UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 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 March 31, 2002

|_|   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

For the transition period from __________to__________

                         Commission File Number 0-78271

                                  IMAGEX, INC.
             (Exact name of registrant as specified in its charter)

       Washington                                          91-1727170
(State of Incorporation)                       (IRS Employer Identification No.)

                         10210 NE Points Dr., Suite 200
                               Kirkland, WA 98033
                    (Address of principal executive offices)

                                 (425) 576-6500
                         (Registrant's telephone number)

      Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes |X| No |_|

      The number of shares of common stock, $.01 par value, outstanding on May
6, 2002 was 30,992,070.
<PAGE>

                                  IMAGEX, INC.

                                    CONTENTS

<TABLE>
<CAPTION>
                                                                                              Page No.
<S>                                                                                             <C>
PART I -- FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (unaudited) ..........................       3

        Consolidated Balance Sheets as of December 31, 2001 and March 31, 2002 ...........       3

        Consolidated Statements of Operations for the Three Months Ended March 31, 2001
          and March 31, 2002 .............................................................       4

        Consolidated Statements of Comprehensive Loss for the Three Months Ended
          March 31, 2001 and March 31, 2002 ..............................................       4

        Consolidated Statements of Cash Flows for the Three Months Ended March 31,
          2001 and March 31, 2002 ........................................................       5

        Notes To Consolidated Financial Statements .......................................       6

Item 2. Management's Discussion and Analysis of Financial Condition and Results of
          Operations .....................................................................      10

Item 3. Quantitative and Qualitative Disclosures About Market Risk .......................      21

PART II -- OTHER INFORMATION

Item 1. Legal Proceedings ................................................................      22

SIGNATURE ................................................................................      23
</TABLE>


                                       2
<PAGE>

                         PART I -- FINANCIAL INFORMATION

        ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

                                  IMAGEX, INC.
                           CONSOLIDATED BALANCE SHEETS
                        (in thousands except share data)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                                    December 31,     March 31,
                                                                                        2001            2002
                                                                                    ------------     ---------
<S>                                                                                  <C>             <C>
Assets
Current assets:
    Cash and cash equivalents .................................................      $  17,375       $  15,366
    Accounts receivable (net of allowances for doubtful accounts and returns
      totaling $924 and $852, respectively) ...................................          8,062           6,115
    Inventories ...............................................................          2,935           2,741
    Prepaid expenses and other current assets .................................            637             773
                                                                                     ---------       ---------
         Total current assets .................................................         29,009          24,995

Restricted cash ...............................................................          1,600             933
Property and equipment, net ...................................................         16,493          14,118
Goodwill ......................................................................         37,022           9,617
Other intangible assets, net ..................................................          8,875           5,615
                                                                                     ---------       ---------
          Total assets ........................................................      $  92,999       $  55,278
                                                                                     =========       =========

Liabilities and Shareholders' Equity
Current liabilities:
    Accounts payable ..........................................................      $   2,485       $   1,967
    Short-term note payable ...................................................          5,000           5,000
    Accrued liabilities .......................................................          2,932           2,888
                                                                                     ---------       ---------
        Total current liabilities .............................................         10,417           9,855

Shareholders' equity:
    Common stock, $0.01 par value; 70,000,000 shares authorized; 30,876,424
      and 30,991,130 shares issued and outstanding, respectively ..............            309             310
    Additional paid-in capital ................................................        203,598         203,816
    Stock based compensation ..................................................            (84)            (49)
    Notes receivable from shareholders ........................................            (52)            (40)
    Accumulated deficit .......................................................       (121,189)       (158,614)
                                                                                     ---------       ---------
        Total shareholders' equity ............................................         82,582          45,423
                                                                                     ---------       ---------

         Total liabilities and shareholders' equity ...........................      $  92,999       $  55,278
                                                                                     =========       =========
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                       3
<PAGE>

                                  IMAGEX, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 (in thousands except share and per share data)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                                 Three Months Ended
                                                                                       March 31
                                                                                       --------
                                                                               2001               2002
                                                                               ----               ----
<S>                                                                        <C>                <C>
Revenues ............................................................      $     14,625       $     12,132
Cost of revenues ....................................................             9,973              7,859
                                                                           ------------       ------------
Gross profit ........................................................             4,652              4,273

Operating expenses:
  General and administrative (excluding amortization of stock
     based compensation of $258 and $187) ...........................             8,663              6,650
  Sales and marketing ...............................................             5,949              3,012
  Product development (excluding amortization of stock
     based compensation of ($180) and $0) ...........................             3,531              1,461
  Amortization of goodwill ..........................................             1,572                 --
  Amortization of stock based compensation and other
     intangibles ....................................................               483                418
                                                                           ------------       ------------
Total operating expenses ............................................            20,198             11,541

Loss from operations ................................................           (15,546)            (7,268)

   Interest income, net .............................................               377                 38
                                                                           ------------       ------------

Loss before cumulative effect of change in accounting principle .....           (15,169)            (7,230)

Cumulative effect of change in accounting principle .................                --            (30,195)
                                                                           ------------       ------------

Net loss ............................................................      $    (15,169)      $    (37,425)
                                                                           ============       ============

Basic and diluted net loss per share:
   Loss before cumulative effect of change in accounting principle ..             (0.58)             (0.23)
   Cumulative effect of change in accounting principle ..............                --              (0.98)
                                                                           ------------       ------------
   Basic and diluted net loss per share .............................      $      (0.58)      $      (1.21)
                                                                           ============       ============

Weighted-average shares outstanding .................................        26,359,110         30,826,229
                                                                           ============       ============

                                    CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

Net loss ............................................................      $    (15,169)      $    (37,425)

Other comprehensive loss:
   Foreign currency translation .....................................               (15)                --

                                                                           ------------       ------------
Comprehensive loss ..................................................      $    (15,184)      $    (37,425)
                                                                           ============       ============
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                       4
<PAGE>

                                  IMAGEX, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                                       Three Months Ended
                                                                                            March 31
                                                                                            --------
                                                                                      2001           2002
                                                                                      ----           ----
<S>                                                                                 <C>            <C>
Cash flows from operating activities
Net loss .....................................................................      $(15,169)      $(37,425)
Adjustments to reconcile net loss to net cash used in operating activities:
   Cumulative effect of change in accounting principle .......................            --         30,195
   Depreciation and amortization .............................................         4,053          2,229
   Amortization of stock based compensation ..................................            78            187
   Loss on disposal of fixed assets and abandoned copyrights .................         1,459          1,156
   Provision for doubtful accounts ...........................................           628            (72)
   Other .....................................................................           (85)            --
   Change in operating assets and liabilities ................................         1,255          1,435
                                                                                    --------       --------

       Net cash used in operating activities .................................        (7,781)        (2,295)
                                                                                    --------       --------

Cash flows from investing activities
   Purchases of property and equipment, net ..................................        (2,647)          (450)
   Proceeds from sale of assets ..............................................            --              9
   Release of restricted cash collateralized for letter of credit ............           812            667
                                                                                    --------       --------

       Net cash (used in) provided by investing activities ...................        (1,835)           226
                                                                                    --------       --------

Cash flows from financing activities
   Repayments of line of credit ..............................................        (1,800)            --
   Proceeds from exercise of employee stock options ..........................             5             12
   Proceeds from issuance of common stock related to
     the Employee Stock Purchase Plan ........................................           377             36
   Proceeds from repayment of notes receivable from shareholders .............            12             12
                                                                                    --------       --------

       Net cash (used in) provided by financing activities ...................        (1,406)            60
                                                                                    --------       --------

Effect of exchange rate changes on cash ......................................           (15)            --

Net decrease in cash and cash equivalents ....................................       (11,037)        (2,009)
Cash and cash equivalents at:
   Beginning of period .......................................................        40,420         17,375
                                                                                    --------       --------
   End of period .............................................................      $ 29,383       $ 15,366
                                                                                    ========       ========
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                       5
<PAGE>

                                  IMAGEX, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)

1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION

      ImageX, Inc. ("the Company") was incorporated on August 21, 1995 and is
headquartered in Kirkland, Washington. The Company provides Internet-based
business-to-business e-procurement services for printed business materials and
designs and markets graphic-design software. The Company's printing products
include business cards, general office products and marketing and promotional
materials. The Company's e-procurement solution includes the following services:

      o     ImageX Print System, a customized, secure Web site product suite for
            medium to large corporate customers providing four product
            offerings: e-Procure, e-Brand, e-Print and Enterprise. The system
            reflects the Company's focus on quality printing delivered through
            technology;

      o     Extensis graphic-design software including Portfolio media asset
            manager, Suitcase font manager, a Web-based digital file-checking
            software, Preflight Online, and product plug-ins which extend the
            capability of third-party software products.

