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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended January 3, 1998
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _______________ to
_______________.
0-17541
(Commission File No.)
PRESSTEK, INC.
(Exact name of registrant as specified in its charter)
Delaware 02-0415170
(State or other juris- (I.R.S. Employer
diction of incorporation or Identification No.)
organization)
8-9 Commercial Street, Hudson, New Hampshire 03051
(Address of principal executive offices including zip code)
Registrant's telephone number, including area code: (603) 595-7000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the registrant's Common Stock held by
non-affiliates of the registrant as of March 19, 1998, was approximately
$650,000,000.
As of March 19, 1998, there were 31,990,614 shares of the registrant's Common
Stock outstanding.
Documents Incorporated by Reference:
Parts of the definitive Proxy Statement for the Registrant's Annual Meeting of
Stockholders to be held on May 28, 1998 are incorporated by reference into Part
III of this Form 10-K.
PART I
Item 1. Business.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act
of 1995:
Certain statements contained in this Form 10-K constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve a number of known and unknown
risks, uncertainties and other factors which may cause the actual results,
performance or achievements of the Company to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, but are not limited to, the
risks of uncertainty of patent protection, the impact of supply and
manufacturing constraints or difficulties, possible technological obsolescence,
increased competition, litigation and other risks detailed in the Company's
other filings with the Securities and Exchange Commission. The words "believe",
"expect", "anticipate", "intend", "forecast", and "plan" and similar expressions
identify forward-looking statements. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
the statement was made.
Set forth below is a glossary of certain terms used in this report:
A2(4-up) a printing term referring to a standard paper size
capable of printing four 8.5" x 11" pages on a
sheet of paper
A3(2-up) a printing term referring to a standard paper size
capable of printing two 8.5" x 11" pages on a
sheet of paper
Ablation a controlled detachment/vaporization caused by a
thermal event. This process is used during the
imaging of the Company's PEARL(R) consumables
Computer-to-plate a general term referring to the exposure of
(direct-to-plate) lithographic plate material from a digital
database, off-press
Dampening solution traditional lithographic printing chemical bath
used to coat the non-image areas of a printing
plate
Direct Imaging (DI) Digital Imaging systems that allow image
technologies carriers (film and plates) to be
imaged from a digital database, on- and off-press
Dots per inch (dpi) a measurement of the resolving power or the
addressability of an imaging device
Effluents waste materials that flow from photographic
processing equipment, which are often toxic in
nature
GTO-DI the first generation of Direct Imaging, waterless
presses available in two, four and five printing
station configurations, a joint effort between
Heidelberg and Presstek
Halftone a printing reproduction process which converts the
image into dots of various sizes and equal spacing
between centers
Heidelberg Heidelberger Druckmaschinen AG, the world's
largest printing press manufacturer, headquartered
in Heidelberg, Germany
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Hydrophobic/ used in printing to describe whether a material
Hydrophilic will be water receptive (hydrophilic) or reject
water (hydrophobic)
Infrared lying outside of the visible spectrum at its
red-end longer wavelengths; used in the Company's
thermal imaging process
Large format a printing term referring to printing layouts that
include four or more pages on a single sheet of
paper
Lithographic printing from a single plane surface under the
principle that image area carries ink and the
nonimage area does not, and that ink and water do
not mix
Off-press making a printing plate from either an analog or
digital source independently of the press on which
it will be used
Oleophilic/ used in printing to describe whether a material
Oleophobic will be ink receptive (oleophilic) or reject ink
(oleophobic)
On-demand a manufacturing philosophy when applied to
printing provides faster service, shorter run
lengths and less inventory
On-press the use of Presstek's Direct Imaging technologies
to make a plate directly from a digital file on
the press
PEARL(R) the name associated with Presstek's current laser
imaging technologies and related products and
consumables
PEARL Imaging the Presstek components required to convert
systems a conventional printing press into a Direct
Imaging press, including laser diode arrays,
computers, electronics
PEARLsetter(TM) the Company's product line of computer-to-plate,
off-press plate making equipment
Photosensitive silver halide emulsions exposed by a reaction to
light requiring a subsequent chemical development
and stabilization process
Plate making the process of applying a printable image to a
printing plate
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Prepress graphic arts operations and methodologies that
occur prior to the printing process; typically
these include photography, scanning, image
assembly, exposure of image carriers (film and/or
plate), proofing
Proofer/proof a machine that creates an image that is an exact
duplicate of what will be printed, or the
duplicated image itself.
Quickmaster 46-4; the second generation of Direct Imaging, waterless
Quickmaster DI presses, highly automated with roll-fed PEARL
plate material, a joint effort between Heidelberg
and Presstek
Semiconductor a high-powered, infrared imaging technology
laser diode employed in the PEARL imaging system
Short-run markets/printing a graphic arts classification used to denote an
emerging trend for lower print quantities
Spark Discharge Technology the Company's first Direct Imaging technology in
which a proprietary printing plate was imaged by
means of discharging an electrical spark
Thermally-based a method of digitally exposing a material via the
heat generated from a laser beam
Vapor deposition process a technology to accurately, uniformly coat
substrates in a controlled environment
Waterless a lithographic printing method that uses dry
offset printing plates and inks thus it does not
require a dampening system
"YAG" laser one of the more commonly used laser sources for
direct-to-plate imaging systems
General
Presstek, Inc. (the "Company" or "Presstek"), incorporated in Delaware, was
founded in September of 1987 as a development company to find a new way to
produce color offset printing. This new printing method would take full
advantage of computer based, electronic prepress processes which were rapidly
becoming (and have now become) available and expedited the design, image
manipulation, page assembly and related aspects used to produce high quality
color pages in a digital format. These digitally formatted pages, however, could
not be easily converted to finished, four or more color offset printed pages.
The process used to do this involved costly and time consuming methods including
the use of specialized
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photosensitive film recording systems and related plate exposure devices along
with the need to chemically process these photosensitive analog films and
plates. These photographically based methods generated waste effluents that were
difficult to dispose of in an environmentally sound manner. The Company's
objective was to eliminate these non-digital processes and develop a new system
that would allow digitally formatted file data to be used to image a plate
directly on the printing press. This would reduce cost, eliminate the time it
normally takes to make films and plates, and improve the quality of the finished
printed offset page.
The Company's development work ultimately led to the commercialization of
its proprietary PEARL based direct imaging technology. This new direct imaging
technology, which now uses high powered semiconductor laser diodes and thermal
ablation printing plate materials, is currently being used in a variety of both
on-press and off-press applications. The Company believes that PEARL represents
a technological breakthrough for the worldwide printing and publishing industry,
since PEARL can be used for both on-press and off-press (such as the Company's
PEARLsetter computer-to-plate system) applications. This capability provides a
number of new applications for the Company's direct imaging systems and its
proprietary consumable thermally-based printing plates. The Company believes its
past investments in its proprietary PEARL direct imaging technologies, which
have resulted in more than 75 patents issued throughout the world, and 19
additional pending applications in the United States, together with its ten
years of experience in developing digital imaging systems, place the Company in
a significant position in the markets it has chosen to serve. To further
strengthen its patent portfolio, on January 5, 1998, the Company acquired the
stock of Heath Custom Press, Inc. ("Heath") of Seattle, Washington. Heath is
engaged in the design and manufacture of custom printing presses. See "Patents
and Proprietary Rights."
Strategy, Background, and Important Relationships
The Company's strategy is based on alliances and relationships with major
companies in the graphic arts industry and other markets. This strategy includes
licensing the Company's intellectual property, specialized product development
based on the Company's proprietary technologies, manufacturing imaging
subsystems for inclusion in other manufacturers' products, manufacturing the
Company's own end user and private label products, as well as the manufacture of
the Company's proprietary thermal plate materials.
This strategy led to the development of an important and long-term
relationship with Heidelberger Druckmaschinen AG ("Heidelberg"), the world's
largest manufacturer of printing presses and printing equipment, based in
Germany. This relationship was formalized with the signing of a Master Agreement
and a Technology License Agreement in January 1991. The Master
- 5 -
Agreement and Technology License Agreement are sometimes collectively referred
to hereafter as the "Heidelberg Agreements."
The Heidelberg Agreements
The Heidelberg Agreements relate to the integration of the Direct Imaging
technology into various presses manufactured by Heidelberg (the "Heidelberg
Presses") and the manufacture of components for and the commercialization of
such presses. Pursuant to the Heidelberg Agreements, the Company granted
Heidelberg certain exclusive rights, for use of the Direct Imaging technology
for the Quickmaster DI format size.
The Heidelberg Agreements and amendments govern the Company's relationship
with Heidelberg and provide for the Company to supply Direct Imaging systems to
Heidelberg at specified rates. The Heidelberg Agreements currently expire in
December 2011 subject to certain early termination and extension provisions.
Under these agreements, Heidelberg agreed to pay to the Company royalties on the
net sales prices of various specified types of Heidelberg Presses on which the
Company's Direct Imaging technology would be used.
The most important amendments and adjustments to the Heidelberg Agreements
are summarized below.
In 1993, the Company granted Heidelberg a forty-five month exclusive
license which expired in January 1997 for the manufacture and sale of PEARL
technology used on the Quickmaster DI. After the initial forty-five month
period, Heidelberg's rights remain exclusive subject to the Company's right to
terminate such exclusivity on three months' written notice to Heidelberg.
In November 1995, the Company and Heidelberg agreed (the "November
Agreement") to certain arrangements, whereby the Company was provided with
incremental revenue, certain price increases, and modifications of the
Quickmaster DI royalty billing and payment terms by Heidelberg. The Master
Agreement was also modified by the November Agreement to provide Heidelberg with
a fixed royalty rate on the Quickmaster DI. These arrangements were made as a
result of a schedule change requested by Heidelberg in November 1995, to reduce
the number of PEARL imaging systems being manufactured by the Company each month
for Heidelberg from the amount then being produced.
The production schedule for Quickmaster DI imaging systems was subsequently
increased by Heidelberg in September 1996, requiring the Company to produce
three systems per day (60 per month) commencing in April 1997. In March 1997,
the production schedule was further increased, requiring the Company to
manufacture four systems per day (80 per month) commencing in September 1997. In
March 1997 the Company and Heidelberg also agreed to a fixed royalty rate for
the Direct Imaging systems, subject to Heidelberg maintaining an exclusive
license on the Quickmaster DI.
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In March 1998, the Company and Heidelberg concluded negotiations relating
to production levels and schedules for 1998, which will result in the Company
materially reducing production levels of Direct Imaging systems used in the
Quickmaster DI press for fiscal 1998.
The Company believes the design of the Quickmaster-DI digital press using
the Company's proprietary Direct Imaging technology has been well received by
the market. The Quickmaster DI won the 1995 Intertech New Technology Award and
in February 1996, two Seybold Editor's Awards. In March 1996, the Company also
received the National Association of Printers and Lithographers Award for the
contribution its direct Imaging technologies have made to the printing industry.
Other Business Relationships
In addition to its on-going association with Heidelberg, the Company has
also developed business relationships with:
Adast-Adamov, a Czech Republic company, which uses the Company's Direct
Imaging technology on a larger format (19" x 26") multicolor offset press.
Scitex Corporation Limited, a leading supplier of electronic pre-press
products and systems which, along with KBA-Planeta AG, a major supplier of
medium and large format sheet-fed offset printing presses, established a joint
venture with the Company to develop, produce and market a new digital offset
press. This new press, called the Karat 74, also uses the Company's direct
imaging and related intellectual property (under license from Presstek), and
thermal ablation printing plates.
Nilpeter A/S of Denmark which has begun marketing an offset label press
that utilizes the Company's direct imaging technology and printing plates.
Alcoa Packaging Equipment, a division of the Aluminum Company of America,
which has publicly shown a new method of printing halftone images on beverage
cans that is based on Presstek's direct imaging technology and thermal ablation
printing plates.
Imation Corp. working together with Presstek have jointly developed a new
method for the production of true half-tone "dot for dot" color press proofs
using the Company's computer-to-plate imaging system specially modified for this
unique application.
Fuji Photo Film Ltd., one of the world's leading suppliers to the graphic
communications industry, which together with the Company announced in 1997 the
signing of a long-range Development and Sales Agreement which will involve the
use of the Company's proprietary intellectual property and know how.
- 7 -
The Company is also pursuing other business relationships which it believes
should result in broader use of the Company's direct imaging and plate
technologies in existing as well as new applications. However, there can be no
assurance that the Company, any Company product or any products incorporating
the Company's technology will be able to compete successfully in the market.
The Company has also established a worldwide distribution network through
which it markets, sells and supports its PEARLsetter branded computer-to-plate
and PEARL thermal ablation printing plate products. This network currently
encompasses 36 dealers located worldwide and includes the largest graphic arts
dealer in the United States, the Pitman Company, which sells its products
through multiple branch locations. In addition, Fuji Photo of Canada is the
Company's exclusive dealer for its products in Canada. Along with this worldwide
dealer network the Company has established OEM, private label distribution
arrangements for its computer-to-plate system with Sakurai Graphic Systems
Corporation, and Horsell Graphic Industries Ltd. These OEM relationships allow
these companies to market, sell and support private labeled versions of the
Company's PEARLsetter product line.
The Company's PEARL Direct Imaging System and Its Manufacture
The Company's Direct Imaging system is composed of a series of solid state
semiconductor laser diodes held in a fixed array that can range in size,
depending on the application, from as few as 8 diodes to as many as 32 or more
diodes. Each diode is responsible for imaging a specific area of the printing
plate.
Each diode is under computer control and can be turned off and on at high
speeds, usually measured in microseconds. When the diode is turned on it creates
a miniature, precise, micron measured beam of high powered infrared laser light.
The beam is focused on a specific area on the surface of the thermal printing
plate and causes this area of the plate to instantaneously heat up causing an
ablation effect and creating a microscopic hole. This hole on the surface of the
printing plate is ink receptive. The area surrounding the hole that has not been
exposed to the laser beam is not and thus an image can be created by controlling
the placement of each laser beam.
This laser-based imaging concept is used on both the Company's
computer-to-press and computer-to-plate systems.
These imaging systems are manufactured by the Company in its systems
manufacturing facility located at 9 Commercial Street in Hudson, New Hampshire.
The Company uses a number of outside vendors who supply many of the imaging
system sub-system assemblies. These assemblies along with components
manufactured by the Company are assembled by the Company into completed systems
- - either computer-to-press direct imaging systems such as the Quickmaster DI
systems, or PEARLsetter computer-to-plate imaging systems. Both of these systems
use semiconductor laser diode devices built to the
- 8 -
Company's specifications and currently supplied by one source pursuant to open
purchase orders. The Company believes however, that there will be several
sources available to manufacture the laser diodes to its specifications, if
required in the future.
The Company's PEARL Thermal Ablation Printing Plate and Its Manufacture.
The Company continues to develop its proprietary thermally-based consumable
plate products that are imaged by both its own direct imaging systems as well as
high-energy laser based, direct-to-plate systems offered by companies such as
Gerber, Creo and others.
The Company's PEARL thermal ablation printing plates are available in both
waterless - PEARLdry, (meaning that the press has no dampening system) or
PEARLgold, a wet, or dampening system equipped press plate configurations. Both
of these plates are based on the Company's proprietary ablation imaging
technology. This means that they respond to heat and not to light. The Presstek
plate is able to convert the laser light into heat because of a special
metalized layer that is sensitive to the wave length of the laser light source.
The Company's plate materials have a wide infrared spectral sensitivity range
(800 to 1200 nanometers) and can be used with a variety of both "YAG" and diode
based laser imaging systems.
At Imprinta, an industry trade show held in Dusseldorf, Germany in May
1997, the Company introduced PEARLgold, its newest plate product which is
expected to be in controlled sales by the end of second quarter of 1998.
