UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to ________________
Commission file number 0-27417
E-STAMP CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 76-0518563
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification Number)
2051 Stierlin Court
Mountain View, California, 94043
(Address of principal executive office and zip code)
(650) 919-7500
(Registrant's telephone number, including area code)
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
filing requirements for the past 90 days.
YES [X] NO [_]
As of July 31, 2000, 39,866,672 shares of the Registrant's common stock
were outstanding.
1
E-STAMP CORPORATION
FORM 10-Q
June 30, 2000
INDEX
PAGE
----
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements:
a. Condensed Consolidated Balance Sheets as of June 30, 2000
(Unaudited) and December 31, 1999................................. 3
b. Condensed Consolidated Statements of Operations for the three
months and six months ended June 30, 2000 and 1999 (Unaudited).... 4
c. Condensed Consolidated Statements of Cash Flows for the six
months ended June 30, 2000 and 1999 (Unaudited)................... 5
d. Notes to Condensed Consolidated Financial Statements (Unaudited).. 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................. 11
Risk Factors...................................................... 14
Item 3. Qualitative and Quantitative Disclosure About Market Risk............. 24
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings..................................................... 25
Item 2. Changes In Securities and Use of Proceeds............................. 25
Item 4. Submission of Matters to a Vote of Security Holders................... 26
Item 6. Exhibits and Reports on Form 8-K...................................... 26
Signatures........................................................ 27
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
E-STAMP CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, 2000 Dec. 31, 1999
--------------- ---------------
(Unaudited) *
ASSETS
Current assets:
Cash and cash equivalents............................................... $ 65,025 $ 118,689
Accounts receivable, net................................................ 2,092 490
Inventory............................................................... 2,810 2,120
Prepaid marketing expenses.............................................. 4,484 6,156
Prepaid and other current assets........................................ 3,081 6,222
------------- -------------
Total current assets................................................... 77,492 133,677
Property and equipment, net.............................................. 6,805 2,740
Goodwill and intangible assets........................................... 6,227 -
Deposits and other assets................................................ 2,664 --
------------- -------------
Total assets........................................................... $ 93,188 $ 136,417
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................ $ 1,015 $ 707
Accrued liabilities..................................................... 9,018 8,164
Deferred revenue........................................................ 240 193
Current portion of obligation under capital lease....................... 8 23
------------- -------------
Total current liabilities.............................................. 10,281 9,087
Commitments and contingencies
Stockholders' equity:
Common stock............................................................ 36 35
Additional paid-in capital.............................................. 229,284 224,839
Notes receivable from employees and officers............................ (3,248) (3,540)
Deferred stock compensation............................................. (8,562) (15,327)
Deferred distribution costs............................................. (950) (2,850)
Accumulated deficit..................................................... (133,653) (75,827)
------------- -------------
Total stockholders' equity............................................. 82,907 127,330
------------- -------------
Total liabilities and stockholders' equity............................. $ 93,188 $ 136,417
============= =============
* The condensed balance sheet at December 31, 1999 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
See accompanying notes.
3
E-STAMP CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ --------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
Net revenues.................................. $ 1,632 $ -- $ 3,122 $ --
Cost of revenues.............................. 2,151 -- 4,030 --
---------- ---------- ---------- ----------
Gross profit (loss)........................... (519) -- (908) --
---------- ---------- ---------- ----------
Operating expenses:
Research and development..................... 5,745 3,145 10,976 5,225
Sales and marketing.......................... 14,699 1,634 34,211 2,494
General and administrative................... 2,879 660 4,456 1,373
In-process research and
development................................. 1,677 -- 1,677 -
Amortization of goodwill and
intangible assets........................... 182 -- 182 -
Amortization of deferred
stock compensation.......................... 2,648 2,489 6,082 3,451
Amortization of deferred
distribution costs.......................... 950 -- 1,900 -
---------- ---------- ---------- ----------
Total operating expenses...................... 28,780 7,928 59,484 12,543
---------- ---------- ---------- ----------
Loss from operations.......................... (29,299) (7,928) (60,392) (12,543)
Interest income............................... 1,195 72 2,632 177
Interest expense.............................. (34) -- (66) (1)
---------- ---------- ---------- ----------
Net loss...................................... (28,138) (7,856) (57,826) (12,367)
Accretion on redeemable
convertible preferred stock.................. -- (736) -- (1,176)
---------- ---------- ---------- ----------
Net loss attributable to common
stock........................................ $ (28,138) $ (8,592) $ (57,826) $ (13,543)
========== ========== ========== ==========
Basic and diluted net loss per
common share................................. $ (0.76) $ (0.66) $ (1.58) $ (1.00)
========== ========== ========== ==========
Shares used in computing basic
and diluted net loss per
common share................................. 36,914 12,962 36,500 13,486
========== ========== ========== ==========
Pro forma basic and diluted net loss per
common share................................. $ (0.76) $ (0.37) $ (1.58) $ (0.57)
========== ========== ========== ==========
Shares used in computing pro
forma basic and diluted net
loss per common share........................ 36,914 21,322 36,500 21,846
=========== ========== =========== ==========
See accompanying notes.
4
E-STAMP CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Six Months Ended June 30,
-------------------------------
2000 1999
---------- ----------
Operating activities:
Net loss.......................................................................... $ (57,826) $ (12,367)
Adjustments to reconcile net loss to net cash used in
operations:
Depreciation and amortization.................................................... 1,101 155
Amortization of deferred stock compensation...................................... 6,082 3,451
Amortization of deferred distribution costs...................................... 1,900 -
Write off in-process research & development..................................... 1,677 -
Changes in operating assets and liabilities:
Accounts receivable............................................................. (1,402) -
Notes receivable from employees and officers.................................... 292 -
Prepaid marketing expense....................................................... 1,672 -
Prepaid and other current assets................................................ 3,152 (354)
Inventory....................................................................... (667) -
Current liabilities............................................................. 90 1,189
---------- ----------
Net cash used in operating activities............................................. (43,929) (7,926)
---------- ----------
Investing activities:
Net cash used in acquisitions..................................................... (2,412) -
Purchase of property and equipment................................................ (4,883) (387)
Increase in deposits and other assets............................................. (2,664) -
---------- ----------
Net cash used in investing activities............................................. (9,959) (387)
---------- ----------
Financing activities:
Repayments of lease obligations................................................... (15) (12)
Repayments of notes payable....................................................... (95) -
Proceeds from issuance of common stock, net of
repurchases...................................................................... 334 24
---------- ----------
Net cash used in financing activities............................................. 224 12
---------- ----------
Net decrease in cash and cash equivalents......................................... (53,664) (8,301)
Cash and cash equivalents at beginning of period.................................. 118,689 10,217
---------- ----------
Cash and cash equivalents at end of period........................................ $ 65,025 $ 1,916
========== ==========
Supplemental cash flow information:
- -----------------------------------
Cash paid for interest......................................................... $ - $ 3
========== ==========
Non-cash investing and financing activities:
- --------------------------------------------
Common stock issued and options assumed in acquisition $ 5,871 $ -
========== ==========
Deferred stock compensation..................................................... $ (684) $ 15,112
========== ==========
Issuance of notes receivable from employees for exercise
of stock options............................................................. $ - $ (1,668)
========== ==========
Common stock repurchased from employee upon termination
by forgiveness notes receivable.............................................. $ - $ 164
========== ==========
See accompanying notes.
5
E-STAMP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Background and Basis of Presentation
E-Stamp Corporation, a Delaware corporation, was formed on August 23, 1996.
Effective September 1, 1996, Post N Mail, L.L.C., formed on April 26, 1994, was
merged (the "Merger") into E-Stamp Corporation (collectively, the "Company" or
"E-Stamp"). Upon completion of the Merger, all of the assets of Post N Mail,
L.L.C. were acquired by E-Stamp Corporation. The Merger was accounted for as a
combination of entities under common control. Each unit of Post N Mail, L.L.C.
ownership received 5,000 shares of E-Stamp common stock. The financial
statements have been presented to reflect the Merger for all periods presented.
The Company began shipping its products in the third quarter of 1999 and emerged
from the development stage at that time.
The condensed financial statements of E-Stamp as of and for the three and six
month periods ended June 30, 2000 and 1999 included herein are unaudited, but
include all adjustments (consisting only of normal recurring adjustments) that
the management of E-Stamp Corporation believes necessary for a fair presentation
of the financial position as of the reported dates and the results of operations
for the respective periods presented. Interim financial results are not
necessarily indicative of results for a full year. The condensed financial
statements should be read in conjunction with the audited financial statements
and related notes for the year ended December 31, 1999 included in our Form 10-K
for the year ended December 31, 1999.
Certain reclassifications have been made to the December 31, 1999 financial
statements to conform to the current period's presentation.
Revenue Recognition
The Company currently generates revenue from software license fees, fees for
web-based shipping solutions, postage convenience fees, technology license fees,
and the sale of postage supplies.