      The accompanying unaudited condensed consolidated financial statements
have been prepared in conformity with generally accepted accounting principles
and reflect all adjustments that, in the opinion of management, are necessary
for a fair presentation of the results for the periods shown and which are of a
normal recurring nature. Certain information and note disclosures normally
included in the financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted in accordance with
the rules and regulations of the Securities and Exchange Commission. Portions of
the accompanying financial statements are derived from the audited financial
statements as of and for the year ended December 31, 2001. The results of
operations for interim periods are not necessarily indicative of the results
expected for the full fiscal year or for any future periods. Generally accepted
accounting principles require management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates and assumptions.

      The accompanying unaudited condensed consolidated financial statements
should be read in conjunction with the audited financial statements in our
annual report filed on Form 10-K for the fiscal year ended December 31, 2001 and
the notes thereto filed with the Securities and Exchange Commission on April 1,
2002.

      The financial statements of the Company are consolidated and include the
accounts of the Company and its wholly-owned subsidiaries. Significant
intercompany transactions and balances have been eliminated. Certain
reclassifications have been made to previously reported balances to conform to
the Company's current financial statement format.

2. ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS

      In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141 "Business
Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets." SFAS No.
141 establishes new standards for accounting and reporting requirements for
business combinations closed after June 30, 2001 and prohibits the use of the
pooling of interests method for combinations initiated after June 30, 2001. SFAS
No. 142 changes the accounting for goodwill from an amortization method to an
impairment only approach. Upon adoption of SFAS No. 142, goodwill is tested at
the reporting unit annually and upon the occurrence of any event indicating a
potential impairment of goodwill. Amortization of goodwill ceased on January 1,
2002.

      The Company adopted the provisions of SFAS No. 141 and SFAS No. 142 on
January 1, 2002. In order to assess the value of its goodwill and
indefinite-lived intangible assets as of January 1, 2002, the Company engaged an
independent valuation firm. The valuation process assigned the Company's assets
and liabilities to its reporting units and then provided a


                                       6
<PAGE>

fair value of those assets using a discounted cash flow model that also
considered factors such as market capitalization and appraised values of certain
assets. Based upon the results of the valuation testing, the Company recorded a
transitional impairment charge for a portion of the goodwill assigned to its
Software reporting unit. This transitional impairment charge was approximately
$30.2 million. The effect of adopting SFAS No. 142 has been reported as a
cumulative effect of change in accounting principle for the quarter ended March
31, 2002. Goodwill and intangible assets assigned to the Printing reporting
units were not impaired since the fair values of these reporting units' assets
exceeded their book value at the measurement date.

      In accordance with SFAS No. 141, approximately $2.8 million of net trained
workforce was reclassified from intangible assets to goodwill on January 1,
2002. The changes in the carrying amount of goodwill for the three months ended
March 31, 2002 is as follows (in thousands):

<TABLE>
<CAPTION>
                                                           Segment
                                                    ---------------------
                                                    Printing     Software     Consolidated
                                                    --------     --------     ------------
<S>                                                  <C>         <C>            <C>
Goodwill:
Balance as of December 31, 2001 ...............      $4,099      $ 32,923       $ 37,022
  Trained workforce reclassified as goodwill ..       2,019           751          2,770
  Purchase price earn out .....................          20            --             20
  Transitional impairment charge ..............          --       (30,195)       (30,195)
                                                     ------      --------       --------

Balance as of March 31, 2002 ..................      $6,138      $  3,479       $  9,617
                                                     ======      ========       ========
</TABLE>

      In accordance with SFAS No. 142, the effect of this accounting change is
reflected prospectively. A reconciliation of the previously reported net income
and earnings per share, as if SFAS No. 142 had been adopted as of January 1,
2001, is as follows (in thousands except per share data):

<TABLE>
<CAPTION>
                                                             Three Months Ended March 31,
                                                             ----------------------------
                                                                2001             2002
                                                                ----             ----
<S>                                                          <C>              <C>
Reported net loss .....................................      $  (15,169)      $  (37,425)
Add back: Goodwill amortization .......................           1,572               --
                                                             ----------       ----------

Adjusted net loss .....................................      $  (13,597)      $  (37,425)
                                                             ==========       ==========

Reported basic and diluted net loss per common share ..      $    (0.58)      $    (1.21)
Add back: Goodwill amortization .......................            0.06               --
                                                             ----------       ----------

Adjusted basic and diluted net loss per common share ..      $    (0.52)      $    (1.21)
                                                             ==========       ==========
</TABLE>

      On October 3, 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS No. 144 supersedes SFAS No.
121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." SFAS No. 144 applies to all long-lived assets
(including discontinued operations) and consequently amends Accounting
Principles Board Opinion No. 30, "Reporting Results of Operations - Reporting
the Effects of Disposal of a Segment of a Business." SFAS No. 144 develops one
accounting model for long-lived assets that are to be disposed of by sale and
requires these assets to be measured at the lower of book value or fair value
less cost to sell. Additionally, SFAS No. 144 expands the scope of discontinued
operations to include all components of an entity with operations that (i) can
be distinguished from the rest of the entity and (ii) will be eliminated from
the ongoing operations of the entity in a disposal transaction. The Company
adopted this statement on January 1, 2002. The Company's adoption of SFAS 144
has not had a material impact on its financial statements.


                                       7
<PAGE>

3. INVENTORIES

      Inventories consisted of the following at (in thousands):

                                                 December 31,      March 31,
                                                     2001            2002
                                                 ------------      ---------

      Raw materials and supplies .........          $1,254          $1,033
      Work-in-process ....................             568             508
      Finished goods .....................           1,113           1,200
                                                    ------          ------
                                                    $2,935          $2,741
                                                    ======          ======

4. OTHER INTANGIBLE ASSETS

      The gross carrying amount and accumulated amortization of the Company's
intangible assets other than goodwill as of December 31, 2001 and March 31, 2002
are as follows (in thousands):

<TABLE>
<CAPTION>
                                        December 31, 2001                                 March 31, 2002
                           ------------------------------------------      -------------------------------------------
                              Gross                                           Gross
                            Carrying       Accumulated        Book          Carrying         Accumulated       Book
                             Amount       Amortization        Value          Amount         Amortization       Value
                           ---------      ------------      ---------      ----------       ------------     ---------
<S>                        <C>            <C>               <C>            <C>              <C>              <C>
Customer list .........    $   5,200      $     1,536       $   3,664      $    5,200       $     1,766      $   3,434
Trained workforce .....        4,358            1,588           2,770              --                --             --
Existing technology ...        2,060            1,047           1,013           2,060             1,219            841
Other .................        1,983              555           1,428           1,890               550          1,340
                           ---------      -----------       ---------      ----------       -----------      ---------

                           $  13,601      $     4,726       $   8,875      $    9,150       $     3,535      $   5,615
                           =========      ===========       =========      ==========       ===========      =========
</TABLE>

      Based on the current amount of intangible assets subject to amortization,
the estimated amortization expense for each of the succeeding 5 years is as
follows: $1.2 million, $1.3 million, $0.9 million, $0.6 million and $0.2
million, for the remainder of 2002, fiscal 2003, fiscal 2004, fiscal 2005 and
fiscal 2006, respectively.

