SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 28, 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 0-17541
PRESSTEK, INC.
(Exact name of registrant as specified in its charter)
Delaware 02-0415170
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8 Commercial Street, Hudson, New Hampshire 03051-3907
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (603) 595-7000
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report.
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 practicable date: As of October 25, 1996 there
were 15,330,217 shares outstanding of the Registrant's common stock, $.01 par
value per share.
<PAGE>
PRESSTEK, INC.
INDEX
PAGE
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Balance Sheets as of September 28, 1996
(unaudited) and December 30, 1995 3
Statements of Operations for the three
and nine month periods ended September 28, 1996
and September 30, 1995 (unaudited) 4
Statements of Cash Flows for the nine month periods ended
September 28, 1996 and September 30, 1995
(unaudited) 5
Notes to Financial Statements (unaudited) 6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
PART II OTHER INFORMATION 17
Item 1 Legal Proceedings
Item 6 Exhibits and Reports on Form 8-K
Signatures 18
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
PRESSTEK, INC.
BALANCE SHEETS
September 28, December 30,
1996 1995
------------ ------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 8,469,179 $ 3,628,021
Marketable securities 6,534,610 3,050,825
Accounts receivable 12,975,508 7,888,559
Inventory 8,508,424 5,861,743
Costs and estimated earnings in excess
of billings on uncompleted contracts 1,716,008 --
Other current assets 405,912 350,031
------------ ------------
Total current assets 38,609,641 20,779,179
------------ ------------
PROPERTY, PLANT AND EQUIPMENT:
Land 2,435,706 --
Buildings under construction 240,062 --
Machinery and equipment 10,436,693 5,659,211
Furniture and fixtures 562,630 372,889
Leasehold improvements 2,191,706 1,247,803
Other 34,498 34,498
------------ ------------
Total 15,901,295 7,314,401
Less accumulated depreciation
and amortization (3,787,198) (3,023,089)
------------ ------------
Property, plant and equipment, net 12,114,097 4,291,312
------------ ------------
OTHER ASSETS:
Goodwill, net 6,225,672 --
Patent application costs and
license rights, net 1,564,761 1,012,147
Software development costs, net 671,015 585,980
Other 162,500 --
------------ ------------
Total other assets 8,623,948 1,598,127
------------ ------------
TOTAL $ 59,347,686 $ 26,668,618
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 4,361,477 $ 2,392,846
Accrued expenses 1,280,032 1,091,036
Accrued salaries and employee benefits 471,592 458,300
------------ ------------
Total current liabilities 6,113,101 3,942,182
------------ ------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST 220,302 --
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; authorized
1,000,000 shares; no shares issued or
outstanding -- --
Common stock, $.01 par value; authorized
75,000,000 shares; issued and outstanding
15,304,803 shares at September 28, 1996;
14,765,300 shares at December 30, 1995 153,048 147,653
Additional paid-in capital 47,129,371 21,559,856
Unrealized loss on investments
available for sale, net (57,400) (3,176)
Retained earnings 5,789,264 1,022,103
------------ ------------
Stockholders' equity 53,014,283 22,726,436
------------ ------------
TOTAL $ 59,347,686 $ 26,668,618
============ ============
See notes to financial statements
3
<PAGE>
PRESSTEK, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 28 September 30 September 28 September 30
1996 1995 1996 1995
------------------------------- --------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Product sales $ 7,906,582 $ 5,933,587 $ 23,359,224 $ 13,432,541
Royalties and fees from licensees 4,459,562 1,695,000 11,891,342 4,783,744
------------ ------------ ------------ ------------
Total revenues 12,366,144 7,628,587 35,250,566 18,216,285
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Cost of products sold 5,024,451 4,249,736 15,250,401 9,799,321
Engineering and product development 2,430,467 1,529,777 6,477,524 4,163,523
Marketing 514,120 408,035 1,695,910 1,361,971
General and administrative 1,711,410 552,635 4,468,041 1,822,673
------------ ------------ ------------ ------------
Total costs and expenses 9,680,448 6,740,183 27,891,876 17,147,488
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Dividend and interest 157,257 74,536 630,646 246,579
Other, net (11,926) (10,003) (142,175) (1,777)
------------ ------------ ------------ ------------
Total other income - net 145,331 64,533 488,471 244,802
