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FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the year ended December 31, 1996
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 0-20729
______________
PRINTWARE, INC.
_______________________________________________________
(Exact name of registrant as specified in its charter.)
Minnesota 41-1522267
____________________________ __________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1270 Eagan Industrial Road, St. Paul, MN 55121
________________________________________ _____
(Address of principal executive offices) (Zip Code)
(612) 456-1400
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common
stock, no par value ("Common Stock")
Based upon the $5.50 per share closing sales price of the
registrant's common stock as of January 31, 1997, the aggregate
value of the shares of Common Stock held by nonaffiliates as of
such date was approximately $13,403,000.
Common Stock - 4,852,694 shares outstanding as of March 5, 1997.
Indicate by check mark whether the registrant(1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained, herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
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DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference to the parts
indicated of this Annual Report on Form 10-K:
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Parts of Annual Report Documents Incorporated
on Form 10-K by Reference
_________________________________ ______________________
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Part III
Item 10. Directors and Reference is made to the
Executive Officers Registrant's definitive proxy
of the Registrant. statement ("Proxy Statement"),
which will be filed with the
Securities and Exchange
Commission ("Commission") within
120 days after December 31, 1996.
Item 11. Executive Compensation. Reference is made to the
Registrant's Proxy Statement.
Item 12. Security Ownership of Reference is made to the
Certain Beneficial Registrant's Proxy Statement.
Owners and Management.
Item 13. Certain Relationships Reference is made to the
and Related Transactions. Registrant's Proxy Statement.
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PART I
This Annual Report on Form 10-K contains forward-looking statements that
are not statements of historical fact. Forward-looking statements by their
nature involve substantial risks and uncertainties, and actual results may
differ materially from such statements. Factors that may affect the Company's
revenues, use of capital, expenses and/or operating profits include, but are
not limited to, the introduction of competing products with performance
equivalent to or exceeding that of the Company's products, a claim (whether or
not successfully made) that the Company's products infringe a patent held by
another company or individual, any performance problems involving the
Company's products, changes in technology that could cause the Company's
products to become obsolete, the departure of key members of management and/or
key employees, and general economic conditions.
ITEM 1. BUSINESS.
Printware designs, builds and markets "Computer-to-Plate" systems which
are used by the offset printing industry to create printing plates directly
from computer data. These systems replace the traditional process of
typesetting, paste-up, camera work and film processing to produce a printing
plate.
Computer-to-Plate technology provides one-step platemaking (including
text, graphics and photographic halftones) directly from computer data, much
as a laser printer makes printed pages directly from computer data.
The key benefits of Computer-to-Plate technology are:
- Lower costs from savings in supplies and labor
- Faster turnaround times
- Fewer pieces of equipment
- Fewer environmental limitations on by-product disposal
Some of the Company's customers have found that Computer-to-Plate
technology can reduce their costs for some printing operations by up to 50%.
The check printing, social printing and envelope printing segments of the
printing industry have been early adopters of Computer-to-Plate technology,
largely because of higher volumes and early computerization.
The heart of Printware's Platesetters is a high-resolution laser marker
system, the key technology obtained from The 3M Company ("3M") in 1985. The
system is based on a resonant galvanometer, which management believes has
certain performance advantages over conventional systems which use rotating
multifaceted mirrors. The Company's system uses a proprietary method where a
mirror mounted on a resonating torsion bar, in conjunction with
microprocessor-controlled electronics, precisely controls the laser raster
scan. The method was first used in Printware's laser printers, then later in
its Platesetters. In 1990 Printware's Model 1440 Platesetter received the
InterTech Technology Award for Innovative Excellence from the Graphic Arts
Technical Foundation. This award is reserved for products judged to have the
potential for a major impact in the industry. The Company is exploring the
feasibility of incorporating laser scanners based on other technologies into
its products.
Printware was organized in 1985 and began deliveries in 1987 of its first
product, a high resolution laser printer. In 1988 Printware began selling its
first Platesetter, the Model 1440 electrostatic Platesetter. Printware
subsequently expanded its product line with new Platesetter models, new laser
printers and filmsetters. In 1993, however, Printware began to focus
exclusively on Computer-to-Plate products and phased out its other product
lines. This resulted in reduced revenues in 1993 and 1994, but a significant
improvement in profitability. During this period Printware completed
development of and began to deliver a new photographic process (silver-halide)
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Platesetter, called the Model 3240, to serve a broader range of users. The
Model 3240 is marketed for the Company by Mitsubishi Imaging Inc.
("Mitsubishi") as the model SDP-1800 under Mitsubishi's brand name.
INDUSTRY OVERVIEW
According to Printing Industries of America ("PIA"), a trade association,
there were approximately 52,400 printing firms in the United States in 1995.
The Company believes that most of the printing presses installed at these
firms are small format (18" wide or less), one and two color presses, which is
the market segment of the printing industry that the Company serves.
CUSTOMERS
Sales to Deluxe Corporation ("Deluxe") accounted for $4.12 million, $3.50
million and $2.85 million of revenue in 1996, 1995 and 1994, respectively,
which constituted 55.5%, 41.7% and 43.0% of 1996, 1995 and 1994 revenue,
respectively. Sales to Mitsubishi, principally of the Model 3240 which it
markets as the SDP-1800, accounted for $1.07 million, $1.46 million and
$140,000 of revenue in 1996, 1995 and 1994, respectively, which constituted
14.4%, 17.5% and 2.1% of 1996, 1995 and 1994 revenue, respectively. The loss
of Deluxe or Mitsubishi as a customer, or a substantial reduction in their
purchases, would have a material adverse effect on the Company. The Company
provides a majority of the Platesetter supplies used by Deluxe under a multi-
year contract that expires at the end of 1997.
REVENUES FROM DELUXE. The Company sells both equipment and consumable
supplies to Deluxe. In 1994 the Company entered into a purchase agreement
with Deluxe under which Deluxe has agreed to purchase from the Company a
minimum annual amount of this plate material for each of 1995, 1996 and 1997
at a fixed price. The 1994 agreement resulted in increased sales of paper
plate material by the Company to Deluxe in 1995 and 1996 and the Company does
not expect any reduction in such revenues in 1997.
During the period from 1991 to 1995, the Company sold to Deluxe various
Platesetters, film imagers and other equipment under certain development and
purchase order contracts. The Company has no current commitments from Deluxe
under these equipment contracts, except to retrofit certain Deluxe equipment
with the results of a software research and development contract with Deluxe
which the Company is performing.
PRODUCTS
The Company makes two lines of Platesetters, the Model 3240 Platesetter
line for digital photographic (silver-halide) plates and the Model 1440 family
of digital electrostatic Platesetters. The Company also sells service and
proprietary supplies (primarily digital plate material for the Model 1440
product line).
MODEL 3240 PLATESETTER. This versatile product uses commodity silver-
halide plate material for a wide range of printing applications. The product
is sold by Mitsubishi under its brand name as the SDP-1800 both
internationally and through several leading domestic graphic arts dealers,
giving it broad market coverage. The SDP-1800 is approximately 3' wide by 4'
high by 4' long, and consists of two integrated modules: an imager module,
where a laser "writes" the digital image on the plate; and a processor module,
where the plate is developed and fixed, similar to conventional photography.
It has a liquid-crystal operator panel to enter machine settings and for
checking machine status. The SDP-1800 has input and output cassettes for
rolls of plate material. Imaged plates exit the machine into a tray already
dried, cut to size and press-ready.
Printware is also developing a smaller silver-halide Platesetter model,
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named the PlateStream, to sell under the Printware brand name at an end-user
price of about $50,000, which is considerably less than the price of the
larger SDP-1800.
MODEL 1440 PLATESETTER. This product line has three models: one for
economical paper-based plates; another for durable metal plates; and a third
for either paper or metal. The Model 1440 serves niche markets such as check
printing, social printing, envelope printing and the emerging newspaper
market. The Model 1440 is approximately 3' wide by 1 1/2' high by 2 1/2'
long, and has liquid crystal operator panels to enter machine settings and for
checking machine status. The units have an area to load a roll of plate
material stock, or in the case of the metal plate version, a plate sheet
feeder. Imaged plates exit the machine into a tray or into optional post-
processing modules. The Company sells in-line plate handling modules for
fully automated systems. Optional equipment includes plate converters for
paper plates and plate decoaters and plate sheet feeders for metal plates.
The Model 3240 resolution is 3,240 thousand dots per square inch (1,800
dots per inch), which is suitable for high quality color and photographs. The
Model 1440 resolution is 1,440 thousand dots per square inch (1,200 dpi),
which is suitable for text, graphics and medium-quality photographs. The
imaging speed of the Model 3240 is up to 36 inches per minute, and for the
Model 1440 is 40 inches per minute.
End-user pricing is $50,000 to $100,000 for Model 3240 Platesetters and
$80,000 to $150,000 for Model 1440 Platesetters, depending on the specific
model and configuration. The Company also provides consulting services,
software, support and training for the Model 1440.
