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 3, 1999
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.)
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 12, 1999, there
were 32,312,318 shares outstanding of the Registrant's common stock, $.01 par
value per share.
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PRESSTEK, INC.
INDEX
PAGE
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PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Balance Sheets as of April 3, 1999 (unaudited)
and January 2, 1999 3
Statements of Operations for the three months ended
April 3, 1999 and April 4, 1998 (unaudited) 4
Statements of Cash Flows for the three months ended
April 3, 1999 and April 4, 1998 (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 20
PART II OTHER INFORMATION 21
Item 1 Legal Proceedings
Item 6 Exhibits and Reports on Form 8-K
Signatures 22
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PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements.
PRESSTEK, INC.
BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
April 3, January 2,
1999 1999
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,388 $ 3,174
Marketable securities 16,765 16,107
Accounts receivable, net of allowance for losses
of $2,365 in fiscal 1999; and $2,536 in fiscal 1998 12,341 20,638
Inventories 9,520 9,857
Costs and estimated earnings in excess
of billings on uncompleted contracts 830 823
Other current assets 959 980
--------- ---------
Total current assets 45,803 51,579
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Land and land improvements 2,412 2,412
Buildings 17,100 16,776
Machinery and equipment 35,710 33,354
Furniture and fixtures 1,238 1,238
Leasehold improvements 2,755 2,392
Other 71 71
--------- ---------
Total 59,286 56,243
Less accumulated depreciation and amortization (11,197) (9,850)
--------- ---------
Property, plant and equipment, net 48,089 46,393
--------- ---------
OTHER ASSETS:
Goodwill, net 5,907 5,996
Patent application costs and license rights, net 3,524 3,625
Software development costs, net 63 91
Other 183 190
--------- ---------
Total other assets 9,677 9,902
--------- ---------
TOTAL $ 103,569 $ 107,874
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of mortgage term loan $ 522 $ 522
Accounts payable and accrued expenses 9,443 9,886
Accrued salaries and employee benefits 1,435 1,061
Billings in excess of costs and estimated
earnings on uncompleted contracts 1,776 3,030
--------- ---------
Total current liabilities 13,176 14,499
--------- ---------
MORTGAGE TERM LOAN 5,794 5,922
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; authorized
1,000,000 shares; no shares issues or outstanding -- --
Common stock, $.01 par value; authorized 75,000,000 shares;
Issued and outstanding 32,307,563 shares at April 3, 1999;
32,276,263 shares at January 2, 1999 323 323
Additional paid-in capital 67,526 67,296
Retained earnings 16,750 19,834
--------- ---------
Stockholders' equity 84,599 87,453
--------- ---------
TOTAL $ 103,569 $ 107,874
========= =========
</TABLE>
See notes to financial statements
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PRESSTEK, INC.
STATEMENTS OF OPERATIONS
(In thousands, except per share data)
For the three months ended
April 3, April 4,
1999 1998
-------- --------
REVENUES:
Product sales $ 13,135 $ 19,658
Royalties and fees from licensees 1,709 4,683
-------- --------
Total revenues 14,844 24,341
-------- --------
COSTS AND EXPENSES:
Cost of products sold 10,430 14,173
Engineering and product development 4,159 3,242
Sales and marketing 1,428 1,162
General and administrative 2,164 2,231
-------- --------
Total costs and expenses 18,181 20,808
-------- --------
INCOME (LOSS) FROM OPERATIONS (3,337) 3,533
-------- --------
OTHER INCOME:
Dividend and interest, net 168 70
Other, net 85 308
-------- --------
Total other income, net 253 378
-------- --------
INCOME (LOSS) BEFORE INCOME TAXES (3,084) 3,911
PROVISION FOR INCOME TAXES -- 1,570
-------- --------
NET INCOME (LOSS) $ (3,084) $ 2,341
======== ========
EARNINGS (LOSS) PER SHARE - BASIC $ (0.10) $ 0.07
======== ========
EARNINGS (LOSS) PER SHARE - DILUTED $ (0.10) $ 0.07
======== ========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - BASIC 32,298 31,881
======== ========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - DILUTED 32,298 32,763
======== ========
