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 April 4, 1998
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 May 13, 1998, there
were 31,995,870 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
April 4, 1998 (unaudited)
and January 3, 1998 3
Statements of Income for the
three month periods ended
April 4, 1998 and March 29, 1997
(unaudited) 4
Statements of Cash Flows
for the three month periods ended
April 4, 1998 and March 29, 1997
(unaudited) 5
Notes to Financial Statements
(unaudited) 6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
PART II OTHER INFORMATION 20
Item 1 Legal Proceedings
Item 2 Changes in Securities and Use of Proceeds
Item 6 Exhibits and Reports on Form 8-K
Signatures 21
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
PRESSTEK, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
April 4, January 3,
1998 1998
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 10,605,609 $ 5,201,071
Marketable securities 1,032,287 1,008,171
Accounts receivable, net of allowance
for doubtful accounts of $380,000 in
fiscal 1998 and $373,000 in fiscal 1997 27,514,966 26,400,561
Inventories 12,486,845 13,308,504
Costs and estimated earnings in excess
of billings on uncompleted contracts 1,095,580 1,095,579
Other current assets 1,417,580 430,909
------------- -------------
Total current assets 54,152,867 47,444,795
------------- -------------
PROPERTY, PLANT AND EQUIPMENT:
Land and land improvements 2,354,290 2,571,296
Buildings 15,638,411 15,424,056
Machinery and equipment 31,854,985 29,758,165
Furniture and fixtures 1,109,676 995,639
Leasehold improvements 2,572,118 2,572,118
Other 34,498 34,498
------------- -------------
Total 53,563,978 51,355,772
Less accumulated depreciation
and amortization (7,401,544) (6,392,430)
------------- -------------
Property, plant and equipment, net 46,162,434 44,963,342
------------- -------------
OTHER ASSETS:
Goodwill, net 5,738,794 5,819,999
Patent application costs and license rights, net 3,699,527 1,931,651
Software development costs, net 173,548 303,923
Other 210,248 9,071
------------- -------------
Total other assets 9,822,117 8,064,644
------------- -------------
TOTAL $ 110,137,418 $ 100,472,781
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable $ -- $ 4,800,000
Current portion of mortgage term loan 491,046 --
Accounts payable 6,687,181 7,530,187
Accrued expenses 1,655,375 1,280,070
Accrued salaries and employee benefits 1,495,846 872,851
Billings in excess of costs and estimated
earnings on uncompleted contracts 4,451,813 --
------------- -------------
Total current liabilities 14,781,261 14,483,108
------------- -------------
MORTGAGE TERM LOAN $ 3,199,178 $ --
------------- -------------
COMMITMENTS AND CONTINGENCIES
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
31,990,714 shares at April 4, 1998; 319,907 318,666
31,866,554 shares at January 3, 1998
Additional paid-in capital 66,981,037 63,156,909
Unrealized loss on marketable securities, net (375) (1,222)
Retained earnings 24,856,410 22,515,320
------------- -------------
Stockholders' equity 92,156,979 85,989,673
------------- -------------
TOTAL $ 110,137,418 $ 100,472,781
============= =============
</TABLE>
See notes to financial statements
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<PAGE>
PRESSTEK, INC.
STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
April 4, March 29,
1998 1997
------------ ------------
REVENUES:
Product sales $ 19,657,660 $ 16,346,956
Royalties and fees from licensees 4,682,851 3,660,696
------------ ------------
Total revenues 24,340,512 20,007,652
------------ ------------
COSTS AND EXPENSES:
Cost of products sold 14,173,090 10,607,114
Engineering and product development 3,241,932 2,267,335
Sales and marketing 1,162,422 761,838
General and administrative 2,230,411 1,247,423
------------ ------------
Total costs and expenses 20,807,855 14,883,710
------------ ------------
INCOME FROM OPERATIONS 3,532,657 5,123,942
------------ ------------
OTHER INCOME (EXPENSE):
Dividend and interest, net 70,380 104,676
Other, net 308,053 (446,517)
------------ ------------
Total other income - net 378,433 (341,841)
------------ ------------
INCOME BEFORE INCOME TAXES 3,911,090 4,782,101
PROVISION FOR INCOME TAXES 1,570,000 1,880,000
------------ ------------
NET INCOME $ 2,341,090 $ 2,902,101
============ ============
BASIC EARNINGS PER SHARE $ .07 $ .09
============ ============
DILUTED EARNINGS PER SHARE $ .07 $ .09
============ ============
COMMON SHARES OUTSTANDING 31,880,575 30,803,448
============ ============
COMMON SHARES ASSUMING DILUTION 32,762,971 32,991,976
============ ============
See notes to financial statements
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<PAGE>
PRESSTEK, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
April 4, March 29,
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS - OPERATING ACTIVITIES:
Net income $ 2,341,090 $ 2,902,101
Adjustments to reconcile net income to net
cash provided by operating activities:
Tax benefit arising from stock option deductions 1,210,000 1,575,000
Depreciation 817,151 429,562
Amortization 243,762 281,239
Provision for warranty and other costs 341,494 366,765
Other, net 71,895 332,074
(Increase) decrease in:
Accounts receivable (695,026) (1,300,528)
Inventory 1,981,100 (1,552,974)
Costs and estimated earnings in excess of
billings on uncompleted contracts -- (74,448)
Other current assets (986,322) 404,393
Increase (decrease) in:
Accounts payable and accrued expenses (1,669,871) 41,020
Accrued salaries and employee benefits 544,956 (78,946)
Billings in excess of costs and estimated
earnings on uncompleted contracts 4,451,813 (1,355,130)
------------ ------------
Net cash provided by operating activities 8,652,043 1,970,128
------------ ------------
CASH FLOWS - INVESTING ACTIVITIES:
Purchases of property, plant and equipment (2,184,578) (7,887,501)
Proceeds from sale of land and equipment 441,174 1,200
Increase in other assets (241,117) (57,326)
Sales and maturities of marketable securities -- 3,493,516
------------ ------------
Net cash used for investing activities (1,984,521) (4,450,111)
------------ ------------
CASH FLOWS - FINANCING ACTIVITIES:
Net proceeds from sale of Common Stock 208,172 95,330
Proceeds under mortgage term loan 3,750,000 --
Repayments of mortgage term loan (59,776) --
Net proceeds from revolving line of credit -- 1,800,000
Net payments on revolving line of credit (4,800,000) --
Payment on Heath Custom Press, Inc.'s
revolving line of credit (600,352) --
------------ ------------
Net cash provided by (used for)
financing activities (1,501,956) 1,895,330
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,165,566 (584,653)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 5,201,071 3,530,866
Cash acquired from Heath Custom Press, Inc. 238,972 --
------------ ------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 10,605,609 $ 2,946,213
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -
Cash paid during the period for income taxes $ 250,000 $ 90,406
============ ============
Cash paid during the period for interest $ 89,876 $ --
============ ============
NON-CASH INVESTING AND FINANCING ACTIVITY
Common Stock issued and patents and other net
assets acquired relating to the acquisition
of Heath Custom Press, Inc. $ 2,407,199 $ --
============ ============
</TABLE>
See notes to financial statements
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<PAGE>
PRESSTEK, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
APRIL 4, 1998
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
fiscal year ended January 3, 1998. The January 3, 1998 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") is engaged in the development, manufacture,
and sale of PEARL(R), its patented, proprietary, digital imaging system and
process-free, thermal ablation printing plate technology. PEARL's thermal laser
diode system is capable of imaging various types of the Company's printing
plates either off-press or on-press to produce high quality, full-color,
lithographic printed materials for the printing and graphic arts industries.
Revenues generated under the Company's agreements with Heidelberger
Druckmaschinen AG ("Heidelberg"), the world's largest printing press
manufacturer, and from Heidelberg distributors represented 60% and 72% of total
revenues for the three months ended April 4, 1998, and March 29, 1997,
respectively. Revenues from Heidelberg include sales of consumable products sold
under distribution agreements.
