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 June 28, 1997
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.)
8-9 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 July 31, 1997, there
were 31,619,262 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
June 28, 1997 (unaudited)
and December 28, 1996 3
Statements of Income for the
three and six month periods ended
June 28, 1997 and June 29, 1996
(unaudited) 4
Statements of Cash Flows for the
six month periods ended June
28, 1997 and June 29, 1996
(unaudited) 5
Notes to Financial Statements
(unaudited) 6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Item 3 Quantitative and Qualitative Disclosures
about Market Risk
Not applicable
PART II OTHER INFORMATION 18
Item 1 Legal Proceedings
Item 6 Exhibits and Reports on Form 8-K
Signatures 19
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
PRESSTEK, INC.
BALANCE SHEETS
June 28, December 28,
1997 1996
------------ ------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,347,898 $ 3,530,866
Marketable securities 3,083,697 6,602,854
Accounts receivable, net of allowance
for doubtful accounts of $280,914
in 1997 and $183,851 in 1996 15,963,302 17,306,020
Inventory 13,459,279 10,639,657
Costs and estimated earnings in excess
of billings on uncompleted contracts 2,119,512 1,625,137
Other current assets 695,879 855,287
------------ ------------
Total current assets 37,669,567 40,559,821
------------ ------------
PROPERTY, PLANT AND EQUIPMENT:
Land 2,426,827 2,426,827
Buildings under construction 12,545,780 3,716,174
Machinery and equipment 22,353,825 14,574,637
Furniture and fixtures 902,044 681,648
Leasehold improvements 2,566,986 2,514,102
Other 34,498 34,498
------------ ------------
Total 40,829,960 23,947,886
Less accumulated depreciation and amortization (5,058,754) (4,230,674)
------------ ------------
Property, plant and equipment, net 35,771,206 19,717,212
------------ ------------
OTHER ASSETS:
Goodwill, net 5,982,410 6,144,819
Patent applications costs and
license rights, net 1,823,370 1,704,406
Software developments costs, net 258,705 546,838
Other 126,862 150,000
------------ ------------
Total other assets 8,191,347 8,546,063
------------ ------------
TOTAL $ 81,632,120 $ 68,823,096
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable $ 1,000,000 $ --
Accounts payable 9,453,224 8,332,558
Accrued expenses 1,142,628 802,692
Accrued salaries and employee benefits 1,005,329 686,090
Billings in excess of costs and estimated
earnings on uncompleted contracts -- 1,355,130
------------ ------------
Total current liabilities 12,601,181 11,176,470
------------ ------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST 277,134 204,104
------------ ------------
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
31,075,224 shares at June 28, 1997;
15,392,276 shares at December 28, 1996 310,752 153,923
Additional paid-in capital 54,204,610 49,188,118
Unrealized loss on marketable securities, net (17,382) (42,911)
Retained earnings 14,255,825 8,143,392
------------ ------------
Stockholders' equity 68,753,805 57,442,522
------------ ------------
TOTAL $ 81,632,120 $ 68,823,096
============ ============
See notes to financial statements
- 3 -
<PAGE>
PRESSTEK, INC.
STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 28, 1997 June 29, 1996 June 28, 1997 June 29, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES:
Product sales $ 15,976,226 $ 7,927,685 $ 32,323,182 $ 15,452,642
Royalties and fees from licensees 4,919,979 3,951,983 8,580,675 7,431,780
------------ ------------ ------------ ------------
Total revenues 20,896,205 11,879,668 40,903,857 22,884,422
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Cost of products sold 9,941,655 4,825,227 20,548,769 10,225,950
Engineering and product development 2,543,676 1,799,598 4,811,011 4,033,156
Marketing 1,090,758 636,419 1,852,596 1,181,790
General and administrative 1,717,671 1,808,739 2,965,094 2,770,532
------------ ------------ ------------ ------------
Total costs and expenses 15,293,760 9,069,983 30,177,470 18,211,428
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS 5,602,445 2,809,685 10,726,387 4,672,994
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Dividend and interest 110,827 261,134 215,503 473,389
Other, net (77,940) (114,099) (524,457) (130,249)
------------ ------------ ------------ ------------
Total other income - net 32,887 147,035 (308,954) 343,140
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 5,635,332 2,956,720 10,417,433 5,016,134
PROVISION FOR INCOME TAXES 2,425,000 1,310,000 4,305,000 2,080,000
------------ ------------ ------------ ------------
NET INCOME $ 3,210,332 $ 1,646,720 $ 6,112,433 $ 2,936,134
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES:
Primary 33,162,960 33,411,348 33,006,658 33,102,058
============ ============ ============ ============
Fully Diluted 33,446,958 33,411,408 33,335,699 33,102,058
============ ============ ============ ============
NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARE:
Primary $ .10 $ .05 $ .19 $ .09
============ ============ ============ ============
Fully Diluted $ .10 $ .05 $ .18 $ .09
============ ============ ============ ============
</TABLE>
See notes to financial statements
- 4 -
<PAGE>
PRESSTEK, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 28, June 29,
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS - OPERATING ACTIVITIES:
Net income $ 6,112,433 $ 2,936,134
Adjustments to reconcile net income to net
cash provided by operating activities:
Tax benefit arising from stock option deductions 3,910,000 1,980,000
Depreciation 880,303 520,267
Amortization 561,606 360,526
Provision for warranty and other costs 565,000 316,000
Other, net 572,734 (41,010)
(Increase) decrease in:
Accounts receivable 1,189,718 (2,722,001)
Inventory (3,044,622) (1,833,205)
Costs and estimated earnings in excess of
billings on uncompleted contracts (494,375) (936,356)
Other current assets 159,408 (16,628)
Increase (decrease) in:
Accounts payable and accrued expenses 895,602 1,647,434
Accrued salaries and employee benefits 319,239 126,875
Billings in excess of costs and estimated
earnings on uncompleted contracts (1,355,130) (687,325)
------------ ------------
Net cash provided by operating activities 10,271,916 1,650,711
------------ ------------
CASH FLOWS - INVESTING ACTIVITIES:
Investment in subsidiary, net of cash acquired -- (7,456,020)
Purchases of property and equipment (17,006,032) (3,957,633)
Proceeds from sale of equipment 1,200 47,000
Increase in other assets (206,889) (330,509)
Sales and maturities of marketable securities 3,493,516 1,000,000
Purchases of marketable securities -- (6,956,117)
------------ ------------
Net cash used for investing activities (13,718,205) (17,653,279)
------------ ------------
CASH FLOWS - FINANCING ACTIVITIES:
Net proceeds from sale of common stock
and warrants 1,263,321 22,032,842
Proceeds from line of credit 1,000,000 --
------------ ------------
Net cash provided by financing activities 2,263,321 22,032,842
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,182,968) 6,030,274
CASH AND CASH EQUIVALENTS
BEGINNING OF PERIOD 3,530,866 3,628,021
------------ ------------
END OF PERIOD $ 2,347,898 $ 9,658,295
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -
Cash paid during the period for:
Interest $ 98,115 $ --
============ ============
Income Taxes $ 90,406 $ 45,000
============ ============
</TABLE>
See notes to financial statements
- 5 -
<PAGE>
PRESSTEK, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 28, 1997
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 28, 1996. The December 28, 1996 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"), which was incorporated in the State of
Delaware in September 1987, develops, manufactures, and markets proprietary,
digital imaging technologies and system architectures, and non-photographic
consumables (the "Direct Imaging" technologies) primarily to the graphic arts
and related imaging industries. The Company's current Direct Imaging
technologies, referred to as PEARL(R), permit the direct digital imaging of the
Company's printing plates and films which eliminates the need for photosensitive
materials and the hazardous waste by-products and effluents usually associated
with these processes.
Revenues generated under the Company's agreements with Heidelberger
Druckmaschinen AG ("Heidelberg") and from Heidelberg distributors represented
77% and 74% of the Company's total revenues for the six months ended June 28,
1997, and June 29, 1996, respectively.