See notes to financial statements
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PRESSTEK, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
For the three months ended
<TABLE>
<CAPTION>
April 3, April 4,
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS - OPERATING ACTIVITIES:
Net income (loss) $ (3,084) $ 2,341
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Tax benefit arising from stock option deductions -- 1,210
Depreciation 1,347 817
Amortization 267 244
Provision for warranty and other costs 44 33
Provision for losses on accounts receivable 480 380
(Increase) decrease in:
Accounts receivable 7,818 (695)
Inventories 337 1,981
Costs and estimated earnings in excess of
billings on uncompleted contracts (7) --
Other current assets 21 (986)
Increase (decrease) in:
Accounts payable and accrued expenses (487) (1,670)
Accrued salaries and employee benefits 374 545
Billings in excess of costs and estimated
earnings on uncompleted contracts (1,254) 4,452
-------- --------
Net cash provided by operating activities 5,856 8,652
-------- --------
CASH FLOWS - INVESTING ACTIVITIES:
Purchases of property, plant and equipment (3,043) (2,185)
Proceeds from sale of land and equipment -- 441
Increase in other assets (43) (241)
Sales and maturities of marketable securities 20,342 --
Purchases of marketable securities (21,000) --
-------- --------
Net cash (used for) investing activities (3,744) (1,985)
-------- --------
CASH FLOWS - FINANCING ACTIVITIES:
Net proceeds from sale of common stock 230 208
Proceeds under mortgage term loan -- 3,750
Payments on mortgage term loan (128) (60)
Net payments on revolving line of credit -- (4,800)
Payment on Heath Custom Press, Inc.'s
revolving line of credit -- (600)
-------- --------
Net cash provided by (used for) financing activities 102 (1,502)
-------- --------
INCREASE IN CASH AND CASH EQUIVALENTS 2,214 5,165
CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD 3,174 5,201
Cash acquired from Heath Custom Press, Inc. -- 239
-------- --------
CASH AND CASH EQUIVALENTS END OF PERIOD $ 5,388 $ 10,605
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 114 $ 250
======== ========
Income taxes $ -- $ 90
======== ========
NON-CASH INVESTING AND FINANCING ACTIVITY:
Common stock issued and net assets acquired relating to the
acquisition of Heath Custom Press, Inc. $ -- $ 2,407
======== ========
</TABLE>
See notes to financial statements
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<PAGE>
PRESSTEK, INC.
NOTES TO FINANCIAL STATEMENTS (unaudited)
APRIL 3, 1999
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 2, 1999. The January 2, 1999 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. Operating
results for the three months ended April 3, 1999 are not necessarily indicative
of the results that may be expected for the fiscal year ended January 1, 2000.
Presstek, Inc. ("Presstek", or "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
technologies. Presstek's products and applications incorporate PEARL
technologies and utilize PEARL consumables for computer-to-plate and
direct-to-press applications. PEARL's thermal laser diode system enables its
customers to produce high quality, full color lithographic printed materials for
the printing and graphic arts industries. The Company is also engaged in the
development, manufacture, and sale of vacuum deposition coating equipment at its
Delta V Technologies Inc. ("Delta V") subsidiary. Based in Tucson, Arizona,
Delta V develops processes, materials and equipment for vacuum coating
applications. Its equipment and process innovations are used in a broad range of
industries and applications including graphic arts, capacitors, electronics,
optics, architectural and decorative glass, flat panel displays and packaging.
In February 1996, the Company acquired 90% of the outstanding common stock
of Catalina Coatings, Inc. which now operates as Delta V. In December 1998, the
Company acquired an additional 7% of the outstanding common stock of Delta V for
consideration of $500,000. The additional purchase price was recorded as
goodwill. The acquisition was accounted for as a purchase and, accordingly the
results of Delta V's operations have been included in the Company's financials
for the three months ended April 3, 1999 and April 4, 1998. Significant
intercompany accounts and transactions have been eliminated.
