upon completion
of the Company's initial public offering. The restructuring fee was accounted
for as deferred interest and will be amortized as interest expense in addition
to the stated 4.0% rate over the remaining term of the loan (resulting in an
effective annual interest rate of approximately 23.8%). The $11,800 remaining
principal balance is due in one installment on January 2, 2004. Interest is
payable quarterly beginning in June 2002. The covenants under the amended
agreement provide certain limitations on the Company's product development and
capital expenditures, future investments and certain other financial criteria.

In connection with this amendment and subsequent repayment, the Company
wrote off approximately $1,143 of debt origination fees associated with the fair
value of the Iris Graphic warrant. This write-off has been included in other
expense.

Additionally, under an amendment to the loan agreement with the former
shareholders of Hagen Systems, dated as of June 10, 2002, the Company was not
required to prepay $2,000 of the $8,000 otherwise due upon an initial public
offering and the annual interest rate was reduced to 8.0%, in return for an
increase of $350 to the remaining principal balance of the loan. The remaining
principal amount due under the restructured agreement, after the prepayment of
$6,000, is $2,350, which is due on January 2, 2004. Interest at an annual rate
of 8.0% is payable monthly beginning in June 2002. The $350 increase in
principal was accounted for as deferred interest and will be amortized as
interest expense in addition to the stated 8.0% rate over the remaining term of
the loan (resulting in an effective annual interest rate of approximately
17.4%).

F-21

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Future minimum debt payments at December 31, 2002 are as follows:
2003 -- $2,299 and 2004 -- $16,377.

10. COMMITMENTS AND CONTINGENCIES

LEASE OBLIGATIONS

The Company leases office equipment, vehicles, and office facilities in
various locations. Rental expense under these operating leases was $1,373,
$1,670, and $1,388 for the years ended December 31, 2000, 2001, and 2002,
respectively. At December 31, 2002, future commitments under all noncancelable
operating leases are as follows :

The Company leases equipment under various capital leases. These capital
leases expire in various years through 2003 and may be renewed for periods
ranging from one to five years. Amortization of leased assets is included in
depreciation and amortization expense.

Future minimum payments under capital leases with initial terms of one year
or more consisted of the following at December 31, 2002:

LEGAL PROCEEDINGS

The Company is involved in disputes and litigation in the normal course of
business. In the opinion of management, the ultimate disposition of these
matters is not expected to have a material adverse effect on the Company's
business, financial condition, or results of operations. The Company has accrued
for estimated losses in the accompanying financial statements for those matters
where it believes that the likelihood that a loss has occurred is probable and
the amount of loss is reasonably estimable. Although management currently
believes the outcome of other outstanding legal proceedings, claims, and
litigation involving the Company will not have a material adverse effect on its
business, financial condition, or results of operations, litigation is
inherently uncertain and there can be no assurance that existing or future
litigation will not have a material adverse effect on the Company's business,
financial condition, results of operations or cash flows.

F-22

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. INCOME TAXES

The reconciliation of the effective income tax rate is as follows:

Significant components of the Company's deferred tax assets and liabilities
are as follows :

A valuation allowance has been recorded on the amount of the net deferred
tax asset at December 31, 2001 and 2002, based on management's determination
that the recognition criteria for realization of the net deferred tax assets has
not been met.

At December 31, 2002, the Company had accumulated net operating loss
carryforwards for tax purposes of approximately $76,413, which will expire
beginning in 2011 through 2022. Utilization of certain net operating loss
carryforwards is subject to limitations under Section 382 of the Internal
Revenue Code. Additionally, certain state tax restrictions will apply to the
utilization amount and timing of the net operating loss carryforwards.

12. STOCKHOLDERS' EQUITY

At December 31, 2002, the number of authorized shares of common stock and
preferred stock was 100,000,000 shares and 1,000,000 shares, respectively, of
which 10,632,877 and 0, respectively were

F-23

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

outstanding, 10,731 and 0, respectively, were held in treasury and 2,125,833 and
0, respectively, were reserved for future issuance.