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 2,831,027 952,937 7,847,161 1,313,599
PROVISION FOR INCOME TAXES 1,000,000 81,000 3,080,000 105,000
------------ ------------ ------------ ------------
NET INCOME $ 1,831,027 $ 871,937 $ 4,767,161 $ 1,208,599
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER
OF COMMON AND COMMON
EQUIVALENT SHARES 16,458,798 16,066,947 16,510,987 15,837,946
============ ============ ============ ============
NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARE $ .11 $ .05 $ .29 $ .08
============ ============ ============ ============
</TABLE>
See notes to financial statements
4
<PAGE>
PRESSTEK, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
September 28 September 30
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS - OPERATING ACTIVITIES:
Net income $ 4,767,161 $ 1,208,599
Adjustments to reconcile net income to net
cash provided by (used for) operating activities:
Tax benefit related to employee stock options 2,972,000 76,000
Depreciation and amortization 1,348,591 668,413
Provision for warranty and other costs 493,518 322,500
Other, net 226,141 1,777
(Increase) decrease in:
Accounts receivable (5,027,733) (2,203,951)
Inventory (2,814,781) (2,251,694)
Costs and estimated earnings in excess of
billings on uncompleted contracts (696,427) --
Other current assets (25,828) 366,935
Increase (decrease) in:
Accounts payable and accrued expenses 1,613,072 1,069,707
Accrued salaries and employee benefits (45,510) 9,722
Billings in excess of costs and estimated
earnings on uncompleted contracts (687,325) --
------------ ------------
Net cash provided by (used for)
operating activities 2,122,879 (731,992)
------------ ------------
CASH FLOWS - INVESTING ACTIVITIES:
Investment in subsidiary, net of cash acquired (7,456,020) --
Purchases of property, plant and equipment (8,325,028) (1,407,767)
Increase in other assets (694,466) (413,290)
Proceeds from sale of equipment 47,000 76,300
Sales and maturities of marketable securities 3,500,000 2,159,119
Purchases of marketable securities (6,956,117) --
------------ ------------
Net cash provided by (used for)
investing activities (19,884,631) 414,362
------------ ------------
CASH FLOWS - FINANCING ACTIVITIES:
Net proceeds from sale of common stock
and warrants 22,602,910 1,522,544
------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS 4,841,158 1,204,914
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 3,628,021 1,532,636
------------ ------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 8,469,179 $ 2,737,550
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -
Income taxes paid $ 45,000 $ 52,000
============ ============
</TABLE>
See notes to financial statements
5
<PAGE>
PRESSTEK, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 28, 1996
1. BASIS OF PRESENTATION
The unaudited financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Rule 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. The financial
information included in the quarterly report should be read in conjunction with
the Company's audited financial statements and related notes thereto for the
year ended December 30, 1995. The December 30, 1995 information has been derived
directly from the annual financial statements. In the opinion of management, all
adjustments considered necessary for a fair presentation have been included and
all such adjustments were normal and recurring.
Presstek, Inc. (the "Company" or "Presstek") was organized as a Delaware
corporation on September 3, 1987 and was a development stage company through
1991. In September, 1991, Heidelberger Druckmaschinen A.G. ("Heidelberg") the
world's largest printing press manufacturer introduced the Company's initial
spark discharge based imaging technology, in a jointly developed product, the
Heidelberg GTO-DI. In 1993, after investing substantial effort and resources,
the Company completed the development of PEARL(R), a patented proprietary,
nonphotographic, toxic-free, digital imaging and printing plate technology for
the printing and graphic arts industries. PEARL's laser diode technology is
capable of imaging various types of Presstek printing plates either off-press or
on-press which may then be used to produce high quality, full color lithographic
printed materials. PEARL has completely replaced the Company's spark discharge
technology. The GTO-DI was re-introduced in September 1993, utilizing PEARL as
its direct imaging technology. The Company is now building an installed base of
customers which utilizes its proprietary consumable printing plates on PEARL
equipped Heidelberg presses. During the second quarter of 1995, the Company
commenced shipments of kits to be utilized on Heidelberg's Quickmaster DI 46-4.