On February 15, 1996, the Company acquired 90% of the outstanding common
stock of Catalina Coatings, Inc., an Arizona corporation ("Catalina"). The
acquisition was accounted for as a purchase. 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. Accordingly, the results of Catalina's operations have been included in
the Company's June 28, 1997 and June 29, 1996 financial statements. Significant
intercompany accounts and transactions have been eliminated.
- 6 -
<PAGE>
Certain accounts in the 1996 financial statements have been reclassified
for comparative purposes to conform with the presentation in the June 28, 1997,
financial statements.
2. INVENTORY
Inventory is valued at the lower of cost or market, with cost determined on
the first-in, first-out method. At June 28, 1997, and December 28, 1996,
inventory consisted of the following:
June 28, 1997 December 28, 1996
------------- -----------------
Raw materials $ 8,951,622 $ 6,155,277
Work in process 2,985,585 3,532,724
Finished goods 1,522,072 951,656
----------- -----------
Total $13,459,279 $10,639,657
=========== ===========
- 7 -
<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 Stock and Common Stock equivalent shares
outstanding. Common Stock equivalents represent the dilutive effect of the
assumed exercise of outstanding stock options and warrants.
On May 30, 1997, the Company's Board of Directors declared a two-for-one
common stock split, effected in the form of a 100% stock dividend, which was
paid on July 7, 1997 to holders of record on June 12, 1997. The split resulted
in the issuance of 15,537,612 new shares of common stock. All references to
average number of shares outstanding and prices per share have been restated
retroactively to reflect the split. A summary of the calculations for the three
and six month periods ended June 28, 1997, and June 29, 1996 follows:
<TABLE>
<CAPTION>
(In Thousands, except per share)
1997 1996
-------------------------------------------- --------------------------------------------
Three Months Six Months Three Months Six Months
-------------------- -------------------- -------------------- --------------------
Fully Fully Fully Fully
Primary Diluted Primary Diluted Primary Diluted Primary Diluted
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Income $ 3,210 $ 3,210 $ 6,112 $ 6,112 $ 1,647 $ 1,647 $ 2,936 $ 2,936
======== ======== ======== ======== ======== ======== ======== ========
Weighted average common
shares outstanding 31,920 32,268 31,821 32,196 30,536 30,536 30,337 30,337
Common equivalent shares
from assumed exercise of
outstanding options and
warrants whose effect are
not antidilutive on
earnings per share 2,247 2,517 2,240 2,536 3,527 3,527 3,442 3,442
Less shares assumed
repurchased using the
treasury method for
calculation of net shares
outstanding (1,004) (1,338) (1,054) (1,396) (652) (652) (677) (677)
-------- -------- -------- -------- -------- -------- -------- --------
Weighted average common and
common equivalent shares
outstanding 33,163 33,447 33,007 33,336 33,411 33,411 33,102 33,102
======== ======== ======== ======== ======== ======== ======== ========
Net income per common and
common equivalent share $ .10 $ .10 $ .19 $ .18 $ .05 $ .05 $ .09 $ .09
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
- 8 -
<PAGE>
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share", which
is effective for both interim and annual periods ending after December 15, 1997.
Earlier application is not permitted. The Company accordingly plans to adopt
SFAS No. 128 in its January 3, 1998 annual financial statements. The Company
does not anticipate that SFAS No. 128 would have had a material effect on the
earnings per share presented, if it had been adopted in the six months ending
June 28, 1997.
4. INCOME TAXES
The components of the provision for income taxes for the three and six
month periods ended June 28, 1997, and June 29, 1996, based upon the estimated
effective income tax rate for the full fiscal year, were as follows:
<TABLE>
<CAPTION>
1997 1996
----------------------- -----------------------
Second Six Second Six
Quarter Months Quarter Months
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Current tax expense - State $ 90,000 $ 395,000 $ 100,000 $ 100,000
Charge in lieu of income taxes:
Federal 1,975,000 3,550,000 1,110,000 1,750,000
State 360,000 360,000 100,000 230,000
---------- ---------- ---------- ----------
Total provision $2,425,000 $4,305,000 $1,310,000 $2,080,000
========== ========== ========== ==========
</TABLE>
The charge in lieu of income taxes included in the second quarter and six
months ended 1997 and 1996 relate principally to the tax benefit of stock option
deductions earned in the respective periods. The tax benefit of such stock
option deductions has been credited to stockholders' equity.
