<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended April 1, 2000
Commission file Number 000-20729
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)
(651) 456-1400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant(1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practical
date:
Common Stock, no Par Value--3,282,503 shares as of
May 16, 2000.
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1.--FINANCIAL STATEMENTS
<TABLE>
PRINTWARE, INC.
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
QUARTER ENDED APRIL 1, 2000 AND APRIL 3, 1999
DOLLARS IN THOUSANDS EXCEPT PER SHARE INFORMATION
(UNAUDITED)
<CAPTION>
Quarter ended
April 1 April 3
_______ _______
2000 1999
_______ _______
<S> <C> <C>
TOTAL REVENUES $1,264 $ 920
COST OF REVENUES 737 584
______ ______
GROSS MARGIN 527 336
PERIOD COSTS:
Research and development 154 190
Selling, general and administrative 356 437
______ ______
Total 510 627
______ ______
INCOME (LOSS) FROM OPERATIONS 17 (291)
OTHER INCOME:
Interest and other income 124 194
______ ______
INCOME (LOSS) BEFORE INCOME TAXES 141 (97)
INCOME TAXES 49 -
______ ______
NET INCOME (LOSS) $ 92 $ (97)
====== ======
NET INCOME (LOSS) PER COMMON--
BASIC AND DILUTED $ .03 $ (.02)
====== ======
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING--BASIC 3,275,583 4,834,763
========= =========
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING--DILUTED 3,322,963 4,834,763
========= =========
OTHER COMPREHENSIVE INCOME (LOSS),
BEFORE TAX:
Unrealized holding losses on
securities:
Unrealized holding losses
arising during period $ (22) $ (33)
Less reclassification adjustment
for gains included in net income - -
_________ _________
OTHER COMPREHENSIVE LOSSES,
BEFORE TAX (22) (33)
INCOME TAX BENEFIT RELATED TO
ITEMS OF OTHER COMPREHENSIVE
LOSSES 8 11
_________ _________
OTHER COMPREHENSIVE LOSSES,
NET OF TAX $ (14) $ (22)
========= =========
COMPREHENSIVE INCOME (LOSS) $ 78 $ (119)
========= =========
See notes to condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
PRINTWARE, INC.
CONDENSED BALANCE SHEETS
DOLLARS IN THOUSANDS EXCEPT SHARE INFORMATION
(UNAUDITED)
ASSETS
April 1, December 31,
2000 1999
____________ ____________
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 223 $ 56
Marketable securities available-for-sale 7,181 7,492
Receivables 486 445
Lease receivables--current 855 757
Inventories 2,161 2,142
Deferred income taxes--current 436 426
Prepaid expenses 68 56
_______ _______
Total Current Assets 11,410 11,374
PROPERTY AND EQUIPMENT, net of accumulated
depreciation and amortization 169 186
INTANGIBLE ASSETS, net of accumulated
amortization 21 22
LEASE RECEIVABLES--long term 1,916 1,717
DEFERRED INCOME TAXES--long term 2,057 2,057
_______ _______
$15,573 $15,356
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 507 $ 392
Accrued expenses 415 407
Deferred revenues 27 35
_______ _______
Total Current Liabilities 949 834
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
3,282,503 shares at April 1, 2000;
3,269,494 at December 31, 1999,
respectively 19,055 19,031
Accumulated deficit (4,354) (4,446)
Accumulated other comprehensive losses (77) (63)
_______ _______
Total shareholders' equity 14,624 14,522
_______ _______
$15,573 $15,356
======= =======
See notes to condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
PRINTWARE, INC.
CONDENSED STATEMENTS OF CASH FLOWS
QUARTER ENDED APRIL 1, 2000 AND APRIL 3, 1999
DOLLARS IN THOUSANDS
(UNAUDITED)
April 1, April 3,
2000 1999
____________ ____________
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 92 $ (97)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 15 15
Provision for bad debts - 3
Provision for inventory write-downs 27 15
Deferred income taxes (10) 13
Changes in operating assets and liabilities:
Receivables (41) 261
Inventories (46) (386)
Prepaid expenses (12) (30)
Accounts payable 115 (14)
Accrued expenses 8 (90)
Deferred revenues (8) (1)
______ ______
Net cash provided by (used in)
operating activities 140 (311)
INVESTING ACTIVITIES:
Purchases of available-for-sale securities - -
Maturities and sales of available-for-sale
securities 297 14
Increase in lease receivables (297) (169)
Purchase of property and equipment - (10)
Disposal of property and equipment 3 -
______ ______
Net cash used in
investing activities 3 (165)
FINANCING ACTIVITIES:
Proceeds from issuance of Common Stock 24 16
______ ______
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 167 (460)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 56 654
______ ______
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 223 $ 194
====== ======
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid during the period for:
Income taxes $ - $ -
====== ======
See notes to condensed financial statements.