On January 2, 2002, the Company effected a one-for-thirty reverse stock
split of its issued and outstanding common stock. On May 31, 2002, the Company
affected a 1-for-2.22 reverse stock split of its issued and outstanding common
stock. All common stock prices and amounts impacted by the splits have been
retroactively adjusted. Certain share calculations resulting in fractional
amounts have been rounded to the nearest whole number.

PREFERRED STOCK

At December 31, 2001 the following Redeemable preferred stock was
authorized and outstanding:

On February 9, 2000, the Company issued 31,186,312 shares of Series B
preferred stock for consideration of $25,011.

On February 15, 2000, the Company issued 1,915,080 shares of Series C
preferred stock for consideration of $11,107.

On March 8, 2000, 190,948 shares of Series A-1 preferred stock were
repurchased by the Company for consideration of $1,107.

On March 8, 2000, the Company issued 283,125 shares of Series D preferred
stock for consideration of $2,500.

On October 30, 2000 and March 1, 2001, the Company issued 15,625,000 shares
and 1,750,000 shares, respectively, of Series E-1 preferred stock for
consideration of $62,500 and $7,000, respectively.

On December 31, 2001, the Company issued 3,722,096 shares of Series F
preferred stock for consideration of $14,888. Additionally on December 31, 2001,
warrants to purchase 570,874 shares of Series F preferred stock were exercised
for $6.

On January 31, 2002, the Company issued 188,736 shares of Series F
preferred stock for consideration of $755.

The Company paid $2,807 in transaction costs in conjunction with the
issuance of Series B, C, D, E-1, and F preferred stock.

LIQUIDATION AND REDEMPTION

Prior to the conversion of all preferred stock to common stock in
connection with the Company's initial public offering (Note 2), Series B, C, D,
E-1, and F preferred stock had the right to request the Company to redeem all
shares. The redemption price for all series of preferred stock would have been
the higher of (i) the liquidation preference of a share of such series of
preferred stock plus unpaid declared dividends, and (ii) the fair market value
of a share of preferred stock as determined by an independent appraiser plus all
dividends declared that remain unpaid. During 2000, 2001 and 2002, approximately
$4,858, $5,635 and $6,201,

F-24

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

respectively, were accreted as dividends utilizing the interest method so that,
at the redemption date, the accreted amount would equal the redemption amount.

CONVERSION

In connection with the Company's initial public offering (see Note 2),
67,512,270 shares of preferred stock converted into 6,691,652 shares of common
stock. The outstanding shares of preferred stock were multiplied by the
following conversion ratio:

Series A.................................................... .015
Series A-1.................................................. .015
Series B.................................................... .015
Series C.................................................... .016
Series D.................................................... .017
Series E-1.................................................. .271
Series F.................................................... .291

COMMON STOCK

On February 7, 2000, the Company issued 3,822 shares of common stock for
$585 of software services.

On March 9, 2000, the Company issued 1,000 shares of common stock for $589
of advertising services.

On March 10, 2000, the Company issued 20,396 shares of common stock for
consideration of $11,928.

In connection with its initial public offering (see Note 2), on June 18,
2002, the Company issued 3,750,000 shares of common stock for consideration of
approximately $32,950, net of underwriting discounts, commissions and offering
expenses.

13. STOCK OPTION PLANS

1999 STOCK OPTION PLAN

During 1999, the Company adopted a stock option plan (the 1999 Plan), which
provides for the issuance of stock options for officers, directors, employees,
and consultants. A total of 9,831 options to purchase the Company's common stock
have been granted pursuant to the 1999 Plan at an exercise price equal to the
estimated grant date fair value, as determined by the board of directors.
Options under the 1999 Plan will generally expire ten years from the date of
grant. Options granted under the plan vested immediately in March 2000 upon the
Company's filing of a registration statement on Form S-1. A new measurement date
did not occur since the accelerated vesting was included in the original grant
agreement. As of December 31, 2002, the weighted average remaining contractual
life on the 1999 Plan options outstanding was 6.73 years.