5. LINE OF CREDIT
On July 29, 1997, the Company renewed its agreement with Citizens Bank New
Hampshire for a revolving line of credit loan under which the Company may borrow
a maximum of $10,000,000 for working capital requirements and general corporate
purposes. Borrowings are secured by substantially all of the Company's assets
and are guaranteed by the Company's subsidiary, Catalina, and secured by its
assets. Under the terms of the revolving credit agreement, the Company is
required to meet certain financial covenants on a quarterly and annual basis.
Interest on the line of credit is payable at the LIBOR rate plus 1.75% (7.47% at
June 28, 1997). The loan agreement terminates on July 31, 1999, at which date,
the entire principal and accrued interest is due and payable. As of June 28,
1997, the Company had $1,000,000 outstanding and $9,000,000 available under the
line of credit.
- 9 -
<PAGE>
6. OTHER INFORMATION
The Company has completed the construction of a 70,000 square foot
manufacturing facility in Tucson, Arizona for Catalina, and is nearing
completion of the construction of 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 operations, 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 $32,600,000.
Through June 28, 1997, the Company has expended approximately $14,973,000
for land, land improvements, and construction of the two new facilities.
Approximately $8,830,000 of this total was expended during the first six months
of 1997, and as of June 28, 1997, the Company had outstanding purchase
commitments of approximately $1,500,000 with respect to the new facilities.
Additionally, through June 28, 1997, the Company expended $12,385,000 for new
plate manufacturing, finishing, and packaging equipment. Approximately
$4,575,000 of this total was expended during the first six months of 1997, and
as of June 28, 1997, the Company had outstanding purchase commitments of
approximately $3,725,000 with respect to the plate manufacturing, finishing, and
packaging equipment.
Between June 28, 1996, and March 14, 1997, several class action lawsuits
were filed against the Company and certain other defendants, including, but not
limited to the Company's officers and directors. These actions have been
consolidated in the United States District Court, District of New Hampshire, and
a single consolidated amended complaint ("The Consolidated Amended Complaint")
has been filed by lead counsel for the plaintiffs. In addition, two actions have
been filed derivatively, on behalf of the Company, one in the Chancery Court of
the State of Delaware and the other in the United States District Court,
District of New Hampshire.
The lawsuits each contain a variety of allegations 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 allegations
include claims that the Company issued false and misleading financial
statements, and failed to properly disclose (a) adverse information concerning
the Company's patents; (b) the nature and extent of the investigation by the
Securities and Exchange Commission with respect to activities by certain unnamed
persons and entities in connection with the securities of the Company (c) the
backlog of orders from, supply contracts with, and orders received by its
principal customer. The Company's officers and directors are alleged to have
sold the Company's common stock while in possession of material non-public
information. The plaintiffs generally are seeking to recover unspecified damages
and reimbursement of their costs and expenses incurred in connection with the
action.
- 10 -
<PAGE>
Moreover, the plaintiff in the derivative action in Delaware 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.
On June 16, 1997, Seena Stevens Silverman commenced a purported class
action in the United States District Court for the District of New Hampshire
against the Company, Lawrence Howard, Richard A. Williams, Robert E. Verrando,
Glenn J. DiBenedetto, Frank G. Pensavecchia, Harold N. Sparks, Bert DePamphilis,
Cabot Market Letter, Cabot Money Management, Inc., Cabot Heritage Corporation,
John C. Oxley and Thomas E. Oxley, as co-executors of the Estate of John T.