RASTER IMAGE PROCESSORS (RIPS). Printware sells RIPs to connect
Platesetters to the customer's computer network and convert computer-based
information into digital images which are used by platesetters to produce
printing plates. The Company's RIPs are fully compatible with the industry-
standard PostScript language and most popular networks. The Company has
several RIP models, developed with software from leading RIP suppliers.
SUPPLIES. Printware specifies, tests and markets supplies for Model 1440
Platesetters. These supplies consist mostly of digital laser sensitive plate
material used in the Platesetter. The Company also sells a paper-based plate
material for cost-sensitive applications and an aluminum-based plate material
for longer-run printing. Approximately 90% of the Company's supplies revenue
is from plate materials, but other supplies sold by the Company include
developer (toner), conversion solution, press fountain solution, dispersant,
decoating solution and plate gum.
The Company believes that its metal printing plates have unique
environmental advantages over other metal printing plates. Tests conducted by
an engineering consulting firm concluded that by-products from processing the
Company's plates can be disposed of without special treatment. Printware's
paper and metal printing plates are both recyclable and contain no heavy
metals such as silver. The Company knows of no other digital plates that can
be recycled as easily as its plates. The Company believes that the
environmental advantages of its plates will become increasingly important to
printers.
Printware's current generation of paper plate material, called Platinum
grade, was introduced in 1995. This plate material uses a zinc-oxide coating
and a triple plastic-coated paper base stock. The plates can be used for run
lengths of up to 5,000 impressions, handling work which would otherwise
require more expensive metal or silver-halide plates. The Company believes
that paper-based printing plates used in Printware Platesetters are the lowest
cost digital plates available.
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PRODUCT WARRANTY. The Company provides a 90-day limited warranty on its
Platesetters under which the Company will provide repair or replacement for
defects in materials or workmanship. On Model 3240 Platesetters, the warranty
covers 90 days from first installation, up to a maximum of 180 days from
shipment by the Company, with extended warranties available. For the Model
1440, the Company offers parts under warranty if the customer purchases
supplies exclusively from Printware for the first year after the Model 1440 is
purchased, or if the customer enters into an extended term agreement to
purchase supplies.
The Company provides a six-month limited warranty on plate materials and
most of the related chemical supplies for the Model 1440. This warranty
provides replacement of any defective material returned to the Company. To
the extent the Company experiences warranty claims related to the sale of
consumable supplies, the Company has generally received replacement supplies
or a credit from the Company's vendor. The warranty claims made to the
Company to date have been minimal for both Platesetters and supplies.
MARKETING
Printware has separate marketing strategies for its two different
Platesetter lines. The Model 3240 Platesetter is sold by Mitsubishi,
Printware's marketing partner, who sells its SDP-1800 to customers directly or
through graphic arts dealers. The Company has retained the right to market
the Model 3240 directly or through other marketing partners.
Through its original equipment manufacturer ("OEM") partnership with
Mitsubishi, the Company is enjoying much broader product exposure. A
significant advertising campaign, which Mitsubishi began in several industry
trade magazines, is indirectly raising awareness of Printware. In 1995 the
SDP-1800 was introduced at trade shows in the U. S., Canada, Europe and Japan
by Mitsubishi. Mitsubishi couples the sale of the SDP-1800 to the sale of its
plate material supplies. The Company believes that Mitsubishi is the world's
leading supplier of photographic plate material. The Company has been
satisfied to date with the results of the Mitsubishi partnership, but there
can be no assurance that the relationship will continue or that the business
level will continue to grow.
The Company will also be launching its own marketing campaign for its
PlateStream silver-halide Platesetter targeted at gaining Printware brand
awareness with mainstream volume printers.
The Company's goal is to significantly expand distribution of its products
in order to reach a broader customer base. Management envisions this
expansion taking place gradually as the Computer-to-Plate market grows. The
Company has begun to utilize a portion of the net proceeds of its initial
public offering to expand its distribution by hiring additional sales and
marketing personnel, expanding advertising and attending trade shows.
Until recently, the Company sold its Model 1440 line directly through its
own sales force. In 1996 the Company formed a strategic alliance with
Monotype Systems Inc. to market Platesetters to newspapers, where Monotype
already enjoys a leadership position. The result is Monotype's offering of
the PlateExpress1440 Platesetter, which combines Printware's Model 1440
autofeed metal plate Platesetter with Monotype's newspaper-tailored RIP. The
Company sees the emerging newspaper market for Computer-to-Plate as a
significant growth opportunity for its Model 1440 Platesetters.
RESEARCH AND DEVELOPMENT
Printware has research and development programs underway or planned to
develop higher performance RIPs, faster Platesetters and lower-cost
Platesetters. The Company believes that these programs are necessary to
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maintain its competitive advantage and that the technology to accomplish these
programs is already developed. The Company plans to continue to make use of
outside suppliers as part of these development efforts.
HIGHER-PERFORMANCE RIPS. The Company completed a next-generation raster
image processor using the current industry standard Adobe Level 2 PostScript
software interface. In 1996 the Company formed a strategic alliance with
Autologic Information International Inc. which provides the Company with
exclusive marketing rights for the Xitron implementation of the Harlequin
Scriptworks RIP for Printware Platesetters. Products using this interface
were made available in late 1996, and will allow Printware equipment to
integrate more easily with a wider range of computer and network systems.
FASTER PLATESETTERS. The Company plans to maintain and extend its speed
advantage by developing a next generation of faster Platesetters.
Through changes in the laser marker system, the Company believes it can
increase the speed of its Platesetters by up to 50%. If this can be
accomplished, the Company believes it will provide an important competitive
advantage by helping the Company meet the printing industry's ever-increasing
productivity demands.
LOWER-COST PLATESETTERS. Printware began development in 1996 of the
PlateStream, a silver-halide Platesetter with an end-user price in the $50,000
range, compared to $80,000 for Printware's current lowest-priced 1440 model
and to $85,000 for the SDP-1800. Costs are being reduced by scaling down the
maximum plate width to approximately 13" and by eliminating certain features.
The 13" width allows printing of up to two 8 1/2" by 11" pages simultaneously,
and is compatible with a large number of small-format printing presses
(sometimes called duplicator presses). Management believes that such a
product will allow customers with lower plate volumes to justify a Platesetter
purchase, thus making it viable for smaller printing operations in segments
such as business forms and technical/legal publishing.
COMPETITION
The growth in the Computer-to-Plate business has attracted considerable
competition. The Company's competitors and potential competitors are
established companies that have significantly greater financial, technical and
marketing resources than the Company. There can be no assurance that the
Company's competitors will not succeed in developing and marketing products
which perform better and are less expensive than the Company's products, or
that will render the Company's products and technology obsolete or
noncompetitive in other ways. The Company divides its competition into four
categories: other platesetters; film imagers; enhanced xerographic/laser
printers; and supplies competitors.
OTHER PLATESETTERS. Platesetters that use metal plates are relatively
expensive and are geared towards the relatively small market for high-end
color printing. Printware's products are focused at mainstream, smaller
presses and mid-range quality, which management believes currently accounts
for most printing. The Company believes that this type of printing will
continue for the foreseeable future, although there can be no assurance that a
shift to large format presses or higher-quality color printing might not
render the Company's products obsolete. From independent industry surveys,
the Company believes its Platesetters are unmatched in cost-effectiveness and
speed. There can be no assurance that this competitive advantage can be
maintained, however.
In addition to the metal Platesetter competition summarized above, the
Company also faces significant competition from other photographic
Platesetters which use non-metallic printing plates. This competition could
particularly affect the Model 3240 photographic Platesetter. Management
believes the most significant of these competitors include A. B. Dick Company,
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Eskofot International and PrePress Systems. The Company believes that its
advantages over those products include higher speed and less plate waste.
FILM IMAGERS. Digital film imagers are used in the traditional multi-step
platemaking process being obviated by Platesetters. Several film imager
manufacturers are attempting to adapt film imagers to image plates directly.
Competitors in this category include the Agfa division of Bayer Corp.,
Linotype-Hell and ECRM Incorporated. From discussions with customers, the
Company believes that such "plate-enabled" film imagers represent a slow,
awkward approach, compared to the Company's Platesetters. The Company's
systems are fully daylight-safe (no darkrooms) and chemical processing steps
are contained, providing so-called "dry-to-dry" operation. The Company's
Platesetters are faster than most film imagers and, unlike film imagers, have
virtually no plate waste.
XEROGRAPHIC/LASER PRINTERS. Enhanced xerographic/laser printers can
replace offset printing in certain applications, but are currently limited to
lower-quality applications such as overseas check printing and low-quality
business forms. These devices also have a higher variable cost per impression
than Computer-to-Plate technology. Companies in this area include Check
Technology Corporation, Delphax Systems and Xerox Corporation. Management
believes that competitors in this area are making efforts to improve the
quality and reduce the cost of their systems, and there can be no assurance
that systems marketed by the Company will sustain their advantage.