5. NET LOSS PER SHARE

      Net loss per share is computed using the weighted-average number of common
shares outstanding excluding shares subject to repurchase.

      Basic net loss per share excludes the effect of restricted stock subject
to repurchase from the weighted average shares of common stock outstanding. The
weighted average shares of restricted stock subject to repurchase totaled
274,676 and 129,667 shares for the three months ended March 31, 2001 and 2002,
respectively.

      Dilutive securities include options, warrants, and restricted stock
subject to repurchase. Potentially dilutive securities totaling 5,068,842 and
7,303,488 shares for the three months ended March 31, 2001 and 2002,
respectively, were excluded from diluted loss per share because of their
antidilutive effect.

6. SEGMENT INFORMATION

      The Company has two major segments: Printing and Related Technology
Services (the "Printing" segment) and Software Products and Services (the
"Software" segment). The Printing segment includes an aggregation of operations
that provide Internet-based e-procurement solutions for printed business
materials to corporate customers. The Software segment includes development and
sales of graphic-design and print file preparation software applications for
corporate customers and individuals.


                                       8
<PAGE>

      Segment information is presented in accordance with SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." This
standard is based on a management approach, which requires segmentation based
upon the Company's internal organization and disclosure of revenues and income
based upon internal accounting methods. The measure of profit or loss used for
each reportable segment is net income or loss. Corporate costs and interest
expense are included in the Printing segment. There is no inter-segment revenue
on transactions between reportable segments.

      Information on reportable segments and reconciliation to consolidated
financial information is as follows (in thousands):

<TABLE>
<CAPTION>
Three months ended March 31,                                 Printing       Software      Consolidated
----------------------------                                 --------       --------      ------------
<S>                                                          <C>            <C>            <C>
2001
Revenues ..............................................      $ 11,510       $  3,115       $  14,625
Net loss ..............................................       (12,017)        (3,152)        (15,169)
Total assets ..........................................        80,478         38,155         118,633

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

2002
Revenues ..............................................      $  9,092       $  3,040       $  12,132
Net (loss) income before cumulative effect of change
  in accounting principle .............................        (7,346)           116          (7,230)
Cumulative effect of change in accounting principle ...            --        (30,195)        (30,195)
Net Loss ..............................................        (7,346)       (30,079)        (37,425)
Total assets ..........................................        54,366            912          55,278
</TABLE>

7. LOSS ON DISPOSAL OF PROPERTY AND EQUIPMENT AND ABANDONED COPYRIGHTS

      During the first quarter of 2001, the Company closed its PrintBid.com
marketplace and implemented other cost saving measures. As a result of these
actions, it was determined that certain property and equipment, primarily
internally developed software designed to support this marketplace, was unlikely
to provide future benefit to the Company. Accordingly, $1.5 million was written
off as a loss on disposal of property and equipment and was included in general
and administrative expense in March 2001.

      During the quarter ended March 2002, it was determined that certain
property and equipment, primarily leasehold improvements related to surrendered
office space, and certain abandoned copyrights would not provide future benefit
to the Company. Accordingly, approximately $1.2 million was written off as a
loss on disposal of property and equipment and abandoned copyrights, and is
included in general and administrative expense in March 2002.

8. COMMITMENTS

      In January 2002, the Company renegotiated the lease for its Kirkland
headquarters. As a result, the Company paid a lease termination fee of $667,000
and surrendered approximately 42% of its Kirkland space. The fee was paid by a
partial draw-down on a $1.6 million Letter of Credit (restricted cash) held by
the landlord as a security deposit for the lease. Pursuant to this transaction,
the Company's future rental payments have been reduced by $363,000, $432,000 and
$450,000 in 2002, 2003 and 2004, respectively. The $667,000 lease termination
fee was recorded as general and administrative expense in the first quarter of
2002.

9. SUBSEQUENT EVENT

      In April 2002, the Company repaid the outstanding balance on the line of
credit in the amount of $5.0 million. This $5.0 million line of credit is
available to the Company through December 31, 2002. Pursuant to the terms of the


                                       9
<PAGE>

line of credit, the Company must maintain a minimum balance of cash and cash
equivalents of $3.5 million. If the Company's cash and cash equivalent balances
fall below $3.5 million, the line of credit may not be available to the Company.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

      The following discussion and analysis presents a review of ImageX, Inc.
and its subsidiaries (collectively, the "Company") for the three months ended
March 31, 2001 and 2002. This review should be read in conjunction with the
consolidated financial statements and other data presented herein as well as
Management's Discussion and Analysis of Financial Condition and Results of
Operation contained in the Company's 2001 Annual Report on Form 10-K.

FORWARD-LOOKING STATEMENTS

      When you read this section of our Form 10-Q, it is important that you also
read the financial statements and related notes included elsewhere in this
report. The following "Management's Discussion and Analysis of Financial
Condition and Results of Operations" includes "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. This
Act provides a "safe harbor" for forward-looking statements to encourage
companies to provide prospective information about themselves so long as they
identify these statements as forward-looking and provide meaningful cautionary
statements identifying important factors that could cause actual results to
differ from the projected results. All statements we make in this Form 10-Q,
other than statements of historical fact, are forward-looking. In particular,
the statements herein regarding industry prospects and our future results of
operations or financial position are forward-looking statements. Forward-looking
statements reflect our current expectations and are inherently uncertain. Our
actual results could differ materially from those anticipated in these
forward-looking statements for many reasons, including the factors described in
the section entitled "Risk Factors Affecting ImageX's Operating Results". You
should not place undue reliance on these forward-looking statements, which apply
only as of the date of this report. We do not assume any obligation to revise
forward-looking statements, except as required by the securities laws.

CRITICAL ACCOUNTING POLICIES

      We have identified the policies below as critical to an understanding of
our results of operations. The impact and any associated risks related to these
policies on our business operations is discussed throughout Management's
Discussion and Analysis of Financial Condition and Results of Operations where
such policies affect our reported and expected financial results. For a detailed
discussion on the application of these and other accounting policies, see Note 1
in the Notes to Consolidated Financial Statements in Item 8 of the Annual Report
on Form 10-K for the year ended December 31, 2001. Note that our preparation of
this Quarterly Report on Form 10-Q requires us to make estimates and assumptions
that affect the reported amount of assets and liabilities, disclosure of
contingent assets and liabilities at the date of our financial statements, and
the reported amounts of revenue and expenses during the reporting period. Actual
results may differ from those estimates.

      o     Valuation of acquired businesses and assets. Our business
            acquisitions typically result in goodwill and other intangible
            assets, which affect the amount of future period amortization
            expense and possible impairment expense that we will incur. The
            determination of the value of such intangible assets requires
            management to make estimates and assumptions that materially affect
            our financial condition and results of operations. Effective January
            1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other
            Intangible Assets." Under SFAS No. 142, goodwill and intangible
            assets deemed to have indefinite lives are no longer amortized, but
            are instead subject to a periodic impairment test at least annually.