Oxley, The Oxley Foundation, Everen Securities, Inc., Mack Walker, Robert Lutts,
Timothy W. Lutts, Donald Chapman and Carlton G. Lutts. The plaintiff purports to
bring this action on behalf of a class of persons who sold put options in the
common stock of the Company between November 7, 1995 and June 20, 1996. The
plaintiff alleges that the defendants defrauded the putative class members by
(1) manipulating the price and supply of the Company's common stock, (2) issuing
false and misleading statements regarding the nature of the Company's
proprietary PEARL(R) technology, (3) failing to disclose the true depth and
target of an Securities and Exchange Commission investigation into the trading
in the Company's stock, (4) making misleading statements regarding the Company's
claims to its PEARL technology and its contract with a principal customer of the
Company, Heidelberger Druckmaschinen A.G., and (5) failing to disclose alleged
trading on non-public information by certain of the individual defendants. The
Complaint alleges that the above conduct of the defendants caused the market
price of the Company's stock to be artificially inflated. The plaintiff alleges
that the defendants violated Section 10(b) of the Exchange Act and Rule 10b-5
promulgated thereunder and the New Hampshire "Blue Sky" laws, and committed
common law fraud and negligent misrepresentation. The plaintiff seeks to recover
unspecified compensatory and punitive damages purportedly on behalf of the
putative class, as well as costs and expenses, including attorneys' fees and
expert witnesses' fees.
The Company intends to vigorously defend all of the foregoing actions.
However, the outcome of any litigation is subject to uncertainty and a
successful claim against the Company 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.
- 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 Item 2 and
elsewhere 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").
Results of Operations
The Company, which was incorporated in the State of Delaware in September
1987, continues to further develop and market its proprietary, digital imaging
technologies and system architectures, and non-photographic consumables (the
"Direct Imaging" technologies) primarily to the graphic arts and related imaging
industries. The Company's current Direct Imaging technologies, referred to as
PEARL(R), permit the direct digital imaging of the Company's printing plates and
films which eliminates the need for photosensitive materials and the hazardous
waste by-products and effluents usually associated with these processes.
The Company continues to pursue a strategy based on alliances and
relationships with major corporations in the graphic arts and other industries
encompassing licensing, product development and commercialization,
manufacturing, marketing, distribution, sales and services. The Company and
Heidelberger Druckmaschinen AG ("Heidelberg"), the world's largest manufacturer
of printing presses and printing equipment, based in Germany, jointly developed
the first Heidelberg Direct Imaging Printing Press (the "GTO-DI") and its
successor, the four color, fully automated lithographic press, the Quickmaster
DI 46-4 ("Quickmaster DI") to take full advantage of the Company's improved
implementation of its Direct Imaging technologies. The Quickmaster DI press,
which was introduced by Heidelberg in May 1995 to replace the GTO-DI, which is
no longer being produced, employs the Company's automatic plate changing
cylinder which eliminates the need for manually changing plates between jobs.
The Company also has an agreement with the Adast Adamov Company, a manufacturer
of offset lithographic presses. This agreement has resulted in the use of the
Company's Direct Imaging technologies on a larger format (19" x 26") multicolor
press. Shipments of the Omni Adast Direct Imaging systems began in December
1996. In addition, Nilpeter A/S of Denmark has announced the introduction of an
offset label press that utilizes the Company's Direct Imaging technology.
- 12 -
<PAGE>
During 1996, the Company began shipments of the PEARLsetter(TM), a
computer-to-plate imaging device that images both the Company's wet and dry
offset printing plates. Other systems are under development, which will use the
Company's imaging and plate technology in a broader range of printing
applications.
On February 15, 1996, the Company acquired 90% of the outstanding common
stock of Catalina Coatings, Inc., an Arizona corporation ("Catalina"). The
acquisition was accounted for as a purchase. 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. Accordingly, the results of Catalina's operations have been included in
the Company's June 28, 1997 and June 29, 1996 financial statements.
The Company operates and reports on a 52/53 week fiscal year ending on the
Saturday closest to December 31. Accordingly, the second quarters of 1997 and
1996 ended on June 28, 1997, and June 29, 1996, respectively.
On May 30, 1997, the Company's Board of Directors declared a two-for-one
common stock split, effected in the form of a 100% stock dividend, which was
paid on July 7, 1997 to holders of record on June 12, 1997 . The split resulted
in the issuance of 15,537,612 new shares of common stock. All references to
average number of shares outstanding and prices per share have been restated
retroactively to reflect the split.