STOCK INCENTIVE PLANS

Effective February 10, 2000, the Company adopted the 2000 stock incentive
plan (the 2000 Plan), which provides for the issuance of stock options for
officers, directors, employees, and consultants. A total of 112,526 shares of
common stock may be issued pursuant to the 2000 Plan. Options generally vest
over a four-year period in equal annual amounts, or over such other period as
the board of directors determines, and may be accelerated in the event of
certain transactions such as a merger or a sale of the Company. These options
generally expire ten years after the date of grant. As of December 31, 2002, no
additional shares have been granted pursuant to this Plan. The weighted average
remaining contractual life on the 2000 Plan options outstanding at December 31,
2002 was 7.84 years.

During 2000, the Company granted stock options to certain employees below
fair value and to nonemployees for professional services, which resulted in the
recognition of $1,016 of deferred stock-based

F-25

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

compensation. The deferred stock-based compensation is being amortized over the
remaining vesting period. The employee grants were determined utilizing the
intrinsic value method under APB Opinion No. 25. The nonemployee grants were for
professional services at exercise prices that approximated fair value at the
date of grant. The average fair value of these options was estimated at $6.66
per share on the date of grant using the Black-Scholes option pricing model with
the following assumptions: volatility of 1.00, dividend yield of 0.0%, risk-free
interest rate of 6.0%, and an expected life of four years. During 2000, 2001 and
2002, the Company recognized compensation expense of approximately $866, $49 and
$32, respectively, related to these grants.

Effective February 5, 2002, the Company adopted the 2002 key executive
stock incentive plan (the 2002 Executive Plan) under which 766,520 shares of
common stock were reserved for grants to senior management, officers, and
directors. As of December 31, 2002, the Company had granted options to purchase
766,520 shares of common stock, with an exercise price of $4.21 per share.
Options to purchase 10,307 and 756,213 shares vest over one- and four-year
periods, respectively. As these options were granted below fair market value,
$4,433 of deferred stock-based compensation was recorded. For the year ended
December 31, 2002, $1,148 of stock-based compensation expense was recognized
with respect to these options. As of December 31, 2002, the weighted average
remaining contractual life on the 2002 Executive Plan options outstanding was
9.1 years.

Effective March 5, 2002, the Company adopted the 2002 Stock Incentive Plan
(the 2002 Plan), which provides for the issuance of stock options for officers,
directors, employees, and consultants. The Company has reserved 765,765 shares
of common stock for grants under the plan. The options generally vest over a
four-year period in equal annual amounts, or over such other period as the board
of directors determines, and may be accelerated in the event of certain
transactions such as a merger or a sale of the Company. These options generally
expire ten years after the date of grant. During 2002, the Company granted
92,910 options to employees below fair value at the date of grant. The
transaction resulted in $743 and $179 of deferred stock-based compensation and
compensation expense, respectively. The deferred stock-based compensation is
being amortized over the remaining vesting period. As of December 31, 2002, the
weighted average remaining contractual life on the 2002 Plan options outstanding
was 9.34 years.

F-26

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes option activity for options to purchase
common stock for the 1999 Plan, the 2000 Plan, the 2002 Executive Plan and the
2002 Plan for the years ended December 31, 2000, 2001 and 2002:

The options to purchase common stock outstanding as of December 31, 2002
have been segregated into ranges for additional disclosure as follows:

The Company applies APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations in accounting for its stock option plans.
Had compensation cost for the Company's stock option plans been determined based
upon the fair value at the grant date for awards under these plans consistent
with the methodology prescribed under SFAS No. 123, Accounting for Stock-Based
Compensation, the Company's net loss and net loss per share would have been
increased by approximately $2,201, $4,508, and $4,406 or $15.05, $27.93 and $.76
per share, in 2000, 2001, and 2002, respectively. The following weighted average
assumptions were used in the Black-Scholes pricing model: volatility of 1.58,
1.0 and 1.17, dividend yield of 0.0%, an expected life of three and four years,
and average risk-free interest rates of 6.50%, 4.05% and 3.63% for 2000, 2001,
and 2002, respectively. The effects of applying SFAS No. 123 in this pro forma
disclosure are not likely to be representative of the effects on reported net
income for future years.