In January 1998, the Company acquired 100% of the stock of Heath Custom
Press, Inc. ("Heath"), of Seattle, Washington. Heath was engaged in the design
and manufacture of custom printing presses and 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
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the date of acquisition as follows: current assets, $2,198,000; patents,
$1,781,000; long-term assets, $186,000; other liabilities, $1,758,000. 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 three months ended April 3, 1999 and April 4, 1998. Significant intercompany
accounts and transactions have been eliminated. The results of Heath's
operations did not have had a material impact on the Company's results of
operations for the three months ended April 3, 1999 and April 4, 1998.
In October 1998, the Company sold certain assets of Heath for $1,000,000,
which approximated book value. The Company retained all rights to the Heath
patents.
Certain accounts in the fiscal 1998 financial statements have been
reclassified for comparative purposes to conform with the presentation in the
April 3, 1999 financial statements.
The Company operates in two reportable business segments, the Direct
Imaging Products segment and Delta V. See Note 7 of the 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 1999 and
1998 ended on April 3, 1999 and April 4, 1998, respectively.
2. MARKETABLE SECURITIES
Marketable securities are classified as available-for-sale and are stated
at fair value. Unrealized gains and losses, if any, are recorded as a separate
component of stockholder's equity. At April 3, 1999 marketable securities
consisted of debt securities. At April 4, 1998, marketable securities consisted
of United States treasury notes.
3. INVENTORIES
Inventories are valued at the lower of cost or market, with cost determined
on the first-in, first-out method. At April 3, 1999, and January 2, 1999,
inventories consisted of the following:
1999 1998
---- ----
(In thousands)
Raw materials $5,516 $7,289
Work in process 935 690
Finished goods 3,069 1,878
------ ------
Total $9,520 $9,857
====== ======
4. COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 130 "Reporting Comprehensive Income" in the first quarter of fiscal 1998.
SFAS No. 130 sets standards for the reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is
comprised of net income and all charges in stockholder's equity except those due
to investments by
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owners and distributions to owners, which for the Company includes unrealized
gains (losses) on marketable securities. For the fiscal quarters ended April 3,
1999 and April 4, 1998, there was no significant difference between net income
and comprehensive income.
5. EARNINGS (LOSS) PER SHARE
In 1997, the Company adopted Statement of Financial Accounting Standard
(SFAS) No. 128 "Earnings per Share," which requires companies to report basic
earnings per share and diluted earnings per share. Basic earnings (loss) per
share is computed by dividing net income by the weighted average number of
shares of common stock outstanding during the period. Diluted earnings (loss)
per share is computed giving effect to all diluted potential common shares that
were outstanding during the period. Diluted potential common shares consist of
the incremental common shares issuable upon exercise of stock options.
The following represents the calculation of basic and diluted earnings
(loss) per share for three months ended April 3, 1999, and April 4, 1998:
April 3, April 4,
1999 1998
------- -------
(In thousands, except per share data)
Net income (loss) as reported ($ 3,084) $ 2,341
======= =======
Weighted average common shares
outstanding - Basic 32,298 31,881
Effect of assumed conversion
of stock options -- 882
------- -------
Weighted average common shares
outstanding - Diluted 32,298 32,763
======= =======
Earnings (loss) per share - Basic ($ 0.10) $ 0.07
======= =======
Earnings (loss) per share - Diluted ($ 0.10) $ 0.07
======= =======
All stock options outstanding for the three months ended April 3, 1999 are
excluded from the calculation of diluted loss per share, as their effect would
be anti-dilutive. Options to purchase 1,282,100 shares of common stock at
exercise prices ranging from $23.00 to $49.62 per share were outstanding during
a portion of the first quarter of 1998, but were not included in the computation
of diluted earnings per share, as 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.
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<PAGE>
6. INCOME TAXES
The components of the provision for income taxes for the three months ended
April 3, 1999, and April 4, 1998, based upon the estimated effective income tax
rate for the full fiscal year, were as follows:
1999 1998
-------- ------
(In thousands)
Current tax expense - State $ -- $ 360
Charge in lieu of income taxes:
Federal -- 1,210
State -- --
-------- ------
Total income tax provision $ -- $1,570
======== ======
The Company did not record a provision for United States federal or state
income taxes or a charge in lieu of federal or state income taxes due to the net
operating loss incurred for the three months ended April 3, 1999. The charge in
lieu of income taxes included in the three months ended April 4, 1998 relates
principally to the realization of net operating loss carryforwards resulting
from stock compensation deductions for tax purposes.
