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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2000
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-17541
PRESSTEK, INC.
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(Exact name of registrant as specified in its charter)
Delaware 02-0415170
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9 Commercial Street, Hudson, New Hampshire 03051-3907
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (603) 595-7000
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(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
--- ---
As of November 9, 2000 there were 32,782,735 shares of the Registrant's
Common Stock, $.01 par value per share, outstanding.
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<PAGE>
PRESSTEK, INC.
INDEX
PAGE
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of September 30, 2000 (unaudited)
and January 1, 2000 3
Statements of Operations for the three and nine month periods
ended September 30, 2000 and October 2, 1999
(unaudited) 4
Statements of Cash Flows for the nine month periods ended
September 30, 2000 and October 2, 1999
(unaudited) 5
Notes to Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
PART II OTHER INFORMATION 20
Item 1. Legal Proceedings 20
Item 2. Changes in Securities and Use of Proceeds 20
Item 3. Defaults upon Senior Securities 20
Item 4. Submission of Matters to a vote of Security Holders 20
Item 5. Other Information 21
Item 6. Exhibits and Reports on form 8-K 21
Signatures 22
Exhibit Index 23
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
<TABLE><CAPTION>
PRESSTEK, INC.
BALANCE SHEETS
(In thousands, except per share data)
September 30, January 1,
2000 2000
--------- ---------
ASSETS (unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 11,368 $ 18,653
Accounts receivable, net of allowance for losses
of $3,474 and $3,302 in fiscal 2000 and 1999, respectively 15,628 11,645
Inventories 10,045 7,214
Other current assets 4,960 859
--------- ---------
Total current assets 42,001 38,371
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, NET 56,451 50,990
--------- ---------
OTHER ASSETS:
Patent application costs and license rights, net 4,990 5,126
Other 2,315 146
--------- ---------
Total other assets 7,305 5,272
--------- ---------
TOTAL $ 105,757 $ 94,633
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,747 $ 1,024
Accounts payable and accrued expenses 7,531 8,888
Accrued salaries and employee benefits 1,829 1,269
Net current liabilities of discontinued operations 1,676 1,817
--------- ---------
Total current liabilities 12,783 12,998
--------- ---------
LONG-TERM DEBT, NET OF CURRENT PORTION 13,148 8,830
--------- ---------
OTHER LONG-TERM LIABILITIES 22,950 22,950
--------- ---------
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 32,719,366 shares at September 30, 2000;
32,515,651 shares at January 1, 2000 327 325
Additional paid-in capital 73,716 69,312
Retained deficit (17,167) (19,782)
--------- ---------
Stockholders' equity 56,876 49,855
--------- ---------
TOTAL $ 105,757 $ 94,633
========= =========
See notes to financial statements
- 3 -
</TABLE>
<PAGE>
<TABLE><CAPTION>
PRESSTEK, INC.
STATEMENTS OF OPERATIONS
For the three and nine months ended
(In thousands, except per share data)
(unaudited)
Three months ended Nine months ended
September 30, October 2, September 30, October 2,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
Product sales $ 19,609 $ 12,700 $ 55,106 $ 33,263
Royalties and fees from licensees 2,429 1,455 7,183 4,674
-------- -------- -------- --------
Total revenues 22,038 14,155 62,289 37,937
-------- -------- -------- --------
COSTS AND EXPENSES:
Cost of products sold 12,031 8,988 33,778 24,510
Research and product development 3,379 3,909 12,083 12,229
Sales and marketing 2,347 1,524 7,062 4,341
General and administrative 2,552 1,630 6,777 5,148
-------- -------- -------- --------
Total costs and expenses 20,309 16,051 59,700 46,228
-------- -------- -------- --------
INCOME (LOSS) FROM OPERATIONS 1,729 (1,896) 2,589 (8,291)
-------- -------- -------- --------
OTHER INCOME:
Dividends and interest, net (48) 119 60 409
Other, net 60 (1) 116 79
-------- -------- -------- --------
Total other income, net 12 118 176 488
-------- -------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 1,741 (1,778) 2,765 (7,803)
PROVISION FOR INCOME TAXES 85 -- 150 --
-------- -------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS 1,656 (1,778) 2,615 (7,803)
-------- -------- -------- --------
LOSS FROM DISCONTINUED OPERATIONS -- (555) -- (448)
LOSS ON DISPOSAL OF DISCONTINUED OPERATIONS -- (10,500) -- (10,500)
-------- -------- -------- --------
LOSS FROM DISCONTINUED OPERATIONS -- (11,055) -- (10,948)
-------- -------- -------- --------
NET INCOME (LOSS) $ 1,656 $(12,833) $ 2,615 $(18,751)
======== ======== ======== ========
EARNINGS (LOSS) PER SHARE - BASIC:
From continuing operations $ 0.05 $ (0.06) $ 0.08 $ (0.24)
======== ======== ======== ========
From discontinued operations $ -- $ (0.34) $ -- $ (0.34)
======== ======== ======== ========
EARNINGS (LOSS) PER SHARE - BASIC $ 0.05 $ (0.40) $ 0.08 $ (0.58)
======== ======== ======== ========
EARNINGS (LOSS) PER SHARE - DILUTED:
From continuing operations $ 0.05 $ (0.06) $ 0.08 $ (0.24)
======== ======== ======== ========
From discontinued operations $ -- $ (0.34) $ -- $ (0.34)
======== ======== ======== ========
EARNINGS (LOSS) PER SHARE - DILUTED $ 0.05 $ (0.40) $ 0.08 $ (0.58)
======== ======== ======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - BASIC 32,659 32,317 32,607 32,309
======== ======== ======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - DILUTED 33,800 32,317 34,066 32,309
======== ======== ======== ========
See notes to financial statements
- 4 -
</TABLE>
<PAGE>
<TABLE><CAPTION>
PRESSTEK, INC.