Presstek is also engaged in the development of additional products and
applications that incorporate its proprietary PEARL technologies and
consumables, including both computer-to-plate and other direct-to-press
applications. At this time, the Company relies on Heidelberg to generate
substantially all of its revenues.
During February 1996, the Company completed private placements of an
aggregate of 282,846 shares of its common stock for net proceeds of $20,208,758
to a limited number of domestic individual and institutional investors.
A portion of the funds raised from the private placements were utilized to
complete the acquisition referred to below.
On February 15, 1996, the Company acquired 90% of the outstanding common
stock (the "Purchased Shares") of Catalina Coatings, Inc., an Arizona
corporation ("Catalina"). Catalina is engaged in the development, manufacture
and sale of vacuum deposition coating equipment and the
6
<PAGE>
licensing and sublicensing of patent rights with respect to a vapor deposition
process to coat moving webs of material at high speeds. The Company has
continued the business of Catalina which now operates as a subsidiary of the
Company. The Purchased Shares were acquired from the selling shareholders
pursuant to a Stock Purchase Agreement (the "Stock Purchase Agreement") dated
and effective as of January 1, 1996. The aggregate consideration paid by the
Company pursuant to the Stock Purchase Agreement was $8,400,000, of which
$8,200,000 represented the purchase price of the Purchased Shares and $200,000
represented consideration for the non-competition and confidentiality covenants
of the selling shareholders.
Catalina's results of operations were immaterial and accordingly pro forma
information has not been provided.
Simultaneous with the closing of the acquisition, the Company entered into
a Put and Call Option Agreement (the "Option Agreement") which provides the
Company with the right, at any time after February 15, 2000, to acquire the
remaining 10% of the outstanding common stock of Catalina for an aggregate
consideration of $2,000,000. The Option Agreement also provides the selling
shareholders and another employee of Catalina with the right, at any time after
August 15, 2000, to cause the Company to purchase the remaining shares for
aggregate consideration of $1,000,000. The Option Agreement will terminate if
Catalina consummates an initial public offering of its securities prior to
February 15, 2000.
The Company granted the selling shareholders and the other employee of
Catalina five-year non-qualified options to purchase an aggregate 100,000 shares
of the Company's common stock at an exercise price of $89.50 per share,
representing fair market value at the date of grant, and Catalina granted to the
same individuals an option to purchase an aggregate 5% of the issued and
outstanding common stock of Catalina in the event that a registration statement
relating to an initial public offering of Catalina common stock is declared
effective by February 15, 2000.
On June 19, 1995, the Company's Board of Directors determined to change its
fiscal year from a calendar year ending December 31 to a fiscal year ending on
the Saturday closest to December 31. Accordingly, the 1995 fiscal year ended on
December 30, 1995, and the third quarters of 1996 and 1995 ended on September
28, 1996, and September 30, 1995 respectively.
The results of operations for the third quarter ended September 28, 1996
may not be indicative of results of operations to be expected for the full year.
The Company intends to disclose pro forma information pursuant to Statement
of Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation", in its 1996 annual financial statements.
7
<PAGE>
2. INVENTORY
Inventory is valued at the lower of cost or market, with cost determined on
the first-in, first-out method. At September 28, 1996 and December 30, 1995,
inventory consisted of the following:
September 28, 1996 December 30, 1995
------------------ -----------------
Raw materials $4,677,528 $3,476,713
Work in process 3,157,873 1,959,382
Finished goods 673,023 425,648
---------- ----------
Total $8,508,424 $5,861,743
========== ==========
8
<PAGE>
3. NET INCOME PER COMMON SHARE
Net income per common share is computed by dividing net income by the
weighted average number of common and common equivalent shares outstanding.