Delta V Technologies, Inc. ("Delta V"), formerly Catalina Coatings, Inc.,
is engaged in the development, manufacture, and sale of vacuum deposition
coating equipment, and licensing and sub-licensing of patent rights with respect
to a vapor deposition process to coat moving webs of material at high speeds.
During the first quarter of 1997, a substantial part of Delta V's efforts were
devoted to developing and manufacturing the equipment the Company requires to
manufacture PEARL thermal plates. Delta V subsequently expanded its commercial
relationships with other companies and currently has a backlog for its
customized high-vacuum deposition systems.
On January 4, 1998, the Company acquired the stock of Heath Custom Press,
Inc. ("Heath"), of Seattle, Washington. Heath is engaged in the design and
manufacture of custom printing presses. Heath was purchased for 94,865
unregistered shares of the Company's Common Stock. The purchase price of
$2,407,000 has been allocated to assets acquired and liabilities assumed based
on the fair market
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<PAGE>
value at the date of acquisition as follows: current assets, $2,198,000;
patents, $1,781,000; liabilities, $1,758,000; other long-term assets, $186,000.
The Company has continued the business of Heath. The acquisition was accounted
for as a purchase and, accordingly, the results of Heath's operations have been
included in the Company's financial statements for the first quarter 1998. The
results of Heath's operations did not have a material impact on the Company's
results of operations.
Delta V and Heath operate as 90% and 100% owned subsidiaries of the
Company, respectively. Significant intercompany accounts and transactions have
been eliminated.
Certain accounts in the 1997 financial statements have been reclassified
for comparative purposes to conform with the presentation in the April 4, 1998,
financial statements.
The Company operates and reports on a 52/53 week fiscal year ending on the
Saturday closest to December 31. Accordingly, the first quarters of 1998 and
1997 ended on April 4, 1998 and March 29, 1997, respectively.
2. INVENTORY
Inventory is valued at the lower of cost or market, with cost determined on
the first-in, first-out method. At April 4, 1998, and January 3, 1998, inventory
consisted of the following:
1998 1997
----------- -----------
Raw materials $ 6,425,000 $ 7,698,000
Work in process 4,373,000 3,840,000
Finished goods 1,689,000 1,771,000
----------- -----------
Total $12,487,000 $13,309,000
=========== ===========
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<PAGE>
3. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 128 "Earnings per Share,"
which requires companies to report basic earnings per share (EPS) and diluted
EPS as a replacement for primary and fully diluted EPS. Basic EPS is computed by
dividing net income by the weighted average number of shares of Common Stock
outstanding. Diluted EPS is computed by dividing net income by the weighted
average number of Common Stock and Common Stock equivalent shares outstanding.
On May 30, 1997, The Company's Board of Directors declared a two-for-one stock
split, effected in the form of a 100% stock dividend during the third quarter of
fiscal 1997. The split resulted in the issuance of 15,549,862 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 earnings per share calculations for the three month
periods ended April 4, 1998, and March 29, 1997, follows:
<TABLE>
<CAPTION>
(In Thousands, Except Per Share)
1998 1997
------------------------------------- ------------------------------------
Per Per
Share Share
Income Shares Amount Income Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Basic Earnings
Per Share
Income available to common
stockholders $2,341 31,881 $ .07 $2,902 30,803 $ .09
====== ======
Effect of
Dilutive Securities
Effect of assumed conversion
of employee stock options 882 2,189
----- ------ ------ ----- ------ ------
Diluted Earnings
Per Share
Income available to common
stockholders and assumed
conversions $2,341 32,763 $ .07 $2,902 32,992 $ .09
====== ====== ====== ====== ====== ======
</TABLE>
Options to purchase 1,282,100 shares of Common Stock at exercise prices
ranging from $23.00 to $49.62 per share were
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<PAGE>
outstanding during a portion of the first quarter of 1998, but were not included
in the computation of diluted earnings per share, because the exercise prices of
the options were greater than the average market price of the common shares.
These options, which expire between July 10, 2000, and March 30, 2004, were all
outstanding at April 4, 1998.