STATEMENTS OF CASH FLOWS
For the nine months ended
(In thousands)
(unaudited) September 30, October 2,
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS - OPERATING ACTIVITIES:
Net income (loss) $ 2,615 $(18,751)
Adjustments to reconcile income (loss) from continuing operations to net cash
provided by (used in) operating activities of continuing operations:
Loss from discontinued operations -- 8,234
Depreciation 4,303 3,703
Amortization 597 440
Provision for warranty and other costs 784 163
Provision for losses on accounts receivable 870 1,340
Other, net 84 76
Changes in operating assets and liabilities, net of effects from acquisitions
Decrease (increase) in accounts receivable (4,853) 8,030
Decrease (increase) in inventories (2,831) 3,484
Increase in other current assets (4,101) (7)
Decrease in accounts payable and accrued expenses (2,138) (1,690)
Increase in accrued salaries and employee benefits 560 421
-------- --------
Net cash provided by (used in) operating activities of continuing operations (4,110) 5,443
Net cash used in operating activities of discontinued operations (141) (125)
-------- --------
Net cash provided by (used in) operating activities (4,251) 5,318
-------- --------
CASH FLOWS - INVESTING ACTIVITIES:
Purchases of property, plant and equipment, net of proceeds from sales (9,553) (9,129)
Increase in other assets (440) (361)
-------- --------
Net cash used in investing activities of continuing operations (9,993) (9,490)
Net cash provided by investing activities of discontinued operations -- 73
-------- --------
Net cash used in investing activities (9,993) (9,417)
-------- --------
CASH FLOWS - FINANCING ACTIVITIES:
Net proceeds from the sale of common stock 1,918 320
Proceeds from long-term debt 5,959 4,041
Repayments of long-term debt (918) (386)
-------- --------
Net cash provided by (used in) financing activities 6,959 3,975
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS (7,285) (124)
CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD 18,653 19,057
-------- --------
CASH AND CASH EQUIVALENTS END OF PERIOD $ 11,368 $ 18,933
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period
for:
Interest $ 673 $ 338
======== ========
Income taxes $ 55 $ --
======== ========
NON-CASH FINANCING ACTIVITY
Warrants issued in exchange for consulting services to be performed
over five years $ 2,488 $ --
======== ========
See notes to financial statements
- 5 -
</TABLE>
<PAGE>
PRESSTEK, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2000
1. BASIS OF PRESENTATION
Presstek, Inc. ("Presstek" or "the Company") is a leading developer of
digital imaging and printing plate technologies for the printing and graphic
arts industries. Presstek's products and applications incorporate PEARL(R) and
DI(R) digital imaging technologies and utilize PEARL consumables for
computer-to-plate and direct-to-press applications. The Company's patented DI
and PEARL thermal laser diode family of products enables its customers to
produce high quality, full-color lithographic printed materials more quickly and
cost efficiently.
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 1, 2000. The January 1, 2000 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 and nine months ended September 30, 2000 are not
necessarily indicative of the results that may be expected for the fiscal year
ending December 30, 2000.
In June 2000 the Company formed a subsidiary, LaserTel, Inc.
("LaserTel") for the purpose of securing its supply of laser diodes. LaserTel is
located in the former Delta V Technologies, Inc. ("Delta V") facility in Tucson,
Arizona. LaserTel will operate as a subsidiary of Presstek, and will be
primarily engaged in the manufacture and development of the Company's
high-powered laser diodes. The results of LaserTel's operations for the three
and nine month period ending September 30, 2000 were not material to the
Company's results of operations.
In November 1999 the Company acquired 100% of the stock of R/H
Consulting, Inc. ("R/H"). R/H was principally engaged in the research and
development of laser imageable printing plates. R/H was purchased for $500,000
and 142,855 shares of the Company's common stock. The excess purchase price over
book value of net assets acquired of $1.9 million has been allocated to the
patents acquired. The acquisition was accounted for as a purchase and
accordingly, the results of R/H's operations, which are not material, have been
included in the financial statements for the third quarter and nine months ended
September 30, 2000. The results of R/H's operations for the comparable periods
of fiscal 1999 would not have had a material impact on the Company's results of
operations.
The divestiture of the Company's Delta V subsidiary was recorded in the
quarter ended October 2, 1999 and the financial statements for all periods
reflect Delta V as a discontinued operation. See Note 8 of notes to the
financial statements. All of the following notes, unless otherwise indicated,
refer to the continuing operations of Presstek.
Certain accounts in the fiscal 1999 financial statements have been
reclassified for comparative purposes to conform to the presentation in the
September 30, 2000 financial statements.
The Company operates and reports on a 52/53 week fiscal year ending on
the Saturday closest to December 31. Accordingly, the financial statements
include the thirteen week periods ended September 30, 2000 ("the third quarter
of fiscal 2000") and October 2, 1999 ("the third quarter of fiscal 1999"), and
the thirty- nine week periods ended September 30, 2000 ("the nine months of
fiscal 2000") and October 2, 1999 ("the nine months of fiscal 1999").
- 6 -
<PAGE>
2. INVENTORIES
Inventories are valued at the lower of cost or market, with cost
determined using the first-in, first-out method. Inventories consisted of the
following:
September 30, January 1,
2000 2000
---- ----
(In thousands)
Raw material $ 3,169 $ 1,915
Work in process 4,361 3,055
Finished goods 2,515 2,244
------- -------
$10,045 $ 7,214
======= =======
3. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment at cost consisted of the following:
September 30, January 1,
2000 2000
---- ----
(In thousands)
Land and land improvements $ 2,037 $ 2,037
Buildings and leasehold improvements 23,173 20,476
Production equipment and other 43,960 34,452
Construction in progress 5,280 8,341
-------- --------
74,450 65,306
Less accumulated depreciation (17,999) (14,316)
-------- --------
$ 56,451 $ 50,990
======== ========
4. LONG-TERM DEBT AND CREDIT FACILITIES
Long-term debt consisted of the following:
September 30, January 1,
2000 2000
---- ----
(In thousands)
Mortgage term loan $ 5,512 $ 5,925
Lease line of credit 9,383 3,929
-------- --------
14,895 9,854
Less current portion (1,747) (1,024)
-------- --------
$ 13,148 $ 8,830
======== ========
In June 2000, the Company borrowed the remaining $6.0 million under the
$10.0 million lease line of credit facility from Keybank National Association.
The $10.0 million in borrowings is secured by equipment valued at $13.4 million.
The loan bears a variable rate of interest based upon the prime rate, currently
between 7.5% and 8.5%, with a fixed rate conversion provision. Principal and
interest under the lease line are payable in 84 monthly installments beginning
on July 31, 2000 for the $6.0 million in borrowings. The payments for the
initial $4.0 million borrowed in September 1999 commenced in October 1999.
On October 30, 2000 the Company renewed its credit facilities with
Citizens Bank New Hampshire ("Citizens"). These credit facilities, which expire
in September 2002, include renewal of the current ten-year mortgage term loan in
the amount of $6.9 million, an additional ten-year mortgage term loan in the
amount of $4.0 million, and a revolving line of credit loan. The mortgage term
loan in the amount of $6.9 million 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%, (8.62% at September 30, 2000) for the remaining five years.