PEARLgold is a "wet" or dampening system equipped press lithographic offset
printing plate that requires no post imaging cleaning or chemical processing.
The Company believes that this new wet offset plate product has significantly
broader market potential due to the much larger number of wet offset printing
presses installed on a worldwide basis. However, the customer must first adopt
the use of thermally-based computer-to-plate capabilities before being able to
use the Company's PEARLgold plate materials. Although the Company believes it
can compete successfully in this newly developing market there can be no
assurances that it can do so.
The PEARLdry plate, uses a specially formulated silicone material which is
coated over the metalized infrared absorbing layer. The silicone layer is
oleophobic and when the imaging laser causes the ablation process to occur, the
resulting hole created by the laser in the silicone becomes ink receptive.
Presstek's PEARLdry plates are used on the Quickmaster DI, the GTO-DI, the Adast
705 DI, the Nilpeter Cassette Imaging system, the Alcoa can decorating imaging
system and the Kammann CD Imaging system. Other direct-to-plate systems also are
able to image the Company's PEARLdry plate which can then be used on a
conventional waterless press.
- 9 -
The Company currently is having its PEARLdry plates manufactured by Rexam
Custom Coaters ("Rexam") based in North Carolina under an existing manufacturing
agreement.
The Company's PEARLgold is also an ablation based printing plate using a
metalized infrared absorbing material with an additional metalized layer placed
over the infrared absorber. This additional metal layer is a hydrophilic
material and ink will not adhere to it (ink, which is oil based, and water do
not mix) but ink will adhere to those areas of the plate that have been ablated
away by the laser beam thus forming a printable image.
In August 1997, the Graphic Arts Technical Foundation ("GATF") awarded its
1997 GATF Intertech Technology Award, for recently launched innovative
technologies, to the Company for its PEARLgold thermal printing plate. Also, in
September 1997, the Company was awarded Publish Magazine's Impact Award for
PEARLgold.
The Company, realizing that sources for its current and new PEARL
consumable products would have to be found, in February 1996 acquired 90% of the
outstanding Common Stock of Catalina Coatings, Inc., now renamed Delta V
Technologies, Inc. ("Delta V"), an Arizona corporation engaged in the
development, manufacture, and sale of vacuum deposition coating equipment. Delta
V also is in the business of licensing and sub-licensing its patent rights with
respect to a vapor deposition process to coat moving webs of materials at high
speeds. The Company purchased Delta V for $8,400,000, of which $8,200,000
represented the purchase price and $200,000 represented consideration for the
non-competition and confidentiality agreements of two of the principal
shareholders of Delta V who sold their shares to the Company.
Delta V, which operates as a subsidiary of the Company, has developed and
manufactured the equipment the Company believes it requires to manufacture its
PEARL thermal ablation based printing plates at a lower cost than using
currently available conventional coating technology. In 1997 the Company
completed construction of a new 100,000 square foot consumables manufacturing
facility located on a site in Hudson, New Hampshire, four miles from the
Company's existing offices. This building now houses the Company's new thin film
vacuum coating system. Housed in this same building is the other manufacturing
equipment which the Company believes is needed to produce all or part of the
Company's thermal plate consumable products. The Company has already installed
plate converting and finishing equipment in 33,200 square foot of leased space
also located in Hudson, New Hampshire. Once the Company begins the manufacture
of PEARL thermal printing plates, it may still need to enter into manufacturing
agreements with third parties. While the Company's own plate manufacturing
system provided by Delta V, now being installed in the Company's new Hudson
facilities, has the capability to produce all or part of the Company's
proprietary consumable plate materials, there can be no assurance that the
Company will be able to successfully complete the development and installation
of this system and undertake the manufacture of PEARL consumables.
- 10 -
The PEARLsetter Product Line
The PEARLsetter is a computer-to-plate imaging device that can image both
the Company's wet and dry thermal offset plates in both an A3 (2-up) and A2
(4-up) format size. The product can produce completely imaged printing plates,
ready to be mounted on a printing press, within 4 to 8 minutes depending on the
resolution (number of dots per inch) chosen by the user. If the PEARLsetter is
imaging PEARLgold plates, these plates can be mounted immediately on the press
with no further cleaning or processing. In the case of PEARLdry plates, the user
must first wipe the ablated debris from the imaging process off the surface of
the plate.
In addition to making printing plates, a specially modified PEARLsetter
product referred to as the PEARLhdp (halftone dot proofer), which uses proofing
materials supplied by Imation Corp., is also being sold by the Company. This
halftone proofing system offers the user the ability to make proofs which
replicate the dot structure used for imaging plates. Both Imation and the
Company believe this is an important market opportunity and are working jointly
to successfully market this product.
The Company has entered into distribution agreements with 22 graphic arts
dealers to sell, support and service its products in various countries around
the world, including in the United States, the Pitman Company, the world's
largest graphic arts dealer. The Company has also entered into OEM arrangements
or relationships with respect to the PEARLsetter product line and/or its PEARL
based consumable products with companies such as Sakurai Machinery Company and
Horsell Graphic Industries Ltd. These agreements permit the OEM resellers to
sell the PEARL based products under their own label.
The Company continues to develop and commercialize its PEARL based
computer-to-plate and Imation proofing systems. However, there can be no
assurance that the Company will be able to successfully complete or
commercialize these or other products, or enter into any additional arrangements
which will result in the further commercialization of its PEARLsetter based
product line.
Market acceptance for any products incorporating the Company's various
technologies and proprietary know-how will require substantial marketing efforts
and the expenditure of significant sums, either by the Company, and/or its
strategic and OEM partners. There can be no assurance that any existing or new
products will achieve market acceptance or be commercially viable.
Patents and Proprietary Rights
As of March 3, 1998, the Company and its subsidiaries hold sixty-four (64)
U.S. patents, (including two (2) design patents) of which the Company has
elected to maintain forty-seven (47) in force. The Company has also been issued,
including fourteen (14) design patents, nine (9) Canadian patents, ten (10)
European patents registered in the
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following nine countries (Austria, Belgium, France, Germany, Great Britain,
Italy, the Netherlands, Sweden and Switzerland), three (3) Great Britain
patents, three (3) Belgian patents, one (1) French patent, two (2) German
patents, three (3) Japanese patents, and seven (7) Australian patents, and has
received notice of allowance for an additional fifteen (15) patents, nine (9) in
the U.S., two (2) in Australia, one (1) in Canada, and three (3) in Japan. The
Company has applied for and is pursuing its applications for nineteen (19)
additional U.S. patents and eighty-three (83) foreign patents (including six (6)
design patents) consisting of 23 in Japan, 21 in Canada, 16 in Europe, 17 in
Australia, 2 in Italy, 3 under the Patent Cooperative Treaty, and 1 in France.
Included in the totals above are the patents of Delta V and Heath. Delta V has
one (1) U.S. patent issued and three (3) U.S. patents pending. Heath has two (2)
U.S. patents issued. Delta V also has two (2) U.S. and seventeen (17) foreign
applications pending. The Company anticipates that it will apply for additional
patents and for copyrights, as deemed appropriate. There can be no assurance as
to the issuance of any such patents or the breadth or degree of protection which
the Company's patents or copyrights may afford the Company. There is rapid
technological development in the computer and image reproduction industries,
resulting in extensive patent filings and a rapid rate of issuance of new
patents. Although the Company believes that its technology has been
independently developed and that the products it markets and proposes to market
will not infringe on the patents or violate other proprietary rights of others,
it is possible that such infringement of existing or future patents or violation
of proprietary rights may occur. In such event the Company may be required to
modify its design or obtain a license. No assurance can be given that the
Company will be able to do so in a timely manner, upon acceptable terms and
conditions, or at all. The failure to do any of the foregoing could have a
material adverse effect on the Company. Furthermore, there can be no assurance
that the Company will have the financial or other resources necessary to
successfully defend a patent infringement or proprietary rights violation
action. Moreover, the Company may be unable, for financial or other reasons, to
enforce its rights under any of its patents.
The Company intends to rely on proprietary know-how and to employ various
methods to also protect the source codes, concepts, ideas and documentation of
its proprietary software, which methods may include copyrights. However, such
methods may not afford complete protection and there can be no assurance that
others will not independently develop such know-how or obtain access to the
Company's know-how or software codes, concepts, ideas and documentation.
Furthermore, although the Company has and expects to have confidentiality
agreements with its employees and appropriate vendors, there can be no assurance
that such arrangements will adequately protect the Company's trade secrets.
Competition
The Company believes that its imaging, thermal plate and other intellectual
property, its proprietary technologies, its new
- 12 -
thermal plate manufacturing facilities, along with its strategic alliances and
its worldwide distribution network provide the Company with a competitive
advantage. However, the Company is also aware of a number of other companies
that address markets in which Presstek products are used, and therefore could be
viewed as competitive to the Company's proprietary direct imaging, thermal plate
technologies and related capabilities.
In the area of direct imaging and the short-run, on-demand market,
potential competitive companies use electrophotographic technology, sometimes
referred to as xerography, as the basis of their product lines. These companies
include, among others, Canon Inc., Indigo N.V., Xeikon N.V., and Xerox
Corporation. Versions of products manufactured by these companies are being
marketed by Agfa Gevaert N.V., IBM and Scitex Corp. These electrophotographic
imaging systems use either wet or dry toners to create one to four color images
on paper and typically offer resolutions of between 400 and 800 dots per inch.
The Company is aware that most of the major entities in the graphic arts
industry have developed and/or are developing and marketing off-press
computer-to-plate imaging systems. To date, these devices, for the most part,
utilize printing plates that require a post imaging photochemical developing
step and/or other post processing steps such as heat treating. Potential
competitors in this area include, among others, Agfa Gevaert N.V., Creo Products
Inc., Dainippon Screen Mfg, Ltd., Gerber Scientific Inc., Heidelberger
Druckmaschinen AG, Krause GmbH, Scitex Corporation Ltd., and other smaller or
lesser known companies. The Company's PEARLsetter computer-to-plate off-press
plate imaging system is, in the Company's opinion, a further technological
advancement because it eliminates the need for post chemical processing. The
Company believes however, that some of the graphic arts companies mentioned
above are likely to be working on similar plate concepts that would eliminate
the need for post image chemical processing.
The Company also anticipates competition from printing plate manufacturing
companies that either manufacture, or have the potential to manufacture, digital
thermal plates. Such companies include Agfa Gevaert N.V., Kodak Polychrome
Graphics LLC, Fuji Photo Film Co., Ltd., Imation Corp., and others.
Products incorporating the Company's technologies can also be expected to
face competition from conventional methods of printing and creating printing
plates. While these methods are considered by the Company to be more costly,
less efficient and are not as environmentally conscious as those being
implemented by the Company, they do offer their users the ability to continue to
employ their existing means of print and plate production. Companies offering
these more traditional means and methods are also refining these technologies to
make them more acceptable to the market.
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Most of the companies marketing competitive products or with the potential
to do so are well established, have substantially greater financial and other
resources than the Company and have established records in the development, sale
and service of products. There can be no assurance that the Company, any Company
product or any products incorporating the Company's technology will be able to
compete successfully in the future.
Backlog
As of March 8, 1998, the Company and its subsidiaries had a backlog of
products under contract aggregating approximately $39,316,000 (including
royalties paid to the Company) compared to a backlog of $56,297,000 as of March
27, 1997. Substantially all of the backlog of products as of March 8, 1998 is
expected to be shipped in 1998.
Employees
As of March 3, 1998, the Company and its subsidiaries had two hundred
forty-four (244) employees, one hundred six (106) of whom are engaged primarily
in engineering, service and marketing; one hundred two (102) of whom are engaged
primarily in manufacturing, manufacturing engineering and quality control; and
thirty-six (36) of whom are engaged primarily in corporate management,
administration and finance. The Company considers its relationship with its
employees to be good.
Item 2. Properties.
The Company leases approximately 24,000 square feet of space for its
research and development facilities at 8 Commercial Street, Hudson, New
Hampshire. The lease of these premises, which has been extended to December
1998, provides for rent of $10,000 per month, plus a pro rata share of real
estate taxes, utilities and certain other expenses. The Company also leases
approximately 36,000 square feet to accommodate its manufacturing and
administrative facilities at 9 Commercial Street, Hudson, New Hampshire. The
lease, as amended, specifies a base monthly rent of $12,400, adjusted annually,
plus a pro rata share of real estate taxes, utilities, and certain other
expenses. The lease expires on September 30, 2000, subject to an option to renew
for an additional three years and the Company's right of first refusal to
purchase the property.
In 1996, the Company entered into a lease for approximately 33,200 square
feet of space at 18-20 Hampshire Drive, Hudson, New Hampshire to allow for
expansion of its consumables development group and its current plate converting
and finishing equipment. The lease of these premises, which expires in May 1999,
subject to two one-year renewal options, provides for rent at the rate of $9,683
per month, adjusted annually, plus a pro rata share of real estate taxes,
utilities, and certain other expenses.
- 14 -
In June 1996, Delta V acquired a 13 acre parcel of land in Tucson, Arizona.
Construction of a new 70,000 square foot manufacturing facility on this parcel
began in September 1996, and was completed in May 1997. This new building houses
all of Delta V's operations and includes space for future expansion.
In August 1996, the Company purchased a 65 acre site in Hudson, New
Hampshire. The first phase of construction for the Company's future facilities
was completed in December 1997. This first phase includes a 100,000 square foot
manufacturing operation that houses the first Delta V new thin-film, vacuum
coating system designed and developed exclusively for the manufacture of the
Company's PEARL based thermal plates. Located in this same building is the other
manufacturing equipment the Company believes is needed to produce all or part of
the Company's thermal plate consumable products. The Company believes that its
existing facilities will be adequate for its current operations and future
capacity increases.
On February 6, 1998, the Company obtained a ten-year mortgage term loan in
the principal amount of $6,900,000, which is secured by the land and building in
Tucson, Arizona, and a certain parcel of land and building in Hudson, New
Hampshire with an aggregate cost of $17,000,000.
Item 3. Legal Proceedings.
On December 24, 1997, the Company entered into a settlement agreement with
the U.S. Securities and Exchange Commission (the "SEC"). The agreement provides
for the entry of a cease and desist order in which the Company, without
admitting or denying certain violations of the federal securities law, agrees to
abide by federal securities law and regulations in the future. No monetary
penalties were imposed on the Company in this action. The allegations giving
rise to the cease and desist order relate to certain disclosures made by the
Company at various times from 1994 to 1996.
Simultaneously, Robert Howard, Chairman of the Board, and President Robert
Verrando, also entered into settlement agreements with the Commission and,
without admitting or denying allegations relating to public statements made by
the Company, consented to the entry of statutory injunctions prohibiting future
violations of the federal securities laws. Civil penalties were assessed in the
amount of $2,700,000 and $200,000, respectively. These civil penalties are not
obligations of the Company. The investigation by the SEC has concluded with
respect to Presstek and its personnel.
- 15 -
As previously disclosed, seven federal class action lawsuits were filed
against the Company and others, all of which have been consolidated before the
United States District Court, District of New Hampshire, under the common
caption Bill Berke, et al. V. Presstek, Inc., et al. The plaintiffs have jointly
filed and served a Second Consolidated Amended Class Action Complaint naming the
Company, certain of its present or former officers and directors ("the Berke
Officer and Director Defendants"), and other parties as defendants. The
plaintiffs allege, among other things, that the Company and/or the Berke Officer
and Director Defendants violated Section 10(b) ("Sect. 10(b)") of the Securities
Exchange Act of 1934, (the "Exchange Act") and Rule 10b-5 ("Rule 10b-5")
promulgated thereunder, and violated New Hampshire law; and that the Berke
Officer and Director Defendants violated Section 20(a) ("Sect. 20(a)") of the
Exchange Act. The Complaint alleges, among other things, that the Company and/or
the Berke Officer and Director Defendants issued false and misleading reports,
failed to disclose material facts including a misstatement of earnings in the
Company's financial statements for the first quarter ended March 30, 1996,
misstated or failed to fully disclose the Company's supply contracts with,
payments received from, sales made by, backlog of orders received from, and
delays in production by the Company's principal customer, and alleged
circulation of, and failed to correct certain analyst research reports
concerning the Company that contained alleged misrepresentations regarding
allegedly inflated financial projections. Certain of the Berke Officer and
Director Defendants are alleged to have sold the Company's Common Stock at
artificially inflated prices while in possession of material non-public
information concerning the Company. The plaintiffs seek unspecified compensatory
and punitive damages, attorney and expert fees and other costs and expenses
incurred by the plaintiffs in connection with the action.