F-27

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

EMPLOYEE STOCK PURCHASE PLAN

Effective March 5, 2002, the Company adopted the 2002 Employee Stock
Purchase Plan, which became effective upon the Company's initial public
offering. The Company has reserved 337,837 shares of common stock for issuance
under the plan. Under the Plan, employees participating in the Plan may purchase
shares of common stock at the lower of (i) 85% of the price of a share of common
stock at the beginning of an offering period and (ii) 85% of the price of a
share of common stock on the purchase date. An offering period is defined as a
two-year period consisting of four (4) purchase dates, April 30 and October 31
of each year. Employees are eligible to join the plan and begin their offering
period on May 1 and November 1 of each calendar year. On October 31, 2002,
employees purchased 38,986 shares for $.99 (85% of $1.16 on October 31, 2002)
resulting in cash proceeds of approximately $38.

14. WARRANTS

STRATEGIC

In early 2000, the Company entered into two agreements pursuant to which
the Company develops private label Web sites. The Company is permitted to
disclose these agreements in sales and marketing publications. The Company
generates no revenues under these agreements. In return for certain marketing
related services during 2000, the Company issued warrants to purchase 29,603
shares of common stock with exercise prices ranging from $386.28 to $592.07.
Warrants to purchase 6,723 shares of common stock vested immediately and the
remaining warrants vest dependent upon various installation and usage
milestones, which vary by agreement. During 2000 and 2001, the Company recorded
$2,903 and $324, respectively, as warrant expense related to the warrants that
vested. The remaining warrants to purchase 22,880 shares, which vest dependent
upon installation and usage milestones, will be recorded as warrant expense at
the fair value on the dates the milestones are achieved in accordance with EITF
No. 96-18.

CUSTOMERS AND RESELLERS

During March 2000, the Company issued a warrant to purchase 1,501 shares of
common stock at an exercise price of $386.28 per share to a customer. This
warrant was immediately exercisable and expires four years from the date of
grant. It is exercisable for a period of four years. The fair value of this
warrant of $437 has been recorded as warrant expense in 2000 in accordance with
EITF No. 96-18, because no revenue was generated from the related customer. In
March 2000, the Company also granted a warrant to purchase 3,753 shares of
common stock to a potential customer at an exercise price of $999. The warrant
is exercisable upon entering into a private label site agreement. The warrant is
not currently exercisable.

In January 2001, the Company granted a warrant to purchase 37,537 shares of
common stock to a reseller of the Company's products. This warrant is
exercisable until the earlier of 12 months after termination of the agreement
with the reseller or the closing date of a merger or consolidation of the
Company with or into any other entity. The warrant was exercisable for 3,753
shares as of the date of grant. The Company has recorded $647 as warrant expense
related to this warrant. The remaining 33,784 shares of common stock are to vest
based on performance targets. As of December 31, 2001, warrants to purchase
3,002 of the remaining shares had vested, resulting in a $47 reduction in
revenue and $83 of warrant expense. To the extent the Company generates revenue
under the agreement with this reseller, the fair value of the warrant as it
vests will continue to be recorded as a reduction of revenue. These warrants
will be recorded at fair value on the date the performance targets are met.

DEBT

In conjunction with certain bridge loans issued in July and August of 2000,
the Company issued warrants to purchase 11,257 shares of common stock at an
exercise price of $266.40 per share. The fair value of these warrants of $1,942
was initially recorded as a debt discount and then amortized as interest expense
upon the conversion of the notes to equity in October 2000.
F-28

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In conjunction with the bridge loans issued in September and November of
2001 (Note 6), the Company issued warrants to purchase 9,382 shares of common
stock and 75,000 shares of Series E-1 preferred stock at exercise prices of
$39.96 per share and $4.00 per share, respectively. The fair value of these
warrants of $1,161 was initially recorded as a debt discount and then amortized
as interest expense upon the conversion of the notes to equity in December 2001.

On December 31, 2001, the Company issued warrants to purchase 570,874
shares of Series F preferred stock to Iris Graphics in connection with a note
payable (Note 8). The fair value of these warrants of $2,283 has been recorded
as a debt discount and will be amortized as interest expense over the repayment
term using the interest method.

