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UNITED STATES
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 December 30, 2000
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _______ to ________
COMMISSION FILE NO. 0-17541
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PRESSTEK, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 02-0415170
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
55 EXECUTIVE DRIVE, HUDSON, NEW HAMPSHIRE 03051-3907
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(Address of principal executive offices including zip code)
Registrant's telephone number, including area code: (603) 595-7000
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Securities registered pursuant to Section 12(b) of the Act: NONE
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Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK,
$.01 PAR VALUE
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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 15, 2001, was approximately
$338,000,000.
As of March 15, 2001, there were 33,259,806 shares of the registrant's common
stock outstanding.
Documents Incorporated by Reference:
Parts of the definitive Proxy Statement (which is expected to be filed within
120 days after the Company's fiscal year end) for the Registrant's Annual
Meeting of Stockholders to be held on June 5, 2001 are incorporated by reference
into Part III of this Form 10-K.
PART I
ITEM 1. BUSINESS
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GENERAL
Presstek, Inc. (the "Company", "Presstek", "we" or "us") is a manufacturer,
developer and marketer of non-photographic, digital imaging and printing plate
technologies for the printing and graphic arts industries. Presstek's products
and applications incorporate its patented, proprietary PEARL(R) and DI(R)
digital imaging technologies and utilize PEARL consumables for computer-to-plate
("CTP") and direct-to-press applications. The Company's patented DI and PEARL
thermal laser diode product family enables its customers to produce high
quality, full-color lithographic printed materials more quickly and cost
effectively. In the late 1980's, the Company developed a direct imaging system
that would allow digitally formatted file data to be used to image a plate
directly on the printing press. Presstek's technology and products use thermal
energy generated by lasers to reproduce digital files directly onto printing
plates. This eliminates the daylight sensitive, photomechanical and chemical
processes associated with other imaging methods.
The Company's development work ultimately led to the commercialization of its
patented, proprietary PEARL direct imaging technology. This direct imaging
technology, which 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 both PEARL and DI
represent technological advances for the worldwide printing and publishing
industry, since they can be used for both on-press and off-press applications.
This capability provides a number of new applications for direct imaging systems
and proprietary thermal based digital media and consumable printing plates. The
Company's past investments in its proprietary digital imaging technologies have
resulted in more than 200 patents issued or allowed and more than 130
applications pending throughout the world. The Company believes these patents,
combined with its thirteen years of experience in developing digital imaging
systems, place the Company in a significant position in its chosen markets. See
"Patents and Proprietary Rights".
In April 2000 the Company incorporated an Arizona subsidiary, LaserTel, Inc.
("LaserTel") for the purpose of securing its supply of laser diodes. LaserTel is
located in the former Delta V Technologies, Inc. ("Delta V") facility in Tucson,
Arizona, and is primarily engaged in the manufacture and development of the
Company's high-powered laser diodes. While the Company established LaserTel
primarily to gain some control over the source of laser diodes, the nature of
LaserTel's technology and the Company's available capacity have enabled LaserTel
to find additional market applications for its laser technology. As a result,
LaserTel is currently developing laser prototypes for qualification in the
telecommunications, defense, and medical industries. LaserTel has particular
experience in the design and fabrication of multi-mode high power laser diodes.
This experience spans ten years of development activity at Presstek and is
expected to support applications in telecommunications as well as graphic arts.
There can be no assurance, however that these products will be commercially
successful or produce significant revenues for the Company or LaserTel.
The Company operates in two reportable segments, the Digital Imaging Products
segment and the LaserTel segment. The Digital Imaging Products segment is
primarily engaged in the development, manufacture and sales of proprietary
digital imaging systems and printing plate technologies for CTP and
direct-to-press applications. The LaserTel segment is primarily engaged in the
manufacture and development of Presstek's high-powered laser diodes.
Information about the Company's business segments and geographic information are
included in Note 10 of notes to the financial statements. The Company operated
in one business segment for fiscal 1999 and 1998.
Presstek was incorporated in Delaware in 1987 and has its principal offices at
55 Executive Drive in Hudson, New Hampshire.
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STRATEGY, BACKGROUND AND STRATEGIC RELATIONSHIPS
The Company's business strategy is based in part on strategic alliances and
relationships with companies in the graphic arts industry and the packaging
industry. This strategy includes licensing intellectual property; specialized
product development based on the Company's proprietary technologies; and the
manufacture of imaging systems for inclusion in other manufacturers' products.
The manufacture of the Company's own end user and private label products, as
well as the manufacture of proprietary thermal plate materials for use in
Presstek's and other manufacturers' imaging hardware and printing presses, is
also an important aspect of the business strategy.
HEIDELBERG
This strategy led to the development of an important and long-term relationship
with Heidelberger Druckmaschinen AG ("Heidelberg"), one of 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, which covered the integration of
the PEARL Direct Imaging technology into various presses manufactured by
Heidelberg. The manufacture of components, at specified rates, for these presses
and the commercialization of such presses are also covered by the agreements.
The Master Agreement and Technology License Agreement are sometimes collectively
referred to hereafter as the "Heidelberg Agreements". Under the Heidelberg
Agreements, Heidelberg is required to pay royalties to the Company based on the
net sales prices of various specified types of Heidelberg presses on which the
Company's PEARL Direct Imaging technology is used. Heidelberg has been provided
with certain rights for use of the PEARL Direct Imaging technology for the
Quickmaster DI format size. The Heidelberg Agreements have been modified to
provide Heidelberg with a fixed royalty rate for the Company's PEARL Direct
Imaging systems used in the Quickmaster DI. The Heidelberg Agreements expire in
December 2011 subject to certain early termination and extension provisions.
In fiscal 1998 and 1999 the Company materially reduced production levels of
direct imaging systems used in the Quickmaster DI press, based on requirements
from Heidelberg. The Company resumed production with initial low level shipments
of its direct imaging systems late in the third quarter of fiscal 1999, and
increased production levels in fiscal 2000 in line with the actual rate of
Quickmaster DI's produced by Heidelberg.
Sales to Heidelberg represented approximately 57%, 39%, and 57% of revenues for
fiscal 2000, 1999 and 1998, respectively. The loss of Heidelberg as a customer
would have a material adverse effect on the Company's business and results of
operations.
OTHER STRATEGIC RELATIONSHIPS
In addition to its association with Heidelberg, the Company has also developed
and expanded business relationships with other companies in the industry.
Certain of these relationships involve new products that became available late
in fiscal 2000 or are expected to become available in the first half of fiscal
2001.
In fiscal 2000, Presstek and Ryobi Limited ("Ryobi") of Japan completed the
development of an A3 format size four-color sheet-fed press, which was
introduced in May 2000, and will be marketed by Ryobi as the 3404DI.
Incorporating Presstek's dual plate cylinder concept, this press also features
the Company's internal automated plate cylinder design, ProFire(TM) technology,
and PEARLdry(TM) spooled plates. The small format of this press is designed to
appeal to quick printers, in-plant printers, and copy centers looking to expand
their service with offset color printing.
In September 2000, the Company entered into a supply and distribution agreement
with Xerox Corporation ("Xerox") to supply a series of three Presstek enabled DI
presses and related consumables. Under this relationship, Xerox will market,
distribute and service these presses and consumables worldwide on a co-branded
basis.
The products included in the Xerox Agreement are four and five color versions of
a B3 format sheet-fed press. This press, which was introduced in May 2000,
incorporates the Company's internal automated plate cylinder
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design, ProFire technology, and PEARLdry spooled plates. This press accommodates
a large number of commercial printing applications. The five-color press is
designed to give printers the flexibility to produce custom versions, custom
colors, and special finishes within a single print run. Xerox will market this
press as the DocuColor 400 DI. Also included in the Xerox Agreement is an A3
format size four-color sheet-fed press which will be marketed as the DocuColor
233 DI. According to the terms of the Xerox Agreement, Xerox has, subject to
certain performance criteria, exclusive marketing and sales rights to the
DocuColor 400 DI presses and sales and distribution rights to the DocuColor 233
DI. The Agreement also covers distribution of PEARLdry spooled printing plates.
The Company's relationship with Xerox is in its early stages. Due to a number of
factors, there has been a three to four month delay in the delivery of presses
to Xerox versus that which had been planned under the original terms of the
Xerox Agreement. Initial press shipments, customer support training programs and
other activities are progressing, but at this time, there can be no assurance
that additional delays will not result in reduced press shipments to Xerox in
fiscal 2001.
KBA-Planeta AG, a supplier of medium and large format sheet-fed offset printing
presses, manufactures and markets a digital offset press, the 74 Karat. This
press uses Presstek's direct imaging and related intellectual property under
license, and Presstek's patented thermal ablation printing plates.
The Company entered into an agreement with Sakurai's Graphic Systems ("Sakurai")
of Japan to provide the newest version of its DI technology for Sakurai's larger
format multicolor offset press. When used in DI mode, this press will also use
the Company's no process plate media. The Company is currently developing a
prototype system incorporating its ProFire technology. Because this relationship
is in the early stages, there can be no assurance that the Company will
successfully complete or commercialize this product.
Presstek and Akiyama Printing Machinery Manufacturing Corp., ("Akiyama") of
Japan, have also jointly announced a development program to create a DI version
of Akiyama's J Print press for the book printing market. The new J Print press
will incorporate the Company's direct imaging and digital plate media
technologies. The project is currently in the design phase, but there can be no
assurance that it will progress to a prototype program in 2001.
The Company is pursuing other business relationships that it believes may result
in broader use of the Company's digital imaging and printing plate technologies
in existing, as well as new applications. Through its LaserTel subsidiary, the
Company is also broadening its range of laser applications into the
telecommunications, defense, and medical markets. There can be no assurance,
however, that the Company, any Company product or any products incorporating the
Company's technology will be able to compete successfully in these markets.
THE COMPANY'S PEARL AND DI DIGITAL IMAGING SYSTEMS
The Company's PEARL digital 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 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-power, infrared laser
light. The beam is focused on a specific area on the surface of the thermal
printing plate causing this area of the plate to instantaneously heat up,
creating an imaging by ablation effect. This ablation effect creates an
ink-receptive surface, or a water receptive surface in the case of positive
writing plates. This laser-based imaging concept is used on both the Company's
direct-to-press and CTP systems.
The Company also recently commercialized its next-generation DI technology, the
ProFire integrated imaging system. The ProFire imaging system, introduced in May
2000, integrates the lasers, laser drivers, digital electronics, and motion
control into one modular package design that can be adapted to many CTP devices
or direct imaging presses. The ProFire system has three major components: the
FirePower(TM) laser diode system, made up of unique four-beam laser diodes and
laser drivers, the integrated motion system that controls the placement of the
laser diodes, and the FireStation(TM) digital controller and data server. This
modular system allows the Company to expand the number of diodes mounted on a
fixed array, increasing speed and overall imaging performance. Due to its
compact size, the integrated imaging module fits within the side rails of most
printing presses. The drop-in module is also more easily incorporated into CTP
products for off-press imaging.
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THE DIMENSION PRODUCT LINE
The Dimension platesetter is a CTP imaging device that can image both the
Company's wet and dry thermal offset plates in an A3 (2-up), A2 (4-up) or A1
(8-up) format size. The Dimension utilizes Presstek's ProFire direct imaging
technology, and can produce completely imaged printing plates, ready to be
mounted on a printing press, within 3 to 5 minutes depending on the plate size.
Anthem plates require a simple water wash after imaging to prepare the plate for
mounting on the press. Alternatively, if the Dimension is imaging PEARLdry
plates, the user must first wipe the ablated debris from the imaging process off
the surface of the plate. For operators of conventional printing presses, the
Dimension series of CTP systems is designed to allow printers to realize many of
the benefits of Direct Imaging before investing in a new press.
The Company continues to develop and commercialize its PEARL and DI CTP systems.
There can be no assurance however that the Company will be able to successfully
commercialize these or other products, or enter into any additional arrangements
which will result in the further commercialization of its Dimension product
line.
THE COMPANY'S PEARL DIGITAL MEDIA AND PLATES
The Company's PEARL digital media and plates are available in waterless form,
such as PEARLdry for the Quickmaster DI, the Ryobi 3404DI, and the DocuColor 233
and 400 DI, or Anthem(TM), the Company's thermal plate for CTP imaging. All of
these plates are based on the Company's proprietary thermal ablation imaging
technology, which means the plates respond to heat and not to light. Presstek's
plates are 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
semiconductor diode laser imaging systems. These plates also utilize unique
chemically free processing methods.