Software license fees are amounts paid by end-users and resellers for a
perpetual license to the Company's software. The Company's software package
allows the end-user to apply for a USPS license. When the Company is notified
that the USPS has approved the license, the Company ships a secure internet
postage device, necessary for the use of the Company's software, to the end-
user. Revenues from software license fees are recognized in accordance with
AICPA Statement of Position 97-2, "Software Revenue Recognition," ("SOP 97-2")
and Statement of Position 98-9, "Modification of SOP97-2, Software Revenue
Recognition With Respect to Certain Transactions" ("SOP 98-9"). Revenues from
software license fees are recognized when delivery of the secure Internet
postage device and the software are complete, when persuasive evidence of an
arrangement exists, collection is probable, the fee is fixed or determinable and
no significant obligations remain.
Revenue from web-based shipping solutions is generally recognized upon shipment
of the associated hardware and software. When significant obligations remain
after the products are delivered, revenue is recognized only after these
obligations are fulfilled. Service and maintenance revenues are recognized
ratably over the contractual period or as the services are provided.
Technology license fees represent revenue earned from original equipment
manufacturers, which incorporate the Company's Internet postage technology into
their product. Technology license fee revenue is recognized in accordance with
SOP 97-2 and SOP 98-9 when the technology has been delivered, when persuasive
evidence of an arrangement exists, collection is probable, the fee is fixed or
determinable and no significant obligations remain.
Postage convenience fees are amounts paid by end-users for the delivery of
postage by the Company to the end-user. The convenience fees are based on the
amount of postage ordered by the end-user. Revenues from postage convenience
fees are recognized when the postage is downloaded into the secure postage
hardware device.
The Company recognizes revenues related to postage supplies when the supplies
are delivered.
6
E-STAMP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. Background and Basis of Presentation (continued)
Revenue Recognition (continued)
Revenue recognized during the three and six months ended June 30, 2000 from
arrangements deemed to be nonmonetary exchange of the Company's products and
services totaled approximately $327,000 and $648,000. Revenue from these
exchanges is recorded at the fair value of the products and services provided or
received, whichever is more clearly evident. There was no corresponding cost of
revenues related to these transactions.
For the three and six months ended June 30, 2000, one licensee accounted for 20%
and 21% of net revenues.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition," which provides
guidance on the recognition, presentation and disclosure of revenue in financial
statements filed with the SEC. SAB 101 outlines the basic criteria that must be
met to recognize revenue and provides guidance for disclosures related to
revenue recognition policies. The Company is currently reviewing the SAB and
assessing its potential impact upon its results of operations.
Net Loss Per Share
Net loss per share has been computed in accordance with Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" ("FAS 128"), which requires
disclosure of basic and diluted earnings per share. Basic earnings per share
excludes any dilutive effects of options, shares subject to repurchase,
warrants, and convertible securities. The Company's potentially dilutive
securities were antidilutive and therefore were not included in the computation
of weighted-average shares used in computing diluted net loss per share.
Therefore, the Company's basic and diluted net loss per share are the same. Pro
forma basic and diluted net loss per common share, as presented in the condensed
statements of operations, has been computed for the three and six months ended
June 30, 2000 and 1999 as described above, and also gives effect to the
conversion of the convertible preferred stock (using the if-converted method)
from the original date of issuance.
7
E-STAMP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1. Background and Basis of Presentation (continued)
Net Loss Per Share (continued)
The following table presents the calculation of basic and diluted and pro forma
basic and diluted net loss per share (in thousands, except per share amounts):
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
Basic and diluted
Net loss..................................... $ (28,138) $ (7,856) $ (57,826) $ (12,367)
Accretion on redeemable
convertible preferred stock................. -- (736) -- (1,176)
---------- ---------- ---------- ----------
Net loss attributable to
common stock................................ $ (28,138) $ (8,592) $ (57,826) $ (13,543)
========== ========== ========== ==========
Weighted average shares of
common stock outstanding.................... 39,546 15,843 39,332 15,404
Less: Weighted average shares
subject to repurchase....................... (2,632) (2,881) (2,832) (1,918)
---------- ---------- ---------- ----------
Shares used in computing
basic and diluted net loss
per common share............................ 36,914 12,962 36,500 13,486
========== ========== ========== ==========
Basic and diluted net loss
per common share............................ $ (0.76) $ (0.66) $ (1.58) $ (1.00)
========== ========== ========== ==========
Pro forma basic and diluted:
Net loss..................................... $ (28,138) $ (7,856) $ (57,826) $ (12,367)
========== ========== ========== ==========
Shares used above............................ 36,914 12,962 36,500 13,486
Pro forma adjustment to
reflect weighted effect of
assumed conversion of
convertible preferred stock................. -- 8,360 -- 8,360
---------- ---------- ---------- ----------
Shares used in computing basic
and diluted net loss per
common share................................. 36,914 21,322 36,500 21,846
========== ========== ========== ==========
Pro forma basic and diluted net loss per
common share................................. $ (0.76) $ (0.37) $ (1.58) $ (0.57)
========== ========== ========== ==========
Recent Accounting Pronouncements
In March 2000, the Emerging Issues Task Force (EITF) of the Financial Accounting
Standards Board reached a consensus on EITF Issue 00-2, "Accounting for Web Site
Development Costs." This consensus provides guidance on what types of costs
incurred to develop Web sites should be capitalized or expensed. The Company
adopted EITF 00-2 in the second quarter of 2000 and capitalized $1.2 million
related to the development of its web site.
In March 2000, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation (FIN) No. 44, "Accounting for Certain Transactions Involving
Stock Compensation." FIN 44 clarifies the application of Accounting Principles
Board Opinion No. 25 for certain issues relating to stock compensation. FIN 44
is effective July 1, 2000, but certain conclusions in it cover specific events
that occur after either December 15, 1998, or January 12, 2000. To the extent
that FIN 44 covers events occurring during the period after December 15, 1998,
or January 12, 2000, but before the effective date of July 1, 2000, the effects
of applying FIN 44 are recognized on a prospective basis from July 1, 2000. The
Company does not expect FIN 44 to have a material effect on its financial
position or results of operations.
In May 2000, the EITF reached a consensus on EITF Issue 00-14, "Accounting for
Certain Sales Incentives." This consensus provides guidance on the recognition,
measurement and income statement classification for sales incentives offered
voluntarily by a vendor without charge to customers that can be used in, or that
are exercisable by a customer as a result of, a single exchange transaction.
This consensus must be adopted no later than October 1, 2000. Currently, the
Company accounts for all sales incentives as sales and marketing expenses. The
Company does not expect the adoption of this consensus to have a material impact
on its financial position or results of operations.
2. Acquisition
In May 2000, the Company acquired all of the issued and outstanding shares of
Infinity Logistics Corporation and Automated Logistics Corp. These companies
provide Web-based shipping solutions that allow enterprise customers to review
carrier rates and shipping options, select a carrier, print shipping labels,
track shipments and create shipping reports. The total purchase price was
approximately $9.8 million and consisted of a combination of cash, stock and
assumed liabilities. The transaction has been accounted for as a purchase and,
accordingly, the purchase price will be allocated to the assets and liabilities
acquired based on their fair values.
8
E-STAMP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. Acquisition (continued)
The Company is in the process of obtaining a valuation of the intangible assets
acquired. Based on preliminary estimates, the Company has allocated
approximately $6.4 million to goodwill and intangible assets and approximately
$1.7 million to in-process research and development. These amounts may change
when the final valuation is received. The amount allocated to in-process
research and development was written off immediately. The Company expects that
the goodwill and intangible assets will be amortized over two to five years.
Infinity Logistics Corporation and Automated Logistics Corp.'s results of
operations have been included in the Company's consolidated results from May 23,
2000. Infinity Logistics Corporation and Automated Logistics Corp.'s results of
operations prior to their acquisition were not material and, accordingly, pro
forma information is not presented.
3. Stockholders' Equity
Stock Subject to Rescission
Shares issued under the Company's 1996 Employee Plan, 1996 Director Plan and
1999 Stock Plan (the "Plans") may not have qualified for exemption from
registration or qualification under federal and state securities laws and
therefore may be subject to rescission.
On February 2, 2000, the Company filed a rescission offer for 5,682,341 shares
of common stock pursuant to a registration statement filed under the Securities
Act of 1933, as amended, covering shares of common stock issued under the Plans.
The Company has offered to rescind any prior sales at the price per share paid
therefor (average $0.79 per share) plus interest thereon at a statutory rate as
the case may be from the date of purchase by the purchaser to the expiration of
the rescission offer. The rescission offer will expire approximately 30 days
after the effectiveness of the registration statement relating to the rescission
stock. The registration statement has not yet been declared effective by the
Securities and Exchange Commission. If all of the holders of these shares accept
the Company's offer, the Company would be required to make aggregate payments of
up to $4.5 million plus statutory interest.
Offerees who do not accept the rescission offer will, for purposes of applicable
federal and state securities laws, be deemed to hold registered shares under the
Act which will be freely tradable in the public market as of the effective date
of the registration statement with respect to the rescission stock. The Act does
not expressly provide that a rescission offer will terminate a purchaser's right
to rescind a sale of stock, which was not registered under the Act as required.