Revenues
Revenues for the quarters ended June 28, 1997 and June 29, 1996 of
$20,896,000 and $11,880,000 (of which $309,000 and $531,000 related to Catalina)
consisted of product sales, royalties, fees and other reimbursements. Revenues
for the second quarter of 1997 increased $9,016,000 or 76% compared to the
second quarter of 1996. For the first six months of 1997 and 1996, revenues
totaled $40,904,000 and $22,884,000, respectively, (of which $1,893,000, and
$1,422,000 related to Catalina). Revenues for the first six months of 1997
increased $18,020,000 or 79% compared to the first six months of 1996.
Product sales increased $8,048,000 and $16,870,000, respectively, comparing
the three and six month periods in 1997 with the same periods in 1996. These
increases were primarily a result of volume increases in sales by the Company of
Direct Imaging systems used in the Quickmaster DI, as well as volume increases
in consumable sales, offset by a reduction in the Company's sales of
PEARLsetters. Market acceptance of the Company's PEARLsetter is developing more
slowly than the Company originally anticipated. This resulted in no sales of the
PEARLsetter for the second quarter ended June 28, 1997.
Royalties and fees from licensees increased $968,000 and $1,149,000,
respectively, in the second quarter and first six months of 1997 compared to the
same periods in 1996. Royalty increases of $2,381,000 and $4,204,000 were offset
by reductions of $1,413,000 and $3,055,000, respectively, in engineering and
other fees primarily received from Heidelberg.
- 13 -
<PAGE>
Included in the second quarter of 1997 were certain fees related to the
Company's agreement to license its on-press imaging patents to Scitex
Corporation Ltd.
Engineering and other fees are based primarily on amounts annually agreed
upon between the Company and Heidelberg. No significant fees have been
negotiated for 1997, and there can be no assurance that the Company will receive
any significant fees from Heidelberg in the current fiscal year. Revenues
generated under the Company's agreements with Heidelberg and from Heidelberg
distributors represented 77% and 74% for the six month periods ended June 28,
1997 and June 29, 1996, respectively.
Cost of Products Sold
Costs of products sold for the second quarter and first six months of 1997
totaled $9,942,000 and $20,549,000 (of which $371,000 and $1,576,000
respectively related to Catalina) compared to $4,825,000 and $10,226,000 (of
which $405,000 and $1,075,000, respectively, related to Catalina) for the same
periods in 1996. These costs consist of the material, labor and overhead
associated with product sales, as well as future warranty costs. The increases
in such costs comparing the second quarter and the first six months of 1997 with
the comparable periods in 1996 related primarily to corresponding volume
increases in product sales. The improvement in the gross margin on product sales
to 36% for the first six months of 1997 from 34% in the comparable period in
1996 resulted primarily from a change in product mix and certain volume related
manufacturing efficiencies.
Engineering and Product Development
Engineering and product development expenses for the second quarter and
first six months of 1997 totaled $2,544,000 and $4,811,000 compared to
$1,800,000 and $4,033,000 for the same periods in 1996. The increases of
$744,000 (41%) for the second quarter and $778,000 (19%) for the first six
months of 1997 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 including the Company's
PEARLwet(TM), PEARLdry(TM), and PEARLgold(TM) plates.
Marketing
Marketing expenses for the second quarter and first six months of 1997
totaled $1,091,000 and $1,853,000 compared to $636,000 and $1,182,000 for the
same periods in 1996. The increases for the second quarter and first six months
of 1997 of $455,000 (72%) and $671,000 (57%), respectively, related principally
to increased
- 14 -
<PAGE>
expenditures for additional personnel and related costs, as well as promotional
activities and trade shows.
General and Administrative
General and Administrative expenses for the second quarter and first six
months of 1997 totaled $1,718,000 and $2,965,000 (of which $132,000 and $371,000
respectively related to Catalina) compared to $1,809,000 and $2,771,000 for the
same periods in 1996. The increase of $194,000 (7%) for the first six months of
1997 related principally to increased expenditures for salaries and other costs
required to conduct various general and administrative functions of the Company.
Other Income and Expense
Dividend and interest income earned on the Company's cash and investments
decreased $150,000 for the second quarter and $258,000 for the first six months
of 1997 compared to the same periods in 1996, principally as a result of the
decreased funds available for investment.