7. SEGMENT INFORMATION
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" for fiscal 1998 year-end reporting. The
statement requires disclosure of certain financial information related to
operating segments. The Company has determined that it operates in two
reportable segments, the Digital Imaging Products segment and Delta V. The
Digital Imaging Products segment is primarily engaged in the development,
manufacture and sales of its proprietary digital imaging systems and printing
plate technologies for computer-to-plate and direct-to-press applications. Delta
V develops processes, materials and equipment for vacuum coating applications.
Its equipment and process innovations are used in a broad range of industries
and applications including graphic arts, capacitors, electronics, optics,
architectural and decorative glass, flat panel displays and packaging.
The accounting policies of the reportable segments are the same as those
used in the financial statements. Sales between the segments are recorded at
prices which approximate pricing for sales conducted at an arm's length basis.
The segments are measured on operating profits or losses before net interest
income, minority interest and income taxes.
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<PAGE>
A summary of the Company's operations by segment for the three months ended
April 3, 1999 and April 4, 1998 are as follows:
Digital
Imaging
Products Delta V Total
-------- ------- -----
(In thousands)
Three months ended April 3, 1999
Revenues $ 11,536 $ 3,308 $ 14,844
Income (loss) from operations (3,345) 8 (3,337)
Total assets 87,007 16,562 103,569
Depreciation and amortization 1,350 264 1,614
Capital expenditures 2,978 65 3,043
Three months ended April 4, 1998
Revenues 23,511 830 24,341
Inter-segment sales -- 460 460
Income (loss) from operations 3,884 (351) 3,533
Total assets 92,667 17,470 110,137
Depreciation and amortization 810 251 1,061
Capital expenditures 2,082 103 2,185
Revenues generated under the Company's agreements with Heidelberg and its
distributors totaled $5,020,000 and $15,100,000 for the three months ended April
3, 1999 and April 2, 1998, respectively.
8. OTHER INFORMATION
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, under the common
caption "Bill Berke, et al. V. Presstek, Inc., et al. ("Berke"), and a single
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) and 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 officer and director defendants are
alleged to have sold the Company's common stock while in possession of material
non-public
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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.
On March 30, 1999 the United States District Court for the District of New
Hampshire issued orders dismissing several of the claims brought against the
Company and others in the Berke lawsuit.
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.
9. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." ("SFAS No. 133"), which requires companies to recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS No. 133 is effective
for fiscal years beginning after June 15, 1999. The Company does not presently
enter into any transactions involving derivative financial instruments and,
accordingly, does not anticipate the new standard will have any effect on its
financial statements for the foreseeable future.
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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 risks of uncertainty of strategic
alliances, the risk of Year 2000 noncompliance by the Company or critical
third-parties with which the Company does business, the impact of third-party
suppliers, manufacturing constraints or difficulties, market acceptance of and
demand for the Company's products and resulting revenues, development of
technology and manufacturing capabilities, impact of competitive products and
pricing, litigation and other risks detailed in the Company's other filings with
the Securities and Exchange Commission. The words "looking forward," "believe,"
"demonstrate," "intend," "expect," "estimate," "anticipate," "likely" 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. PEARL's thermal
laser diode system enables its customers to image 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 for the printing and
graphic arts industries. 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 proprietary PEARL-based direct
imaging technology. It also employs the Company's patented 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 systems to
Heidelberg in the second quarter of 1995. The Company estimates that as of the
end of fiscal 1998, there were
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more than 950 PEARL-equipped GTO-DI and Quickmaster DI 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 its patented, proprietary, digital imaging system and
process free thermal ablation printing plate technologies for both
computer-to-plate and computer-to-press applications. During the first quarter
of fiscal 1996, the Company began shipments of its PEARL platesetter, 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. Also, in December
1996, the Company began shipments of its direct imaging system for a larger
format Omni-Adast (19" x 26") multicolor press. In the second half of fiscal
1998 the Company began shipments of its PEARLhdp laser imaging system. The
PEARLhdp, jointly developed with Imation Corp., is a digital halftone, proofing
device. It can produce true halftone "dot for dot" color press proofs using the
Company's computer-to-plate imaging system specially modified for this unique
application.