The Company's latest plate technology, Anthem, is the first in what the Company
believes will be a family of plates for wet offset lithography. Anthem plates
use a grained anodized aluminum plate based on Presstek's patented imaging
technology and combine ablative imaging and chemically free cleaning with run
lengths of up to 100,000 impressions. The Anthem plate runs with a wide range of
fountain chemistry and inks and can be imaged on many thermal CTP systems. The
physical and chemical durability are built in as part of the manufacturing
process, providing consistent performance and wide latitude. Anthem's market
includes a broad base of installed conventional wet offset presses, currently
the largest segment of the printing industry. The Company believes this wet
offset plate product has broad market potential due to the large number of wet
offset printing presses installed on a worldwide basis. There can be no
assurance, however, that printers currently equipped with conventional wet
offset presses will purchase CTP systems that use Anthem plates.
The current PEARLdry plate is a second-generation product based on the Company's
PEARLdry technology. The plate uses a specially formulated silicone material
that 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 in the Quickmaster DI, the GTO-DI, the Ryobi
3404DI, the DocuColor 233 DI and 400 DI, the Adast 705C DI, the KBA 74 Karat,
and the Kammann CD imaging system. The Company's Dimension platesetter and other
direct-to-plate systems also are able to image the Company's PEARLdry plate.
The Company continues to develop thermal consumable plate products that can be
imaged by both its own Direct Imaging systems as well as high-energy
laser-based, CTP and direct-to-press systems offered by companies such as Creo
Products, Inc. and others. There can be no assurance, however, that the Company
will be able to successfully commercialize products that incorporate this
technology.
MANUFACTURING
The Company operates manufacturing sites in Hudson, New Hampshire and Tucson,
Arizona.
Presstek's direct imaging systems and CTP systems are manufactured at the
Company's facility located at 55 Executive Drive in Hudson, New Hampshire. The
Company uses a number of outside vendors who supply many of the products'
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components and assemblies, which are assembled by the Company into completed
systems - either computer-to-press, direct imaging systems used in the
Quickmaster DI, Ryobi 3404DI, DocuColor 233 DI and 400 DI, or CTP imaging
systems, such as the Dimension. These systems use semiconductor laser diode
devices built to the Company's specifications and currently supplied by one
external source pursuant to a supply agreement, and by the Company's LaserTel
subsidiary in Tucson, Arizona. The Company believes there are other sources
available to manufacture the laser diodes to specification, if required in the
future.
The Company's PEARL digital plate products are also manufactured at its Hudson
facility, using equipment which includes the Company's thin film vacuum
deposition coater, plate converting and finishing equipment, and a new
atmospheric coater. The Company's Anthem thermal plate is currently manufactured
by one source under an existing supply agreement. The Company may still need to
enter into manufacturing agreements with third parties as it more vertically
integrates the manufacturing of its PEARL digital plate products, and believes
there currently are other sources available to manufacture these consumable
products.
Some of the Company's products are manufactured under agreements with two press
manufacturers, located in the Czech Republic and Japan. The Company believes
there are other sources available to manufacture these products, however if the
supply of these presses were to be delayed, or import restrictions from these
countries be imposed, the Company's ability to ship products in a timely manner
could be adversely affected.
MARKETING, DISTRIBUTION AND CUSTOMER SUPPORT
The Company's business strategy is designed to distribute Presstek products (and
the related consumables) to customers through "direct" distribution via
independent distributors, or by way of "indirect" distribution using strategic
partnerships with original equipment manufacturers ("OEM's").
To meet its direct distribution strategy, the Company has established a
worldwide distribution network through which it markets and sells its CTP and
PEARL thermal plate products. The network currently includes approximately 33
independent graphic arts dealers in 17 countries, including three national
distributors, the Pitman Company, PrimeSource Corporation, and xpedx Graphic
Systems, and several regional dealers in the United States. The Company also
markets and sells its consumable products through its Presstek.com web site. The
Company has also entered into OEM arrangements or reseller relationships with
respect to the Ryobi 3404DI, the DocuColor 233 DI and 400 DI, and related
consumables with companies such as Xerox and Ryobi. These agreements permit
these OEM resellers to sell PEARL and DI-based equipment and consumables
products under their own label.
By using this two-pronged approach to distribution, the Company has attempted to
maximize the number of systems using Presstek technology, which require Presstek
consumables. Additionally, the Company has developed a fully staffed, global
service team dedicated to servicing the products delivered through the
distribution systems.
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 become commercially viable.
PATENTS, TRADEMARKS AND PROPRIETARY RIGHTS
As of March 8, 2001, the Company and its subsidiary hold ninety U.S. patents,
(including three design patents), ninety foreign patents, and had received
notices of allowance for twenty-five additional patents consisting of six U.S.
and nineteen foreign. These patents, which expire from 2008 through 2020, are
all believed to be material to Presstek's business. The Company has applied for
and is pursuing its applications for twenty additional U.S. patents and one
hundred thirty-two foreign patents. The Company also holds two registered
trademarks,
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PEARL and DI. The Company anticipates that it will apply for additional patents,
trademarks, and copyrights, as deemed appropriate. There can be no assurance as
to the issuance of any such patents or trademarks or the breadth or degree of
protection which the Company's patents, trademarks or copyrights may afford the
Company.
There is rapid technological development in the electronic 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 has agreements with
several of its strategic partners which require the Company to indemnify the
strategic partner from claims made by third parties against Presstek's
intellectual property, and to defend the validity of the patents or otherwise
ensure the technology's availability to the strategic partner.
The Company intends to rely on proprietary know-how and to employ various
methods to protect its source code, concepts, ideas and documentation of its
proprietary software. 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. 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 thermal plate manufacturing
facilities, along with its strategic alliances and worldwide distribution
network provide it 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 are 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, potentially
competitive companies use electro-photographic 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.
Agfa-Gevaert N.V, IBM, and Creo Products, Inc. are marketing product versions
manufactured by these companies. These electro-photographic 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 CTP
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 treatment. Potential competitors in this area
include, among others, Agfa-Gevaert N.V., Creo Products, Inc., DaiNippon Screen
Mfg., Ltd., Heidelberger Druckmaschinen AG, Krause GmbH, combinations of these
companies, and other smaller or lesser known companies. The Company's Dimension
CTP, 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 companies that
manufacture, or have the potential to manufacture digital thermal plates. Such
companies include, among others, Agfa-Gevaert N.V., Kodak Polychrome Graphics
LLC, and Fuji Photo Film Co., Ltd.
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Products incorporating the Company's technologies can also be expected to face
competition from products used by 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.
Most of the companies marketing competitive products or with the potential to do
so are well established, have substantially greater financial, marketing and
distribution 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.
RESEARCH AND DEVELOPMENT
Research and product development expenses, related to the Company's continued
development of products incorporating its PEARL and DI technologies, were $15.9
million, $17.2 million and $15.0 million in fiscal 2000, 1999 and 1998
respectively.
BACKLOG
As of March 19, 2001, the Company had a backlog of products and royalties under
contract aggregating approximately $25.8 million compared to a backlog of
approximately $19.3 million as of March 10, 2000. Substantially all backlog of
products as of March 19, 2001 is expected to ship in 2001.
EMPLOYEES
As of March 10, 2001, the Company and its LaserTel subsidiary had three hundred
seventy-one employees. None of the Company's employees is represented by a labor
union. One hundred-three are engaged primarily in engineering, research and
development, fifty-five are engaged in sales, marketing and customer support;
one hundred sixty-seven are engaged primarily in manufacturing, manufacturing
engineering and quality control; and forty-six are engaged primarily in
corporate management, administration and finance. The Company considers its
relationship with its employees to be good.
Set forth below is a glossary of certain terms used in this report:
A1 (8-up) a printing term referring to a standard paper size
capable of printing eight 8.5" x 11" pages on a sheet
of paper
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/B3 (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 (CTP) 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
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Direct Imaging (DI(R)) digital imaging systems that allow image information
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, one of the world's
largest printing press manufacturers, headquartered in
Heidelberg, Germany
Hydrophobic/Hydrophilic used in lithographic printing to describe whether a
material will reject water (hydrophobic) or will be
water receptive (hydrophilic)
Infrared lying outside of the visible spectrum beyond its
red-end characterized by 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
non-image area does not, and that ink and water
differentiate
Off-press making a printing plate from either an analog or
digital source independently of the press on which it
will be used
Oleophilic/Oleophobic used in printing to describe whether a material 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 systems the Presstek components required to convert a
ProFire(TM) conventional printing press into a direct imaging
press, including laser diode arrays, computers,
electronics
Dimension(TM) the Company's product line of CTP, off-press plate
making equipment
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Photosensitive silver halide or photo-polymer coatings 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
Prepress Graphic arts operations and methodologies that occur
prior to the printing process; typically these include
photography, scanning, image assembly, color
correction, exposure of image carriers (film and/or
plate), proofing
Quickmaster DI the second generation of direct imaging, waterless
presses, highly automated with roll-fed PEARL plate
material, a joint development effort between
Heidelberg and Presstek
Semiconductor a high-powered, infrared imaging technology employed
laser diode in the PEARL imaging system
Short-run markets/ a graphic arts classification used to denote an
printing emerging trend for lower print quantities
Thermally-based a method of digitally exposing a material via the heat
generated from a laser beam
Vacuum deposition a technology to accurately, uniformly coat substrates
process in a controlled environment
Waterless a lithographic printing method that uses dry offset
printing plates and inks and does not require a
dampening system
"YAG" laser One of the more commonly used laser sources for
direct-to-plate imaging systems
ITEM 2. PROPERTIES
----------
The Company's corporate offices, administrative, marketing and manufacturing
operations are located at 55 Executive Drive in Hudson, New Hampshire in a
165,000 square foot facility, which the Company owns.
The Company also owns a 75,000 square foot facility in Tucson, Arizona, which
was previously occupied by Delta V Technologies, Inc., a discontinued operation,
and is now occupied by the Company's LaserTel subsidiary. Properties owned by
the Company in Hudson, New Hampshire and Tuscon, Arizona, with an aggregate cost
of $22.0 million, are secured by two ten-year mortgage term loans in the
principle amount of $6.9 and $4.0 million, respectively.
The Company leases approximately 50,000 square feet of property at 18 Hampshire
Drive in Hudson, New Hampshire for its equipment and consumable product research
and development operations. The lease of these premises expires in May 2003. The
base rent, subject to adjustment annually is currently $16,667 per month, plus a
pro rata share of real estate taxes, utilities, and certain other expenses.
The Company leases 36,000 square feet of property at 9 Commercial Street in
Hudson, New Hampshire, for general warehousing under a tenant-at-will
arrangement, with a base rent of $16,354, per month, plus a pro rata share of
real estate taxes, utilities and certain other expenses. The Company sub-leases
18,000 square feet of this facility under a tenant-at-will arrangement. The
Company intends to vacate this facility in the near future.
The Company leases certain other property in Hudson, New Hampshire which is not
considered to be material.
10
ITEM 3. LEGAL PROCEEDINGS
-----------------
In March 2000, the Company entered into an agreement with the plaintiffs in
several class actions lawsuits consolidated under the common caption "Bill
Berke, et al. v. Presstek, Inc., et al." in the United States District Court,
District of New Hampshire to settle the class action lawsuit. The Company also
executed a memorandum of understanding with respect to the settlement of the
derivatives lawsuits, filed on behalf of the Company, one in the Chancery Court
of the State of Delaware and the other in the United States District Court,
District of New Hampshire. Under the terms of the class action settlement, $22.0
million, in the form of 1,245,246 shares of the Company's common stock, will be
paid to the class. The Company issued 437,196 of such shares in the fourth
quarter of fiscal 2000 and expects to distribute the remaining 808,050 shares of
common stock in the fiscal year ending December 29, 2001. In the memorandum of
understanding in the derivative litigation, the Company agreed to issue 60,582
shares of common stock and certain therapeutic improvements to its internal
policies, some of which have already been instituted. The Company issued 60,582
of such shares in the third quarter of fiscal 2000. The Company recorded a
charge of $23.2 million in the fourth quarter of fiscal 1999 related to the
settlements, $22.9 million of which was recorded as a long-term liability. See
Note 13 of notes to the financial statements and Item 5 of Part II of this
report.
In August 1999 Creo Products, Inc., ("Creo"), filed an action in the United
States District Court for the District of Delaware against the Company asserting
that Creo has a "reasonable apprehension that it will be sued by Presstek for
infringement" of two of the Company's patents and seeking a declaration that
Creo's products "do not and will not infringe any valid and enforceable claims"
of the patents in question. In September 1999, the Company filed a counterclaim
against Creo for patent infringement. The Company claims that Creo has infringed
two direct imaging patents owned by the Company which were recently the subject
of re-examination by the U. S. Patent and Trademark Office. Presstek intends to
vigorously enforce its patent rights.
