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 1, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACTOF 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 10, 2000, there
were 32,592,913 shares outstanding of the Registrant's common stock, $.01 par
value per share.
<PAGE>
PRESSTEK, INC.
INDEX
PAGE
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Balance Sheets as of April 1, 2000 (unaudited)
and January 1, 2000 3
Statements of Operations for the three months ended
April 1, 2000 and April 3, 1999 (unaudited) 4
Statements of Cash Flows for the three months ended
April 1, 2000 and April 3, 1999 (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 17
PART II OTHER INFORMATION 18
Item 1 Legal Proceedings
Item 6 Exhibits and Reports on Form 8-K
Signatures 19
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<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
PRESSTEK, INC.
BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
April 1, January 1,
2000 2000
---- ----
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 14,986 $ 18,653
Accounts receivable, net of allowance for losses
of $3,037 and $3,302 in fiscal 2000 and 1999, respectively 13,650 11,645
Inventories 8,741 7,214
Other current assets 1,240 859
-------- --------
Total current assets 38,617 38,371
-------- --------
PROPERTY, PLANT AND EQUIPMENT, NET 45,946 45,695
-------- --------
OTHER ASSETS:
Patent application costs and license rights, net 5,152 5,126
Other 109 146
Net non-current assets of discontinued operations 5,295 5,295
-------- --------
Total other assets 10,556 10,567
-------- --------
TOTAL $ 95,119 $ 94,633
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,044 $ 1,024
Accounts payable and accrued expenses 8,298 8,888
Accrued salaries and employee benefits 1,703 1,269
Net current liabilities of discontinued operations 1,455 1,817
-------- --------
Total current liabilities 12,500 12,998
-------- --------
LONG-TERM DEBT, NET OF CURRENT PORTION 8,560 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 32,592,913 shares at April 1, 2000;
32,515,651 shares at January 1, 2000 326 325
Additional paid-in capital 70,174 69,312
Retained deficit (19,391) (19,782)
-------- --------
Stockholders' equity 51,109 49,855
-------- --------
TOTAL $ 95,119 $ 94,633
======== ========
</TABLE>
See notes to financial statements
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<PAGE>
PRESSTEK, INC.
STATEMENTS OF OPERATIONS
For the three months ended
(In thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
April 1, April 3,
2000 1999
---- ----
<S> <C> <C>
REVENUES:
Product sales $ 17,107 $ 9,827
Royalties and fees from licensees 1,928 1,709
-------- --------
Total revenues 19,035 11,536
-------- --------
COSTS AND EXPENSES:
Cost of products sold 10,658 8,055
Research and product development 4,559 3,844
Sales and marketing 1,665 1,296
General and administrative 1,861 1,686
-------- --------
Total costs and expenses 18,743 14,881
-------- --------
INCOME (LOSS) FROM OPERATIONS 292 (3,345)
-------- --------
OTHER INCOME:
Dividend and interest, net 99 168
Other, net 80
-------- --------
Total other income, net 99 248
-------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 391 (3,097)
PROVISION FOR INCOME TAXES --
-------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS 391 (3,097)
-------- --------
INCOME FROM DISCONTINUED OPERATIONS -- 13
-------- --------
NET INCOME (LOSS) $ 391 $ (3,084)
======== ========
EARNINGS (LOSS) PER SHARE - BASIC:
From continuing operations $ 0.01 $ (0.10)
======== =========
From discontinued operations $ 0.00 $ 0.00
======== =========
EARNINGS (LOSS) PER SHARE - BASIC $ 0.01 $ (0.10)
======== =========
EARNINGS (LOSS) PER SHARE - DILUTED:
From continuing operations $ 0.01 $ (0.10)
======== =========
From discontinued operations $ 0.00 $ 0.00
======== =========
EARNINGS (LOSS) PER SHARE - DILUTED $ 0.01 $ (0.10)
======== =========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - BASIC 32,561 32,298
======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - DILUTED 34,195 32,298
======== ========
</TABLE>
See notes to financial statements
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<PAGE>
PRESSTEK, INC.