      o     Impairment of goodwill and indefinite lived intangibles. In order to
            assess the value of its goodwill and indefinite-lived intangible
            assets as of January 1, 2002, the Company engaged an independent
            valuation firm. The valuation process assigned the Company's assets
            and liabilities to its reporting units and then provided a fair
            value of those assets using a discounted cash flow model that also
            considered factors such as market capitalization and appraised
            values of certain assets. The valuation process used many
            assumptions and estimates in determining the fair value of the
            assets. These assumptions and estimates were based on our best
            judgments. Our judgments regarding the


                                       10
<PAGE>

            existence of impairment indicators are based on legal factors,
            market conditions and the operational performance of our acquired
            businesses. Future events could cause us to conclude that impairment
            indicators exist and that certain assets are impaired.

      o     Impairment of long-lived assets and other intangibles. Property and
            equipment, definite lived intangibles and certain other long-lived
            assets are amortized over their useful lives. Useful lives are based
            on management's estimates of the period that the assets will
            generate revenue. Effective January 1, 2002, the Company adopted the
            provisions of SFAS No. 144, "Accounting for the Impairment or
            Disposal of Long-Lived Assets". SFAS No. 144 applies to all
            long-lived assets including discontinued operations. SFAS No. 144
            requires the Company to periodically review long-lived assets, other
            intangibles and reporting segments for impairment. Long-lived
            assets, other intangibles and reporting segments that the Company is
            "more likely than not" to sell or otherwise dispose of before the
            end of the asset's previously estimated useful life must be reviewed
            for impairment. Management's judgments regarding the existence of
            impairment indicators and the determination of assets that may be
            sold or otherwise disposed are based on legal factors, market
            conditions and the operational performance of our long-lived assets,
            other intangibles and reporting segments. Future events could cause
            us to conclude that impairment indicators exist and that certain
            assets are impaired.

OVERVIEW

General

      ImageX provides Internet-based business-to-business e-procurement services
for printed business materials and designs and markets graphic-design software.
We derive substantially all our revenues from the e-procurement and sale of
printed business materials and software products and services, which include
graphic-design and print file preparation software applications. Significant
milestones during the quarter ended March 31, 2002 included:

      o     Major cost savings measures implemented. During the first quarter,
            the Company reduced its staff by approximately 13%. Total operating
            expenses declined by $8.7 million or approximately 43% compared to
            2001. Total cash used by operating activities declined by $5.5
            million or approximately 71% compared to 2001.

      o     New Web sites, new products and order volume. During the first
            quarter, 12 new customized corporate Web sites went live and 635 new
            products were set up on customer Web sites. Order volume for the
            quarter ended March 31, 2002 grew to 54,880 items, an increase of
            28% compared to 42,765 in the prior quarter and up 17% from 46,935
            items, for the quarter ended March 31, 2002.

RESULTS OF OPERATIONS

      We have incurred significant net losses since our inception. As of March
31, 2002, we had accumulated a deficit of $158.6 million. Our limited operating
history and the uncertain and emerging nature of our market make it difficult to
assess our prospects or predict our future results of operations. Our prospects
are subject to the risks and uncertainties frequently encountered in
establishing a new business enterprise, particularly in the new and rapidly
evolving markets for online products and services. Because of our short
operating history, period-to-period comparisons of our results of operations are
not necessarily meaningful. As a result, you should not rely on such comparisons
as indications of our future performance.

      Revenues

      The Company's printing products include business cards, general office
products and marketing and promotional materials. Through the ImageX Print
System and its wholly-owned subsidiaries, Image Press, Inc. ("Image Press"), FA
Graphics, Inc. ("FA Graphics"), and Howard Press, Inc. ("Howard Press"), the
Company generally recognizes printing revenues when orders are shipped to the
customer and when the Company has fulfilled all of its contractual obligations.


                                       11
<PAGE>

Service revenues generated from the creation of Web sites for customers to use
our ImageX Print System are deferred and recognized over the estimated life of
the customer relationship. Incremental direct costs for creating such Web sites
are deferred over the same period. Web site maintenance fees are recognized over
the maintenance contract period, typically 12 months. We charge customers for
printed products they order in accordance with negotiated customer-specific
pricing arrangements. In the commercial printing industry, prices tend to move
in correlation with paper prices. We generally have been able to pass
fluctuations in paper pricing through to our customers, an industry standard
practice, although this cannot be assured in the future. We also offer volume
discounts to customers, which we expect will continue. Orders are fulfilled
through our network of approximately 20 vendors and our own three operating
facilities and are shipped directly to customers under the ImageX brand.

      In 2000, the Company acquired Extensis, Inc. ("Extensis") and began
selling software products and services. We sell software products and services
to distributors, resellers, end user customers and to some distributors that
reproduce, localize, and package our products. Revenues from these sales are
recognized when persuasive evidence of a contract exists, software has been
delivered, the fee is fixed or determinable and collectibility is probable. We
generally provide distributors and resellers a sixty-day right of return. An
allowance is recorded for estimated product returns.

      Our customers include a wide variety of businesses, from Fortune 1000
companies to medium size companies. A substantial portion of our revenues has
been derived from customers that have come to ImageX by means of our
acquisitions in 1999 and 2000.

(in thousands)                           Three Months Ended March 31,
                                         ----------------------------
                                            %                    %           %
                                 2001     Total      2002      Total      Growth
                                 ----     -----      ----      -----      ------
Revenues:
   Printing segment........    $11,510      79%    $ 9,092       75%       (21%)
   Software segment........      3,115      21       3,040       25         (2)
                               -------     ---     -------      ---
        Total revenues.....    $14,625     100%    $12,132      100%       (17%)
                               =======     ===     =======      ===

      The decrease in revenues for the three months ended March 31, 2002
compared to the three months ended March 31, 2001 was primarily attributable to
the Printing segment. Printing segment revenues decreased by $2.4 million due to
a change in the mix of product orders to lower priced products, the loss of
revenue from three major customers facing economic difficulties in the Company's
east coast operations and the general slow down in the U.S. economy. Revenues in
the Software segment for the three months ended March 31, 2002 compared to the
three months ended March 31, 2001 were down slightly primarily due to the
general slow down in the U.S. economy. Management anticipates that revenue
growth in both business segments will be rather modest to flat in 2002 due to a
slow economy in the first half of 2002. Management expects the economy and our
business to recover somewhat in the second half of 2002. However, our revenue
has been volatile over the last few quarters and future trends are difficult to
predict. Actual results may be materially different than we predict and may even
decline.

      Gross Profit

      For products sold through our ImageX Print System that are produced by our
network of vendors, gross profit is calculated as the selling price of a
specific product (including freight) less the price our vendor charges us and
freight costs. For products sold through our ImageX Print System that we produce
in our own facilities, gross profit is calculated as the selling price of the
product (including freight), less manufacturing costs, freight costs and certain
allocated overhead. For software products, gross profit is the selling price
less manufacturing costs, royalties and amortization of acquired technology.


                                       12
<PAGE>

(in thousands)                                  Three Months Ended March 31,
                                                ----------------------------

                                            2001            2002          Change
                                            ----            ----          ------
Gross profit:
   Printing segment ..............         $2,068          $1,805          (13%)
   Software segment ..............          2,584           2,468           (4)
                                           ------          ------
        Gross profit .............         $4,652          $4,273           (8%)
                                           ======          ======

Gross margin:
   Printing segment ..............             18%             20%
   Software segment ..............             83              81
   Consolidated ..................             32              35

      The decrease in gross profit for the three months ended March 31, 2002
compared to the three months ended March 31, 2001 was primarily related to the
decrease in revenues from the Printing segment. Gross margin in the Printing
segment increased primarily due to the conversion of traditional customers to
our automated print production technology. The efficiencies generated in the
Printing segment were somewhat offset by the decrease in the Software segment
gross margin for the three months ended March 31, 2002 compared to the three
months ended March 31, 2001. The Software segment gross margin decreased
primarily due to a change in product mix to products with lower margins.
Management anticipates continued efficiencies in the Printing segment which we
expect may result in higher gross margins for the remainder of 2002. Management
expects gross margin in the Software segment to stay constant for the remainder
of 2002.