SUPPLIES COMPETITION. Printware has competitors that sell paper plate
supplies for Model 1440 Platesetters. The Company is not aware of competition
for metal plates used in the Model 1440. The most significant competitive
paper plate material is made by a Japanese paper mill and sold through a U. S.
distributor. There have also been several less significant competitors in
this market from time to time. Printware has addressed the competitive threat
with lower prices where appropriate and a program to improve the quality and
consistency of its supplies. The Company believes that competitive materials
are inferior to Printware supplies in certain respects, such as strength and
dimensional stability, but not inferior in other respects. The Company also
believes that many of its customers would prefer to purchase their supplies
from Printware as the manufacturer of the equipment. The Company believes its
supplies revenues will grow at a modest rate, but there can be no assurance
that the Company will be able to maintain its product advantage or that
competition might not adversely affect the profitability or viability of its
supplies business.
PROPRIETARY RIGHTS
PATENTS AND TRADE SECRETS. Printware's policy is to attempt to protect
its technology by seeking patents, maintaining certain trade secrets and
continuing technological innovation. As of December 31, 1996, the Company had
rights to 19 patents, consisting of 13 granted to Printware and six licensed
from 3M. The 3M patents expire between 2002 and 2004; the royalties which the
Company paid to 3M in 1996, 1995, and 1994 for licenses of these patents were
not material to the Company. The Company's own patents begin to expire in
2004. In addition to patents, the Company relies on trade secrets and other
unpatented proprietary technology. Printware seeks to protect its trade
secrets and proprietary know-how with confidentiality agreements with
employees and suppliers. There can be no assurance that the Company's patent
portfolio will provide a competitive advantage in the future, or that the
Company's agreements will adequately protect its trade secrets.
PRODUCT SUPPLY AGREEMENTS
The Company has non-exclusive rights to raster image processing software
used in the ZAPrip and to the plate processor module used in the Model 3240.
The Company has the exclusive right to sell the proprietary plate materials
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made by its suppliers. All of the product supply agreements to which the
Company is a party can be canceled by either party under certain
circumstances. Such cancellation would seriously jeopardize the Company's
ability to provide products that are critical to the Company's revenues.
SUPPLIERS
The Company has a number of single source suppliers for materials that are
critical to production of its products. These include the suppliers of the
Company's Model 1440 paper plate material, Model 1440 metal plate material,
Model 1440 liquid toner and certain key components used in Model 1440
Platesetters, Model 3240 Platesetters and/or ZAPrip raster image processors.
Any significant interruption of supply from any of these vendors would have a
material adverse effect on the Company.
ITEM 2. PROPERTIES
Printware's manufacturing operation consists of the assembly, integration,
testing and quality audits of equipment. The Company purchases all of its
supplies and many of the hardware components it uses from third-party vendors,
some of which are single-source vendors. Printware's principal manufacturing
areas include laser markers, transport mechanisms, electronics/RIPs and final
assembly/test. Printware makes extensive use of computer-aided design and
transmits most of its fabricated part drawings to its suppliers
electronically. The Company believes that this use of technology shortens
turnaround time and improves quality.
Printware's offices and manufacturing facility are located at 1270 Eagan
Industrial Road, St. Paul, Minnesota. The Company occupies 35,410 square feet
pursuant to a lease which expires July 31, 1998. Management believes that
this facility will be adequate for Printware's needs at least until the
expiration of the lease. The lease also has an option to extend for three
additional years at then-existing market rates. Monthly rent expense is
currently $7,029 plus a pro-rata share of real estate taxes and common area
maintenance.
EMPLOYEES
As of December 31, 1996, Printware had 45 employees, including 43 full-
time employees and 2 part-time or contract employees. Of the 43 full-time
employees, 15 were in manufacturing, 7 were in marketing, sales and customer
service, 14 were in research and development and 7 were in general and
administrative functions. Management considers the future success of the
Company to be dependent in part upon its continued ability to maintain a
highly-skilled workforce and to attract, motivate and retain qualified
employees. Accordingly, Printware began an employee profit-sharing plan in
1995. The program provides payments to each non-officer employee of up to 3%
of salary, depending on the Company's performance against quarterly profit
goals. No Printware employees are covered by collective bargaining agreements
and the Company considers its relationship with its employees to be good.
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in various legal actions in the normal course of
business. Management is of the opinion that the outcome of such actions will
not have a significant effect on the Company's financial position or its
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to security holders during the fourth quarter of
1996.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's Common Stock is traded on the Nasdaq National Market, under
the symbol PRTW. The high and low closing interdealer sales prices for each
quarter since trading commenced on July 2, 1996 are as follows: third quarter
1996 -- high of $6.63 and low of $4.88; fourth quarter 1996 -- high of $5.00
and low of $4.50. As of December 31, 1996 and the Company had approximately
225 shareholders of record.
The Company has not paid and does not presently intend to pay any
dividends on its Common Stock.
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ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial information is qualified by and should be
read in conjunction with the Company's financial statement and notes thereto
included elsewhere in this Annual Report on Form 10-K.
<CAPTION>
Years Ended December 31,
____________________________________________________________
1996 1995 1994 1993 1992
__________ __________ __________ ___________ ___________
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Statement of Operations Data:
Revenues from nonaffiliates $3,299,499 $4,889,761 $3,775,958 $ 4,348,484 $ 8,059,260
Revenues from affiliates 4,116,536 3,498,387 2,850,967 2,948,000 2,600,734
__________ __________ __________ ___________ ___________
Total revenues 7,416,035 8,388,148 6,626,925 7,296,484 10,659,994
Cost of revenues 4,350,696 5,003,956 4,102,401 5,344,519 8,234,092
__________ __________ __________ ___________ ___________
Gross Profit 3,065,339 3,384,192 2,524,524 1,951,965 2,425,902
Research and development
expenses 789,824 757,131 956,807 1,314,355 1,913,431
Selling, general and
administrative expenses 982,250 1,072,878 945,533 1,851,507 3,022,684
__________ __________ __________ ___________ ___________
Income (loss) from operations 1,293,265 1,554,183 622,184 (1,213,897) (2,510,213)
Other income (expense) net 429,027 261,742 22,918 10,299 (31,214)
__________ __________ __________ ___________ __________
Income before income taxes
and extraordinary item 1,722,292 1,815,925 645,102 (1,203,598) (2,541,427)
Income tax (benefit) expense (661,112) 22,500 2,000 1,109 2,175
__________ __________ __________ ___________ ___________
Income (loss) before extra-
ordinary items (1) 2,383,404 1,793,425 643,102 (1,204,707) (2,543,602)
Extraordinary income -- -- 140,927 -- --
__________ __________ __________ ___________ ___________
Net income (loss) $2,383,404 $1,793,425 $ 784,029 $(1,204,707) $(2,543,602)
========== ========== ========== =========== ===========
Net income (loss) per common
and common equivalent share $ .56 $ .48 $ .21 $ (.33) $ (.84)
========== ========== ========== =========== ===========
Weighted average common and
common equivalent shares
outstanding (2) 4,237,629 3,699,814 3,680,934 3,633,942 3,024,415
========== ========== ========== =========== ===========
December 31,
____________________________________________________________
1996 1995 1994 1993 1992
__________ __________ __________ ___________ ___________
<C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents $ 523,543 $2,568,852 $ 860,668 $ 1,288,821 $ 561,655
Current assets 14,304,514 5,087,328 3,255,959 4,371,149 4,826,294
Working capital 12,979,851 4,151,595 2,292,562 1,441,554 2,544,209
Total assets 14,574,989 5,252,401 3,476,928 4,633,747 5,180,631
Shareholders' equity 13,250,326 4,316,668 2,513,531 1,704,152 2,898,546
<FN>
(1) The 1994 net income includes an extraordinary item of $140,927, consisting of a gain on
extinguishment of debt. The net income per common and common equivalent share attributable to
such extraordinary gain was $.04.
(2) See Note 1 to the financial statements for an explanation of the determination of weighted
average common and common equivalent shares outstanding.
</FN>
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ITEM 7. MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE 12 MONTHS ENDED
DECEMBER 31, 1996 AND DECEMBER 31, 1995
MANAGEMENT'S DISCUSSION AND ANALYSIS
Introduction
This discussion summarizes significant factors that affected the operating
results and financial condition of Printware, Inc. for the three years ended
December 31, 1996. The Company completed its initial public offering on July
2, 1996 which resulted in net proceeds of $6.38 million intended primarily for
distribution expansion and product development over the rest of the decade.
In the fourth quarter of 1996, the Company recorded an income tax benefit of
$730,000 from reduction of the valuation allowance relating to deferred tax
assets. The tax benefit was based on the combination of the Company's recent
profitability and its net operating losses incurred from its formation in 1985
until turning profitable in 1994.
Statements made in this report concerning the Company's or management's
intentions, expectations or predictions about future results or events are
"forward looking statements" within the meaning of the Private Securities
Reform Act of 1995. Such statements are necessarily subject to risks and
uncertainties that could cause actual results to vary from stated
expectations, and such variations could be material and adverse.