</TABLE>
<PAGE>
PRINTWARE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
QUARTER ENDED APRIL 1, 2000 AND APRIL 3, 1999
1. INTERIM FINANCIAL INFORMATION
The accompanying condensed balance sheet as of April 1, 2000 and the
condensed statements of operations and comprehensive income for the three
months ended April 1, 2000, April 3, 1999, and the condensed statements
of cash flows for the three months ended April 1, 2000 and April 3, 1999 are
unaudited. In the opinion of management, such unaudited financial statements
include all adjustments, consisting of only normal, recurring accruals,
necessary for a fair presentation thereof. The results of operations for any
interim period are not necessarily indicative of the results for the year.
<TABLE>
<CAPTION>
April 1, December 31,
2000 1999
____________ ____________
<S> <C> <C>
2. RECEIVABLES:
Trade $ 442 $ 378
Interest 92 117
Employees 3 1
Allowance for doubtful accounts (51) (51)
______ ______
Total receivables $ 486 $ 445
====== ======
3. INVENTORIES:
Raw materials $1,345 $1,353
Work-in-process 304 236
Finished goods 512 553
______ ______
Total inventories $2,161 $2,142
====== ======
4. PROPERTY AND EQUIPMENT:
Office equipment $ 509 $ 511
Software 108 108
Machinery and equipment 322 322
Leasehold improvements 126 126
Tooling and spares 338 338
Motor vehicles 14 24
______ ______
Total property and equipment 1,417 1,429
Less: accumulated depreciation and amortization 1,248 1,243
______ ______
Net property and equipment $ 169 $ 186
====== ======
</TABLE>
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PRINTWARE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
QUARTER ENDED APRIL 1, 2000 AND APRIL 3, 1999
(Continued)
<TABLE>
<CAPTION>
April 1, December 31,
2000 1999
____________ ____________
<S> <C> <C>
5. INTANGIBLE ASSETS:
License rights $ 560 $ 560
Patents 54 54
______ ______
Total intangible assets 614 614
Less: accumulated amortization 593 592
______ ______
Net intangible assets $ 21 $ 22
====== ======
6. ACCRUED EXPENSES:
Accrued payroll and related $ 80 $ 50
Accrued vacation and benefits 174 187
Accrued professional services 32 48
Accrued warranty reserve 35 46
Accrued income taxes 79 28
Accrued other 15 48
______ ______
Total accrued expenses $ 415 $ 407
====== ======
</TABLE>
7. MARKETABLE SECURITIES
The Company classifies its marketable securities as available-for-sale.
At April 1, 2000 and December 31, 1999, securities available-for-sale are
carried at fair value with the net unrealized holding gain or loss included
in shareholders' equity.
8. SHAREHOLDERS' EQUITY
During the three months ended April 1, 2000, the Company issued 6,063 and
6,946 shares of Common Stock in connection with the Employee Stock Purchase
Plan at $1.91 and $1.86 per share, respectively.
9. NEW ACCOUNTING PRONOUNCEMENT
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," was issued by the Financial Accounting Standards Board in
June 1998. The Standard will require the Company to recognize all
derivatives on the balance sheet at fair value. Derivatives that are
not hedges must be adjusted to fair value through income. If the
derivative is a hedge, depending on the nature of the hedge, changes in
the fair value of derivatives will either be offset against the change in
fair value of the hedged assets, liabilities, or firm commitments through
earnings, or recognized in other comprehensive income until the hedged item
is recognized in earnings. The change in a derivative's fair value related
to the ineffective portion of a hedge, if any, will be immediately recognized
in earnings. The Company expects to adopt this Standard as of the beginning
of its fiscal year 2001. The effect of adopting the Standard is currently
being evaluated, but is not expected to have a material effect on the
Company's financial position or results in operations.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE QUARTER ENDED
APRIL 1, 2000 AND APRIL 3, 1999
Total revenues for the 2000 quarter were $1.26 million, an increase of
37% from revenues of $920,000 for first quarter 1999. The increase was due
primarily to an increase in Platesetter equipment sales and start up
SilverStream supply sales in the 2000 quarter compared to 1999.