OTHER

In March 2000, the Company issued warrants to purchase 1,250 shares and
1,501 shares of common stock to an advertising agency and a law firm,
respectively, for services. These warrants vested immediately at exercise prices
of $999 and $386.28, respectively. They are exercisable for a period of four
years. In accordance with EITF No. 96-18, the fair values of these warrants of
$501 and $437 were recorded to sales and marketing expense and general and
administrative expense, respectively, in 2000.

In April 2000, the Company also issued warrants to purchase 375 shares of
common stock to an equipment manufacturer in return for equipment discounts and
a comarketing agreement. These warrants became exercisable upon the initial
public offering (Note 2) of the Company's stock at the initial public offering
price per share. The Company recognized $1 of sales and marketing expense
associated with this transaction.

In March 2001, the Company granted warrants to purchase 50,000 shares of
Series E-1 preferred stock to a broker in connection with the issuance of Series
E-1 preferred stock. The fair value of these warrants of $168 has been recorded
as stock issuance cost.

On February 5, 2002, the Company granted a warrant to purchase 3,378 shares
of common stock to a software provider. The warrant became exercisable upon the
initial public offering of the Company's common stock at the initial public
offering price per share. The Company recognized $25 of sales and marketing
expense associated with this transaction.

FAIR VALUE

The fair values of all the warrants described above were estimated using
the Black-Scholes valuation model with the following assumptions: volatility of
1.0, no expected dividend yield, risk-free interest rates of 3.22% to 5.09%, and
an estimated life of three to ten years.

The following table summarizes common stock warrant activity for the years
ended December 31, 2000, 2001 and 2002:

F-29

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

During 2001, the Company also granted warrants to purchase 125,000 shares
and 570,874 shares of Series E-1 and Series F preferred stock, respectively, at
exercise prices of $4.00 and $.01 per share, respectively. All Series F
preferred stock warrants were exercised during 2001. In association with the
initial public offering (Note 2), the 125,000 Series E-1 warrants were converted
into 33,817 common shares.

15. 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
issued by the Internal Revenue Service. The Company may contribute to the Plan
at the discretion of the Board of Directors. As of December 31, 2000 and 2001,
the Plan held 83,385 shares and 83,294 shares, respectively, of the Company's
Series A-1 preferred stock. The holder of the stock under the Plan had an option
to put the stock to the Company at the then current fair value during August and
February of each year. However, the Company reserves the right not to purchase
any shares of Series A-1 preferred stock if the purchase, in the reasonable
discretion of the Company, could have an adverse affect on the Company's
financial position. As of December 31, 2001, the Company had recorded a stock
purchase plan liability of $125, equal to the fair value of the stock held by
the Plan. In association with the initial public offering (Note 2), the
outstanding shares of Series A-1 preferred stock were converted into common
stock. During 2002, the Company purchased 1,222 shares for a total purchase
price of $122. As of December 31, 2002, the Plan held 29 shares of the Company's
common stock. As of December 31, 2002, the remaining liability related to shares
in the Plan is immaterial. To date, the Company has not made any cash
contributions to the Plan.

16. RESTRUCTURING CHARGE

In September 2000, the Company announced a strategic restructuring to
consolidate certain redundant tasks related to the acquisitions completed during
2000. The plan of restructuring approved by the board of directors resulted in a
restructuring charge of $1,185. This restructuring charge consisted primarily of
severance benefits and costs related to the termination of 78 employees during
the period from September through December 2000.

In May 2001, the Company announced a restructuring that primarily related
to the consolidation of certain client support operations into existing
facilities, resulting in a restructuring charge of $2,098. The plan included
terminations of 45 employees and the reduction of leased office space.

In August 2002, the Company announced a restructuring effecting an
organizational realignment of its product management customer service and
support operations. This resulted in a restructuring charge of $525 in the
quarter ended September 30, 2002. This charge consisted primarily of severance
and benefits, including

F-30

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

involuntary termination and COBRA benefits, outplacement costs, and payroll
taxes for the approximately 40 employees impacted by this restructuring.