      Operating Expenses

      Our business incurs operating expenses in three broad expense categories:
general and administrative, sales and marketing, and product development.
Throughout 2001 and during the first quarter of 2002, the Company reduced its
staff and implemented non-staff cost reductions. These cost reduction
initiatives resulted in a decrease in operating expenses of $6.5 million
compared to the three months ended March 31, 2001. We believe that
cost-reduction initiatives implemented during the first quarter of 2002 will
reduce our operating expenses both on an absolute dollar basis and as a
percentage of sales in 2002 compared to 2001.

      General and Administrative Expenses

(in thousands)                                   Three Months Ended March 31,
                                                 ----------------------------

                                                2001          2002        Change
                                                ----          ----        ------
General and administrative .............       $8,663        $6,650        (23%)
Percentage of revenues .................           59%           55%

      General and administrative expenses consist primarily of salaries and
benefits for executive, finance, administrative and information technology
personnel, as well as depreciation and amortization on property and equipment
excluding machinery, outside professional services and facilities related
expenses.

      The decrease in general and administrative expenses for the three months
ended March 31, 2002 compared to the three months ended March 31, 2001 was
primarily due to a decrease in the Printing segment of $1.4 million and a
decrease in the Software segment of $0.6 million. Decreases in the Printing and
Software segments were primarily related to the cost-reduction initiatives
implemented during 2001, which significantly reduced compensation expense and
related contractor and consulting fees, other expenses and rent. The decrease in
the Printing segment was offset by a lease termination fee of $667,000 related
to the restructuring of our office lease in Kirkland.


                                       13
<PAGE>

      Sales and Marketing Expenses

(in thousands)                                   Three Months Ended March 31,
                                                 ----------------------------

                                              2001           2002         Change
                                              ----           ----         ------
Sales and marketing .................        $5,949         $3,012         (49%)
Percentage of revenues ..............            41%            25%

      Sales and marketing expenses consist primarily of salaries and related
benefits for sales, marketing, customer service and technical support personnel,
advertising expenses, marketing expenses and travel expenses. The decrease in
sales and marketing expenses for the three months ended March 31, 2002 compared
to the three months ended March 31, 2001 was primarily due to a decrease in
expenses in the Printing segment. The decrease in the Printing segment included
a $1.1 million reduction in compensation expense due to a reduction in staffing
and a $0.8 million decrease in travel, telephone and other employee related
expenses. Sales and marketing expenses in the Software segment decreased for the
three months ended March 31, 2002 compared to the three months ended March 31,
2001 primarily due to a $0.4 million decrease in advertising expenses, a $0.3
million reduction in compensation expense due to a reduction in staffing and a
$0.3 million decrease in travel, telephone and other employee related expenses.

      Product Development Expenses

(in thousands)                                   Three Months Ended March 31,
                                                 ----------------------------

                                              2001           2002         Change
                                              ----           ----         ------
Product development .................        $3,531         $1,461         (59%)
Percentage of revenues ..............            24%            12%

      Product development expenses consist primarily of salaries and benefits
for developers, product managers, quality assurance personnel and payments to
outside contractors for programming services. The decrease in product
development expenses for the three months ended March 31, 2002 compared to the
three months ended March 31, 2001 was due entirely to staff reductions
implemented in the second quarter of 2001 and staff reductions implemented in
the first quarter of 2002 in the Printing segment. Product development expense
in the Software segment for the three months ended March 31, 2002 compared to
the three months ended March 31, 2001 decreased primarily due to a staff
reduction implemented in 2001.

      Amortization

      Amortization consists of the amortization of stock based compensation,
goodwill and other intangible assets. The amortization of stock based
compensation is a result of recording the difference between the fair value of
our common stock at the date of grant of stock options and the exercise or
purchase price of such securities, as applicable. Stock based compensation is
amortized over the remaining vesting period of the stock or options. The
amortization of goodwill and other intangible assets is a result of the
acquisitions of FA Graphics and Image Press in 1999 and Extensis and Howard
Press in 2000. As of December 31, 2001, the amortization of goodwill and other
intangible assets is over periods ranging from 3 to 10 years. Upon adoption of
SFAS No. 142 in January 2002, we discontinued amortization of goodwill.

      The amortization of stock based compensation was $78,000 and $187,000 for
the three months ended March 31, 2001 and 2002, respectively. The unamortized
portion of total stock based compensation is reflected as a reduction of
shareholders' equity and is being amortized over the vesting period of the
individual options, generally four years, using an accelerated method.

      The amortization of goodwill was $1.6 million for the three months ended
March 31, 2001. Upon adoption of SFAS No. 142 on January 1, 2002, amortization
of goodwill ceased. The amortization of other intangibles was $0.4


                                       14
<PAGE>

million and $0.2 million for the three months ended March 31, 2001 and 2002,
respectively. The decline in amortization of intangibles primarily resulted in
the adoption of SFAS No 141, which resulted in $2.8 million of intangible assets
being subsumed into goodwill.

      Loss From Operations

      Loss from operations is calculated as gross profit less operating expenses
and is a function of revenues, cost of sales and other expenses, namely, general
and administrative, sales and marketing, product development, and amortization
of stock based compensation, goodwill and other intangible assets. We have
incurred significant operating losses since our inception.

      Interest Income, Net

      Interest income, net, consists primarily of interest income and interest
expense. Interest income was $508,000 and $133,000, and interest expense was
$132,000 and $95,000 for the three months ended March 31, 2001 and 2002,
respectively. The decrease in interest income is due primarily to the decrease
in the cash and cash equivalent balance. The decrease in interest expense is due
primarily to the decrease in notes payable.

      Income Taxes

      No provision for federal and state income taxes has been recorded to date
because we have incurred net losses from inception through March 31, 2002. As of
March 31, 2002, we had approximately $108.2 million of net operating loss
carryforwards for federal income tax purposes, expiring in 2010 through 2021.
These losses are available to offset future taxable income. Given our limited
operating history, losses incurred to date and the difficulty in accurately
forecasting our future results, we do not believe that the realization of the
related deferred income tax assets meets the criteria for realization required
by generally accepted accounting principles and, accordingly, no tax benefit has
been recorded.

      Change in Accounting Principle

      On January 1, 2002, the Company adopted the provisions of SFAS No. 141 and
SFAS No. 142. Accordingly, the Company recorded a transitional impairment charge
of approximately $30.2 million for the three months ended March 31, 2002. See
"Impact Of Recently Issued Accounting Standards." Goodwill is tested at the
reporting unit annually and whenever events or circumstances occur indicating
that goodwill might be impaired. If the Company's revenues continue to decline,
the Company may be required to take additional impairment charges in future
periods.

LIQUIDITY AND CAPITAL RESOURCES

      We have incurred significant net losses since our inception. As of March
31, 2002, we had an accumulated deficit of $158.6 million. Our principal source
of liquidity is our cash and cash equivalents. Our cash and cash equivalents
balance was $17.4 million and $15.4 million at December 31, 2001 and March 31,
2002, respectively. The decrease in cash and cash equivalents during the three
months ended March 31, 2002 resulted primarily from our net cash loss of
approximately $3.7 million (net loss of $37.4 million less non-cash items of
approximately $33.7 million), offset by a $2.0 million decrease in accounts
receivable. Our working capital at March 31, 2002 was $15.1 million, compared to
$18.6 million at December 31, 2001.