4. INCOME TAXES
The components of the provision for income taxes for the three month
periods ended April 4, 1998, and March 29, 1997, based upon the estimated
effective income tax rate for the full fiscal year, were as follows:
1998 1997
---------- ----------
Current tax expense - State $ 360,000 305,000
Charge in lieu of income taxes:
Federal 1,210,000 1,575,000
State -- --
---------- ----------
Total provision $1,570,000 $1,880,000
========== ==========
The charge in lieu of income taxes included in the first quarter ended
April 4, 1998 relates principally to the realization of net operating loss
carryforwards resulting from stock compensation deductions for tax purposes. The
charge in lieu of income taxes included in the first quarter ended March 29,
1997 relates principally to the tax benefit of stock option deductions earned in
that period. These deductions have been credited to stockholders equity.
5. CREDIT FACILITIES
On February 6, 1998, the Company obtained a ten-year mortgage term loan in
the principal amount of $6,900,000 from Citizens Bank New Hampshire
("Citizens"). Borrowings are secured by land and buildings with a cost of
approximately $17,000,000. The loan bears a fixed rate of interest of 7.12% per
year during the first five years, and a variable rate of interest at the LIBOR
rate plus 2% (7.69% at April 4, 1998) for the remaining five years. Principal
and interest payments during the first five years of the loan will be made in 60
monthly installments of $80,500. During the remaining five years, principal and
interest payments will be made on a monthly basis in the amount of one-sixtieth
of the outstanding principal amount as of the first day of the second five year
period, plus accrued interest through the monthly payment date. All outstanding
principal and accrued and unpaid interest is due and payable on February 6,
2008. As of April 4, 1998, the Company received proceeds of $3,750,000. The
remaining proceeds of $3,150,000 were advanced to the Company on April 30, 1998.
On July 29, 1997, the Company renewed its agreement with Citizens for a
revolving line of credit loan under which the Company may borrow a maximum of
$10,000,000 for working capital
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<PAGE>
requirements and general corporate purposes. Borrowings are secured by
substantially all of the Company's assets and are guaranteed by the Company's
subsidiary, Delta V, 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% (7.44% at April 4, 1998). The loan agreement terminates on
July 31, 1999, at which date, the entire principal and accrued interest is due
and payable. As of April 4, 1998, the Company had $10,000,000 available under
the line of credit.
6. OTHER INFORMATION
The Company has completed the construction of a 70,000 square foot
manufacturing facility in Tucson, Arizona for Delta V, and the construction of a
100,000 square foot manufacturing facility in Hudson, New Hampshire. The Hudson
manufacturing facility accommodates the Company's new plate manufacturing
operations, which will utilize a new vacuum deposition coating system built for
the Company by Delta V, along with the necessary plate finishing and packaging
equipment. The total capital cost of these projects, including land purchases,
was approximately $38,500,000.
Through April 4, 1998, the Company has expended approximately $18,800,000
for land, land improvements, and construction of the two new facilities.
Additionally, through April 4, 1998, the Company expended $19,700,000 for new
plate manufacturing and packaging equipment.
Since June 28, 1996, several class action lawsuits have been filed against
the Company and certain other defendants, including, but not limited to, certain
of 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
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<PAGE>
received by its principal customer. The Company's officer and director
defendants 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. 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.
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, which may result from these lawsuits. Accordingly, no provision for any
liability that may result has been recorded in the accompanying financial
statements.
7. RECENTLY ISSUED ACCOUNTING STANDARDS
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 130, "Reporting Comprehensive Income," which requires that all components of
comprehensive income and total comprehensive income be reported on one of the
following: a statement of income and comprehensive income, a statement of
comprehensive income, or a statement of stockholder's equity. Comprehensive
income is comprised of net income and all changes to stockholders' equity,
except those due to investments by owners (changes in paid in capital) and
distributions to owners (dividends). For interim reporting purposes, SFAS 130
requires disclosure of total comprehensive income. There was no material impact
during the first quarters ended April 4, 1998 and March 29, 1997 as a result of
the adoption of SFAS 130, since there was no significant difference between net
income and comprehensive income in either period.