Overall Summary
Revenues in 1996 decreased 11.6% from 1995, primarily due to a decrease in
sales of the Mitsubishi-branded Platesetter, the SDP-1800, which were
especially strong in 1995 when the product was new and the Company was filling
a backlog of orders. Pretax 1996 income was $1.72 million, compared to $1.82
million in 1995 which included an arbitration award of $192,000. Net income
in 1996 was $2.38 million including the income tax benefit, compared to $1.79
million in 1995. Earnings per share were $.56 in 1996, compared to $.48 in
1995. Shareholders' equity increased to $13.25 million from $4.32 million in
1995.
Results of Operations
The table shown below summarizes the percentage of revenues for various
items in the Company's statements of operations for the periods indicated.
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,
_____________________________________
1996 1995 1994
_______ _______ _______
<S> <C> <C> <C>
Revenues from nonaffiliates 44.5% 58.3% 57.0%
Revenues from affiliates 55.5 41.7 43.0
_______ _______ _______
Total revenues 100.0 100.0 100.0
Cost of revenues 58.7 59.7 61.9
_______ _______ _______
Gross margin 41.3 40.3 38.1
Research and development 10.7 9.0 14.4
Selling, general and administrative 13.2 12.8 14.3
_______ _______ _______
Income from operations 17.4 18.5 9.4
Other income, net 5.8 3.1 0.3
_______ _______ _______
Income before income taxes and
extraordinary item 23.2 21.6 9.7
Income taxes (benefit) (8.9) 0.2 --
Extraordinary income -- -- 2.1
_______ _______ _______
Net income 32.1% 21.4% 11.8%
======= ======= =======
</TABLE>
Revenues -- Total 1996 revenues decreased 11.6% to $7.42 million from
$8.39 million in 1995, after increasing 26.6% from $6.63 million in 1994. The
1996 decrease was primarily due to a reduction of SDP-1800 sales to Mitsubishi
to about 10% of total revenues compared to about 20% in 1995 and 9% in 1994.
Sales of the SDP-1800 were especially strong in 1995 as the Company filled a
backlog of orders for this new product. Revenues in dollars in 1996 from
supplies were essentially flat compared to 1995, which in turn were up 7.4%
over 1994. Supplies thereby rose to about 64% of 1996 total revenues compared
to 55% and 67% in 1995 and 1994, respectively. Nonaffiliate revenues in 1996
decreased $1.59 million from 1995, after an increase of $1.11 million over
1994. These changes were primarily from SDP-1800 sales to Mitsubishi.
Affiliate revenues increased $618,000 over 1995 following an increase of
$647,000 over 1994 due to an increase in revenues from supplies along with a
mix of other services and products.
Gross margin -- Gross margin increased to 41.3% in 1996 compared to 40.3%
in 1995 and 38.1% in 1994. Despite lower revenues in 1996 which reduced
economies of scale, tight expenditure control and a shift in product mix
towards higher-margin supplies sales away from lower-margin SDP-1800 sales
were primarily responsible for the increase. In 1995 an increase in supplies
gross margin was partially offset by a change in product mix towards the
lower-margin SDP-1800.
Research and development (R&D) -- R&D expenses in 1996 increased $33,000
or 4.3% over 1995, which in turn was a decrease of $200,000 or 20.9% compared
to 1994. Increased expenses in the second half of 1996 for the new
PlateStream Platesetter were largely offset by an increase in contracted R&D
work which resulted in a shift of related expenses to costs of revenues. In
1995 the Company relied more on raster image processor software from third
parties and de-emphasized development of its own raster image processor
software. In 1994 the design of the SDP-1800 was completed and released for
production.
<PAGE>
Selling, general and administrative (SG&A) -- SG&A expenses in 1996
decreased $91,000 or 8.4% from 1995 after an increase of $127,000 or 13.4%
over 1994. Selling expenses in 1996 decreased $65,000 from 1995 following a
$67,000 decrease compared to 1994. The 1996 decrease was primarily due to
reduced commissions and trade show expenses. In late 1994 the Company reduced
selling expenses by combining domestic, international and OEM sales functions.
General and administrative expenses in 1996 decreased $26,000 following an
increase in 1995 of $194,000 over 1994. In 1995 the Company made investments
to upgrade its computers, e-mail systems, information system databases and
voice mail.
Other income (expense) -- Other income in 1996 was $429,000 compared to
$262,000 and $23,000 in 1995 and 1994, respectively. The increase in 1996 was
primarily due to interest earned on the investment of the proceeds of the
initial public offering and other excess cash from operations. Other income
in 1995 was due to a $334,000 arbitration award for a 1994 order cancellation.
Arbitration expenses of $142,000 were incurred, resulting in a net gain of
$192,000.
Income tax (benefit) expense -- In 1996 the Company recognized an income
tax benefit that resulted in a net tax benefit of $661,000, compared to tax
expenses of $23,000 and $2,000 in 1995 and 1994, respectively. The tax
benefit was realized from reduction of the valuation allowance relating to
deferred tax assets.
Net income -- Net income increased to $2.38 million from $1.79 million in
1995 and $784,000 in 1994. The 1996 increase was primarily due to the income
tax benefit, following the 1995 increase which was due to significantly higher
operating income over 1994.
Financial Condition
Liquidity -- Cash provided by operating activities was $1.71 million in
1996, compared to $1.72 million in 1995 and a use of cash of $377,000 in 1994.
Working capital was $13.0 million at December 31, 1996 compared to $4.15
million and $2.29 million on that date in 1995 and 1994, respectively. The
1996 current ratio was 10.8 to 1, compared to 5.4 to 1 for 1995 and 3.4 to 1
for 1994. The increases came from the public offering proceeds and from
earnings.
Capital Resources -- The Company has no long-term debt or lines of credit
as of December 31, 1996 as it believes its working capital is adequate for its
current needs.
Outlook -- The Company plans to significantly increase its selling and R&D
expenses in order to expand distribution and to complete development of
additional Platesetter products over the next several years. If the Company
maintains or improves its profitability, it will recognize future income tax
benefits from reductions in the valuation allowance relating to deferred tax
assets.
The accompanying financial statements and related information are the
responsibility of management. They have been prepared in conformity with
generally accepted accounting principles and include amounts that are based on
our best estimates and judgments. The financial information contained
elsewhere in this report is consistent with that in the financial statements.
The Company maintains internal accounting control systems that are
adequate to provide reasonable assurance that the assets are safeguarded from
loss or unauthorized use. These systems produce records adequate for
preparation of financial information.
<PAGE>
The audit committee has reviewed all financial data included in this
report. The audit committee is composed entirely of outside directors and
meets periodically with management and with the independent auditors on
financial reporting matters.
The role of independent auditors is to render an independent, professional
opinion on management's financial statements as required by generally accepted
auditing standards.
<TABLE>
<CAPTION>
QUARTERLY RESULTS OF OPERATIONS
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
_______ _______ _______ _______
<S> <C> <C> <C> <C>
1996
Revenue $ 1,832 $ 1,897 $ 1,676 $ 2,011
Cost of Revenues 1,110 1,002 966 1,273
_______ _______ _______ _______
Gross Profit 722 895 710 738
Operating Income 305 441 261 286
_______ _______ _______ _______
Net Income 331 464 405 1,183
======= ======= ======= =======
Per Share $ .09 $ .13 $ .08 $ .24
======= ======= ======= =======
Average Outstanding 3,700 3,700 4,849 4,868
======= ======= ======= =======
1995
Revenue $ 1,808 $ 2,447 $ 2,268 $ 1,865
Cost of Revenues 1,001 1,395 1,278 1,330
_______ _______ _______ _______
Gross Profit 807 1,052 990 535
Operating Income 330 530 675 19
_______ _______ _______ _______
Net Income 326 523 864 80
======= ======= ======= =======
Per Share $ .09 $ .14 $ .23 $ .02
======= ======= ======= =======
Average Outstanding 3,700 3,700 3,700 3,700
======= ======= ======= =======
</TABLE>
<PAGE>
ITEM 8. FINANCIAL STATEMENT AND SUPPLEMENTARY DATA.
See Financial Statements and Notes thereto commencing at Page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There have been no changes in, or disagreements with, the accountants for
the Company which require reporting under Item 9.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by Item 10 is incorporated herein by reference
to the sections entitled "Item 1. Election of Directors" contained in the
Company's proxy statement to be filed with the Securities and Exchange
Commissions (the "Commission") within 120 days of December 31, 1996 (the
"Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION.
The information required by Item 11 is incorporated herein by reference to
the section following "Compensation Committee Report on Executive
Compensation" contained in the Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by Item 12 is incorporated herein by reference to
the section entitled "Security Ownership Of Certain Beneficial Owners and
Management" contained in the Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS.
The information required by Item 13 is incorporated herein by reference to
the section entitled "Meetings and Compensation of Directors" contained in the
Company's Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The financial statements filed as part of this Annual Report on Form 10-K
are described in the Index to Financial Statements appearing on page F-1.
(b) No Current Reports on Form 8-K were filed by the Company during the
fourth quarter ended December 31, 1996.