In December of 1999 a complaint was filed by PPG, Inc. ("PPG") against Delta V
in the United States District Court for the Western District of Pennsylvania
alleging that Delta V sold to PPG certain vacuum coating equipment that did not
meet certain product specifications. An amended complaint was filed in April of
2000. In the suit, PPG seeks damages in excess of $7.0 million. In addition to
naming Delta V as a defendant in the complaint, PPG also named Presstek as a
defendant, seeking damages from Presstek and attempting to hold Presstek liable
for the alleged breach of contract by its subsidiary, Delta V, on a theory of
indirect liability. Motions to dismiss for lack of venue have been filed,
briefed and argued, and a decision on these motions is pending before the court.
The Company intends to continue to vigorously defend this action.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
Not Applicable
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
---------------------------------------------------------------------
The Company's common stock is quoted on the Nasdaq National Market under the
symbol "PRST". The following table sets forth the high and low sale prices per
share of common stock for each full quarterly period within the two most
recently completed fiscal years as reported by the Nasdaq National Market.
FISCAL YEAR ENDED DECEMBER 30, 2000 HIGH LOW
----------------------------------- ------------ ------------
First quarter $28 3/4 $12 3/4
Second quarter 24 1/4 15 1/8
Third quarter 21 1/2 10 7/8
Fourth quarter 19 13/16 5 7/8
FISCAL YEAR ENDED JANUARY 1, 2000 HIGH LOW
----------------------------------- ------------ ------------
First quarter $11 7/16 $ 6 13/16
Second quarter 9 7/8 6 1/2
Third quarter 7 15/16 5
Fourth quarter 19 7/8 5 15/16
11
On March 15, 2001 there were 1,114 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.
ISSUANCE OF UNREGISTERED SECURITIES
Pursuant to the terms of the settlement agreement related to the consolidated
class action settlement, and in consideration for the execution of such
settlement, the Company agreed to issue an aggregate of 1,245,246 shares of its
common stock to the various class action plaintiffs and their lawyers. The
number of shares was determined by calculating the aggregate number of shares of
common stock of the Company obtained by dividing $11.0 million by the volume
weighted average price of the Company's common stock for all trading days in
April 2000 and the aggregate number of shares of common stock of the Company
obtained by dividing $11.0 million by the volume weighted average price of the
Company's common stock for all trading days in October 2000. In addition, in
connection with the settlement of the derivative lawsuit initiated against the
Company, the Company agreed to issue 60,582 shares of common stock. Thus between
both the class action settlement and the derivative suit settlement, the Company
agreed to issue, in the aggregate, 1,305,828 shares of common stock. On August
2, 2000 the Company issued 60,582 shares of common stock. Likewise, on November
15, 2000 the Company issued 437,196 of these shares of common stock. All such
shares were issued pursuant to an exemption from registration provided by
Section 3(a)(10) of the Securities Act of 1933, as the issuance of such shares
was approved at a fairness hearing before the United States District Court of
New Hampshire in June 2000. The Company expects to distribute the remaining
808,050 shares of common stock in the fiscal year ending December 29, 2001.
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
statements of operations data for the fiscal years ended January 3, 1998 and
December 28, 1996 and the balance sheet data at January 2, 1999, January 3,
1998, and December 28, 1996, which is not included in such financial
statements). All references to common shares and earnings (loss) per share data
have been restated retroactively to reflect the fiscal 1997 stock split,
effected in the form of a stock dividend.
12
SELECTED FINANCIAL DATA
STATEMENTS OF OPERATIONS
(In thousands, except per share data)
DEC 30 JAN 1 JAN 2 JAN 3 DEC 28
FOR THE FISCAL YEARS ENDED 2000 2000 1999 1998 1996
- ---------------------------------------------------- -------- -------- -------- -------- --------
REVENUES: $ 87,294 $ 54,964 $ 74,165 $ 89,793 $ 46,678
- ---------------------------------------------------- -------- -------- -------- -------- --------
COSTS AND EXPENSES:
Costs of products sold 46,747 33,326 46,606 43,854 20,409
Engineering and product development 15,897 17,190 14,994 10,539 8,798
Sales, marketing and customer support 9,613 5,934 5,620 4,302 2,588
General and administrative 9,635 6,487 9,264 5,279 3,832
Provision for settlement of
shareholder litigation(1) -- 23,200 -- -- --
- ---------------------------------------------------- -------- -------- -------- -------- --------
Total costs and expenses 81,892 86,137 76,484 63,974 35,627
- ---------------------------------------------------- -------- -------- -------- -------- --------
INCOME (LOSS) FROM OPERATIONS 5,402 (31,173) (2,319) 25,819 11,051
- ---------------------------------------------------- -------- -------- -------- -------- --------
OTHER INCOME (EXPENSE):
Dividend and interest, net (99) 501 623 374 782
Other, net 147 38 109 (244) (228)
- ---------------------------------------------------- -------- -------- -------- -------- --------
Other income, net 48 539 732 130 554
- ---------------------------------------------------- -------- -------- -------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS 5,450 (30,634) (1,587) 25,949 11,605
PROVISION FOR INCOME TAXES(2) 150 -- -- 9,460 3,984
- ---------------------------------------------------- -------- -------- -------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS 5,300 (30,634) (1,587) 16,489 7,621
DISCONTINUED OPERATIONS:(3)
Loss from discontinued operations 600 (448) (1,094) (2,117) (500)
Loss on disposal of discontinued operations -- (8,534) -- -- --
- ---------------------------------------------------- -------- -------- -------- -------- --------
LOSS FROM DISCONTINUED OPERATIONS 600 (8,982) (1,094) (2,117) (500)
- ---------------------------------------------------- -------- -------- -------- -------- --------
NET INCOME (LOSS) $ 5,900 $(39,616) $ (2,681) $ 14,372 $ 7,121
==================================================== ======== ======== ======== ======== ========
EARNINGS (LOSS) PER SHARE - BASIC:
From continuing operations $ 0.16 $ (0.95) $ (0.05) $ 0.53 $ 0.26
==================================================== ======== ======== ======== ======== ========
From discontinued operations $ 0.02 $ (0.28) $ (0.03) $ (0.07) $ (0.02)
==================================================== ======== ======== ======== ======== ========
EARNINGS (LOSS) PER SHARE - BASIC $ 0.18 $ (1.23) $ (0.08) $ 0.46 $ 0.24
==================================================== ======== ======== ======== ======== ========
EARNINGS (LOSS) PER SHARE - DILUTED:
From continuing operations $ 0.15 $ (0.95) $ (0.05) $ 0.50 $ 0.23
==================================================== ======== ======== ======== ======== ========
From discontinued operations $ 0.02 $ (0.28) $ (0.03) $ (0.06) $ (0.02)
==================================================== ======== ======== ======== ======== ========
EARNINGS (LOSS) PER SHARE - DILUTED $ 0.17 $ (1.23) $ (0.08) $ 0.44 $ 0.21
==================================================== ======== ======== ======== ======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - BASIC 32,826 32,336 31,986 31,300 29,858
==================================================== ======== ======== ======== ======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - DILUTED 35,320 32,336 31,986 32,695 33,163
==================================================== ======== ======== ======== ======== ========
BALANCE SHEET DATA
(In thousands)
DEC 30 Jan 1 Jan 2 Jan 3 Dec 28
AS OF 2000 2000 1999 1998 1996
- ---------------------------------------------------- -------- -------- -------- -------- --------
Working Capital $ 32,287 $ 25,373 $ 37,080 $ 32,962 $ 29,179
Total Assets 115,902 94,633 106,670 99,655 66,618
Short-Term Debt 1,989 1,024 522 4,800 --
Long-Term Debt 16,481 8,830 5,922 -- --
Other Long-Term Liabilities -- 22,950 -- -- --
Stockholders' Equity 83,143 49,855 87,453 85,990 57,443
Cash Dividends -- -- -- -- --
1 Provision for the proposed settlements with the plaintiffs in the class
actions and related derivative suits filed in 1996. See Note 13 of notes to
the financial statements.
2 Tax expense in fiscal 1997 and 1996 represented charges in lieu of income
taxes, although no tax was payable as a result of stock compensation
deductions. Accordingly, no tax benefit was recorded in fiscal 1999 or fiscal
1998. See Note 5 of notes to the financial statements.
3 Relates to the operations of Delta V Technologies, Inc., which were
discontinued in fiscal 1999. See Note 3 of notes to the financial statements.
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
The following Management's Discussion and Analysis should be read in connection
with "Item 1. Business", "Item 6. Selected Financial Data", "Item 7A.
Quantitative and Qualitative Disclosures about Market Risks", the Company's
Consolidated Financial Statements and Notes thereto and the information
described under the caption "Risk Factors" below.
BACKGROUND
Presstek, Inc. (the "Company" or "Presstek"), incorporated in Delaware in 1987,
is a leading developer of non-photographic, digital imaging and printing plate
technologies for the printing and graphic arts industries. Presstek's products
and applications incorporate its patented, proprietary PEARL(R) and DI(R)
digital imaging technologies and utilize PEARL consumables for computer-to-plate
("CTP") and direct-to-press applications. The Company's patented DI and PEARL
thermal laser diode product family, enables its customers to produce high
quality, full-color lithographic printed materials more quickly and cost
effectively. In the late 1980's, the Company developed a direct imaging system
that would allow digitally formatted file data to be used to image a plate
directly on the printing press. Presstek's technology and products use thermal
energy generated by lasers to reproduce digital files directly onto printing
plates. This eliminates the daylight sensitive, photomechanical and chemical
processes associated with other imaging methods.
The Company is also engaged in the development of additional PEARL and DI
products that incorporate its patented, proprietary, digital imaging system and
process-free thermal ablation printing plate technologies for CTP and
direct-to-press applications.
In fiscal 2000, Presstek and Ryobi Limited ("Ryobi") of Japan completed the
development of an A3 format size four-color sheet-fed press, which was
introduced in May 2000, and will be marketed by Ryobi as the 3404DI.
Incorporating Presstek's dual plate cylinder concept, this press also features
the Company's internal automated plate cylinder design, ProFire(TM) technology,
and PEARLdry(TM) spooled plates. The small format of this press is designed to
appeal to quick printers, in-plant printers, and copy centers looking to expand
their service with offset color printing.
During fiscal 2000 the Company entered into an agreement with Xerox Corporation
("Xerox") to supply Xerox with a series of three Presstek enabled DI presses and
related consumables, which will be marketed, distributed and serviced worldwide
on a co-branded basis. The products included in the Xerox relationship are four
and five color versions of a B3 size sheet-fed press, which will be marketed as
the DocuColor 400 DI and an A3 size four-color sheet-fed press, which will be
marketed as the DocuColor 233 DI. These presses incorporate the Company's
internal automated plate cylinder design, the ProFire imaging technology and
PEARLdry spooled, printing plates. The Company's relationship with Xerox is in
its early stages. Due to a number of factors, there has been a three to four
month delay in the delivery of presses to Xerox versus that which had been
planned under the Xerox Agreement. Initial press shipments, customer support
training programs and other activities are progressing, but at this time, there
can be no assurance that additional delays will not result in reduced press
shipments to Xerox in fiscal 2001.
The Company also has agreements with a number of other companies including
Adamovske Strojirny a. s. ("Adast"), Nilpeter A/S, Werner Kammann
Maschinenfabrik GmbH, Sakurai Graphic Systems Corp., and Akiyama Printing
Machinery Manufacturing Corporation. These agreements typically are for the use
of the Company's direct imaging systems, technology licenses, and/or thermal
plate materials. They include a variety of "direct-to" offset printing
applications ranging from high quality label production and printing on aluminum
cans to the production of standard four-color printing.
In April 2000 the Company incorporated an Arizona subsidiary, LaserTel, Inc.
("LaserTel") for the purpose of securing its supply of laser diodes. LaserTel is
located in the former Delta V Technologies, Inc. ("Delta V") facility in Tucson,
Arizona, and is primarily engaged in the manufacture and development of the
Company's high-powered laser diodes. While the Company established LaserTel
primarily to gain some control over the source of laser diodes, the nature of
LaserTel's technology and the Company's available capacity have enabled LaserTel
to find additional market applications for its laser technology. As a result,
LaserTel is also currently developing laser prototypes for qualification to the
telecommunications, defense, and medical industries. LaserTel has particular
experience in the design and fabrication of multi-mode high power laser diodes.
This experience spans ten years of development activity at Presstek and is
expected to support applications in
14
telecommunications as well as graphic arts. There can be no assurance, however
that these products will be commercially successful or produce significant
revenues for the Company or LaserTel.