Principal and interest payments during
- 7 -
<PAGE>
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.
The ten-year mortgage term loan in the amount of $4.0 million bears a
fixed rate of interest equal to 7.95% during the first five years of the loan,
and a fixed rate equal to United States Treasury Notes or Bills with a maturity
date closest to the end of the second five years, plus 225 basis points for the
remaining five years. During the first five years, principal and interest shall
be paid in 60 monthly installments of $48,425. 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
October 30, 2010.
The ten-year mortgage term loans are secured by land and buildings with
a cost of approximately $22.0 million.
The revolving line of credit loan, under which the Company may borrow
$16.0 million, is subject to certain restrictions based on applicable
percentages of accounts receivable and inventory, as defined by the loan
agreement, and is secured by substantially all of the Company's assets. Interest
on the line of credit is payable at the LIBOR rate plus 1.50% (7.7% at September
30, 2000).
Under the terms of the mortgage term loan, the lease line of credit and
the revolving line of credit agreements, the Company is required to meet certain
financial covenants on a quarterly and annual basis. At September 30, 2000 the
Company was in compliance with all financial covenants.
5. OTHER LONG-TERM LIABILITIES
On March 24, 2000, the Company reached a settlement with the plaintiffs
in the class actions, filed in 1996 on behalf of the Company's shareholders
against the Company and certain other defendants, including but not limited to
certain of the Company's officers and directors. The Company has also reached a
settlement with the plaintiffs in the related derivative suits filed on behalf
of the Company. Under the terms of the settlements, the Company will issue
1,305,828 shares of common stock in the amount of $22.9 million. The Company
recorded the $22.9 million charge as a long-term liability in the fourth quarter
of fiscal 1999, and will issue the shares in the quarter ending December 30,
2000.
- 8 -
<PAGE>
6. EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing net income
(loss) 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 and warrants.
The following represents the calculation of basic and diluted earnings
(loss) per share for the three and nine months ended September 30, 2000 and
October 2, 1999:
<TABLE><CAPTION>
Three months ended Nine months ended
September 30, October 2, September 30, October 2,
2000 1999 2000 1999
---- ---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Income (loss) from continuing operations $ 1,656 $ (1,778) $ 2,615 $ (7,803)
Loss from discontinued operations -- (11,055) -- (10,948)
----------- ------------ ------------ ----------
Net income (loss) $ 1,656 $ (12,833) $ 2,615 $ (18,751)
=========== ============ ============ ==========
Weighted average common shares outstanding - Basic 32,659 32,317 32,607 32,309
Effect of assumed conversion of stock options 1,141 -- 1,459 --
----------- ------------ ------------ ----------
Weighted average common shares outstanding - Diluted 33,800 32,317 34,066 32,309
=========== ============ ============ ==========
Earnings (loss) per share - Basic:
From continuing operations $ 0.05 $ (0.06) $ .08 $ (0.24)
=========== ============ ============ ==========
From discontinued operations $ -- $ (0.34) $ -- $ (0.34)
=========== ============ ============ ==========
Earnings (loss) per share - Basic $ 0.05 $ (0.40) $ .08 $ (0.58)
=========== ============ ============ ==========
Earnings (loss) per share - Diluted
From continuing operations $ 0.05 $ (0.06) $ .08 $ (0.24)
=========== ============ ============ ==========
From discontinued operations $ -- $ (0.34) $ -- $ (0.34)
=========== ============ ============ ==========
Earnings (loss) per share - Diluted $ 0.05 $ (0.40) $ .08 $ (0.58)
=========== ============ ============ ==========
</TABLE>
Options and warrants to purchase 339,250 and 307,250 shares of common
stock at exercise prices ranging from $16.44 to $26.94 per share were
outstanding during a portion of the third quarter and nine months of fiscal
2000, respectively, but were not included in the computation of diluted earnings
per share, as the exercise prices of the options and warrants were greater than
the average market price of the common shares. These options and warrants, which
expire from May 18, 2008 through September 29, 2010, were all outstanding at
September 30, 2000. All stock options outstanding for the third quarter and nine
months of fiscal 1999 are excluded from the calculation of diluted loss per
share, as their effect would be antidilutive.
- 9 -
<PAGE>
7. INCOME TAXES
The Company did not record a provision for or a charge in lieu of
United States federal income taxes for the three and nine months ended September
30, 2000 as a result of net operating loss carryforwards other than those
generated from deductions related to stock compensation for the periods. No
provision for or charge in lieu of United States federal income taxes was
required for the three and nine months ended October 2, 1999, as a result of the
tax loss prior to the deductions related to stock compensation for the periods.
The Company recorded a provision for state income taxes for the three
and nine months ended September 30, 2000 in the amount of $85,000 and $150,000,
respectively. No provision for or charge in lieu of state income taxes was
required for the three and nine months ended October 2, 1999 as a result of the
tax loss prior to deductions related to stock compensation for the periods.
8. DISCONTINUED OPERATIONS
During the third quarter of fiscal 1999 the Company determined to
discontinue the operations of its Delta V subsidiary to allow the Company to
further focus its efforts on the core business of digital imaging and plate
manufacturing. Located in Tucson, Arizona, Delta V was engaged in the
development, manufacture, and sale of vacuum deposition coating equipment for
vacuum coating applications. The Company concluded the operations of Delta V at
the end of fiscal 1999.
As a result of the divestiture of Delta V, the Company incurred an $8.5
million loss on disposal of discontinued operations for fiscal year ended
January 1, 2000. This included actual closing costs and operating losses
incurred in the fourth quarter of fiscal 1999 of $2.2 million, a provision for
anticipated closing costs of $1.6 million, $6.1 million related to the write off
of goodwill and other intangibles assets, and a reduction in other asset values
of $1.6 million. These costs were partially offset by proceeds of $3.0 million
received from Minnesota Mining and Manufacturing Co. for the licensing of the
Company's intellectual property relating to vacuum-deposited polymer multilayer
technology.
Delta V is reported separately as a discontinued operation, and prior
periods have been restated in the financial statements and related footnotes.
Revenues and income from discontinued operations for the third quarter
and nine months of fiscal 1999 were as follows:
Three months Nine months
October 2, October 2,
1999 1999
---- ----
(In thousands)
Revenues $ 1,307 $ 7,248
Costs and expenses 2,019 8,365
------- -------
Income (loss) from operations (712) (1,117)
Other income 157 669
------- -------
Net income from discontinued operations $ (555) $ (448)
======= =======
9. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) is comprised of net income (loss) and all
changes in stockholder's equity except those due to investments by owners and
distributions to owners, which for the Company includes unrealized gains
(losses) on marketable securities. For the fiscal quarters and nine months ended
September 30, 2000 and October 2, 1999 there were no differences between net
income (loss) and comprehensive income (loss).
