UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2002

Commission file number: 0-29733

iPrint Technologies, inc.

(Exact name of registrant as specified in its charter)

Delaware		77-0436465
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification Number)

3073 Corvin Drive

Santa Clara, CA 95051

(Address of principal executive offices)

Registrant’s telephone number, including area code: (408) 538-2700

Former name: iPrint.com, inc.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the past 90 days. Yes x No ¨

As of July 31, 2002, 54,835,040 shares of the Registrant’s common stock were outstanding, at $0.001 par value.

iPrint Technologies, inc.

QUARTERLY REPORT ON FORM 10-Q

FOR THE PERIOD ENDED JUNE 30, 2002

TABLE OF CONTENTS

			Page

PART I.	FINANCIAL INFORMATION

	Item 1.	Condensed Consolidated Financial Statements

		Condensed Consolidated Balance Sheets at December 31, 2001 and at June 30, 2002	3

		Condensed Consolidated Statements of Operations for the three months and six months ended June 30, 2001 and 2002	4

		Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2001 and 2002	5

		Notes to Condensed Consolidated Financial Statements	6

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13

	Item 3.	Quantitative and Qualitative Disclosures About Market Risks	34

PART II.	OTHER INFORMATION

	Item 1.	Legal Proceedings	35

	Item 2.	Changes in Securities and Use of Proceeds	35

	Item 3.	Defaults on Senior Securities	35

	Item 4.	Submission of Matters to Vote of Security Holders	36

	Item 5.	Other Information	36

	Item 6.	Exhibits and Reports on Form 8-K	37

		Exhibits	37

		Reports on Form 8-K	37

SIGNATURE			38

PART I. FINANCIAL INFORMATION

Item 1. Condensed Financial Statements

iPrint Technologies, inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

	December 31, 2001			June 30, 2002
	(Audited)			(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	2,296		$	568
Short-term investments		2,111			—
Restricted cash		2,357			—
Accounts and other receivables, net		11,147			6,203
Inventories		1,991			1,951
Prepaid expenses and other current assets		1,032			1,163

Total current assets		20,934			9,885

Property and equipment, net		4,265			2,857
Goodwill		25,296			1,980
Other intangible assets		563			234
Deposits and other assets		657			547

	$	51,715		$	15,503

Liabilities and Stockholders’ Equity
Current liabilities:
Overdraft	$	923		$	123
Accounts payable		7,298			5,563
Accrued and other current liabilities		8,096			6,095
Current portion of bank borrowings and capital lease		6,833			3,307

Total current liabilities		23,150			15,088

Non-current portion of loan and lease		6			3
Other long-term liabilities		163			—

Stockholders’ equity:
Common stock		55			55
Additional paid-in capital		98,529			98,424
Notes receivable from stockholder		(205	)		(205	)
Deferred compensation, net		(579	)		(351	)
Accumulated deficit		(69,415	)		(97,511	)
Accumulated other comprehensive income		11			—

Total stockholders’ equity		28,396			412

	$	51,715		$	15,503

See notes to condensed consolidated financial statements.

iPrint Technologies, inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2001			2002			2001			2002
Revenues:
Printed products	$	2,346		$	11,866		$	5,410		$	23,789
Other		121			—			239			—

Total revenues		2,467			11,866			5,649			23,789

Cost of sales:
Printed products		1,460			7,954			3,597			15,956
Other		—			—			—			—

Total cost of sales		1,460			7,954			3,597			15,956

Operating expenses:
Research and development (net of stock-based compensation expense of $(3) and $22 for the three months ended June 30, 2001 and 2002, and $(90) and $48 for the six months ended June 30, 2001 and 2002)		1,326			484			2,964			1,013
Sales and marketing (net of stock-based compensation expense of $(6) and $38 for the three months ended June 30, 2001 and 2002, and $(150) and $82 for the six months ended June 30, 2001 and 2002)		1,993			3,489			5,724			6,990
General and administrative (net of stock-based compensation expense of $(8) and $46 for the three months ended June 30, 2001 and 2002, and $(177) and $99 for the six months ended June 30, 2001 and 2002)		1,496			2,030			3,091			4,121
Amortization of deferred compensation, net of forfeitures		(17	)		106			(417	)		229
Corporate restructuring costs		106			386			394			386

Total operating cost and expenses		4,904			6,495			11,756			12,739

Other income (expense), net		335			(218	)		798			(252	)

Loss before income tax		(3,562	)		(2,801	)		(8,906	)		(5,158	)
Income tax (expense) benefit		—			—			—			—

Loss before cumulative effect of accounting change		(3,562	)		(2,801	)		(8,906	)		(5,158	)
Cumulative effect of accounting change		—			—			—			(22,938	)

Net loss	$	(3,562	)	$	(2,801	)	$	(8,906	)	$	(28,096	)

Basic and diluted net loss per share before cumulative effect of accounting change	$	(0.12	)	$	(0.05	)	$	(0.30	)	$	(0.09	)

Cumulative effect of accounting change per share	$	(0.00	)	$	(0.00	)	$	(0.00	)	$	(0.42	)

Basic and diluted net loss per share	$	(0.12	)	$	(0.05	)	$	(0.30	)	$	(0.51	)

Shares used to calculate basic and diluted net loss per share		30,158			54,748			30,130			54,737

See notes to condensed consolidated financial statements.

iPrint Technologies, inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Six Months Ended June 30,
	2001			2002
Cash flows from operating activities
Net loss	$	(8,906	)	$	(28,096	)
Adjustments to reconcile net loss to net cash used by operating activities:
Cumulative effect of accounting change		—			22,938
Depreciation and amortization		1,017			1,585
Provision for doubtful accounts		(23	)		(60	)
Increase in inventory reserve		—			105
Loss (gain) on disposal of fixed assets		213			1
Loss sale of investments					3
Amortization of deferred compensation		(417	)		228
Forgiveness of interest from loans to officers		—			175
Changes in assets and liabilities:
Accounts and other receivables		670			4,589
Inventory		—			(65	)
Prepaid expenses and other current assets		18			247
Deposits and other assets		(1,980	)		30
Accounts payable		(148	)		(1,735	)
Accrued liabilities		687			(2,001	)

Net cash provided by (used in) operating activities		(8,869	)		(2,056	)


Cash flows from investing activities
Repayment of loans made to officers		—			320
Purchases of short-term investments		(14,548	)		—
Sales and maturities of short-term investments		15,237			2,097
Restricted cash		—			2,357
Capital expenditures		(341	)		(12	)

Net cash provided by investing activities		348			4,762


Cash flows from financing activities
Net change in overdraft		—			(800	)
Repayments of bank borrowings, net		(192	)		(3,526	)
Payments on capital lease		—			(3	)
Proceeds from issuance of preferred and common stock, net of issuance costs		80			20
Repurchase of common stock		(5	)		(125	)

Net cash used in financing activities		(117	)		(4,434	)

Net change in cash and cash equivalents		(8,638	)		(1,728	)
Cash and cash equivalents at beginning of period		19,283			2,296

Cash and cash equivalents at end of period	$	10,645		$	568


Supplementary information:
Interest paid	$	7		$	138


Non-cash financing activity:
Deferred compensation related to stock options	$	(1,478	)	$	0

See notes to condensed consolidated financial statements.

iPrint Technologies, inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2002

(Unaudited)

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of iPrint Technologies, inc. (“iPrint” or the “Company”) have been prepared in accordance with generally accepted accounting principles for interim financial information and pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, such financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the Company’s opinion, all adjustments, consisting of normal recurring accrual adjustments, considered necessary for a fair presentation have been included. Operating results for the six month period ended June 30, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002. These financial statements and notes should be read in conjunction with the audited financial statements and notes to those financial statements for the year ended December 31, 2001 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission.

The Company’s consolidated financial statements have been presented on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Our former auditors included a paragraph in their report for the year ended December 31, 2001 indicating that substantial doubt exists as to our ability to continue as a going concern because we have recurring operating losses, a negative working capital deficit and have failed certain covenants under our bank line of credit. At June 30, 2002, the Company had an accumulated deficit of $97.5 million and a negative working capital of $5.2 million. The Company incurred negative cash flow from operations for the year ended December 31, 2001 and for the six months ended June 30, 2002 and as of December 31, 2001 and June 30, 2002 has failed certain financial covenants under the bank line of credit agreement.

On April 12, 2002, the Company entered into a forbearance agreement with the bank that provides for a release from the failed financial covenants through May 31, 2002. The forbearance agreement was amended to provide a release from breached financial covenants through July 19, 2002, at which time the Company was again no longer in compliance with the covenants. The Company is currently in the process of exploring other financing options to replace its current facility. On August 12, 2002, in connection with a possible transaction for the purchase of some or all the assets of the Company, the Company obtained a loan from a third party for up to $1.0 million pursuant to a Subordinated Secured Promissory Note. As of August 13, 2002, the Company had received $750,000 of the note. (See Note 16). With this financing in place and with anticipated cash flow from our continuing operations, the Company believes that it will be able to satisfy its short-term working capital needs, interest obligations, and capital expenditure requirements. If the Company is unable to amend the revolving credit facility or complete the financial transactions the Company is pursuing or if the Company is unable to meet its debt service obligations or fund its other liquidity needs, then the Company will need to raise additional funds in order to continue as a going concern. In light of our declining stock price and the extreme volatility in the capital markets, additional funding may not be available on favorable terms or at all.

2. Acquisition

On June 23, 2001, the Company entered into a merger agreement with Wood Alliance, Inc (“Wood”). In connection with the agreement, which was consummated on October 31, 2001, the Company issued 24,842,089 common shares in exchange for all outstanding common and preferred shares of Wood. The acquisition was accounted for as a purchase and accordingly, the results of operations of Wood, from January 1, 2002 to June 30, 2002 have been included in the unaudited condensed consolidated financial statements. The purchase price was allocated based on the fair value of the assets acquired and liabilities assumed. The fair market value of the equity securities issued in the acquisition was approximately $17.0 million and the purchase price was $19.2 million. A portion of the purchase price was identified in independent appraisals, using proven valuation procedures and techniques, as intangible assets. These intangible assets include $400,000 for Wood’s identifiable customer base and trademark.