The increase in other expenses of $394,000 for the first six months of
1997, compared to the same period in 1996, related primarily to foreign exchange
losses incurred on certain receivables from Heidelberg.
Income Taxes
The provisions for income taxes for the second quarter and six months ended
June 28, 1997 and June 29, 1996 represent principally charges in lieu of income
taxes relating to the tax benefit of stock option deductions earned during the
periods. The tax benefit of such stock option deductions has been credited to
stockholders' equity.
Net Income
As a result of the foregoing, the Company had net income of $3,210,000 and
$6,112,000 for the second quarter and first six months of 1997, compared to net
income of $1,647,000 and $2,936,000 for the same periods in 1996. The operations
of Catalina did not have a material effect on net income for the quarters ended
June 28, 1997, and June 29, 1996.
Liquidity and Capital Resources
At June 28, 1997, the Company had working capital of $25,068,000, a
decrease of $4,315,000 as compared to working capital of $29,383,000 at December
28, 1996. This decrease was primarily attributed to the Company's additions to
property, plant and equipment of $17,006,000, offset in part by net income from
- 15 -
<PAGE>
operations of $6,112,000, plus non-cash items including the tax benefit arising
from stock option deductions of $3,910,000, and depreciation and amortization of
$1,442,000.
Net cash provided by operating activities of $10,272,000 for the six months
ended June 28, 1997, resulted primarily from net income from operations of
$6,112,000 plus noncash items totaling $6,490,000 ($3,910,000 of which relates
to the tax benefit arising from stock option deductions) offset by an increase
in inventory of $3,045,000.
Net cash used for investing activities of $13,718,000 for the six months
ended June 28, 1997, resulted primarily from the proceeds of sales of marketable
securities of $3,494,000, offset by additions to property, plant and equipment
used in the Company's business of $17,006,000.
Net cash provided by financing activities during the six months ended June
28, 1997, totaled $2,263,000, and consisted of utilization under the Citizens
Bank line of credit of $1,000,000 and the sale of Common Stock incident to the
exercise of various stock options.
The Company has completed the construction of a 70,000 square foot facility
in Tucson, Arizona for Catalina, and is nearing completion of the construction
of 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 operations, 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 $32,600,000.
Through June 28, 1997, the Company has expended approximately $14,973,000
for land, land improvements, and construction of the two new facilities.
Approximately $8,830,000 of this total was expended during the first six months
of 1997, and as of June 28, 1997, the Company had outstanding purchase
commitments of approximately $1,500,000 with respect to the new facilities.
Additionally, through June 28, 1997, the Company expended $12,385,000 for new
plate manufacturing, finishing, and packaging equipment. Approximately
$4,575,000 of this total was expended during the first six months of 1997, and
as of June 28, 1997, the Company had outstanding purchase commitments of
approximately $3,725,000 with respect to the plate manufacturing, finishing, and
packaging equipment.
On July 29, 1997, the Company renewed its agreement with Citizens Bank New
Hampshire ("Citizens") for a revolving line of credit loan under which the
Company may borrow a maximum of $10,000,000 for working capital requirements and
general corporate purposes. Borrowings are secured by substantially all of the
Company's assets and are guaranteed by the Company's subsidiary, Catalina
Coatings, Inc. and secured by its assets. Under the terms
- 16 -
<PAGE>
of the revolving credit agreement, the Company is required to meet certain
financial covenants on a quarterly and annual basis. Interest on the line of
credit is payable at the LIBOR rate plus 1.75% (7.47% at June 28, 1997). The
loan agreement terminates on July 31, 1999, at which date, the entire principal
and accrued interest is due and payable. As of June 28, 1997, the Company had
$1,000,000 outstanding and $9,000,000 available under the line of credit.
The Company continues to explore various long term funding options with
respect to financing the cost of its new facilities and plate manufacturing
equipment. There can be no assurance that the Company can obtain any necessary
financing for its new facilities and plate manufacturing equipment. The Company
believes that existing funds and the funds available under its current line of
credit will be sufficient to satisfy working capital requirements in the
foreseeable future.