The Company also has announced agreements with a number of other companies
including Scitex Corporation LTD., Nilpeter A/S, Werner Kammann Maschinenfabrik
GmbH, Alcoa Packaging Equipment, Sakurai Graphic Systems Corp., and Fuji Photo
Film Co., Ltd. These agreements typically are for the use of the Company's
direct imaging systems, technology licenses, and/or thermal plate materials.
They include a variety of "direct-to" offset printing applications ranging from
high quality label production and printing on aluminum cans to the production of
normal four-color printing.
In February 1996, the Company acquired 90% of the outstanding common stock
of Catalina Coatings, Inc., which now operates as Delta V Technologies, Inc.
("Delta V"), an Arizona corporation. In December 1998, the Company acquired an
additional 7% of the outstanding common stock of Delta V for consideration of
$500,000. Delta V 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 acquisition of Delta V was accounted for as a purchase and,
accordingly, the results of operations have been included in the Company's
financial statements for the three months ended April 3, 1999 and April 4, 1998.
Significant intercompany accounts and transactions have been eliminated.
In January 1998, the Company acquired 100% of the stock of Heath Custom
Press, Inc. ("Heath"), of Seattle, Washington. Heath was engaged in the design
and manufacture of custom printing presses and 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; long-term assets, $186,000; other liabilities,
$1,758,000. 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 three
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months ended April 3, 1999 and April 4, 1998. Significant inter-company accounts
and transactions have been eliminated. The results of Heath's operations did not
have a material impact on the Company's results of operations for the three
months ended April 3, 1999 and April 4, 1998.
In October 1998, the Company sold certain assets of Heath for $1,000,000,
which approximated book value. The Company retained all rights to the Heath
patents.
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 fiscal
1999 and 1998 ended on April 3, 1999 and April 4, 1998, respectively.
The Company has determined that it operates in two reportable segments. The
Digital Imaging Products segment is principally engaged in the development,
manufacture and sale of PEARL, its patented, proprietary digital imaging system
and process-free thermal ablation printing plate technologies. The Company's
second reportable segment, Delta V, develops processes, materials and equipment
for vacuum coating applications. Its equipment and process innovations are used
in a broad range of industries and applications including graphic arts,
capacitors, electronics, optics, architectural and decorative glass, flat panel
displays and packaging.
Results of Operations
Revenues
Revenues for the three months ended April 3, 1999 of $14,844,000 consisting
of product sales, royalties, fees and other reimbursements, decreased $9,497,000
or 39% as compared to revenues of $24,341,000 for the three months ended April
4, 1998.
Revenues for Digital Imaging Products totaled $11,536,000 for the first
quarter of fiscal 1999 as compared to $23,511,000 for the first quarter of
fiscal 1998. Net product sales for the first quarter of fiscal 1999 of
$9,827,000 decreased $9,017,000 or 48% as compared to net product sales of
$18,844,000 for the first quarter of fiscal 1998, primarily as a result of
having no orders from Heidelberg to ship direct imaging systems for use in the
Quickmaster DI. These reductions were partially offset by the increased sales
volume of the Company's proprietary thermal printing plates. The revenues
generated from the sale of the Company's PEARLdry and other consumable products
were $8,620,000 for the first quarter of fiscal 1999, an increase of $2,545,000
or 42% over the first quarter of fiscal 1998.
Royalties and fees from licensees for Digital Imaging Products of
$1,709,000 for the first quarter of fiscal 1999 decreased $2,958,000 or 63% as
compared to royalties and fees of $4,667,000 for the first quarter of fiscal
1998. Royalties decreased $3,125,000 or 100% comparing the first quarter of
fiscal 1999 to the first quarter of fiscal 1998, as a result of the reduction in
sales volume of direct imaging systems to Heidelberg for use in the Quickmaster
DI. Engineering fees increased $213,000 or 14% for the first quarter in fiscal
1999 primarily as a result of engineering and other fees received from Fuji
Photo Film Co., Ltd.