The aggregate purchase price of $19.2 million, including acquisition costs, for the Wood acquisition was allocated as follows (in thousands):

Tangible assets acquired	$	15,222
Identifiable intangible assets		400
Goodwill		25,296
Liabilities assumed		(21,712	)

	$	19,206

The purchase price was allocated to the assets acquired and liabilities assumed on the basis of their respective fair values on the acquisition date. The allocations above are based on management’s estimate of the purchase accounting. The purchase price allocations is subject to revision as management obtains additional information. Revisions of $163,000 were made in the three months ended March, 31, 2002 relating to the recognition of deferred tax liabilities.

The unaudited pro forma financial information for the three and six months ended June 30, 2001 and 2002 is presented below as if the Wood operations had been acquired on January 1, 2001:

	Three months ended June 30,						Six months ended June 30,
	2001			2002			2001			2002
	(In thousands except per share amounts)
Revenues	$	15,535		$	11,866		$	33,282		$	23,789
Net loss	$	(4,062	)	$	(2,801	)	$	(11,422	)	$	(28,096	)
Shares used in calculating per share amounts		55,000			54,748			54,972			54,737
Basic and diluted loss per share	$	(0.07	)	$	(0.05	)	$	(0.21	)	$	(0.51	)

3. Accounts and Other Receivables

Accounts receivable consist of the following (in thousands):

	December 31, 2001			June 30, 2002
Trade receivables	$	10,173		$	6,246
Loans to officers		481			199
Other employee receivables		435			12
Income tax refund		475			—

Allowance for doubtful accounts		(417	)		(254	)

	$	11,147		$	6,203

In April 2001, the Company received from an officer, a full-recourse, secured demand note in an aggregate principal amount of $721,423. The note bears interest at 8.56% per annum and is payable quarterly in the amount of $18,942, with a final balloon payment of all remaining principal and accrued interest due in April 2005. As of June 30, 2002, there remained $198,813 in outstanding principal and $27,000 of interest was forgiven.

In April 2001, the Company received from an officer, a full-recourse, secured demand note in an aggregate principal amount of $160,000. The note bears interest at 8.56% per annum and is payable quarterly in the amount of $4,195, with a final balloon payment of all remaining principal and accrued interest due in April 2005. The loan was repaid as of February 28, 2002.

4. Inventory

Inventories consist of the following (in thousands):

	December 31, 2001		June 30, 2002
Company merchandise store	$	1,549	$	1,688
Custom order merchandise		442		263

	$	1,991	$	1,951

5. Goodwill

On January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”). Base on the results of the Company’s transitional impairment testing, the Company recorded a $23.0 million impairment of goodwill related to the 2001 acquisition of Wood Alliance, Inc. The impairment was recorded as a cumulative effect of accounting change of which $18.0 million was initially recorded in the three months ended March 31, 2002 upon completion of the first step of the transitional impairment test consistent with SFAS No. 142. An additional $5.3 million was recorded as a restatement of the results of operations for the three months ended March 31, 2002. The Company will continue to review for impairment the remaining goodwill at least annually.

6. Net Loss per Share

Basic and diluted net loss per share on a historical basis is computed using the weighted average number of shares of common stock outstanding. Potential common shares from conversion of redeemable convertible preferred stock and exercise of stock options and warrants are excluded from 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 were 3,333,377 shares and 12,079,575 shares for the six months ended June 30, 2001 and 2002, respectively.

The following table presents the calculation of basic and diluted net loss per common share:

	Three months ended June 30,						Six months ended June 30,
	2001			2002			2001			2002
	(In thousands except per share amounts)
Numerator:
Net loss	$	(3,562	)	$	(2,801	)	$	(8,906	)	$	(28,096	)
Denominator:
Denominator for basic and diluted earnings per share—weighted average shares		30,158			54,748			30,130			54,737
Basic and diluted net loss per share	$	(0.12	)	$	(0.05	)	$	(0.30	)	$	(0.51	)

7. Comprehensive Loss

Statement of Financial Accounting Standards (“SFAS”) No. 130 establishes standards for reporting and display of comprehensive loss and its components in a full set of general purpose financial statements. The object of SFAS No. 130 is to report a measure of all changes in equity of an enterprise that result from transactions and other economic events of the period other than transactions with shareholders (“comprehensive loss”). Comprehensive loss is the total of net loss and all other non-owner changes in equity.

The components of comprehensive loss for the three and six month periods ended June 30, 2001 and 2002 are as follows:

	Three months ended June 30,						Six months ended June 30,
	2001			2002			2001			2002
	(In thousands)
Net loss	$	(3,562	)	$	(2,801	)	$	(8,906	)	$	(28,096	)
Unrealized gain (loss) on short-term investments		12			—			6			—

Comprehensive loss	$	(3,550	)	$	(2,801	)	$	(8,900	)	$	(28,096	)

Accumulated other comprehensive income (loss) at June 30, 2001 consisted of an unrealized loss on short-term investments of $6,000.

8. Deferred Stock-Based Compensation

The Company uses the intrinsic value method of accounting for its employee stock-based compensation plans. Accordingly, no compensation cost is recognized for any of its stock options when the exercise price of each option equals or exceeds the fair value of the underlying common stock as of the grant date for each stock option. With respect to the stock options granted since inception through June 30, 2002, the Company recorded deferred stock-based compensation of $3.1 million for the difference at the grant date between the exercise price and the fair value of the common stock underlying the options, less cancellations. This amount is being amortized in accordance with Financial Accounting Standards Board Interpretation No. 28 over the vesting period of the individual options, generally four years. In accordance with Accounting Principles Board Opinion No. 25, certain previously expensed amounts were reversed during the three and six months ended June 30, 2001, due to the cancellations of unvested options. The net recovery of previously expensed deferred compensation was $17,000 and $417,000 for the three and six months ended June 30, 2001, respectively.

The amortization amount of deferred compensation for the three and six months ended June 30, 2002 is $106,000 and $229,000, respectively. The amount of deferred compensation expense that is currently estimated to be recorded in future periods could be decreased if options for which accrued but unvested compensation has been recorded are forfeited.

9. Stockholders’ Receivable

In November 1999, the Company granted an immediately exercisable option to purchase 290,000 shares of common stock at an exercise price of $2.26 to an officer. The Company also issued to the same officer a promissory note in an aggregate principal amount of $655,400 in connection with the exercise of stock options. On February 2, 2001, upon termination of the officer’s employment, the Company repurchased 199,374 of the unvested shares of common stock at the original price of $2.26 reducing the principal of the promissory note to $204,815. The note bears interest at 5.96% per annum and is due in November 2003. As of June 30, 2002, $68,319 of interest was forgiven.

10. Corporate Restructuring Costs

During the second quarter of 2002, the Company announced a restructuring plan and recorded approximately $386,000 charge. The charge included costs of severance, consulting services and vacating certain facilities. The workforce was reduced by an additional 12 employees. As of June 30, 2002, the Company had approximately $187,000 remaining in restructure reserve.

The restructuring reserve consists of the following amounts (in thousands):

	Original Charge		Non-Cash Charges		Cash Payments		Restructure Reserve as of June 30, 2002
Components:
Workforce reduction	$	59	$	—	$	20	$	39
Consolidation of excess facilities		133		—		11		122
Consulting services and other charges		194		—		168		26

	$	386	$	—	$	199	$	187

11. Barter Transactions

For the three and six month periods ended June 30, 2001, the Company had advertising barter transactions whereby its advertisements were placed on co-labeled third parties’ websites in exchange for certain of its products offered to customers of co-labeled third parties. The Company accounts for barter transactions in accordance with EITF 99-17, “Accounting for Advertising Barter Transactions.” Barter transactions are recorded at the fair value of goods provided or advertising services received, whichever is more readily determinable in the circumstances and only if there is verifiable objective evidence provided by an equal amount of cash transactions within six months preceding the barter transactions. Revenues from barter transactions for the three and six month periods ended June 30, 2001 amounted to $43,000 and $119,000 compared to no revenue for the same periods in 2002.

12. Financial Instruments and Concentration of Credit Risk

The carrying value of the Company’s financial instruments, including cash and cash equivalents, short-term investments, accounts receivable, accounts payable, accrued liabilities and bank borrowings approximates fair value due to the short-term maturities of those instruments. Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents, short-term investments and accounts receivable. The Company invests its excess cash in U.S. government securities and commercial paper. These investments typically bear minimal risk. This diversification of risk is consistent with the Company’s policy to ensure safety of principal.

The Company sells a variety of printed and promotional products to end user customers. The products and services are available to our customers through the following channels: custom merchandise and specialized print services, company store programs, corporate e-Print centers and private-labeled, affiliate, and iPrint.com retail website solutions. One customer accounted for 11% and 12% of total revenue for the three and six months ended June 30, 2002. The same customer accounted for 9% of outstanding accounts receivable balance as of June 30, 2002. The loss of a significant customer or a significant reduction in such a customer’s orders could have an adverse effect on our sales.

The Company has operated primarily in the United States and all sales to date have been made in U.S. dollars. Accordingly, the Company has not had any material exposure to foreign currency rate fluctuations.

13. Borrowing Arrangements

On May 4, 2001, the Company terminated its line of credit agreement with a bank and the remaining outstanding loan of approximately $190,000 was paid in full. In connection with this agreement, the Company previously issued a warrant to purchase 12,000 shares of Series C redeemable convertible preferred stock at $6.00 per share. On May 4, 2001 this warrant was cancelled.

On November 1, 2001, the Company obtained a new bank line of credit. As of June 30, 2002, the Company had borrowings outstanding on this line of $3.3 million under a $10 million revolving bank line of credit which was payable on demand. The line of credit bears interest at a floating rate per annum equal to the bank’s announced base interest rate plus 0.50%. As of June 30, 2002, the rate was approximately 7.25%. Interest expense totaled $60,000 and $133,000 and for the three and six months ended June 30, 2002, respectively. Borrowings under the line of credit are limited to 80% of eligible accounts receivable and 50% of eligible inventory. The bank has senior security interest in all assets of the Company and proceeds thereof.

The line of credit agreement contains restrictive financial covenants, including, among other restrictive covenants, the maintenance of a minimum current ratio of 1.0 to 1.0, a minimum Tangible Effective Net Worth ratio to debt of 2.5 to 1.0 and maximum EBITDA losses. The Company was not in compliance with these covenants at June 30, 2002.