As previously disclosed, on July 16, 1996, Richard Strauss commenced a
derivative suit on behalf of the Company in the Court of Chancery of the State
of Delaware, New Castle County, against certain officers and directors of the
Company ("the Strauss Officer and Director Defendants"). The plaintiff alleges
that the Strauss Officer and Director Defendants breached their fiduciary duties
to the Company and its public stockholders and wasted corporate assets, by
making allegedly false and misleading statements of fact or concealing material
facts concerning the viability of the Company's "key" patent and its proprietary
interest in its PEARL technology, causing the Company to fail to properly
disclose the scope of an investigation by the SEC, and causing the Company to
misstate its financial results for the first quarter of 1996. The plaintiff also
alleges that certain of the Strauss Officer and Director Defendants sold
securities of the Company at inflated prices while they were in possession of
material non-public information concerning the Company. The plaintiff alleges
that the actions of the Strauss Officer and Director Defendants resulted in
breaches of Sect. 10(b) and Rule 10b-5 which resulted in other lawsuits being
commenced against the Company which will require the Company to expend resources
to defend. The plaintiff seeks to recover, on behalf of the Company, unspecified
damages allegedly sustained by the Company as a result of the
- 16 -
defendants' alleged breaches of fiduciary duty, disgorgement of any profits
derived from their sale of the Company's Common Stock, as well as other relief.
This action had been stayed pending the outcome of the Berke action.
As previously disclosed, on March 14, 1997, James P. Cassidy commenced a
derivative suit on behalf of the Company in the United States District Court for
the District of New Hampshire against certain of the Company's officers and
directors (the "Cassidy Officer and Director Defendants"), and the Company's
independent auditor. The plaintiff alleges that the Cassidy Officer and Director
Defendants breached their fiduciary duty to the Company and its public
stockholders and wasted corporate assets by making false and misleading
statements of fact or concealing material facts concerning the scope and
viability of the Company's "key" patents and its proprietary interest in its
PEARL technology, and causing the Company to issue false and misleading reports
or failure to disclose material facts including a misstatement of earnings in
the Company's financial statements for the year ended December 30, 1995, and for
the first quarter ended March 30, 1996. The plaintiff also alleges that certain
of the Cassidy Officer and Director Defendants sold securities of the Company at
inflated prices while they were in possession of material non-public information
concerning the Company. The plaintiff also alleges that the actions of the
Cassidy Officer and Director Defendants resulted in breaches of Sect. 10(b) and
Rule 10b-5 which resulted in other lawsuits being commenced against the Company
which will require the Company to expend resources to defend, and also
constituted gross negligence and breaches of their contractual obligations to
the Company. The plaintiff seeks to recover on behalf of the Company unspecified
damages allegedly sustained by the Company as a result of the defendants'
actions as alleged, disgorgement of any profits from the sale of the Company's
Common Stock, as well as other relief against the defendants. By agreement of
the parties, this action has been stayed pending the outcome of certain motions
made by the parties in the Berke action.
As previously disclosed, on June 16, 1997, Seena Stevens Silverman
commenced a purported class action in the United States District Court for the
District of New Hampshire against the Company and certain of its present and/or
former officers and directors (the "Silverman Officer and Director Defendants"),
and other parties. The plaintiff purports to bring this action on behalf of a
class of persons who sold put options in the Common Stock of the Company between
November 7, 1995 and June 20, 1996. The complaint alleges, among other things,
that the Company and/or the Silverman Officer and Director Defendants violated
Sect. 10(b) and Rule 10b-5, and violated New Hampshire law; and that the
Silverman Officer and Director defendants violated Sect. 20(a). The plaintiff
alleges that the Defendants defrauded the putative class members by manipulating
the price and supply of the Company's Common Stock, issuing false and misleading
statements regarding the nature of the Company's proprietary PEARL technology,
failing to disclose the true depth and target of an investigation by the SEC,
and making misleading statements regarding the Company's claims to its PEARL
technology and its contract with the Company's principal customer. The
- 17 -
plaintiff also alleges that certain of the Silverman Officer and Director
Defendants sold securities of the Company at inflated prices while they were in
possession of material non-public information concerning the Company. The
plaintiff seeks to recover unspecified compensatory and punitive damages on
behalf of the putative class, as well other relief.
To date, the Company has not been required to file its answers to these
claimants. The Company expects that it will file its answer to the claims this
year.
The Company intends to vigorously defend the foregoing actions. However,
the outcome of any litigation is subject to uncertainty and a successful claim
against the Company in any of such actions could have a material adverse effect
on the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable.
- 18 -
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Company's Common Stock has traded in the over-the-counter market on the
NASDAQ National Market System under the symbol PRST since July 18, 1990, and,
prior thereto, from May 11, 1990, to July 17, 1990, traded on the NASDAQ System.
Prior thereto, from the Company's initial public offering until May 11, 1990,
the principal redemption date of the Warrants, the Company's Units, Common Stock
and Warrants were traded on the NASDAQ System. The following table sets forth,
for the periods indicated, the high and low sales prices of the Company's Common
Stock as reported by NASDAQ and retroactively adjusted for the Company's
two-for-one stock split effected in the form of a 100% stock divided paid in
July 1997.
Fiscal Year Ended
January 3, 1998 High Low
- --------------- ---- ---
First Quarter $ 38 1/4 $ 19 3/4
Second Quarter 47 1/2 22
Third Quarter 54 33 3/4
Fourth Quarter 41 1/2 24
Fiscal Year Ended
December 28, 1996
- -----------------
First Quarter $ 63 5/8 $ 38
Second Quarter 100 20
Third Quarter 37 3/4 22 3/8
Fourth Quarter 47 1/2 34 1/8
On March 19, 1998 there were 1,648 holders of record of the Company's
Common Stock.
Dividend Policy
To date, the Company has not paid any cash dividends on its Common Stock.
The payment of cash dividends, if any, in the future is within the discretion of
the Company's Board of Directors and will depend upon the Company's earnings,
its capital requirements and financial condition and other relevant factors. The
Board of Directors does not intend to declare any cash dividends in the
foreseeable future, but instead intends to retain all earnings, if any, for use
in the Company's business operations.
- 19 -
Issuances of Unregistered Securities
During the quarter ended January 3, 1998 the Company issued to certain
employees options to purchase 105,500 shares of its Common Stock at prices
ranging from $26.50 to $36.50 (or a weighted average price of $31.17) pursuant
to the Company's 1997 Interim Stock Option Plan. The options expire between
October 27, 2003 and December 22, 2003. In addition, on January 2, 1998
five-year options to purchase 2,500 shares of Common Stock at an exercise price
of $25.00 were granted to each of Messrs. John Dreyer, John Evans, Bert
DePamphilis, and Harold Sparks pursuant to the Company's Non-Employee Director
Stock Option Plan. In addition, on October 1, 1997 Mr. Evans was granted
five-year options to purchase 5,000 shares of Common Stock at $39.625 per share
under the Director Plan. The foregoing options were issued pursuant to the
exemption from registration provided by Section 2(3) of the Securities Act of
1933 (the "Act") as issuances not involving a "sale" under the Act.
- 20 -
Item 6. Selected Financial Data.
The following selected financial data of the Company has been derived from
the financial statements of the Company appearing elsewhere herein (except for
the statement of operations data for the years ended December 31, 1994, and
December 31, 1993, and the balance sheet data at December 30, 1995, December 31,
1994, and December 31, 1993 which is not included in such financial statements).
All references to common shares and earnings per share data have been restated
retroactively to reflect the fiscal 1997 and fiscal 1995 two-for-one and the
1994 five-for-four stock splits, effected in the form of stock dividends. The
fiscal 1997 and fiscal 1996 data includes the accounts of Delta V Technologies,
Inc. (formerly Catalina Coatings, Inc.), which was acquired as a subsidiary of
the Company during fiscal 1996. See Note 2 of Notes to Financial Statements. The
Company has adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share" (EPS). The required reporting of basic and diluted EPS has
been retroactively applied. See Note 4 of Notes to Financial Statements.
Fiscal Year Ended
----------------------------------------------------------------------------------------
Statements of JAN 3 DEC 28 DEC 30 DEC 31 DEC 31
Income: 1998 1996 1995 1994 1993
------------- ------------- ------------- ------------- -------------
Revenues $ 91,561,480 $ 48,627,569 $ 27,611,456 $ 16,517,858 $ 11,682,154
------------- ------------- ------------- ------------- -------------
Costs and Expenses:
Costs of products sold 45,678,079 21,825,697 14,923,968 6,944,268 754,700
Engineering and product
development 11,246,113 8,894,420 6,155,421 5,123,439 5,647,562
Sales and Marketing 4,521,936 2,587,490 1,727,301 1,225,756 1,147,926
General and administrative 6,507,508 4,739,951 2,050,075 1,603,729 1,535,289
Nonrecurring charge -- -- -- -- 1,948,878
------------- ------------- ------------- ------------- -------------
Total costs and expense 67,953,636 38,047,558 24,856,765 14,897,192 11,034,355
------------- ------------- ------------- ------------- -------------
Other Income (Expense):
Dividend and interest income 379,255 786,095 327,213 407,977 412,025
Other (155,171) (244,817) (2,276) 166 --
------------- ------------- ------------- ------------- -------------
Other income - net 224,084 541,278 324,937 408,143 412,025
------------- ------------- ------------- ------------- -------------
Income Before Income Taxes 23,831,928 11,121,289 3,079,628 2,028,809 1,059,824
Provision for Income Taxes 9,460,000 4,000,000 220,000 186,600 100,000
------------- ------------- ------------- ------------- -------------
Net Income $ 14,371,928 $ 7,121,289 $ 2,859,628 $ 1,842,209 $ 959,824
============= ============= ============= ============= =============
Basic Earnings Per Share $ .46 $ .24 $ .10 $ .07 $ .04
============= ============= ============= ============= =============
Diluted Earnings Per Share $ .44 $ .21 $ .09 $ .06 $ .03
============= ============= ============= ============= =============
Common Shares Outstanding 31,300,054 29,858,419 29,124,034 28,053,088 26,510,000
============= ============= ============= ============= =============
Common Shares Assuming Dilution 32,695,016 33,162,508 31,710,152 29,730,688 28,445,148
============= ============= ============= ============= =============
- 21 -
As of
----------------------------------------------------------------------------------------
JAN 3 DEC 28 DEC 30 DEC 31 DEC 31
Balance Sheet Data: 1998 1996 1995 1994 1993
------------- ------------- ------------- ------------- -------------
Working Capital $ 32,961,687 $ 29,179,247 $ 16,836,997 $ 7,675,713 $ 9,916,103
Total Assets 100,472,781 68,823,096 26,668,618 18,324,030 13,802,718
Short-Term Debt 4,800,000 -- -- -- --
Long-Term Debt -- -- -- -- --
Stockholders' Equity 85,989,673 57,442,522 22,726,436 16,472,920 12,145,410
Cash Dividends -- -- -- -- --
- 22 -
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Background
Presstek, Inc. (The "Company" or "Presstek"), incorporated in Delaware, was
founded in September 1987 as a development company. It was established to find a
new way to produce color offset printing. Heidelberger Druckmaschinen AG
("Heidelberg"), the world's largest printing press manufacturer, and the Company
established a relationship that was formalized in 1991 and resulted in the
introduction of the first jointly developed product, the spark discharge based
GTO-DI. In 1993, after investing substantial effort and resources, the Company
completed the development of its high resolution, semiconductor based laser
diode imaging and thermal plate technology referred to as PEARL. The Company's
PEARL technology is capable of imaging various types of Presstek printing plates
either off-press or on-press which may then be used to produce high-quality,
full color lithographic printed materials. These printed materials typically can
be produced at a lower cost than traditional competitive methods. The
PEARL-based GTO-DI was introduced in late 1993, and in May of 1995, Heidelberg
introduced the Quickmaster DI 46-4, which replaced the GTO-DI product line. The
Quickmaster DI represents the second generation of Presstek's PEARL-based direct
imaging technology. It also employs the Company's automatic plate changing
cylinder which eliminates the need to manually change plates between jobs, as
well as a number of other productivity improvement features. The Company began
shipment of its PEARL-based Quickmaster direct imaging kits to Heidelberg in the
second quarter of 1995. The Company estimates that as of the end of 1997, there
are more than 700 PEARL-equipped
- 23 -
Heidelberg presses installed utilizing the Company's proprietary consumable
printing plates.
The Company is also engaged in the development of additional PEARL-based
products that incorporate the use of its proprietary technologies and
consumables, including both computer-to-plate and computer-to-press
applications. Some of these additional activities have resulted in an agreement
with the Adast Adamov Company, a manufacturer of sheet fed offset presses. This
agreement has resulted in the availability of the Company's PEARL Direct Imaging
technology on a larger format Omni-Adast (19" x 26") multicolor press, shipments
of which began in December 1996. Also, during the first quarter of 1996, the
Company began shipments of its PEARL platesetter, now referred to as the
PEARLsetter. The PEARLsetter is a computer-to-plate imaging system that images
both the Company's wet and dry offset plates. Another agreement entered into
with Nilpeter A/S of Denmark will result in the utilization of the PEARL
technology on a high-speed rotary label printing press called the OFFSET 3300.
Presstek will supply a special PEARL-based digital imaging system which will
image Presstek's thermal plates directly on the press plate cylinder.
On February 15, 1996, the Company acquired 90% of the outstanding Common
Stock (the "Purchased Shares") of Catalina Coatings, Inc., now known as Delta V
Technologies, Inc. ("Delta V"), an Arizona corporation. Delta V is engaged in
the development, manufacture and sale of vacuum deposition coating equipment and
the licensing and sublicensing of patent rights with respect to a vapor
deposition process to coat moving webs of material at high speeds. The Company
has continued the business of Delta V which operates as a subsidiary of the
Company. The Purchased Shares were acquired from the selling shareholders
pursuant to a Stock Purchase Agreement dated and effective as of January 1,
1996. The aggregate consideration paid by the Company pursuant to the Stock
Purchase Agreement was $8,400,000, of which $8,200,000 represented the purchase
price of the Purchased Shares and $200,000 represented consideration for the
non-competition and confidentiality covenants of the selling shareholders.
The acquisition was accounted for as a purchase and, accordingly, the
results of Delta V's operations have been included in the Company's fiscal 1997
and 1996 financial statements. Significant intercompany accounts and
transactions have been eliminated.
On June 19, 1995, the Company's Board of Directors determined to change its
fiscal year from a calendar year ending December 31 to a fiscal year ending on
the Saturday closest to December 31. Accordingly, the 1997 fiscal year ended on
January 3, 1998 ("fiscal 1997"), and the fiscal years 1996 and 1995 ended on
December 28, 1996 ("fiscal 1996"), and December 30, 1995 ("fiscal 1995"),
respectively.
On January 5, 1998, the Company acquired the stock of Heath Custom Press,
Inc. ("Heath"), of Seattle, Washington. Heath is
- 24 -
engaged in the design and manufacture of custom printing presses. Heath was
purchased for 94,865 unregistered shares of the Company's Common Stock.