- 10 -
<PAGE>
10. SEGMENT INFORMATION
In the Company's Form 10-K for the fiscal year ended January 2, 1999,
two segments were reported, the Digital Imaging Products segment, and Delta V.
As a result of the decision to discontinue the operations
of its Delta V subsidiary in the third quarter of fiscal 1999, the Company's
continuing operations are now reportable as a single business segment.
Revenues generated under the Company's agreements with Heidelberg and
its distributors were $13.5 million and $37.2 million for the third quarter and
nine months of fiscal 2000, an increase of $8.6 million or 176% and $22.3
million or 150%. Revenues for the comparable period of fiscal 1999 were $5.0
million and $14.9 million respectively. Revenues from Heidelberg represented 60%
and 39% of total revenues for the nine months of fiscal 2000 and 1999,
respectively.
11. OTHER INFORMATION
The Company had entered into an agreement with the plaintiffs in
several class actions lawsuits consolidated under the common caption "Bill
Berke, et al. V. Presstek, Inc., et al." in the United States District Court,
District of New Hampshire to settle the class action lawsuit. The Company had
also executed a memorandum of understanding with respect to settlement of the
derivatives lawsuits filed 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. Under the terms of the class action settlement, $22.0
million, in the form of shares of the Company's common stock, will be paid to
the class, with the number of shares to be issued determined by a formula
valuing the stock at different time periods. The Company has reserved the right
to pay the settlement in cash at the time the settlement becomes effective. In
the memorandum of understanding in the derivative litigation, the Company has
agreed to certain therapeutic improvements to its internal policies, some of
which have already been instituted. The settlement of both the class action and
derivative actions required final approval of the United States District Court,
which has now been obtained. The Company recorded a charge of $23.2 million in
the fourth quarter of fiscal 1999 related to the settlements, $22.9 million of
which was recorded as a long term liability.
In August 1999 Creo Products, Inc., ("Creo"), filed an action in the
United States District Court for the District of Delaware against the Company
asserting that Creo has a "reasonable apprehension that it will be sued by
Presstek for infringement" of two of the Company's patents and seeking a
declaration that Creo's products "do not and will not infringe any valid and
enforceable claims" of the patents in question. In September 1999, the Company
filed a counterclaim against Creo for patent infringement. The Company claims
that Creo has infringed two direct imaging patents owned by the Company which
were recently the subject of re-examination by the U.S. Patent and Trademark
Office. Presstek intends to vigorously enforce its patent rights.
In February, 2000 a complaint was filed by PPG, Inc. against Delta V in
the United States District Court for the Western District of Pennsylvania
alleging Delta V sold to the plaintiff certain vacuum coating equipment that did
not meet certain product specifications. In its amended complaint, which now
includes the Company as a defendant, the plaintiff is seeking damages of
approximately $7.4 million. The Company intends to vigorously defend this
action.
12. RECENTLY ISSUED ACCOUNTING STANDARDS
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101 provides guidance related to revenue recognition in
financial statements. In March 2000, the SEC issued SAB No. 101A, which delayed
the implementation date of SAB No. 101. In June 2000, the SEC issued SAB No.
101B that further delayed the implementation of SAB No. 101 to the fourth
quarter of fiscal 2000. The Company will adopt SAB No. 101, and is currently
evaluating the impact, if any, SAB No. 101 will have on its financial position
or results of operations. The Company does not expect the adoption of SAB No.
101 to have a material impact on its financial position or results of
operations.
In March 2000, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation-an Interpretation of APB No. 25" ("FIN
- 11 -
<PAGE>
No. 44"). FIN No. 44 clarifies the application of Opinion No. 25 for certain
issues including: (a) the definition of employee for purposes of applying
Opinion No. 25, (b) the criteria for determining whether a plan qualifies as a
noncompensatory plan, (c) the accounting consequence of various modifications to
the terms of a previously fixed stock option or award, and (d) the accounting
for an exchange of stock compensation awards in a business combination. In
general, FIN No. 44 is effective July 1, 2000. The Company does not expect the
adoption of FIN No. 44 to have a material impact on its financial position or
results of operations.
In June 1998, FASB 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 (as amended by SFAS No. 137) is
effective for fiscal years beginning after June 15, 2000. 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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<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 and delays associated with launching new
market channels with new distribution partners (including Xerox), the impact of
third-party suppliers and potential shortages of critical or sole-source
component supplies, manufacturing constraints or difficulties (as well as
manufacturing difficulties experienced by our sub-manufacturing partners and
their capacity constraints), the risks of uncertainty of patent protection and
the outcome of patent proceedings (including the Company's current patent
litigation), market acceptance of and demand for the Company's products and
resulting revenues, development of technology and manufacturing capabilities,
the Company's ability to meet production challenges due to increased sales, the
impact of competitive products and pricing, litigation and other risks detailed
in the Company's filings with the Securities and Exchange Commission. The words
"looking forward," "looking ahead," "believe(s)," "should," "plan," "expect(s),"
"project(s)," "anticipate(s)," "likely," "potential," "opportunity," 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. Presstek undertakes no obligation to update any
forward-looking statements contained in this 10-Q.
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. In 1993 the Company
completed the development of its high resolution, semiconductor based laser
diode imaging and thermal plate technology referred to as PEARL(R). PEARL's
thermal laser imaging technology 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. The Quickmaster DI design is centered around Presstek's digital
imaging and plate technology, and includes the Company's patented automatic
plate changing cylinder. This unique design feeds plates from inside the
cylinder, eliminating the need to manually change plates between jobs. 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 1999, there were more than 1,100 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 and
DI(R) products that incorporate its patented, proprietary, digital imaging
system and process free thermal ablation printing plate technologies for both
computer-to-plate and direct-to-press applications. During fiscal 1996, the
Company began shipments of its PEARL platesetter, referred to as the
PEARLsetter(TM). The PEARLsetter is a computer-to-plate imaging system that
images both the Company's wet and dry offset plates. Also, in 1996, the Company
began shipments of its direct imaging system for a larger format Adast (19" x
26") multicolor press, the Adast 705C DI series of presses. In fiscal 1998 the
Company began shipments of its PEARLhdp(TM) laser imaging system. The PEARLhdp,
jointly developed with Imation Corp. ("Imation"), 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 has entered into a comprehensive agreement
whereby Imation has been granted exclusive rights for sales, marketing and
distribution of the PEARLhdp proofing system.