On August 12, 2002, in connection with a possible transaction for the purchase of some or all the assets of the Company, the Company obtained a loan from a third party for up to $1.0 million pursuant to a Subordinated Secured Promissory Note. As of August 13, 2002, the Company had received $750,000 of the note. The note bears interest at the rate of 7.25% and all amounts borrowed pursuant to the note are payable on August 12, 2003 or at such earlier date on which the note provides for acceleration. All amounts borrowed pursuant to the note are fully secured by a Security Agreement dated August 12, 2002, which grants the third party a security interest in substantially all of the Company’s assets, subject to the lien relating to the bank line of credit discussed above.

14. Recent Accounting Pronouncements

In August 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Statements (SFAS) No. 143, Accounting for Asset Retirement Obligations. This Statement is effective for fiscal years beginning after June 15, 2002. SFAS No. 143 provides accounting requirements for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. Under the Statement, the asset retirement obligation is recorded at fair value in the period in which it is incurred by increasing the carrying amount of the related long-lived asset. The liability is accreted to its present value in each subsequent period and the capitalized cost is depreciated over the useful life of the related asset. The Company is currently evaluating the impact of SFAS No. 143 on its consolidated financial statements.

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. This statement eliminates the current requirement that gains and losses on debt extinguishment must be classified as extraordinary items in the income statement. Instead, such gains and losses will be classified as extraordinary items only if they are deemed to be unusual and infrequent, in accordance with the current GAAP criteria for extraordinary classification. In addition, SFAS 145 eliminates an inconsistency in lease accounting by requiring that modifications of capital leases that result in reclassification as operating leases be accounted for consistent with sale-leaseback accounting rules. The statement also contains other nonsubstantive corrections to authoritative accounting literature. The changes related to debt extinguishment will be effective for fiscal years beginning after May 15, 2002, and the changes related to lease accounting will be effective for transactions occurring after May 15, 2002. Adoption of this standard will not have any immediate effect on the Company’s consolidated financial statements. The Company will apply this guidance prospectively.

On June 20, 2002, the FASB’s Emerging Issues Task Force (EITF) reached a partial consensus on Issue No. 02-03, Recognition and Reporting of Gains and Losses on Energy Trading Contracts under EITF Issues No. 98-10, Accounting for Contracts Involved in Energy Trading and Risk Management Activities, and No. 00-17, Measuring the Fair Value of Energy-Related Contracts in Applying Issue No. 98-10. The EITF concluded that, effective for periods ending after July 15, 2002, mark-to-market gains and losses on energy trading contracts (includes those to be physically settled) must be retroactively presented on a net basis in earnings. Also, companies must disclose volumes of physically-settled energy trading contracts. The Company is evaluating the impact of this new consensus on the presentation of its consolidated income statement but believes it will have a material impact on total revenues and expenses. The consensus will have no impact on net income.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which addresses accounting for restructuring and similar costs. SFAS No. 146 supersedes previous accounting guidance, principally Emerging Issues Task Force (EITF) Issue No. 94-3. The Company will adopt the provisions of SFAS No. 146 for restructuring activities initiated after December 31, 2002. SFAS No. 146 requires that the liability for costs associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF No. 94-3, a liability for an exit cost was recognized at the date of a company’s commitment to an exit plan. SFAS No. 146 also establishes that the liability should initially be measured and recorded at fair value. Accordingly, SFAS No. 146 may affect the timing of recognizing future restructuring costs as well as the amount recognized.

15. Legal Matters

Starting on June 15, 2001, several stockholder class action complaints were filed in the United States District Court for the Southern District of New York against iPrint, two of our former officers and/or directors, and several investment banking firms that served as underwriters of our March 2000 initial public offering. The cases, which were brought purportedly on behalf of all persons who purchased our common stock between March 7, 2000 and December 6, 2000, have been consolidated.

Plaintiffs electronically served an amended complaint on or about April 19, 2002. The amended complaint alleges violations of Sections 11 and 15 of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934, on the grounds that the prospectus incorporated in the registration statement for the offering failed to disclose, among other things, that (i) the underwriters had solicited and received excessive and undisclosed commissions from certain investors in exchange for which the underwriters allocated to those investors material portions of the shares of our stock sold in the initial public offering, and (ii) the underwriters had entered into agreements with customers whereby the underwriters agreed to allocate shares of our stock sold in the initial public offering to those customers in exchange for which the customers agreed to purchase additional shares of our stock in the aftermarket at pre-determined prices. The amended complaint also alleges that false analyst reports were issued following our initial public offering. No specific damages are claimed.

We are aware that similar allegations have been made in lawsuits relating to more than 300 other initial public offerings conducted in 1999 and 2000. Those cases have been consolidated for pretrial purposes. Defendants’ time to respond to the complaints has been stayed pending a plan for further coordination. We intend to vigorously defend against these actions. However, due to the inherent uncertainties of litigation, we cannot accurately predict the ultimate outcome of the litigation. The litigation has diverted, and is likely to continue to divert, the efforts and attention of some of our key management and other personnel. As a result, our defense of this litigation, regardless of its eventual outcome, has had and will likely continue to have an adverse impact on us. Any unfavorable outcome of the litigation could also have an adverse impact on our business, financial condition and results of operation.

In addition to the litigation described above, from time to time we are subject to various legal proceedings and claims that arise in the ordinary course of business.

16. Subsequent Events

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following management’s discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed financial statements and related notes included elsewhere in this report, and in conjunction with management’s discussion and analysis of financial condition and results of operations included in our Form 10-K for the year ended December 31, 2001 filed with the Securities and Exchange Commission on April 1, 2002. In addition to historical information, this discussion contains certain forward-looking statements that involve risks and uncertainties, in particular relating to our expectations regarding our future operating expenses and capital requirements. Our actual results could differ materially from those anticipated by these forward-looking statements due to factors, including but not limited to, those set forth or incorporated by reference under “Factors That May Affect Future Results” and elsewhere in this report.

Overview

iPrint Technologies, inc. (“iPrint”) is one of the leading providers of online and offline marketing and customized branding solutions. Our award-winning technology improves the way businesses buy promotional merchandise and custom printing, as well as offers a competitive advantage in all channels of our business. With a network of offices nationwide, iPrint services more than 200 world-class organizations.

On October 31, 2001, we completed our merger with Wood Alliance, Inc., doing business as Wood Associates (“Wood”), which is a leading promotional merchandise marketing company serving the business market. As a result of this merger, we have gained potential access to Fortune 1000 customers, a nationwide sales force, as well as many long-standing, high-volume relationships with vendors and suppliers both domestically and internationally.

We also became one of the few companies in the promotional merchandise industry with the ability to fully integrate customers, vendors, sales, and distribution facilities with full service e-commerce, workflow management and online art/design tools. This technology solution uniquely manages the print process for both collateral and promotional products.

Our online printing technology offers a virtual one-stop shop for commercial printing, allowing customers to design, proof, and order thousands of customized printed products via the Internet. Our online print services are designed to be more convenient and cost-effective than traditional print channels. By automating or enhancing the print order process, by integrating into corporate e-procurement systems, and by electronically connecting our online printing services into select commercial print vendors, we significantly reduce many of the costs and inefficiencies associated with the traditional printing process. Other benefits of our solution include streamlining information and workflow, centralizing control and accountability, facilitating logo standardization, and improving efficiency with the e-procurement process.

Customers can access our services through:

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Custom merchandise: This business channel is comprised mostly of promotional merchandise orders placed directly through one of our regional sales teams. Promotional items are fulfilled and shipped by our manufacturing vendor. We provide our customers two alternatives when choosing the means of distribution. Finished products may either be shipped directly from the vendor to the client or the client may choose to contract or pre-purchase the merchandise and store it in one of our business locations for shipment or pick-up at a later date.

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Specialized print services: This channel services customers who are interested in obtaining custom-printed jobs that vary in quantity from our existing website offerings, or orders for printed items that are not generally offered in our self-service print shop, such as multi-paged color brochures, specialized banner production, color photocopying, or bound documentation. We promote these specialized print services at our Corporate e-Print Centers, iPrint.com and related websites. These orders often represent higher revenues than a typical short-run print job. Our customer service representatives review and respond to these requests on a case-by-case basis. We may fulfill special projects through our existing commercial print vendors or select other print vendors beyond those we ordinarily use. We generate revenues from these orders based on the value of the products ordered by a customer. By their nature, the specifics and dollar amounts of these projects vary widely.

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iPrint.com, Private-Labeled, and Affiliate Website Solutions: In addition to operating our own www.iPrint.com retail print shop, we supply the technology and operating infrastructure to run online print shop environments in a non-exclusive manner to a variety of organizations. Through this channel, there are two primary ways that companies use our online print shop technology: affiliate relationships and private-labeled agreements. Affiliate relationships promote both the iPrint.com brand and the affiliate party’s brand and agreements usually include paying a percentage commission on sales made through these online shops. Private-labeled relationships promote only the private-labeled party’s brand. Depending on the specifics of the arrangement, we may generate revenue either from orders placed on these websites, based on the wholesale price of the products sold, from a fee based on revenue generated from the website, or some combination of product and transaction fees. In some instances, our private-labeled parties may determine pricing, as well as print and order fulfillment vendors. For private-labeled shops, the products offered vary depending on the requirements and desires of a particular partner.

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Company Merchandise Store programs: The Company Merchandise Store program consists of customized, online Merchandise Stores, and in some cases a supplemental offline, printed catalog. Online company stores are structured in a virtual mall environment in which clients are able to select their required promotional items, check out electronically, and have the items delivered to their homes or offices. Offline, printed catalogs are structured in the same fashion as a department store catalog. These channels enable iPrint’s customers (mainly their employees, partners and/or customers) to order promotional items for business and personal use. Customers choose from a pre-selected offering of branded promotional merchandise such as writing instruments, apparel and caps, golf accessories, leather padfolios, travel/sports bags, and more. Online Company Merchandise Stores and the printed catalogs may contain the same types of promotional items as offered by our offline “custom merchandise” channel.