In fiscal 1999 the Company discontinued the operations of its Delta V subsidiary
to allow the Company to further focus its efforts on the core business of
digital imaging and plate manufacturing. Located in Tucson, Arizona, Delta V was
engaged in the development, manufacture, and sale of vacuum deposition coating
equipment for vacuum coating applications. The Company concluded the operations
of Delta V as of the end of the fiscal 1999. As a result of the divestiture of
Delta V, the Company incurred an $8.5 million loss on disposal of discontinued
operations for the fiscal year ended January 1, 2000. This included actual
closing costs and operating losses incurred in the fourth quarter of fiscal 1999
of $2.2 million, a provision for anticipated closing costs of $1.6 million, $6.1
million related to the write off of goodwill and other intangibles assets, and a
reduction in other asset values of $1.6 million. These costs were partially
offset by proceeds of $3.0 million received from Minnesota Mining and
Manufacturing Co., ("3M") for the licensing of the Company's intellectual
property relating to vacuum-deposited polymer multi-layer technology. Delta V is
reported separately as a discontinued operation, and prior periods have been
restated in the Company's financial statements, related footnotes and the
management's discussion and analysis to conform to this presentation.
The Company operates and reports on a 52/53 week fiscal year, ending on the
Saturday closest to December 31. Accordingly, the financial statements include
the 52 week fiscal years ended December 30, 2000 ("fiscal 2000"), January 1,
2000 ("fiscal 1999") and January 2, 1999 ("fiscal 1998").
The Company operates in two reportable segments, the Digital Imaging Products
segment and the LaserTel segment. The Digital Imaging Products segment is
primarily engaged in the development, manufacture and sales of proprietary
digital imaging systems and printing plate technologies for CTP and
direct-to-press applications. The LaserTel segment is primarily engaged in the
manufacture and development of Presstek's high-powered laser diodes.
RESULTS OF OPERATIONS
The LaserTel segment's results of operations were not material to the Company's
results of operations for fiscal 2000. With the exception of general and
administrative expenses, the following discussions relate only to the Company's
Digital Imaging Products segment.
FISCAL 2000 VERSUS FISCAL 1999
REVENUES
Revenues for fiscal 2000 and 1999 of $87.3 million and $55.0 million,
respectively, consisted of product sales, royalties, license fees and product
development reimbursements. Revenues for fiscal 2000 increased $32.3 million or
59% as compared to fiscal 1999. Product sales for fiscal 2000 were $78.1 million
as compared to $47.9 million for fiscal 1999, an increase of $30.2 million or
63%. The increase was due primarily to volume increases of shipments to
Heidelberg for direct imaging systems used in the Quickmaster DI, as well as
initial sales of the Company's CTP Dimension platesetter products, and volume
increases of the Company's thermal consumable products. The revenues generated
from the sale of the Company's PEARLdry and other consumable products were $44.9
million for fiscal 2000, an increase of $7.8 million or 21%, as compared to
$37.1 million for fiscal 1999. These consumable product revenues included $18.7
million and $17.2 million for fiscal 2000 and 1999, respectively, sold under the
Company's agreements with Heidelberg and its distributors.
Royalties and fees from licensees for fiscal 2000 of $9.2 million increased $2.2
million or 31% as compared to royalties and fees of $7.0 million for fiscal
1999. Royalties increased $7.2 million or 1,118% comparing fiscal 2000 to fiscal
1999, as a result of increased shipments to Heidelberg of direct imaging systems
used in the Quickmaster DI. This increase was offset by a decrease of $5.1
million in engineering fees primarily due to the reduction of fees from Fuji
Photo Film Co., Ltd. for fiscal 2000, as compared to fiscal 1999.
Revenues generated under the Company's agreements with Heidelberg and its
distributors were $49.4 million in fiscal 2000, an increase of $27.8 million or
129% from fiscal 1999 revenues of $21.6 million. Revenues from Heidelberg
represented 57% and 39% of total revenues for the fiscal years 2000 and 1999,
respectively.
15
In fiscal 1998 and 1999 the Company materially reduced production levels of
direct imaging systems used in the Quickmaster DI press, based on requirements
from Heidelberg. The Company resumed production with initial low level shipments
of its direct imaging systems late in the third quarter of fiscal 1999, and
increased production levels in fiscal 2000 in line with the actual rate of
Quickmaster DI's made by Heidelberg.
COST OF PRODUCTS SOLD
Cost of products sold consists of the costs of material, labor and overhead as
well as future warranty costs associated with product sales. Cost of products
sold for fiscal 2000 was $46.7 million, an increase of $13.4 million or 40% as
compared to $33.3 million for fiscal 1999. The gross margin increase on product
sales to 40% for fiscal 2000 from 30% for fiscal 1999 is primarily the result of
economies of scale related to increased manufacturing volumes of proprietary
digital media and consumable products, as well as increased production of its
direct imaging systems sold to Heidelberg for use in its Quickmaster DI.
RESEARCH AND PRODUCT DEVELOPMENT
Research and product development expenses consist primarily of payroll and
related expenses for personnel, parts and supplies, and contracted services
required to conduct the Company's equipment and consumable product development
efforts. Research and product development expenses were $15.9 million or 18% of
revenues for fiscal 2000 as compared to $17.2 million or 31% of fiscal 1999
revenues. The decrease of $1.3 million is primarily the result of the conclusion
of the development efforts associated with the Company's contract with Fuji
Photo Film, Inc.
SALES, MARKETING AND CUSTOMER SUPPORT
Sales, marketing and customer support expenses consist primarily of payroll and
related expenses for personnel, advertising, trade shows, promotional expenses,
and travel costs. Sales, marketing and customer support expenses were $9.6
million, or 11% of fiscal 2000 revenues, compared to $5.9 million or 11% of
fiscal 1999 revenues. The increase of $3.7 million resulted primarily from
increased expenditures associated with the Company's attendance at the GraphExpo
trade show in September, and the Drupa 2000 trade show in May. Increases in
salaries as a result of head count growth and increases in professional services
relate to the Company's continued expansion of its worldwide sales, distribution
and customer support network.
GENERAL AND ADMINISTRATIVE
General and administrative expenses consist primarily of payroll and related
expenses for personnel, and contracted professional services. General and
administrative expenses for fiscal 2000 were $9.6 million or 11% of fiscal 2000
revenues compared to $6.5 million or 12% of fiscal 1999 revenues. The increase
of $2.1 million for the Digital Imaging Products segment related primarily to
increases in salaries as a result of headcount growth, legal fees as a result of
patent litigation, and increases in other professional services necessary to
conduct the finance, information systems, and administrative functions. The
general and administrative expenses for the LaserTel segment were $1.0 million
for fiscal 2000, and relate primarily to salaries and other professional
services incurred as a result of the start-up of LaserTel in April 2000.
OTHER INCOME AND EXPENSE
Other income net, was $48,000 or less than 1% of revenues for fiscal 2000
compared to other income net, of $539,000 or 1% of revenues for fiscal 1999.
Dividend and interest income was $870,000 for fiscal 2000 as compared to $1.0
million for the comparable period for fiscal 1999. The decrease of $130,000 is
primarily attributed to the decrease in average cash balances available for
investments. Interest expense was $969,000 as compared to $522,000 for the
comparable period for fiscal 1999. The increase of $447,000 is primarily
attributed to the increased borrowings related to the Company's lease line of
credit facility with Keybank National Association.
PROVISION FOR INCOME TAXES
The Company did not record a provision for or a charge in lieu of United States
federal income taxes for fiscal 2000, as a result of net operating loss
carryforwards other than those generated from deductions related to stock
compensation for the period. The Company recorded a provision of $150,000 for
state income taxes for
16
fiscal 2000. The Company did not record a provision for or a charge in lieu of
United States federal income taxes or state income taxes for fiscal 1999, as a
result of the net operating losses incurred prior to tax deductions related to
stock compensation for the period.
INCOME (LOSS) FROM CONTINUING OPERATIONS
As a result of the foregoing, the Company had income from continuing operations,
of $5.3 million for fiscal 2000, as compared to losses from continuing
operations of $30.6 million for fiscal 1999.
INCOME (LOSS) FROM DISCONTINUED OPERATIONS
The results of operations of Delta V are presented as discontinued operations.
Income from Delta V's discontinued operations was $600,000 for fiscal 2000, as a
result of payments received from 3M for the licensing of the Company's
intellectual property relating to vacuum-deposited polymer multilayer
technology, as compared to losses of $9.0 million for fiscal 1999, including a
loss on disposal of its discontinued operations of $8.5 million. The loss on
disposal of discontinued operations included actual closing costs and operating
losses incurred in the fourth quarter of fiscal 1999 of $2.2 million, a
provision for anticipated closing costs of $1.6 million, $6.1 million related to
the write off of goodwill and other intangible assets, and a reduction in other
asset values of $1.6 million. These costs were partially offset by proceeds of
$3.0 million received from 3M for the licensing of the Company's intellectual
property relating to vacuum-deposited polymer multi-layer technology.
FISCAL 1999 VERSUS FISCAL 1998
REVENUES
Revenues for fiscal 1999 and 1998 of $55.0 million and $74.2 million,
respectively, consisted of product sales, royalties, fees and other
reimbursements. Revenues for fiscal 1999 decreased $19.2 million or 26% as
compared to fiscal 1998. Product sales for fiscal 1999 were $47.9 million as
compared to $60.8 million in fiscal 1998, a decrease of $12.9 million or 21%.
The decrease was due primarily to a decrease of shipments to Heidelberg for
direct imaging systems used in the Quickmaster DI, and a decrease in sales of
custom printing press products. These decreases were partially offset by an
increase in sales of the Company's proprietary digital media and consumable
products. The revenues generated from the sale of the Company's PEARLdry and
other consumable products were $37.1 million for fiscal 1999, an increase of
$8.8 million or 31%, as compared to $28.3 million in fiscal 1998. These
consumable product revenues included $17.2 million and $11.4 million for fiscal
1999 and 1998, respectively, sold under the Company's agreements with Heidelberg
and its distributors.
Royalties and fees from licensees for fiscal 1999 of $7.0 million decreased $6.3
million or 47% as compared to royalties and fees of $13.3 million for fiscal
1998. Royalties decreased $7.0 million or 91% comparing fiscal 1999 to fiscal
1998 offset by an increase in engineering fees primarily from Fuji Photo Film
Co., Ltd., of $634,000 or 11% in fiscal 1999. The decrease is primarily the
result of the decreased shipments of direct imaging systems to Heidelberg for
use in the Quickmaster DI.
Revenues generated under the Company's agreements with Heidelberg and its
distributors were $21.6 million in fiscal 1999, a decrease of $20.5 million or
49% from fiscal 1998 revenues of $42.1 million. Revenues from Heidelberg
represented 39% and 57% of total revenues for the fiscal years 1999 and 1998,
respectively.
In fiscal 1998 and 1999, the Company materially reduced production levels of
direct imaging systems used in the Quickmaster DI press, based on requirements
from Heidelberg. The Company received orders in fiscal 1999 from Heidelberg in
connection with its direct imaging systems used in the Quickmaster DI. Based on
the delivery schedule for these orders, the Company resumed production with
initial low level shipments of its direct imaging systems late in the third
quarter of fiscal 1999.
17
COST OF PRODUCTS SOLD
Cost of products sold consists of the costs of material, labor and overhead as
well as future warranty costs associated with product sales. Cost of products
sold for fiscal 1999 were $33.3 million, a decrease of $13.3 million or 29% as
compared to fiscal 1998. The gross margin increase to 30% for fiscal 1999 from
23% for fiscal 1998. This increase is primarily the result of economies related
to increased manufacturing volumes of proprietary digital media and consumable
products, a reduction in allowances provided as a result of product requirement
changes and inventory obsolescence, offset by inefficiencies related to reduced
manufacturing volumes of direct imaging systems sold to Heidelberg for use in
its Quickmaster DI.
RESEARCH AND PRODUCT DEVELOPMENT
Research and product development expenses consist primarily of payroll and
related expenses for personnel, parts and supplies, and contracted services
required to conduct the Company's equipment and consumable product development
efforts.
Research and product development expenses were $17.2 million or 31% of revenues
for fiscal 1999 as compared to $15.0 million or 20% of fiscal 1998 revenues. The
increase resulted principally from increased expenditures for labor and
professional services related to the Company's continued development of products
incorporating its PEARL and DI technologies. Included in these development
efforts were significant expenditures for the Company's digital plate media and
consumable products, as well as expenditures for its next generation ProFire
integrated imaging system and other product development efforts. These increased
expenditures were also a result of increased engineering programs related to the
development contract with Fuji Photo Film Co., Ltd.