Common stock equivalents represent the dilutive effect of the assumed exercise
of outstanding stock options and warrants. A summary of the calculations for the
three and nine month periods ended September 28, 1996 and September 30, 1995
follows:
<TABLE>
<CAPTION>
1996 1995
------------------------------------------------ -----------------------------------------------
Three Months Nine Months Three Months Nine Months
----------------------- ----------------------- ---------------------- ----------------------
Fully Fully Fully Fully
Primary Diluted Primary Diluted Primary Diluted Primary Diluted
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net income $1,831,027 $1,831,027 $4,767,161 $4,767,161 $871,937 $871,937 $1,208,599 $1,208,599
========== ========== ========== ========== ========== ========== ========== ==========
Weighted average common
shares outstanding 15,295,181 15,295,181 15,309,019 15,309,019 14,605,296 14,643,585 14,515,090 14,643,585
Common equivalent shares from
assumed conversion of
outstanding options and
warrants whose effect are not
antidilutive on earnings
per share 1,572,989 1,576,656 1,568,322 1,568,322 1,919,111 1,919,111 1,864,861 1,914,111
Less shares assumed repurchased
using the treasury method for
calculation of net shares
outstanding (409,372) (346,102) (366,354) (286,044) (457,640) (457,460) (542,005) (471,965)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Weighted average common and
common equivalent shares
outstanding 16,458,798 16,525,735 16,510,987 16,591,297 16,066,947 16,105,236 15,837,946 16,085,731
========== ========== ========== ========== ========== ========== ========== ==========
Net income per common and
common equivalent share $.11 $.11 $.29 $.29 $.05 $.05 $.08 $.08
========== ========== ========== ========== ========== ========== ========== ==========
</TABLE>
9
<PAGE>
4. INCOME TAXES
The provision for income taxes for the third quarter and first nine months
of 1996 represents substantially the charge in lieu of income taxes arising
during the periods relating to the tax effect of employee stock option
deductions, based upon the estimated effective income tax rate for the full
fiscal year. The tax benefit related to such stock options has been credited to
stockholders' equity.
The provision for income taxes for the third quarter and first nine months
of 1995 represents substantially the charge in lieu of state income taxes
arising during the periods relating to the tax effect of employee stock option
deductions. No charge for federal income taxes was required due to the
availability of federal net operating loss carryforwards for accounting
purposes.
As of September 28, 1996, the Company had net operating loss carryforwards
totaling approximately $28,000,000 resulting from compensation deductions, for
tax purposes, relative to stock option plans. To the extent net operating losses
resulting from stock option plan compensation deductions become realizable, the
benefit will be credited directly to additional paid in capital. The amount of
the net operating loss carryforwards which may be utilized in any future period
may be subject to certain limitations, based upon changes in the ownership of
the Company's common stock.
5. LEGAL PROCEEDINGS
Between June 28, 1996 and September 9, 1996, eight lawsuits were filed
against the Company and certain other defendants, including, but not limited to
the Company's officers and directors. Seven of such actions, were purportedly
brought on behalf of similarly situated classes of defendants and were commenced
in a United States District Court in either the State of New Hampshire or the
Southern District of New York. The remaining action was filed derivatively, on
behalf of the Company in the Chancery Court of the State of Delaware.
The lawsuits each contain a variety of allegations (some of them
overlapping) including, among other things, that the defendants violated Section
10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5
promulgated thereunder, violations of Section 20(a) of the Exchange Act, common
law fraud and deceit, negligent misrepresentation and waste of corporate assets.
The plaintiffs generally are seeking to recover unspecified damages and
reimbursement of their costs and expenses incurred in connection with the
action. Moreover, the plaintiff in the derivative action is also seeking a
return to the Company of all salaries and the value of other remuneration paid
to the defendants by the Company during the time they were in breach of their
fiduciary duties and an accounting of and/or constructive trust on the proceeds
of defendants trading activities in the Common Stock.
The Company believes that the allegations against it and its officers and
directors alleged in the foregoing actions are without merit, and the Company
intends to vigorously defend all actions. However, the outcome of any litigation
is subject to uncertainty and a successful claim against the Company, in any of
the foregoing actions, could have a material adverse effect on the financial
position and results of operations of the Company. At the present time, the
Company cannot reasonably estimate the ultimate liability, if any, resulting
from these lawsuits. Accordingly, no provision for any liability that may result
has been recorded in the accompanying financial statements.