STATEMENTS OF CASH FLOWS
For the three months ended
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
April 1, April 3,
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS - OPERATING ACTIVITIES:
Income (loss) from continuing operations $ 391 $ (3,097)
Adjustments to reconcile income (loss) from continuing operations to
net cash provided by (used in) operating activities of continuing operations:
Depreciation 1,373 1,204
Amortization 199 146
Provision for warranty and other costs 188 43
Provision for losses on accounts receivable 300 480
Other, net 34 5
Changes in operating assets and liabilities, net of effects from acquisitions:
Decrease (increase) in accounts receivable (2,305) 9,499
Decrease (increase) in inventories (1,527) 354
Decrease (increase) in other current assets (381) 10
Decrease in accounts payable and accrued expenses (747) (1,053)
Increase in accrued salaries and employee benefits 435 320
-------- --------
Net cash provided by (used in) operating activities of continuing (2,040) 7,911
operations
Net cash used in operating activities of discontinued operations (362) (2,485)
-------- --------
Net cash provided by (used in) operating activities (2,402) 5,426
-------- --------
CASH FLOWS - INVESTING ACTIVITIES:
Purchases of property, plant and equipment (1,626) (2,980)
Increase in other assets (193) (43)
-------- --------
Net cash used in investing activities of continuing operations (1,819) (3,023)
Net cash used in investing activities of discontinued operations -- (68)
-------- --------
Net cash used in investing activities (1,819) (3,091)
-------- --------
CASH FLOWS - FINANCING ACTIVITIES:
Net proceeds from sale of common stock 804 230
Repayments of long-term debt (250) (128)
-------- --------
Net cash provided by financing activities 554 102
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,667) 2,437
CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD 18,653 19,057
-------- --------
CASH AND CASH EQUIVALENTS END OF PERIOD $ 14,986 $ 21,494
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 266 $ 114
======== ========
Income taxes $ 55 $ --
======== ========
NON-CASH FINANCING ACTIVITY
Warrants issued in exchange for consulting services $ 59 $ --
======== ========
</TABLE>
See notes to financial statements
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<PAGE>
PRESSTEK, INC.
NOTES TO FINANCIAL STATEMENTS (unaudited)
APRIL 1, 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 months ended April 1, 2000 are not necessarily indicative
of the results that may be expected for the fiscal year ending December 30,
2000.
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 fiscal quarter ended April 1, 2000. The results of
R/H's operations for the comparable period 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 Technologies, Inc. ("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. All of
the following notes, unless otherwise indicated, refer to the continuing
operations of Presstek. See Note 7 of notes to the financial statements.
Certain accounts in the fiscal 1999 financial statements have been
reclassified for comparative purposes to conform to the presentation in the
April 1, 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 April 1, 2000 ("the first quarter of fiscal
2000") and April 3, 1999 ("the first quarter of fiscal 1999').
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<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:
April 1, January 1,
2000 2000
--------- --------
(In thousands)
Raw material $ 2,209 $ 1,915
Work in process 3,307 3,055
Finished goods 3,225 2,244
-------- --------
$ 8,741 $ 7,214
======== ========
3. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment at cost consisted of the following:
April 1, January 1,
2000 2000
-------- --------
(In thousands)
Land and land improvements $ 1,115 $ 1,115
Buildings and leasehold improvements 15,824 15,611
Production equipment and other 34,579 34,452
Construction in progress 9,624 8,341
-------- --------
61,142 59,519
Less accumulated depreciation (15,196) (13,824)
-------- --------
$ 45,946 $ 45,695
======== ========
4. LONG-TERM DEBT AND CREDIT FACILITIES
Long-term debt consisted of the following:
April 1, January 1,
2000 2000
-------- --------
(In thousands)
Mortgage term loan $ 5,789 $ 5,925
Lease line of credit 3,815 3,929
-------- --------
9,604 9,854
Less current portion (1,044) (1,024)
-------- --------
$ 8,560 $ 8,830
======== ========
In September 1999, the Company borrowed $4.0 million against a $10.0
million lease line of credit facility from Keybank National Association.
Borrowings are secured by equipment valued at $5.2 million. The loan bears a
variable rate of interest based upon the prime rate, currently 7.25%, with a
fixed rate conversion provision. Principal and interest on the lease line of
credit facility are payable in 84 monthly installments beginning October 31,
1999. The commitment for the balance of $6.0 million available under the lease
line of credit is scheduled to expire on May 31, 2000.
The Company's credit facilities with Citizens Bank New Hampshire include a
ten-year mortgage term loan and a revolving line of credit loan. The mortgage
term loan, in the amount of $6.9 million, is secured by land and buildings with
a cost of approximately $17.0 million. 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%, (8.13% at April 1, 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
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<PAGE>
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 revolving line of credit loan, under which the Company may borrow $10.0
million, 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% (7.63% at April 1,
2000). The loan agreement terminates on July 31, 2000, at which date, the entire
principal and accrued interest is due and payable. The Company currently has
$10.0 million available under the line of credit loan agreement.
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 April 1, 2000 the
Company was in compliance with all financial covenants.