Activity in the restructuring reserve is as follows (in thousands):

The remaining restructuring reserve of approximately $67 is expected to be
paid during 2003.

17. RELATED PARTY TRANSACTIONS

On November 8, 1999 and December 22, 1999, promissory notes in the amount
of $1,714 were received by the Company in conjunction with the sale of 58,678
shares of common stock. The notes bear interest at the annual rate of 6% and are
due on November 7, 2004. In the event the value of the stock is insufficient to
pay the full amount due under the notes, the Company may seek reimbursement from
the borrower for any deficiency up to 30% of the original balance of the note
plus accrued interest. The notes receivable are included in stockholders' equity
on the accompanying balance sheet. During 2000, $335 (including interest of $86)
was repaid in exchange for cash of $61 and a note payable of $274. During 2001,
$1,112 (including interest of $63) was repaid by a Company executive utilizing
proceeds he received from the sale of his common stock to certain preferred
stockholders. Additionally, during 2000, 2001 and 2002, approximately $86, $90
and 18, respectively, was recorded as interest income. As of December 31, 2002,
the Company recorded a valuation adjustment of approximately $393 to adjust the
fair value of the non-recourse portion of the notes receivable balance.

On April 26, 2001, the Company entered into a secured promissory note with
a Company executive for $642 plus interest at the annual rate of 4.58%. The note
matured October 5, 2001 and was secured by 6,422 shares of common stock owned by
the executive. During 2001, the Company took possession of these shares in
satisfaction of this note. The fair value of the shares on the date that the
loan was provided and the date that the loan matured was approximately $642. In
addition, the Company repaid an unsecured promissory note issued to the same
executive in April 2001 in the original principal amount of $99.

The Company has also issued notes to related parties (Note 9) and entered
into various leases with related parties (Note 10).

In February 2000, the Company entered into a strategic alliance agreement,
which was restated in December 2001, with Creo, Inc (Creo), a stockholder. As
part of the alliance, the Company signed a comprehensive services agreement.
During 2001 and 2002, $61 and $1, respectively, were paid as commissions under
the agreement.

F-31

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

18. SUBSEQUENT EVENTS

On January 21, 2003, the Company received notification from Creo, one of
its stockholders, that Creo had entered into private, binding agreements to
acquire an additional 2.6 million shares of the Company's outstanding common
stock ("Common Stock") for $1.30 per share increasing its ownership from
approximately 30% to approximately 55% of the outstanding Common Stock. In
connection with these transactions, Creo presented the Company an unsolicited
offer to purchase all of the remaining outstanding shares of Common Stock for
$1.30 per share.

On January 22, 2003, the Company received an unsolicited offer from
Electronics for Imaging, Inc. ("EFI"), an unrelated party, to purchase all of
the outstanding shares of Common Stock for $2.60 per share.

Also, on January 22, 2003, the Company's Board of Directors ("Board")
appointed a Special Committee ("Special Committee") of the Board to consider its
strategic alternatives, including the two outstanding offers for the acquisition
of the Company. On January 31, 2003, the Special Committee announced it had
selected a financial advisor to assist in their review of the various
alternatives.