The acquisition will be accounted for as a purchase and, accordingly, the
results of Heath's operations will be included in the Company's financial
statements for the year ended January 2, 1999. The results of Heath's operations
would not have had a material impact on the Company's results of operations for
fiscal 1997.
Results of Operations
Revenues for the fiscal years ended January 3, 1998, December 28, 1996, and
December 30, 1995, of $91,561,000, $48,628,000 and $27,611,000, respectively,
consisted of product sales, royalties, fees and other reimbursements.
Total revenues for the fiscal year ended January 3, 1998, increased
$42,933,000 or 88% compared to the fiscal year ended December 28, 1996 as a
result of the following:
Product sales for fiscal 1997 increased $39,288,000, or 117%, over fiscal
1996, primarily as a result of volume increases in sales by the Company of
Direct Imaging systems used in the Quickmaster DI, as well as volume increases
in sales of the Company's thermal consumable printing plates.
Royalties and fees from licensees increased $3,646,000 in fiscal 1997 over
fiscal 1996, primarily as a result of royalty increases of $10,907,000, offset
by a decrease of $7,261,000 in engineering and other fees primarily received
from Heidelberg. Included in fiscal 1997 were certain fees related to the
Company's agreement to license its on-press imaging patents to Scitex
Corporation Ltd.
Total revenues for the fiscal year ended December 28, 1996 increased
$21,017,000, or 76%, compared to the fiscal year ended December 30, 1995.
Product sales for fiscal 1996 increased $13,540,000 over fiscal 1995, primarily
as a result of volume increases in sales by the Company of products to be used
in the Quickmaster DI 46-4, as well as sales of the PEARLsetter, consumable
printing plates and spare parts.
Royalties and fees from licensees increased $7,475,000 in fiscal 1996 over
fiscal 1995, primarily as a result of increases in royalties of $946,000, of
which $802,000 was earned on product sales to Heidelberg, and increases of
$6,529,000 in other revenues which were based primarily on amounts agreed upon
between the Company and Heidelberg.
Other fees from licensees are based primarily on amounts annually agreed
upon between the Company and Heidelberg. No significant fees were received in
fiscal 1997, and there can be no assurance that the Company will receive any
significant fees from Heidelberg for fiscal 1998.
Revenues generated under the Company's agreements with Heidelberg and from
Heidelberg distributors represented 81% and 73% of total revenues for the fiscal
years ended January 3, 1998 and
- 25 -
December 28, 1996, respectively. Substantially all revenues in fiscal 1995 were
generated under these Heidelberg agreements.
Heidelberg has indicated to the Company that the substantial backlog that
existed for its Quickmaster DI, which uses the Company's Direct Imaging
technology, has now been reduced to normal levels. In March 1998, the Company
and Heidelberg concluded negotiations relating to production levels and
schedules for the year ending January 2, 1999 ("fiscal 1998"), which will result
in the Company materially reducing production levels of Direct Imaging systems
used in the Quickmaster DI press for fiscal 1998.
The Company's Heidelberg based revenues for 1998 will be materially reduced
to an amount currently estimated by the Company at $29,000,000, due to the
production decrease of Quickmaster DIs. However, the Company expects to ship
higher volumes of its other Direct Imaging products and its proprietary thermal
plates in fiscal 1998 as compared to fiscal 1997. Although this may reduce the
impact on the Company of the 1998 Heidelberg production plan, the Company
expects to achieve only slight revenue growth in fiscal 1998 compared to fiscal
1997. The Company also anticipates that start up costs associated with its new
plate manufacturing facility will result in a decline in gross margin on product
sales, and earnings, in fiscal 1998 as compared to fiscal 1997.
Cost of Products Sold
Costs of products sold for the fiscal years ended January 3, 1998, December
28, 1996, and December 30, 1995, of approximately $45,678,000, $21,826,000, and
$14,924,000, respectively, consisted of the costs of the material, labor, and
overhead associated with product sales, as well as future warranty costs. The
increases in such costs comparing the fiscal year 1997 with fiscal 1996 related
primarily to corresponding volume increases in product sales. The improvement in
the gross margin on product sales to 37% for the fiscal year 1997 from 35% in
fiscal 1996, and 25% in fiscal 1995 resulted primarily from a change in product
mix and certain volume related manufacturing efficiencies.
Engineering and Product Development
Engineering and product development expenses for the fiscal year ended
January 3, 1998, totaled $11,246,000 compared to $8,894,000 for the fiscal year
ended December 28, 1996. The increases of $2,352,000, or 26%, for the fiscal
year ended January 3, 1998 resulted principally from increased expenditures for
parts, supplies, labor, and contracted services related to the Company's PEARL
technology, including the Company's PEARLgold(TM) plates, as well as other
product development efforts.
Engineering and product development expenses were $8,894,000 for the fiscal
year ended December 28, 1996, as compared to $6,155,000 for the fiscal year
ended December 30, 1995. The increase in such expenses of $2,739,000, or 45%,
resulted principally from increased expenditures for parts, supplies, and
- 26 -
labor related to the Company's continued development of products incorporating
its PEARL technology, as well as other product development efforts including the
Company's PEARLwet(TM) and PEARLdry(TM) plates.
Sales and Marketing
Sales and marketing expenses for the fiscal year ended January 3, 1998,
totaled $4,522,000 compared to $2,587,000 for the fiscal year ended December 28,
1996. The increase of $1,935,000, or 75%, related principally to increased
expenditures for additional personnel and related costs, as well as various
promotional activities.
Sales and marketing expenses increased $860,000, or 50%, comparing fiscal
1996 with fiscal 1995. This increase related principally to increased
expenditures for additional personnel and related costs as well as various
promotional activities.
General and Administrative
General and administrative expenses for the fiscal year ended January 3,
1998, totaled $6,508,000, compared to $4,740,000 for the fiscal year ended
December 28, 1996, an increase of $1,768,000, or 37%. The increase related
primarily to increased expenditures for additional personnel and other related
costs.
General and administration expenses increased $2,690,000, or 131%,
comparing fiscal 1996 to fiscal 1995. The increase related to the addition in
fiscal 1996 of Delta V's general and administrative expenses in addition to the
amortization of goodwill and other assets acquired in the acquisition of Delta V
of $416,000 and to increases in legal fees incurred in connection with certain
legal proceedings, regulatory, and other matters of $1,055,000 and expenditures
for salaries and other costs required to conduct various general and
administrative functions of the Company.
Other Income and Expense
Dividend and interest income earned on the Company's cash and investments
decreased $407,000 for the fiscal year ended January 3, 1998, compared to the
same period in fiscal 1996, principally as a result of the decreased funds
invested in securities.
Dividend and interest income earned on the Company's cash and investments
increased $459,000 for the fiscal year ended December 28, 1996, compared to the
fiscal year ended December 30, 1995, principally as a result of the increased
funds invested in securities.
Income Taxes
The provision for income taxes for the fiscal years ended January 3, 1998
and December 28, 1996 represents substantially the
- 27 -
charge in lieu of income taxes arising during the periods relating to the tax
benefit of stock option deductions. The tax benefit related to such stock
options has been credited to stockholders' equity.
The provision for income taxes for the fiscal year ended December 30, 1995,
represents substantially charges in lieu of state income taxes arising during
the period relating to the tax benefit of stock option deductions. No charges
for federal income taxes were recorded for 1995 due to the availability of
federal net operating loss carryforwards for accounting purposes.
Net Income
As a result of the foregoing, the Company had net income of $14,372,000 for
the fiscal year ended January 3, 1998, compared to net income of $7,121,000 and
$2,860,000 for the fiscal years ended December 28, 1996 and December 30, 1995,
respectively. The operations of Delta V did not have a material effect on net
income for the fiscal years ended January 3, 1998 and December 28, 1996.
Liquidity and Capital Resources
At January 3, 1998, the Company had working capital of $32,962,000, an
increase of $3,783,000 as compared to working capital of $29,179,000 at December
28, 1996. This increase was primarily attributed to the Company's net income
from operations of $14,372,000, the tax benefit arising from stock option
deductions of $9,269,000, depreciation and amortization of $3,123,000, and the
proceeds from the issuances of Common Stock of $4,865,000, offset by additions
to property, plant and equipment of $27,918,000.
Net cash provided by operating activities of $14,342,000 for the fiscal
year ended January 3, 1998, resulted primarily from net income from operations
of $14,372,000, plus noncash items totaling $14,560,000 ($9,269,000 of which
relates to the tax benefit arising from stock option deductions) offset by
increases in inventory and accounts receivable of $2,669,000 and $10,169,000,
respectively.
Net cash used for investing activities of $22,336,000 for the fiscal year
ended January 3, 1998, resulted primarily from additions to property, plant and
equipment used in the Company's business of $27,918,000, offset by the proceeds
from the sales of marketable securities of $5,494,000.
The Company has completed the construction of a 70,000 square foot facility
in Tucson, Arizona for Delta V, and a 100,000 square foot manufacturing facility
in Hudson, New Hampshire to accommodate the Company's new plate manufacturing
operations. Through January 3, 1998, the Company had expenditures of
approximately $18,416,000 for land, land improvements, and construction of the
two new facilities. Approximately $12,114,000 of this total was incurred during
fiscal 1997. The Company had also entered into
- 28 -
three Purchase and Sale Agreements in fiscal 1997 for the sale of certain
parcels of land located in Hudson. The land is part of the 65-acre parcel which
was purchased in 1996, and has subsequently been subdivided. As of January 3,
1998, two of those parcels have been sold for approximately $536,000. The sale
of the third parcel occurred in March 1998, for approximately $487,000.
The Hudson facility accommodates the new thin-film, vacuum coating
equipment built for the Company by Delta V. Also located in this facility is the
plate finishing and packaging equipment the Company believes is required to
manufacture the Company's thermal plate consumable products. Through January 3,
1998, the Company had expenditures of $19,197,000 for new plate manufacturing,
finishing, and packaging equipment. Approximately $11,388,000 of this total was
incurred during fiscal 1997. As of January 3, 1998, the Company had outstanding
commitments with respect to the Hudson facility, and the plate manufacturing,
finishing, and packaging equipment of approximately $750,000.
Net cash provided by financing activities for the fiscal year ended January
3, 1998, totaled $9,665,000 and consisted of net borrowings under the Company's
line of credit of $4,800,000 and the sale of Common Stock incident to the
exercise of various stock options of $4,865,000.
On July 29, 1997, the Company renewed its agreement with Citizens Bank New
Hampshire ("Citizens") for a revolving line of credit loan under which the
Company may borrow a maximum of $10,000,000 for working capital requirements and
general corporate purposes. As of January 3, 1998, the Company had $4,800,000
outstanding and $5,200,000 available under the line of credit. The Company was
in compliance with all debt covenants at January 3, 1998.
On February 6, 1998, the Company obtained a ten-year mortgage term loan in
the principal amount of $6,900,000 from Citizens. Borrowings are secured by land
and buildings with a cost of approximately $17,000,000. The loan bears a fixed
rate of interest of 7.12% per year during the first five years, and a variable
rate of interest at the LIBOR rate plus 2% (7.72% at January 3, 1998) for the
remaining five years. Principal and interest payments during the first five
years of the loan will be made in 60 monthly installments of $80,500. During the
remaining five years, principal and interest payments shall be made on a monthly
basis in the amount of one-sixtieth of the outstanding principal amount as of
the first day of each month of the second five year period, plus accrued
interest through the monthly payment date. All outstanding principal and accrued
and unpaid interest is due and payable on February 6, 2008.
The Company believes that existing funds, cash flows from operations, and
cash available under its revolving line of credit and mortgage loan should be
sufficient to satisfy working capital requirements and capital expenditures in
the foreseeable future.
- 29 -
Effect of Inflation
Inflation has not had, and is not expected to have, a material impact upon
the Company's operations.
Net Operating Loss Carryforwards
As of January 3, 1998, the Company had net operating loss carryforwards
totaling approximately $27,400,000 resulting from compensation deductions, for
tax purposes, relative to stock option plans. To the extent net operating losses
resulting from stock option plan compensation deductions become realizable, the
benefit will be credited directly to additional paid in capital. The amount of
the net operating loss carryforwards which may be utilized in any future period
may be subject to certain limitations, based upon changes in the ownership of
the Company's Common Stock.
Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board ("FASB") issued two
new disclosure standards, SFAS No. 130, "Reporting Comprehensive Income," and
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information".
SFAS No. 130 establishes standards for reporting and display of
comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. This standard is effective
for the Company's financial statements commencing in the fiscal quarter ending
April 4, 1998.
SFAS No. 131 supersedes SFAS No. 14, "Financial Reporting for Segments of a
Business Enterprise," and establishes standards for the way that public
enterprises report information about operating segments in financial statements
issued to the public. It also establishes standards for disclosures regarding
products and services, geographic areas and major customers. This standard is
effective for the Company's financial statements issued for the fiscal year
ending January 2, 1999.
Both of these standards require comparative information to be restated.
Results of operations and financial position will be unaffected by
implementation of these new standards. Management has not yet completed its
evaluation of the impact of these new standards on future financial statement
disclosures.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits" (SFAS 132), which revises
employers' disclosures about pension and other postretirement benefit plans.
SFAS 132 is effective for financial statements for periods beginning after
December 15, 1997, and requires comparative information for earlier years to be
restated. This standard currently does not apply to the Company.
- 30 -
YEAR 2000
The software application currently used by the Company for operational and
financial management is Year 2000 compliant. All other software products in use,
both internally and in products manufactured for sale, are being evaluated to
ensure their ability to perform properly after the date change in 1999. The
Company does not expect the cost of compliance for these other products to
materially affect the results of future operations.
Item 8. Financial Statements and Supplementary Data.
SELECTED QUARTERLY FINANCIAL DATA (unaudited)
(in thousands except per share data)
QUARTER ENDED MAR 29 JUN 28 SEP 27 JAN 3
1997 1997 1997 1998
------- ------- ------- -------
Total revenues $20,008 $20,896 $24,294 $26,363
Total costs & expenses 14,884 15,294 18,010 19,766
Net income 2,902 3,210 4,064 4,196
Basic earnings per share $ .09 $ .10 $ .12 $ .13
Diluted earnings per share $ .09 $ .10 $ .12 $ .13
Common shares outstanding 30,804 31,920 32,661 31,810
Common shares assuming dilution 32,992 33,163 33,472 32,918
QUARTER ENDED MAR 30 JUN 29 SEP 28 DEC 28
1996 1996 1996 1996
------- ------- ------- -------
Total revenues $11,005 $11,880 $12,366 $13,377
Total costs & expenses 9,141 9,070 9,680 10,157
Net income 1,289 1,647 1,831 2,354
Basic earnings per share $ .04 $ .05 $ .06 $ .08
Diluted earnings per share $ .04 $ .05 $ .06 $ .07
Common shares outstanding 29,944 30,536 30,590 30,690
Common shares assuming dilution 33,002 33,411 32,918 33,134
The audited financial statements appear in a separate section of this report
following Part IV.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable
- 31 -
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information required by this item will be set forth under the caption
"Election of Directors" and "Executive Officers" in the Proxy Statement for the
Annual Meeting of Stockholders to be held on May 28, 1998 (the "Proxy
Statement"), and is incorporated herein by reference.
Item 11. Executive Compensation.
The information required by this item will be set forth under the caption
"Executive Compensation" in the Proxy Statement and is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this item will be set forth under the caption
"Voting Security Ownership of Certain Beneficial Owners and Management" in the
Proxy Statement, and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
The information required by this item will be set forth under the caption
"Certain Relationships and Related Transactions" in the Proxy Statement, and is
incorporated herein by reference.