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Corporate e-Print Centers: Through our Corporate e-Print Center program, we supply technology and operating infrastructure to run customized, online printing solutions for large enterprises. These Centers enable employees to order a variety of custom-printed items, such as business cards, stationery, and marketing materials, through a secure, customized website. Our online Corporate e-Print Centers can integrate into existing compatible ERP, e-procurement, or supply chain management environments or function in a stand-alone capacity. Depending on the specifics of the arrangement, we may generate revenue from set-up and activation charges, from reselling printed materials purchased from our backend printing network, from a transaction percentage, or from some combination of all of the above. In some cases, our corporate customers may determine the vendor. Products offered at our Corporate e-Print Centers vary depending on the requirements and desires of the corporate partner.

Critical Accounting Policies

The Company believes there have been no significant changes in our critical accounting policies during the quarter ended June 30, 2002, as compared to what was previously disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2001.

Results of Operations

The following table sets forth certain statements of operations data as a percentage of revenues for the periods indicated:

	Three Months Ended June 30,				Six Months Ended June 30,
	2001		2002		2001		2002
Percentage of Total Revenues:
Revenues	100.0	%	100.0	%	100.0	%	100.0	%
Cost of sales	59.2		67.0		63.7		67.1

Gross margins	40.8		33.0		36.3		32.9

Operating expenses:
Research and development	53.7		4.1		52.5		4.2
Sales and marketing	80.8		29.4		101.3		29.4
General and administrative	60.6		17.1		54.7		17.3
Amortization of deferred compensation	(0.6	)	0.9		(7.4	)	1.0
Corporate restructuring costs	4.3		3.3		7.0		1.6

Total operating expenses	198.8		54.8		208.1		53.5

Loss from operations	(158.0	)	(21.8	)	(171.8	)	(20.6	)
Other income, net	13.6		(1.8	)	14.1		1.1

Loss before income taxes	(144.4	)	(23.6	)	(157.7	)	(21.7	)
Income tax (expense) benefit	0.0		0.0		0.0		0.0

Loss before cumulative effect of accounting change	(144.4	)	(23.6	)	(157.7	)	(21.7	)
Cumulative effect of accounting change	0.0		0.0		0.0		(96.4	)

Net loss	(144.4	)%	(23.6	)%	(157.7	)%	(118.1	)%

Revenues

Revenues are recognized when persuasive evidence of an arrangement exists, the product has shipped, the sales price is fixed and determinable, and collection of the receivable is probable. We take title to all products we instruct our commercial print vendors to produce. Revenues were $2.5 million and $11.9 million for the three months ended June 30, 2001 and 2002, respectively, representing an increase of 9.4 million or 381% in 2002 over 2001. Revenues for the six months ended June 30, 2002 were $23.8 million compared to $5.6 million from the same period in 2001, representing an increase of $18.1 million or 321%. The increase is due to a decrease in iPrint revenue for the three and six months ended June 30, 2002 offset by three and six months of revenue from Wood, as the prior year amounts do not include the results from Wood which was acquired October 31, 2001.

The following table sets forth percentage of revenues by channel for the periods indicated.

	Three Months Ended June 30,				Six Months Ended June 30,
	2001		2002		2001		2002
Percentage of Revenues by Channel:
Custom merchandise and specialized print services	47	%	79	%	45	%	80	%
iPrint.com, private-labeled and affiliate website solutions	53		6		55		6
Company merchandise stores	—		14		—		13
Corporate e-Print centers	—		1		—		1

Total	100	%	100	%	100	%	100	%

Cost of Sales

Cost of sales increased to $8.0 million and $16.0 million for the three and six months ending June 30, 2002 from $1.5 million and $3.6 million for the same periods in 2001. The increase was primarily due to increased sales from Wood. Gross margins were 33.0% for the three months ended June 30, 2002, as compared to 40.8% for the same period in 2001, representing a decrease of 7.8%. For the six months ended June 30, 2002 and 2001, gross margins were 33.0% and 36.3%, representing a decrease of 3.3%. The decrease in gross margins for both periods consists primarily of decreased gross margins from custom merchandise and specialized print services offset by improved margins from the website solutions.

Research and Development

Research and development expenses were $484,000 for the three months ended June 30, 2002, as compared to $1.3 million for the same period in 2001, representing a decrease of $842,000 or 63.5%. For the six months ended June 30, 2002 and 2001, research and development expenses were $1.0 million and $3.0 million, representing a decrease of $2.0 million or 65.8%. The decreases in research and development expenses for the comparable three and six month periods in 2002 were primarily attributable to decreases in the number of research and development personnel and in consultant and outside contractor costs.

Sales and Marketing

Sales and marketing expenses were $3.5 million and $2.0 million for the three months ended June 30, 2002 and 2001, representing an increase of $1.5 million, or 75.1%. During the six months ending June 30, 2002, sales and marketing expenses were $7.0 million, representing an increase of 22.1% over sales and marketing expenses of $5.7 million for the same period in 2001. The increases in sales and marketing expenses for the three months ended June 30, 2002 as compared to the same period in 2001 was primarily due to increased sales and marketing expense from Wood offset by a decrease in advertising and promotional spending and decrease for promotional products given away for free.

General and Administrative Expenses

General and administrative expenses for the three months ended June 30, 2002 increased to $2.0 million, or 35.7%, from $1.5 million for the same period in 2001. During the six months ended June 30, 2002, general and administrative expenses were $4.1 million, representing a increase of 33.3% over general and administrative expenses of $3.1 million for the same period in 2001. The increases in general and administrative expenses for the comparable three and six month periods were primarily attributable to an increase in general and administrative expenses associated with Wood.

Amortization of Stock-based Compensation

Deferred stock-based compensation primarily represents the difference between the exercise price and the deemed fair value of our common stock for accounting purposes on the date certain stock options were granted. This amount is included as a component of stockholders’ equity and is being amortized on an accelerated basis by charges to operations over the vesting period of the options, consistent with the method described in Financial Accounting Standards Board Interpretation No. 28. The amount to be amortized is decreased by cancellations from terminated employees to the extent that options cancelled were unvested at the date of termination. Due to the decrease in personnel during the three and six months ended June 30, 2001, cancellations of unvested stock options outstanding have contributed to a reduction of $339,000 and $1.1 million of deferred compensation, respectively. As of June 30, 2002, we had a remaining balance of $351,000 of deferred compensation to be amortized.

Other Income (Expense), net

Other income (expense), net was $218,000 and $252,000 of expense for the three and six months ended June 30, 2002 compared to $335,000 and $ 798,000 of income for the same period in 2001. The decreases were primarily due to a decrease in interest income earned from lower average cash balances as offset by interest expense from the line of credit obtained in the Wood acquisition.

Net Loss

Net loss was $2.8 million and $28.1 million for the three and six months ending June 30, 2002 as compared to $3.6 million and $8.9 million for the same periods in 2001. The $19.2 million increase in net loss was the result of a $23.0 million charge for a cumulative effect of accounting change, and increased general and administrative and selling and marketing expenses offset by a decrease in research and development expenses.

Liquidity and Capital Resources

The Company’s principal sources of liquidity are its cash, cash equivalents and short-term investments balances that totaled $568,000 as of June 30, 2002, compared to $4.4 million as of December 31, 2001. The Company has an overdraft balance of $123,000 and $923,000 as of June 30, 2002 and December 31, 2001, respectively, which represents outstanding checks.

Net cash used in operations for the six months ended June 30, 2002 was $2.1 million compared to $8.9 million for the same period in 2001. The decrease is primarily the result of lower net losses, adjusted for cumulative effect of accounting change, depreciation and amortization charges and increases in accounts payable and accrued liabilities.

Net cash provided by investing activities was $4.8 million for the six months ended June 30, 2002 compared with $348,000 for the same period in 2001. The cash provided by investing activities was related to the sale and maturities of short-term investments of $2.1 million, the release of restricted cash of $2.4 million and repayments of loans made to officers.

Net cash used in financing activities was $4.4 million for the six months ended June 30, 2002, compared to net cash provided of $117,000 for the same period in 2001. Cash used in financing activities was primarily due to repayments of bank borrowings and net change in overdraft.

As of June 30, 2002, the Company had borrowings outstanding of $3.3 million under a $10.0 million revolving bank line of credit, which is payable on demand. The loan bears interest at a floating rate per annum equal to the bank’s announced base interest rate plus 0.50%. As of June 30, 2002, the interest rate was 7.25%. Borrowings under the line of credit were limited to 80% of eligible accounts receivable and 50% of inventory. The bank has a senior security interest in all assets of the Company and the proceeds thereof. The line of credit agreement contains restrictive financial covenants, including the maintenance of a minimum current ratio of 1.0 to 1.0, a minimum Tangible Effective Net Worth ratio to debt of 2.5 to 1.0 and maximum EBITDA losses. The Company was not in compliance with these covenants at June 30, 2002. On April 12, 2002, the Company entered into a forbearance agreement with the bank that provides for a release from the breached financial covenants through May 31, 2002. The forbearance agreement was amended to provide a release from breached financial covenants through July 19, 2002, at which time we were again no longer in compliance with the covenants.

As of June 30, 2002, the Company had an accumulated deficit of $97.5 million and a working capital deficit of $5.2 million. The Company incurred negative cash flow from operations for the year ended December 31, 2001, and breached certain financial covenants under the existing bank line of credit agreement. Our former auditors included a paragraph in their report for the year ended December 31, 2001 indicating that substantial doubt exists as to our ability to continue as a going concern because we have recurring operating losses, a working capital deficit and have breached certain covenants under our existing bank line of credit. We are currently in the process of amending our current revolving credit facility and negotiating other new financing options to possibly replace our existing revolving credit facility. If we are unable to amend the revolving credit facility or complete the new financial transactions we are pursuing or if we are unable to meet our debt service obligations or fund our other liquidity needs, then we will need to raise additional funds in order to continue as a going concern. Additionally, because we are not in compliance with the covenants of our credit facility, the bank could demand immediate repayment of all amounts borrowed under the facility, which could seriously harm our business and result in our inability to continue as a going concern. In light of our declining stock price and the extreme volatility in the capital markets, additional funding may not be available on favorable terms or at all.

On August 12, 2002, in connection with a possible transaction for the purchase of some or all the assets of the Company, the Company obtained a loan from a third party for up to $1.0 million pursuant to a Subordinated Secured Promissory Note dated August 12, 2002. As of August 13, 2002, the Company had received $750,000 of the note. The note bears interest at the rate of 7.25% and all amounts borrowed pursuant to the note are payable on August 12, 2003 or at such earlier date on which the note provides for acceleration. All amounts borrowed pursuant to the note are fully secured by a Security Agreement dated August 12, 2002, which grants the third party a security interest in substantially all of the Company’s assets, subject to the lien relating to the bank line of credit discussed above.