On February 13, 2003, the Special Committee adopted a Stockholders Rights
Agreement (the "Rights Agreement") pursuant to which dividend distribution of
one Right on each outstanding share of Common Stock was declared. The Rights
become exercisable if a person or group of affiliated or associated persons
acquires beneficial ownership of 30% or more of the outstanding shares of Common
Stock and other voting securities (the "Voting Securities") of the Company or
announces a tender offer or exchange offer for 15 percent or more of the
outstanding Voting Securities. The Board of Directors is entitled to redeem the
Rights at $.001 per Right at any time before any such person or affiliated group
thereafter acquires beneficial ownership of 30% or more of the outstanding
Voting Securities. If a person or affiliated group hereafter acquires beneficial
ownership of 30% or more of the outstanding Voting Securities of the Company (an
"Acquiring Person"), each Right will entitle its holder, except any such
Acquiring Person whose Rights shall become null and void, to purchase, at an
exercise price of $6.80 per share (subject to adjustment in certain events), a
number of shares of Common Stock having a market value at that time of twice the
Right's exercise price. Subject to certain exceptions, existing stockholders
that would otherwise become Acquiring Persons upon adoption of the Rights
Agreement are considered "Grandfathered Stockholders" and are not Acquiring
Persons, unless after such date they acquire beneficial ownership of additional
Voting Securities or exercise a contractual right to acquire Voting Securities
or enter into a new agreement to acquire or vote Voting Securities beneficially
owned by them. Before any such Acquiring Person shall become the beneficial
owner of 75% or more of the total voting power of the aggregate of all shares of
Voting Securities then outstanding, the Board may exchange each Right (other
than Rights that previously have become void as described above) in whole or in
part, at an exchange ratio of one share of Common Stock per Right (subject to
adjustment in certain events). If the Company is acquired in a merger or other
business combination transaction after a Person or group of affiliated or
associated Persons acquires beneficial ownership of 30% or more of the Company's
outstanding Voting Securities, each Right (except Rights that previously have
been voided as described above) will entitle its holder to purchase, at the
Right's then-current exercise price, a number of shares of the common stock or
other equity interest of the ultimate parent of such acquiring entity having a
market value at that time of twice the Right's exercise price.

The dividend distribution is payable to stockholders of record on February
14, 2003. The Rights will expire in ten years.

On February 13, 2003, the Company entered into the following three
agreements with EFI: a letter agreement that places certain restrictions on the
Company's ability to take actions in order to facilitate a business combination
with an entity other than EFI; a stock option agreement granting EFI an option
to purchase up to 2,126,574 shares of Common Stock at a purchase price equal to
$2.60 per share; and a standby credit facility in the amount of $11,000 plus a
working capital facility which will provide up to an additional $3,000 under
certain circumstances.

F-32

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Printcafe entered into the EFI letter agreement and the option agreement in
order to induce EFI to provide Printcafe with the standby credit facility.
Subject to certain conditions, the Company has agreed under the terms of the EFI
agreement not to, among other things, solicit any takeover proposal, participate
in any discussions or negotiate regarding any takeover proposal, or enter into
any merger agreement, acquisition agreement, option or similar agreement with a
third party. The agreement specifies that the Company cannot solicit other
offers but may respond to a bona fide written offer that is superior to the EFI
proposal.

The Company has also granted to EFI an option to purchase up to 2,126,574
shares of Common Stock at a purchase price equal to $2.60 per share. Provided
that EFI is not in breach of its obligations under the standby credit agreement,
EFI may exercise the option at any time, in whole or in part. The option will
terminate on December 31, 2007. Subject to certain conditions, the option shares
must be repurchased by the Company, at the request of EFI, at a price equal to
the aggregate purchase price paid for such shares by EFI. In addition, subject
to certain conditions, the Company may repurchase from EFI the option shares at
a price equal to the price paid by EFI for those shares.

Under the terms of the standby credit facility, EFI is obligated to
disburse up to $11,000 to the Company in the event that certain amounts under
the Company's existing credit facilities become due and payable as a result of
any action taken by the Company in order to facilitate the proposed business
combination with EFI or certain other criteria. All loans made under this
facility bear interest at the rate of 8% per annum payable on January 2, 2004.
With a certain exception, the maturity date would be accelerated if a business
combination with EFI is not consummated on or before June 30, 2003 or upon the
termination of the agreement. Subject to certain conditions, the credit facility
also provides the Company with a working capital facility up to an aggregate
amount of $3,000 to be disbursed in the event that, among other things, the
Company's cash balance as of the close of business on the date notice is given
by the Company is less than $1,000. The Company is obligated to use the proceeds
of any exercise of the option agreement to pay down outstanding amounts under
the standby credit facility. All loans under the working capital facility bear
interest at a rate per annum equal to the prime rate as published, from time to
time, by Citibank, plus two percent payable on the maturity date of the loans.