- 32 -
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a)(1) Financial Statements Page
Report of Independent Certified Public Accountants F-2
Balance Sheets as of January 3, 1998, and
December 28, 1996 F-3
Statements of Income for the fiscal years
ended January 3, 1998, December 28, 1996,
and December 30, 1995 F-4
Statements of Changes in Stockholders'
Equity for the fiscal years ended F-5
January 3, 1998, December 28, 1996, and and
December 30, 1995 F-6
Statements of Cash Flows for the fiscal
years ended January 3, 1998, December 28, 1996,
and December 30, 1995 F-7
Notes to Financial Statements F-8
(a)(2) Financial Statement Schedules
Schedule II-Valuation and Qualifying Accounts
and Reserves. FS-1
All other schedules are omitted because they are not
applicable or the required information is shown in the
financial statements or notes thereto.
(a)(3) Exhibits
Exhibit
Number Description
-----------
2(a) Stock Purchase Agreement dated and effective as of January 1,
1996, among the Company and David G. Shaw, Marc G. Langlois
and David G. Shaw and Lynn R. Shaw, as Trustees of the David
and Lynn Shaw Charitable Remainder Unitrust, dated February
12, 1996, and John E. Madocks and Catalina. **
2(b) Put and Call Option Agreement by and among the Company, David G. Shaw,
Marc G. Langlois and John E. Madocks. **
- 33 -
2(c) Confidentiality and Non-Competition Agreement by and among the Company,
David G. Shaw and Catalina. **
2(d) Confidentiality and Non-Competition Agreement by and among the Company,
Marc G. Langlois and Catalina. **
2(e) Confidentiality and Non-Competition Agreement by and among the Company,
John E. Madocks and Catalina. **
2(f) Special Option Agreement, among the Company, Catalina, David G. Shaw,
Marc G. Langlois and John E. Madocks. **
3(a) Amended and Restated Certificate of Incorporation of the Company, as
amended, incorporated by reference to Exhibit 3 to the Company's
Quarterly Report on Form 10-Q for the Quarter ended June 29, 1996.
3(b) By-laws of the Company.***
10(a) Employment Agreement dated August 23, 1988, by and between the Company
and Richard Williams, incorporated by reference to Exhibit 10(b) of
Registration Statement 33-27112, effective March 28, 1989.
10(b) 1988 Stock Option Plan, incorporated by reference to Exhibit 10(c) of
Registration Statement 33-27112, effective March 28, 1989.
10(c) 1988 Restricted Stock Purchase Plan, incorporated by reference to
Exhibit 10(d) of Registration Statement 33-27112, effective March 28,
1989.
10(d) Confidentiality Agreement between the Company and Heidelberger
Druckmaschinen A.G., effective December 7, 1989 as amended,
incorporated by reference to Exhibit 10(i) of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1989.
10(e) Development and Supply Agreement dated July 23, 1991, by and between
the Company and Inx Incorporated, incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the Quarter Ended June 30,
1991.
10(f) Master Agreement effective January 1, 1991, by and between Heidelberger
Druckmaschinen Aktiengesellschaft and the Company, incorporated by
reference to the Company's Form 8-K, dated January 1, 1991.
10(g) Technology License effective January 1, 1991, by and between
Heidelberger Druckmaschinen Aktiengesellschaft and the Company,
incorporated by reference to exhibit filed with the Company's Form
8-K, dated January 1, 1991.
- 34 -
10(h) Memorandum of Performance No. 3 dated April 27, 1993, to the Master
Agreement, Technology License, and Supply Agreement between the Company
and Heidelberger Druckmaschinen Aktiengesellschaft, incorporated by
reference to the Company's Quarterly Report on Form 10-Q for the
Quarter Ended June 30, 1993.
10(i) Modification to Memorandum of Performance No. 3 dated April 27, 1993,
to the Master Agreement, Technology License, and Supply Agreement
between the Company and Heidelberger Druckmaschinen
Aktiengesellschaft.+
10(j) Memorandum of Understanding No. 4 dated November 9, 1995, to the Master
Agreement and Technology License and Supply Agreement between the
Company and Heidelberger Druckmaschinen Aktiengesellschaft.***(I)
10(k) Lease relating to real property located at 8 Commercial Street, Hudson,
New Hampshire.+++
10(l) Lease relating to real property located at 9 Commercial Street, Hudson,
New Hampshire.+++
10(m) Lease relating to real property located at 18-20 Hampshire Drive,
Hudson, New Hampshire.+++
10(n) Development and Supply Agreement dated November 13, 1991, by and
between the Company and Gans Ink & Supply Co., Inc.*
10(o) Amendment to Employment Agreement between the Company and Richard
Williams.+++
10(p) 1991 Stock Option Plan.*
10(q) 1994 Stock Option Plan.+
10(r) Non Employee Director Stock Option Plan.+
10(s) 1997 Interim Stock Option Plan.++
10(t) Memorandum of Understanding No. 5 dated March 7, 1997 between the
Company and Heidelberger Druckmaschinen Aktiengesellschaft. +++(I)
10(u) Loan agreement between the Company and Citizens Bank, New
Hampshire.+++
10(v) Revolving Line of Credit Promissory Note in favor of Citizens Bank, New
Hampshire.
11 Calculations of earnings per Share.
21 Subsidiaries of the Company.
- 35 -
23(a) Consent of BDO Seidman LLP.
27 Financial Data Schedule (for SEC use only)
(b) During the quarter ended January 3, 1998, the Company filed, under Item
5, a report on Form 8-K for the event dated December 22, 1997 to report
the settlement of its actions with the SEC and certain matters
pertaining to order rates for the Company's Direct Imaging systems and
the Quickmaster DI.
(c) See Item 14(a)(3) above.
(d) See Item 14(a)(2) above.
- --------------------------------------
* Previously filed as an exhibit to the Company's Annual report on Form 10-K
for the fiscal year ended December 31, 1991 and incorporated by reference
thereto.
** Previously filed as an exhibit to the Company's Form 8-K for the event
dated February 15, 1996 and incorporated by reference thereto.
*** Previously filed as an exhibit with the Company's Form 10-K for the fiscal
year ended December 30, 1995 and incorporated by reference thereto.
(I) The SEC has granted the Company's request of confidential treatment with
respect to a portion of this exhibit.
+ Previously filed as an exhibit to the Company's Annual report on Form 10-K
for the fiscal year ended December 31, 1994 and incorporated by reference
thereto.
++ Incorporated by reference to the exhibit filed with the Company's Quarterly
report on Form 10-Q for the quarter ended September 27, 1997.
+++ Previously filed as an exhibit filed with the Company's Annual Report on
Form 10-K for the fiscal year ended December 28, 1996 and incorporated by
reference thereto.
- 36 -
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Certified Public Accountants F-2
Balance Sheets as of January 3, 1998 and
December 28, 1996 F-3
Statements of Income for the fiscal years ended
January 3, 1998, December 28, 1996, and
December 30, 1995 F-4
Statements of Changes in Stockholders' Equity F-5
for the fiscal years ended January 3, 1998, and
December 28, 1996, and December 30, 1995 F-6
Statements of Cash Flows for the fiscal years ended
January 3, 1998, December 28, 1996, and
December 30, 1995 F-7
Notes to Financial Statements F-8
Financial Statement Schedule:
Schedule II - Valuation and qualifying accounts
and reserves FS-1
F-1
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Presstek, Inc.
Hudson, New Hampshire
We have audited the accompanying balance sheets of Presstek, Inc. as of January
3, 1998 and December 28, 1996, and the related statements of income, changes in
stockholders' equity, and cash flows for the fiscal years ended January 3, 1998,
December 28, 1996, and December 30, 1995. We have also audited the financial
statement schedule listed in the accompanying index. These financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedule are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
schedule. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the financial statements and schedule. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Presstek, Inc. at January 3,
1998 and December 28, 1996, and the results of its operations and its cash flows
for the fiscal years ended January 3, 1998, December 28, 1996, and December 30,
1995, in conformity with generally accepted accounting principles.
Also, in our opinion, the schedule presents fairly, in all material respects,
the information set forth therein.
/s/ BDO SEIDMAN, LLP
BDO SEIDMAN, LLP
New York, New York
February 20, 1998
F-2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
PRESSTEK, INC.
BALANCE SHEETS
January 3, December 28,
1998 1996
------------- -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,201,071 $ 3,530,866
Marketable securities 1,008,171 6,602,854
Accounts receivable, net of allowance
for doubtful accounts of $373,000 in
fiscal 1997 and $184,000 in fiscal 1996 26,400,561 17,306,020
Inventories 13,308,504 10,639,657
Costs and estimated earnings in excess
of billings on uncompleted contracts 1,095,579 1,625,137
Other current assets 430,909 855,287
------------- -------------
Total current assets 47,444,795 40,559,821
------------- -------------
PROPERTY, PLANT AND EQUIPMENT:
Land 2,180,431 2,426,827
Buildings 15,610,147 3,873,157
Machinery and equipment 29,962,939 14,026,575
Furniture and fixtures 995,639 681,648
Leasehold improvements 2,572,118 2,905,181
Other 34,498 34,498
------------- -------------
Total 51,355,772 23,947,886
Less accumulated depreciation
and amortization (6,392,430) (4,230,674)
------------- -------------
Property, plant and equipment, net 44,963,342 19,717,212
------------- -------------
OTHER ASSETS:
Goodwill, net 5,819,999 6,144,819
Patent application costs and license rights, net 1,931,651 1,704,406
Software development costs, net 303,923 546,838
Other 9,071 150,000
------------- -------------
Total other assets 8,064,644 8,546,063
------------- -------------
TOTAL $ 100,472,781 $ 68,823,096
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable $ 4,800,000 $ --
Accounts payable 7,530,187 8,536,662
Accrued expenses 1,280,070 802,692
Accrued salaries and employee benefits 872,851 686,090
Billings in excess of costs and estimated
earnings on uncompleted contracts -- 1,355,130
------------- -------------
Total current liabilities 14,483,108 11,380,574
------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; authorized
1,000,000 shares; no shares issued or
outstanding -- --
Common Stock, $.01 par value; authorized
75,000,000 shares; issued and outstanding
31,866,554 shares at January 3, 1998; 318,666 153,923
15,392,276 shares at December 28, 1996
Additional paid-in capital 63,156,909 49,188,118
Unrealized loss on marketable securities, net (1,222) (42,911)
Retained earnings 22,515,320 8,143,392
------------- -------------
Stockholders' equity 85,989,673 57,442,522
------------- -------------
TOTAL $ 100,472,781 $ 68,823,096
============= =============
See notes to financial statements
F-3
PRESSTEK, INC.
STATEMENTS OF INCOME
For the Fiscal Years Ended
January 3, December 28, December 30,
1998 1996 1995
------------ ------------ ------------
REVENUES:
Product sales $ 72,857,736 $ 33,569,400 $ 20,028,548
Royalties and fees from licensees 18,703,744 15,058,169 7,582,908
------------ ------------ ------------
Total revenues 91,561,480 48,627,569 27,611,456
------------ ------------ ------------
COSTS AND EXPENSES:
Cost of products sold 45,678,079 21,825,697 14,923,968
Engineering and product development 11,246,113 8,894,420 6,155,421
Sales and marketing 4,521,936 2,587,490 1,727,301
General and administrative 6,507,508 4,739,951 2,050,075
------------ ------------ ------------
Total costs and expenses 67,953,636 38,047,558 24,856,765
------------ ------------ ------------
INCOME FROM OPERATIONS: 23,607,844 10,580,011 2,754,691
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Dividend and interest 379,255 786,095 327,213
Other, net (155,171) (244,817) (2,276)
------------ ------------ ------------
Total other income - net 224,084 541,278 324,937
------------ ------------ ------------
INCOME BEFORE INCOME TAXES 23,831,928 11,121,289 3,079,628
PROVISION FOR INCOME TAXES 9,460,000 4,000,000 220,000
------------ ------------ ------------
NET INCOME $ 14,371,928 $ 7,121,289 $ 2,859,628
============ ============ ============
BASIC EARNINGS PER SHARE $ .46 $ .24 $ .10
============ ============ ============
DILUTED EARNINGS PER SHARE $ .44 $ .21 $ .09
============ ============ ============
COMMON SHARES OUTSTANDING 31,300,054 29,858,419 29,124,034
============ ============ ============
COMMON SHARES ASSUMING DILUTION 32,695,016 33,162,508 31,710,152
============ ============ ============
See notes to financial statements
F-4
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Fiscal Years Ended
January 3, 1998, December 28, 1996, and December 30, 1995
Unrealized
Loss On
Common Stock Additional Investments Retained
-------------------- Paid-in Available Earning Stockholders'
Shares Amount Capital for Sale (Deficit) Equity
--------- -------- ----------- --------- ----------- -----------
BALANCE AT DECEMBER 31, 1994 7,194,020 $ 71,940 $18,437,839 $(199,334) $(1,837,525) $16,472,920
Issuance of Common Stock relative to the
exercise of incentive and non-qualified
stock options at $2.00 - $9.60 per share 272,808 2,728 2,911,002 2,913,730
Issuance of Common Stock relative to the
exercise of underwriters' warrants and
unit warrants for cash at $4.60 and $5.00
per share, respectively 22,500 225 107,775 108,000
Two-for-one stock split effected in
the form of a 100% stock dividend 7,275,972 72,760 (72,760) --
State tax benefit arising
from stock option deductions 176,000 176,000
Unrealized gain on marketable
securities, net 196,158 196,158
Net income for the fiscal year 2,859,628 2,859,628
--------- -------- ----------- --------- ----------- -----------
BALANCE AT DECEMBER 30, 1995 14,765,300 $147,653 $21,559,856 $ (3,176) $ 1,022,103 $22,726,436
Issuance of Common Stock relative to the
exercise of incentive and non-qualified
stock options at $2.15 - $26.375 per share 344,130 3,442 3,579,832 3,583,274
Issuance of Common Stock relative
to the private placements at $73.00 per share 282,846 2,828 20,205,930 20,208,758
Costs relative to the private placement (33,500) (33,500)
Tax benefit arising from stock option deductions 3,876,000 3,876,000
Unrealized loss on marketable securities, net (39,735) (39,735)
Net income for the fiscal year 7,121,289 7,121,289
--------- -------- ----------- --------- ----------- -----------
BALANCE AT DECEMBER 28, 1996 15,392,276 $153,923 $49,188,118 $ (42,911) $ 8,143,392 $57,442,522
F-5
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Fiscal Years Ended
January 3, 1998, December 28, 1996, and December 30, 1995
Unrealized
Loss On
Common Stock Additional Investments Retained
--------------------- Paid-in Available Earning Stockholders'
Shares Amount Capital for Sale (Deficit) Equity
---------- -------- ------------ --------- ----------- -----------
BALANCE BROUGHT FORWARD
AT DECEMBER 28, 1996 15,392,276 $153,923 $ 49,188,118 $(42,911) $ 8,143,392 $57,442,522
Issuance of Common Stock relative
to the exercise of incentive and
non-qualified stock options at
$2.85 - $35.00 per share 924,416 9,244 4,855,290 4,864,534
Two-for-one stock split effected in the
form of a 100% stock dividend 15,549,862 155,499 (155,499) --
Tax benefit arising from stock option deductions 9,269,000 9,269,000
Unrealized gain on marketable securities, net 41,689 41,689
Net income for the fiscal year 14,371,928 14,371,928
---------- -------- ------------ --------- ----------- -----------
BALANCE AT JANUARY 3, 1998 31,866,554 $318,666 $ 63,156,909 $( 1,222) $22,515,320 $85,989,673
========== ======== ============ ========= =========== ===========
See notes to financial statements
F-6
PRESSTEK, INC.
