BY Gail Kailing April 15, 2002 -- As pioneers in the online print management and procurement market, iPrint Technologies (NASDAQ: IPRT) and ImageX, Inc. (NASDAQ: IMGX) are strikingly similar and yet distinctively different. Both companies were "first movers" in the same industry – online procurement of print – with iPrint initially targeting the "small office/home office (SOHO)" and other small businesses, and ImageX targeting medium to large enterprises. This article offers a profile of each company and the similar moves they have made. By examining companies like iPrint and ImageX, we can better understand the evolutionary process within our industry - and therefore see the future more clearly. Parallel Timelines The two companies developed in parallel, and "leapfrogged" each other through a number of major milestones. For example, iPrint was founded in 1996 and launched their online printshop, www.iprint.com, in December 1996. ImageX was founded in 1995 and launched the ImageX Online Print Center in 1997. Activities for both companies heated up in 1999, with ImageX filing an S-1 for public offering in May and iPrint filing in December. ImageX’s IPO yielded about $21 million and iPrint’s more than $48 million. Around the time of iPrint’s IPO, ImageX completed a secondary offering for about $101 million. ImageX’s acquisition "boom" started in 1999 with Fine Arts Graphics (a business stationery printer), Image Press (a print brokerage), and PrintBid/PaperDeals (online trading sites). ImageX continued acquiring companies – CreativePro and Extensis (a site for the creative community and software tools for graphic artists), and Howard Press (a commercial printer) – in 2000. iPrint followed with a merger with Wood Associates, a supplier of custom-imprinted promotional items and marketing programs, finalized in November 2001. In 2001, ImageX began streamlining the company and refining its focus. As a result, PrintBid and PaperDeals were closed down, and CreativePro, already separated from Extensis, was sold to PrintingForLess, a Livingston Montana printing firm. In 2002, both iPrint and ImageX face the threat of Nasdaq delisting. While no company is required to announce receipt of the Nasdaq notification, iPrint announced receipt of the notification on February 21, 2002. ImageX has not made a similar announcement. iPrint has the additional challenge of a "Qualification of Going Concern Opinion" from their auditors regarding their ability to remain a viable business for 12 months without additional financing. Financial Overviews iPrint Following is a quick look at some key financials taken from iPrint’s 10-K (Annual Report), dated April 1, 2002. Revenue for 2001 was $ 17,940,000, up a little over 5% from $17,069,000 in 2000. Net loss on that revenue was $17,553,000, improved over 51% from a loss of $35,975,000 in 2000. iPrint had cash and cash equivalents of $4,407,000, and a working capital deficit of $2,216,000. As of December 31, 2001, the company’s accumulated deficit had reached $69.4 million. At closing on April 12, the stock traded at around $0.09, and iPrint had a market cap of $4.9 million. Their 52-week trading range was from $0.09 to $0.80. Arthur Andersen, iPrint’s independent auditor, has expressed substantial doubt that iPrint can continue as a going concern based on iPrint’s recurring operating losses, a negative working capital deficit and failure with certain bank covenants. To continue to control costs, the company reduced headcount from 203 full-time employees on December 31, 2001, to approximately 170 full-time employees as of March 15, 2002. Concerning bank covenants, iPrint reported that they were no longer in compliance regarding their line of credit. As of March 25, 2002, there was $5.5 million outstanding of a $10 million credit line. The revolving line of credit is secured by substantially all of iPrint’s assets. Note: the outstanding balance of $5.5 million due on the line of credit is more than their current market cap of $4.9 million. The lender has the right to demand repayment of all outstanding funds borrowed under the facility if the company is unable to regain compliance. And if iPrint is unable to repay amounts previously borrowed under the line of credit, the lender may elect to acquire substantially all of the company’s assets. iPrint has also been notified that the Nasdaq Stock Market, Inc. may delist the company’s common stock if it fails to meet the $1.00 per share minimum bid price and the $5 million minimum market value of public float requirement for 10 consecutive trading days prior to May 15, 2002. The company does not currently comply with either of the requirements. If iPrint is unable to comply, it is entitled to appeal a determination that it be delisted from the Nasdaq National Market or they may choose to file an application to transfer to the Nasdaq SmallCap Market. The SmallCap Market listing criteria includes a $1 million market value of public float and a minimum bid price of $1.00. If the application is accepted iPrint has additional compliance periods totaling up to 270 days to meet other SmallCap Market listing criteria. ImageX In 1997, Joe Verschueren, then President/CEO, boldly predicted revenues in year five (2002) of over $175 million illustrating “the fever” during that