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 131, "Financial Reporting for Segments of a Business Enterprise and Related
Information." SFAS No. 131 supersedes SFAS No. 14, "Financial Reporting for
Segments of a Business Enterprise," and establishes standards for the way public
enterprises report information about operating segments in financial statements
issued to the public. It also establishes standards for disclosures regarding
products and services, geographic areas, and major customers. This standard is
effective for the Company's financial statements to be issued for the fiscal
year ending January 2, 1999. This standard requires comparative information to
be restated. Results of operations and financial position will be unaffected by
the implementation of this new standard. Management has not yet completed its
evaluation of the
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impact of this new standard on future financial statement disclosures.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits" (SFAS 132), which revises
employers' disclosures about pension and other postretirement benefit plans.
SFAS 132 is effective for financial statements for periods beginning after
December 15, 1997, and requires comparative information for earlier years to be
restated. This standard does not currently apply to the Company.
The American Institute of Certified Public Accountants has issued Statement
of Position 98-5, "Reporting on the Costs of Start-Up Activities" ("SOP 98-5").
This SOP defines start-up activities as those one-time activities related to
opening a new facility, introducing a new product or service, conducting
business in a new territory, conducting business with a new class of customers,
initiating a new process in an existing facility, or commencing some new
operation. SOP 98-5 requires that these start-up costs be expensed as incurred.
This SOP is effective for financial statements for fiscal years beginning after
December 15, 1998, although earlier application is encouraged. Management does
not believe that adoption of SOP 98-5 will materially impact the results of
operations, financial position, and future financial statement disclosures.
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<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:
Certain statements contained in this Form 10-Q constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve a number of known and unknown
risks, uncertainties and other factors which may cause the actual results,
performance or achievements of the Company to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, but are 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 Company's
other filings with the Securities and Exchange Commission. The words "believe",
"expect", "anticipate", "intend", "forecast", and "plan" and similar expressions
identify forward-looking statements. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
the statement was made.
Background
Presstek, Inc. (The "Company" or "Presstek"), incorporated in Delaware, was
founded in September 1987 as a development company. It was established to find a
new way to produce color offset printing. Heidelberger Druckmaschinen AG
("Heidelberg"), the world's largest printing press manufacturer, and the Company
established a relationship that was formalized in 1991 and resulted in the
introduction of the first jointly developed product, the spark discharge based
GTO-DI. In 1993, after investing substantial effort and resources, the Company
completed the development of its high resolution, semiconductor based laser
diode imaging and thermal plate technology referred to as PEARL. The Company's
PEARL 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. These printed materials typically can
be produced at a lower cost than traditional competitive methods. The
PEARL-based GTO-DI was introduced in late 1993, and in May of 1995, Heidelberg
introduced the Quickmaster DI 46-4, which replaced the GTO-DI product line. The
Quickmaster DI represents the second generation of Presstek's PEARL-based direct
imaging technology. It also employs the Company's automatic plate changing
cylinder which eliminates the need to manually change plates between jobs, as
well as a number of other productivity improvement features. The Company began
shipment of its PEARL-based Quickmaster direct imaging kits to Heidelberg in the
second quarter of 1995. The Company estimates that as of the end of 1997, there
were more than 700 PEARL-equipped
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<PAGE>
Heidelberg presses installed utilizing the Company's proprietary consumable
printing plates.
The Company is also engaged in the development of additional PEARL-based
products 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, a manufacturer of sheet fed offset presses. This
agreement has resulted in the availability of the Company's PEARL Direct Imaging
technology on a larger format Omni-Adast (19" x 26") multicolor press, shipments
of which began in December 1996. Also, during the first quarter of 1996, the
Company began shipments of its PEARL platesetter, now referred to as the
PEARLsetter. The PEARLsetter is a computer-to-plate imaging system that images
both the Company's wet and dry offset plates. Another agreement entered into
with Nilpeter A/S of Denmark will result in 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 January 4, 1998, the Company acquired the stock of Heath Custom Press,
Inc. ("Heath"), of Seattle, Washington. Heath is engaged in the design and
manufacture of custom printing presses. Heath was purchased for 94,865
unregistered shares of the Company's Common Stock. The purchase price of
$2,407,000 has been allocated to assets acquired and liabilities assumed based
on the fair market value at the date of acquisition as follows: current assets,
$2,198,000; patents, $1,781,000; liabilities, $1,758,000; other long term
assets, $186,000. The acquisition was accounted for as a purchase and,
accordingly, the results of Heath's operations are included in the Company's
financial statements for the quarter ended April 4, 1998. The results of Heath's
operations would not have had a material impact on the Company's results of
operations for 1997.