The following exhibits are hereby incorporated into this Annual Report on
Form 10-K by reference to exhibits with the same exhibit number filed with the
Company's Registration Statement on Form S-1 (Commission file No. 333-03629),
as amended, which became effective on July 2, 1996 ("Registration Statement"):
Exhibits
Exhibit 11. Statement re Computation of Per Share Earnings
Exhibit 23. Independent Auditors' Consent
Exhibit 27. Financial Data Schedule
<PAGE>
PRINTWARE, INC.
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
PRINTWARE, INC.
Registrant
Date: March 24, 1997 /s/ DANIEL A. BAKER
________________________
Daniel A. Baker, Ph.D.,
PRESIDENT
& CHIEF EXECUTIVE OFFICER
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report is signed below by the following persons on behalf of the registrant on
the dates in the capacities indicated.
<TABLE>
<CAPTION>
Name Title Dates
_____________________ _______________ ______________
<S> <C> <C> <C>
/s/ Daniel A. Baker President & Chief March 24, 1997
- -------------------------- Executive Officer
Daniel A. Baker (Principal Executive Officer) ______________
/s/ Thomas W. Petschauer Executive Vice President
- -------------------------- & Chief Financial Officer March 24, 1997
Thomas W. Petschauer (Principal Financial Officer) ______________
/s/ Allen L. Taylor Co-Chairman of the Board March 24, 1997
- -------------------------- ______________
Allen L. Taylor
/s/ Donald V. Mager Co-Chairman of the Board March 24, 1997
- -------------------------- ______________
Donald V. Mager
/s/ Charles M. Osborne Director March 24, 1997
- --------------------------- ______________
Charles M. Osborne
/s/ Brian D. Shiffman Secretary March 24, 1997
- -------------------------- ______________
Brian D. Shiffman
/s/ Michael F. Reeves Director March 24, 1997
- -------------------------- ______________
Michael F. Reeves
/s/ Cordell E. Lomen Controller March 24, 1997
- -------------------------- ______________
Cordell E. Lomen
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Shareholders of Printware, Inc.:
We have audited the accompanying balance sheets of Printware, Inc. (the
Company) as of December 31, 1996 and 1995 and the related statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Printware, Inc. at December 31, 1996 and
1995 and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
________________________
Minneapolis, Minnesota
January 28, 1997
<PAGE>
<TABLE>
PRINTWARE, INC.
BALANCE SHEETS
DECEMBER 31, 1996 and 1995
<CAPTION>
December 31, December 31,
1996 1995
ASSETS ____________ ___________
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 523,543 $ 2,568,852
Investments 10,266,917 --
Receivables from nonaffiliates 693,347 511,085
Receivables from affiliates 467,036 262,655
Inventories 1,762,795 1,727,342
Prepaid expenses 40,034 17,394
Deferred income taxes 550,842 --
___________ ___________
Total Current Assets 14,304,514 5,087,328
PROPERTY AND EQUIPMENT, net of accumulated
depreciation and amortization 109,239 130,677
INTANGIBLE ASSETS, net of accumulated
amortization 31,236 34,396
DEFERRED INCOME TAXES 130,000 --
___________ ___________
TOTAL ASSETS $14,574,989 $ 5,252,401
=========== ===========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 521,486 $ 436,852
Accrued expenses 453,449 469,108
Deferred revenues 349,728 29,773
___________ ___________
Total Current Liabilities 1,324,663 935,733
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred Stock, no specified par value;
1,000,000 shares authorized;
none issued and outstanding -- --
Common Stock, no par value, authorized
15,000,000 shares: issued and outstanding
4,850,694 and 3,627,013 at
December 31, 1996, and 1995, respectively 21,984,596 15,514,138
Accumulated deficit (8,814,066) (11,197,470)
Unearned compensation on stock options (11,497) --
Net unrealized gain on available-
for-sale securities 91,293 --
___________ ___________
Total shareholders' equity 13,250,326 4,316,668
___________ ___________
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $14,574,989 $ 5,252,401
=========== ===========
<FN>
See notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
PRINTWARE, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<CAPTION>
Years Ended December 31
____________________________________
1996 1995 1994
__________ __________ __________
<S> <C> <C> <C>
REVENUES FROM NONAFFILIATES $3,299,499 $4,889,761 $3,775,958
REVENUES FROM AFFILIATES 4,116,536 3,498,387 2,850,967
__________ __________ __________
TOTAL REVENUES 7,416,035 8,388,148 6,626,925
COST OF REVENUES 4,350,696 5,003,956 4,102,401
__________ __________ __________
GROSS MARGIN 3,065,339 3,384,192 2,524,524
OPERATING EXPENSES:
Research and development 789,824 757,131 956,807
Selling, general and administrative 982,250 1,072,878 945,533
__________ __________ __________
Total 1,772,074 1,830,009 1,902,340
__________ __________ __________
INCOME FROM OPERATIONS 1,293,265 1,554,183 622,184
OTHER INCOME (EXPENSE):
Net gain on arbitration award -- 192,335 --
Interest expense (236) (3,333) (4,457)
Interest and other income 429,263 72,740 27,375
__________ __________ __________
INCOME BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM 1,722,292 1,815,925 645,102
INCOME TAX (BENEFIT) EXPENSE (661,112) 22,500 2,000
__________ __________ __________
INCOME BEFORE EXTRAORDINARY ITEM 2,383,404 1,793,425 643,102
EXTRAORDINARY ITEM-GAIN ON
EXTINGUISHMENT OF DEBT -- -- 140,927
__________ __________ __________
NET INCOME $2,383,404 $1,793,425 $ 784,029
========== ========== =========
NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARE:
Income before extraordinary item $ .56 $ .48 $ .17
Extraordinary item -- -- .04
___________ __________ __________
Net income $ .56 $ .48 $ .21
=========== ========== ==========
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 4,237,629 3,699,814 3,680,934
=========== ========= =========
<FN>
See notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
PRINTWARE, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<CAPTION>
Unearned Net unrealized
compensation gain on avail-
Common Stock Accumulated on stock able-for-sale
Shares Amount deficit options securities
_________ ___________ ____________ ____________ ______________
<S> <C> <C> <C> <C> <C>
BALANCE AT 12/31/93 3,615,326 $15,479,076 $(13,774,924)
Shares issued in
connection with
extinguishment of debt 5,500 16,500 --
Shares issued pursuant
to exercise of stock
options 150 450 --
Shares issued for
services performed for
the Company 2,800 8,400 --
Net income -- -- 784,029
__________ ___________ ____________
BALANCE AT 12/31/94 3,623,776 15,504,426 (12,990,895)
Shares issued pursuant
to exercise of stock
options 737 2,212 --
Shares issued for
services performed for
the Company 2,500 7,500 --
Net income -- -- 1,793,425
__________ ___________ ____________
BALANCE AT 12/31/95 3,627,013 15,514,138 (11,197,470)
Shares issued in public
offering (net of
issuance cost of
$822,447) 1,200,000 6,377,553 --
Shares issued pursuant
to exercise of stock
options 42,455 127,365 --
Shares redeemed and
retired (21,274) (113,922) --
Shares issued for
services performed for
the Company 2,500 7,500 --
Compensation on
issuance of stock
options -- 71,962 -- $ (71,962)
Stock option compensation
earned -- -- -- 60,465
Unrealized gain on
available-for-sale
securities, net of tax -- -- -- -- $ 91,293
Net income -- -- 2,383,404 -- --
__________ ___________ ___________ ____________ ______________
BALANCE AT 12/31/96 4,850,694 $21,984,596 $(8,814,066) $ (11,497) $ 91,293
========== =========== ============ ============ ==============
<FN>
See notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
PRINTWARE, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<CAPTION>
Years Ended December 31,
_______________________________________
1996 1995 1994
___________ ___________ ___________
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 2,383,404 $ 1,793,425 $ 784,029
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 63,653 71,271 92,813
Common Stock issued for services 7,500 7,500 8,400
Stock option compensation earned 60,465 -- --
Gain on sale of available-for-sale
securities (19,502) -- --
Extraordinary item -- -- (140,927)
Deferred income taxes (730,000) -- --
Changes in operating assets and
liabilities:
Receivables from nonaffiliates (182,262) (234,795) 98,149
Receivables from affiliates (204,381) (31,003) (31,652)
Inventories (35,453) 116,356 636,099
Prepaid expenses (22,640) 26,257 (15,559)
Accounts payable 84,634 (8,207) (479,317)
Accrued expenses (15,659) 126,120 (227,093)
Deferred revenues 319,955 (145,577) (1,102,361)
___________ ___________ ___________
Net cash provided by (used in)
operating activities 1,709,714 1,721,347 (377,419)
INVESTING ACTIVITIES:
Purchases of available-for-sale
securities (12,620,382) -- --
Sale of available-for-sale
securities 2,513,418 -- --
Purchases of property and equipment (39,055) (15,375) (50,200)
Increase in intangible assets -- -- (984)
___________ ___________ ___________
Net cash used in
investing activities (10,146,019) (15,375) (51,184)
FINANCING ACTIVITIES:
Proceeds from issuance of
Common Stock 6,504,918 2,212 450
Common Stock redeemed and retired (113,922) -- --
___________ ___________ ___________
Net cash provided by financing
activities 6,390,996 2,212 450
___________ ___________ ___________
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (2,045,309) 1,708,184 (428,153)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 2,568,852 860,668 1,288,821
___________ ___________ ___________
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 523,543 $ 2,568,852 $ 860,668
=========== =========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid during the period for:
Interest $ 236 $ 3,333 $ 4,457
=========== =========== ===========
Income taxes $ 75,900 $ 15,488 $ 2,000
=========== =========== ===========
OTHER NONCASH ITEM:
Issuance of Common Stock for
extinguishment of debt $ -- $ -- $ 16,500
=========== =========== ===========
<FN>
See notes to financial statements.