On February 19, 2003 Creo initiated legal action in the State of Delaware
against the Special Committee and certain members of the Company's Board of
Directors. Creo initially sought a temporary restraining order with respect to
the Rights Agreement and the three Agreements with EFI. On February 21, 2003,
the temporary restraining order was denied by the Delaware court. This
litigation is still pending and the Company cannot predict the eventual outcome
at this time.

On February 26, 2003 the Company and EFI entered into a merger agreement
providing for EFI's acquisition of the Company for $2.60 per share for each
outstanding share of the Company's stock. The merger is subject to regulatory
review and stockholder approval by the Company's stockholders.

19. SUPPLEMENTARY QUARTERLY DATA (UNAUDITED)

A summary of the Company's quarterly financial results for the years ended
December 31, 2001 and 2002 follows (in thousands):

F-33

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The quarters ended June 30, 2001 and September 30, 2002 include a
restructuring charge of $2,098 and $575, respectively (Note 15). Effective
January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other
Intangible Assets." As a result, the Company does not amortize goodwill after
December 31, 2001. Goodwill amortization was approximately $4,900 in each
quarter of 2001.

F-34

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL.

None.

F-35

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The information required by this item concerning directors and concerning
compliance with Section 16(a) of the Securities Exchange Act of 1934 is
incorporated by reference to Printcafe's proxy statement to be filed within 120
days after the end of the fiscal year covered by this Form 10-K. The information
required by this item concerning executive officers is set forth in Part I, Item
1 of this Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION.

The information required by this item is incorporated by reference to
Printcafe's proxy statement for the 2003 annual meeting of stockholders to be
filed within 120 days after the end of the fiscal year covered by this Form
10-K.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The information required by this item is incorporated by reference to
Printcafe's proxy statement for the 2003 annual meeting of stockholders to be
filed within 120 days after the end of the fiscal year covered by this Form
10-K.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information required by this item is incorporated by reference to
Printcafe's proxy statement for the 2003 annual meeting of stockholders to be
filed within 120 days after the end of the fiscal year covered by this Form
10-K.

ITEM 14. CONTROLS AND PROCEDURES.

Within 90 days before filing this report, an evaluation of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures was conducted under the supervision and with the participation of
the Company's management, including the Company's chief executive officer and
chief financial officer. Based on that evaluation, the Company's management,
including its chief executive officer and chief financial officer, concluded
that the Company's disclosure controls and procedures were effective as of the
date of the evaluation. Since the date of the evaluation described above, there
have been no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a) DOCUMENTS FILED AS PART OF THIS ANNUAL REPORT

1. Financial Statements.

The information required by this item is included in Item 8 of Part
II of this report.

2. Financial Statement Schedules.

All schedules have been omitted because they are not applicable or
are not required or the information required to be set forth in those
schedules is included in the financial statements or notes thereto.

3. Exhibits.

The exhibits listed in the Exhibit Index attached to this report
are filed or incorporated by reference as part of this annual report

F-36

(b) REPORTS ON FORM 8-K

None.

F-37

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 by the undersigned, thereunto duly authorized.

PRINTCAFE SOFTWARE, INC.

/s/ MARC D. OLIN
--------------------------------------
MARC D. OLIN
President and Chief Executive Officer

/s/ JOSEPH J. WHANG
--------------------------------------
Joseph J. Whang
Chief Financial Officer and Chief
Operating Officer
(Chief Accounting Officer)

Date: March 20, 2003

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:

F-38

CERTIFICATIONS

I, Marc D. Olin, certify that:

1. I have reviewed this annual report on Form 10-K of Printcafe Software,
Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;

b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

c) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: March 20, 2003

/s/ MARC D. OLIN
--------------------------------------
Marc D. Olin
Chief Executive Officer

F-39

I, Joseph J. Whang, certify that:

1. I have reviewed this annual report on Form 10-K of Printcafe Software,
Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;

b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

c) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: March 20, 2003

/s/ JOSEPH J. WHANG
--------------------------------------
Joseph J. Whang
Chief Financial Officer

F-40

EXHIBIT INDEX

F-41

- ---------------

+ Portions of this exhibit have been omitted based on a request for confidential
treatment by the Commission. The omitted portions of this exhibit have been
filed separately with the Commission.

F-42