The Company operates and reports on a 52/53 week fiscal year ending on the
Saturday closest to December 31. Accordingly, the first quarters of 1998 and
1997 ended on April 4, 1998 and March 29, 1997, respectively.
Results of Operations
Revenues
Revenues for the quarters ended April 4, 1998 and March 29, 1997 of
$24,341,000 and $20,008,000, respectively, consisted of product sales,
royalties, fees and other reimbursements. Product sales for the first quarter of
1998 increased $3,311,000 (20%) over the first quarter of 1997, primarily as a
result of volume increases in consumable sales as well as sales of custom
printing presses by Heath. Royalties and fees from licensees increased
$1,022,000 in the first quarter of 1998 as a result of increases in
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<PAGE>
engineering and other fees received primarily from Fuji Photo Film Co., Ltd.
Revenues generated under the Company's agreements with Heidelberg and from
Heidelberg distributors represented 60% and 72% of the Company's total revenues
for the quarters ended April 4, 1998, and March 29, 1997, respectively. Revenues
from Heidelberg include sales of consumable products sold under distribution
agreements.
Cost of Products Sold
Costs of products sold for the quarters ended April 4, 1998 and March 29,
1997, of $14,173,000 and $10,607,000, respectively, consisted of the material,
labor and overhead costs associated with product sales, as well as anticipated
future warranty costs. The reduction in the gross margin on product sales to 28%
from 35%, comparing the first quarter of 1998 with the same period in 1997,
results primarily from increased costs associated with the Hudson, New Hampshire
manufacturing operations, as well as increased sales of lower margin custom
press equipment by Heath.
Engineering and Product Development
Engineering and product development expenses were $3,342,000 for the first
quarter of 1998, as compared to $2,267,000 for the first quarter of 1997. The
increase of $975,000 (43%) resulted primarily from increased expenditures for
parts, supplies, labor, and contracted services related to the Company's
continued development of products incorporating its PEARL technology, including
the Company's PEARLgold(TM) plates as well as other product development efforts.
Sales and Marketing
Sales and Marketing expenses were $1,162,000 for the first quarter of 1998,
as compared to $762,000 for the same period in 1997, an increase of $400,000
(52%). The increase related principally to increased expenditures for additional
personnel and related costs as well as various promotional activities.
General and Administrative
General and Administrative expenses for the quarters ended April 4, 1998,
and March 29, 1997, of $2,230,000 and $1,247,000, respectively, related
primarily to increases in expenditures for salaries and other costs required to
conduct various general and administrative functions of the Company.
Other Income and Expense
The increase in other income of $720,000 comparing the first quarter of
1998 to the first quarter of 1997 related primarily to
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<PAGE>
the absence of foreign exchange losses in 1998 incurred in 1997 on certain
receivables from Heidelberg, and the gain in 1998 from the sale of a parcel of
land in Hudson, New Hampshire.
Income Taxes
The provision for income taxes for the quarter ended April 4, 1998,
included a $1,210,000 charge in lieu of federal income taxes relating
principally to the realization of net operating loss carryforwards resulting
from stock compensation deductions for tax purposes. The state provision of
$360,000 is based upon the estimated effective income tax rate for the full
fiscal year. The provision for income taxes in 1997 represented the charge in
lieu of income taxes arising from stock option deductions in the first quarter
1997, based upon the estimated effective income tax rate for the full fiscal
year. The tax benefits related to such stock option deductions have been
credited to stockholders' equity in the first quarters of 1998 and 1997.