SALES, MARKETING AND CUSTOMER SUPPORT
Sales, marketing and customer support expenses consist primarily of payroll and
related expenses for personnel, advertising and promotional expenses, and travel
costs. Sales, marketing and customer support expenses were $5.9 million or 11%
of revenues for fiscal 1999 compared to $5.6 million or 8% of fiscal 1998
revenues. The increase resulted primarily from increased expenditures for labor
and professional services, and other related costs associated with the Company's
attendance at trade shows and the continued expansion of its worldwide sales,
distribution and customer support network.
GENERAL AND ADMINISTRATIVE
General and administrative expenses consist primarily of payroll and related
expenses for personnel, and contracted professional services. General and
administrative expenses for fiscal 1999 were $6.5 million or 12% of revenues
compared to $9.3 million or 12% of fiscal 1998 revenues. The decrease of $2.8
million related primarily to decreases in expenditures for contracted
professional services required to conduct the finance, information systems, and
administrative functions of the Company, as well as, the reduction in the
provision for uncollectable accounts. The Company recorded a charge of $2.2
million for certain disputed and uncollectable accounts in fiscal 1998.
PROVISION FOR THE SETTLEMENT OF SHAREHOLDER LITIGATION
The Company recorded a charge of $23.2 million in fiscal 1999 related to the
proposed settlement of the class action and derivative lawsuits, filed in the
United States District Court for the District of New Hampshire in 1996, on
behalf of the Company's shareholders. The charge included the $22.9 million
settlement and related administrative costs of $250,000.
OTHER INCOME AND EXPENSE
Other income was $539,000 or 1% of revenues for fiscal 1999 compared to $732,000
or 1% of revenues for fiscal 1998. The decrease of $193,000 was primarily the
result of a decrease in average cash balances available for investment, as well
as increased interest expense incurred on the Company's lease line of credit
with Keybank National Association.
18
PROVISION FOR INCOME TAXES
The Company did not record provisions for or a charge in lieu of United States
federal income taxes or state income taxes in fiscal 1999 or 1998, as a result
of net operating losses incurred prior to tax deductions related to stock
compensation.
LOSS FROM CONTINUING OPERATIONS
As a result of the foregoing, the Company incurred losses from continuing
operations in fiscal 1999 of $30.6 million, as compared to losses from
continuing operations of $1.6 million for fiscal 1998.
LOSS FROM DISCONTINUED OPERATIONS
The results of operations of Delta V are presented as discontinued operations.
For fiscal 1999 the Company incurred a loss from discontinued operations of
$448,000, as compared to a loss of $1.1 million for fiscal 1998. In addition,
for fiscal 1999 the Company recorded a loss on disposal of its discontinued
operations of $8.5 million. This included actual closing costs and operating
losses incurred in the fourth quarter of fiscal 1999 of $2.2 million, a
provision for anticipated closing costs of $1.6 million, $6.1 million related to
the write off of goodwill and other intangible assets, and a reduction in other
asset values of $1.6 million. These costs were partially offset by proceeds of
$3.0 million received from 3M for the licensing of the Company's intellectual
property relating to vacuum-deposited polymer multi-layer technology.
LIQUIDITY AND CAPITAL RESOURCES
At December 30, 2000, the Company had cash and cash equivalents of $12.0 million
and working capital of $32.3 million as compared to cash and cash equivalents of
$18.7 million and working capital of $25.4 million at January 1, 2000.
Net cash used for operating activities of continuing operations was $2.3 million
for the fiscal year ended December 30, 2000, as a result of net income from
continuing operations of $5.3 million, adjusted for non-cash items of
depreciation and amortization of $6.7 million, offset by an increase in accounts
receivable of $6.0 million reflecting higher sales volume, and increases in
inventories of $4.8 million as a result of greater production requirements.
Advances to suppliers and other current assets increased by $6.7 million,
primarily reflecting advanced payments made in connection with certain supply
agreements.
Net cash used for investing activities of continuing operations was $16.0
million for the fiscal year ended December 30, 2000, and consisted primarily of
additions to property, plant and equipment used in the Company's business of
$15.2 million. These additions included $1.8 million for additional plate
manufacturing equipment which is expected to reduce the cost of manufacturing
the Company's proprietary digital media and consumable products and enhance the
Company's development capabilities, $4.4 million related to the construction of
the second phase of its 55 Executive Drive facility, as well as $6.5 million in
equipment purchases related to the manufacture of laser diodes at the Company's
LaserTel subsidiary.
Net cash provided by financing activities during the fiscal year ended December
30, 2000 totaled $10.6 million, and consisted primarily of proceeds from the
Company's lease line of credit and mortgage term loan of $10.0 million, as well
as proceeds from the issuance of common stock of $2.0 million, offset by
payments on the mortgage term loan and the lease line of credit of $1.3 million.
In June 2000, the Company borrowed the remaining $6.0 million under a $10.0
million lease line of credit facility from Keybank National Association. The
$10.0 million in borrowings is secured by equipment valued at $13.4 million. The
loan bears a variable rate of interest based upon the prime rate, currently 8.5%
with a fixed rate conversion provision. Principal and interest under the lease
line are payable in 84 monthly installments beginning on July 31, 2000 for the
$6.0 million in borrowings. Payments on the initial $4.0 million borrowed in
September 1999 commenced in October 1999. The Company has received a commitment
for an additional $5.0 million lease line of credit from Keybank, which expires
on April 30, 2001.
19
On October 30, 2000 the Company renewed its credit facilities with Citizens Bank
New Hampshire ("Citizens"). These credit facilities, which expire in September
2002, include renewal of the current ten-year mortgage term loan in the amount
of $6.9 million, an additional ten-year mortgage term loan in the amount of $4.0
million, and a revolving line of credit loan.
The ten-year mortgage term loan in the amount of $6.9 million bears a fixed rate
of interest of 7.12% per year during the first five years, a variable rate of
interest at the LIBOR rate plus 2%, (8.56% at December 30, 2000) for the
remaining five years. Principal and interest payments during the first five
years of the loan will be made in 60 monthly installments of $80,500. During the
remaining five years, principal and interest payments will be made on a 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 interest is due and payable
on February 6, 2008.
The ten-year mortgage term loan in the amount of $4.0 million bears a fixed rate
of interest equal to 7.95% per year during the first five years, a fixed rate of
interest equal to United States Treasury Notes or Bills with a maturity date
closest to the end of the second five years plus 225 basis points, for the
remaining five years. During the first five years, principal and interest shall
be paid in 60 monthly installments of $48,425. During the remaining five years,
principal and interest payments will be made on a monthly basis in the amount of
one-sixtieth of the outstanding principal amount as of the first day of the
second five year period, plus accrued interest through the monthly payment date.
All outstanding principal and accrued and unpaid interest is due and payable on
October 30, 2010. The ten-year mortgage term loans are secured by land and
buildings with a cost of approximately $22.0 million.
The revolving line of credit loan, under which the Company may borrow $16.0
million, is subject to certain restrictions based on applicable percentages of
accounts receivable and inventory, as defined by the loan agreement, and the
amount of all letters of credit outstanding. The revolving line of credit loan
is secured by substantially all of the Company's assets, with interest payable
at the LIBOR rate plus 1.50% (8.06% at December 30, 2000). As of December 30,
2000, the Company had $6.0 million outstanding under a standby letter of credit,
and $10.0 million available under the revolving line of credit loan.
Under the terms of the mortgage term loans, the lease line of credit and the
revolving line of credit agreements, the Company is required to meet certain
covenants on a quarterly and annual basis. At December 30, 2000 the Company was
in compliance with all financial covenants.
The Company believes that existing, funds, cash flows from operations, and cash
available under its revolving line of credit and lease line of credit should be
sufficient to satisfy working capital requirements and capital expenditures for
the next twelve months.
The Company's anticipated capital expenditures for fiscal 2001 are approximately
$17.0 million, and primarily relate to building improvements and capital
equipment for LaserTel's potential expansion. The Company is currently exploring
various financing alternatives with respect to LaserTel's capital requirements,
however there can be no assurance that the Company will obtain additional
financing.
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 December 30, 2000, the Company had net operating loss carryforwards
totaling approximately $78.7 million of which $47.7 million resulted from stock
compensation deductions for tax purposes relative to stock option plans and
$31.0 million resulted from operating losses. 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 that 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.
20
RECENTLY ISSUED ACCOUNTING STANDARDS
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." SAB 101 summarizes certain of the SEC's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
SAB 101 was adopted in fiscal 2000 and did not have a material impact on the
Company's financial position or results of operations.
In March 2000, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation an Interpretation of APB No. 25" ("FIN No. 44"). FIN No. 44
clarifies the application of Opinion No. 25 for certain issues including: (a)
the definition of employee for purposes of applying Opinion No. 25, (b) the
criteria for determining whether a plan qualifies as a noncompensatory plan, (c)
the accounting of an exchange of stock compensation awards in a business
combination. In general, FIN No. 44 was effective July 1, 2000. The adoption of
FIN No. 44 did not have a material impact on the Company's financial position or
results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." ("SFAS No. 133"), which requires companies to recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS No. 133 (as amended
by SFAS No. 137) is effective for fiscal years beginning after June 15, 2000.
The Company does not presently enter into any transactions involving derivative
financial instruments and, accordingly, does not anticipate the new standard
will have any effect on its financial statements for the foreseeable future.
RISK FACTORS
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995:
Certain statements contained in this Annual Report on Form 10-K constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, including statements regarding the Company's
expectations for its financial and operating performance in 2001, the need for
additional capital to support operations and growth at the Company's LaserTel
subsidiary, the adequacy of internal cash for the Company's operations, the
Company's ability to supply sufficient product for anticipated demand,
production delays associated with this demand, availability of component
materials, management's plans and goals with regard to the Company's shipping
and production capabilities, the availability of alternative suppliers and
manufacturers, the strength of the Company's various strategic partnerships both
on manufacturing and distribution, the ability of the Company to secure other
strategic alliances and relationships, the Company's current plans for product
development and the expected market acceptance of recently introduced products
and the likely acceptance of planned future products, among others. 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 that could cause or contribute to such
differences include those discussed below, as well as those discussed elsewhere
in this report. The words "looking forward," "looking ahead," "believe(s),"
"should," "plan," "expect(s), "project(s)," "anticipate(s)", "may", "likely"
"potential," "opportunity" and similar expressions identify forward-looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date the statements were
made and readers are advised to consider such forward-looking statements in
light of the risks set forth below. Presstek undertakes no obligation to update
any forward-looking statements contained in this Annual Report on Form 10-K.
References to "we", "us", "our" or "ours" refer to the Company and its
subsidiaries.
WE ARE DEPENDENT ON OUR STRATEGIC ALLIANCES AND MANUFACTURING AND DISTRIBUTION
RELATIONSHIPS AND OUR INABILITY TO DEVELOP NEW MARKET CHANNELS WITH NEW OR
EXISTING STRATEGIC PARTNERS COULD HARM OUR BUSINESS. Our strategy to date has
been, in part, to enter into strategic alliances with major companies in the
graphic arts industry and other markets. This strategy has included, among other
things, licensing our intellectual property, developing specialized products
based on our proprietary technologies and manufacturing imaging systems for
inclusion in other manufacturers' products. Our strategy has also involved
identifying strategic partners to aid in developing new market channels for our
products.
Such a strategy led to the development of an important long-term relationship
with Heidelberg Druckmaschinen AG ("Heidelberg"). Since entering into our
strategic alliance with Heidelberg, our sales of products to Heidelberg have
constituted a material portion of our total revenues. For the fiscal year ended
December 30, 2000, our sales to Heidelberg accounted for approximately 57% of
our total revenues. There can be no assurance that our relationship with
Heidelberg will continue. The loss of Heidelberg as a customer would materially
adversely affect our business. In December 1999 we agreed with Heidelberg to
enter into arbitration to resolve certain issues between us concerning on-press
imaging. This arbitration is still in progress.
We are also dependent on other strategic partners, including Xerox, for future
sales of both existing and planned products. This dependency means that the
timetable for finalizing development, commercialization and distribution of both
existing and planned products is dependent upon the needs and circumstances of
our strategic partners. We have experienced and will continue to experience
technical difficulties from time to time which may prevent us from meeting
certain production and distribution targets. Any delay in meeting production and
distribution targets with our strategic partners may harm our relationship with
them and may cause them to terminate their relationship with us. They may
terminate their relationship with us for circumstances beyond our control,
including, factors unique to their business or their business decisions.