Recent Accounting Pronouncements

RISK FACTORS THAT MAY AFFECT FUTURE RESULTS

We have never been profitable, had an accumulated deficit of $97.5 million as of June 30, 2002 and, as a result, we may be unable to continue as a going concern.

If we fail to increase our revenues and achieve profitability, we may be unable to continue as a going concern. We incurred net losses of $13.0 million in 1999, $36.0 million in 2000, $17.6 million in 2001 and $28.1 million for the six months ended June 30, 2002. As of June 30, 2002, we had an accumulated deficit of $97.5 million. To become profitable, we must increase our revenues by obtaining new customers and generate additional revenues from existing customers, control our costs and improve our gross margins. We may not have any revenue growth, our revenues could decline, and we will incur losses for the foreseeable future. If we are unable to increase revenue, we cannot be certain that we can reach profitability or positive cash flows on a quarterly or annual basis in the future. If we are unable to achieve positive cash flows, we may require additional financing. We cannot be sure that additional financing will be available on acceptable terms, if at all. If we are unable to raise additional capital when we need it, we may be unable to continue as a viable company. Our former auditors included a paragraph in their report indicating that substantial doubt exists as to our ability to continue as a going concern.

We may be unable to meet our future capital requirements, which could cause us to be unable to continue as a going concern. Any attempts to raise additional capital in the future may cause substantial dilution to our stockholders.

In addition to our revolving line of credit, we are seeking additional funding and it is uncertain whether such funding will be available on favorable terms, if at all. We expect operating losses and negative cash flows from operations to continue for the foreseeable future. Our former auditors included a paragraph in their report for the year ended December 31, 2001, indicating that substantial doubt exists as to our ability to continue as a going concern. Our cash balance, collections on accounts receivable and funding from operations will not be sufficient to meet our working capital and operating expenses for the next 12 months, and believe it necessary for us to achieve expected revenues and substantially reduce expenditures. If we are unable to substantially increase revenues, reduce expenditures and collect upon accounts receivable, or if we incur unexpected expenditures, then we will need to reduce expenses further through a variety of cost cutting measures, and raise additional funds in order to continue as a going concern. Especially in light of our declining stock price and the extreme volatility in the technology capital markets, additional funding may not be available on favorable terms or at all. With the decline in our stock price, any such financing is likely to be dilutive to existing stockholders. If additional funding is not available on acceptable terms when needed, we may be unable to continue as a going concern and achieve our intended business objectives.

We are not in compliance with specific financial ratios and other covenants contained in our revolving line of credit, which may prevent us from requesting advances under the facility.

Our revolving line of credit with a commercial lender contains specific financial ratios and other covenants that must be complied with in order for us to request advances under the facility. These ratios and covenants include, among other things, current ratios, net worth ratios, maximum EBITDA losses, and covenants regarding the collateral and the operation of our business. As of December 31, 2001, we were no longer in compliance with such covenants. On April 12, 2002, we entered into a forbearance agreement with the bank that provides a release from the breached financial covenants through May 31, 2002. The forbearance agreement was amended to provide a release from breached financial covenants through July 19, 2002, at which time we were again no longer in compliance with the covenants. Because we are not in compliance with the covenants of our credit facility, the bank could demand immediate repayment of all amounts borrowed under the facility, which could seriously harm our business and result in our inability to continue as a going concern.

We have been notified by our commercial lender that if we are unable to regain compliance with specific financial ratios and other covenants in our revolving line of credit, it may require immediate repayment of all outstanding amounts borrowed under the facility.

The forbearance agreement was amended to provide a release from breached financial covenants through July 19, 2002, at which time our lender has the right to demand repayment of all outstanding funds borrowed under the facility if we are unable to regain compliance with such covenants. As of August 8, 2002, there was $3.1 million outstanding under the facility. The revolving line of credit is secured by substantially all of our assets. If we are unable to repay amounts previously borrowed under the line of credit, the lender may elect to acquire substantially all of our assets, which could prevent us from continuing our operations and would have a material adverse effect on the value of your investment in our common stock.

We are subject to restrictive covenants in our credit agreements that limit our flexibility in managing our business.

Our revolving line of credit contains numerous restrictions on our ability to incur debt, pay dividends or make other restricted payments, sell assets, enter into affiliate transactions and take other actions. Furthermore, our existing line of credit is, and future financing arrangements are likely to be, secured by substantially all of our assets. The existing financing arrangements require, and future financing arrangements are likely to require, that we maintain specific financial ratios and comply with covenants restricting our ability to incur additional debt, specifically including additional debt under the senior secured credit facilities, pay dividends or make other restricted payments, sell assets, enter into affiliate transactions or take other actions.

Limitations on the availability of credit extended to us by our manufacturing or outside commercial print vendors could have an immediate material adverse effect on our business.

Many of the vendors on whom we rely to fulfill our customers’ orders have historically extended credit to us. As a result of, among other things, our current financial situation, the bankruptcy filing of HA-LO, and the current economic environment in the United States, some vendors have notified us that they will limit the amount of credit they will extend to us, and instead, may require some portion of the payment at the time an order is placed. In these situations, if we are unable to pay our vendors at the time an order is placed, we may be unable to fulfill the orders we receive from our customers, which could cause us to lose customers and have a material adverse effect on our business and results of operations.

Our quarterly results are difficult to predict and are likely to fluctuate, which may have an impact on our stock price.

Our quarterly revenues, expenses and results of operations have varied significantly in the past and are likely to vary significantly from quarter to quarter in the future. We have historically competed in supplying and distributing technology and products to the general commercial printing sector, which is typically characterized by individual orders from customers for specific printing projects rather than long-term contracts. We have also historically competed in supplying custom merchandise to corporate clients, which is similarly characterized by individual orders for specific projects. Continued engagement for successive jobs depends on the customers’ satisfaction with the services provided. As a result, we cannot predict the number, size and profitability of printing jobs in a given period. Many of our customers have tended to use a greater portion of their advertising and promotional budgets in the latter half of the year, which historically has resulted and may continue to result in a disproportionately large share of net sales being recognized in the third and fourth quarters. General and administrative expenses are incurred relatively evenly throughout the year, which historically has resulted and may continue to result in a disproportionate share of our net income being reported in the third and fourth quarters.

Therefore, the operating results for one quarter may not be a reliable indicator of the results to be expected in any future quarter. Further, our results of operations may fall below market analysts’ expectations in some future quarters, which could lead to a significant decline in the market price of our common stock. In addition to the risk factors described elsewhere, quarterly fluctuations may also result from:

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our ability to successfully manage the process of qualifying our technology, products and services with our customers;

•

changes in operating expenses and capital expenditure requirements unrelated to the merger, in particular as a result of further restructuring actions to reduce facility and workforce expenses, and purchases and implementation of computer and communications equipment to support enhanced business infrastructure requirements, technology and infrastructure expansion and increased website traffic;

•

the decline in price of, or demand for, the products and printing services offered;

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changes in the mix of products and printing services sold;

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the timing of customer orders, in particular orders for specialized print services;

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increased competition;

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changes in personnel, management or vendors; and

•

general or industry-specific economic conditions.

Based on all of these factors, we believe that our quarterly revenues, expenses, and operating results will be difficult to predict.

Failure to successfully integrate and to achieve the anticipated benefits of our merger with Wood Alliance, Inc. could harm our business and results of operations.

We anticipate that our merger with Wood will result in benefits for the combined company. Achieving these benefits will depend on a number of factors, some of which include:

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assimilating our online printing and e-procurement services with Wood’s traditional custom imprinting services, which are comprised of printing, embossing, and decorating services, and our promotional products and services;

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integrating the operations and information systems of the two companies;

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retention of key management, marketing, sales and technical personnel;

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retention of key customers and vendors;

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our ability to maintain and increase our customer base and increase the sales of our products and services;

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our ability to keep up with industry trends and technological advances and to adjust to changing market conditions;

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developing new products and services that effectively use the assets of both companies; and

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competitive conditions in the online printing and custom imprinting and promotional markets.

The execution of these tasks involves considerable risk and may not be successful. We cannot assure you that the anticipated benefits of the merger will be achieved. The failure to achieve anticipated benefits could harm our business, financial condition and results of operations. In addition, the former Wood shareholders and iPrint have indemnification obligations to each other, which may have an adverse financial impact on each.

Purchase business combination accounting may adversely affect our operating results.

Our acquisition of Wood has been accounted for as a purchase business combination in accordance with accounting principles generally accepted in the United States of America. We have recorded the following as the cost of acquiring Wood:

•

the market value of our common stock issued in connection with the merger;

•

the fair value of the options to purchase Wood common stock that were converted into options to purchase iPrint common stock in connection with the merger; and

•

the amount of direct transaction costs we incurred.

We have allocated the cost of the items described above to the individual assets acquired and liabilities assumed, including identifiable intangible assets, based on their respective fair values. Identifiable intangible assets with finite lives will be amortized over those lives. Intangible assets, including goodwill, with indefinite lives will not be amortized. The amount of purchase costs allocated to goodwill and identifiable intangibles are $25.3 million and $400,000, respectively. Pursuant to Statements of Financial Accounting Standards No. 141, “Business Combinations” and No. 142, “Goodwill and Other Intangible Assets,” goodwill will no longer be subject to amortization over our estimated useful life. Rather, goodwill will be subject to at least an annual assessment for impairment based on a fair value test. An impairment of goodwill based on a fair value test of $23.0 million has been recorded as a cumulative effect of accounting change and may have a material adverse effect on our earnings and the market value of our common stock.

Our securities may be delisted from the Nasdaq SmallCap Market.