-14-
<PAGE>
Revenues for Delta V totaled $3,308,000 for the first quarter of fiscal
1999 as compared to $830,000 for the first quarter of fiscal 1998. The increase
of $2,478,000 relates primarily to the increase in the percentage of completion
on fixed price production contracts for vacuum deposition coating equipment to
external customers.
Revenues generated under the Company's agreements with Heidelberg and its
distributors were $5,020,000 in the first quarter of fiscal 1999, a decrease of
$10,080,000 or 67% from the first quarter of fiscal 1998 revenues of
$15,100,000. Revenues from Heidelberg represented 34% and 60% of total revenues
for the first quarters of fiscal 1999 and 1998, respectively.
The Company has recently received an order from Heidelberg in connection
with its direct imaging systems used on the Quickmaster DI. Based on the
delivery schedule for this order, the Company expects to resume production of
its direct imaging systems late in the third quarter, and to begin shipments in
the fourth quarter of fiscal 1999.
The Company continues to believe that net revenues will be lower in fiscal
1999 as compared to fiscal 1998. The Company will continue to feel the impact of
reduced shipments to Heidelberg for the direct imaging systems used on the
Quickmaster DI through fiscal 1999. The anticipated increase in sales volume
related to the Company's proprietary consumables sold for the QM-DI and other
equipment, as well as the anticipated increase in sales volume of the PEARLhdp
imaging systems is expected to partially mitigate the effect of the decrease in
revenues. There can be no assurance however that the Company will achieve these
partially offsetting revenue increases.
Cost of Products Sold
Cost of products sold consists of the costs of material, labor and overhead
as well as future warranty costs associated with product sales. Cost of products
sold for the three months ended April 3, 1999 were $10,430,000, a decrease of
$3,743,000 or 26% as compared to the three months ended April 4, 1998. The gross
margin decrease to 21% from 28% in the first quarter of fiscal 1998 is primarily
related to the Digital Imaging Products operations. The gross margin decrease is
a result of reduced manufacturing volume of the direct imaging systems sold to
Heidelberg for use in the QM-DI, as well as increased fixed costs associated
with the Company's Hudson, New Hampshire manufacturing operations.
The Company anticipates that the gross margin on product sales will
continue at reduced levels through the remainder of fiscal 1999, due to the
reduction in sales of direct imaging systems to Heidelberg. There can be no
assurance however that actual gross margins will not be lower than anticipated.
-15-
<PAGE>
Engineering and Product Development
Engineering and product development expenses consist primarily of payroll
and related expenses for personnel, parts and supplies, and contracted services
required to conduct the Company's equipment and consumable product development
efforts.
Engineering and product development expenses were $4,159,000 or 28% of net
revenues for the three months ended April 3, 1999 as compared to $3,242,000 or
13% of net revenues for the three months ended April 4, 1998. The increase
resulted principally from increased expenditures for parts and supplies related
to the Company's continued development of products incorporating its PEARL
technology. Included in these development efforts were expenditures for the
Company's PEARLgold and other consumable products as well as expenditures for
its next-generation laser diode technology and other product development
efforts. These increased expenditures were also a result of increased
engineering programs related to the development contract with Fuji Photo Film
Co., Ltd.
The Company expects these increasing development expenditures to continue
through fiscal 1999 as it prepares for the introduction of its next-generation
laser imaging technology, expands its PEARLgold family of proprietary consumable
printing plates, and pursues the development of additional products for the
DRUPA 2000 international printing-media trade show. There can be no assurance
however, that these expenses will not be greater than currently anticipated.
Sales and Marketing
Sales and marketing expenses consist primarily of payroll and related
expenses for personnel, advertising and promotional expenses, and travel costs.
Sales and marketing expenses were $1,428,000 or 10% of net revenues for the
three months ended April 3, 1999 as compared to $1,162,000 or 5% of net revenues
for the three months ended April 4, 1998. The increase resulted primarily from
increased expenditures for professional services and other related costs
associated with the Company's attendance at trade shows and the continued
expansion of its worldwide sales, distribution and technical support network.
It is expected that these increasing expenditures will continue through
fiscal 1999 as the Company continues to expand its direct sales force and
distribution channels for its products. There can be no assurance, however, that
these expenditures will not be greater than currently anticipated.