      As of March 31, 2002, outstanding debt consisted of a line of credit
totaling $5.0 million. Pursuant to the terms of the line of credit, the Company
must maintain a minimum balance of cash and cash equivalents of $3.5 million. If
the Company's cash and cash equivalent balances fall below $3.5 million, the
line of credit may not be available to the Company. In addition, the line of
credit expires in December 2002 and the principal balance is due on December 31,
2002. In April 2002, the Company repaid the outstanding balance on the line of
credit in the amount of $5.0 million.


                                       15
<PAGE>

We have no commitments for additional financing, and we may experience
difficulty in renewing this line of credit on favorable terms, if at all. Other
commitments at March 31, 2002 consisted of operating leases of $4.4 million.

      Net cash used by operating activities consists of net loss offset by
certain adjustments not affecting current-period cash flows, such as
depreciation, amortization and cumulative effect of change in accounting
principle, and the effect of changes in working capital. Net cash used by
operating activities during the three months ended March 31, 2002 was $2.3
million, resulting from our net loss of $37.4 million, offset by non-cash items
of $33.7 million and changes in working capital of $1.4 million.

      Net cash used in investing activities was $1.8 million for the three
months ended March 31, 2001 compared to net cash provided by investing
activities of $0.2 million for the three months ended March 31, 2002. Investing
cash inflows consisted primarily of $667,000 release of restricted cash as a
result of renegotiating our office lease offset by purchases of equipment and
software.

      Net cash provided by financing activities was $60,000 for the three months
ended March 31, 2002 and consisted of cash received from the sale of common
stock pursuant to the Company's Employee Stock Purchase Plan.

      Our future capital requirements will depend on many factors that are
difficult to predict, including our rate of revenue growth, if any, our
operating losses, the cost of obtaining new customers and technical
capabilities, and the cost of upgrading and maintaining our network
infrastructure and other systems. We believe that our existing cash and cash
equivalents will be sufficient to meet our anticipated cash needs for working
capital and capital expenditures through December 31, 2002. However, any
projections of future cash needs and cash flows are subject to substantial
uncertainty. If our capital requirements vary materially from those currently
planned, we may require additional financing sooner than anticipated. We have no
commitments for additional financing, and we may experience difficulty in
obtaining additional funding on favorable terms, if at all. Any difficulty in
obtaining additional financial resources could force us to curtail our
operations or prevent us from pursuing our growth strategy. In addition, any
future funding may dilute the ownership of our shareholders. Our stock is
currently trading at prices less than $1 per share. If our stock continues to
trade at this level, our stock could be delisted from the NASDAQ National Market
and our ability to obtain financing may suffer as a result.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

      The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 141 and SFAS No. 142 on January 1, 2002. In order to
assess the value of its goodwill and indefinite-lived intangible assets as of
January 1, 2002, the Company engaged an independent valuation firm. The
valuation process assigned the Company's assets and liabilities to its reporting
units and then provided a fair value of those assets using a discounted cash
flow model that also considered factors such as market capitalization and
appraised values of certain assets. Based upon the results of the valuation
testing, the Company recorded a transitional impairment charge for a portion of
the goodwill assigned to its Software reporting unit. The transitional
impairment charge was approximately $30.2 million. Goodwill and intangible
assets assigned to the Printing reporting units were not impaired since the fair
value of these reporting units' assets exceeded their book value at the
measurement date.

      In June 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 143, "Accounting for Asset Retirement Obligations" which establishes
requirements for the financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. The adoption date for the Company will be January 1,
2003 and the Company is assessing what the impact of SFAS No. 143 will be on its
results of operations and financial position.

      On October 3, 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS No. 144 supersedes SFAS No.
121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of". SFAS No. 144 applies to all long-lived assets
(including discontinued operations) and consequently amends Accounting
Principles Board Opinion No. 30, "Reporting Results of Operations Reporting the
Effects of Disposal of a Segment of a Business." SFAS No. 144 develops one
accounting model for long-lived assets that are to be disposed of by sale and
requires these assets to be measured at the lower of book value or fair value
less cost to sell. Additionally, SFAS No. 144 expands the scope of discontinued
operations to include all


                                       16
<PAGE>

components of an entity with operations that (i) can be distinguished from the
rest of the entity and (ii) will be eliminated from the ongoing operations of
the entity in a disposal transaction. The Company adopted this statement on
January 1, 2002. The Company's adoption of this SFAS has not had a material
impact on its financial statements.

RISK FACTORS AFFECTING IMAGEX'S OPERATING RESULTS

      You should carefully consider the risks described below and the other
information in this report. While we have attempted to identify all risks that
are material to our business, additional risks that we have not yet identified
or that we currently think are immaterial may also impair our business
operations. The trading price of our common stock could decline due to any of
these risks. In assessing these risks, you should also refer to the other
information in this report, including the consolidated financial statements and
related notes.

      We Have A History Of Losses And Expect Losses Will Continue. We have never
been profitable, and we anticipate that we will continue to incur net losses in
future periods. To become profitable, we must significantly increase our
revenues by obtaining new customers and generating additional revenues from
existing customers, control our expenses and improve our gross margins. As of
March 31, 2002, we had an accumulated deficit of $158.6 million. Although we
have experienced revenue growth in recent periods, our revenues may not continue
at their current level or increase in the future. We may continue to incur
operating losses for some time.

      If we are unable to continue to increase our revenues and operating
margins, our operating losses may continue to increase in future periods.
Increased competition or other changes in printing industry economics may also
adversely affect our ability to eventually become profitable.

      We May Be Unable To Meet Our Future Capital Requirements And Execute On
Our Business Strategy. Because we are not currently generating sufficient cash
to fund operations, we may need to raise additional capital in the future, in
order to fund our operations and pursue our growth strategy. We believe our
existing cash and cash equivalents will be sufficient to meet our anticipated
cash needs for working capital and capital expenditures through December 31,
2002. However, our future capital requirements will depend on many factors that
are difficult to predict, including our rate of revenue growth, our operating
losses, the cost of obtaining new customers and technical capabilities, and the
cost of upgrading and maintaining our network infrastructure and other systems.
As a result, we cannot predict with certainty the timing or amount of our future
capital needs. If our capital requirements vary materially from those currently
planned, we may require additional financing sooner than anticipated. We have no
commitments for additional financing, and we may experience difficulty in
obtaining additional funding on favorable terms, if at all. Any difficulty in
obtaining additional financial resources could force us to curtail our
operations or prevent us from pursuing our growth strategy.

      We May Need To Raise Additional Capital In The Future, Which Can Cause
Dilution. Any future funding may dilute the ownership of our shareholders.
Shareholders could experience additional dilution if we issue shares of our
stock to pay for acquisitions of other businesses or assets. In addition, our
board of directors has broad discretion to determine the rights and preferences
of securities issued to investors or shareholders of acquired businesses in the
future. If we issue securities with senior or superior rights and powers,
existing shareholders may be adversely affected.