The Company's gross margin was $527,000 in the first quarter 2000 versus
$336,000 in the comparable quarter in 1999. Gross margin as a percentage of
revenue increased from 37% in the first quarter 1999 to 42% in first quarter
2000. The increased percentage margin in 2000 was due primarily to increased
equipment sales that have a higher margin as well as more favorable
manufacturing variances caused by increased equipment production.
Research and development expenses decreased to $154,000 in the first
quarter 2000 from $190,000 in the first quarter in 1999. The decrease was
largely due to reduction in headcount and related costs caused by the
completion of the PlateStream development, and despite increased expenses for
the new Internet-related Web-to-Plate developments.
Selling, general and administrative expenses decreased to $356,000 in the
first quarter of 2000 from $437,000 in the first quarter of 1999. Selling
expenses decreased by approximately $26,000 in the first quarter 2000 due to
tighter management of expenses during this period. General and administrative
expenses were down approximately $55,000 in the 2000 quarter due primarily to
lower accrual of executive incentive compensation and decreases in professional
service costs.
The Company anticipates an unusual expenditure occurring during the
upcoming quarter ending on July 1, 2000. On March 31, 2000 a committee of
dissident shareholders (the "Dissidents") launched a proxy contest in
connection with the Annual Meeting originally scheduled for April 13, 2000
and expected to be convened June 7, 2000. As a result of the Dissidents'
proxy contest, the Company has had to retain its own solicitation and advisory
firm and to engage in other professional services, significantly increasing
the cost of the Annual Meeting.
Interest and other income in the 2000 quarter was $124,000 compared to
$194,000 in the 1999 quarter. The decrease in interest income in 2000 is due
primarily to a decrease in cash and investments of over $4.2 million from the
1999 quarter compared to the 2000 quarter. This is primarily due to the $3
million repurchase of stock from Deluxe Corporation that the Company undertook
in the third quarter of 1999, and the Company's lease financing.
The Company's income tax expense primarily consists of federal and state
taxes due in the current year. In 1999, the Company did not record income
taxes on a quarterly basis due to its deferred tax asset status and
significant valuation allowance.
Net income for the first quarter of 2000 was $92,000, or $.03 per common
share, up from net loss of $97,000 or $(.02) per share in 1999.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $10.5 million on April 1, 2000 compared to $10.5
million at December 31, 1999. Cash, cash equivalents and investments
decreased by approximately $140,000 at April 1, 2000 compared to December 31,
1999. The decrease was primarily due to an increase in sales-type leases
financed by the Company, partially offset by increased revenues and lower
operating expenses.
As of April 1, 2000, other than increased expenses of the proxy contest
described above, the Company has no material commitments which would result
in a significant cash outflow other than purchases of inventory in the normal
course of business, and the financing of additional Platesetter leases.
<PAGE>
PART II--OTHER INFORMATION
Item #6 Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 10. Amendment Number 1 to Change in Control Severance
Agreement Dated April 13, 2000
Exhibit 11. Statement re computation of per share earnings
Exhibit 27. Financial Data Schedule
b. Reports on Form 8-K
No reports have been filed on Form 8-K during this
quarter.
<PAGE>
PRINTWARE, INC.
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934,
the registrant has duly cause this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRINTWARE, INC.
Registrant
Date: May 16, 2000 /s/ THOMAS W. PETSCHAUER
________________________
Thomas W. Petschauer
EXECUTIVE VICE PRESIDENT
& CHIEF FINANCIAL OFFICER
(Principal Financial Officer)
Date: May 16, 2000 /s/ DANIEL A. BAKER
________________________
Daniel A. Baker, Ph.D.,
PRESIDENT
& CHIEF EXECUTIVE OFFICER
(Principal Executive Officer)
<PAGE>
Amendment Number 1 to Change in Control Severance Agreement
Dated April 13, 2000
This Amendment No. 1 to the Change in Control Severance Agreement by
and between Printware, Inc., a Minnesota corporation with its principal
offices at St. Paul, Minnesota ("Printware") and Daniel A. Baker, Ph.D.,
residing at 12900 St. David's Road, Minnetonka, Minnesota 55305 (the
"Executive"), dated as of April 25, 1996 (the "Agreement") is dated as of
April 13, 2000.
The parties hereto agree as follows:
1. All capitalized terms shall have the meaning ascribed to them in
the Agreement.