General and Administrative
General and administrative expenses consist primarily of payroll and
related expenses for personnel, and contracted professional services. General
and administrative expenses for the three months ended April 3, 1999 were
$2,164,000, or 15% of net revenues compared to $2,231,000 or 9% of net revenues
for the three months ended April 4, 1998. The decrease of $67,000 related
primarily to decreases in
-16-
<PAGE>
expenditures for contracted professional services that were required to conduct
the finance, information systems, and administrative functions of the Company.
The Company anticipates that general and administrative costs for fiscal
1999 will continue at current levels, however there can be no assurance that
these expenses will not be greater than anticipated.
Other Income and Expense
Other income was $253,000 or 2% of net revenues for the three months ended
April 3, 1999 compared to $378,000 or 2% of net revenues for the three months
ended April 4, 1998. The decrease of $125,000 can be attributed to increased
interest income earned as a result of higher average balances of funds available
for investment, offset by the absence of gains incurred from the sale of a
parcel of land in Hudson, New Hampshire, in the first quarter of fiscal 1998.
Income Taxes
For the three months ended April 3, 1999, the Company did not record a
provision for federal or state income taxes as a result of the $3,084,000 net
loss reported for the period. The provision for income taxes for the three
months ended April 4, 1998 included a $1,210,000 charge in lieu of federal
income taxes principally to the realization of net operating loss carryforwards
resulting from stock compensation deductions for tax purposes. The tax benefit
related to such stock option deductions has been credited to additional paid in
capital. The state provision of $360,000 is based upon the estimated effective
income tax rate for the full fiscal year.
Net Income
As a result of the foregoing, the Company had net losses of $3,084,000 for
the three months ended April 3, 1999 as compared to net income of $2,341,000 for
the three months ended April 4, 1998.
Liquidity and Capital Resources
At April 3, 1999, the Company had cash, cash equivalents, and short-term
marketable securities of $22,153,000 and working capital of $32,627,000 as
compared to cash, cash equivalents and marketable securities of $19,281,000 and
working capital of $37,080,000 at January 2, 1999.
Cash generated from operating activities was $5,856,000 for the three
months ended April 3, 1999. The cash flow resulted primarily from reductions in
accounts receivable and inventories of $8,155,000, non-cash items of
depreciation and amortization of $1,614,000 and provisions for losses on
accounts receivable of $480,000, offset by the loss from operations of
$3,084,000. Cash flow from operations was also affected by the decrease in
billings in excess of costs and estimated earnings on uncompleted contracts of
$1,254,000. This decrease was primarily a result of advance payments received in
fiscal 1998 on equipment under construction at the
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<PAGE>
Company's Delta V subsidiary, and the Company's development program with Fuji
Photo Film Co., Ltd. The Company expects to expend this cash throughout fiscal
1999 as it completes its obligations under the related contracts.
Net cash used for investing activities was $3,744,000 for the three months
ended April 3, 1999 and consisted primarily of additions to property, plant and
equipment used in the Company's business of $3,043,000, and net investments in
marketable securities of $658,000.
Net cash provided by financing activities for the three months ended April
3, 1999 totaled $102,000 and consisted primarily of the proceeds from the
issuance of common stock of $230,000, offset by payments on the mortgage term
loan.
In December 1998, 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, Delta V and
secured by its assets. Interest on the line of credit is payable at the LIBOR
rate plus 1.50% (6.44% at April 3, 1999). The loan agreement terminates on July
31, 2000, at which date, the entire principal and accrued interest is due and
payable. As of April 3, 1999, the Company had $10,000,000 available under the
line of credit loan agreement.
On February 6, 1998, the Company obtained a ten-year mortgage term loan in
the principal amount of $6,900,000 from Citizens. Borrowings are secured with
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% (6.94% at April 3, 1999) 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 each month 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.
At April 3, 1999, the Company was in violation of a certain financial
covenant, which was waived by Citizens'. Citizens' has agreed to modify the
financial covenants currently contained in the loan agreement through the term
of the revolving line of credit loan agreement.