10
<PAGE>
6. SUBSEQUENT EVENTS
On October 15, 1996, Presstek was notified that an arbitration panel of the
International Chamber of Commerce issued its Award in the arbitration between
Presstek and Agfa-Gevaert N.V. The Award directs Agfa to transfer to Presstek
Agfa's U.S. Patent No. 5,378,580 including its underlying applications, return
to Presstek all copies of confidential information that Presstek provided to
Agfa, and pay Presstek's legal expenses in the arbitration in the amount of
$769,140. The arbitrators rejected the request for affirmative relief sought by
Agfa.
11
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995:
The statements which are not historical facts contained in this Form 10-Q
are forward looking statements that involve a number of risks and uncertainties,
including, but not limited to, the risks of uncertainty of patent protection,
the impact of supply and manufacturing constraints or difficulties, possible
technological obsolescence, increased competition, litigation, and other risks
detailed in the Securities and Exchange Commission filings, of Presstek, Inc.
(the "Company" or "Presstek").
Results of Operations
The Company was organized as a Delaware corporation on September 3, 1987
and was a development stage company through 1991. In September 1991,
Heidelberger Druckmaschinen A.G. ("Heidelberg"), the world's largest printing
press manufacturer introduced the Company's initial spark discharge based
imaging technology, in a jointly developed product, the Heidelberg GTO-DI. In
1993, after investing substantial effort and resources, the Company completed
the development of PEARL, a patented, proprietary, nonphotographic, toxic-free,
digital imaging and printing plate technology for the printing and graphic arts
industries. PEARL's laser diode technology is capable of imaging various types
of Presstek printing plates either off-press or on-press which may then be used
to produce high-quality, full-color lithographic printed materials at what the
Company believes is a lower cost than competitive processes. PEARL has
completely replaced the Company's spark discharge technology. The GTO-DI was
re-introduced in September 1993, utilizing PEARL as its direct imaging
technology and the Company is now building an installed base of customers which
utilizes its proprietary consumable printing plates on PEARL equipped Heidelberg
presses. The Company's relationship with Heidelberg has been expanded to include
the development and manufacture of direct imaging kits to be utilized in
Heidelberg's new four color, fully automated lithographic press, the Quickmaster
DI 46-4. This press was introduced in May, 1995 at DRUPA '95, the industry's
largest trade show, and was well received. Shipments of production kits to
Heidelberg for use in the Quickmaster commenced in the second quarter of 1995.
This new press incorporates certain improvements to the Company's PEARL direct
imaging technologies and employs the Company's automatic plate changing cylinder
which eliminates the need for manually changing plates between jobs.
The Company is also engaged in the development of additional products and
applications that incorporate the use of its proprietary technologies and
consumables, including both computer-to-plate and computer-to-press
applications. Some of these additional activities have resulted in an agreement
with the Adast Adamov Company, another manufacturer of sheet fed offset presses.
This agreement will result in the availability of the Company's PEARL direct
imaging technology on a larger format Omni-Adast (19" x 26") multicolor press,
the first showing of which took place at an industry trade show during the first
quarter of 1996. Also, during the first quarter of 1996, the Company began
shipments of its PEARL platesetter, now referred to as the PEARLsetter(TM). The
PEARLsetter is a computer-to-plate imaging device that images both the Company's
wet and dry offset plates. Another agreement, recently entered into with
Nilpeter A/S of Denmark will result in
12
<PAGE>
the utilization of the PEARL technology on a high-speed rotary label printing
press called the OFFSET 3300. Presstek will supply a special PEARL-based digital
imaging system which will image Presstek's thermal plates directly on the press
plate cylinder.
On February 15, 1996, the Company acquired 90% of the outstanding common
stock (the "Purchased Shares") of Catalina Coatings, Inc., an Arizona
corporation ("Catalina"). Catalina is engaged in the development, manufacture
and sale of vacuum deposition coating equipment and the licensing and
sublicensing of patent rights with respect to a vapor deposition process to coat
moving webs of material at high speeds. The Company has continued the business
of Catalina which operates as a subsidiary of the Company. The Purchased Shares
were acquired from the selling shareholders pursuant to a Stock Purchase
Agreement (the "Stock Purchase Agreement") dated and effective as of January 1,
1996. The aggregate consideration paid by the Company pursuant to the Stock
Purchase Agreement was $8,400,000, of which $8,200,000 represented the purchase
price of the Purchased Shares and $200,000 represented consideration for the
non-competition and confidentiality covenants of the selling shareholders.