Accordingly, should the rescission offer be rejected by any or all offerees, the
Company may continue to be contingently liable under the Act for the purchase
price of the rescission stock up to an aggregate amount of approximately $4.5
million plus statutory interest.
Shares subject to recission are included in shareholders equity in the
accompanying balance sheet.
Stock Subject to Repurchase
As of June 30, 2000 and December 31, 1999 the Company had 1,981,523 and
3,349,192 shares of common stock outstanding which were subject to repurchase,
respectively. These shares are the result of the exercise of unvested stock
options by employees in exchange for notes and cash. These shares vest over the
four-year vesting period of the underlying exercised stock options. The right to
repurchase these shares is at the sole discretion of the Company.
9
E-STAMP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. Marketing and Distribution Agreements
The Company has entered into agreements for online advertising with America
Online, Yahoo!, Inc., Microsoft Corporation, EarthLink Operations, Inc., Intuit
Inc., and eBay Inc. Aggregate noncancelable advertising commitments related to
these agreements total approximately $11.1 million and $10.0 million for the
six months ending December 31, 2000 and the year ending December 31, 2001,
respectively. The Company could be subject to additional payments under these
agreements if advertising exceeds established levels of page views or generates
and exceeds established levels of new customers.
5. Operating Lease
The Company entered into an operating lease agreement on February 25, 2000 for
office space in Mountain View, California. The term of the lease is 85 months
and there are no renewal terms. The rental commitment relating to this lease for
the years 2000, 2001, 2002, 2003, 2004 and thereafter are $2,906,000,
$3,580,000, $3,690,000, $3,801,000, $3,912,000 and $8,847,000, respectively.
6. Contingencies
Pitney Bowes Litigation
On June 10, 1999, Pitney Bowes filed suit against the Company in U.S. District
Court for the District of Delaware alleging infringement of Pitney Bowes
patents. The suit alleges that the Company is infringing seven patents held by
Pitney Bowes related to postage application systems and seeks treble damages, a
preliminary and permanent injunction from further alleged infringement,
attorneys' fees and other unspecified damages. On July 30, 1999, the Company
filed an answer to Pitney Bowes' complaint in which it denied all allegations of
patent infringement and asserted certain affirmative and other defenses based on
statutory and common law grounds, including inequitable conduct on the part of
Pitney Bowes in its procurement of patents in proceedings before the U.S. Patent
and Trademark Office. As part of the answer, the Company also brought various
counterclaims against Pitney Bowes claiming Pitney Bowes' violation of Section 2
of the Sherman Act and intentional and tortious interference with E-Stamp's
business relations based, in part, upon allegations that Pitney Bowes has
unlawfully maintained its monopoly power in the postage metering market through
a scheme to defraud the U.S. Patent and Trademark Office and its efforts to
discourage potential investors and strategic partners from investing and
entering into partnerships with the Company. The Company's suit seeks
compensatory and treble damages, injunctive relief and recovery of attorneys'
fees. On September 21, 1999, Pitney Bowes filed a motion to strike or dismiss
certain of the Company's affirmative defenses and counterclaims or, in the
alternative, to bifurcate discovery and trial of those counterclaims. The
Company filed its response to the motion on October 20, 1999. The U.S. District
Court for the District of Delaware held a hearing on November 18, 1999 regarding
Pitney Bowes' motion, but as of June 30, 2000, a decision has not been rendered.
On April 14, 2000, Pitney Bowes filed a motion to amend their original complaint
seeking to assert one additional patent held by Pitney Bowes and to remove one
of the seven originally asserted patents held by Pitney Bowes; the Company's
response to the motion was filed on April 28, 2000. On July 28, 2000, the U.S.
District Court for the District of Delaware granted Pitney Bowes' motion to
amend. Management continues to investigate claims against the Company as well
as infringement by Pitney Bowes of the Company's patents, and may assert
additional defenses or pursue additional counterclaims or independent claims
against Pitney Bowes in the future. Regardless of the outcome, any litigation
may require that the Company incur significant litigation expenses and may
result in significant of division of management. An unfavorable outcome may
have a material adverse effect on the Company's financial position or results of
operations.
10
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This report on Form 10-Q contains forward-looking statements, including, but not
limited to, those specifically identified as such, that involve risks and
uncertainties. The statements contained in this report on Form 10-Q that are not
purely historical are forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, including without limitation statements
regarding our expectations, beliefs, intentions or strategies regarding the
future. All forward-looking statements included in this report on Form 10-Q are
based on information available to us on the date hereof, and we assume no
obligation to update any such forward-looking statements. Our actual results
could differ materially from those anticipated in these forward-looking
statements as a result of a number of factors, including, but not limited to,
those set forth in the "Risk Factors" contained in this management's discussion
and analysis of financial condition and results of operations and elsewhere in
this report on Form 10-Q.
Overview
We provide an Internet postage service that enables users to conveniently
purchase, download and print Internet postage directly from their personal
computers without the need to maintain a persistent Internet connection. We
pioneered the development of Internet postage, including being one of the first
companies to approach the U.S. Postal Service with the idea of printing postage
from a personal computer.
We have incurred net losses in each quarterly and annual period since our
inception and as of June 30, 2000, we had accumulated aggregate losses of $133.7
million. The quarter ended September 30, 1999 was the first quarter in which we
generated revenue. From November 1994 to March 1998, we incurred operating costs
primarily related to the development of our Internet postage service in
accordance with U.S. Postal Service guidelines and specified criteria. In March
1998, after extensive development and interaction with the U.S. Postal Service,
we began the three-phase beta test certification process required by the U.S.
Postal Service to qualify Internet postage vendors for commercial distribution
of Internet postage under the U.S. Postal Service's Information Based Indicia
Program. On August 9, 1999, we received final approval from the U.S. Postal
Service for our Internet postage service. On that date, we were the first
company to commercially launch a national Internet postage service. During the
three months and six months ended June 30, 2000, we shipped 17,911 and 50,510
units of our Internet postage product.
The revenue and income potential of our business and market is unproven, and our
limited operating history makes it difficult to evaluate our prospects. We
expect to continue to incur net losses for the foreseeable future and may never
achieve profitable operations. We recognize revenue from an initial software
license fee for our Internet postage product, ongoing convenience fees for the
purchase of postage over the Internet, the sale of ancillary postage supplies
and technology license fees. Our costs of revenues include the costs of manuals,
packaging, the postage device, credit card and electronic funds transfer fees,
the address management system, support costs, as well as fulfillment costs, and
direct costs from the sale of postage supplies.
We also licensed our technology to a third party for incorporation into the
third party's products and began recognizing the license fees during the three
months ended March 31, 2000. We plan to pursue additional relationships similar
to this licensing arrangement.
We recorded amortization of deferred stock compensation in the amount of $2.6
million and $6.1 million during the three months and six months ended June 30,
2000 respectively. At June 30, 2000, we had a total of $8.6 million remaining to
be amortized over the corresponding vesting periods of the stock options. These
amounts are related to option grants and will be amortized in accordance with
our accounting policy over the remaining vesting period of the grants through
mid-2003.
11
Results of Operations
Three Months and Six Months Ended June 30, 2000 Compared to Three Months and Six
Months Ended June 30, 1999
Revenue. We generate revenue from software license fees, postage convenience
fees, sale of postage supplies and technology license fees. Software license
fees are amounts paid by end-users and resellers for a perpetual license to our
software. Postage convenience fees are amounts paid by end-users for the
delivery of postage by us to the end-user. Supplies revenue are amounts paid by
end-users for purchase of various postal supplies. Technology license fees are
amounts paid by a licensee for our Internet postage technology.
Revenue for the three months ended June 30, 2000 totaled $1.6 million. Revenue
for the six months ended June 30, 2000 totaled $3.1 million. There was no
revenue for the three months and the six months ended June 30, 1999. Revenue for
the three months and six months ended June 30, 2000 included $0.4 million and
$0.8 million respectively of technology licensing revenue, largely due to a $1.0
million licensing agreement with Kewill Electronic Commerce, with a small
additional contribution from a foreign postal authority.
Cost of Revenue. Cost of revenue includes costs related to product shipments,
including materials, labor and other direct or allocated costs incurred in their
manufacture or delivery. It also includes cost of customer support services and
technical support. Cost of revenue for the three months and the six months ended
June 30, 2000 totaled $2.2 million and $4.0 million respectively. There were no
costs of revenue for the three months and the six months ended June 30, 1999. We
expect that our gross margin will be positive in future periods as our sales
volume increases. The foregoing expectation is a forward-looking statement that
involves risks and uncertainties and the actual results could vary materially as
a result of a number of factors, including those set forth under "Risk Factors."