</FN>
</TABLE>
<PAGE>
PRINTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND
1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Printware, Inc. ("Printware" or the "Company") designs, builds and markets
"Computer-to-Plate" systems that are used by the offset printing industry to
create printing plates directly from computer data. These systems replace the
traditional process of typesetting, paste-up, camera work and processing film
to produce a printing plate.
Revenue Recognition
Revenue for equipment and supply sales is recognized at the time of shipment
to customers. Revenue from development projects and their related costs are
recognized as the work is performed. Revenue related to installation,
training and support is recognized when the services are performed. Revenue
from development projects, installation, training and support is less than 10%
of total revenues for the years ended December 31, 1996, 1995 and 1994.
Net Income Per Common and Common Equivalent Share
Net income per common and common equivalent share is computed by dividing net
income by the weighted average number of shares of Common Stock and dilutive
Common Stock equivalents outstanding. The total weighted average number of
common and common equivalent shares outstanding has been adjusted to give
effect to the reverse stock split authorized by the Company's shareholders
effective April 25, 1996. Common Stock equivalents result from dilutive stock
options and warrants. Common equivalent shares are not included in the per
share calculations when the effect of their inclusion would be antidilutive,
except that, in accordance with Securities and Exchange Commission
requirements, common and common equivalent shares issued during the 12 months
prior to the Company's initial public offering have been included in the
calculation (using the treasury stock method based on an initial public
offering price of $6.00 per share) as if they were outstanding for all periods
presented. Fully diluted earnings per common share is substantially
equivalent to primary earnings per share and is therefore not separately
presented.
Cash Equivalents
Cash equivalents consist primarily of investments in commercial paper and
certificates of deposit, which have original maturities of three months or
less.
Investments
The Company classifies and accounts for debt and equity securities in
accordance with Statement of Financial Accounting Standards (SFAS) No. 115,
Accounting for Certain Investments in Debt and Equity Securities. The
Company's portfolio is classified as available for sale; thus, securities are
recorded at fair market value and any associated gain or loss, net of tax, is
included as a separate component of shareholders' equity, "Net Unrealized Gain
on Available-For-Sale Securities." Gains or losses on securities are computed
based on the cost of specific securities sold. The Company had no available-
for-sale securities at December 31, 1995. A summary of amortized costs and
market values on available-for-sale securities as of December 31, 1996
consists of the following:
<PAGE>
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Market
Description Cost Gain Loss Value
_____________________ ___________ __________ __________ ___________
<S> <C> <C> <C> <C>
Corporate Bonds $ 8,473,369 $ 127,475 $ (503) $ 8,600,341
Municipal & Agency Bonds 1,508,981 14,650 (1,171) 1,522,460
Others 144,116 -- -- 144,116
___________ _________ __________ ___________
Totals $10,126,466 $ 142,125 $ (1,674) $10,266,917
=========== ========= ========== ===========
</TABLE>
Maturities of available-for-sale securities are as follows:
<TABLE>
<CAPTION>
Fair Market
Description Value
_____________________ ___________
<S> <C>
Less Than 1 Year $ 144,116
From 1 to 5 Years 10,122,801
___________
Total $10,266,917
===========
</TABLE>
Credit Risk
The Company generally does not require collateral for its trade accounts
receivable. The Company manages credit risk by evaluating creditworthiness
regularly. Accounts receivable for which collectibility is not assured are
reserved for through establishment of an allowance for doubtful accounts.
Customer accounts considered by management to be uncollectible are written
off.
Inventories
Inventories are valued at the lower of cost (determined on a first-in, first-
out basis) or market. The Company has recorded inventory valuation reserves
of $471,000 and $545,000 at December 31, 1996 and 1995, respectively.
Inventories are periodically reviewed for obsolescence or surplus stock.
Items considered obsolete or surplus are written off or a valuation reserve is
established to write such inventories down to their net realizable value.
The Company is dependent on several key suppliers for plate material and
raster image processing software. All of the Company's agreements with these
suppliers can be canceled by either party under certain circumstances.
<PAGE>
Property and Equipment
Property and equipment are recorded at cost. Office equipment, software,
machinery and equipment and tooling are depreciated on a straight-line basis
over five years. Motor vehicles are depreciated on a straight-line basis over
three years. Leasehold improvements are amortized on a straight-line basis
over the term of the lease.
Impairment of Long-Lived Assets
Management periodically reviews the carrying value of long-term assets for
potential impairment by comparing the carrying value of these assets to the
estimated undiscounted future cash flows expected to result from the use of
these assets. Should the sum of the related, expected future net cash flows
be less than the carrying value, an impairment loss would be recognized. An
impairment loss would be measured by the amount by which the carrying value of
the asset exceeds the fair value of the asset. To date, management has
determined that no impairment of these assets exists.
Intangible Assets
Intangible assets are recorded at cost and are being amortized on a straight-
line basis over 17 years for patents and between two and five years for
license rights.
Research and Development Expenditures
Research and development expenditures are charged to expense as incurred.
Accounting for Warranty Costs
The Company records estimated future warranty costs when the equipment is
shipped to customers.
Management Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires 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.
Financial Risks and Uncertainties
In accordance with American Institute of Certified Public Accountants
Statement of Position No. 94-6, Disclosure of Certain Significant Risks and
Uncertainties, the Company has disclosed in the financial statements certain
financial risks and uncertainties to which it is subject, including
concentration of sales to a limited number of customers, certain suppliers of
raw materials and other key components included in its manufactured equipment
and the use of estimates to review the carrying value of long-lived assets.
The nature of the Company's operations exposes the Company to certain business
risks. The market for "Computer-to-Plate" systems is highly competitive and
subject to rapid technological change and evolving industry standards that may
affect both the operations, operating results and financial condition of the
Company and its customers.
<PAGE>
2. DETAILS OF SELECTED BALANCE SHEET ACCOUNTS
<TABLE>
<CAPTION>
December 31,
____________________________________
1996 1995
___________ ___________
<S> <C> <C>
Receivables from Nonaffiliates:
Trade $ 719,804 $ 532,883
Employees 696 3,115
Allowance for doubtful accounts (27,153) (24,913)
___________ ___________
Total receivables $ 693,347 $ 511,085
=========== ===========
Inventories:
Raw materials $ 846,613 $ 782,189
Work-in-process 196,279 165,246
Finished goods 719,903 779,907
___________ ___________
Total inventories $ 1,762,795 $ 1,727,342
=========== ===========
Property and Equipment:
Office equipment $ 406,643 $ 395,650
Software 103,105 94,547
Machinery and equipment 244,650 225,906
Leasehold improvements 74,762 74,762
Tooling and spares 334,761 334,001
Motor vehicles 10,063 10,063
__________ ___________
Total property and equipment 1,173,984 1,134,929
Less accumulated depreciation and
amortization 1,064,745 1,004,252
__________ ___________
Net property and equipment $ 109,239 $ 130,677
=========== ==========+
Intangible Assets:
License rights $ 560,020 $ 560,020
Patents 53,701 53,701
___________ ___________
Total intangible assets 613,721 613,721
Less accumulated amortization 582,485 579,325
___________ ___________
Net intangible assets $ 31,236 $ 34,396
=========== ===========
Accrued Expenses:
Accrued payroll and related $ 88,692 $ 77,339
Accrued vacation and benefits 147,656 126,479
Accrued professional services 158,379 204,175
Accrued warranty reserve 35,940 33,038
Accrued income taxes -- 7,012
Accrued other 22,782 21,065
___________ ___________
Total accrued expenses $ 453,449 $ 469,108
=========== ===========
</TABLE>
<PAGE>
3. SHAREHOLDERS' EQUITY
On April 25, 1996 the Company's shareholders approved a one-for-four reverse
stock split, effective immediately. All references in the financial
statements to the number of shares, per share amounts, stock option plan data
and the statements of shareholders' equity have been restated to reflect the
split. On April 25, 1996 the Company's shareholders approved an amendment to
the Company's Articles of Incorporation, whereby the authorized stock of the
Company was stated as 15,000,000 shares of Common Stock, no par value and
1,000,000 shares of Preferred Stock, no specified par value. The Company's
Board of Directors may designate any series and fix any relative rights and
preferences of the Preferred Stock. The authorized shares have been restated
in the financial statements to reflect the impact of this amendment. At
December 31, 1996 no shares of Preferred Stock were issued or outstanding.