time. Following is a quick look at the ImageX 10K (Annual Report) dated March 22, 2002, as a progress report and "reality check." Revenue for 2001 was $56,469,000, up more than 11% from $50,731,000 in 2000. Revenue from the printing segment alone was $44,423,000 in 2001, up a little over 6% from $41,861,000 in 2000. Net loss of $39,902,000, was improved almost 16% from a loss of $47,455,000 in 2000. As of December 31, 2001, ImageX had cash and cash equivalents of $17,375,000 and $18,592,000 in working capital and the company’s accumulated deficit was $121.2 million. At the Market close on April 12, the stock last traded at $0.61, and ImageX had a market cap of $18.9 million. The 52-week trading range is from $0.48 to $2.03. ImageX has also been notified that the Nasdaq Stock Market, Inc. may delist the company’s common stock if it fails to meet the $1.00 per share minimum bid price and the $5 million minimum market value of public float requirement for 10 consecutive trading days on a similar timeline to that of iPrint. The company does not currently comply with the share minimum bid price. If ImageX is unable to comply, the company is entitled to the same appeals and transfer options as iPrint. At the end of 2001, ImageX had a total of 459 employees and the printing segment operations team consisted of 231 employees located at the wholly owned subsidiaries. Positioning – Compare and Contrast While the two companies launched online solutions targeted to very different markets, iPrint’s strategy has gradually grown closer to that of ImageX. In the early days of iPrint, the company targeted a horizontal audience – SOHO, small businesses and individual consumers – with a broad range of products and services such as: - imprinted gifts - office stationery - signs and banners - commercial print - direct mail - volume copying - plain-label catalogs for both commercial and quick printers, and corporate procurement iPrint is transitioning toward enterprise-class sales and away from the SOHO/consumer marketplace and has two major goals: "winning" the printing and promotional merchandise business of large, global corporations and becoming the print procurement "plug-in" of choice across multiple B2B software platforms. As a result of iPrint’s merger with Wood Associates, the company offers a fully integrated system managing both procurement and online design of collateral and promotional products through a single online platform. iPrint technology currently interfaces with e-procurement systems from Oracle, Ariba, and PeopleSoft. The company’s most recent statement of strategy says: "We aim to be the premier service company in the imprinted products business, globally recognized as a team of top professionals, focused on service, support and technology solutions for Fortune 1000 customers (2001 Annual Report)." iPrint has defined itself as one of the leading providers of online and offline marketing and customized branding solutions with technology that improves the way businesses buy promotional merchandise and custom printing. In 1997, ImageX defined itself as a company offering printing services through proprietary software that enabled customers to place orders via the Internet. The company originally considered itself a printing broker, farming out work orders to affiliate printing companies. ImageX targeted companies with 100 or more employees that have short-run printing needs such as business cards, stationery and direct mail pieces. The range of products and services offered by ImageX has been much more focused on "modify, re-use, and reprint" print programs that benefit from online catalogs allowing for text and image substitution and improved business processes and workflow. ImageX’s most recent statement of strategy says: "Our objective is to be the market leader in Web-enabled printing services, dedicated to streamlining the workflow process from the design, production, delivery and management of branded communication materials for medium and large corporations such as those companies on the Fortune 1000. In addition, our objective is to maintain our market position in the Software segment (2001 Annual Report)." To this end, the company’s systems can integrate with B2B e-procurement systems by Oracle, SAP, PeopleSoft, Ariba and Commerce One, as well as legacy systems. Strange Bedfellows iPrint and ImageX, in the early summer of 2000, struck a one-year strategic agreement to provide ImageX small business customers with access to iPrint’s Online Printshop for the SOHO market. "This is an exciting collaboration. Through the use of iPrint technology, ImageX.com is able to enhance their offering to the small business community," stated Royal P. Farros, then CEO and chairman of iPrint.com (the company name has since been changed to iPrint Technologies). Said Rich Begert, president and CEO of ImageX.com (the company name has since been changed to ImageX). "Partnering with iPrint.com enables us to effectively strengthen our small business support with a leading brand and robust solution. iPrint.com's offering provides our small business customers with an expanded set of services, while allowing us to focus more centrally on the larger corporate customers we service through our Corporate Online Printing Center." The following year, iPrint