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<PAGE>
In the third quarter of fiscal 2000, the Company began shipments of the
first in a proposed series of new thermal computer-to-plate devices, the
Dimension400(TM). The Dimension400 utilizes the Company's next-generation DI
technology, the ProFire(TM) integrated imaging system. ProFire integrates the
lasers, laser drivers, digital electronics, and motion control into a single
package design. The Dimension400 images the Company's own Anthem thermal plates.
In September 2000, the Company entered into an agreement with Xerox
Corporation ("Xerox") to supply Xerox with a series of three Presstek enabled
DI(R) presses and related consumables which Xerox will market, distribute and
service worldwide on a co-branded basis.
The products included in the Xerox Agreement are four and five color
versions of a B3 size sheet-fed press which Xerox will market as the DocuColor
400 DI-4 and the DocuColor 400 DI-5, respectively, and an A3 size four-color
sheet-fed press which Xerox will market as the DocuColor 233 DI. The Xerox
Agreement also covers distribution of PEARLdry(TM) spooled printing plates.
According to the terms of the Xerox Agreement, Xerox will have exclusive
marketing and sales rights to the DocuColor 400 DI presses and sales and
distribution rights to the DocuColor 233 DI. Shipments of both presses are
expected to begin late in the fourth quarter of fiscal 2000.
The Company also has 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., Fuji Photo Film
Co., Ltd., ("Fuji"), and Akiyama Printing Machinery Manufacturing Corporation.
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 June 2000 the Company formed a subsidiary, LaserTel, Inc.
("LaserTel") for the purpose of securing its supply of laser diodes. LaserTel is
located in the former Delta V Technologies, Inc. ("Delta V") facility in Tucson,
Arizona. LaserTel will operate as a subsidiary of Presstek, and will be
primarily engaged in the manufacture and development of the Company's
high-powered laser diodes. The results of LaserTel's operations for the three
and nine month period ended September 30, 2000 were not material to the
Company's results of operations.
During the third quarter of fiscal 1999 the Company determined to
discontinue the operations of Delta V to allow the Company to further focus its
efforts on the core business of digital imaging and plate manufacturing. Located
in Tucson, Arizona, Delta V was engaged in the development, manufacture, and
sale of vacuum deposition coating equipment for vacuum coating applications. The
Company concluded the operations of Delta V as of the end of the fiscal year
ended January 1, 2000.
As a result of the divestiture of Delta V, the Company incurred an $8.5
million loss on disposal of discontinued operations for the fiscal year ended
January 1, 2000. This included actual closing costs and operating losses
incurred in the fourth quarter of fiscal 1999 of $2.2 million, a provision for
anticipated closing costs of $1.6 million, $6.1 million related to the write off
of goodwill and other intangibles assets, and a reduction in other asset values
of $1.6 million. These costs were partially offset by proceeds of $3.0 million
received from Minnesota Mining and Manufacturing Co., for the licensing of the
Company's intellectual property relating to vacuum-deposited polymer multilayer
technology. Delta V is reported separately as a discontinued operation, and
prior periods have been restated in the Company's financial statements, related
footnotes and the management's discussion and analysis to conform to this
presentation.
In November 1999 the Company acquired 100% of the stock of R/H
Consulting, Inc. ("R/H"). R/H was principally engaged in the research and
development of laser imageable printing plates. R/H was purchased for $500,000
in cash and 142,855 shares of the Company's common stock. The excess of the
purchase price paid over the book value of net assets acquired of $1.9 million
has been allocated to the patents acquired. The acquisition was accounted for as
a purchase and accordingly the results of R/H's operations have been included in
the financial statements for the third quarter and nine months ended September
30, 2000. The results of R/H's operations for the comparable periods of fiscal
1999 would not have had a material impact on the Company's results of
operations.
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<PAGE>
The Company operates and reports on a 52/53 week fiscal year, ending on
the Saturday closest to December 31. Accordingly, the financial statements
include the thirteen week periods ended September 30, 2000 ("the third quarter
of fiscal 2000") and October 2, 1999 ("the third quarter of fiscal 1999"), and
the thirty-nine week periods ended September 30, 2000 ("the nine months of
fiscal 2000") and October 2, 1999 ("the nine months of fiscal 1999").
RESULTS OF OPERATIONS
REVENUES
Revenues consist of product sales, royalties, fees and other
reimbursements. Revenues for the third quarter and nine months of fiscal 2000
were $22.0 million and $62.3 million respectively, an increase of $7.8 million
or 55% and $24.4 million or 64% respectively, as compared to $14.2 million and
$37.9 million for the third quarter and nine months of fiscal 1999.
Product sales for the third quarter and nine months of fiscal 2000 were
$19.6 million and $55.1 million, respectively, compared to $12.7 million and
$33.3 million for the third quarter and nine months of fiscal 1999, an increase
of $6.9 million or 54% and $21.8 million or 65%. The increase was primarily due
to increased shipments to Heidelberg for direct imaging systems used in the
Quickmaster DI, as well as an increase in sales of the Company's proprietary
digital media and consumable products. Revenues generated from the sale of the
Company's PEARLdry(TM) and other consumable products included in product sales
were $11.6 million and $31.9 million for the third quarter and nine months of
fiscal 2000, an increase of 25% and 17% as compared to $9.3 million and $27.3
million for the comparable periods in fiscal 1999. These consumable revenues
include $12.9 million and $12.8 million for the nine months of fiscal 2000 and
1999, respectively, sold under the Company's agreements with Heidelberg.
Royalties and fees from licensees for the third quarter and nine months
of fiscal 2000 were $2.4 million and $7.2 million respectively, an increase of
$900,000 or 60% and $2.5 million or 53% as compared to $1.5 million and $4.7
million for the comparable periods in fiscal 1999. Royalties increased $2.0
million and $6.1 million for the third quarter and nine months of fiscal 2000,
due to increased shipments to Heidelberg for direct imaging systems used in the
Quickmaster DI. This increase was offset by corresponding decreases in the same
periods of $1.0 million or 76% and $3.6 million or 80% in engineering fees
primarily as a result of concluding the development phase of the Company's
agreement with Fuji.
Revenues generated under the Company's agreements with Heidelberg and
its distributors for the third quarter and nine months of fiscal 2000 were $13.5
million and $37.2 million respectively, an increase of $8.6 million or 176% and
$22.3 million or 150%, as compared to the third quarter and nine months of
fiscal 1999. Revenues from Heidelberg represented 60% and 39% of total revenues
for the nine months of fiscal 2000 and 1999, respectively.