Research and Development. Research and development expenses include expenses for
research, design and development of our Internet postage service, expenses
related to obtaining patents from the U.S. Patent and Trademark Office, and
server and network operations. Research and development expenses increased 83%
to $5.7 million and 110% to $11.0 million for the three months and six months
ended June 30, 2000 from $3.1 million and $5.2 million, respectively, for the
three months and six months ended June 30, 1999. Of the $2.6 million increase in
research and development expenses in the three months ended June 30, 2000, $1.9
million reflected increases in employee headcount, consulting and contractor
expenses. Of the $5.8 million increase in research and development expenses in
the six months ended June 30, 2000, $4.2 million reflected increases in employee
headcount, consulting and contractor expenses.
Sales and Marketing. Sales and marketing expenses consist primarily of salaries
and related benefits for sales and marketing personnel, strategic partner
marketing, package design, advertising and promotional expenses, sales
incentives and tradeshow expenses. Sales and marketing expenses increased 800%
to $14.7 million and 1272% to $34.2 million for the three months and six months
ended June 30, 2000 from $1.6 million and $2.5 million for the three months and
six months ended June 30, 1999. Of the $13.1 million increase in sales and
marketing expenses in the three months ended June 30, 2000, $12.2 million
reflected costs associated with our marketing campaigns related to our Internet
postage service, advertising and expenses associated with strategic partners. Of
the $31.7 million increase in sales and marketing expenses in the six months
ended June 30, 2000, $30.2 million reflected costs associated with our marketing
campaigns related to our Internet postage service, advertising and expenses
associated with strategic partners. These increases also reflected increases in
our sales and marketing personnel.
General and Administrative. General and administrative expenses consist
primarily of compensation for administrative and executive staff, fees for
professional services, and depreciation expense. General and administrative
expenses increased 336% to $2.9 million and 225% to $4.5 million for the three
months and six months respectively ended June 30, 2000 from $0.7 million and
$1.4 million for the three months and six months ended June 30, 1999. Of the
$2.2 million and $3.1 million increase in general and administrative expenses in
the three months and six months ended June 30, 2000, $1.6 million and $2.0
million
12
respectively related to increases in administrative staff, contractors and
professional services.
We expect general and administrative expenses to increase in dollar amount due
to further additions in staffing and as we incur additional costs necessary to
prepare and manage the infrastructure for business expansion, for legal services
and costs associated with being a public company.
In-process Research & Development. In May 2000, we acquired Infinity Logistics
Corporation and Automated Logistics Corp. These companies provide Web-based
shipping solutions that allow enterprise customers to review carrier rates and
shipping options, select a carrier, print shipping labels, track shipments and
create shipping reports. Based on preliminary valuation estimates, approximately
$1.7 million of the purchase price has been allocated to in-process research and
development ("IPR&D") related to Infinity Logistics Corporation products that
had not yet reached technological feasibility and had no alternative future use.
This amount was expensed immediately.
As of the acquisition date, the IPR&D consisted of the development of two
products, eWarehouse, which was 80 percent complete at the time, and
DigitalShipper, which was 75 percent complete. The eWarehouse product was
completed and introduced in July 2000 and the DigitalShipper product was
completed and introduced in late June 2000.
In valuing the in-process technologies at the acquisition date, we used a
discounted cash flow analysis based on projected net revenues, cost of revenues,
operating expenses and income taxes resulting from these technologies over a 4-
year period. The projected financial results, which were discounted using a 25
percent rate, were based on expectations for Infinity Logistics Corporation on a
stand-alone basis and excluded any special synergistic benefits that we expected
to achieve after the acquisition.
The revenue projections for the developed technologies, which considered the
release dates of new products, assumed a gradual decline. The revenue
projections for the IPR&D were based on expected trends in technology and our
timing of new product introductions.
Amortization of Goodwill and Intangible Assets. In May 2000, in connection with
our acquisition of Infinity Logistics Corporation and Automated Logistics Corp.,
we recorded goodwill and intangible assets totaling $6.4 million, based on
preliminary valuation estimates. This amount will be amortized over two to five
years.
Amortization of Deferred Stock Compensation. Amortization of deferred stock
compensation was $2.6 million and $6.1 million for the three months and six
months respectively ended June 30, 2000, compared to $2.5 million and $3.5
million for the three months and six months ended June 30, 1999. Deferred stock
compensation of $0.9 million was recorded during the three months and six months
ended June 30, 2000, related to the acquisition of Infinity Logistics
Corporation and Automated Logistics Corp. In addition, during this period we
reversed $1.6 million of deferred stock compensation because the underlying
options expired upon the termination of certain employees. During the three
months and six months ended June 30, 1999, we recorded aggregate deferred stock
compensation of $4.2 million and $15.1 million, respectively, for options
awarded to employees with exercise prices below the deemed fair value for
financial reporting purposes of our common stock on their respective grant
dates.
Interest Income, Net. Interest income, net, consists primarily of earnings on
our cash and cash equivalents, net of interest expenses attributable to
equipment leases and taxes. Interest income, net, increased 1513% to $1.2
million and 1358% to $2.6 million for the three months and six months
respectively ended June 30, 2000 from $0.1 million and $0.2 for the three months
and six months ended June 30, 1999. The increase in interest income, net, was
due to increased cash balances resulting from the initial public offering of our
common stock in the fourth quarter of 1999.
Liquidity and Capital Resources
Since inception, we have financed our operations primarily through private and
public sales of equity securities. We have received net proceeds of
approximately $73.9 million in private placements of our equity securities and
net proceeds of $125.4 million from the initial public offering of our common
stock. As of June 30, 2000, we had cash and cash equivalents totaling $65.0
million.
Net cash used in operating activities totaled $43.9 million for the six months
ended June 30, 2000 and $7.9 million for the six months ended June 30, 1999.
Cash used in operating activities for each period presented resulted primarily
from net operating losses in those periods.
Net cash used in investing activities totaled $10.0 million for the six months
ended June 30, 2000 and $0.4 million for the six months ended June 30, 1999.
Cash used in investing activities for each period presented resulted primarily
from the acquisition of computer and office equipment and the payments of long
term deposits for our leased facilities. In addition, in the six months ended
June 30, 2000, we used $2.4 million of cash to acquire Infinity Logistics
Corporation and Automated Logistics Corp.
We believe that our current cash balances and cash flows from operations, if
any, will be sufficient to meet our present growth strategies and related
working capital and capital expenditure requirements for at least the next
twelve months. Our forecast of the period of time through which our financial
resources will be adequate to support operations is a forward-looking statement
that involves risks and uncertainties. Our actual funding requirements may
differ materially from this
13
as a result of a number of factors including our plans to fully support the
commercial release of our desktop Internet postage service, our introduction of
new services and our investments in systems infrastructure and staffing. We may
require substantial working capital to fund our business and we may need to
raise additional capital prior to this time or thereafter. We cannot be certain
that additional funds will be available on satisfactory terms when needed, if at
all. If we are unable to raise additional necessary capital in the future, we
may be required to curtail our operations significantly. Raising additional
equity capital would have a dilutive effect on existing stockholders.
Recent Developments
In July 2000, we announced a plan to restructure our business by focusing on
shipping and logistics and reducing our emphasis on Internet postage. In
connection with this restructuring, we plan to reduce our current level of
operating expenses by reducing our marketing efforts, terminating
restructuring existing marketing arrangements and reducing our current
employee and contractor staffing levels. The foregoing statements regarding
our plans to restructure our business are forward-looking statements that
involve substantial risks and uncertainties. Our ability to restructure our
business depends upon a number of factors including acceptance by customers of
our Web-based shipping solutions and our ability to integrate our recent
acquisitions of Infinity Logistics Corporation and Automated Logistics Corp.
We cannot assure you that we will be able to restructure our business
successfully or otherwise.
Risk Factors
We have a limited operating history with a history of losses, only began
offering our Internet postage service on a commercial basis in August 1999,
expect to incur losses in the future, and may never achieve profitability.
We have a very limited operating history. You should consider our prospects in
light of the risks and difficulties frequently encountered by early stage
companies in new and rapidly evolving markets. We cannot be certain that we will
achieve profitability or, if achieved, that we will be able to sustain or
increase profitability on a quarterly or annual basis. As of June 30, 2000, we
had an accumulated deficit of $133.7 million. We have incurred increasing losses
and had a net loss for the year ended December 31, 1999 of $57.5 million and a
net loss for the six months ended June 30, 2000 of $57.8 million. We have not
achieved profitability and expect to continue to incur net losses for the
foreseeable future. We expect to incur increasing sales and marketing, research
and development and administrative expenses. As a result, we will need to
generate significant revenues to achieve and maintain profitability.
We may not be able to successfully implement our plans to restructure our
business by focusing on shipping and logistics and reducing our emphasis on
Internet postage.
In July 2000, we announced a plan to restructure our business by focusing on
shipping and logistics and reducing our emphasis on Internet postage. In
connection with this restructuring, we also plan to reduce our current level of
operating expenses by reducing our marketing efforts, terminating or
restructuring existing marketing arrangements and reducing our current employee
and contractor staffing levels. We can provide no assurance that we will be
successful in implementing these plans or reducing our operating expenses in the
future. Our inability to successfully implement the restructuring and cost
reduction measures could have a material adverse effect upon our business,
financial condition and results of operations.