Simultaneous with the closing of the acquisition, the Company entered into
a Put and Call Option Agreement (the "Option Agreement") which provides the
Company with the right, at any time after February 15, 2000, to acquire the
remaining 10% of the outstanding common stock of Catalina for an aggregate
consideration of $2,000,000. The Option Agreement also provides the selling
shareholders and another employee of Catalina with the right, at any time after
August 15, 2000, to cause the Company to purchase the remaining shares for an
aggregate consideration of $1,000,000. The Option Agreement will terminate if
Catalina consummates an initial public offering of its securities prior to
February 15, 2000.
The Company granted the selling shareholders and the other employee of
Catalina five-year non-qualified options to purchase an aggregate of 100,000
shares of the Company's common stock at an exercise price of $89.50 per share,
and Catalina granted to the same individuals an option to purchase an aggregate
5% of the issued and outstanding common stock of Catalina in the event that a
registration statement relating to an initial public offering of Catalina common
stock is declared effective by February 15, 2000.
On June 19, 1995, the Company's Board of Directors determined to change its
fiscal year from a calendar year ending December 31 to a fiscal year ending on
the Saturday closest to December 31. Accordingly, the 1995 fiscal year ended on
December 30, 1995, and the third quarters of 1996 and 1995 ended on September
28, 1996 and September 30, 1995 respectively.
Revenues
Revenues for the third quarter of 1996 totaled $12,366,000, an increase of
$4,737,000 (62%) compared to $7,629,000 recorded for the third quarter of 1995.
For the first nine months of 1996, revenues totaled $35,251,000, an increase of
$17,035,000 (94%) compared to $18,216,000 for the same period in 1995. Product
sales increased $1,973,000 and $9,926,000, respectively, comparing the three and
nine month periods in 1996 with the same periods in 1995, primarily as a result
of volume increases in sales by the Company of products to be used in the
Quickmaster DI 46-4, as well as sales of the PEARLsetter, consumable printing
plates and spare parts. Royalties and fees from licensees increased $2,765,000
and $7,107,000 respectively in the third quarter and first nine
13
<PAGE>
months of 1996 compared to the same periods in 1995, primarily as a result of
increased royalties earned on product sales to Heidelberg and increased revenues
earned for engineering services under the Company's agreements with Heidelberg
and other customers.
Cost of Products Sold
Costs of products sold for the third quarter and first nine months of 1996
totaled $5,024,000 and $15,250,000 compared to $4,250,000 and $9,799,000 for the
same periods in 1995. These costs include materials, labor and overhead
associated with product sales, as well as future warranty costs.
Engineering and Product Development
Engineering and product development expenses for the third quarter and
first nine months of 1996 totaled $2,430,000 and $6,478,000 compared to
$1,530,000 and $4,164,000 for the same periods in 1995. The increases of
$900,000 (59%) for the third quarter and $2,314,000 (56%) for the first nine
months of 1996 resulted principally from increased expenditures for parts,
supplies, labor, and contracted services related to the Company's PEARL
technology, as well as other product development efforts.
Marketing
Marketing expenses for the third quarter and first nine months of 1996
totaled $514,000 and $1,696,000 compared to $408,000 and $1,362,000 for the same
periods in 1995. The increases for the third quarter and first nine months of
1996 of $106,000 (26%) and $334,000 (25%), respectively, related principally to
increased expenditures for additional personnel and related costs, as well as
promotional activities.
General and Administrative
General and administrative expenses for the third quarter and first nine
months of 1996 totaled $1,711,000 and $4,468,000 compared to $553,000 and
$1,823,000 for the same periods in 1995. The increases of $1,158,000 (209%) for
the third quarter and $2,645,000 (145%) for the first nine months of 1996
related principally to increased expenditures for salaries and other costs
required to conduct various general and administrative functions of the Company,
including legal fees incurred in connection with certain legal proceedings and
regulatory matters.