At our request, and in response to a probability of being delisted from the Nasdaq National Market, our securities were transferred to the Nasdaq SmallCap Market on June 11, 2002. On August 14, 2002, we received a notice from Nasdaq that we are not in compliance with the $1.00 per share minimum bid price requirement and if we are not able to meet this requirement by February 10, 2003, we could be delisted. As of August 15, 2002, our stock price closed at $0.10 per share. Notwithstanding the August 14, 2002 letter from Nasdaq, we could be delisted prior to February 10, 2003 for failure to demonstrate compliance with the applicable continued listing requirements for Nasdaq SmallCap Market of, alternatively, at least $2.5 million in stockholders equity, $35 million in market capitalization, or $500,000 in net income for the most recently completed fiscal year. As of June 30, 2002, our stockholders equity was $412,000, our market capitalization was $5.5 million and we had $17.6 million net loss for the most recent fiscal year. As a result, Nasdaq might provide notice to us that we must demonstrate compliance with the continued listing requirements within 30 calendar days from the date of notice or be delisted.

On July 18, 2002 we received a notice from Nasdaq that our stock could be delisted if we do not comply with the requirement that our audit committee have at least three members who are independent directors. We currently have only two independent directors on our board of directors and audit committee. While we anticipate that we will comply with this requirement prior to September 13, 2002, if our current independent director candidates cannot be elected to our board of directors and audit committee and we are unable to recruit an independent director within a time period that is acceptable to Nasdaq, Nasdaq could take action to delist our securities from the Nasdaq SmallCap Market.

Should our common stock be delisted from the Nasdaq SmallCap Market, the market price and liquidity of our common stock would be materially adversely affected. In those circumstances, our common stock would trade on the non-Nasdaq over-the-counter market. In such event, one would have to trade our common stock on the so-called “pink sheets” or the “Electronic Bulletin Board” of the National Association of Securities Dealers, Inc. Consequently, you likely would find it more difficult to trade in or obtain accurate quotations as to the market price of our common stock. Furthermore, our delisting from the Nasdaq Small Cap Market would likely severely reduce the liquidity of our common stock and damage our general business reputation and thus may harm our financial condition and operating results.

In the event that our common stock is delisted from Nasdaq and trades below $1.00, it may be subject to the requirements of the rules relating to “Penny Stocks.”

Non-Nasdaq equity securities trading under $1.00 per share which fail to meet minimum net tangible asset or average revenue criteria are subject to the requirements of the rules relating to “Penny Stocks” under Section 15(g) of the Securities Exchange Act of 1934, as amended, which impose additional disclosure requirements upon broker-dealers in connection with any trades involving such stock. Such securities may also become subject to Rule 15g-9 under the Securities Exchange Act of 1934, which imposes sales practice requirements upon broker-dealers involving the suitability of customers to buy the stock. The additional burdens imposed upon broker-dealers could discourage them from effecting transactions in our common stock and/or affect their ability to effect such transactions. This event could materially adversely affect the market price and market liquidity of our common stock.

The market price of our common stock has been and may continue to be volatile, which could result in substantial losses for individual security holders.

The market price for our common stock has been, and is likely to continue to be, highly volatile and subject to wide fluctuations in response to factors including the following, some of which are beyond our control:

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actual or anticipated variations in our quarterly results of operations;

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announcements of technological innovations, increased cost of operations or new products or services by us or our competitors;

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changes in financial estimates by securities analysts;

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conditions or trends in the Internet and/or online commerce industries;

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changes in the economic performance and/or market valuations of other Internet, online commerce or retail companies;

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volatility in the stock markets, particularly with respect to Internet stocks, and decreases in the availability of capital for Internet-related businesses;

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announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;

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additions or departures of key personnel;

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transfer restrictions on our outstanding shares of common stock or sales of additional shares of common stock;

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pending and potential litigation; and

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changes in our Nasdaq listing status.

From March 8, 2000, the first day of public trading of our common stock, through August 8, 2002, the closing sales prices for our common stock fluctuated between $24.00 and $0.08. On August 8, 2002, the closing price of our common stock was $0.11. In the past, following periods of volatility in the market price of their securities, many companies have been the subject of securities class action litigation. If, in addition to the pending litigation discussed elsewhere in this report in which we are currently involved, we are involved in any additional securities class action suits, it could result in further, significant costs and diversion of our management’s attention and resources, and would cause the price of our securities to fall.

The market for online-based corporate e-printing services for enterprise purchasing systems is at an early stage, and our business will suffer if this market does not develop as we anticipate.

The rapid adoption of online e-printing services for corporations is crucial to our future success. The market for these services is still at an early stage of development, which makes it difficult to predict our potential size or future growth rate. If this market does not develop, or develops more slowly than anticipated, our business, financial condition, and results of operations could be seriously harmed and may not succeed.

In January 2001, we introduced our e-printing technology and infrastructure, which are the systems and processes that allow us to connect our information systems with our enterprise customers and manufacturing vendors. e-Printing enables employees of our customers to directly place print orders via the customers’ Intranets and enterprise purchasing systems. Many of our customers are addressing issues such as technology, technology integration, security, billing, delivery and customer service for the first time in a self-service, online-based print creation and ordering environment. In many cases, organizations must change established business practices to use our services. We must undertake the time-consuming and expensive process of educating these customers and their employees on the use and benefits of self-service, online-based ordering environments. If significant numbers of enterprise customers are not willing to change the method by which they use imprinting services, our business, financial condition and results of operations will suffer.

Traditionally, we have encountered risks and difficulties in implementing our technology and infrastructure, which include:

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obtaining a substantial number of new corporate and business customers;

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converting a large portion of our customers into repeat business;

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successfully developing corporate e-procurement business;

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expanding the number of certified vendors and improving our technological and logistical connections to these vendors; and

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successfully scaling the size and cost of our operations to be commensurate with our revenue.

The printing industry and emerging e-printing businesses are highly competitive and intense competition could negatively impact our business.

The printing industry and e-printing markets are highly competitive. We compete primarily with Taylor Corporation, Discount Labels, Corporate Express, ImageX.com, and Lason, as well as thousands of traditional print distributors. These and other competitors may be able to establish or expand printing solutions more quickly, adapt to new technologies and customer requirements faster, and take advantage of acquisition and other opportunities more readily than us. Our competitors may also establish strategic relationships among themselves to compete more effectively against us.

Our competitors vary in size, in scope, and in the breadth of the products and services they offer. Competition in the short-run printing market is intense and we expect this competition to dramatically increase in the future. Increased competition is likely to result in price reductions, reduced gross margins and loss of market share, any one of which could seriously harm our business, financial condition and results of operations. If we cannot compete successfully against our current and future competitors, our business will fail.

The promotional merchandise industry is highly fragmented and competitive, and intense competition could negatively impact our business.

The promotional merchandise industry is highly fragmented and intensely competitive. In the promotional merchandise industry, we compete primarily with HA-LO Industries, Simon WorldWide, Inc., Corporate Express, American Identity, and Geiger, Inc., as well as thousands of traditional distributors. Many of these distributors have long-term established relationships with their customers. In addition, we also compete with business supply mail-order catalogs, many of which benefit from offering a wider range of non-printed products than us. We also face direct competition from a variety of other organizations, including existing office supply chains and direct-to-corporate organizations. Some of our competitors are manufacturers as well as distributors and may enjoy an advantage over us with respect to the cost of the goods they manufacture. Existing competitors, and companies that may enter the market, may have substantially greater financial and other resources than us. We also compete for advertising dollars with other media, such as television, radio, newspapers, magazines and billboards. There can be no assurance that we will be able to compete successfully against current and future promotional marketing industry competitors or that competitive pressures we face will not materially adversely affect our business, results of operations and financial condition.

The bankruptcy filing by one of our primary competitors could have a material adverse effect on our business, financial condition and results of operations.

One of our primary competitors, HA-LO Industries, Inc., has announced that it has filed for reorganization under Chapter 11 of the United States Bankruptcy Code. The filing, made in the United States Bankruptcy Court in Wilmington, Delaware, seeks protection for HA-LO’s U.S. promotional products business, including its Lee Wayne subsidiary. HA-LO may reduce its purchases from, and delay its payments to, our vendors, which may in turn cause our vendors to become insolvent. We use many of the same vendors as HA-LO, and as a result, we may be delayed in fulfilling our customers’ orders and may lose customers, both of which could seriously harm our business. Also, HA-LO’s bankruptcy could cause uncertainty throughout the promotional merchandise industry, which could seriously harm our business or adversely affect the trading price of our common stock.

Our complex technology and infrastructure, technologies, processes and products may contain undetected errors or defects that could result in limited capacity, reduced demand, or costly litigation.

Our technology, infrastructure, processes and products are complex and may contain undetected errors or failures when they are first introduced. These errors or failures may cause our websites to fail and result in loss of, or delay in, market acceptance of our products and services. In the past, we have experienced delays in website releases, lost revenues, and customer dissatisfaction during the period required to correct these errors. We may in the future discover errors, including scalability limitations, in current or future releases. In addition, a delay in the commercial release of any future version of our technology, infrastructure, processes and products could seriously harm our business, which may include costly litigation against the company.

If we are unable to develop, market and sell new products that address additional market opportunities and develop new technology that meets emerging industry standards, our results of operations may suffer.

Although our current products and technology solutions are designed to streamline the printing and print procurement process, and have garnered new business opportunities, demand may shift to other market segments in the future. Accordingly, we may need to develop, market and sell new products and technology solutions that address additional printing market segments to remain competitive in the printing and promotional merchandise industries. We cannot assure you that we will successfully create new imprinting products, address new market segments, and develop a significantly deeper customer base. Any failure to address additional market opportunities could harm our business, financial condition, and results of operations.

If our efforts to gain entry and to develop our enterprise e-printing services are not successful, our business could fail. Our success will depend primarily upon our ability to acquire enterprise e-printing customers through direct sales. Consequently, we must attract and maintain sales personnel with sufficient experience and capabilities to generate this business.

Furthermore, we must successfully enhance and scale our current technology and infrastructure or our business could fail. If we fail to achieve such enhancements on a timely and cost-effective basis, or if these enhancements do not achieve widespread market acceptance, our business will suffer. Similarly, if we do not make timely and cost-effective improvements to our other technologies and processes, it will not be able to grow significantly. Additionally, the life cycles of our technological enhancements and the rate at which our technology and processes must scale are difficult to predict because the company operates in a new and emerging market that is characterized by rapid technological change, changing customer needs and evolving industry standards.

The introduction of products and services, from both the traditional printing industry and the Internet and software commerce sector that employ new technologies and standards, could render our existing products or services obsolete and unmarketable.