Net Income
As a result of the foregoing, the Company had net income of $2,341,000 for
the first quarter of 1998 compared to net income of $2,902,000 for the first
quarter of 1997. The operations of Delta V or Heath did not have a material
effect on net income for the quarters ended April 4, 1998 and March 29, 1997.
Liquidity and Capital Resources
At April 4, 1998, the Company had working capital of $39,372,000, an
increase of $6,410,000 as compared to working capital of $32,962,000 at January
3, 1998. This increase was primarily attributed to the Company's net income from
operations of $2,341,000, the tax benefit arising from stock option deductions
of $1,210,000, and depreciation and amortization of $1,061,000.
Net cash provided by operating activities of $8,652,000 for the quarter
ended April 4, 1998, resulted primarily from net income from operations of
$2,341,000 plus noncash items totaling $2,684,000 ($1,210,000 of which relates
to the tax benefit arising from stock option deductions), offset by a decrease
in inventory of $1,981,000, and accounts payable and accrued expenses of
$1,670,000, offset by an increase in billings in excess of costs and estimated
earnings on uncompleted contracts of $4,452,000.
Net cash used for investing activities of $1,985,000 for the quarter ended
April 4, 1998, resulted primarily from additions to property, plant and
equipment used in the Company's business of $2,185,000.
Net cash used for financing activities during the quarter ended April 4,
1998, totaled $1,502,000, and consisted of the proceeds from a mortgage term
loan of $3,750,000, and $208,000 received from the sale of Common Stock incident
to the exercise of various stock options, offset by the
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<PAGE>
payments of $60,000 on the mortgage term loan, and $5,400,000 on revolving lines
of credit.
The Company has completed constructing two new facilities; a 70,000 square
foot manufacturing facility in Tucson, Arizona for Delta V, and a 100,000 square
foot manufacturing facility in Hudson, New Hampshire. The Hudson manufacturing
facility accommodates the Company's new plate manufacturing operations, which
utilizes a new vacuum deposition coating system built for the Company by Delta
V, along with the necessary plate finishing and packaging equipment. The total
capital cost of these projects, including land purchases, was approximately
$38,500,000.
Through April 4, 1998, the Company has expended approximately $18,800,000
for land, land improvements, and construction of the two new facilities.
Additionally, through April 4, 1998, the Company expended $19,700,000 for new
plate manufacturing and packaging equipment. As of April 4, 1998, the Company
had no material outstanding purchase commitments.
On February 6, 1998, the Company obtained a ten-year mortgage term loan in
the principal amount of $6,900,000 from Citizens Bank New Hampshire
("Citizens"). Borrowings are secured by land and buildings with a cost of
approximately $17,000,000. The loan bears a fixed rate of interest of 7.12% per
year during the first five years, and a variable rate of interest at the LIBOR
rate plus 2% (7.69% at April 4, 1998) for the remaining five years. Principal
and interest payments during the first five years of the loan will be made in 60
monthly installments of $80,500. During the remaining five years, principal and
interest payments shall be made on a monthly basis in the amount of one-sixtieth
of the outstanding principal amount as of the first day of the second five year
period, plus accrued interest through the monthly payment date. All outstanding
principal and accrued and unpaid interest is due and payable on February 6,
2008. As of April 4, 1998, the Company received proceeds of $3,750,000. The
remaining proceeds of $3,150,000 were advanced to the Company on April 30, 1998.
On July 29, 1997, the Company renewed its agreement with 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, Delta V, 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% (7.44% at April 4,
1998). The loan agreement terminates on July 31, 1999, at which date, the entire
principal and accrued interest is due and payable. As of April 4, 1998, the
Company had $10,000,000 available under the line of credit.