Dividend and Interest Income
Dividend and interest income earned on the Company's cash and investments
increased $82,000 for the third quarter and $384,000 for the first nine months
principally as a result of the increased funds available for investment.
Income Taxes
The provision for income taxes for the third quarter and first nine months
of 1996 represents substantially the charge in lieu of income taxes arising
during the periods relating to the tax effect
14
<PAGE>
of employee stock option deductions, based upon the estimated effective income
tax rate for the full fiscal year. The tax benefit related to such stock options
has been credited to stockholders' equity.
The provision for income taxes for the third quarter and first nine months
of 1995 represents substantially the charge in lieu of state income taxes
arising during the periods relating to the tax effect of employee stock option
deductions. No charge for federal income taxes was required due to the
availability of federal net operating loss carryforwards for accounting
purposes.
Net Income
As a result of the foregoing, the Company had net income of $1,831,000 and
$4,767,000 for the third quarter and first nine months of 1996, compared to net
income of $872,000 and $1,209,000 for the same periods in 1995. Catalina did not
have a material effect on net income for the third quarter or first nine months
of 1996.
Liquidity and Capital Resources
At September 28, 1996, the Company had working capital of $32,497,000, an
increase of $15,660,000 as compared to working capital of $16,837,000 at
December 30, 1995. This increase was primarily attributed to the proceeds from
the issuances of common stock of $22,603,000, plus net income for the first nine
months of 1996 of $4,767,000 offset by the Company's investment in Catalina, net
of cash acquired, of $7,456,000 and additions to property, plant and equipment
of $8,325,000.
Net cash provided by operating activities of $2,123,000 for the nine months
ended September 28, 1996, resulted primarily from net income from operations of
$4,767,000, noncash items including the tax effect related to employee stock
options, depreciation and amortization, and provision for warranty and other
costs of $2,972,000, $1,349,000 and $494,000 respectively, an increase in
accounts payable and accrued expenses of $1,613,000, offset by increases in
accounts receivable, inventory, and costs and estimated earnings in excess of
billings on uncompleted contracts of $5,028,000, $2,815,000, and $696,000,
respectively, and by a decrease in billings in excess of costs and estimated
earnings on uncompleted contracts of $687,000.
Net cash used for investing activities of $19,885,000 for the first nine
months ended September 28, 1996, resulted primarily from the Company's
investment in Catalina, net of cash acquired, of $7,456,000, purchases of
marketable securities net of maturities of $3,456,000, additions to property,
plant and equipment used in the Company's business of $8,325,000 and increases
in other assets of $694,000.
Net cash provided by financing activities during the first nine months of
1996 totaled $22,603,000, which included the private placements of an aggregate
of 282,846 shares of the Company's common stock for net proceeds of $20,209,000,
and the sale of common stock incident to the exercise of various stock options.
The Company's agreements with Heidelberg provide that during 1996 the
Company will receive certain royalty payments and be reimbursed for certain
engineering and development work provided to Heidelberg.
15
<PAGE>
The Company is currently constructing two new facilities; a 60,000 square
foot facility in Tucson, Arizona for Catalina, and a 100,000 square foot
manufacturing facility in Hudson, New Hampshire. The Hudson manufacturing
facility is expected to accommodate the Company's new plate manufacturing
operation, which will utilize a new vacuum deposition coating system currently
being developed and built for the Company by Catalina, along with the necessary
plate finishing and packaging equipment. The Company estimates that the total
capital cost of these projects, including land purchases, to be approximately
$28,000,000.
During the first nine months of 1996, the Company expended approximately
$2,400,000 for the land purchases and approximately $240,000 for the land
improvements and construction of the new facilities. As of September 28, 1996,
the Company had outstanding purchase commitments of approximately $4,200,000
with respect to the new facilities. In addition, during the first nine months of
1996, the Company expended approximately $4,300,000 for the new plate
manufacturing and packaging equipment. As of September 28, 1996, the Company had
outstanding purchase commitments of approximately $2,000,000 with respect to the
plate manufacturing and packaging equipment.
The Company is currently exploring various funding options with respect to
financing the balance of the anticipated cost of completing its new facilities
including, but not limited to, state industrial development revenue bonds and
bank financing. There can be no assurance, however, that the Company can obtain
financing necessary to complete construction on terms acceptable to it, or at
all.