The success of our business will depend upon acceptance by customers of our
Internet postage service.
We expect that our Internet postage service will generate a significant portion
of our near-term future revenues. As a result, we depend on the commercial
acceptance of our Internet postage service. If we fail to successfully gain
commercial acceptance of our Internet postage service, we will be unable to
generate significant revenues. The market for Internet postage has not
developed, and we cannot assure you that it will develop. We cannot predict the
extent to which users
14
will be willing to use the Internet to purchase postage rather than using
traditional methods. To the extent users choose to purchase postage over the
Internet, we cannot be certain that these customers will use our service.
The success of our business will depend upon acceptance by customers of our Web-
based shipping solutions.
Our acquisition of Infinity Logistics Corporation and Automated Logistics Corp.
in May 2000 represents our entry into the market for Web-based shipping
solutions. We expect that our shipping solutions will generate a substantial
portion of our near-term revenues. As a result, we will depend on the
commercial acceptance of our Web-based shipping solutions. If we fail to
successfully gain commercial acceptance of our Web-based shipping solutions, we
will be unable to generate significant revenues from these shipping solutions,
which would adversely impact our ability to restructure our business. The
market for Web-based shipping solutions has not developed, and we cannot assure
you that it will develop. We cannot predict the extent to which users will be
willing to use the Internet to facilitate shipping transactions rather than
using traditional methods. Our ability to obtain and retain customers will
depend on the attractiveness of our service to our customers and on our customer
service capabilities. If we experience significant system, customer service,
security or other problems in providing our shipping solutions to our customers,
our ability to maintain existing customers and attract new customers will be
harmed. To the extent users choose to effect shipping transactions over the
Internet, we cannot be certain that these customers will use our service. The
occurrence of these problems could have a material adverse effect on our
business, financial condition and results of operations.
The integration of our company with Infinity Logistics Corporation and Automated
Logistics Corp. will present significant challenges, and we may not be able to
realize the benefits that we anticipate from the acquisition of Infinity
Logistics Corporation and Automated Logistics Corp.
As a result of our acquisition of Infinity Logistics Corporation and Automated
Logistics Corp. in May 2000, we face significant challenges in integrating
organizations, operations, technology, product lines and services in a timely
and efficient manner and retaining key personnel and customer relationships.
Cost synergies, revenue growth, technological development and other benefits may
not materialize. We may experience a diversion of management attention, loss of
management-level and other qualified employees, and an inability to integrate
management, systems and operations of our company and Infinity Logistics
Corporation and Automated Logistics Corp. The failure to integrate our company
with Infinity Logistics Corporation and Automated Logistics Corp. successfully
and to manage the challenges presented by the integration process may result in
our company and Infinity Logistics not achieving the anticipated benefits of the
acquisition, and delays encountered in the transition process could have a
material adverse effect upon the combined company's business, financial
condition and results of operations.
The success of our business will depend upon our ability to develop and market
new Web-based shipping and logistics solutions.
Our success will depend on our ability to develop and rapidly bring to market
technologically complex and innovative shipping and logistics products and
services. We intend to develop a suite of Web-based shipping and logistics
products and services, including application service provider shipping and
logistics solutions. Our financial and operating results could be adversely
affected by such factors as development delays, quality problems and variations
in product costs. There can be no assurance that we will timely introduce these
new products to market, successfully market these products to customers or
otherwise manage our transition into the shipping and logistics markets.
Intellectual property infringement claims, including claims asserted by Pitney
Bowes against us, could prevent or hinder our ability to sell Internet postage.
We face the risk that other parties' intellectual property positions will impair
successful development of the Internet postage market or our ability to
effectively participate in it. Pitney Bowes filed a patent infringement lawsuit
against us in U.S. District Court in June 1999. The suit alleges infringement of
seven patents
15
owned by Pitney Bowes related to postage application systems and seeks treble
damages, a preliminary and permanent injunction, attorneys' fees and other
unspecified damages. Pendency of the litigation can be expected to result in
significant expenses to us and the diversion of management time and other
resources, the extent of which cannot be quantified with any reasonable accuracy
given the early stage of this litigation. If Pitney Bowes is successful in its
claims against us, then we may be hindered or even prevented from competing in
the Internet postage market and our operations would be severely harmed. The
Pitney Bowes suit could result in limitations on how we implement our services,
delays and costs associated with redesigning our services and payments of
license fees and other monies. An injunction obtained by Pitney Bowes could
eliminate our ability to market critical products or services.
Pitney Bowes may be unwilling to discuss licensing or cross-licensing
arrangements with us, which could adversely impact our ability to compete in the
market for Internet postage products and services.
Although we and Pitney Bowes, prior to filing of the current litigation, had
been in discussions regarding cross-licensing a number of our patents and Pitney
Bowes' patents, some of which are identified in Pitney Bowes' complaint, we
cannot predict whether these discussions will continue or result in licensing or
cross-licensing arrangement with us in the future or the impact of Pitney Bowes'
intellectual property claims on our business or the Internet postage market.
Our quarterly results are subject to significant fluctuations, and our stock
price may decline if we do not meet expectations.
Since August 1999, we have generated only nominal revenues from our operations.
Accordingly, we have little basis upon which to predict future operating
results. We expect that our revenues, margins and operating results will
fluctuate significantly due to a variety of factors. Factors affecting our
quarterly results include:
. the costs of our marketing programs to establish the brand names and
generate market demand for our products and services;
. timing of the commercial release of additional Internet postage services
developed by us, which depends in part on the timing of U.S. Postal
Service approval for any such services;
. timing of the commercial release or additional shipping and logistics
products and services developed by us;
. the number, timing and significance of new products or services
introduced by our competitors, which are outside our control;
. the level of service and price competition;
. changes in our operating expenses as we restructure our operations; and
. general economic factors, which are outside our control.
Timing of commercial release of new products or services by us and our
competitors and general economic factors will also affect our long-term
financial results. Substantially all of our operating expenses are related to
personnel costs, marketing programs and overhead, which cannot be adjusted
quickly and are therefore relatively fixed in the short term. Our operating
expense levels are based, in significant part, on our expectations of future
revenues. If our expenses exceed increased revenues, both gross margins and
results of operations could be harmed because of increased costs and expenses in
the short term. Due to the foregoing factors and the other risks discussed in
this document, you should not rely on period-to-period comparisons of our
results of operations as an indication of future performance. Our results of
operations have fallen below public expectations in past periods, and it is
possible that in some future periods our results of operations will be below
public expectations. In this event, the market price of our common stock is
likely to fall.
16
If the U.S. Postal Service discontinues Internet postage as an approved postage
method because of counterfeiting or other issues or revokes approval of our
Internet postage service, our business will fail.
We continue to be subject to U.S. Postal Service scrutiny and other government
regulations. The U.S. Postal Service could discontinue Internet postage as an
approved postage method because of counterfeiting of Internet postage, security
or other issues, in which case our business would fail. Further, if we are
unable to successfully complete subsequent evaluations by the U.S. Postal
Service, to adapt our Internet postage service to any new requirements or
specifications or to provide adequate security, the U.S. Postal Service could
revoke its approval of our Internet postage service, in which case our business
would fail.
The commercial roll-out of our Internet postage service is currently limited to
100,000 customers and the U.S. Postal Service could continue to require periodic
reviews before authorizing greater numbers of customers.
Under the Information Based Indicia Program, the commercial roll-out of our
Internet postage service is currently limited to 100,000 customers. The U.S.
Postal Service will evaluate our service when we obtain approximately 100,000
customers. If we do not successfully complete this evaluation, the U.S. Postal
Service could delay or even prevent use of our Internet postage service by more
than 100,000 customers. The U.S. Postal Service could continue to require
additional periodic reviews before authorizing greater numbers of customers. Any
such delay in our ability to expand our customer base would result in loss of
revenue and could harm our ability to build our brand and obtain market
acceptance of our Internet postage service.
We cannot be certain that we will be able to continue to satisfy existing, new
or changed U.S. Postal Service regulations in the future, and if we are not able
to do so our ability to distribute our Internet postage service would be
adversely affected.
If we encounter difficulties with continuing compliance with U.S. Postal Service
regulations, our ability to distribute or extend the distribution of our
Internet postage service could be adversely affected. Any change in the current
or future regulatory environment could have an adverse impact on our business
and could harm our operating results and profitability.
New accounting pronouncements may require us to change our revenue recognition
policy and report substantially lower revenues in the future.
Based on generally accepted accounting principles, we recognize revenues from
software license fees and technology licensing when delivery has been completed,
persuasive evidence of an arrangement exists, collection is probable, the fee is
fixed or determinable and no significant obligations remain. In December 1999,
the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101-
- -Revenue Recognition in Financial Statements ("SAB 101"), which summarizes the
staff's views in applying generally accepted accounting principles to revenue
recognition in financial statements. We are currently reviewing SAB 101 and
assessing its potential revenue impact upon the results of our operations. If we
are required to change our accounting policies based on SAB 101, we would
report this change in our financial statements for the fourth quarter of 2000.