5. 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 months ended:
<TABLE>
<CAPTION>
April 1, April 3,
2000 1999
---- ----
(In thousands, except per share data)
<S> <C> <C>
Income (loss) from continuing operations $ 391 $(3,097)
Income from discontinued operations -- 13
-------- -------
Net income (loss) $ 391 $(3,084)
======== =======
Weighted average common shares outstanding - Basic 32,561 32,298
Effect of assumed conversion of stock options and warrants 1,634 --
-------- -------
Weighted average common shares outstanding - Diluted 34,195 32,298
======== =======
Earnings (loss) per share - Basic:
From continuing operations $ 0.01 $ (0.10)
======== =======
From discontinued operations $ 0.00 $ 0.00
======== =======
Earnings (loss) per share - Basic $ 0.01 $ (0.10)
======== =======
Earnings (loss) per share - Diluted:
From continuing operations $ 0.01 $ (0.10)
======== =======
From discontinued operations $ 0.00 $ 0.00
======== =======
Earnings (loss) per share - Diluted $ 0.01 $ (0.10)
======== =======
</TABLE>
Options to purchase 3,250 shares of common stock at an exercise price of
$26.94 per share were outstanding during a portion of the first quarter of
fiscal 2000, but were not included in the computation of diluted earnings per
share, as the exercise price of the options was greater than the average market
price of the common shares. These options, which expire on March 27, 2010 were
all outstanding at April 1, 2000. All stock options outstanding for the first
quarter of fiscal 1999 are excluded from the calculation of diluted loss per
share, as their effect would be antidilutive.
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<PAGE>
6. INCOME TAXES
The Company did not record a provision for United States federal or state
income taxes or a charge in lieu of United States federal or state income taxes
due to the tax losses for the three months ended April 1, 2000 and April 3,
1999, prior to the deductions related to stock compensation.
7. DISCONTINUED OPERATIONS
During the third quarter of fiscal 1999 the Company determined to sell or
otherwise 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 discontinued the operations of Delta V
at the end of fiscal 1999.
As a result of the divestiture of Delta V, the Company incurred a $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. ("3M"), 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 fiscal quarter
ended April 3, 1999 were as follows:
1999
----
(In thousands)
Revenues $ 3,308
Costs and expenses 3,300
--------
Income from operations 8
Other income 5
--------
Net income from discontinued operations $ 13
========
Net assets of discontinued operations were as follows:
<TABLE>
<CAPTION>
April 1, January 1,
2000 2000
---- ----
(In thousands)
<S> <C> <C>
Cash $ 222 $ 222
Accounts receivable 700 700
Other current assets 1 1
Accrual for anticipated closing costs (1,226) (1,626)
Other current liabilities (1,152) (1,114)
--------- ------
Net current liabilities of discontinued operations $ (1,455) $ (1,817)
========= =======
Land and buildings $ 5,295 $ 5,295
--------- -------
Net non-current assets of discontinued operations $ 5,295 $ 5,295
========= =======
</TABLE>
8. 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 ended April 1, 2000
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<PAGE>
and April 3, 1999 there was no significant difference between net income (loss)
and comprehensive income (loss).
9. 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 for the first quarter of fiscal 2000 were $10.8 million, an
increase of $5.8 million or 116% from the comparable period of fiscal 1999.
Revenues from Heidelberg represented 57% and 44% of total revenues for the first
three months of fiscal 2000 and 1999, respectively.
10. 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 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 has entered into an agreement with the plaintiffs to settle the
class action lawsuit, and has executed a memorandum of understanding with
respect to settlement of the derivative law suits. 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, including Company
policies on insider trading, the functioning and membership of its audit
committee, and the policies pertaining to corporate communications. The
settlement of both the class action and derivative actions require final
approval of the United States District Court. The Company has recorded a charge
of $23.2 million in the fourth quarter of fiscal 1999 related to the settlement.
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<PAGE>
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 right.
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.
The Company is involved in other litigation arising out of the ordinary
course of business. Management believes that these matters will not have a
material adverse effect on the accompanying financial statements.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995:
Certain statements contained in this Form 10-Q constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve a number of known and unknown
risks, uncertainties and other factors which may cause the actual results,
performance or achievements of the Company to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, but are not limited to, the
risks of uncertainty of patent protection, the risks of uncertainty of strategic
alliances, 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 this report and 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. 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.
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
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<PAGE>
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.
During the third quarter of fiscal 1999 the Company determined to sell or
otherwise discontinue the operations of its Delta V Technologies, Inc., ("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
discontinued the operations of Delta V as of the end of fiscal 1999.
As a result of the divestiture of Delta V, the Company incurred a $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. ("3M"), 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 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 have been included in the financial statements for
the fiscal quarter ended April 1, 2000 and for the period subsequent to November
1999 for fiscal 1999. The results of R/H's operations for the comparable period
of fiscal 1999 would not have had a material impact on the Company's results of
operations.