To be successful, we must offer products and services that keep pace with technological developments and emerging industry standards, address the ever-changing and increasingly sophisticated needs of our customers and achieve broad market acceptance. In our efforts to develop these types of products and services, we may:

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be unable to cost-effectively or in a timely manner develop, market or sell these products;

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encounter products, capabilities or technologies developed by other companies or entities that render our products and services obsolete or noncompetitive, or that shorten the life cycles of our existing products and services; or

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experience difficulties that could delay or prevent the successful development, introduction and adoption of these new products and services.

If we are unable to protect our intellectual property, our business will suffer.

Our success will depend upon our proprietary technology. We have several pending patent applications. We also claim a number of trademarks, twelve of which are pending or registered in the U.S. Patent and Trademark Office. In addition, the iPrint trademark is pending or registered in several foreign jurisdictions. The Company continues to use the Wood trademarks, which are not registered. Traditionally, Wood has relied upon common law to protect its trademarks. We cannot predict whether we will receive patents for our pending or future patent applications. In addition, the laws of some of the foreign countries in which we will sell and manufacture our products may not protect our products and intellectual property rights to the same extent as the laws of the United States.

If the protection of our intellectual property is inadequate, our competitors may gain access to our technology, and we may lose customers. To protect our proprietary technology, we rely primarily on a combination of confidentiality procedures, contractual provisions, trade secrets, and patent, copyright and trademark laws. In addition, we seek to avoid disclosure of our trade secrets through a number of means, and to protect our proprietary technology, documentation and other written materials under trade secret and copyright laws, which afford only limited protection. Our proprietary rights with respect to our technology and infrastructure may not prove viable or of value in the future since the validity, enforceability and type of protection of proprietary rights in online-related industries are uncertain and still evolving.

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. Policing unauthorized use of our products is difficult, and while we are unable to determine the extent to which piracy of our software or code exists, software piracy can be expected to be a persistent problem. Our means of protecting our proprietary rights may not be adequate and our competitors may independently develop similar technology, duplicate our products, or design around patents issued to us or our other intellectual property.

Our technology may be subject to infringement claims that could harm our business.

We may become subject to litigation regarding infringement claims alleged by third parties. If an action is commenced against us, our management may have to devote substantial time and resources to defend these claims. An unfavorable result could have a material adverse effect on our business, financial condition and results of operations and could limit our ability to use our intellectual property.

In addition, other companies, including our competitors, may obtain patents or other proprietary rights that would prevent, limit or interfere with our ability to offer our printing services competitively. Third parties could assert, and it may be found, that our technologies infringed their proprietary rights. As a result, we could incur substantial costs to defend any litigation, and intellectual property litigation could force us to do one or more of the following:

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pay monetary damages;

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cease using key aspects of our technology that incorporate the challenged intellectual property;

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obtain a license from the holder of the infringed intellectual property right; and

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redesign some or all of our technology and infrastructure.

In the event of a successful claim of infringement against us and a failure or inability to license the infringed technology, our business, financial condition and results of operations would be significantly harmed.

A substantial portion of our revenues will be derived from customers with whom we have not entered into binding contracts.

A substantial portion of our revenues are derived from customers with whom we have not entered into binding contracts. As a result, these customers will not be obligated to purchase the products and services we offer. In addition, these customers have a variety of suppliers from which to choose and therefore could make substantial demands on us. If we were unable or unwilling to meet these demands, we could lose one or more of our key customers, and our business, financial condition and results of operations could suffer.

If we are unable to attract customers who have long-standing relationships with traditional print vendors, our business could be harmed, including our enterprise purchasing business.

To succeed, we must attract new customers, many of whom may have personal and long-standing relationships with traditional print and design shops, promotional marketing companies, catalog vendors and office supply chain and stationery stores. If we are unable to attract customers for their printing or promotional merchandise needs, our revenues will not grow and our stock price will decline. Traditional print and design shops have many advantages which we will not be able to offer our customers, including physical proximity and the ability to store and maintain designs, negatives or print plates on our premises. In addition, catalog vendors may be better able to combine orders to achieve economies of scale and may be more convenient for customers that also want to purchase non-printed products, such as office furniture. Office supply chains and stationery stores may also have better brand recognition than us.

If we are unable to retain our current key personnel and attract additional key personnel, our business may be seriously harmed.

Our success will depend upon the continued contributions of our key employees, in particular our senior management, research and development staff, process control, customer support, and sales and marketing personnel. We have experienced significant changes in the composition of our senior management since our merger with Wood Alliance. If we continue to experience significant changes in the composition of our senior management or if we lose the services of one or more of our key personnel, our business could be seriously harmed.

Our future success will also depend on our ability to attract, hire, train and retain a substantial number of highly skilled managerial, technical, sales, marketing and customer support personnel. Salaries of all of our employees have been reduced in order to reduce our cost of operation. Competition for qualified personnel in these areas is intense. In addition, new hires frequently require extensive training before they achieve desired levels of productivity. We may fail to attract and retain qualified personnel, which could have a negative impact on our business and financial condition.

If we are unable to attract, motivate and retain high quality sales representation, our business may be seriously harmed.

Wood’s success has historically depended on its ability to attract, motivate and retain high quality sales representatives. Although we are not dependent upon any one or any affiliated group of sales representatives for a material amount of revenues, should a sales representative’s relationship with us be terminated, customers serviced by the representative may cease to purchase our products and services. Our inability to pay overdue commissions to certain of our salespersons due to our lack of working capital may result in key salespersons leaving the Company. There can be no assurance that there will not be a significant turnover rate in the future.

Any failure on the part of outside commercial print or manufacturing vendors to fulfill orders in a timely and cost-effective manner could seriously harm our business.

We depend on outside commercial print and imprinting vendors, including vendors located outside of the United States, to print and fulfill our customers’ orders. Any failure on the part of these vendors to fulfill such orders in a timely and cost-effective manner could seriously harm our business. To date, we have certified approximately twenty commercial print vendors to fulfill our orders for our online and offline businesses and we have relationships with approximately 200 commercial imprinting vendors, however, we do not have long-term contracts with any of them. If one or more of our vendors failed to satisfactorily fulfill our customers’ orders, we would be required to find and qualify additional vendors. Furthermore, if our vendors increase the prices they charge, our selling prices or our margins will be adversely affected, which may make us less competitive and harm our online and offline businesses, and to a lesser extent, our specialized print services business.

It typically takes between four and eight weeks to certify and integrate a commercial print and imprinting vendor into one of our website businesses, and we may be delayed in fulfilling our customers’ orders should existing vendors fail to satisfactorily fulfill them. As a result, we may lose customers and our business could be harmed. In addition, for several products, we only have one commercial print vendor. If that vendor were to stop printing these products and we were unable to certify a new vendor in a timely manner, we would be unable to fulfill orders and our business would be adversely affected.

Because we own only limited inventory, we rely on our commercial print and imprinting vendors to maintain an adequate stock of raw materials needed to create their products. Any failure of these vendors to maintain adequate inventory to fulfill our needs could result in delays in product delivery and customer dissatisfaction. This in turn could harm our business.

If our vendors decide to compete directly with us, our business could be harmed.

Any of our vendors could enter into competition with us and may enjoy a competitive advantage with respect to the cost of goods they manufacture. Entry into the distribution market by our vendors could harm our business, financial condition and results of operations.

Some of our customer contracts require us to maintain a promotional products inventory as part of our business arrangement. As of June 30, 2002, the value of such inventory maintained by us was $2.0 million. Although our contracts require that the customer pay for any unused inventory at the end of the contract, in the event that these customers fail to reimburse us for this expense or excessive inventory is carried for long periods of time, our business and results of operations will be adversely impacted.

Our business is subject to risks associated with conducting business internationally.

Our business is subject to risks normally associated with conducting business outside the United States, such as foreign government regulations, political unrest, disruptions or delays in shipments, fluctuations in foreign currency exchange rates and changes in the economic conditions in the countries in which our commercial imprinting vendors, raw materials suppliers, and service providers are located. Our business may also be adversely affected by the imposition of additional trade restrictions related to imported products, including quotas, duties, taxes and other charges or restrictions. Although our business is not focused in any particular country, if any of the foregoing factors were to render the conduct of business in a particular country undesirable or impractical, or if our current foreign manufacturing sources were to cease doing business with us for any reason, our business and operating results could be adversely affected.

A failure by outside delivery services to timely deliver customers’ orders could seriously harm our business.

We depend on outside delivery services, including the United States Postal Service, Federal Express and U.P.S., to deliver print orders to our customers. These delivery services have failed in the past, and may fail in the future, to deliver print orders to our customers on a timely basis. Any failure on the part of these outside services to deliver orders in a timely and cost-effective manner could seriously harm our business.

If we fail to successfully enhance and scale our technology and infrastructure our business may be seriously harmed.

If we are unable to enhance and scale our current technology and infrastructure, including technology and infrastructure created for servicing our enterprise purchasing business, on a timely and cost-effective basis, or if these enhancements do not achieve widespread market acceptance, we will be unable to grow, will miss market opportunities and our business will be seriously harmed. Similarly, if we do not make timely and cost-effective improvements to our other technologies and processes, our business will suffer. The life cycles of our enhancements and the rate at which our technology and processes must scale are difficult to predict because we currently operate in a new and emerging market that is characterized by rapid technological change, changing customer needs and evolving industry standards. The introduction of products and services, from both the traditional imprinting industry and the Internet and software commerce sector, that employ new technologies and standards could render our existing products or services obsolete and unmarketable. For example, our technology that enables our customers to compose their imprinted designs in electronic format is written in the software language C++. If a new software language, such as Java, becomes standard in the imprinting industry, we may need to rewrite this technology in another software language to remain competitive. Any need to rewrite such technology would be costly and could result in significant interruptions to our business.

To be successful, we must offer products and services that keep pace with technological developments and emerging industry standards, address the changing and increasingly sophisticated needs of our customers and achieve broad market acceptance. In our efforts to develop these types of products and services, we may:

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not be able to timely or cost-effectively develop and market them;

•

encounter products, capabilities or technologies developed by others that render our products and services obsolete or noncompetitive or that shorten the life cycles of our existing products and services; or

•

experience difficulties that could delay or prevent the successful development, introduction and adoption of these new products and services.