21
We are unable to control factors related to the business of our strategic
partners. As an example, in March 2001, Adamovske Strojirny a. s. ("Adast"), a
manufacturing partner of ours, announced that it has cash flow problems which
could potentially affect delivery of our presses. Adast's inability to resolve
their current short term financial situation could significantly reduce the
number of our presses that are produced and shipped under this relationship,
which could have a material adverse effect on our business.
As a result of the uncertainties surrounding many of our strategic partners,
there can be no assurance that our existing strategic relationships will prove
successful or that we will enter into additional strategic partnerships. There
can be no assurance that our relationship with Xerox, Adast or any of our other
strategic, manufacturing and distribution partners will be successful. The loss
of Xerox, Adast or other principal customers or strategic partners could
materially adversely affect our business.
WE ARE DEPENDENT ON THIRD PARTY SUPPLIERS FOR CRITICAL COMPONENTS AND OUR
INABILITY TO MAINTAIN AN ADEQUATE SUPPLY OF ADVANCED LASER DIODES AND OTHER
CRITICAL COMPONENTS COULD ADVERSELY EFFECT US. We are dependent on third party
suppliers for critical components and our increased demand for these components
may put strain on the ability of our third-party suppliers to deliver critical
components in a timely manner. For example, our requirements for advanced
technology laser diodes for use in products incorporating our PEARL and DI
technology has increased and is expected to increase in the future. Although we
have recently established LaserTel, a subsidiary that will focus its efforts on
helping us meet our demand for laser diodes, we are still substantially
dependent on third party manufacturers for our supply of laser diodes and other
necessary components. If we are unable for any reason to secure an uninterrupted
source of advanced laser diodes and other critical components at prices
acceptable to us, our operations could be materially adversely affected. We
cannot assure you that LaserTel will be able to manufacture advanced laser
diodes in quantities that will fulfill our future needs. Likewise, we cannot
assure you that we will be able to obtain alternative suppliers for our laser
diodes or other critical components should our current supply channels prove
ineffective.
WE HAVE A HISTORY OF RECENT LOSSES AND MAY INCUR FUTURE LOSSES. Although we
achieved net income of $5.9 million for the fiscal year ended December 30, 2000,
we sustained net losses of $39.6 million and $2.7 million during our fiscal
years ended January 1, 2000 and January 2, 1999, respectively. We cannot assure
you that we will continue to be profitable in the future or that we will not
sustain significant losses in the future.
RECENTLY INTRODUCED PRODUCTS THAT INCORPORATE OUR TECHNOLOGY MAY NOT BE
COMMERCIALLY SUCCESSFUL AND MAY NOT GAIN MARKET ACCEPTANCE. Achieving market
acceptance for any products incorporating our technology requires substantial
marketing and distribution efforts and expenditure of significant sums of money
and allocation of significant resources, either by us, our strategic partners or
both. We may not have sufficient resources to do so. Likewise, there can be no
assurance that products recently introduced by our strategic partners, such as
the DocuColor 233 DI and DocuColor 400 DI presses, or our recent new product
offerings such as our Anthem(TM) plates and Dimension 400(TM) platesetter, will
achieve widespread market acceptance or that any of our other current products
or any future products that we may develop or any future products produced by
others that incorporate our technologies will achieve market acceptance or
become commercially successful.
OUR MANUFACTURING CAPABILITIES MAY BE INSUFFICIENT TO MEET THE DEMAND FOR OUR
PRODUCTS. If demand for our products grow, our current manufacturing
capabilities may be insufficient to meet this demand resulting in production
delays and a failure to deliver products in a timely fashion. We may be forced
to seek alternative manufacturers for our products. There can be no assurance
that we will successfully be able to do so. As we introduce new products, we may
face production and manufacturing delays due to technical and other unforeseen
problems. Any manufacturing delay could have an adverse affect on our business
and our revenues and may harm our relationships with our strategic partners.
22
OUR BUSINESS IS DEPENDENT ON GENERAL MARKET FACTORS AFFECTING OUR INDUSTRY AND
THE ECONOMY AS A WHOLE. We are dependent on market conditions that affect our
industry generally, and additionally, are also dependent on general economic and
market conditions as a whole. A downturn in our industry or the economy as a
whole, could have a materially adverse effect on our business.
THE EXPANSION OF OUR LASERTEL BUSINESS INTO AREAS OTHER THAN THE PRINTING
BUSINESS MAY BE UNSUCCESSFUL. Our subsidiary, LaserTel, which was formed for the
purpose of supplying us with laser diodes, is in the process of developing laser
prototypes for the telecommunications, defense and medical industries. There can
be no assurance that these prototypes will gain acceptance in these industries
and likewise, there can be no assurance that these products will be commercially
successful. Our executive team has limited experience in the telecommunications,
defense and medical industries and there can be no assurance that LaserTel will
be able to successfully exploit any opportunities that may arise.
OUR NEWLY INCORPORATED SUBSIDIARY, LASERTEL, MAY REQUIRE ADDITIONAL CAPITAL
INFUSIONS FROM US. Our subsidiary, LaserTel, which was incorporated to help us
meet our demand for laser diodes, may require a significant amount of capital
investment by the Company in order to establish and maintain its operations.
LaserTel's capital needs may exceed the Company's ability to provide such funds,
requiring the Company to borrow against its credit facilities or seek to obtain
outside financing for LaserTel's operations. This could have an adverse impact
on our business.
OUR SUCCESS IS DEPENDENT ON OUR ABILITY TO MAINTAIN AND PROTECT OUR PROPRIETARY
RIGHTS. We have been issued a number of U.S. and foreign patents and we intend
to register for additional patents where we deem appropriate. We also hold two
registered trademarks and we may register additional trademarks where we deem
appropriate. There can be no assurance, however, as to the issuance of any
additional patents or trademarks or the breadth or degree of protection which
our patents, trademarks or copyrights may afford us.
There is rapid technological development in the electronic image reproduction
industries, resulting in extensive patent filings and a rapid rate of issuance
of new patents. Although we believe that our technology has been independently
developed and that the products we market do not infringe 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, we may be required to modify our product designs or obtain a license. No
assurance can be given that we would be able to do so in a timely manner, upon
acceptable terms and conditions or even at all. The failure to do any of the
foregoing could have a material adverse effect on us. Furthermore, there can be
no assurance that we will have the financial or other resources necessary to
successfully defend a patent infringement or proprietary rights violation
action. Moreover, we may be unable, for financial or other reasons, to enforce
our rights under any patents we may own. In August 1999 Creo Products Inc. filed
an action in the United States District Court for the District of Delaware
against us seeking a declaration that Creo's products do not and will not
infringe any valid and enforceable claims of any of our patents in question. We
have counter-claimed against Creo for patent infringement of certain of our
patents. This action is ongoing. There can be no assurance that we will be
successful in this action.
We also rely on proprietary know-how and employ various methods to protect the
source codes, concepts, ideas and documentation of our proprietary software.
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 our know-how or software codes, concepts, ideas and documentation.
Although we have and expect to have confidentiality agreements with our
employees and appropriate vendors, there can be no assurance that such
arrangements will adequately protect our trade secrets.
WE FACE SUBSTANTIAL COMPETITION IN THE SALE OF OUR PRODUCTS. We compete with
manufacturers of conventional presses and products utilizing existing
plate-making technology, as well as presses and
23
other products utilizing new technologies, including other types of
direct-to-plate solutions such as companies that employ electrophotography as
their imaging technology. Canon Inc., Indigo N.V., Xeikon N.V. and Xerox
Corporation are companies that have introduced color electrophotographic copier
products. Various companies are marketing product versions manufactured by these
companies.
We are also aware that there is a direction in the graphic arts industry to
create stand-alone computer-to-plate imaging devices for single and multi-color
applications. Most of the major corporations in the graphic arts industry have
developed and/or are developing and marketing off press computer-to-plate
imaging systems. To date, devices manufactured by our competitors, for the most
part, utilize printing plates that require a post imaging photochemical
developing step, and in some cases, also require a heating process. Potential
competitors in this area include, among others, Agfa Gevaert N.V., Dai Nippon
Screen Manufacturing Ltd., Heidelberger Druckmaschinen AG, and Creo Products,
Inc.
We also anticipate competition from printing plate manufacturing companies that
manufacture, or have the potential to manufacture digital thermal plates. These
companies include Agfa, Kodak Polychrome Graphics and Fuji Photo Film Co., Ltd.
Products incorporating our technologies can also be expected to face competition
from conventional methods of printing and creating printing plates. Most of the
companies marketing competitive products or with the potential to do so are
well-established, have substantially greater financial, marketing and
distribution resources than us and have established reputations for success in
the development, sale and service of products. There can be no assurance that we
will be able to compete successfully in the future.
WE MAY NOT BE ABLE TO ADEQUATELY RESPOND TO CHANGES IN TECHNOLOGY AFFECTING THE
PRINTING INDUSTRY. Our continuing product development efforts have focused on
refining and improving the performance of our PEARL and DI technology and our
consumables and we anticipate that we will continue to do so. The printing and
publishing industry has been characterized in recent years by rapid and
significant technological changes and frequent new product introductions.
Current competitors or new market entrants could introduce new or enhanced
products with features which render our technologies, or products incorporating
our technologies, obsolete or less marketable. Our ability to compete
successfully will depend in large measure on our ability to maintain a
technically competent research and development staff and to stay ahead of
technological changes and advances in our industry. There can be no assurance
that any refined or improved versions of current products or technologies or any
new products that may be introduced by us in the future will be commercially
successful.
ONGOING LITIGATION COULD HAVE AN ADVERSE IMPACT ON OUR BUSINESS. From time to
time in the ordinary course of our business we may be subject to certain
lawsuits. We are currently a defendant in a lawsuit commenced by PPG, Inc.
claiming that equipment sold by our now discontinued Delta V subsidiary did not
meet certain product specifications. Although we intend to vigorously defend
this action, we could be adversely affected if the plaintiff were to prevail on
its damage claim, which is in excess of $7.0 million. We are also a party in
ongoing patent litigation with Creo Products Inc. There can be no assurance that
we will be successful in this action, and any adverse result in this litigation
will have a material adverse impact on our business.
THE LOSS OR UNAVAILABILITY OF OUR KEY PERSONNEL WOULD HAVE A MATERIAL ADVERSE
EFFECT ON OUR BUSINESS. The success of Presstek is largely dependent on the
personal efforts of Robert Hallman, our President and Chief Executive Officer,
and Richard Williams, our Chairman and Chief Scientific Officer. We have entered
into employment agreements with each of Mr. Hallman and Mr. Williams. The loss
or interruption of the services of either Mr. Williams or Mr. Hallman could have
a material adverse effect on our business and prospects.
24
Our success may also be dependent on our ability to hire and retain additional
qualified engineering, technical, sales, marketing and other personnel.
Competition for qualified personnel in our industry is intense, and there can be
no assurance that we will be able to hire or retain additional qualified
personnel.
OUR STOCK PRICE HAS BEEN AND COULD CONTINUE TO BE EXTREMELY VOLATILE. The market
price of our common stock has been subject to significant fluctuations. The
securities markets have experienced, and are likely to experience in the future,
significant price and volume fluctuations which could adversely affect the
market price of our common stock without regard to our operating performance. In
addition, the trading price of our common stock could be subject to significant
fluctuations in response to:
- actual or anticipated variations in our quarterly operating results;
- announcements by us or other industry participants,
- changes in national or regional economic conditions;
- changes in securities analysts' estimates for us, our competitors'
or our industry or our failure to meet analysts' expectations; and
- general market conditions.
CERTAIN FACTORS MAY HAVE A DEPRESSIVE EFFECT ON THE MARKET PRICE FOR OUR COMMON
STOCK. As of March 15, 2001, we had 33,259,806 shares of our common stock
outstanding. Approximately 30,540,000 of our shares are currently freely
tradable without restriction under the Securities Act of 1933. All of the
remaining shares have been held by their holders for over one year and are
eligible for sale, subject, in some cases, to affiliate and other restrictions
under Rule 144 of the Securities Act of 1933. The sale of a significant number
of shares of common stock could adversely affect the market price of our common
stock.
There are currently outstanding options to purchase approximately $3.2 million
shares of our common stock at prices ranging from $5.88-$26.94 per share.
Substantially all of these shares have been registered for resale and may be
sold, subject, in some cases, to volume and other limitations under Rule 144 of
the Securities Act of 1933. To the extent they are exercised or converted, the
percentage ownership of existing stockholders will be diluted and our stock
price could be adversely affected. This could also adversely affect the terms
upon which we may be able to obtain additional equity capital in the future,
since the holders of outstanding options can be expected to exercise them at a
time when we would, in all likelihood, be able to obtain any needed capital on
terms more favorable to us than those provided in the outstanding options.