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 April 1, 2000 ("the first quarter of fiscal
2000") and April 3, 1999 ("the first quarter of fiscal 1999").
As a result of the divestiture of Delta V, the Company determined that it
operates in one reportable segment, the development and manufacture of digital
imaging and printing plate technologies for the printing and graphic arts
industry.
Results of Operations
Revenues
Revenues for the three months ended April 1, 2000 and April 3, 1999
consisted of product sales, royalties, fees and other reimbursements. Revenues
for the first quarter of fiscal 2000 of $19.0 million increased $7.5 million or
65% as compared to revenues of $11.5 million in the first quarter of fiscal
1999.
Product sales for the first quarter of fiscal 2000 were $17.1 million
compared to $9.8 million for the first quarter of fiscal 1999, an increase of
$7.3 million or 74%. 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. The revenues generated from the sale of the Company's PEARLdry(TM) and
other consumable products were $9.6 million for the first quarter of fiscal
2000, an increase of $1.4 million or 17% as compared to $8.2 million in the
first quarter of fiscal 1999. These consumable product revenues included $3.6
million and $4.8 million for the first quarter of fiscal 2000 and 1999,
respectively, sold under the Company's agreements with Heidelberg and its
distributors.
-13-
<PAGE>
Royalties and fees from licensees for the first quarter of fiscal 2000 of
$1.9 million increased $200,000 or 12% as compared to royalties and fees of $1.7
million for the first quarter of fiscal 1999. Royalties increased $1.9 million
due to increased shipments to Heidelberg for direct imaging systems used in the
Quickmaster DI. This increase was offset by a decrease of $1.7 million 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 were $10.8 million in the first quarter of fiscal 2000, an increase
of $5.8 million or 116% from the first quarter of fiscal 1999 revenues of $5.0
million. Revenues from Heidelberg represented 57% and 44% of total revenues for
the first quarters of fiscal 2000 and 1999, respectively.
In fiscal 1999, the Company materially reduced production levels of direct
imaging systems used in the Quickmaster DI press, based on requirements from
Heidelberg. The Company 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 believes 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.
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 first quarter of fiscal 2000 were $10.7 million, an increase of
$2.6 million or 32% as compared to the first quarter of fiscal 1999. The gross
margin increase to 37% in the first quarter of fiscal 2000 from 17% in the first
quarter of fiscal 1999 is primarily attributed to the results of economies
related to increased manufacturing volumes of 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
continue at current 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 for personnel, parts and supplies, and contracted services
required to conduct the Company's equipment and consumable product development
efforts.
Research and product development expenses were $4.6 million or 24% of
revenues for the first quarter of fiscal 2000 as compared to $3.8 million or 33%
of revenues for the first quarter of fiscal 1999. The increase resulted
principally from increased expenditures for labor and professional services
related to the Company's continued development of products incorporating its
PEARL and DI technologies. Included in these development efforts were
significant expenditures for the Company's digital plate media and consumable
products, as well as expenditures for its next-generation ProFire(TM) integrated
imaging system and other product development efforts.
The Company expects these development expenditures to decrease slightly
through the remainder of fiscal 2000 as it concludes certain development efforts
related to its recently introduced ProFire integrated imaging system. There can
be no assurance however, that these expenses will not be greater than currently
anticipated.
-14-
<PAGE>
Sales and Marketing
Sales and marketing expenses consist primarily of payroll and related
expenses for personnel, advertising, promotional expenses, and travel costs.
Sales and marketing expenses were $1.7 million or 9% of revenues for the first
quarter of fiscal 2000 as compared to $1.3 million or 11% of revenues for the
first quarter of fiscal 1999. The increase resulted primarily from increased
expenditures for labor and 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 expenditures will continue to increase through
fiscal 2000 as the Company continues to expand its direct sales force and
customer support network for its products. The Company also expects a
significant increase in the second quarter of fiscal 2000, as a result of its
planned attendance at Drupa 2000 in May. 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 first quarter of fiscal 2000 were $1.9 million
or 10% of revenues compared to $1.7 million or 15% of revenues for the first
quarter of fiscal 1999. The increase resulted primarily from increased
expenditures for labor and professional services necessary to conduct the
finance, information systems, and 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 was $99,000 or 1% of revenues for the first quarter of fiscal
2000 as compared to $248,000 or 2% of revenues for the first quarter of fiscal
1999. The decrease is primarily the result of a decrease in average cash
balances available for investment, as well as increases in interest expense
incurred as a result of the Company's lease line of credit with Keybank National
Association.