2. Paragraph 3 of the Agreement is amended to read as follows:
3. Termination Following Change in Control. If a Change in Control
occurs during the term of this Agreement, and if Executive's employment is
terminated during the 12 month period following the date of the Change in
Control (i) by Printware other than for Cause, Retirement, or Disability or
(ii) by Executive for Good Reason or (iii) by Executive for voluntary
resignation, then Executive shall be entitled to the benefits provided below:
(a) Printware shall pay Executive, through the Date of Termination,
the Executive's base salary as in effect at the time the Notice of
Termination is given and any other form or type of compensation and benefit
otherwise payable for such period;
(b) Printware shall pay Executive a severance payment (the "Severance
Payment") equal to 24 months of 125% the Executive's monthly base salary of
of the Date of Termination (base salary shall include any amounts contributed
by the Executive to any cash or deferred arrangement that qualifies under
Section 401(k) of the Code or any cafeteria plan under Section 125 of the
Code sponsored by Printware).
The Severance Payment shall be made in a single lump sum within 60 days
after the Date of Termination. The Severance Payment herein shall be in lieu
of any other cash severance benefits payable under any other policy, plan or
program of Printware.
(c) All nonvested options to purchase the capital stock of Printware
held by Executive on the Date of Termination shall immediately vest in full
and all restrictions on any restricted stock held by Executive shall
immediately lapse and Executive shall be entitled to exercise all rights and
to receive all benefits accruing to Executive under any and all Printware
stock purchase and stock option plans or programs, or any successor to any
such plans or programs, for a period of 90 days following the Date of
Termination, which shall be in addition to, and not reduced by, any other
amounts payable to Executive under this Section 3.
(d) Executive shall be entitled to receive all benefits payable to the
Executive under any of Printware's pension, life insurance, medical, health
and accident, disability, deferred compensation, or savings plans in which
Executive was participating immediately prior to the Change in Control, which
shall be in addition to, and not reduced by, any other amounts payable to
Executive under this Section 3.
(e) Executive shall not be required to mitigate the amount of any
payment provided for in this Section 3 by seeking other employment or
otherwise, nor shall the amount of any payment or benefit provided for in
this Section 3 be reduced by any compensation earned by Executive as the
result of employment by another employer or by any other amounts of
compensation or benefits payable by Printware after the Date of Termination,
or otherwise.
3. All other provisions of the Agreement remain in full force and
effect in accordance with the terms of the Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Amendment No. 1 to the Agreement, all as of the day and year first above
written.
PRINTWARE CORPORATION
/s/Brian D. Shiffman
Name: Brian D. Shiffman
Title: Secretary
DANIEL A. BAKER, Ph.D.
/s/Daniel A. Baker
</TEXT
<PAGE>
<TABLE>
PRINTWARE, INC.
EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS (LOSS)
<CAPTION>
Quarter ended
April 1, April 3,
2000 1999
__________ __________
<S> <C> <C>
BASIC EPS:
Weighted average number of
common shares outstanding 3,275,583 4,834,763
__________ __________
Total shares 3,275,583 4,834,763
========== ==========
Net income (loss) (000's) $ 92 $ (97)
========== ==========
Earnings (loss) per share $ .03 $ (.02)
========== ==========
DILUTED:
Weighted average number of
common shares outstanding 3,275,583 4,834,763
Common share equivalents
from assumed exercise of
options and warrants 47,380 -
__________ __________
Total shares 3,322,963 4,834,763
========== ==========
Net income (loss) (000's) $ 92 $ (97)
========== ==========
Earnings (loss) per share $ .03 $ (.02)
========== ==========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-2000
<PERIOD-START> Jan-01-2000
<PERIOD-END> Apr-01-2000
<CASH> 223
<SECURITIES> 7181
<RECEIVABLES> 1392
<ALLOWANCES> (51)
<INVENTORY> 2161
<CURRENT-ASSETS> 11410
<PP&E> 1417
<DEPRECIATION> 1248
<TOTAL-ASSETS> 15573
<CURRENT-LIABILITIES> 949
<BONDS> 0
<COMMON> 19055
0
0
<OTHER-SE> (4354)
<TOTAL-LIABILITY-AND-EQUITY> 15573
<SALES> 1264
<TOTAL-REVENUES> 1264
<CGS> 737
<TOTAL-COSTS> 737
<OTHER-EXPENSES> 510
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 124
<INCOME-PRETAX> 141
<INCOME-TAX> 49
<INCOME-CONTINUING> 92
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 92
<EPS-BASIC> .03
<EPS-DILUTED> .03
</TABLE>