In addition, in connection with the settlement of the consolidated class action
involving us, we are obligated to issue an additional 808,050 shares of common
stock. These shares, when issued, will not be restricted in the hands of the
holders and thus, the holders will be able to immediately sell the shares. This
could have a depressive effect on the market for our common stock.
25
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
The Company is exposed to market risk from changes in interest rates primarily
as a result of its borrowing activities, and to a lesser extent, its investing
activities. The majority of the Company's long-term borrowings are in fixed rate
instruments, or variable rate instruments with fixed rate conversion provisions.
The Company does not enter into interest rate swap agreements or other
speculative or leveraged transactions. The Company currently has no material
exposure to interest rate fluctuations on its short-term investments
The Company has limited exposure to foreign currency exchange rate risk as
substantially all of its transactions are denominated in U.S. dollars. Some of
the Company's customers and strategic partners are not located in the United
States, however. As a result, the Company's customers and strategic partners are
themselves subject to fluctuations in foreign exchange rates. If their home
country currency were to decrease in value relative to the United States dollar,
their ability to purchase and market the Company's products could be adversely
affected and the Company's products may become less competitive to them. This
may have an adverse impact on the Company's business. Likewise, some of the
Company's suppliers are not located in the United States and thus, such
suppliers are subject to foreign exchange rate risks in transactions with the
Company. Decreases in the value of their home country currency versus that of
the United States dollar could cause fluctuations in supply pricing which could
have an adverse effect on the Company's business.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The financial statements required by Item 8 of Form 10-K are referenced in Item
14 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
Not applicable
PART III
- --------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
The information required by this item will be set forth under the captions
"Election of Directors", "Executive Officers" and "Section 16(a) Beneficial
Ownership Reporting Compliance" in the definitive proxy statement that the
Company expects to file with the Securities Exchange Commission within 120 days
of the fiscal year ended December 30, 2000 for the Annual Meeting of
Stockholders to be held on June 5, 2001 (the "Proxy Statement") and such
information 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.
26
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 December 30, 2000, and January 1, 2000 F-3
Statements of Operations for the fiscal years ended
December 30, 2000, January 1, 2000, and January 2, 1999 F-4
Statements of Changes in Stockholders' Equity for the
fiscal years ended December 30, 2000, January 1, 2000
and January 2, 1999 F-5
Statements of Cash Flows for the fiscal years ended
December 30, 2000, January 1, 2000, and January 2, 1999 F-6
Notes to Financial Statements F-7
(a)(2) Financial Statement Schedule
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
- ------ -----------
3(a) Amended and Restated Certificate of Incorporation of the Company, as
amended. (Previously filed as Exhibit 3 to the Company's Quarterly
Report on Form 10-Q for the Quarter ended June 29, 1996, hereby
incorporated by reference.)
3(b) By-laws of the Company. (Previously filed as an exhibit with the
Company's Form 10-K for the fiscal year ended December 30, 1995,
filed March 29, 1996, hereby incorporated by reference.)
10(a) Confidentiality Agreement between the Company and Heidelberger
Druckmaschinen A.G., effective December 7, 1989 as amended.
(Previously filed as Exhibit 10(i) of the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1989, hereby
incorporated by reference.)
10(b) Master Agreement effective January 1, 1991, by and between
Heidelberger Druckmaschinen Aktiengesellschaft and the Company.
(Previously filed as an exhibit to the Company's Form 8-K, dated
January 1, 1991, hereby incorporated by reference.)
10(c) Technology License effective January 1, 1991, by and between
Heidelberger Druckmaschinen Aktiengesellschaft and the Company.
(Previously filed as an exhibit to the Company's Form 8-K, dated
January 1, 1991, hereby incorporated by reference.)
10(d) 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.
(Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the Quarter Ended June 30, 1993, hereby incorporated
by reference.)
27
10(e) 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. (Previously filed as an exhibit to the Company's
Annual report on Form 10-K for the fiscal year ended December 31,
1994, hereby incorporated by reference.)
10(f)* 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.
(Previously filed as Exhibit 10.k to the Company's Form 10-K for the
fiscal year ended December 30, 1995, filed March 29, 1996, hereby
incorporated by reference.)
10(g) Lease relating to real property located at 9 Commercial St., Hudson,
New Hampshire. (Previously filed as Exhibit 10(m) to the Company's
Annual Report on Form 10-K for the fiscal year ended December 28,
1996, filed March 31, 1997, hereby incorporated by reference.)
10(h) Lease relating to real property located at 18-20 Hampshire Dr.,
Hudson, New Hampshire. (Previously filed as Exhibit 10(n) to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 28, 1996, filed March 31, 1997, hereby incorporated by
reference.)
10(i)** Employment Agreement dated March 30, 1999 between the Company and
Richard Williams. (Previously filed as Exhibit 10.L to the Company's
Form 10-K for the fiscal year ended January 2, 1999, filed March 2,
1999, hereby incorporated by reference.)
10(j)** 1991 Stock Option Plan. (Previously filed as an exhibit to the
Company's Annual report on Form 10-K for the fiscal year ended
December 31, 1991, hereby incorporated by reference.)
10(k)** 1994 Stock Option Plan. (Previously filed as an exhibit to the
Company's Annual report on Form 10-K for the fiscal year ended
December 31, 1994, hereby incorporated by reference.)
10(l)** Non-Employee Director Stock Option Plan. (Previously filed as
Exhibit 10.0 to the Company's Form 10-K for the fiscal year ended
January 2, 1999, filed March 2, 1999, hereby incorporated by
reference.)
10(m)** 1997 Interim Stock Option Plan. (Previously filed as Exhibit 10.1 to
the Company's Quarterly report on Form 10-Q for the quarter ended
September 27, 1997, filed November 7, 1997, hereby incorporated by
reference.)
10(n)* Memorandum of Understanding No. 5 dated March 7, 1997 between the
Company and Heidelberger Druckmaschinen Aktiengesellschaft.
(Previously filed as Exhibit 10.(T) to the Company's Annual Report
on Form 10-K for the fiscal year ended December 28, 1996, filed
March 31, 1997, hereby incorporated by reference.)
10(o) Amendment to Loan Agreement between the Company and Citizens Bank,
New Hampshire. (Previously filed as Exhibit 10.R to the Company's
Form 10-K for the fiscal year ended January 2, 1999, filed March 2,
1999, hereby incorporated by reference.)
10(p) Replacement Revolving Line of Credit Promissory Note in favor of
Citizens Bank, New Hampshire. (Previously filed as Exhibit 10.S to
the Company's Form 10-K for the fiscal year ended January 2, 1999,
filed March 2, 1999, hereby incorporated by reference.)
10(q)** 1998 Stock Incentive Plan. (Previously filed as Exhibit A to the
Company's April 23, 1998 Proxy Statement, filed April 24, 1998,
hereby incorporated by reference.)
28
10(r)** Employment Agreement by and between the Company and Robert W.
Hallman. (Previously filed as Exhibit 10.1 to the Company's
Quarterly report on Form 10-Q for the Quarter ended October 3, 1998,
filed November 17, 1998, hereby incorporated by reference.)
10(s) Master Security agreement and related Promissory Note, by and
between the Company and Keycorp Leasing, a Division of Key Corporate
Capital, Inc., dated September 27, 1999. (Previously filed as
Exhibit 10(s) to the Company's Form 10-Q for the quarter ended
October 1, 1999, filed November 16, 1999, hereby incorporated by
reference.)
10(t) Amendment to existing loan agreement with Citizens Bank, New
Hampshire, dated, March 22, 2000. (Previously filed as Exhibit 10(t)
to the Company's Form 10-K for the fiscal year ended January 1,
2000, filed March 31, 2000, hereby incorporated by reference.)
10(u) Amendment to existing loan agreement with Keybank Corporate Capital,
Inc., dated March 28, 2000. (Previously filed as Exhibit 10(u) to
the Company's Form 10-K for the fiscal year ended January 1, 2000,
filed March 31, 2000, hereby incorporated by reference.)
10(v)* Master Supply and Distribution Agreement by and between Presstek,
Inc. and Xerox Corporation dated September 22, 2000. (Previously
filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
for the Quarter ended September 30, 2000, filed November 14, 2000,
hereby incorporated by reference.)
10(w) Amendment to Loan Agreement and Related Loan Documents by and among
Presstek, Inc., LaserTel, Inc., and Citizens Bank New Hampshire
dated as of October 30, 2000. (Previously filed as Exhibit 10.2 to
the Company's Quarterly Report on Form 10-Q for the Quarter ended
September 30, 2000, filed November 14, 2000, hereby incorporated by
reference.)
10(x) Guaranty Agreement by LaserTel, Inc., to the benefit of Citizens
Bank New Hampshire made as of October 30, 2000. (Previously filed as
Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the
Quarter ended September 30, 2000, filed November 14, 2000, hereby
incorporated by reference.)
10(y) Term Note dated October 30, 2000 made by Presstek, Inc. in favor of
Citizens Bank New Hampshire. (Previously filed as Exhibit 10.4 to
the Company's Quarterly Report on Form 10-Q for the Quarter ended
September 30, 2000, filed November 14, 2000, hereby incorporated by
reference.)
10(z) Security Agreement by and between LaserTel, Inc. and Citizens Bank
New Hampshire dated October 30, 2000. (Previously filed as Exhibit
10.5 to the Company's Quarterly Report on Form 10-Q for the Quarter
ended September 30, 2000, filed November 14, 2000, hereby
incorporated by reference.)
10(aa) Assignment of Lease Agreement by and between Presstek, Inc. and
Citizens Bank New Hampshire made as of October 30, 2000. (Previously
filed as Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q
for the Quarter ended September 30, 2000, filed November 14, 2000,
hereby incorporated by reference.)
10(bb) Mortgage and Security Agreement between Presstek, Inc. and Citizens
Bank New Hampshire dated October 30, 2000. (Previously filed as
Exhibit 10.7 to the Company's Quarterly Report on Form 10-Q for the
Quarter ended September 30, 2000, filed November 14, 2000, hereby
incorporated by reference.)
10(cc) Replacement Revolving Line of Credit Promissory Note dated October
30, 2000 issued by Presstek, Inc. in favor of Citizens Bank New
Hampshire. (Previously filed as Exhibit 10.8 to the Company's
Quarterly Report on Form 10-Q for the Quarter ended September 30,
2000, filed November 14, 2000, hereby incorporated by reference.)
29
10(dd) Stipulation of Settlement by and among Presstek, Inc. et al and
Representative Plaintiffs (on behalf of themselves and each of the
Class Members) dated March 23, 2000. (Previously filed as Exhibit
10.9 to the Company's Quarterly Report on Form 10- Q for the Quarter
ended September 30, 2000, filed November 14, 2000, hereby
incorporated by reference.)
10(ee)** Amended and Restated Employment Agreement by and between the Company
and Richard A Williams, dated May 25, 2000, superceding all other
agreements between the Company and Richard A. Williams (filed
herewith.)
10(ff)** Letter of Agreement between the Company and Robert W. Hallman, dated
May 25, 2000, amending certain portions of the Employment Agreement
by and between the Company and Robert W. Hallman, previously filed
as Exhibit 10.1 to the Company's Quarterly report on Form 10-Q for
the Quarter ended October 3, 1998, filed November 17, 1998 (filed
herewith.)
21 Subsidiaries of the Company (filed herewith.)
23(a) Consent of BDO Seidman, LLP (filed herewith.)
* The SEC has granted the Company's request of confidential treatment
with respect to a portion of this exhibit.
** Denotes management employment contracts or compensatory plans.
Item 14(b) Reports of Form 8-K
None
Item 14(c) See Item 14(a)(3) above.
Item 14(d) See Item 14(a)(2) above.
30
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 be signed on its
behalf by the undersigned, thereunto duly authorized.
PRESSTEK, INC.