In fiscal 1999, the Company significantly reduced production levels of
direct imaging systems used in the Quickmaster DI press, based on requirements
from Heidelberg. The Company subsequently received orders in fiscal 1999 from
Heidelberg in connection with its direct imaging systems used in the Quickmaster
DI. Based on the delivery schedule for these orders, the Company resumed
production with initial low level shipments of its direct imaging systems late
in the third quarter of fiscal 1999. The Company expects to continue shipments
through the end of fiscal 2000. Additionally, the Company believes production
levels through the end of fiscal 2000 will continue in line with the actual rate
of Quickmaster DI's made by Heidelberg.
The Company continues to believe that revenues will increase in fiscal
2000 as compared to fiscal 1999, primarily due to the increased requirements for
the direct imaging systems used in the Quickmaster, and related increases for
the Company's proprietary consumables sold for the Quickmaster DI and other
equipment. There can be no assurance, however that the Company will achieve
these anticipated revenue increases.
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<PAGE>
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 third quarter and nine months of fiscal 2000 were $12.0
million and $33.8 million, respectively, as compared to $9.0 million and $24.5
million for the comparable periods in fiscal 1999. The gross margin increased to
39% in both the third quarter and nine months of fiscal 2000 from 29% and 26%
for the comparable periods in fiscal 1999. These increases are primarily
attributed to the results of economies of scale related to increased
manufacturing volumes and favorable yields associated with proprietary digital
media and consumable products, and increased manufacturing volumes of the direct
imaging systems sold to Heidelberg for use in the Quickmaster DI.
The Company anticipates that the gross margin on product sales will
approximate first quarter levels through the remainder of fiscal 2000. There can
be no assurance, however, that the actual gross margins will not be lower than
anticipated.
RESEARCH AND PRODUCT DEVELOPMENT
Research and product development expenses consist primarily of payroll
and related expenses or personnel, parts and supplies, and fees for contracted
services required to conduct the Company's equipment and consumable product
development efforts.
Research and product development expenses for the third quarter and
nine months of fiscal 2000 were $3.4 million and $12.1 million or 15% and 19% of
revenues respectively, as compared to $3.9 million and $12.2 million or 27% and
32% of revenues for the comparable periods in fiscal 1999. The decrease of
$530,000 or 14% for the third quarter of fiscal 2000 is primarily attributable
to the conclusion of the development efforts associated with the Company's
contract with Fuji.
The Company expects these expenditures to continue at current levels
through the remainder of fiscal 2000 as it concludes development efforts related
to its recently introduced ProFire integrated imaging system and certain other
development efforts. There can be no assurance however, that these expenses will
not be greater than currently anticipated.
SALES AND MARKETING EXPENSES
Sales and marketing expenses consist primarily of payroll and related
expenses for personnel, advertising, promotional and trade show expenses and
travel costs. Sales and marketing expenses for the third quarter and nine months
of fiscal 2000 were $2.3 million and $7.1 million or 10% and 11% of revenues
respectively, as compared to $1.5 million and $4.3 million or 11% of revenues
for the comparable periods in fiscal 1999. The increases of $823,000 or 54% and
$2.7 million or 63% for the third quarter and nine months of fiscal 2000,
respectively resulted primarily from increased expenditures associated with the
Company's attendance at the GraphExpo trade show in September, and the Drupa
2000 trade show in May. Increases in salaries as a result of head count growth,
and in professional services relate to the Company's continued expansion of its
worldwide sales, distribution and customer support network.
It is expected that these expenditures, after adjusting for the $2.1
million in trade show related expenses for the nine months of fiscal 2000 will
continue to increase through fiscal 2000, as the Company continues to expand its
distribution and customer support network. There can be no assurance, however,
that these expenditures will not be greater than currently anticipated.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses consist primarily of payroll and
related expenses for personnel, and fees for contracted professional services.
General and administrative expenses for the third quarter and nine months of
fiscal 2000 were $2.6 million and $6.8 million or 12% and 11% of revenues
respectively, as compared to $1.6 million and $5.1 million or 11% and 13% of
revenues for comparable periods in fiscal 1999. The increases of $922,000 or 57%
and $1.6 million or 32% for the third quarter and nine months of fiscal
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<PAGE>
2000, respectively, resulted primarily from increased expenditures for salaries
as a result of headcount growth, legal and other professional services necessary
to conduct the administrative functions of the Company.
The Company anticipates that general and administrative costs for
fiscal 2000 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 net, for the third quarter and nine months of fiscal 2000
was $12,000 and $176,000, respectively, as compared to $118,000 and $488,000 or
1% of revenues for the comparable periods in fiscal 1999. Dividend and interest
income for the third quarter and nine months of fiscal 2000 was $258,000 and
$733,000, as compared to dividend and interest income of $231,000 and $747,000
for the comparable periods in fiscal 1999. Interest expense for the third
quarter and nine months of fiscal 2000 was $306,000 and $673,000 as compared to
$112,000 and $338,000 for the comparable periods of fiscal 1999. The increase in
interest expense of $194,000 and $335,000 for the third quarter and nine months
of fiscal 2000 is primarily attributed to an increase in interest expense
incurred as a result of the increased borrowings related to the Company's lease
line of credit facility with Keybank National Association.
The Company anticipates that dividend and interest income will be
reduced for the remainder of fiscal 2000, as the Company's requirement for
working capital increases, and average cash balances available for investment
are reduced. The Company also anticipates that interest expense will increase as
the Company's borrowings have increased.
PROVISION FOR INCOME TAXES
The Company did not record a provision for or a charge in lieu of
United States federal income taxes for the three and nine months ended September
30, 2000 as a result of net operating losses carryforwards other than those
generated from deductions related to stock compensation for the periods. No
provision for or charge in lieu of United States federal income taxes was
required for the three and nine months ended October 2, 1999, as a result of the
tax loss prior to deductions related to stock compensation for the periods.
The Company recorded a provision for state income taxes for the three
and nine months ended September 30, 2000 in the amount of $85,000 and $150,000,
respectively. No provision for or charge in lieu of state income taxes was
required for the three and nine months ended October 2, 1999 as a result of the
tax loss prior to deductions related to stock compensation for the periods.