If we fail to adequately maintain and enhance the computer and telecommunications equipment required to support our technology and infrastructure, our business will suffer.

The performance of our technology and infrastructure depends on the operation of our computer and telecommunications equipment. We have retained a third-party company to house some of our critical servers and related equipment. However, we have limited data backup capabilities. If we fail to adequately maintain and enhance our equipment, our technology may not be available to our customers. Any system failure, including any network, software or hardware failure, that interrupts or increases the response time on our websites or infrastructure could decrease customer usage of our services and damage our reputation. In addition, damage to our computer and telecommunications infrastructure from fire, earthquakes, power loss, telecommunications failures, computer viruses, hacker attacks, physical break-ins and similar events may seriously disrupt our service and devastate our business, particularly since we have limited data back up capabilities.

We may be harmed if we are unable to obtain and maintain licenses to, and to integrate, third-party software and applications.

We rely on technology that we license from, or use in conjunction with, third parties, including software that operates on a stand-alone basis or is integrated with internally developed software to perform key functions. The functionality of our technology and infrastructure depends upon our ability to integrate the third-party software into our environment. We may license additional software from third parties in the future to add functionality to our existing services. If our efforts to integrate third-party software into our technology and infrastructure are not successful, functionality and response times may be limited, customers may not use our services and our business may be seriously harmed.

We may be harmed if a provider from whom we obtain technology and services ceases to deliver and support reliable products or fails to enhance our current technology.

We rely on technology that is licensed from and operated by a third party to support key marketing programs for some of our clients. The third-party technology may not continue to be available to us on commercially reasonable terms, or at all. The loss of, or inability to maintain or obtain, the technology and services could disrupt or delay our ability to supply key services and products or force us to limit the features of our offerings. Either alternative could harm our business and results of operations.

Our e-Print Center and private-labeled websites and business are subject to significant risks which may cause these websites to fail.

The terms of some of our e-Print Center and private-labeled relationships have been heavily negotiated and are likely to vary significantly in the future. Our future revenue growth from these websites will depend on the success of these efforts which are subject to a number of significant risks. These risks include the need to:

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optimize the manageability of our technology and infrastructure;

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enhance the features and offerings of our technology and infrastructure to achieve widespread commercial acceptance of our services;

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increase our internal resources to support planned growth of these websites; and

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rely on our partners to promote our services through online and offline means.

If we do not successfully address these risks, our private-labeled websites may not succeed, and revenues from that source may not increase.

We expect revenues from our private-labeled business to be concentrated in a relatively small number of strategic relationships and the loss of any significant strategic relationship could harm our business.

We may attract only a small number of desired customers to participate in our private-labeled programs. In addition, this business may derive a significant portion of revenues from these desired customers’ relatively small number of participating clients in the future. A significant decline in revenues from any one of these partners will adversely affect the success of our private-labeled and affiliate businesses, and cause either or both to fail.

Ordering imprinted products over the Internet has not been widely adopted, and if businesses and consumers do not adopt the Internet as a commerce tool, our business could be seriously harmed.

Prior to our merger with Wood, we derived approximately half of our revenues from the provision of imprinting services over the Internet, and Wood derived approximately 10% of its revenues from the provision of promotional products over the Internet. If businesses and consumers do not use the Internet as a commerce tool, our product differentiation will be minimized and thus revenues will not grow and operations will suffer. Because the procurement of print and promotional merchandise on the Internet is in its infancy, it is difficult to estimate the size and growth of this market, if any. To date, many businesses have been deterred from using the Internet to procure goods and services for a number of reasons, including concerns relating to security, quality of service, product quality, reliability, billing and delivery of products. Even if the Internet becomes a standard tool that businesses and consumers regularly use, there can be no assurance that it will be effective or reach broad market acceptance for obtaining imprinting services.

Technology advancements could adversely affect or reduce the demand for our products and services, which would harm our business.

Technological innovations are common in the printing industry, especially given the rapid advancement of computer and communications technologies. Home printing systems are yielding more professional results which may reduce demand for offset and thermo-graphic professional printing. Information previously distributed on paper is now being distributed electronically in an almost effortless fashion. As technology further enables and enhances these alternative communication methods, our business may suffer if it experiences a corresponding decrease in demand for our products and services.

Potential imposition of governmental regulation on electronic commerce and legal uncertainties could limit our growth.

The adoption of new laws or the adaptation of existing laws to the Internet may decrease the growth in the use of the Internet, which could in turn decrease the demand for our services, increase our cost of doing business or otherwise have a material adverse effect on our business, financial condition and results of operations. Few laws or regulations currently directly apply to access to commerce on the Internet. Federal, state, local and foreign governments are considering a number of legislative and regulatory proposals relating to Internet commerce. As a result, a number of laws or regulations may be adopted regarding Internet user privacy, taxation, pricing, quality of products and services, and intellectual property ownership. The application of existing laws to the Internet in areas such as property ownership, copyright, trademark, trade secret, obscenity and defamation is uncertain. Numerous state and local representatives have expressed a desire to impose taxes on sales over the Internet to consumers and businesses in their jurisdictions. The Internet Tax Non-Discrimination Act has generally imposed a moratorium through November 2003 on the imposition of some kinds of consumer-related taxes, other than sales or use taxes, in connection with Internet access and Internet-related sales. After this moratorium expires and if no further legislation is adopted by Congress, state and local taxing authorities will be free to impose these taxes on sales of goods and services over the Internet, which could substantially hinder the growth of Internet-based commerce, including sales of our products and services.

We rely on a continuous power supply to conduct our operations, and any disruption could adversely affect our operations and increase our expenses.

California has been subject to energy crises that could disrupt our operations and increase our expenses. In the event of an acute power shortage, California has on occasions implemented, and may in the future continue to implement, rolling blackouts throughout California. We currently do not have back-up generators or alternate sources of power in the event of a blackout, and our their current insurance does not provide coverage for any damages we or our customers may suffer as a result of any interruption in our power supply. Our production technology and infrastructure system is housed in a third-party co-location facility, which has additional backup power supply. If blackouts interrupt our power supply, we would be temporarily unable to continue operations at our facilities. Any such interruption in our ability to continue operations at our facilities could damage our reputation, harm our ability to retain existing customers and to obtain new customers, and could result in lost revenue, any of which could substantially harm our business and results of operation.

We are subject to pending legal proceedings.

We are aware that similar allegations have been made in lawsuits relating to more than 300 other initial public offerings conducted in 1999 and 2000. Those cases have been consolidated for pretrial purposes. On July 15, 2002, we (and the other issuer defendants) filed a motion to dismiss. We intend to vigorously defend against these actions. However, due to the inherent uncertainties of litigation, we cannot accurately predict the ultimate outcome of the litigation. The litigation has diverted, and is likely to continue to divert, the efforts and attention of some of our key management and other personnel. As a result, our defense of this litigation, regardless of its eventual outcome, has had and will likely continue to have an adverse impact on us. Any unfavorable outcome of the litigation could also have an adverse impact on our business, financial condition and results of operation.

In addition to the litigation described above, from time to time we are subject to various legal proceedings and claims that arise in the ordinary course of business.

We are controlled by our executive officers, directors and major stockholders whose interests may conflict with yours.

Our executive officers, directors and major stockholders beneficially own approximately 52% of our outstanding common stock. As a result, these stockholders are able to exercise control over all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, which could have the effect of delaying or preventing a third party from acquiring control over or merging with us.

Provisions in our charter documents and Delaware law could prevent or delay a change in control of our company, which could reduce the market price of our common stock.

Provisions in our restated certificate of incorporation and bylaws, including those adopted at our 2001 annual meeting, may have the effect of delaying or preventing a change of control or changes in our management. In addition, provisions of Delaware law may discourage, delay or prevent a third party from acquiring or merging with us. These provisions could limit the price that investors might be willing to pay in the future for shares of our common stock.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risks relating to fluctuations in interest rates. We have calculated the sensitivity of operating results to hypothetical changes in interest rates as if these changes had actually occurred during 2002. Had interest rates during the three and six months ended June 30, 2002 been 1% less favorable, net loss would have been negatively affected by approximately $7,000 and $21,000, respectively. We do not believe that the risk of unfavorable fluctuations in interest rates is significant to our operations.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

In addition to the litigation described above, from time to time we are subject to various legal proceedings and claims that arise in the ordinary course of business.

Item 2. Changes in Securities and Use of Proceeds

None.

Item 3. Defaults on Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

The Company held its annual meeting of stockholders in Santa Clara, California on May 29, 2002. The matters voted upon and the voting of the Company’s stockholders are as follows:

The election of directors:

		For		Withhold
Edward C. Driscoll, Jr.		46,550,462		163,899

After the meeting, Royal P. Farros, Monte D. Wood, James P. McCormick, J.A. Heidi Roizen and Gordon T.M. Case continued their terms in office as directors.

Approval of each of nineteen separate alternative amendments to the Company’s certificate of incorporation to effect a reverse split of its outstanding Common Stock, by a ratio of 1-for-2, 1-for-3, 1-for-4, 1-for-5, 1-for-6, 1-for-7, 1-for-8, 1-for-9, 1-for-10, 1-for-11, 1-for-12, 1-for-13, 1-for-14, 1-for-15, 1-for-16, 1-for-17, 1-for-18, 1-for-19, or 1-for-20:

For		46,304,971
Against		315,231
Abstain		94,159
Broker Non-Votes		—

Item 5. Other Information

In June 2002, J.A. Heidi Roizen, resigned as director of iPrint.

Item 6. Exhibits and Reports on Form 8-K

(a)

Exhibits.

Exhibit Number		Exhibit Title

99.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002

(b)

Reports on Form 8-K.

A current report on Form 8-K was filed with the Securities and Exchange Commission by iPrint.com, inc. on June 6, 2002 regarding the Company’s change in certifying accountants.

A current report on Form 8-K was filed with the Securities and Exchange Commission by iPrint Technologies, inc. on August 12, 2002 regarding the Company’s change in certifying accountants.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.


iPrint Technologies, inc.

By:		/s/ MONTE D. WOOD
		Monte D. Wood President and Chief Executive Officer

By:		/s/ DAVID SELTZER
		David Seltzer Vice President and Chief Financial Officer

Date: August 19, 2002

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IPRINT TECHNOLOGIES INC 10-Q