announced it would move from a retail online print center to a web-based workflow solution provider to large corporations by integrating its XML-PrintBuyer technology with corporate procurement solutions offered by PeopleSoft, Oracle and other enterprise solution providers. Royal Farros, Chairman, iPrint Technologies clarified the company’s change in strategy for WhatTheyThink.com last week. "From the start, we wanted to go where the margins were. The SOHO market has the highest margins and was actually the much harder technical problem to solve... creating an automated e-printing system with desktop publishing capabilities that could scale to the millions of individual customers that we currently have. In this regard, our patent pending technology is unmatched," stated Farros. "Margins weren't in the corporate space until e-procurement came along. When that happened, commodity pricing took a backseat to technical sophistication and integration and that's when we jumped into the enterprise area with both feet, even merging with a company that had 15 years experience servicing over 200 Fortune 1000 corporations to make sure we could get a kick-start." As it became clear that iPrint would be a direct competitor, ImageX chose to not renew the agreement. When asked about the new strategy which brought iPrint into more direct competition with ImageX, Rich Begert told WhatTheyThink.com last year, "They are 3 1/2 years late. We have been doing this longer, have technology better suited for large corporate customers, and patent pending systems already in place and proven." "Crystal Ball Gazing" What could be in store for iPrint? With the possibility of delisting hanging over their heads and the potential for outstanding loans against their line of credit to be called, iPrint will need to move quickly. To maintain listing on the Nasdaq National Market, the company has to work to get their stock price up over a dollar. That target is a very long stretch – a stock price increase of more than 1000% is something out of the "dot com glory days." The company just reported that they are continuing to cut costs and are actively pursuing sources of additional financing. Does this mean iPrint has put the "For Sale" sign out? As a possible acquisition target, iPrint could be a good match for one of the e-procurement companies or an office supply company. iPrint would add domain expertise in the area of "maverick spending" on print and printed products and other low-ticket items for e-procurement companies such as Oracle or Peoplesoft. And the Wood portion of the business brings some level of relations with major companies. The company would also be a good match for one of the "big box" office supply companies who also have their own online catalogs for ordering, such as Office Depot, Staples, or Office Max. Custom business stationery, advertising specialties, and logo-items are a natural mix with the usual office supplies that can be purchased from a catalog. And for ImageX? When we look at how closely the two companies have followed each other throughout their corporate lifecycles, should we assume that ImageX will follow iPrint into its current financial troubles? It doesn’t appear so; the company looks to be on more solid footing. The company at least has a better cash position and the model of providing commercial printing with a strong web-based platform (as a single company providing an e-procurement technical interface and producing print products) is gaining traction. The biggest challenges for ImageX in the near future are strategic and operational. The company is implementing a new product/service focus on management of marketing collateral, making major changes in sales direction, and continuing to walk the line between being a commercial printer with a sophisticated online interface and a technology company offering business process improvement solutions to large enterprises for management and procurement of printed materials. The reconfiguration of the sales staff has been partially blamed for the weaker first quarter revenues, which resulted in a recent lowering of Q1 guidance. ImageX has an aggressive patent strategy and, as the holder of eighty-some patents pending, announced that "we are primed to monetize our technology to other service providers in the printing industry." (iPrint has a slightly different patent strategy where they are filing fewer applications for more complex processes, which require considerably more time to move through the US Patent Office.) It’s not clear from this announcement if ImageX will be making their technology directly available to print service providers or if their strategy is to collect royalties from the developers of infringing technology. While either could provide income for the company, a distracting legal morass could also develop. And for the industry as a whole? So what happens next for these and other companies offering online print service solutions? Only time will tell. Neither of these companies wishes to become “interesting case studies.” They are both determined to succeed. However, as Winston Churchill declared after an early allied victory in World War II: "This is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning." Please offer feedback to Gail at [email protected].