INCOME (LOSS) FROM CONTINUING OPERATIONS
As a result of the foregoing, the Company had income from continuing
operations of $1.7 million and $2.6 million for the third quarter and nine
months of fiscal 2000, as compared to losses of $1.8 million and $7.8 million
for the third quarter and nine months of fiscal 1999.
LOSS FROM DISCONTINUED OPERATIONS
The results of operations of Delta V are presented as discontinued
operations. The Company discontinued the operations of Delta V at the end of
fiscal 1999. Losses from the discontinued operations of Delta V were $555,000
and $448,000 for the third quarter and nine months of fiscal 1999, respectively.
Losses from the disposal of discontinued operations were $10.5 million for both
the third quarter and nine months of fiscal 1999.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, the Company had cash, cash equivalents of $11.4
million and working capital of $29.2 million as compared to cash, cash
equivalents of $18.7 million and working capital of $25.4 million at January 1,
2000.
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<PAGE>
Net cash used in operating activities of continuing operations was $4.3
million for the nine months of fiscal 2000, as a result of income from
operations of $2.6 million, non-cash items of depreciation and amortization of
$4.9 million, provisions for warranty of $784,000 and losses on accounts
receivable of $870,000, offset by increases in accounts receivable of $4.9
million reflecting higher sales volume and increases in inventories of $2.8
million as a result of greater production requirements. Other assets increased
by $4.1 million, primarily reflecting advanced payments made to suppliers in
connection with the Xerox Agreement.
Net cash used in investing activities of continuing operations was
$10.0 million for the nine months of fiscal 2000 and consisted primarily of
additions to property, plant and equipment used in the Company's business of
$9.6 million. These additions include $1.8 million for additional plate
manufacturing equipment which is expected to reduce the cost of manufacturing
the Company's proprietary digital media and consumable products and enhance the
Company's development capabilities, $3.3 million related to the construction of
the second phase of its 55 Executive Drive facility, as well as $3.0 million in
equipment purchases related to the manufacture of laser diodes at the Company's
LaserTel subsidiary.
Net cash provided by financing activities for the nine months of fiscal
2000 totaled $7.0 million and consisted primarily of the proceeds from the lease
line of credit with Keybank of $6.0 million, as well as the issuance of common
stock incident to the exercise of stock options of $1.9 million, offset by
payments on the mortgage term loan and lease line of credit facility of
$921,000.
In June 2000, the Company borrowed the remaining $6.0 million under the
$10.0 million lease line of credit facility from Keybank National Association.
The $10.0 million in borrowings is secured by equipment valued at $13.4 million.
The loan bears a variable rate of interest based upon the prime rate, currently
between 7.5% and 8.5%, with a fixed rate conversion provision. Principal and
interest under the lease line are payable in 84 monthly installments beginning
on July 31, 2000 for the $6.0 million in borrowings. The payments for the
initial $4.0 million borrowed in September 1999 commenced in October 1999.
On October 30, 2000 the Company renewed its credit facilities with
Citizens Bank New Hampshire ("Citizens"). These credit facilities, which expire
in September 2002, include renewal of the current ten-year mortgage term loan in
the amount of $6.9 million, an additional ten-year mortgage term loan in the
amount of $4.0 million, and a revolving line of credit loan. The mortgage term
loan in the amount of $6.9 million 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%, (8.62% at September 30, 2000) 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.
The ten-year mortgage term loan in the amount of $4.0 million bears a
fixed rate of interest equal to 7.95% during the first five years of the loan,
and a fixed rate equal to United States Treasury Notes or Bills with a maturity
date closest to the end of the second five years, plus 225 basis points for the
remaining five years. During the first five years, principal and interest shall
be paid in 60 monthly installments of $48,425. 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
October 30, 2010.
The ten-year mortgage term loans are secured by land and buildings with
a cost of approximately $22.0 million.
The revolving line of credit loan, under which the Company may borrow
$16.0 million, is subject to certain restrictions based on applicable
percentages of accounts receivable and inventory, as defined by the loan
agreement, and is secured by substantially all of the Company's assets. Interest
on the line of credit is payable at the LIBOR rate plus 1.50% (7.7% at September
30, 2000).
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<PAGE>
Under the terms of the mortgage term loan, the lease line of credit and
the revolving line of credit agreements, the Company is required to meet certain
financial covenants on a quarterly and annual basis. At September 30, 2000 the
Company was in compliance with all financial covenants.
The Company has approved total expenditures for fiscal 2000 of $5.0
million for the second phase of its facility at 55 Executive Drive. The Company
is funding the construction with existing cash and cash flow from operations.
This additional facility will include the Company's corporate offices, sales and
marketing operations, as well as additional manufacturing facilities, and is
expected to be completed at the end of November 2000. Through the third quarter
of fiscal 2000 the Company had expended approximately $3.3 million for this
construction.
The Company believes that the existing funds, cash flow from
operations, and cash available under its revolving line of credit and lease line
of credit facilities should be sufficient to satisfy working capital
requirements and capital expenditures for the next twelve months.
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 December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101 provides guidance related to revenue recognition in
financial statements. In March 2000, the SEC issued SAB No. 101A, which delayed
the implementation date of SAB No. 101. In June 2000, the SEC issued SAB No.
101B that further delayed the implementation of SAB No. 101 to the fourth
quarter of fiscal 2000. The Company will adopt SAB No. 101, and is currently
evaluating the impact, if any, SAB No. 101 will have on its financial position
or results of operations. The Company does not expect the adoption of SAB No.
101 to have a material impact on its financial position or results of
operations.
In March 2000, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation-an Interpretation of APB No. 25" ("FIN No. 44"). FIN No. 44
clarifies the application of Opinion No. 25 for certain issues including: (a)
the definition of employee for purposes of applying Opinion No. 25, (b) the
criteria for determining whether a plan qualifies as a noncompensatory plan, (c)
the accounting consequence of various modifications to the terms of a previously
fixed stock option or award, and (d) the accounting for an exchange of stock
compensation awards in a business combination. In general, FIN No. 44 is
effective July 1, 2000. The Company does not expect the adoption of FIN No. 44
to have a material impact on its financial position or results of operations.
In June 1998, FASB 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 (as amended by SFAS No. 137) is
effective for fiscal years beginning after June 15, 2000. 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to market risk from changes in interest rates
primarily as a result of its borrowing and investing activities. The Company
does not enter into interest rate swap agreements or other speculative or
leverage transactions. The Company currently has no material exposure to
interest rate fluctuations on its short-term investments or variable rate debt
instruments.