Effect of Inflation
Inflation has not had, and is not expected to have, a material impact upon
the Company's operations.
Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share", which
is effective for both interim and annual periods ending after December 15, 1997.
Earlier application is not permitted. The Company accordingly plans to adopt
SFAS No. 128 in its January 3, 1998 annual financial statements. The Company
does not anticipate that SFAS No. 128 would have had a material effect on the
earnings per share presented, if it had been adopted in the first six months
ended June 28, 1997.
- 17 -
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On June 16, 1997, Seena Stevens Silverman commenced a purported class
action in the United States District Court for the District of New Hampshire
against the Company, Lawrence Howard, Richard A. Williams, Robert E. Verrando,
Glenn J. DiBenedetto, Frank G. Pensavecchia, Harold N. Sparks, Bert DePamphilis,
Cabot Market Letter, Cabot Money Management, Inc., Cabot Heritage Corporation,
John C. Oxley and Thomas E. Oxley, as co-executors of the Estate of John T.
Oxley, The Oxley Foundation, Everen Securities, Inc., Mack Walker, Robert Lutts,
Timothy W. Lutts, Donald Chapman and Carlton G. Lutts. The plaintiff purports to
bring this action on behalf of a class of persons who sold put options in the
common stock of the Company between November 7, 1995 and June 20, 1996. The
plaintiff alleges that the defendants defrauded the putative class members by
(1) manipulating the price and supply of the Company's common stock, (2) issuing
false and misleading statements regarding the nature of the Company's
proprietary PEARL(R) technology, (3) failing to disclose the true depth and
target of an SEC investigation into the trading in the Company's stock, (4)
making misleading statements regarding the Company's claims to its PEARL
technology and its contract with a principal customer of the Company,
Heidelberger Druckmaschinen A.G., and (5) failing to disclose alleged trading on
non-public information by certain of the individual defendants. The Complaint
alleges that the above conduct of the defendants caused the market price of the
Company's stock to be artificially inflated. The plaintiff alleges that the
defendants violated Section 10(b) of the Securities Exchange Act of 1934 and
Rule 10b-5 promulgated thereunder and the New Hampshire "Blue Sky" laws, and
committed common law fraud and negligent misrepresentation. The plaintiff seeks
to recover unspecified compensatory and punitive damages purportedly on behalf
of the putative class, as well as costs and expenses, including attorneys' fees
and expert witnesses' fees.
See Note 6 of Notes to the Financial Statements contained in this Form 10-Q
and Item 3 of the Company's Form 10-K for the fiscal year ended December 28,
1996, for a description of certain other legal proceedings pending against the
Company, its officers, and certain of its directors.
The Company intends to vigorously defend all of the foregoing actions. However,
the outcome of any litigation is subject to uncertainty and a successful claim
against the Company could have a material adverse effect on the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 Financial Data Schedule (for SEC use only)
(b) No reports on Form 8-K were filed for the quarter for which this
report is filed.
- 18 -
<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: August 11, 1997
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)
- 19 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM
10-Q AT JUNE 28, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-END> JUN-28-1997
<CASH> 2,347,898
<SECURITIES> 3,083,697
<RECEIVABLES> 16,244,216
<ALLOWANCES> 280,914
<INVENTORY> 13,459,279
<CURRENT-ASSETS> 37,669,567
<PP&E> 40,829,960
<DEPRECIATION> 5,058,754
<TOTAL-ASSETS> 81,632,120
<CURRENT-LIABILITIES> 12,601,181
<BONDS> 0
0
0
<COMMON> 310,752
<OTHER-SE> 68,443,053
<TOTAL-LIABILITY-AND-EQUITY> 81,632,120
<SALES> 32,323,182
<TOTAL-REVENUES> 40,903,857
<CGS> 20,548,769
<TOTAL-COSTS> 20,548,769
<OTHER-EXPENSES> 4,811,011
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<INCOME-PRETAX> 10,417,433
<INCOME-TAX> 4,305,000
<INCOME-CONTINUING> 6,112,433
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<NET-INCOME> 6,112,433
<EPS-PRIMARY> .19
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