      The Market Price Of Our Common Stock Has Been And May Continue To Be
Volatile, Which Could Result In Losses For Security Holders and Our Securities
May Be Delisted From The NASDAQ National Market Due To An Insufficient Minimum
Bid Price. The trading price of our common stock has historically been highly
volatile. Trading prices of our common stock may fluctuate in response to a
number of events and factors, such as:

      o     General economic conditions;

      o     Changes in interest rates;

      o     Conditions or trends in the Internet and the e-commerce industry;

      o     Fluctuations in the stock market in general and market prices for
            Internet-related companies in particular;

      o     Actual or anticipated variations in our quarterly operating results;

      o     Changes in financial estimates by us or securities analysts and
            recommendations by security analysts

      o     Changes in capital structure, including issuance of additional debt
            or equity to the public


                                       17
<PAGE>

      The closing price of our common stock on March 31, 2002 was $.80 per
share. NASDAQ National Market generally requires listed issuers to maintain a
minimum bid price of $1.00, and may delist an issuer whose share price falls
below that threshold for an extended period of time. If we are unable to meet
the minimum listing requirements, we may be subject to delisting from the NASDAQ
National Market which will likely have a material adverse effect on our common
stock and would severely restrict our ability to raise additional capital.

      We Have A Limited Operating History And Are Subject To The Risks Of New
Enterprises. We began operations in 1996 and commercially introduced our
Internet-enabled printing services in October 1997. Our limited operating
history and the uncertain and emerging nature of the market in which we compete
make it difficult to assess our prospects or predict our future operating
results. Our prospects are subject to the risks and uncertainties frequently
encountered in the establishment of a new business enterprise, particularly in
the new and rapidly evolving markets for Internet products and services.

      Our Quarterly Results Are Difficult To Predict And Are Likely To
Fluctuate, Which May Have An Impact On Our Stock Price. Our quarterly revenues,
expenses and operating results have varied significantly in the past and are
likely to vary significantly from quarter to quarter in the future. Our
operating results may fall below market analysts' expectations in some future
quarters, which could lead to a significant decline in the market price of our
stock. In addition to the risk factors described elsewhere, quarterly
fluctuations may also result from:

      o     our ability to obtain new customers and upgrade acquired customers
            to the ImageX Print System;

      o     changes in our operating expenses and capital expenditure
            requirements;

      o     our ability to retain our existing customers and increase sales to
            them;

      o     changes in the mix of printing and software services we sell;

      o     the timing of customer orders;

      o     impairment of long-lived assets;

      o     cumulative effect of accounting change;

      o     increased competition; and

      o     general or industry-specific economic conditions.

      Based on all these factors, we believe that our quarterly revenues,
expenses and operating results will be difficult to predict. Moreover, because
of our short operating history and our acquisitions, period-to-period
comparisons of our operating results are not necessarily meaningful. As a
result, you should not rely on such comparisons as indications of our future
performance.

      To Obtain New Customers, We Must Overcome Long Standing Customer
Relationships And Long Sales Cycles. Many of the potential customers that we
pursue through our direct sales process have long-standing business
relationships and personal ties with their existing printers, which they are
reluctant to disrupt. Customers are also often reluctant to change their
existing ordering and production processes to take advantage of our
Internet-based printing services. To successfully sell our products, we
generally must educate our potential customers on the use and benefits of our
system, which can require significant time and resources. Consequently, we must
incur substantial expenses in acquiring new customers and converting them to the
ImageX Print System. The period between initial contact and the purchase of our
products through our online system is often long and subject to delays
associated with the lengthy approval and competitive evaluation processes that
typically accompany a customer's decision to change its outsourcing
relationships. For typical customers, the sales cycle takes between two to
twelve weeks, but for large customers, the sales cycle may require more than one
year.

      A substantial majority of our revenue is derived from customers that we
have obtained through acquisitions of print providers. A majority of this
revenue is currently generated through traditional offline orders rather than
through our online procurement system. In order for our business to be
successful, we must increase the percentage of our revenue from online ordering
while increasing our revenue in absolute terms. There can be no assurance that
we will be able to convert acquired customers fast enough to accomplish this.
Furthermore, we have historically made acquisitions using our common stock as a
major portion of the consideration. With the recent closing prices of our common
stock, it becomes impractical to use it for such acquisitions. And with the
current state of capital markets, we are cognizant of our need to conserve cash.
These factors together make it more difficult for us to obtain additional
customers through acquisitions.


                                       18
<PAGE>

      Increases In Paper Prices And Shortages In Paper Supply Could Adversely
Affect Our Gross Margins And Operating Results. The cost of paper is a principal
factor in the pricing we receive from our network of commercial printing vendors
and our own pricing through our three production facilities. We are generally
able to pass increases in the cost of paper on to customers, while decreases in
paper costs generally result in lower prices to customers. If we are unable to
pass future paper cost increases on to our customers, or if our customers reduce
their order volume, our profit margins and cash flows could be adversely
affected.

      In recent years, increases or decreases in demand for paper have led to
corresponding pricing changes. In periods of high demand, certain paper grades
have been in short supply, including grades we and our commercial printing
vendors use. Any loss of the sources for paper supply or any disruption in our
suppliers' businesses or their failure to meet our product needs on a timely
basis could cause, at a minimum, temporary shortages in needed materials, which
could have a material adverse effect on our operating results, sales, profit
margins and cash flows.

      We May Be Exposed To Environmental Liabilities And May Face Increased
Costs Of Compliance With Environmental Laws And Regulations. The printing
business generates substantial quantities of inks, solvents and other waste
products requiring disposal. The printing facilities that we operate are subject
to federal and state environmental laws and regulations concerning emissions
into the air, discharges into waterways and the generation, handling and
disposal of waste materials. We believe our facilities are in substantial
compliance with these laws and regulations at this time. However, changes to
these laws and regulations could increase the cost of our doing business or
otherwise have a material adverse effect on our business, financial condition
and operating results. In addition, although we maintain commercial property
insurance at all our facilities, this insurance may not be adequate to cover any
claims against us for environmental liabilities.

      If Businesses Do Not Accept The Internet As A Means Of Procuring Printed
Business Materials, Our Business May Not Be Able To Grow Sufficiently. For us to
succeed, the Internet must continue to be adopted as an important means of
buying and selling products and services. Even if the Internet is widely adopted
for business procurement, it may not achieve broad market acceptance for
printing services procurement.

      We have expended, and will continue to expend, significant resources
educating potential customers about our services, capabilities and benefits. We
may not be successful in achieving market acceptance of the ImageX Print System
or in achieving significant market share before competitors offer products,
applications or services with features similar or superior to our current or
proposed offerings.

      If We Are Unable To Compete Successfully Against Traditional Printing
Companies Or Other Businesses Offering Internet-Based Printing Services, Our
Business May Not Succeed. The market for printed business materials is intensely
competitive. We compete primarily with local and regional printers, which are
either independent or owned by print industry consolidators. The U.S. commercial
printing industry is highly fragmented, with over 31,000 local and regional
commercial printers operating nationwide in 2000. These local and regional
printers typically have significant excess production capacity. Therefore, they
compete aggressively for business printing orders in the markets they serve.

      Traditional commercial printers often have long-standing relationships
with customers. We face substantial challenges in convincing businesses to
consider alternatives to their traditional printers. In addition, printers
typically have extensive local sales forces that regularly canvass and solicit
businesses in the areas they serve. Commercial printers compete primarily on
product pricing, product and service quality and, to a lesser extent, on
innovation in printing technologies and techniques. To attract new customers and
retain our existing customers, we must compete effectively in each of these
areas.

      We also face substantial competition from printing services
brokers-companies that contract with businesses to select and procure printing
services from a variety of printers. Brokers are able to offer customers a
relatively wide variety of products and services, and are often able to obtain
favorable pricing for their customers by soliciting bids from a variety of
printers. Like local and regional printers, printing services brokers often have
long-standing customer relationships and extensive local direct sales forces.

      We also face direct competition from other companies that market
integrated Internet-based business printing services similar to ours. Potential
developers of competing electronic commerce services may include:


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      o     consumer printing services providers, including Internet-based
            providers;

      o     office services providers;

      o     equipment manufacturers; and

      o     financial printers and publishers.