On July 2, 1996 the Company issued 1,200,000 shares of Common Stock at a price
of $6.00 per share as part of its initial public offering.
During the years ended December 31, 1996, 1995 and 1994, certain employees
exercised stock options and purchased a total of 42,455, 737 and 150 shares
of Common Stock, respectively, at $3.00 per share.
The Company also issued 2,500, 2,500 and 2,800 shares of Common Stock valued
at $7,500, $7,500 and $8,400 in consideration for services rendered during the
years ended December 31, 1996, 1995 and 1994, respectively.
During 1994 the Company extinguished debt of $157,427 through the issuance of
5,500 shares of the Company's Common Stock valued at $16,500 which resulted in
an extraordinary gain of $140,927. The repurchase of the debt canceled the
Company's obligation under a research agreement with a governmental agency.
Prior to July 2, 1996 Common Stock values were based on management's estimates
of the fair value of the Company's Common Stock and prices after July 2, 1996
were based on the fair market value of the Company's stock on the Nasdaq
Market.
Stock Options
On April 25, 1996 the Company's shareholders approved a new stock option plan
(the 1996 Stock Plan) which provides for the granting of options and
restricted stock to certain officers, employees, directors and consultants to
purchase up to 500,000 shares of Common Stock. The 1996 Stock Plan also
provides for the automatic grant of an option for 1,000 shares of the
Company's Common Stock, exercisable for a period of five years, to each non-
employee director, upon the adoption of the 1996 Stock Plan and upon the
election or re-election as a member of the Board of Directors. Such Board of
Directors options will be issued with an exercise price equal to the fair
market value of the Common Stock on the date the option is granted.
The Company's prior incentive stock option plans provided that stock options
to purchase an aggregate of 375,000 shares of Common Stock may be granted to
certain officers and employees. The exercise price could not be less than
100% of the fair market value of the Common Stock on the date the option was
granted. No additional options under the Company's prior plans will be
granted.
All options issued after August 1992 become exercisable either 100% after
three years from date of grant, 100% on date of grant or 100% one year after
date of grant. All of these options expire either five, six or ten years from
the date of grant.
The estimated fair value of options granted during 1996 and 1995 were $4.09
and $1.52, respectively. The Company applies Accounting Principles Board
Opinion No. 25 (APB 25) and related interpretations in accounting for its
<PAGE>
stock option plans. Total compensation costs of $71,962 have been recognized
for stock option grants during the year ended December 31, 1996 under the
provisions of APB 25. Had compensation cost for the Company's stock option
plans been determined based on the fair value at the grant dates for awards
under those plans consistent with Statement of Financial Accounting Standards
No. 123, the Company's net income and earnings per share for the years ended
December 31, 1996 and 1995 would have been reduced to the pro forma amounts as
follows:
<TABLE>
<CAPTION>
1996 1995
____ _____
<S> <C> <C>
Net income:
As reported $2,383,404 $1,793,425
Pro forma $1,749,029 $1,761,112
Net income per share:
As reported $.56 $.48
Pro forma $.41 $.48
</TABLE>
<PAGE>
The fair value of options granted under the Company's stock option plans
during 1996 and 1995 was estimated on the date of grant using the Black-
Scholes option-pricing model with the following weighted-average assumptions
used: no dividend yield, expected volatility of 75%, risk-free interest rates
between 5.4% and 7.7% and expected lives between 5 and 10 years.
Stock option activity during the years ended December 31, 1996, 1995 and 1994
is summarized below:
<TABLE>
<CAPTION>
Year Ended December 31,
__________________________________________________________________________
1996 1995 1994
_____________________ ______________________ ______________________
Wgtd. Avg. Wgtd. Avg. Wgtd. Ave.
Shares Exer.Price Shares Exer. Price Shares Exer. Price
_______ __________ _______ ___________ _______ ___________
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 102,972 $ 3.00 82,406 $ 3.00 95,160 $ 3.00
Granted 278,681 5.61 23,087 3.00 1,912 3.00
Canceled (1,758) 3.00 (1,784) 3.00 (14,516) 3.00
Exercised (42,455) 3.00 (737) 3.00 (150) 3.00
_______ __________ _______ ___________ _______ ___________
Outstanding at
end of year 337,440 $ 5.15 102,972 $ 3.00 82,406 $ 3.00
======= ========== ======= =========== ======= ===========
Options exercisable
at year end 178,084 79,548 79,872
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Options Wgtd. Avg. Options
Exercise Outstanding Contractual Wgtd. Avg. Exercisable Wgtd. Avg.
Prices at 12/31/96 Life (Yrs.) Exer. Price at 12/31/96 Exer. Price
________ ___________ ___________ ___________ ___________ ___________
<C> <C> <C> <C> <C> <C>
$ 3.00 95,040 4.66 $ 3.00 58,084 $ 3.00
5.63 2,400 5.68 5.63 -- 5.63
6.00 240,000 5.81 6.00 120,000 6.00
________ ___________ ___________ ___________ ___________ ___________
337,440 5.49 $ 5.15 178,084 $ 5.01
=========== =========== =========== =========== ===========
</TABLE>
<PAGE>
Warrants
Warrant activity is summarized as follows:
<TABLE>
<CAPTION>
Aggregate
Number of Price per Exercise
Shares Share Price
_________ _________ _________
<S> <C> <C> <C>
Balance at December 31, 1994 and 1995 5,000 $ 3.00 $ 15,000
Issued July 2, 1996 120,000 7.20 864,000
_________ _________ _________
Balance at December 31, 1996 125,000 $3.00-7.20 $ 879,000
========= ========== =========
</TABLE>
In connection with the Company's initial public offering, the Representative
of the Underwriters was granted warrants to purchase up to 120,000 shares of
Common Stock at $7.20 per share, exercisable commencing July 2, 1997 and
expiring July 2, 2001.
Restricted Stock
The Company has entered into a restricted stock compensation plan with an
officer of the Company under which the Company issued 10,000 shares of
restricted stock to the officer over a four year period, provided that the
officer remained an employee of the Company as of the anniversary date of the
plan. Under this plan the last 2,500 shares were issued as of December 31,
1996. Compensation expense related to these restricted stock issuances has
been recorded in the statements of operations.
1996 Employee Stock Purchase Plan
The Company's 1996 Employee Stock Purchase Plan (the "Stock Purchase Plan")
was adopted on April 25, 1996 and provides for the issuance of up to 100,000
shares of Common Stock. With certain exceptions, all employees of the Company
who have been employed by the Company for at least six months and who are
employed at least 20 hours per week and at least five months per year,
including officers and directors who are employees, are eligible to
participate in the Stock Purchase Plan. The Stock Purchase Plan consists of
periodic offerings, with the first offering planned to begin on April 1, 1997.
Each offering under the Stock Purchase Plan will be for a period determined by
a stock purchase committee appointed by the Board of Directors, but not to
exceed 27 months. An employee may elect to have up to a maximum of 10%
deducted from his or her regular salary for the purpose of purchasing shares
under the Stock Purchase Plan. The price at which the employee's shares are
purchased is the lower of (a) 85% of the closing price of the Common Stock on
the day that the offering commences or (b) 85% of the closing price of the
Common Stock on the day that the offering terminates. No shares have been
issued under the Stock Purchase Plan.
4. LEASES
The Company leases office and manufacturing space of 35,410 square feet under
a noncancelable operating lease which expires on July 31, 1998 and contains an
option to renew for up to three additional years. The Company is also
responsible for all taxes, utilities and assessments. Rent expense for all
leases was $84,000, $87,000 and $107,000 for the years ended December 31,
1996, 1995 and 1994, respectively.
At December 31, 1996, future minimum lease payments due, excluding taxes and
utilities, were $84,000 for 1997 and $50,000 for 1998, resulting in a total of
$234,000.
<PAGE>
5. LICENSING AND ROYALTY AGREEMENTS
The Company has a licensing agreement with a minority shareholder whereby the
Company received all associated laser printer technology, including rights to
patents, know-how, software, firmware, documentation and access to the
minority shareholder's experts who were involved in the development effort.
The Company also received multiple prototypes of two models. In return, the
minority shareholder receives royalties of up to 2% of net revenues from laser
imager sales and received warrants to purchase shares of Common Stock of the
Company which were issued in 1987. The warrants expired during 1994. Royalty
expense relating to this agreement was $1,200, $1,800 and $9,014 for the
years ended December 31, 1996, 1995 and 1994, respectively.
The Company had a software development and license agreement with a third
party in which the Company was to fund certain software development costs and
to pay royalties on products sold. The agreement expired during 1994. All
royalty expense relating to this agreement has been insignificant.
The Company has purchased license rights for up to 100,000 copies of 300 fonts
(typefaces) for $395,000. In December 1989, the Company paid $100,000 to
extend the original agreement through December 31, 1993. These payments have
been included in intangible assets and were amortized over the four years
ended December 31, 1993. The Company has extended this agreement through
December 31, 1997 at no additional cost.