This change could require us to recognize revenues generated from software
license fees and technology licensing over the term of these arrangements. As a
result, we could be required to defer the recognition of these revenues. This
could cause the market price of our common stock to experience a significant
decline.
If we cannot successfully manage the commercial availability of our Internet
postage service and Web based shipping solutions, our ability to attract and
retain customers will be harmed.
Our reputation and our ability to attract, retain and provide services to our
customers depend upon the reliable performance of our Web site, network
infrastructure and transaction-processing systems. If we are unable at any time
to provide our customers with our Internet postage service and Web-based
shipping solutions in a satisfactory manner, our customers may become
dissatisfied and could cease using our Internet postage service and/or our Web-
based shipping solutions. We
17
have very limited experience conducting marketing campaigns, and we may fail to
generate significant interest in our Internet postage service and/or our Web-
based shipping solutions. On the other hand, if we generate extensive interest
in our service, we cannot assure you that we will be able to effectively manage
commercial availability of our Internet postage service and/or our Web-based
shipping solutions due to the strains this demand will place on our Web site,
network infrastructure and our transaction-processing systems.
If we are unable to maintain and develop our marketing and distribution
relationships, our Internet postage service may not achieve commercial
acceptance.
We have established marketing and distribution relationships with a limited
number of third parties. We rely heavily upon these relationships to build our
E-Stamp brand and to accelerate the adoption of our Internet postage service. We
have limited experience in establishing and maintaining these relationships. If
we are unable to successfully maintain our existing relationships or to
establish new relationships, our Internet postage service may not achieve
commercial acceptance.
We rely heavily upon third parties to market and distribute our Internet postage
service to customers.
We rely upon third parties to market and distribute our Internet postage
service. We cannot assure you that we will be able to develop and maintain
satisfactory relationships with such parties on acceptable commercial terms, if
at all, or that we will be able to obtain adequate distribution channels for our
service. Our marketing and distribution relationships with third parties, which
include providing links to our website and distributing our product through
bundling arrangements, may not generate significant traffic on our website or
otherwise generate significant interest in our service. Our retail distribution
arrangements, which include office supply, computer or other retailers, may not
generate significant sales of our Internet postage software. If we are unable to
provide adequate distribution channels for our Internet postage service,
customers will have difficulty purchasing our product, which would severely harm
our ability to grow our business. We depend upon the U.S. Postal Service and
other delivery services for the delivery of our secure postage device. Strikes
or other service interruptions affecting delivery services used by us would have
a material adverse effect on our ability to deliver our Internet postage service
to our customers.
If we do not achieve broad brand recognition, our ability to attract customers
will suffer dramatically.
We must quickly build our brands to gain market acceptance for our Internet
postage service and our Web-based shipping solutions. If we fail to gain market
acceptance for our Internet postage service and/or our Web-based shipping
solutions, our ability to attract customers will be severely harmed. To
establish our brand awareness, we must invest substantial resources to develop
our products, pursue marketing and distribution relationships, implement
marketing initiatives, and provide a high quality experience to our users. We
cannot be certain that we will have sufficient resources to build our brands and
achieve commercial acceptance of our service.
Subsequent Internet postage services, if successfully developed by us, will
require additional U.S. Postal Service approvals that may delay their commercial
introduction.
We began the U.S. Postal Service approval process for our browser-based service
in February 2000. Our current Internet postage service took approximately 18
months to complete the beta test portion of the U.S. Postal Service's approval
process. We cannot assure you of the duration of the approval process for our
browser-based service or any subsequent service, or that these services will
ever be approved by the U.S. Postal Service. Further, we cannot assure you that
we will be able to successfully develop our future services in a timely manner
or at all. Failure to receive timely U.S. Postal Service approval for our
browser-based service or subsequent services could limit our ability to
successfully grow our business.
18
We have experienced significant growth in our expenses and operations in recent
periods, and any failure to manage this growth could damage our ability to
obtain market acceptance for our products and services.
Our ability to successfully offer our products and services and implement our
business plan requires an effective planning and management process. We have
increased the scope of our operations and have experienced significant growth in
our expenses and operations. In May 2000, we acquired Infinity Logistics
Corporation and Automated Logistics Corp. and will need to integrate
substantially all of their operations into our business. If we are unable to
effectively manage this growth or the integration of Infinity Logistics
Corporation and Automated Logistics Corp. into our business our ability to
market and extend distribution of our products and services and our ability to
develop future products and services will be seriously harmed. To manage the
growth of operations and personnel, we will need to improve existing and
implement new transaction-processing, operational and financial systems,
procedures and controls. In addition, we will need to expand, train and manage
our employee base and our finance, administrative and operations staff. Our
current expansion has placed a significant strain on our managerial, operational
and financial resources. Our current and planned personnel, systems, procedures
and controls may be inadequate to support our future operations
If the sole supplier of our Internet postage hardware device is unable to timely
meet our commercial supply needs, our ability to expand our customer base will
be severely limited and we will lose revenue.
Dallas Semiconductor Corporation is the single source of supply for our secure
Internet postage device. We do not have a guaranteed supply arrangement with
Dallas Semiconductor, and we order such devices on a purchase order basis. Any
difficulties encountered by our sole supplier that result in product defects,
production delays, cost overruns, or the inability to fulfill orders on a timely
basis would hurt our reputation and result in loss of revenue. If we cannot
obtain an adequate supply of our Internet postage device, we will be unable to
timely deliver our Internet postage device to customers and, without the device,
customers would be unable to purchase postage using our Internet postage
service. Neither we nor our supplier maintain an extensive inventory of our
Internet postage device. We cannot assure you that our supplier will timely meet
our commercial supply needs or that alternative suppliers will be available in
the future. We have not qualified any alternative sources for the supply of our
secure Internet postage device.
If the U.S. Postal Service, the sole supplier of digital certificates for our
Internet postage device, is unable to timely meet our commercial supply needs,
our ability to expand our customer base will be severely limited and we will
lose revenue.
Under the Information-Based Indicia Program, a digital certificate is required
to be issued for each secure Internet postage device. Currently, the U.S. Postal
Service is the only approved source of supply of digital certificates. We do not
have a guaranteed supply arrangement with the U.S. Postal Service with regard to
the supply of digital certificates. If we cannot obtain an adequate supply of
digital certificates, we will be unable to timely deliver our Internet postage
device to customers and, without the device, customers would be unable to print
postage using our Internet postage service. We cannot assure you that the U.S.
Postal Service will timely meet our commercial supply needs or that we will have
the ability to obtain digital certificates from alternative suppliers in the
future.
If the U.S. Postal Service charges us a fee for digital certificates, our gross
margins will be adversely impacted.
The U.S. Postal Service recently invoiced us for fees in connection with digital
certificates issued by the U.S. Postal Service to our customers. We have
disputed these fees, but it is too early to ascertain the outcome. Should the
U.S. Postal Service pursue a claim against us successfully for these fees, our
gross margins will be adversely impacted.
System failures could harm our reputation, result in loss of revenue and
substantially and adversely affect our ability to attract or retain customers.
19
Our business and reputation with customers depend upon the efficient and
uninterrupted operation of our Web site, processing systems and network
infrastructure, including critical portions of this infrastructure that are
hosted by third parties, for registration of new customers and processing of
Internet postage transactions. In addition, our service depends upon continuous
operation of the U.S. Postal Service's secure postage accounting vault for our
customers to purchase postage. We have experienced complete system failure for
short periods of up to four hours during initial commercial launch of our
service. In addition, we experienced a partial system failure for a two-day
period in May 2000. We may suffer additional interruptions in our service in the
future. Problems or system failures at either our location or third party
locations could result in interruptions in our service. Unscheduled downtime of
our service may result in loss of revenue and if these system failures persist,
our business, reputation and brand could be severely harmed. We cannot assure
you that we will be able to timely expand our systems infrastructure to support
growth in traffic from our customers.
Our systems and those hosted by third parties are vulnerable to damage or
interruption which could harm our reputation and result in a loss of revenue.
Our systems and those hosted by third parties are vulnerable to damage or
interruption as a result of fire, flood, power loss, telecommunications failure,
software errors or bugs, hardware failures or computer viruses, computer hacking
and other acts of misconduct, earthquakes and similar events. Our postage
processing systems are located in Northern California, a seismically active
region. We do not have fully redundant systems, a formal disaster recovery plan
or alternative providers of hosting services, and we do not carry sufficient
business interruption insurance to compensate us for losses that may occur.
Despite any precautions we may take, problems or system failures at our third
party hosted facilities could result in interruptions in our service, which
could injure our reputation and cause us to lose revenue.
The inability to expand our system's capacity may limit our growth.
Our inability to add additional software and hardware or to upgrade our
technology, transaction processing systems or network infrastructure to timely
accommodate increased Web site traffic or transaction volume could have adverse
consequences. These consequences include unanticipated system disruptions,
slower response times, degradation in levels of customer support and impaired
quality of the user's experience on our service and delays in reporting accurate
financial information. We may be unable to effectively upgrade and expand our
systems in a timely manner or to integrate smoothly any newly developed or
purchased technologies with our existing systems. These difficulties could harm
or limit our ability to expand our business.