STATEMENTS OF CASH FLOWS
For the Fiscal Years Ended
January 3, December 28, December 30,
1998 1996 1995
------------ ------------ ------------
CASH FLOWS - OPERATING ACTIVITIES:
Net income $ 14,371,928 $ 7,121,289 $ 2,859,628
Adjustments to reconcile net income
to net cash provided by (used for)
operating activities:
Tax benefit arising from stock
option deductions 9,269,000 3,876,000 176,000
Depreciation 2,213,978 1,253,812 819,507
Amortization 909,432 785,007 178,529
Provision for warranty and other costs 1,164,053 615,717 858,740
Provision for losses on accounts receivable 1,074,150 112,518 57,502
Other, net (70,833) 107,211 2,276
(Increase) decrease in:
Accounts receivable (10,168,691) (9,469,737) (3,759,012)
Inventory (2,668,847) (5,036,014) (3,165,578)
Costs and estimated earnings in excess of
billings on uncompleted contracts 529,558 (605,556) --
Other current assets 424,378 (475,203) 406,561
Increase (decrease) in:
Accounts payable and accrued expense (1,538,192) 5,109,014 1,222,816
Accrued salaries and employee benefits 186,761 168,989 109,516
Billings in excess of costs and estimated
earnings on uncompleted contracts (1,355,130) 667,805 --
------------ ------------ ------------
Net cash provided by (used for)
operating activities 14,341,545 4,230,852 (233,515)
------------ ------------ ------------
CASH FLOWS - INVESTING ACTIVITIES:
Investment in subsidiary, net of cash acquired -- (7,456,020) --
Purchases of property, plant and equipment (27,917,783) (16,389,751) (2,387,379)
Proceeds from sale of land and equipment 537,648 66,400 76,300
Increase in other assets (449,255) (851,051) (561,261)
Sales and maturities of
marketable securities 5,493,516 3,500,000 2,179,510
Purchases of marketable securities -- (6,956,117) --
------------ ------------ ------------
Net cash provided by (used for)
investing activities (22,335,874) (28,086,539) (692,830)
------------ ------------ ------------
CASH FLOWS - FINANCING ACTIVITIES:
Net proceeds from sale of Common
Stock and warrants 4,864,534 23,758,532 3,021,730
Net borrowings on line of credit 4,800,000 -- --
------------ ------------ ------------
Net cash (used for) provided by
financing activities 9,664,534 23,758,532 3,021,730
------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 1,670,205 (97,155) 2,095,385
CASH AND CASH EQUIVALENTS-
BEGINNING OF FISCAL YEAR 3,530,866 3,628,021 1,532,636
------------ ------------ ------------
END OF FISCAL YEAR $ 5,201,071 $ 3,530,866 $ 3,628,021
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF
CASH FLOWS INFORMATION-
Cash paid during the fiscal year for interest $ 170,539 $ -- $ --
============ ============ ============
Cash paid during the fiscal year for income taxes $ 90,406 $ 45,000 $ 52,000
============ ============ ============
See notes to financial statements
F-7
PRESSTEK, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business - Presstek, Inc. ("the Company" or "Presstek") is
engaged in the development, manufacture, and sale of PEARL(R), its patented,
proprietary, digital imaging system and process-free, thermal ablation printing
plate technology. PEARL's thermal laser diode system is capable of imaging
various types of the Company's printing plates either off-press or on-press to
produce high quality, full-color, lithographic printed materials for the
printing and graphic arts industries. Revenues generated under the Company's
agreements with Heidelberger Druckmaschinen AG ("Heidelberg"), the world's
largest printing press manufacturer, and from Heidelberg distributors
represented 81% and 73% of total revenues for the fiscal years ended January 3,
1998 and December 28, 1996, respectively. Substantially all revenues in fiscal
1995 were generated under these Heidelberg agreements. See Note 9 of the
financial statements.
Delta V Technologies, Inc. ("Delta V"), formerly Catalina Coatings, Inc.,
became a subsidiary of the Company in fiscal 1996 (see Note 2), and is engaged
in the development, manufacture, and sale of vacuum deposition coating
equipment, and licensing and sub-licensing of patent rights with respect to a
vapor deposition process to coat moving webs of material at high speeds. During
fiscal 1997 and 1996, a substantial part of Delta V's efforts were devoted to
developing and manufacturing the equipment the Company will require to
manufacture PEARL thermal plates. Delta V is currently expanding its commercial
relationships with other companies, and has a backlog for its customized
high-vacuum deposition systems.
Principles of Consolidation - The financial statements for fiscal 1997 and
fiscal 1996 include the accounts of the Company and its 90% owned subsidiary,
Delta V. Significant intercompany accounts and transactions have been
eliminated.
Fiscal Year - In 1995, the Company changed its fiscal year from a calendar
year ending December 31 to a fiscal year ending on the Saturday closest to
December 31; accordingly, fiscal 1997 ended January 3, 1998, fiscal 1996 ended
December 28, 1996, and fiscal 1995 ended December 30, 1995. The 1997 fiscal year
reflects 53 weeks, while the 1996 and 1995 fiscal years each reflect 52 weeks.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial
F-8
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates. Many of the
Company's estimates and assumptions used in the financial statements relate to
the Company's products, which are subject to rapid technological change. It is
reasonably possible that changes may occur in the near term that would affect
management's estimates with respect to the carrying values of inventories,
property plant and equipment, goodwill, patents, and software development costs.
Revenue Recognition - The Company records revenues on product sales and
related royalties at the time of shipment. Certain fees and other reimbursements
are recognized as revenue when the related services have been performed or the
revenues otherwise earned.
Revenues from fixed-price and modified fixed-price production contracts are
recognized on the percentage-of-completion method, measured by the percentage of
costs incurred to date to the estimated total of direct costs for each contract.
As contracts can extend over one or more accounting periods, revisions in costs
and earnings estimated during the course of the work are reflected during the
accounting period in which the facts that required such revisions become known.
Product Warranties - The Company warrants its products against defects in
material and workmanship for a period of one year. Anticipated future warranty
costs are accrued by a charge to expense as products are shipped and the related
revenue recognized. At January 3, 1998, and December 28, 1996, accrued expenses
included accrued warranty costs of $933,000 and $514,000.
Inventories - Inventories are valued at the lower of cost or market, with
cost determined on the first-in, first-out method. At January 3, 1998, and
December 28, 1996, inventories consisted of the following:
1997 1996
----------- -----------
Raw materials $ 7,698,000 $ 6,155,000
Work in process 3,840,000 3,533,000
Finished goods 1,771,000 952,000
----------- -----------
Total $13,309,000 $10,640,000
=========== ===========
Property, Plant and Equipment - Property, plant and equipment are stated at
cost and are depreciated using a straight-line method for both financial
reporting and for tax purposes over their estimated useful lives (ranging from 3
to 30 years). Leasehold improvements are amortized over the life of the lease
for financial reporting purposes and a required longer period for tax purposes.
Goodwill - The excess of cost over the fair value of net assets acquired,
which relates to the Company's acquisition of
F-9
Delta V (Note 2), of $6,469,000 is being amortized over a twenty year period
using the straight line method. Amortization expense was $325,000 for each of
the fiscal years ended January 3, 1998 and December 28, 1996.
Patent Applications Costs and License Rights - Patent application costs
represent the expense of preparing and filing applications to patent the
Company's proprietary technologies, in addition to certain patent and license
rights acquired in the acquisition of Delta V. Such costs are amortized over a
period ranging from five to seven years, beginning on the date the patents or
rights are issued or acquired. Amortization expense for the fiscal years ended
January 3, 1998, December 28, 1996, and December 30, 1995, was $145,000,
$212,000, and $73,000, respectively.
Software Development Costs - Software development costs for products and
certain product enhancements are capitalized subsequent to the establishment of
their technological feasibility (as defined in Statement of Financial Accounting
Standards No. 86) based upon the existence of working models of the products
which are ready for initial customer testing. Costs incurred prior to such
technological feasibility or subsequent to a product's general release to
customers are expensed as incurred. During fiscal 1997, the Company did not
incur material costs subject to capitalization. Through fiscal 1996, the Company
incurred and capitalized $895,000 of costs subject to capitalization.
Amortization of these costs commenced in fiscal 1995 when the related product
was released to customers. Amortization for fiscal 1997, 1996, and 1995 was
$376,000, $250,000, and $99,000, respectively, based upon the ratio that current
gross revenues bear to total estimated gross revenues, which was an amount
greater than amortization on a straight-line method over the estimated economic
life of the product from three to five years. Based upon current sales
estimates, software costs are expected to be fully amortized in less than two
more years.
Non-Competition and Confidentiality Covenants - The consideration paid by
the Company to the selling shareholders of Delta V with respect to
non-competition and confidentiality is being amortized over a four year period
using the straight line method.
Research and Development Costs - Research and development costs are
expensed as incurred for financial reporting purposes. Such costs aggregated
$11,246,000, $8,894,000, and $6,155,000 for the fiscal years ended January 3,
1998, December 28, 1996, and December 30, 1995, respectively.
Cash Flows Information - For purposes of reporting cash flows, the Company
considers all savings deposits, certificates of deposit, and money market funds
and deposits purchased with a maturity of three months or less to be cash
equivalents. At January 3, 1998, and December 28, 1996, cash and cash
equivalents consisted of cash balances on deposit and money market funds.
F-10
Reclassification - Various accounts in the prior fiscal years' Financial
Statements have been reclassified for comparative purposes to conform with the
presentation in the current fiscal year Financial Statements.
Long-Lived Assets - Long-lived assets, such as property and equipment, are
evaluated for impairment when events or changes in circumstances indicate that
the carrying amount of the assets may not be recoverable through the estimated
undiscounted future cash flows from the use of these assets. When any such
impairment exists, the related assets will be written down to fair value. No
write downs were necessary for the fiscal years ended January 3, 1998, December
28, 1996, and December 30, 1995.
Stock-Based Compensation - The Company has not adopted the optional fair
value based method for accounting for stock options granted to employees, as
permitted by Statement of Financial Accounting Standards No. 123, ("SFAS 123")
"Accounting for Stock-Based Compensation", which is effective for transactions
entered into in fiscal years that begin after December 15, 1995. See Note 7 of
the financial statements.
Earnings per Share - The Company has adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings per Share", issued in February
1997. The new pronouncement is effective for both the interim and annual periods
ending after December 15, 1997, and requires restatement of prior periods. See
Note 4 of the financial statements.
Effect of New Accounting Pronouncements - In June 1997, the Financial
Accounting Standards Board ("FASB") issued two new disclosure standards, SFAS
No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information".
SFAS No. 130 establishes standards for reporting and display of
comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. This standard is effective
for the Company's financial statements commencing in the fiscal quarter ending
April 4, 1998.
SFAS No. 131 supersedes SFAS No. 14, "Financial Reporting for Segments of a
Business Enterprise," and establishes standards for the way that public
enterprises report information about operating segments in financial statements
issued to the public. It also establishes standards for disclosures regarding
products and services, geographic areas and major customers. This standard is
effective for the Company's financial statements issued for the fiscal year
ending January 2, 1999.
Both of these standards require comparative information to be restated.
Results of operations and financial position will be unaffected by
implementation of these new standards. Management
F-11
has not yet completed its evaluation of the impact of these new standards on
future financial statement disclosures.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits" (SFAS 132), which revises
employers' disclosures about pension and other postretirement benefit plans.
SFAS 132 is effective for financial statements for periods beginning after
December 15, 1997, and requires comparative information for earlier years to be
restated. This standard currently does not apply to the Company.
2. BUSINESS ACQUISITION
On February 15, 1996, the Company acquired 90% of the outstanding Common
Stock (the "Purchased Shares") of Catalina Coatings, Inc., which now operates as
Delta V, a subsidiary of the Company. The Purchased Shares were acquired from
the selling shareholders pursuant to a Stock Purchase Agreement (the "Stock
Purchase Agreement") dated and effective as of January 1, 1996. The aggregate
consideration paid by the Company pursuant to the Stock Purchase Agreement was
$8,400,000, of which $8,200,000 represented the purchase price of the Purchased
Shares and $200,000 represented consideration for the non-competition and
confidentiality covenants of the selling shareholders.
Simultaneous with the closing of the acquisition, the Company entered into
a Put and Call Option Agreement (the "Option Agreement") which provides the
Company with the right, at any time after February 15, 2000, to acquire the
remaining 10% of the outstanding Common Stock of Delta V for an aggregate
consideration of $2,000,000. The Option Agreement also provides the selling
shareholders of Delta V, and another individual, with the right, at any time
after August 15, 2000, to cause the Company to purchase the remaining shares for
aggregate consideration of $1,000,000. The Option Agreement will terminate if
Delta V consummates an initial public offering of its securities prior to
February 15, 2000.
The Company granted the selling shareholders and one other individual
five-year non-qualified options to purchase an aggregate 200,000 shares of the
Company's Common Stock at an exercise price of $44.75 per share, representing
fair market value at the date of grant. There are 190,000 shares outstanding
under this grant as of January 3, 1998. Delta V also granted to the same
individuals an option to purchase an aggregate 5% of the issued and outstanding
Common Stock of Delta V in the event that a registration statement relating to
an initial public offering of Delta V Common Stock is declared effective by
February 15, 2000.
A portion of the funds raised from the private placements referred to in
Note 7 were utilized to complete the acquisition.
F-12
The acquisition was accounted for as a purchase and, accordingly, the
results of Delta V's operations have been included in the Company's fiscal 1997
and 1996 financial statements.
The purchase price, plus acquisition costs of $240,000, net of
non-competition and confidentiality covenants, has been allocated to assets
acquired and liabilities assumed based on fair market value at the date of
acquisition, as follows:
Current Assets $ 1,976,000
Property and Equipment 329,000
Other Assets 222,000
Intangibles 443,000
Goodwill 6,469,000
Current Liabilities (999,000)
-----------
$ 8,440,000
===========
During fiscal 1997 and 1996, a substantial part of Delta V's efforts were
devoted to developing and manufacturing the equipment the Company believes it
will require to manufacture PEARL thermal printing plates. Delta V's fiscal 1997
and 1996 revenues, after eliminating significant intercompany accounts and
transactions, totaled approximately $1,769,000 and $1,950,000, respectively, and
its results of operations were not material to the Company. As of January 3,
1998, Delta V's total assets were approximately $15,340,000, including land and
buildings of $5,647,000 and goodwill, net of amortization of $5,820,000. As of
December 28, 1996, Delta V's total assets were approximately $12,700,000,
including land and buildings of $1,360,000 and goodwill, net of amortization of
$6,143,000. The following unaudited pro forma summary combines the consolidated
results of operations of the Company and Delta V as if the acquisition had
occurred at the beginning of fiscal 1995, after giving effect to certain
adjustments including the amortization of excess of cost over net assets
acquired and to eliminate the effect of intercompany transactions.
Revenues $32,754,000
===========
Costs and expenses $29,160,000
===========
Net income $ 3,809,000
===========
Basic earnings per share $.13
====
Diluted earnings per share $.12
====
3. MARKETABLE SECURITIES
Marketable Securities are classified as available for sale and consist of
United States Treasury Notes having maturity dates of more than three months,
and are stated at fair value.
Securities as of January 3, 1998, of $1,000,000, will mature in April 1998.
Aggregate net unrealized holding losses of $1,222 and $42,911 at January 3, 1998
and December 28, 1996, respectively, have been included as a separate component
of stockholders' equity in the accompanying balance sheets.
F-13
Certain information with respect to the Company's marketable securities as
of January 3, 1998, and December 28, 1996, is presented below:
1997 1996
----------- -----------
Amortized Cost $ 1,009,393 $ 6,645,765
Gross Unrealized
Holding Losses (1,222) (42,911)
----------- -----------
Fair Value $ 1,008,171 $ 6,602,854
=========== ===========
For the fiscal years ended January 3, 1998, December 28, 1996, and December 30,
1995, the Company received proceeds from the sale or maturity of available for
sale securities of $5,494,000, $3,500,000, and $2,180,000, and recorded net
realized losses of $9,135, and $28,000 in 1997 and 1995, respectively. There
were no net realized losses recorded in 1996. In computing such realized losses,
cost was determined using the specific cost method.
4. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 128 "Earnings per Share,"
which requires companies to report basic earnings per share (EPS) and diluted
EPS as a replacement for primary and fully diluted EPS. Basic EPS is computed by
dividing net income by the weighted average number of shares of Common Stock
outstanding. Diluted EPS is computed by dividing net income by the weighted
average number of Common Stock and Common Stock equivalent shares outstanding.
On May 30, 1997, the Company's Board of Directors declared a two-for-one stock
split, effected in the form of a 100% stock dividend during the third quarter of
fiscal 1997. The split resulted in the issuance of 15,549,862 shares of Common
Stock. On April 19, 1995, the Company's Board of Directors declared a
two-for-one stock split, effected in the form of a 100% stock dividend, during
the second quarter of fiscal 1995. The split resulted in the issuance of
7,275,972 shares of Common Stock. All references to average number of shares
outstanding and prices per share have been restated retroactively to reflect the
splits.
F-14
A summary of the earnings per share calculations for the fiscal years ended
January 3, 1998, December 28, 1996, and December 30, 1995 follows:
(In Thousands, Except Per Share)
1997 1996 1995
----------------------- ------------------------ ----------------------
Per Per Per
Share Share Share
Income Shares Amount Income Shares Amount Income Shares Amount
------- ------ ------ ------ ------ ------ ------ ------ ------
Basic Earnings
Per Share
- --------------
Income available to
common stockholders $14,372 31,300 $.46 $7,121 29,858 $.24 $2,860 29,124 $.10
Effect of
Dilutive Securities
- -------------------
Effect of assumed conversion of
employee stock options 1,395 3,305 2,586
Diluted Earnings
Per Share
- ----------------
------- ------ ---- ------ ------ ---- ------ ------ ----
Income available to common stockholders
and assumed conversions $14,372 32,695 $.44 $7,121 33,163 $.21 $2,860 31,710 $.09
======= ====== ==== ====== ====== ==== ====== ====== ====
Options to purchase 1,111,450 shares of Common Stock at exercise prices
ranging from $26.38 to $49.62 per share were outstanding during a portion of
fiscal 1997, but were not included in the computation of diluted earnings per
share, because the exercise prices of the options were greater than the average
market price of the common shares. These options, which expire between January
2, 2001, and December 22, 2003, were all outstanding at the end of fiscal 1997.
F-15
5. INCOME TAXES
The Company utilizes an asset and liability approach for financial
accounting and reporting for income taxes. The primary objectives of accounting
for income taxes are to (a) recognize the amount of tax payable for the current
fiscal year and (b) recognize the amount of deferred tax liability or asset for
the future tax consequences of events that have been reflected in the Company's
financial statements or tax returns.
The components of the provision for income taxes for the fiscal years ended
January 3, 1998, December 28, 1996, and December 30, 1995, were as follows:
1997 1996 1995
---------- ---------- ----------
Current tax expense - State $ 191,000 $ 124,000 $ 44,000
Charge in lieu of income taxes:
Federal 7,740,000 3,360,000 --
State 1,529,000 516,000 176,000
---------- ---------- ----------
Total provision $9,460,000 $4,000,000 $ 220,000
========== ========== ==========
The charge in lieu of income taxes included in the fiscal 1997 provision
for income taxes represents the tax benefit arising from stock option deductions
in the current year and the realization of net operating loss carryforwards
resulting from compensation deductions for tax purposes. The charges in lieu of
income taxes included in the fiscal 1996 and 1995 provision for income taxes
represent the tax benefit arising from stock option deductions in those years.
The tax benefit related to such stock option deductions has been credited to
stockholder's equity. No charge in lieu of federal income taxes was required for
1995 due to the availability of federal net operating loss carryforwards for
accounting purposes.
F-16
Deferred income taxes reflect the impact of temporary differences between
the amount of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws and regulations. Deferred tax assets and
liabilities consisted of the following at January 3, 1998, and December 28,
1996:
1997 1996
----------- ----------
Deferred tax assets:
Net operating loss carryforwards $ 9,500,000 $ 7,660,000
Tax credits 2,050,000 500,000
Warranty provisions and other accruals 1,100,000 635,000
----------- ----------
Gross deferred tax assets 12,650,000 8,795,000
----------- ----------
Deferred tax liabilities:
Patent applications costs 700,000 463,000
Accumulated depreciation and amortization 200,000 282,000
----------- ----------
Gross deferred tax liabilities 900,000 745,000
----------- ----------
11,750,000 8,050,000
Less valuation allowance (11,700,000) (8,000,000)
----------- ----------
Deferred tax asset - net $ 50,000 $ 50,000
=========== ==========
The $50,000 deferred tax asset was included in other current assets at
January 3, 1998 and December 28, 1996. The valuation allowance increased
$3,700,000, $2,015,000, and $3,057,000 in fiscal 1997, 1996, and 1995,
respectively.
The difference between income taxes at the United States federal income tax
rate and the effective income tax rate was as follows for the fiscal years ended
January 3, 1998, December 28, 1996, and December 30, 1995:
1997 1996 1995
---- ---- ----
Computed at federal statutory rate 35% 34% 34%
Increase (decrease) resulting from:
Expenses producing no current tax benefit 3% 1% 11%
State tax, net of federal benefit 4% 4% 7%
Net operating loss carryforwards -- -- -42%
Deductions for tax purposes in excess of
expenses for financial statement purposes -2% -3% -3%
-- -- -
Effective rate, net 40% 36% 7%
== == =
As of January 3, 1998, the Company had net operating loss carryforwards
totaling approximately $27,400,000 resulting from compensation deductions for
tax purposes relative to stock option plans. To the extent net operating losses
resulting from stock option plan compensation deductions become realizable, the
benefit will be credited directly to additional paid in capital. The
F-17
amount of the net operating loss carryforwards which may be utilized to offset
future taxable income, when earned, may be subject to certain limitations, based
upon changes in the ownership of the Company's Common Stock. The following is a
breakdown of the net operating losses and their expiration dates:
Amount of remaining
net operating
Expiration date loss carryforwards
--------------- ------------------
2006 $ 3,250,000
2008 $ 50,000
2009 $ 500,000
2010 $ 8,750,000
2011 $14,850,000
In addition, the Company has available tax credit carryforwards (adjusted
to reflect provisions of the Tax Reform Act of 1986) of approximately $2,050,000
which are available to offset future income tax liabilities when incurred.
6. RELATED PARTIES
During fiscal 1997 and 1996, the Company recorded sales of equipment and
consumables to Pitman Company of $7,579,000 and $3,379,000, respectively, and at
January 3, 1998 and December 28, 1996, the Company had accounts receivable from
Pitman of $1,460,000 and $2,279,000. John Dreyer, who has been a director of the
Company since February 1996, is Pitman's President and Chief Executive Officer.
During fiscal 1997, the Company agreed to make a loan in 1998 to Robert
Verrando in the amount of $200,000. Interest on the note accrues at 8% per
annum. The principal and accrued interest is payable on demand. Mr. Verrando is
the President and Chief Operating Officer of the Company.
During fiscal 1996, the Company made equipment purchases from Howtek, Inc.
("Howtek") totaling $54,000. During the fiscal year ended December 30, 1995, the
Company made various sales to Howtek totaling approximately $23,000. Mr. Robert
Howard, Chairman and a principal stockholder of the Company, is the Chairman of
the Board of Directors and a principal stockholder of Howtek and the father of
Dr. Lawrence Howard. Dr. Howard served as Vice Chairman of the Board through
February 1996. Dr. Howard currently serves as a director to the Company.
The Company subleases certain of its office facilities from Mr. Robert
Howard, Chairman, as a tenant-at-will. Payments totaled $36,000 for each of the
fiscal years ended January 3, 1998, December 28, 1996, and December 30, 1995.
The Company paid Mr. Howard $145,000, $125,000, and $110,000 for consulting
services provided to the Company during fiscal 1997, 1996, and 1995,
respectively.
F-18
7. STOCKHOLDERS' EQUITY
References herein to shares, options, warrants and the prices per share
have been restated for the fiscal 1997 and 1995 stock splits, effected in the
form of stock dividends, referred to in Note 4.
Preferred Stock - The Company' certificate of incorporation empowers the
Board of Directors, without stockholder approval, to issue up to 1,000,000
shares of $.01 par value preferred stock, with dividend, liquidation,
conversion, and voting or other rights to be determined upon issuance by the
Board of Directors.
Restricted Stock Purchase Plan - On August 22, 1988, the Company adopted a
Restricted Stock Purchase Plan ("the Purchase Plan") originally authorizing the
sale of up to 125,000 shares of Common Stock to its employees at a price to be
determined by the Board of Directors, but in no event to be less than $.01 per
share or greater than 110% of the then fair market value. At January 3, 1998,
80,000 shares remained available for sale.
Stock Option Plans - On August 22, 1988, the Company adopted the 1988 Stock
Option Plan (the "1988 Plan"), and effective August 19, 1991, the Company
adopted the 1991 Stock Option Plan (the "1991 Plan"). Effective April 8, 1994,
the Company adopted the 1994 Stock Option Plan (the "1994 Plan"). Each plan
originally provided for the award, to key employees and other persons, options
to purchase up to 500,000 shares of the Company's Common Stock. As a result of
the 1997 and 1995 stock splits, the number of shares of Common Stock issuable
upon exercise of outstanding options granted under the above plans and upon
exercise of options available for future grants increased by 400%. Options
granted under the plans may be either Incentive Stock Options ("ISOs") or
Nonqualified Options. Generally, ISOs may only be granted to employees of the
Company, at an exercise price of not less than fair market value of the stock at
the date of grant. Nonqualified Options may be granted to any person, at any
exercise price not less than par value, within the discretion of the Board of
Directors or a committee appointed by the Board of Directors ("Committee"). On
September 23, 1997, the Company adopted the 1997 Interim Stock Option Plan (the
"1997 Plan"). The 1997 Plan provides for the award, to key employees and other
persons, options to purchase up to 250,000 shares of the Company's Common Stock.
Only nonqualified options may be granted under the 1997 Plan. Any options
granted will generally become exercisable in increments over a period not to
exceed ten years from the date of grant, to be determined by the Board of
Directors or Committee, and generally will expire not more than 10 years from
the date of grant.
Director Stock Option Plan - Effective December 1993, the Company adopted
its Nonemployee Director Stock Option Plan (the "Director Plan"). Only
nonemployee directors of the Company (other than Robert Howard or Dr. Lawrence
Howard) are eligible to receive grants under the Director Plan. The Director
Plan provides that eligible directors automatically receive a grant of options
to purchase 5,000 shares of Common Stock at fair market value upon first
becoming a director and, thereafter, an annual grant, in January of each year,
options to purchase 2,500 shares at fair
F-19
market value. Options granted under this plan become 100% exercisable after one
year and terminate five years from date of grant.
The following table summarizes information about stock options outstanding
at January 3, 1998:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------------------------------- --------------------------------
Outstanding Weighted-Average Weighted- Exercisable
Range of as of Remaining Average as of Weighted-Average
Exercise Prices 1/3/98 Contractual Years Exercise Price 1/3/98 Exercise Price
--------------- ---------- ----------------- -------------- ----------- -----------------
$2.85 - $7.50 542,505 1.0 $4.82 533,757 $4.81
$7.62 - $8.50 804,273 2.4 $7.78 479,523 $7.78
$8.62 - $23.50 509,152 3.1 $13.38 198,702 $10.37
$23.62 - $35.00 501,550 5.0 $28.35 34,675 $26.95
$35.12 - $49.62 674,200 3.9 $39.47 278,125 $38.63
--------- ---------
3,031,680 3.0 $18.64 1,524,782 $13.14
========= =========
Information concerning all stock option activity under the 1988, 1991,
1994, and 1997 plans for the fiscal years ended January 3, 1998, December 28,
1996, and December 30, 1995 is summarized as follows:
Weighted
Option Option price average price
Shares per share per share
Outstanding at
December 31, 1994 4,082,752 $ 1.00 - $12.50 $ 5.62
Granted 194,500 $11.16 - $31.00 $20.63
Exercised ( 664,520) $ 1.00 - $ 7.78 $ 4.38
Cancelled/Expired ( 940) $ 3.05 - $ 3.05 $ 3.05
---------
Outstanding at
December 30, 1995 3,611,792 $ 2.15 - $31.00 $ 6.65
Granted 669,800 $25.50 - $49.62 $38.80
Exercised ( 688,260) $ 2.15 - $26.38 $ 5.21
Cancelled/Expired ( 1,000) $24.00 - $24.00 $24.00
---------
Outstanding at
December 28, 1996 3,592,332 $ 2.85 - $49.62 $12.92
Granted 604,600 $22.00 - $49.38 $29.70
Exercised (1,082,002) $ 2.85 - $35.00 $ 4.50
Cancelled/Expired ( 83,250) $ 7.90 - $44.75 $35.91
---------
Outstanding at
January 3, 1998 3,031,680 $ 2.85 - $49.62 $18.64
=========
F-20
The incentive and nonqualified stock options summarized in the previous
table were granted under various vesting schedules ranging from immediate to
five years, with termination dates ranging from five to six years from dates of
grant and may be subject to earlier termination as provided in the Plans.
The proceeds to the Company from stock options exercised during the fiscal
years ended January 3, 1998, December 28, 1996, and December 30, 1995 totaled
$4,865,000, $3,583,000, and $2,913,000, respectively.
Statement of Financial Accounting Standards No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation", requires the Company to provide pro
forma disclosure of net income and earnings per share as if the optional fair
value method had been applied to determine compensation costs for the Company's
Stock Option plans. The Company has used the Black-Scholes option-pricing model
to estimate the fair value of each stock option issued in 1997, 1996, and 1995.
The following weighted average assumptions were used in 1997: a risk-free
interest rate of 5.62%; an expected option life of 4.65 years; expected
volatility of 65.84%, and no dividends paid. The following weighted average
assumptions were used in 1995 and 1996: a risk-free interest rate of 6.0%; an
expected option life of 4.08 years; expected volatility of 68.31%, and no
dividends paid.
Accordingly, the Company's net income and earnings per share would have
been reduced to the pro forma amounts indicated in the following table:
1997 1996 1995
---- ---- ----
Net income
As reported $14,372,000 $7,121,000 $2,860,000
Pro forma 8,772,000 249,000 2,304,000
Basic earnings
per share
As reported $.46 $.24 $.10
Pro forma $.28 $.01 $.08
Diluted earnings
per share
As reported $.44 $.21 $.09
Pro forma $.27 $.01 $.07
The above pro forma net income and net income per share do not recognize
the related tax benefits in fiscal years 1997, 1996, and 1995 of $1,972,000,
$2,470,000, and $118,000, respectively, as these deferred tax assets would be
fully offset by a valuation allowance.
Underwriter's Warrants - In connection with an initial public offering
during 1989, the Company originally issued the underwriter warrants to purchase
260,000 shares of Common Stock.
F-21
Through December 30, 1995, 138,034 shares of Common Stock at $5.75 per
share and 138,034 shares of Common Stock at $6.25 ($4.60 and $5.00 for exercises
after the four-for-five stock split effected in 1994) were issued to certain
designees of the underwriter pursuant to their exercise of warrants and unit
warrants. The proceeds to the Company from these transactions totaled
$1,559,993. At December 30, 1995, there were no remaining warrants outstanding.
Other - During February 1996, the Company completed private placements of
an aggregate of 282,846 shares of its Common Stock for gross proceeds of
$20,208,758 to a limited number of domestic individual and institutional
investors, net of costs of $33,500. A portion of the proceeds was used to
acquire Delta V as described in Note 2.