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<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See Part I - Item 3 of the Company's Form 10-K for the fiscal year
ended January 1, 2000 and Note 5 and Note 11 of Notes to the Financial
Statements of this Form 10Q for a description of certain legal proceedings
pending against the Company and certain of its officers and directors. All of
such information is hereby incorporated by reference in response to this item.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
(a) On June 19, 2000, the Company held its Annual Meeting of
Stockholders.
(b) At such meeting, each of the following individuals were elected to
serve as members of the Board of Directors of the Company to hold
office until the next Annual Meeting of Stockholders and until
their successors have been duly elected and qualified or until
their earlier resignation or removal.
Richard A. Williams
Robert W. Hallman
Robert E. Verrando
Robert Howard
Dr. Lawrence Howard
John W. Dreyer
Daniel S. Ebenstein
John B. Evans
Edward J. Marino
Harold N. Sparks
(c) At such meeting, the stockholders of the Company voted:
(1) To elect ten (10) directors to hold office until the next
Annual Meeting of Stockholders and until their respective
successors have been duly elected and qualified. The votes
cast were as follows:
<TABLE><CAPTION>
----------------------------- --------------- ------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Nominee Votes For Votes Against Votes Withheld Votes Abstained Broker Non-Votes
----------------------------- --------------- ------------- -------------- --------------- ----------------
Richard A. Williams 28,119,764 308,257
----------------------------- --------------- ------------- -------------- --------------- ----------------
Robert W. Hallman 28,119,764 308,257
----------------------------- --------------- ------------- -------------- --------------- ----------------
Robert E. Verrando 28,059,127 368,894
----------------------------- --------------- ------------- -------------- --------------- ----------------
Robert Howard 27,413,331 1,014,690
----------------------------- --------------- ------------- -------------- --------------- ----------------
Dr. Lawrence Howard 27,980,361 447,660
----------------------------- --------------- ------------- -------------- --------------- ----------------
John W. Dreyer 28,077,961 350,060
----------------------------- --------------- ------------- -------------- --------------- ----------------
</TABLE>
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<PAGE>
<TABLE><CAPTION>
<S> <C> <C> <C> <C> <C>
----------------------------- --------------- ------------ -------------- -------------- ---------------
Daniel S. Ebenstein 28,054,122 373,889
----------------------------- --------------- ------------ -------------- -------------- ---------------
John B. Evans 28,080,529 347,492
----------------------------- --------------- ------------ -------------- -------------- ---------------
Edward J. Marino 28,057,959 370,062
----------------------------- --------------- ------------ -------------- -------------- ---------------
Harold N. Sparks 27,548,743 879,278
----------------------------- --------------- ------------ -------------- -------------- ---------------
</TABLE>
(d) Not Applicable.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) 10.1 Master Supply and Distribution Agreement by and between
Presstek, Inc. and Xerox Corporation dated September 22,
2000 (filed herewith).*
10.2 Amendment to Loan Agreement and Related Loan Documents by
and among Presstek, Inc., Lasertel, Inc., and Citizens Bank
New Hampshire dated as of October 30, 2000 (filed herewith).
10.3 Guaranty Agreement by Lasertel, Inc., to the benefit of
Citizens Bank New Hampshire made as of October 30, 2000
(filed herewith).
10.4 Term Note dated October 30, 2000 made by Presstek, Inc. in
favor of Citizens Bank New Hampshire (filed herewith).
10.5 Security Agreement by and between Lasertel, Inc. and
Citizens Bank New Hampshire dated October 30, 2000 (filed
herewith).
10.6 Assignment of Lease Agreement by and between Presstek, Inc.
and Citizens Bank New Hampshire made as of October 30, 2000
(filed herewith).
10.7 Mortgage and Security Agreement between Presstek, Inc. and
Citizens Bank New Hampshire dated October 30, 2000 (filed
herewith).
10.8 Replacement Revolving Line of Credit Promissory Note dated
October 30, 2000 issued by Presstek, Inc. in favor of
Citizens Bank New Hampshire (filed herewith).
10.9 Stipulation of Settlement by and among Presstek, Inc. et al
and Representative Plaintiffs (on behalf of themselves and
each of the Class Members) dated March 23, 2000 (filed
herewith).
27 Financial Data Schedule (EDGAR) (filed herewith)
* Confidential Treatment requested as to omitted portions
pursuant to Rule 24b-2 promulgated under the Securities and
Exchange Act of 1934, as amended.
- 21 -
<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.
PRESSTEK, INC.
(Registrant)
Dated: November 14, 2000 By: /s/ Robert W. Hallman
---------------------
Robert W. Hallman
Chief Executive Officer
(Principal Executive, and Duly
Authorized Officer)
Dated: November 14, 2000 By: /s/ Neil Rossen
------------------------------
Neil Rossen
Chief Financial Officer
(Principal Financial and
Accounting Officer)
- 22 -
<PAGE>
EXHIBIT INDEX
-------------
NO. DESCRIPTION
10.1 Master Supply and Distribution Agreement by and between
Presstek, Inc. and Xerox Corporation dated September 22,
2000 (filed herewith).*
10.2 Amendment to Loan Agreement and Related Loan Documents by
and among Presstek, Inc., Lasertel, Inc., and Citizens Bank
New Hampshire dated as of October 30, 2000 (filed herewith).
10.3 Guaranty Agreement by Lasertel, Inc., to the benefit of
Citizens Bank New Hampshire made as of October 30, 2000
(filed herewith).
10.4 Term Note dated October 30, 2000 made by Presstek, Inc. in
favor of Citizens Bank New Hampshire (filed herewith).
10.5 Security Agreement by and between Lasertel, Inc. and
Citizens Bank New Hampshire dated October 30, 2000 (filed
herewith).
10.6 Assignment of Lease Agreement by and between Presstek, Inc.
and Citizens Bank New Hampshire made as of October 30, 2000
(filed herewith).
10.7 Mortgage and Security Agreement between Presstek, Inc. and
Citizens Bank New Hampshire dated October 30, 2000 (filed
herewith).
10.8 Replacement Revolving Line of Credit Promissory Note dated
October 30, 2000 issued by Presstek, Inc. in favor of
Citizens Bank New Hampshire (filed herewith).
10.9 Stipulation of Settlement by and among Presstek, Inc. et al
and Representative Plaintiffs (on behalf of themselves and
each of the Class Members) dated March 23, 2000 (filed
herewith).
27 Financial Data Schedule (EDGAR) (filed herewith)
* Confidential Treatment requested as to omitted portions pursuant
to Rule 24b-2 promulgated under the Securities and Exchange Act
of 1934, as amended.
- 23 -