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<PAGE>
The Company believes that existing funds, cash flows from operations, and
cash available under its revolving line of credit and mortgage loan should be
sufficient to satisfy working capital requirements and capital expenditures 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
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 130, "Reporting Comprehensive Income," which requires that all components of
comprehensive income and total comprehensive income be reported on one of the
following: a statement of income and comprehensive income, a statement of
comprehensive income or a statement of stockholder's equity. Comprehensive
income is comprised of net income and all changes to stockholders' equity,
except those due to investments by owners (changes in paid in capital) and
distributions to owners (dividends). For interim reporting purposes, SFAS 130
requires disclosure of total comprehensive income. There was no material impact
during the first quarters ended April 4, 1998 and March 29, 1997 as a result of
the adoption of SFAS 130, since there was no significant difference between net
income and comprehensive income in either period.
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 131, "Financial Reporting for Segments of a Business Enterprise and Related
Information." SFAS No. 131 supersedes SFAS No. 14, "Financial Reporting for
Segments of a Business Enterprise," and establishes standards for the way that
public enterprises report information about operating segments in financial
statements issued to the public. It also establishes standards for disclosures
regarding products and services, geographic areas and major customers. This
standard is effective for the Company's financial statements issued for the
fiscal year ending January 2, 1999. This standard requires comparative
information to be restated. Results of operations and financial position will be
unaffected by implementation of this new standard. Management has not yet
completed its evaluation of the impact of this new standard on future financial
statement disclosures.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits" (SFAS 132), which revises
employers' disclosures about pension and other postretirement benefit plans.
SFAS 132 is effective for financial statements for periods beginning after
December 15, 1997, and requires comparative information for earlier years to be
restated. This standard currently does not apply to the Company.
- 18 -
<PAGE>
The American Institute of Certified Public Accountants has issued Statement
of Position 98-5, "Reporting on the Costs of Start-Up Activities" ("SOP 98-5").
This SOP defines start-up activities as those one-time activities related to
opening a new facility, introducing a new product or service, conducting
business in a new territory, conducting business with a new class of customers,
initiating a new process in an existing facility, or commencing some new
operation. SOP 98-5 requires that these start-up costs be expensed as incurred.
This SOP is effective for financial statements for fiscal years beginning after
December 15, 1998, although earlier application is encouraged. Management does
not believe that adoption of SOP 98-5 will materially impact the results of
operations, financial position, and future financial statement disclosures.
- 19 -
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See Item 3 of the Company's Form 10-K for the fiscal year ended January 3,
1998, for a description of certain legal proceedings pending against the Company
and certain of its officers and directors.
Item 2. Changes in Securities and Use of Proceeds
During the quarter ended April 4, 1998, the Company (i) issued 94,865
shares of its common stock in connection with its acquisition of Heath Custom
Press, Inc. and (ii) granted six-year options to purchase an aggregate of 35,250
shares of common stock under its 1997 Interim Stock Option Plan at exercises
prices ranging from $22.37 to $25.00 per share. The shares in the Heath
acquisition were issued in a private transaction exempt from the registration
provisions of the Securities Act of 1933 (the "Act") pursuant to Section 4(2)
thereof. The options were issued in transactions exempt from registration
pursuant to the provisions of Section 2(3) and/or Section 4(2) of the Act.
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.
- 20 -
<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: May 19, 1998
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)
- 21 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q AT
APRIL 4, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-END> APR-04-1998
<CASH> 10,605,609
<SECURITIES> 1,032,287
<RECEIVABLES> 27,514,966
<ALLOWANCES> 380,000
<INVENTORY> 12,486,845
<CURRENT-ASSETS> 54,152,867
<PP&E> 53,563,978
<DEPRECIATION> 7,401,544
<TOTAL-ASSETS> 110,137,418
<CURRENT-LIABILITIES> 14,781,261
<BONDS> 0
0
0
<COMMON> 319,907
<OTHER-SE> 91,837,072
<TOTAL-LIABILITY-AND-EQUITY> 110,137,418
<SALES> 19,657,660
<TOTAL-REVENUES> 24,340,512
<CGS> 14,173,090
<TOTAL-COSTS> 20,807,855
<OTHER-EXPENSES> 3,241,932
<LOSS-PROVISION> 0
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<INCOME-PRETAX> 3,911,090
<INCOME-TAX> 1,570,000
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<NET-INCOME> 2,341,090
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