The Company has approved expenditures of $8,500,000 for additional plate
manufacturing equipment that is expected to reduce the cost of plate manufacture
and enhance the Company's development capabilities. In April 1999, the Company
received a commitment for a $10,000,000 lease line of credit from KeyBank
National Association. If financing is consummated the funds will be available to
provide for equipment now owned or to be acquired. The commitment is schedule to
expire on April 30, 2000.
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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
through the balance of fiscal 1999.
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 June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." ("SFAS No. 133"), which requires companies to recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS No. 133 is effective
for fiscal years beginning after June 15, 1999. The Company does not presently
enter into any transactions involving derivative financial instruments and,
accordingly, does not anticipate the new standard will have any effect on its
financial statements for the foreseeable future.
YEAR 2000
The Year 2000 ("Y2K") problem arose because many existing computer systems
use only the last two digits to identify the year instead of using all four
digits. These computer systems cannot recognize the difference in a year that
begins with "20" from a year that begins with "19". If not corrected, many of
these computer systems could fail or create erroneous results.
The Company has established a program to determine the impact of the Y2K
issue on the software and hardware utilized in the Company's internal operations
and included in its products manufactured for sale to customers. This assessment
includes applications and systems software, information technology ("IT")
infrastructure, manufacturing and process control technology, products and
services, and third party suppliers and customers. Representatives from each
functional area of the Company meet weekly to monitor program status and address
issues relating to the program's progress.
The major project phases include; inventorying affected technology and
assessing the impact of the Y2K issue on items determined to be material to the
Company; modifying or replacing items determined not to be Y2K compliant;
testing and certifying material items; and developing contingency plans.
The inventory and assessment phase of the project has been completed.
Certain non-compliant systems were replaced in January 1998 as the Company
installed Y2K compliant business systems software. All other components of
software and hardware for the Company are in various phases. The Company expects
to have
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<PAGE>
its IT systems and server infrastructure and manufacturing and process control
technology Y2K compliant by August 1999. The Company also expects that currently
supported products available for sale to customers will be tested for compliance
by the end of September 1999. The product commercialization process is being
modified to produce compliant products in the future.
The Company relies on third-party suppliers for many systems, products and
services including its security system, building equipment and
telecommunications. Failure of such third party systems and equipment to operate
properly could adversely effect the Company. The Company is in the process of
evaluating the compliance status of critical third party suppliers.
The total costs associated with becoming Y2K compliant are not expected to
be material to the Company's financial position or operations. Costs incurred
through April 3, 1999 have been incurred as part of normal IT operating costs.
Management believes it has an effective program in place to resolve Y2K
issues without significant costs or disruption of operations. However, it is not
possible to anticipate all future outcomes, especially when third parties are
involved. There could be circumstances that could adversely effect the Company's
results of operations, liquidity and financial condition. The Company is
developing a contingency plan to minimize the effect of non-compliance on
business operations, however, the Company's contingency plans have not yet been
tested. There can be no assurance therefore that the contingency plans will
provide adequate safeguards in the event that the Company or its critical
third-party business relations ultimately are not year 2000 compliant.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable
-20-
<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 2
1999, for a description of certain legal proceedings pending against the Company
and certain of its officers and directors.
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.
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<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:
-----------------------------
PRESSTEK, INC.
(Registrant)
By: /s/ Robert W. Hallman
------------------------------
Robert W. Hallman
Chief Executive Officer
(Duly Authorized Officer)
By: /s/ Neil Rossen
------------------------------
Neil Rossen
Chief Financial Officer
(Principal Financial and
Accounting Officer)
-22-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from 10-Q at
April 3, 1999 and is qualified in its entirety by reference to such finanacial
information
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-END> APR-03-1999
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<SECURITIES> 16,765
<RECEIVABLES> 14,706
<ALLOWANCES> 2,365
<INVENTORY> 9,520
<CURRENT-ASSETS> 45,803
<PP&E> 59,286
<DEPRECIATION> 11,197
<TOTAL-ASSETS> 103,569
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0
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<COMMON> 323
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<TOTAL-LIABILITY-AND-EQUITY> 84,599
<SALES> 13,135
<TOTAL-REVENUES> 14,844
<CGS> 10,430
<TOTAL-COSTS> 18,181
<OTHER-EXPENSES> 4,159
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<INCOME-PRETAX> (3,084)
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