      Many of our current and potential future competitors have substantially
greater financial, marketing and other resources than we do. As a result, they
may be able to market their products, services and branding more aggressively
than we are able to, and may be able to significantly undercut our pricing for
extended periods of time. They may also be able to respond more quickly and
effectively to emerging new technologies and to changes in customer requirements
and preferences.

      Difficulties With Third-Party Services And Technologies Could Disrupt Our
Business And Undermine Our Reputation. Our success in attracting and retaining
customers and convincing them to increase their reliance on our Internet-based
printing services depends on our ability to offer customers reliable, secure and
continuous service. This in turn requires us to ensure continuous and error-free
operation of our systems and network infrastructure. We rely on third parties to
provide key components of our networks and systems. For instance, we rely on a
third-party Internet services provider for the high-speed connections that link
our Web servers and office systems to the Internet. We also rely on third-party
communications services providers to provide secure connections to relay
customer order information to our network of commercial printing vendors.

      As the volume of data traffic on our network and other systems increases,
we must continuously upgrade and enhance our technical infrastructure to
accommodate the increased demands placed on our systems. If we fail to rapidly
scale up the speed and data capacity of our systems, our customers may
experience a deterioration of response times from our systems or periodic
systems failures. Such difficulties would reduce customer loyalty and use of our
services.

      Possible Electronic Commerce Security Breaches And Systems Failures Could
Harm Our Business. We rely on encryption and authentication technology to effect
secure transmission of confidential information. It is possible that advances in
computer capabilities, new discoveries in the field of cryptography, or other
events or developments will result in a compromise or breach of the codes used
by us to protect customer transaction data. If any such compromise of our
security were to occur, it could have a material adverse effect on our
reputation and on our ability to conduct business. It also could expose us to a
risk of loss or litigation and possible liability. It is possible that our
security measures will not prevent security breaches.

      The performance of our computer and telecommunications equipment is
critical to our reputation and to our ability to achieve market acceptance of
our services. Any system failure, including any network, software or hardware
failure, that causes interruption or an increase in response time of our online
services could decrease usage of our services. Frequent systems failures could
reduce the attractiveness of our services to our customers. An increase in the
volume of printing orders could strain the capacity of our hardware, which could
lead to slower response time or systems failures. Our operations also depend in
part on our ability to protect our operating systems against physical damage
from fire, earthquakes, power loss, telecommunications failures, computer
viruses, hacker attacks, physical break-ins and similar events.

      Potential Imposition Of Governmental Regulation On Electronic Commerce And
Legal Uncertainties Could Limit Our Growth. The adoption of new laws or the
adaptation of existing laws to the Internet may decrease the growth in the use
of the Internet, which could in turn decrease the demand for our services,
increase our cost of doing business or otherwise have a material adverse effect
on our business, financial condition and operating results. Few laws or
regulations currently directly apply to access to commerce on the Internet.
Federal, state, local and foreign governments are considering a number of
legislative and regulatory proposals relating to Internet commerce. As a result,
a number of laws or regulations may be adopted regarding Internet user privacy,
taxation, pricing, quality of products and services, and intellectual property
ownership. How existing laws will be applied to the Internet in areas such as
property ownership, copyright, trademark, trade secret, obscenity and defamation
is uncertain.

      Possible Infringement Of Intellectual Property Rights Could Harm Our
Business. Legal standards relating to the protection of intellectual property
rights in Internet-related industries are uncertain and still evolving. As a
result, the future viability or value of our intellectual property rights, as
well as those of other companies in the Internet industry, is unknown.


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We currently have 3 patents issued. We have 83 U.S. patent applications pending,
but we cannot be certain that any new patents will ultimately be issued.

      We cannot be certain that the steps we have taken to protect our
intellectual property rights will be adequate or that third parties will not
infringe or misappropriate our proprietary rights, nor can we be sure that
competitors will not independently develop technologies that are substantially
equivalent or superior to the proprietary technologies employed in our Web-based
services. In addition, we cannot be certain that our business activities will
not infringe on the proprietary rights of others or that other parties will not
assert infringement claims against us. Any claim of infringement of proprietary
rights of others, even if ultimately decided in our favor, could result in
substantial costs and diversion of resources. If a claim is asserted that we
infringed the intellectual property of a third party, we may be required to seek
licenses to such third-party technology. We cannot be sure that licenses to
third-party technology will be available to us at a reasonable cost, if at all.
If we were unable to obtain such a license on reasonable terms, we could be
forced to cease using the third-party technology.

      Our Articles Of Incorporation And Bylaws And Washington Law Contain
Provisions That Could Discourage A Takeover. Certain provisions of our articles
of incorporation, our bylaws and Washington law could make it more difficult for
a third party to obtain control of ImageX, even if doing so might be beneficial
to our shareholders.

      Our Revenues Are Attributable to A Small Number of Customers; The Loss of
Any One of Which Could Harm Our Financial Results. We derive a substantial
portion of our revenues from a small number of customers. We expect that this
will continue in the foreseeable future, however, no single customer accounted
for more than 10% of revenues for the three months ended March 31, 2002. If we
lose any of these customers, or if any of these customers are unable or
unwilling to pay us amounts that they owe us, our financial results will suffer.

      Extensis is Dependent On The Apple Mac Operating System And Can Be
Adversely Affected By Market Developments That Are Adverse to Mac As Well As By
Delays Caused By Extensis' Failure to Develop And Introduce New Products That
Respond to Rapidly Evolving Industry Standards. Although Extensis sells products
for both the Mac and Microsoft Windows operating systems, a substantial portion
of Extensis' revenues are derived from sales of products that are designed to
work with the Mac operating system and are primarily marketed to Mac users. As a
result, sales of Extensis products would be materially affected by market
developments adverse to Mac based products, or Mac's decision to introduce or
acquire products that compete directly with Extensis products. In this regard,
Extensis' future success will depend on its ability to enhance its current
products, to develop new products that meet changing customer needs on a timely
and cost-effective basis and to respond to emerging industry standards and other
technological changes brought on by both Mac and Microsoft's Windows operating
systems. Any failure by Extensis to anticipate or respond adequately to changes
in technology and customer preferences, or any significant delays in product
development or introduction, would have a material adverse effect on the
Company's operating results and financial condition.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      We are exposed to financial market risks, including changes in interest
rates. We typically do not attempt to reduce or eliminate our market exposures
on our investment securities because the majority of our investments are
short-term. We do not have any derivative instruments.

      The fair value of our investment portfolio or related income would not be
significantly impacted by either a 100 basis point increase or decrease in
interest rates due mainly to the short-term nature of the major portion of our
investment portfolio. Our $5 million line of credit bears interest at 4.7% and
was repaid in April 2002. Related expense would not be significantly impacted by
either a 100 basis point increase or decrease in interest rates.

      All of the potential changes noted above are based on sensitivity analysis
performed on our balances as of March 31, 2002.


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                          PART II -- OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

      From time to time, ImageX and its affiliate companies are subject to other
legal proceedings and claims in the ordinary course of business. The Company
currently is not aware of any such legal proceedings or claims that it believes
will have, individually or in the aggregate, a material adverse effect on its
business, prospects, financial condition, operating results and cash flows.

Items 2, 3, 4, and 5 are not applicable and have been omitted.


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                                    SIGNATURE

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

                                       IMAGEX, INC.
                                       (Registrant)


Date: May 15, 2002                     By /s/ Robin L. Krueger
                                       -----------------------------------------
                                          Robin L. Krueger
                                          Chief Financial Officer
                                          (duly authorized officer and principal
                                          financial and accounting officer)


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