The Internet postage market is highly competitive and we may be unable to
compete successfully against new entrants and established industry competitors
with significantly greater financial resources.
The market for Internet postage products and services is new, rapidly evolving
and intensely competitive. We expect that our primary competitors will include
traditional providers of postage products and services, including Pitney Bowes
and Neopost, that have longer operating histories, larger customer bases,
greater brand recognition, greater financial, marketing, service, support,
technical, intellectual property and other resources than us. We also compete
with providers of traditional postage products and delivery services, such as
the U.S. Postal Service, Federal Express and United Parcel Service. In addition
to providers of traditional postage products and services, we compete with three
other Information Based Indicia Program vendors, Neopost, Pitney Bowes and
Stamps.com. To date, Stamps.com, Neopost and Pitney Bowes have been approved by
the U.S. Postal Service for commercial release of IBIP products. Many of our
competitors may be able to devote greater resources to marketing and promotional
campaigns, adopt more aggressive pricing policies and devote substantially more
resources to Web site and systems development than us. This increased
competition may result in reduced operating margins, loss of market share and a
diminished brand recognition.
The Internet shipping and logistics markets are highly competitive and we may be
unable to compete successfully.
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The markets for Internet shipping and logistics are new, rapidly evolving and
intensely competitive. Customers may continue using the direct services of the
U.S. Postal Service, UPS, FedEx and other major shippers. Alternatively,
potential competitors with greater resources than us, like Pitney Bowes, may
develop more successful Internet solutions. In addition, we compete with other
shipping providers, including TanData Corporation, GoShip.com, BITS,
Inc./Internet Shipper.net, Kewill Systems, PackageNet, Virtan, Inc./Smartship,
and Stamps.com Many of our competitors may be able to devote greater resources
to marketing and promotional campaigns, adopt more aggressive pricing policies
and devote substantially more resources to Web site and systems development than
us. This competition may result in loss of market share, reduced revenues and
operating margins, and diminished brand recognition.
A breach of our online security would harm our reputation and could interrupt
service to our customers.
A fundamental requirement to conduct electronic commerce is the secure
transmission of information over public networks. We rely on encryption and
authentication technology to provide the security necessary for transmission of
postage and other confidential information. Any breach of these security
measures would severely impact our reputation and would likely result in the
loss of customers. Advances in computer capabilities, new discoveries in the
field of cryptography, or other events or developments may result in a
compromise or breach of the algorithms we use to protect customer transaction
data. Security breaches could also expose us to a risk of loss or litigation and
possible liability for failing to secure confidential customer information.
Accordingly, we may be required to expend significant capital and other
resources to protect against potential security breaches or to alleviate
problems caused by any breach.
If we are unable to successfully protect our intellectual property, our
competitive position will be harmed.
We rely on a combination of patent, trademark, service mark, copyright and trade
secret laws, contractual restrictions on disclosure and transferring title and
other methods in an effort to establish and protect proprietary rights in our
services, know-how and information. If our patents or other intellectual
property fail to protect our technology, our competitive position could be
harmed. In addition, third parties may develop alternative technologies or
products that do not infringe on any of our patents or other intellectual
property. Steps taken to protect our intellectual property may not be sufficient
to prevent misappropriation of technology or deter independent third party
development of similar technologies. Additionally, the laws of foreign countries
may not protect our services or intellectual property rights to the same extent
as do the laws of the United States.
Failure to expand Internet infrastructure could limit our future growth.
The recent growth in Internet traffic has caused frequent periods of decreased
performance, and if Internet usage continues to grow rapidly, the Internet's
infrastructure may not be able to support these demands and its performance and
reliability may decline. If outages or delays on the Internet occur frequently
or increase in frequency, overall Web usage, including usage of our Web site to
purchase Internet postage, could grow more slowly or decline. Our ability to
increase the speed and scope of our services to users is ultimately limited by
and dependent upon the speed and reliability of the Internet.
We depend on key personnel and attracting qualified employees for our future
success.
Our success depends to a significant degree upon the continued contributions of
our executive management team and other senior level financial, technical,
marketing and sales personnel. The loss of the services of any of these key
employees or members of our senior management team could have a material adverse
effect on our business and results of operations. Several members of our
executive management team, including our Vice President, Finance and Chief
Financial Officer, our Senior Vice President, Marketing and Sales, and our Chief
Technology Officer, are no longer employed by us, and we cannot assure you that
we will be able to attract qualified personnel to fill these positions. Our
success depends upon our ability to attract
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and retain highly qualified senior management and technical, sales and marketing
personnel to support planned growth of our operations. Competition for qualified
employees is intense, particularly in the Internet and high technology
industries. The process of locating and hiring personnel with the combination of
skills and attributes required to carry out our strategy is time-consuming and
costly. The loss of key personnel or our inability to attract additional
qualified personnel to supplement or, if necessary, to replace existing
personnel, could have a material adverse effect on our business and results of
operations.
Rapid technological change may make our Internet postage and shipping solutions
obsolete or cause us to incur substantial costs to adapt to these changes.
The use of the Internet for the purchase and sale of goods and services is
characterized by rapidly changing technology, evolving industry standards and
frequent new product announcements. To be successful, we must adapt to these
rapid changes by continually improving the performance, features and reliability
of our products and services, and to develop new products and services, or else
our products and services may become noncompetitive or obsolete. We also could
incur substantial costs to modify our service or infrastructure and to develop
new products and services, in order to adapt to these changes. Our business,
operating results and financial condition could be harmed if we incur
significant costs without adequate results, or find ourselves unable to adapt
rapidly to these changes.
We may be unable to effectively manage any future acquisitions of new or
complementary businesses, products or technology.
We may pursue the acquisition of new or complementary businesses, including
individual products or technologies, in an effort to enter into new markets,
diversify our sources of revenue and expand our services. At present, we have no
commitments or agreements for any material acquisitions or investments. To the
extent we pursue new or complementary businesses, we may not be able to expand
our services and related operations in a cost-effective or timely manner. We may
experience increased costs, delays and diversions of management's attention when
integrating any new businesses. We may lose key personnel from our operations or
those of any acquired business. Furthermore, any new business or service we
launch that is not favorably received by users could damage our reputation and
brand name. We also cannot be certain that we will generate satisfactory
revenues from any expanded services to offset related costs. Any expansion of
our operations would also require significant additional expenses, and these
efforts may strain our management, financial and operational resources.
Additionally, future acquisitions may also result in potentially dilutive
issuances of equity securities, the incurrence of additional debt, the
assumption of known and unknown liabilities, and the amortization of expenses
related to goodwill and other intangible assets, all of which could harm our
business, financial condition and operating results.
Internet postage cannot currently be used internationally which may limit our
future growth.
At present, Internet postage approved by the U.S. Postal Service can only be
used to send mail from one United States address to another. Unless and until
foreign postal authorities create a certification process and recognize
information-based indicia postage, our Internet postage service will not be able
to address foreign markets, which may limit our future growth. Efforts in Europe
and other foreign markets related to adoption of Internet postage are at a very
preliminary stage. We cannot assure you that foreign postal authorities will
adopt policies and processes for Internet postage that are compatible with those
approved by the U.S. Postal Service on a timely basis or at all.
If we market our services internationally, regulation by international agencies
could disrupt our operations.
If foreign postal authorities in the future accept postage generated by our
services and if we obtain the necessary foreign certification or approvals, we
would be subject to ongoing regulation by international governments and
agencies. If we achieve significant international acceptance of our services,
our business activities will be subject to a variety of potential risks,
including the adoption
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of laws and regulatory requirements, political and economic conditions,
difficulties protecting our intellectual property rights and actions by third
parties that would restrict or eliminate our ability to do business in some
jurisdictions. If we begin to transact business in foreign currencies, we will
become subject to the risk attendant to transacting in foreign currencies,
including the potential adverse effects of exchange rate fluctuations.
We may need additional capital and failure to obtain such capital could harm our
ability to market our Internet postage service and to develop future services.
We require substantial working capital to fund our business. We cannot be
certain that additional financing will be available to us on favorable terms
when required, or at all. Since our inception, we have experienced negative cash
flow from operations and expect to experience significant negative cash flow
from operations in the future. We currently anticipate that our available funds,
which include the net proceeds of our recent public offering, will be sufficient
to meet our anticipated needs for working capital and capital expenditures
through 2001. The estimate of the time period during which these proceeds will
be sufficient is a forward-looking statement that is subject to risks and
uncertainties. Our actual funding requirements may differ materially from this
as a result of the number of factors, including our plans to fully support the
commercial release and support of our Internet postage service, our development
and introduction of new services and our investments in expanding our systems
infrastructure and staffing. We may need to raise additional funds prior to the
end of 2001.
Regulatory and legal uncertainties could inhibit development of the Internet as
a marketplace for electronic commerce services.