Provision for Income Taxes
The Company did not record provisions for United States federal or state
income taxes or charges in lieu of United States federal or state income taxes
due to the tax losses for the three months ended April 1, 2000 and April 3,
1999, prior to the deductions related to stock compensation.
Income from Continuing Operations
As a result of the foregoing, the Company had income from continuing
operations of $391,000 for the first quarter of fiscal 2000, as compared to
losses from continuing operations of $3.1 million for the first quarter of
fiscal 1999.
Income 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. Income from the discontinued operations of Delta V was $13,000 for
the first quarter of fiscal 1999.
-15-
<PAGE>
Liquidity and Capital Resources
At April 1, 2000, the Company had cash and cash equivalents of $15.0
million and working capital of $26.1 million as compared to cash and cash
equivalents of $18.7 million and working capital of $25.4 million at January 1,
2000.
Cash used in operating activities of continuing operations was $2.0 million
for the three months ended April 1, 2000. The cash flow resulted primarily from
income from operations of $391,000, non-cash items of depreciation and
amortization of $1.6 million, provisions for losses on accounts receivable of
$300,000, and increases in accounts payable and accrued expenses of $312,000
offset by increases in accounts receivable and inventories of $3.8 million.
Net cash used in investing activities of continuing operations was $1.8
million for the three months ended April 1, 2000 and consisted primarily of
additions to property, plant and equipment used in the Company's business of
$1.6 million. These additions included $1.2 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, as well as $322,000 related to construction
of the second phase of its 55 Executive Drive facility.
Net cash provided by financing activities for the three months ended April
1, 2000 totaled $554,000 and consisted primarily of the proceeds from the
issuance of common stock of $804,000, offset by payments on long-term debt of
$250,000.
In September 1999, the Company borrowed $4.0 million against a $10.0
million lease line of credit facility from Keybank National Association.
Borrowings are secured by equipment valued at $5.2 million. The loan bears a
variable rate of interest, currently 7.25%, based upon the prime rate, with a
fixed rate conversion provision. Principal and interest on the lease line of
credit facility are payable in 84 monthly installments beginning October 31,
1999. The commitment for the balance of $6.0 million available under the lease
line of credit is scheduled to expire on May 31, 2000.
The Company's credit facilities with Citizens Bank New Hampshire, include a
ten-year mortgage term loan and a revolving line of credit loan. The mortgage
term loan, in the amount of $6.9 million, is secured by land and buildings with
a cost of approximately $17.0 million. 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%, (8.13% at April 1, 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 revolving line of credit loan, under which the Company may borrow $10.0
million, 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% (7.63% at April 1,
2000). The loan agreement terminates on July 31, 2000, at which date, the entire
principal and accrued interest is due and payable. The Company currently has
$10.0 million available under the line of credit loan agreement.
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 April 1, 2000, the
Company was in compliance with all financial covenants.
The Company has approved expenditures for fiscal 2000 of $5.0 million for
the second phase of its facility at 55 Executive Drive. The Company will
initially fund the construction with existing funds 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 in October 2000. Through the first
quarter of fiscal 2000 the Company had expended approximately $322,000 for this
construction.
-16-
<PAGE>
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 (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.
-17-
<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 10 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.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 Financial Data Schedule (for SEC use only)
27.1 Financial Data Schedule for the three month period ended April 1,
2000
27.2 Financial Data Schedule for the three month period ended April 3,
1999
(b) No reports on Form 8-K were filed for the quarter for which this report
is filed.
-18-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: May 16, 2000
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)
-19-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10-Q at
April 1, 2000 and is qualified in its entirety by reference to such finanacial
information
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-30-2000
<PERIOD-END> APR-1-2000
<CASH> 14,986,000
<SECURITIES> 0
<RECEIVABLES> 16,682,000
<ALLOWANCES> 3,037,000
<INVENTORY> 8,741,000
<CURRENT-ASSETS> 38,617,000
<PP&E> 61,142,000
<DEPRECIATION> 15,196,000
<TOTAL-ASSETS> 95,119,000
<CURRENT-LIABILITIES> 12,500,000
<BONDS> 8,560,000
0
0
<COMMON> 326,000
<OTHER-SE> 50,783,000
<TOTAL-LIABILITY-AND-EQUITY> 51,109,000
<SALES> 17,107,000
<TOTAL-REVENUES> 19,035,000
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<TOTAL-COSTS> 10,658,000
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<INTEREST-EXPENSE> 99,000
<INCOME-PRETAX> 391,000
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<EPS-BASIC> 0.01
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-END> APR-03-1999
<CASH> 21,494,000
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