8. COMMITMENTS
The Company leases various of its facilities under noncancellable operating
leases, many of which contain renewal options. The agreements generally require
minimum monthly rents, adjusted annually, plus a pro rata share of real estate
taxes and certain other expenses. Total rental expenses on the agreements were
$542,000, $518,000, and $296,000 for fiscal 1997, 1996, and 1995, respectively.
As of January 3, 1998, future minimum lease payments under these agreements
were as follows:
1998 $304,652
1999 217,286
2000 129,186
--------
Total $651,124
========
The Company has completed the construction of a 70,000 square foot facility
in Tucson, Arizona for Delta V's operations, and a 100,000 square foot
manufacturing facility in Hudson, New Hampshire to accommodate the Company's new
plate manufacturing operations. Through January 3, 1998, the Company had
expenditures of approximately $18,416,000 for land, land improvements, and
construction of the two new facilities. Approximately $12,114,000 of this total
was incurred during fiscal 1997.
The Hudson facility accommodates the new thin-film, vacuum coating
equipment built for the Company by Delta V. Also located in this facility is the
necessary plate finishing and packaging equipment required to manufacture the
Company's thermal plate consumable products. Through January 3, 1998, the
Company had expenditures of $19,197,000 for new plate manufacturing, finishing,
and packaging equipment. Approximately $11,388,000 of this total was incurred
during fiscal 1997. As of January 3, 1998, the Company had outstanding
commitments with respect to the Hudson facility, and the plate manufacturing,
finishing, and packaging equipment of approximately $750,000.
F-22
9. HEIDELBERG AGREEMENTS
In January 1991, the Company entered into a Master Agreement and a
Technology License Agreement (collectively referred to as the "Heidelberg
Agreements") with Heidelberg.
The Heidelberg Agreements relate to the integration of the Direct Imaging
technology into various presses manufactured by Heidelberg (the "Heidelberg
Presses") and the manufacture of components for and the commercialization of
such presses. Pursuant to the Heidelberg Agreements, the Company granted
Heidelberg certain exclusive rights, for use of the Direct Imaging technology
for the Quickmaster DI format size.
The Heidelberg Agreements and amendments govern the Company's relationship
with Heidelberg and provide for the Company to supply Direct Imaging systems to
Heidelberg at specified rates. The Heidelberg Agreements currently expire in
December 2011 subject to certain early termination provisions and extension
provisions. Under these agreements, Heidelberg agreed to pay to the Company
royalties on the net sales prices of various specified types of Heidelberg
Presses on which the Company's Direct Imaging technology would be used.
The most important amendments and adjustments to the Heidelberg Agreements
are summarized below.
In 1993, the Company granted Heidelberg a forty-five month exclusive
license which expired in January 1997 for the manufacture and sale of PEARL
technology used on the Quickmaster DI. After the initial forty-five month
period, Heidelberg's rights remain exclusive subject to the Company's right to
terminate such exclusivity on three months' written notice to Heidelberg.
In November 1995, the Company and Heidelberg agreed (the "November
Agreement") to certain other arrangements, whereby the Company was provided with
incremental revenue, certain price increases, and modifications of the
Quickmaster DI royalty billing and payment terms by Heidelberg. The Master
Agreement was also modified by the November Agreement to provide Heidelberg with
a fixed royalty rate on the Quickmaster DI. These arrangements were made as a
result of a schedule change requested by Heidelberg in November 1995, to reduce
the number of PEARL imaging systems being manufactured by the Company each month
for Heidelberg from the amount then being produced.
The production schedule for Quickmaster DI imaging systems was subsequently
increased by Heidelberg in September 1996, requiring the Company to produce
three systems per day (60 per month)
F-23
commencing in April 1997. In March 1997, the production schedule was further
increased, requiring the Company to manufacture four systems per day (80 per
month) commencing in September 1997, and the Company and Heidelberg agreed to a
fixed royalty rate for the Direct Imaging systems, subject to Heidelberg
maintaining an exclusive license on the Quickmaster DI.
The Company and Heidelberg recently concluded negotiations relating to
production levels and schedules for the year ending January 2, 1999, which has
resulted in the Company materially reducing production levels of Direct Imaging
systems used in the Quickmaster DI press for 1998.
10. OTHER INFORMATION
On December 24, 1997, the Company entered into a settlement agreement with
the U.S. Securities and Exchange Commission (the "SEC"). The agreement provides
for the entry of a cease and desist order in which the Company, without
admitting or denying certain violations of the federal securities law, agrees to
abide by federal securities law and regulations in the future. No monetary
penalties were imposed on the Company in this action. The allegations giving
rise to the cease and desist order relate to certain disclosures made by the
Company at various times from 1994 to 1996.
Simultaneously, Robert Howard, Chairman of the Board, and President Robert
Verrando, also entered into settlement agreements with the Commission and,
without admitting or denying allegations relating to public statements made by
the Company, consented to the entry of statutory injunctions prohibiting future
violations of the federal securities laws. Civil penalties were assessed in the
amount of $2,700,000 and $200,000, respectively. These civil penalties are not
obligations of the Company. The investigation by the SEC has concluded with
respect to Presstek and its personnel.
As previously disclosed, seven federal class action lawsuits were filed
against the Company and others, all of which have been consolidated before the
United States District Court, District of New Hampshire, under the common
caption Bill Berke, et al. V. Presstek, Inc., et al. The plaintiffs have jointly
filed and served a Second Consolidated Amended Class Action Complaint naming the
Company, certain of its present or former officers and directors ("the Berke
Officer and Director Defendants"), and other parties as defendants. The
plaintiffs allege, among other things, that the Company and/or the Berke Officer
and Director Defendants violated Section 10(b) ("Sect. 10(b)") of the Securities
Exchange Act of 1934, (the
F-24
"Exchange Act") and Rule 10b-5 ("Rule 10b-5") promulgated thereunder, and
violated New Hampshire law; and that the Berke Officer and Director Defendants
violated Section 20(a) ("Sect. 20(a)") of the Exchange Act. The Complaint
alleges, among other things, that the Company and/or the Berke Officer and
Director Defendants issued false and misleading reports, failed to disclose
material facts including a misstatement of earnings in the Company's financial
statements for the first quarter ended March 30, 1996, misstated or failed to
fully disclose the Company's supply contracts with, payments received from,
sales made by, backlog of orders received from, and delays in production by the
Company's principal customer, and alleged circulation of, and failed to correct
certain analyst research reports concerning the Company that contained alleged
misrepresentations regarding allegedly inflated financial projections. Certain
of the Berke Officer and Director Defendants are alleged to have sold the
Company's Common Stock at artificially inflated prices while in possession of
material non-public information concerning the Company. The plaintiffs seek
unspecified compensatory and punitive damages, attorney and expert fees and
other costs and expenses incurred by the plaintiffs in connection with the
action.
As previously disclosed, on July 16, 1996, Richard Strauss commenced a
derivative suit on behalf of the Company in the Court of Chancery of the State
of Delaware, New Castle County, against certain officers and directors of the
Company ("the Strauss Officer and Director Defendants"). The plaintiff alleges
that the Strauss Officer and Director Defendants breached their fiduciary duties
to the Company and its public stockholders and wasted corporate assets, by
making allegedly false and misleading statements of fact or concealing material
facts concerning the viability of the Company's "key" patent and its proprietary
interest in its PEARL technology, causing the Company to fail to properly
disclose the scope of an investigation by the SEC, and causing the Company to
misstate its financial results for the first quarter of 1996. The plaintiff also
alleges that certain of the Strauss Officer and Director Defendants sold
securities of the Company at inflated prices while they were in possession of
material non-public information concerning the Company. The plaintiff alleges
that the actions of the Strauss Officer and Director Defendants resulted in
breaches of Sect. 10(b) and Rule 10b-5 which resulted in other lawsuits being
commenced against the Company which will require the Company to expend resources
to defend. The plaintiff seeks to recover, on behalf of the Company, unspecified
damages allegedly sustained by the Company as a result of the defendants'
alleged breaches of fiduciary duty, disgorgement of any profits derived from
their sale of the Company's common stock, as well as other relief. This action
had been stayed pending the outcome of the Berke action.
As previously disclosed, on March 14, 1997, James P. Cassidy commenced a
derivative suit on behalf of the Company in the United States District Court for
the District of New Hampshire against certain of the Company's officers and
directors (the "Cassidy Officer and Director Defendants"), and the Company's
independent auditor. The plaintiff alleges that the Cassidy Officer and Director
Defendants breached
F-25
their fiduciary duty to the Company and its public stockholders and wasted
corporate assets by making false and misleading statements of fact or concealing
material facts concerning the scope and viability of the Company's "key" patents
and its proprietary interest in its PEARL technology, and causing the Company to
issue false and misleading reports or failure to disclose material facts
including a misstatement of earnings in the Company's financial statements for
the year ended December 30, 1995, and for the first quarter ended March 30,
1996. The plaintiff also alleges that certain of the Cassidy Officer and
Director Defendants sold securities of the Company at inflated prices while they
were in possession of material non-public information concerning the Company.
The plaintiff also alleges that the actions of the Cassidy Officer and Director
Defendants resulted in breaches of Sect. 10(b) and Rule 10b-5 which resulted in
other lawsuits being commenced against the Company which will require the
Company to expend resources to defend, and also constituted gross negligence and
breaches of their contractual obligations to the Company. The plaintiff seeks to
recover on behalf of the Company unspecified damages allegedly sustained by the
Company as a result of the defendants' actions as alleged, disgorgement of any
profits from the sale of the Company's Common Stock, as well as other relief
against the defendants. By agreement of the parties, this action has been stayed
pending the outcome of certain motions made by the parties in the Berke action.
As previously disclosed, on June 16, 1997, Seena Stevens Silverman
commenced a purported class action in the United States District Court for the
District of New Hampshire against the Company and certain of its present and/or
former officers and directors (the "Silverman Officer and Director Defendants"),
and other parties. The plaintiff purports to bring this action on behalf of a
class of persons who sold put options in the Common Stock of the Company between
November 7, 1995 and June 20, 1996. The complaint alleges, among other things,
that the Company and/or the Silverman Officer and Director Defendants violated
Sect. 10(b) and Rule 10b-5, and violated New Hampshire law; and that the
Silverman Officer and Director Defendants violated Sect. 20(a). The plaintiff
alleges that the defendants defrauded the putative class members by manipulating
the price and supply of the Company's common stock, issuing false and misleading
statements regarding the nature of the Company's proprietary PEARL technology,
failing to disclose the true depth and target of an investigation by the SEC,
and making misleading statements regarding the Company's claims to its PEARL
technology and its contract with the Company's principal customer. The plaintiff
also alleges that certain of the Silverman Officer and Director Defendants sold
securities of the Company at inflated prices while they were in possession of
material non-public information concerning the Company. The plaintiff seeks to
recover unspecified compensatory and punitive damages on behalf of the putative
class, as well other relief.
To date, the Company has not been required to file its answers to these
claimants. The Company expects that it will file its answer to the claims this
year.
F-26
The Company intends to vigorously defend the foregoing investor class
actions. However, the outcome of any litigation is subject to uncertainty and a
successful claim against the Company in any of such actions could have a
material adverse effect on the Company.
11. LINE OF CREDIT
On July 29, 1997, the Company renewed its agreement with Citizens Bank New
Hampshire ("Citizens")for a revolving line of credit loan under which the
Company may borrow a maximum of $10,000,000 for working capital requirements and
general corporate purposes. Borrowings are secured by substantially all of the
Company's assets and are guaranteed by the Company's subsidiary, Delta V
Technologies, Inc. and secured by its assets. Interest on the line of credit is
payable at the LIBOR rate plus 1.75% (7.47% at January 3, 1998). The loan
agreement terminates on July 31, 1999, at which date, the entire principal and
accrued interest is due and payable. As of January 3, 1998, the Company had
$5,200,000 available under the line of credit. The credit facility was unused at
December 28, 1996. Under the terms of the revolving credit agreement, the
Company is required to meet certain financial covenants on a quarterly and
annual basis. The Company was in compliance with all debt covenants at January
3, 1998.
12. SUBSEQUENT EVENTS
On January 5, 1998, the Company acquired the stock of Heath Custom Press,
Inc. ("Heath"), of Seattle, Washington. Heath is engaged in the design and
manufacture of custom printing presses. Heath was purchased for 94,865
unregistered shares of the Company's Common Stock.
The acquisition will be accounted for as a purchase and, accordingly, the
results of Heath's operations will be included in the Company's financial
statements for the year ended January 2, 1999. The results of Heath's operations
would not have had a material impact on the Company's results of operations for
fiscal 1997.
On February 6, 1998, the Company obtained a ten-year mortgage term loan in
the principal amount of $6,900,000 from Citizens. Borrowings are secured by land
and buildings with a cost of approximately $17,000,000. The loan bears a fixed
rate of interest of 7.12% per year during the first five years, and a variable
rate of interest at the LIBOR rate plus 2% (7.72% at January 3, 1998) for the
remaining five years. Principal and interest payments during the first five
years of the loan will be made in 60 monthly installments of $80,500. During the
remaining five years, principal and interest payments shall be made on a monthly
basis in the amount of one-sixtieth of the outstanding principal amount as of
the first day of the second five year period, plus accrued interest through the
monthly payment date. All outstanding principal and accrued and unpaid interest
is due and payable on February 6, 2008.
F-27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
PRESSTEK, INC.
Dated: March 27, 1998 By: /s/ Richard A. Williams
-----------------------------
Richard A. Williams
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf on the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Richard A. Williams Chief Executive Officer, March 27, 1998
- -------------------------- Secretary and Director
Richard A. Williams (Principal Executive Officer)
/s/ Robert E. Verrando President, Chief Operating March 27, 1998
- -------------------------- Officer and Director
Robert E. Verrando
/s/ Robert Howard Chairman of the Board and March 27, 1998
- -------------------------- Director
Robert Howard
/s/ Dr. Lawrence Howard Director March 27, 1998
- --------------------------
Dr. Lawrence Howard
/s/ Harold N. Sparks Director March 27, 1998
- --------------------------
Harold N. Sparks
/s/ Bert DePamphilis Director March 27, 1998
- --------------------------
Bert DePamphilis
/s/ John W. Dreyer Director March 27, 1998
- --------------------------
John W. Dreyer
/s/ John B. Evans Director March 27, 1998
- --------------------------
John B. Evans
/s/ Glenn J. DiBenedetto Chief Financial Officer March 27, 1998
- -------------------------- (Principal Financial and
Glenn J. DiBenedetto Accounting Officer)
- 37 -
PRESSTEK, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(NUMBERS IN THOUSANDS)
Charges
Balance at Charged to Charged to Add Balance at
Fiscal Beginning of Costs and Other Account (Deduct) End of
Year Description Fiscal Year Expenses Describe Describe Fiscal Year
---- ----------- ----------- -------- -------- -------- -----------
1995 Allowance for losses on
accounts receivable $ 23,000 $ 57,000 -- $ -- (1) $ 80,000
Warranty reserve 199,000 467,000 -- ( 65,000)(2) 601,000
Equipment replacement
reserve 28,000 291,000 -- ( 28,000)(3) 291,000
1996 Allowance for losses on
accounts receivable 80,000 115,000 -- ( 11,000)(1) 184,000
Warranty reserve 601,000 216,000 -- (303,000)(2) 514,000
Equipment replacement
reserve 291,000 -- -- (291,000)(3) --
1997 Allowance for losses on
accounts receivable 184,000 1,074,000 -- (317,000)(1) 941,000
Warranty reserve 514,000 1,135,000 -- (716,000)(2) 933,000
Equipment replacement
reserve -- -- -- -- (3) --
(1) Allowance for doubtful accounts
(2) Warranty expenditures
(3) Equipment replacement
FS - 1