6. DEFERRED REVENUES
In 1996 the Company entered into an agreement with a customer, who is a
shareholder, to build certain equipment. The customer advanced $361,330 to
the Company (a portion of the total contract). The Company has shipped
$80,735 of equipment to this customer as of December 31, 1996 under this
contract.
During 1993 the Company had entered into several agreements with customers for
the purchase of new products, supplies and research and development projects.
As part of these agreements, the Company received advance payments totaling
$755,712 during 1993. The Company shipped equipment and supplies under these
agreements totaling nil, $142,750 and $385,450 during the years ended December
31, 1996, 1995 and 1994, respectively. During 1994, a customer, who is a
shareholder, canceled a contract for equipment which led to its forfeiture of
certain equipment advances totaling $679,434. As a result of the contract
cancellation, the Company devalued the related inventory. There was no
material gain or loss resulting from the contract cancellation.
The balances remaining under all the agreements at December 31, 1996 and 1995
were $349,728 and $29,773, respectively.
7. MAJOR CUSTOMERS AND EXPORT REVENUES
Revenues to one customer, excluding the related party total revenues, amounted
to $1,066,000 (14.4%), $1,464,000 (17.5%) and $140,000 (2.1%) for the years
ended December 31, 1996, 1995 and 1994, respectively. No other customer
accounted for 10% or more of total revenues for these periods.
The Company's export revenues did not exceed 10% of total revenues for the
years ended December 31, 1996, 1995 and 1994.
8. INCOME TAXES
The Company records income taxes under the provisions of Statement of
Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes.
For income tax purposes, the Company had net operating loss carryforwards of
<PAGE>
approximately $8,500,000 as of December 31, 1996. If not used, these
carryforwards will begin to expire in 2003. Under the Tax Reform Act of 1986,
certain future changes in ownership resulting from the sale or issuance of
stock may limit the amount of net operating loss carryforwards which can be
utilized on an annual basis.
Deferred tax assets and liabilities represent temporary differences between
the basis of assets and liabilities for financial reporting purposes and tax
purposes. Deferred tax assets are primarily comprised of reserves which have
been deducted for financial statement purposes, but have not been deducted for
income tax purposes and the tax effect of net operating loss carryforwards.
The Company annually estimates the amount of deferred tax assets which it
expects to realize based on historical averages of pretax accounting income
and estimates of future pretax accounting income. The Company has recorded a
valuation allowance to reduce recorded deferred tax assets to the amount of
deferred tax benefit expected to be realized.
Deferred taxes as of December 31, 1996 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
_________ _________
<S> <C> <C>
Current deferred taxes:
Inventory reserves $ 165,000 $ 192,000
Accrued vacation 39,000 35,000
Allowance for doubtful accounts 9,500 9,000
Unrealized gain on investments (49,158) --
Tax net operating loss carryforwards 318,500 --
Other 68,000 18,000
Valuation allowance -- (254,000)
________ ________
Total $ 550,842 $ --
======== ========
Long-term deferred taxes:
<S> <C> <C>
Tax net operating loss carryforwards $ 2,656,500 $3,675,000
Tax credit carryforwards 76,500 32,000
Valuation allowance (2,603,000) (3,707,000)
___________ __________
Total $ 130,000 $ --
=========== ==========
</TABLE>
<PAGE>
A reconciliation of the expected federal income taxes, using the effective
statutory federal rate of 35%, with the provision (benefit) for income taxes
is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
__________ _________ _________
<S> <C> <C> <C>
Provision for income taxes:
Expected federal expense (benefit) $ 602,800 $ 635,000 $ 275,000
State taxes, net of federal benefit 7,900 2,000 2,000
Change in valuation allowance (1,358,000) (587,000) (275,000)
AMT 44,500 -- --
Other 41,688 (27,500) --
__________ _________ _________
Total $ (661,112) $ 22,500 $ 2,000
========== ========= =========
</TABLE>
Income tax (benefit) expense for the years ended December 31, 1996, 1995 and
1994 consist of the following:
<TABLE>
<CAPTION>
1996 1995 1994
__________ _________ _________
<S> <C> <C> <C>
Current tax provision:
Federal $ 60,988 $ 16,150 $ --
State 7,900 6,350 2,000
Deferred -- primarily federal (730,000) -- --
__________ _________ _________
Income tax (benefit) expense $ (661,112) $ 22,500 $ 2,000
========== ========= =========
</TABLE>
9. RELATED PARTY TRANSACTIONS
The Company sells products to two of its shareholders and also contracts for
certain products and production services with these shareholders. In addition
to revenues from affiliates and accounts receivable from affiliates as shown
on the financial statements, a summary of these transactions as of and for the
years ended December 31, 1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
December 31,
____________________________________
1996 1995 1994
__________ __________ __________
<S> <C> <C> <C>
Total purchases of production
services $ 7,000 $ 44,000 $ 91,000
Accounts payable 1,000 -- 8,000
</TABLE>
<PAGE>
10. COMMITMENTS AND CONTINGENCIES
During 1995, the Company received a favorable arbitration award from a dispute
with A. B. Dick Company, a former customer. The Company recognized a gain of
$192,000 after expenses of approximately $142,000 in this dispute. This gain
is included in the statements of operations under other income (expense).
The Company is involved in various other legal actions in the normal course of
business. Management is of the opinion that the outcome of such actions will
not have a significant effect on the Company's financial position or results
of operations.
11. 401(K) PROFIT SHARING PLAN
The Company's 401(k) Profit Sharing Plan (the "401(k) Plan") became effective
August 1, 1994. The 401(k) Plan is intended to qualify under Section 401(k)
of the Internal Revenue Code. All employees employed by the Company in the
United States for at least 30 hours per week are eligible to participate in
the 401(k) Plan as of the next calendar quarter following one year after date
of hire by the Company. Each eligible employee may contribute to the 401(k)
Plan, through payroll deductions, up to 15% of his or her salary, subject to
statutory limitations. The 401(k) Plan permits, but does not require,
additional contributions to the 401(k) Plan by the Company of up to 2% of the
compensation paid by the Company to each employee in the previous calendar
quarter. The Company's contributions are made at the discretion of the Board
of Directors, within the limits of the 401(k) Plan. The Company has made a
contribution of 1% of the compensation of each participating employee each
quarter since the adoption of the 401(k) Plan. The Company's contributions to
the 401(k) Plan were $13,411, $13,352 and $4,769 for the years ended December
31, 1996, 1995 and 1994, respectively.
<PAGE>
<TABLE>
PRINTWARE, INC.
EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<CAPTION>
Twelve months ended
December 31, December 31,
1996 1995
___________ ___________
<S> <C> <C>
PRIMARY EPS:
Weighted average number of
common shares outstanding 4,226,504 3,626,437
Common share equivalents
from assumed exercise of
options and warrants 11,125 73,377
___________ ___________
Total shares 4,237,629 3,699,814
=========== ===========
Net income $ 2,383,404 $ 1,793,425
___________ ___________
Earnings per share $ .56 $ .48
=========== ===========
FULLY DILUTED:
Weighted average number of
common shares outstanding 4,226,504 3,626,437
Common share equivalents
from assumed exercise of
options and warrants 12,676 73,377
___________ ___________
Total shares 4,239,180 3,699,814
=========== ==========
Net income $ 2,383,404 $ 1,793,425
___________ ___________
Earnings per share $ .56 $ .48
=========== ===========
<FN>
Note: Fully diluted net income per share is not reported
separately because it is substantially the same as
primary net income per share.
</FN>
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-08555 of Printware, Inc. on Form S-8 of our report dated January 28, 1997
appearing in this Annual Report on Form 10-K of Printware, Inc. for the year
ended December 31, 1996.
/s/ Deloitte & Touche LLP
________________________
Minneapolis, Minnesota
March 24, 1997
<PAGE>
[ARTICLE] 5
[MULTIPLIER] 1,000
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] Dec-31-1996
[PERIOD-START] Jan-01-1996
[PERIOD-END] Dec-31-1996
[CASH] 524
[SECURITIES] 10267
[RECEIVABLES] 1160
[ALLOWANCES] (27)
[INVENTORY] 1763
[CURRENT-ASSETS] 14305
[PP&E] 1174
[DEPRECIATION] 1065
[TOTAL-ASSETS] 14575
[CURRENT-LIABILITIES] 1325
[BONDS] 0
[COMMON] 21985
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[OTHER-SE] (8735)
[TOTAL-LIABILITY-AND-EQUITY] 14575
[SALES] 7416
[TOTAL-REVENUES] 7416
[CGS] 4351
[TOTAL-COSTS] 4351
[OTHER-EXPENSES] 1772
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] (429)
[INCOME-PRETAX] 1722
[INCOME-TAX] (661)
[INCOME-CONTINUING] 2383
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 2383
[EPS-PRIMARY] .56
[EPS-DILUTED] .56
</TABLE>