In addition to the funds required to complete the construction of, and
purchase of equipment for, its two new facilities, the Company may also require
additional working capital by the second fiscal quarter of 1997 to fund
anticipated increased production of Quickmaster DI kits.
On October 15, 1996, Presstek was notified that an arbitration panel of the
International Chamber of Commerce issued its Award in the arbitration between
Presstek and Agfa-Gevaert N.V. The Award directs Agfa to transfer to Presstek
Agfa's U.S. Patent No. 5,378,580 including its underlying applications, return
to Presstek all copies of confidential information that Presstek provided to
Agfa, and pay Presstek's legal expenses in the arbitration in the amount of
$769,140. The arbitrators rejected the request for affirmative relief sought by
Agfa.
Effect of Inflation
Inflation has not had, and is not expected to have, a material impact upon
the Company's operations.
16
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
On September 9, 1996, a class action lawsuit was filed by Neil Fradin in
the United States District Court, District of New Hampshire, against the
Company, Richard Williams, Glenn DiBenedetto, Bert DePamphilis, Lawrence Howard,
Robert Howard, Harold Sparks, Robert Verrando, and BDO Seidman, LLP. The
plaintiff alleges that the defendants violated Section 10(b) and Rule 10b-5 of
the Securities Exchange Act of 1934 (the "Exchange Act") and that the individual
defendants violated Section 20(a) of the Exchange Act by issuing financial
statements for the fiscal year ended December 30, 1995 and the fiscal quarter
ended March 30, 1996 and corresponding financial press releases that overstated
net income in the Statements of Operations for those periods as a result of the
improper application of certain accounting principles relating to the tax
benefits received upon exercise of certain stock options previously granted by
the Company. The plaintiff seeks unspecified damages and reimbursement of the
plaintiff's costs and expenses incurred in connection with the action.
On October 15, 1996, Presstek was notified that an arbitration panel of the
International Chamber of Commerce issued its Award in the arbitration between
Presstek and Agfa-Gevaert N.V. The Award directs Agfa to transfer to Presstek
Agfa's U.S. Patent No. 5,378,580 including its underlying applications, return
to Presstek all copies of confidential information that Presstek provided to
Agfa, and pay Presstek's legal expenses in the arbitration in the amount of
$769,140. The arbitrators rejected the request for affirmative relief sought by
Agfa.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 27. Financial Data Schedule
(b) During the fiscal quarter ended September 28, 1996, the Company filed
an amendment dated September 3, 1996 to its Form 8-K relating to its acquisition
of Catalina Coatings, Inc. ("Catalina") on February 15, 1996. The amended Form
8-K contained the audited financial statements of Catalina for its three fiscal
years ended December 31, 1995 as well as certain pro forma financial information
required by Item 7 of Form 8-K. During the fiscal quarter, the Company also
filed a Form 8-K under Item 5 of Form 8-K to disclose the commencement of
certain legal actions against the Company and its officers and directors.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: November 12, 1996
PRESSTEK, INC.
(Registrant)
By: /s/ Richard A. Williams
--------------------------
Richard A. Williams
Chief Executive Officer
(Duly Authorized Officer)
By: /s/ Glenn J. DiBenedetto
--------------------------
Glenn J. DiBenedetto
Chief Financial Officer
(Principal Financial and
Accounting Officer)
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM
10-Q AT SEPTEMBER 28, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> SEP-28-1996
<CASH> 8,469,179
<SECURITIES> 6,534,610
<RECEIVABLES> 12,975,508
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<CURRENT-ASSETS> 38,609,641
<PP&E> 15,901,295
<DEPRECIATION> 3,787,198
<TOTAL-ASSETS> 59,347,686
<CURRENT-LIABILITIES> 6,113,101
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0
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<COMMON> 153,048
<OTHER-SE> 52,861,235
<TOTAL-LIABILITY-AND-EQUITY> 59,347,686
<SALES> 23,359,224
<TOTAL-REVENUES> 35,250,566
<CGS> 15,250,401
<TOTAL-COSTS> 15,250,401
<OTHER-EXPENSES> 6,477,524
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<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 7,847,161
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