A number of laws and regulations may be adopted with respect to the Internet
relating to user privacy, pricing, content, copyrights, distribution and
characteristics and quality of products and services that could adversely affect
adoption of the Internet for electronic commerce services, which would harm our
ability to attract and retain customers. Moreover, the applicability of existing
laws to the Internet is uncertain with regard to many issues such as property
ownership, export of encryption technology, sales tax, libel and personal
privacy. The application of laws and regulations from jurisdictions whose laws
do not currently apply to our business or the application of existing laws and
regulations to the Internet and other online services could adversely affect
demand for our Internet postage service and could increase our cost of doing
business.
U.S. Postal service regulations require a user of our Internet postage service
to print both the destination address and the digital stamp.
U.S. Postal Service regulations require a user of our Internet postage service
to print both the destination address and the digital stamp. Users may not take
the time to type in destination addresses to print a digital stamp for use with
pre-printed payment envelopes. In addition, the digital stamp may be too large
to fit on many return envelopes. As a result, users will generally not use our
service to print digital stamps for smaller return envelopes.
Our Internet postage will not print unless the U.S. Postal Service address
verification CD-ROM is loaded in the drive of the user's personal computer and
verifies the destination address.
The U.S. Postal Service requires that each digital stamp be encoded with the
destination address, which must be verified by the U.S. Postal Service's address
verification CD-ROM before the digital stamp is printed. Destination addresses
in the U.S. Postal Service database are subject to change as persons or
businesses establish a new address or for other reasons. As a result, we will be
required to periodically mail to users of our service updated address
verification CD-ROMs. Until an updated CD-ROM is received, a user will be unable
to print a digital stamp for a new address that was not included in the U.S.
Postal Service database at the time the existing CD-ROM was manufactured.
Internet related stock prices are especially volatile and this volatility could
cause our stock price to fluctuate dramatically, which could result in
substantial losses to investors.
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The stock market and specifically the stock of Internet related companies have
been very volatile. This broad market volatility and industry volatility may
reduce the price of our common stock, because our business is Internet-based
without regard to our operating performance.
ITEM 3. Qualitative and Quantitative Disclosure about Market Risk
Disclosures About Market Risk
The following discusses our exposure to market risk related to changes in
interest rates, equity prices and foreign currency exchange rates. This
discussion contains forward-looking statements that are subject to risks and
uncertainties. Actual results could differ materially as a result of a number of
factors, including those set forth under the caption "Risk Factors--We have a
limited operating history with a history of losses, only began offering our
Internet postage service on a commercial basis in August 1999, expect to incur
losses in the future, and may never achieve profitability," and "--We may need
additional capital and failure to obtain such capital could harm our ability to
market our Internet postage service and to develop future services."
Interest Rate Risk
As of June 30, 2000, we did not have any outstanding short or long-term debt.
Increases in interest rates could, however, increase the interest expense
associated with our future borrowings, if any. We do not hedge against interest
rate increases.
Equity Price Risk
As of June 30, 2000, we did not hold any equity investments.
Foreign Currency Exchange Rate Risk
We realize all of our revenues in U.S. dollars, and as of June 30, 2000, all of
our revenues were derived from customers in the United States. Therefore, we do
not believe we have any significant direct foreign currency exchange rate risk.
We do not hedge against foreign currency exchange rate changes.
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PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
On June 10, 1999, Pitney Bowes filed suit against us in the U.S. District Court
for the District of Delaware alleging infringement of Pitney Bowes patents. The
suit alleges that we are infringing seven patents held by Pitney Bowes related
to postage application systems and seeks treble damages, a preliminary and
permanent injunction from further alleged infringement, attorneys' fees and
other unspecified damages. One week later, Pitney Bowes filed a similar
complaint against one of our competitors, Stamps.com, alleging infringement of
two of the seven Pitney Bowes patents alleged in the E-Stamp complaint. On July
30, 1999, we filed our answer to Pitney Bowes' complaint in which we deny all
allegations of patent infringement and assert affirmative and other defenses
based on statutory and common law grounds, including inequitable conduct on the
part of Pitney Bowes in its procurement of patents in proceedings before the
U.S. Patent and Trademark Office. As part of the answer, we also brought various
counterclaims against Pitney Bowes claiming Pitney Bowes' violation of Section 2
of the Sherman Act and intentional and tortious interference with E-Stamp's
business relations based, in part, upon our allegations that Pitney Bowes has
unlawfully maintained its monopoly power in the postage metering market through
a scheme to defraud the U.S. Patent and Trademark Office and its efforts to
discourage potential investors and businesses from investing and entering into
agreements with us. Our suit seeks compensatory and treble damages, injunctive
relief and recovery of attorneys' fees. On September 21, 1999, Pitney Bowes
filed a motion to strike or dismiss certain of our affirmative defenses and
counterclaims or, in the alternative, to bifurcate discovery and trial of those
counterclaims; our response to the motion was filed on October 20, 1999. The
U.S. District Court for the District of Delaware held a hearing on November 18,
1999, regarding Pitney Bowes' motion, but as of the date hereof, a decision has
not been rendered. On April 14, 2000, Pitney Bowes filed a motion to amend their
original complaint seeking to assert one additional patent held by Pitney Bowes
and to remove one of the seven originally asserted patents held by Pitney Bowes;
our response to the motion was filed on April 28, 2000. On July 28, 2000, the
U.S. District Court for the District of Delaware granted Pitney Bowes' motion to
amend. We are continuing to investigate the claims against us as well as
infringement by Pitney Bowes of our patents, and may assert additional defenses
or pursue additional counterclaims or independent claims against Pitney Bowes in
the future.
Pendency of the litigation can be expected to result in significant expenses to
us and the diversion of management time and other resources. If Pitney Bowes is
successful in its claims against us, then we may be hindered or even prevented
from competing in the Internet postage market and our operations would be
severely harmed. For example, the Pitney Bowes suit could result in limitations
on how we implement our services, delays and costs associated with redesigning
our services and payments of license fees and other payments. An injunction
obtained by Pitney Bowes could eliminate our ability to market critical products
or services.
On May 10, 1999, in U.S. District Court, E-Stamp obtained a temporary
restraining order against Dave Lahoti ordering Mr. Lahoti to refrain from using
his Web site, which he had registered as "estamps.com." On June 14, 1999, the
U.S. District Court granted a preliminary injunction requiring Mr. Lahoti to
refrain from using his Web site in connection with Internet postage and to place
a disclaimer identifying that his Web site is not associated with E-Stamp
Corporation. On February 7, 2000, the U.S. District Court found Mr. Lahoti in
contempt of the preliminary injunction, and ordered Mr. Lahoti to transfer to E-
Stamp administrative control of the domain name "estamps.com" and to pay to E-
Stamp attorney's fees and costs incurred by E-Stamp in connection with the
contempt order. On June 14, 2000, the U.S. District Court found Mr. Lahoti had
infringed upon the trademark "E-STAMP," ordered Mr. Lahoti to refrain from using
Internet domain names confusingly similar to "E-STAMP" and ordered Mr. Lahoti to
pay to E-Stamp all attorneys fees incurred by E-Stamp in connection with the
litigation.
Item 2. Changes In Securities and use of Proceeds
From April 1, 2000 to June 30, 2000, we granted options to purchase an aggregate
of 1,425,242 shares of common stock to our directors, executive officers,
employees and consultants at a weighted exercise price of $3.30 per share.
During that same
25
period, options to purchase 2,167 shares were exercised at a weighted average
exercise price of $0.64 per share.
On May 23, 2000, we issued an aggregate of 1,164,210 shares of common stock in
connection with our acquisition of Infinity Logistics, a Delaware corporation,
and Automated Logistics Corp., a California corporation.
From October 8, 1999, the effective date of the Registration Statement, to June
30, 2000, the ending date of the reporting period, the approximate amount of the
net offering proceeds used were $75.3 million for general business operations
including funding of operating losses generated in the three and six month ended
June 30, 2000. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Item 4. Submission of Matters to a Vote of Security Holders.
E-Stamp held its 2000 Annual Meeting of Stockholders on May 12, 2000. At the
meeting, the stockholders approved the following proposals: (I) election of
Rober H. Ewald, Thomas L. Rosch and Robert J. Cresci as Class I directors to
serve on the Board of Directors; (ii) selection of Ernst & Young LLP as
independent auditors of the Company for the fiscal year ending December 31,
2000.
There were 19,630,894 votes cast for, and 5,295,700 votes withheld in connection
with the election of Robert H. Ewald, 19,627,116 votes cast for, and 5,299,478
votes withheld in connection with the election of Thomas L. Rosch and 19,625,588
votes cast for, and 5,301,006 votes withheld in connection with election of
Robert J. Cresci as Class I directors. There were 24,600,808 votes cast for,
61,716 votes cast against and 264,070 abstentions in connection with the
selection of Ernst & Young LLP as independent auditors.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following exhibits are filed herewith.
10.27 Office Lease Agreement Between EOP-Shoreline Technology Park, LLC
and E-Stamp Corporation
27.1 Financial data schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the three months ended
June 30, 2000.
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: August 14, 2000
/s/ Edward F. Malysz
--------------------
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
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