Dated: March 30, 2001 By: /s/ Robert W. Hallman
-----------------------
Robert W. Hallman
President and
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 of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Richard A. Williams Chairman of the Board March 30, 2001
- ----------------------------- and Chief Scientific Officer
Richard A. Williams
/s/ Robert W. Hallman Chief Executive Officer, March 30, 2001
- ----------------------------- President, and Director
Robert W. Hallman (Principal Executive Officer)
/s/ Dr. Lawrence Howard Director March 30, 2001
- -----------------------------
Dr. Lawrence Howard
/s/ Harold N. Sparks Director March 30, 2001
- -----------------------------
Harold N. Sparks
/s/ John W. Dreyer Director March 30, 2001
- -----------------------------
John W. Dreyer
/s/ John B. Evans Director March 30, 2001
- -----------------------------
John B. Evans
/s/ Edward J. Marino Director March 30, 2001
- -----------------------------
Edward J. Marino
/s/ Michael D. Moffitt Director March 30, 2001
- -----------------------------
Michael D. Moffitt
/s/ Daniel S. Ebenstein, Esq. Director March 30, 2001
- -----------------------------
Daniel S. Ebenstein
/s/ Neil Rossen Chief Financial Officer March 30, 2001
- ----------------------------- (Principal Financial and
Neil Rossen Accounting Officer)
31
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Certified Public Accountants F-2
Balance Sheets as of December 30, 2000 and January 1, 2000 F-3
Statements of Operations for the fiscal years ended
December 30, 2000, January 1, 2000 and January 2, 1999 F-4
Statements of Changes in Stockholders' Equity for the fiscal
years ended December 30, 2000, January 1, 2000 and January 2, 1999 F-5
Statements of Cash Flows for the fiscal years ended December
30, 2000, January 1, 2000 and January 2, 1999 F-6
Notes to Financial Statements F-7
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 December
30, 2000 and January 1, 2000, and the related statements of operations, changes
in stockholders' equity, and cash flows for the fiscal years ended December 30,
2000, January 1, 2000 and January 2, 1999. 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 auditing standards generally accepted
in the United States of America. 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 December 30, 2000
and January 1, 2000, and the results of its operations and its cash flows for
the fiscal years ended December 30, 2000, January 1, 2000 and January 2, 1999,
in conformity with accounting principles generally accepted in the United States
of America.
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 13, 2001
F-2
PRESSTEK, INC.
BALANCE SHEETS DEC 30 Jan 1
(In thousands, except share data) 2000 2000
- ----------------------------------------------------------------------- ---------- ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 11,972 $ 18,653
Accounts receivable, net of allowance for losses of $2,842
and $3,302 in fiscal 2000 and 1999, respectively 16,946 11,645
Inventories 12,045 7,214
Advances to suppliers 6,455 --
Other current assets 1,147 859
- ----------------------------------------------------------------------- ---------- ----------
Total current assets 48,565 38,371
- ----------------------------------------------------------------------- ---------- ----------
PROPERTY, PLANT AND EQUIPMENT, NET 60,248 50,990
- ----------------------------------------------------------------------- ---------- ----------
OTHER ASSETS:
Patent application costs and license rights, net 4,885 5,126
Other 2,204 146
- ----------------------------------------------------------------------- ---------- ----------
Total other assets 7,089 5,272
- ----------------------------------------------------------------------- ---------- ----------
TOTAL $ 115,902 $ 94,633
======================================================================= ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,989 $ 1,024
Accounts payable and accrued expenses 8,476 8,788
Accrued salaries and employee benefits 1,686 1,269
Deferred revenues 2,559 100
Net current liabilities of discontinued operations 1,568 1,817
- ----------------------------------------------------------------------- ---------- ----------
Total current liabilities 16,278 12,998
- ----------------------------------------------------------------------- ---------- ----------
LONG-TERM DEBT, NET OF CURRENT PORTION 16,481 8,830
- ----------------------------------------------------------------------- ---------- ----------
OTHER LONG-TERM LIABILITIES -- 22,950
- ----------------------------------------------------------------------- ---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; authorized 1,000,000
shares; no shares issued or outstanding -- --
Common stock, $.01 par value; authorized 75,000,000
shares; issued and outstanding 34,027,981 shares at
December 30, 2000; 32,515,651 shares at January 1, 2000 340 325
Additional paid-in capital 96,685 69,312
Retained earnings (deficit) (13,882) (19,782)
- ----------------------------------------------------------------------- ---------- ----------
Total stockholders' equity 83,143 49,855
- ----------------------------------------------------------------------- ---------- ----------
TOTAL $ 115,902 $ 94,633
======================================================================= ========== ==========
See notes to financial statements
F-3
PRESSTEK, INC.
STATEMENTS OF OPERATIONS
(In thousands, except per share data)
DEC 30 Jan 1 Jan 2
FOR THE FISCAL YEARS ENDED 2000 2000 1999
- --------------------------------------------------------------- -------- -------- --------
REVENUES:
Product sales $ 78,121 $ 47,948 $ 60,833
Royalties and fees from licensees 9,173 7,016 13,332
- --------------------------------------------------------------- -------- -------- --------
Total revenues 87,294 54,964 74,165
- --------------------------------------------------------------- -------- -------- --------
COSTS AND EXPENSES:
Cost of products sold 46,747 33,326 46,606
Research and product development 15,897 17,190 14,994
Sales, marketing and customer support 9,613 5,934 5,620
General and administrative 9,635 6,487 9,264
Provision for settlement of shareholder litigation -- 23,200 --
- --------------------------------------------------------------- -------- -------- --------
Total costs and expenses 81,892 86,137 76,484
- --------------------------------------------------------------- -------- -------- --------
INCOME (LOSS) FROM OPERATIONS 5,402 (31,173) (2,319)
- --------------------------------------------------------------- -------- -------- --------
OTHER INCOME (EXPENSE):
Dividend and interest, net (99) 501 623
Other, net 147 38 109
- --------------------------------------------------------------- -------- -------- --------
Total other income, net 48 539 732
- --------------------------------------------------------------- -------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 5,450 (30,634) (1,587)
PROVISION FOR INCOME TAXES 150 -- --
- --------------------------------------------------------------- -------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS 5,300 (30,634) (1,587)
- --------------------------------------------------------------- -------- -------- --------
DISCONTINUED OPERATIONS:
Income (loss) from discontinued operations 600 (448) (1,094)
Loss on disposal of discontinued operations -- (8,534) --
- --------------------------------------------------------------- -------- -------- --------
INCOME (LOSS) FROM DISCONTINUED OPERATIONS $ 600 (8,982) (1,094)
- --------------------------------------------------------------- -------- -------- --------
NET INCOME (LOSS) $ 5,900 $(39,616) $ (2,681)
=============================================================== ======== ======== ========
EARNINGS (LOSS) PER SHARE - BASIC:
From continuing operations $ 0.16 $ (0.95) $ (0.05)
=============================================================== ======== ======== ========
From discontinued operations $ 0.02 $ (0.28) $ (0.03)
=============================================================== ======== ======== ========
EARNINGS (LOSS) PER SHARE - BASIC $ 0.18 $ (1.23) $ (0.08)
=============================================================== ======== ======== ========
EARNINGS (LOSS) PER SHARE - DILUTED:
From continuing operations $ 0.15 $ (0.95) $ (0.05)
=============================================================== ======== ======== ========
From discontinued operations $ 0.02 $ (0.28) $ (0.03)
=============================================================== ======== ======== ========
EARNINGS (LOSS) PER SHARE - DILUTED $ 0.17 $ (1.23) $ (0.08)
=============================================================== ======== ======== ========
WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING - BASIC 32,826 32,336 31,986
=============================================================== ======== ======== ========
WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING - DILUTED 35,320 32,336 31,986
=============================================================== ======== ======== ========
See notes to financial statements
F-4
PRESSTEK, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands, except per share data)
FOR THE FISCAL YEARS ENDED DECEMBER 30, 2000, JANUARY 1, 2000 AND JANUARY 2, 1999
- --------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED
ADDITIONAL RETAINED OTHER TOTAL
COMMON STOCK PAID-IN EARNINGS COMPREHENSIVE STOCKHOLDERS'
SHARES AMOUNT CAPITAL (DEFICIT) INCOME (LOSS) EQUITY
- --------------------------------------------- -------- -------- -------- -------- -------- --------
BALANCE AT JANUARY 3, 1998 31,867 $ 319 $ 63,157 $ 22,515 $ (1) $ 85,990
Comprehensive loss:
Net loss for the fiscal year (2,681) (2,681)
Other comprehensive loss:
Unrealized gain on marketable securities 1 1
--------
Comprehensive loss for the fiscal year (2,680)
--------
Issuance of unregistered shares of common
stock relative to the acquisition of Heath
Custom Press, Inc. at $25.38 per share 94 1 2,406 2,407
Issuance of common stock relative to the
exercise of incentive and non-qualified
stock options at $2.85 - $10.94 per share 315 3 1,733 -- -- 1,736
- --------------------------------------------- -------- -------- -------- -------- -------- --------
BALANCE AT JANUARY 2, 1999 32,276 323 67,296 19,834 -- 87,453
Comprehensive loss:
Net loss for the fiscal year (39,616) (39,616)
Other comprehensive loss --
--------
Comprehensive loss for the fiscal year (39,616)
--------
Issuance of unregistered shares of common
stock relative to the acquisition of R/H
Consulting, Inc. at $9.875 per share 143 1 1,409 1,410
Issuance of common stock relative to the
exercise of incentive and non-qualified
stock options at $3.55 - $13.75 per share 97 1 607 -- -- 608
- --------------------------------------------- -------- -------- -------- -------- -------- --------
BALANCE AT JANUARY 1, 2000 32,516 325 69,312 (19,782) -- 49,855
Comprehensive income:
Net income for the fiscal year 5,900 5,900
Other comprehensive income --
--------
Comprehensive income for the fiscal year 5,900
--------
Issuance of warrants to purchase 300,000
shares of common stock in exchange for
services rendered 2,488 2,488
Issuance of unregistered shares of common
stock relative to the settlement of the
derivative lawsuit 61 1 949 950
Issuance of unregistered shares of common
stock relative to the settlement of the
class action lawsuit 1,245 12 21,988 22,000
Issuance of common stock relative to the
exercise of incentive and non-qualified
stock options at $4.85 - $14.75 per share 206 2 1,948 1,950
- --------------------------------------------- -------- -------- -------- -------- -------- --------
BALANCE AT DECEMBER 30, 2000 34,028 $ 340 $ 96,685 $(13,882) $ -- $ 83,143
============================================= ======== ======== ======== ======== ======== ========
See notes to financial statements
F-5
PRESSTEK, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
DEC 30 Jan 1 Jan 2
FOR THE FISCAL YEARS ENDED 2000 2000 1999
- ---------------------------------------------------------- -------- -------- --------
CASH FLOWS - OPERATING ACTIVITIES:
Income (loss) from continuing operations $ 5,300 $(30,634) $ (1,587)
Adjustments to reconcile income (loss) from
continuing operations to net cash provided by
operating activities of continuing operations:
Depreciation and amortization 6,653 5,682 4,049
Provision for warranty and other costs 862 290 679
Provision for losses on accounts receivable 686 1,790 4,655
Provision for shareholder litigation settlement -- 22,950 --
Other, net 75 41 38
Changes in operating assets and liabilities, net
of effects from acquisitions:
Decrease (increase) in accounts receivable (5,987) 7,191 1,392
Decrease (increase) in inventories (4,831) 2,510 4,093
Decrease in costs and estimated earnings in
excess of billings on uncompleted contracts -- -- 899
Decrease (increase) in advances to suppliers
and other current assets (6,743) 109 (538)
Increase (decrease) in accounts payable and
accrued expenses 1,329 100 (702)
Increase in accrued salaries and employee
benefits 417 332 117
Increase (decrease) in billings in excess of costs
and estimated earnings on uncompleted contracts (44) (1,951) 1,995
- ---------------------------------------------------------- -------- -------- --------
Net cash provided by (used in) operating activities
of continuing operations (2,283) 8,410 15,090
Net cash provided by (used in) operating activities
of discontinued operations 988 (7,196) 744
- ---------------------------------------------------------- -------- -------- --------
Net cash provided by (used in) operating activities (1,295) 1,214 15,834
- ---------------------------------------------------------- -------- -------- --------
CASH FLOWS - INVESTING ACTIVITIES:
Investment in subsidiary, net of cash acquired -- (494) --
Purchases of property, plant and equipment (15,245) (11,812) (6,410)
Proceeds from sale of land and equipment 22 459 442
Proceeds from sale of certain net assets of
Heath Custom Press, Inc. -- -- 732
Increase in other assets (729) (1,005) (584)
Sales and maturities of marketable securities -- -- 1,000
- ---------------------------------------------------------- -------- -------- --------
Net cash used in investing activities of
continuing operations (15,952) (12,852) (4,820)
Net cash provided by investing activities of
discontinued operations -- 7,215 85
- ---------------------------------------------------------- -------- -------- --------
Net cash used in investing activities (15,952) (5,637) (4,735)
- ---------------------------------------------------------- -------- -------- --------
CASH FLOWS - FINANCING ACTIVITIES:
Net proceeds from sale of common stock 1,950 608 1,736
Proceeds from mortgage term loan 4,000 -- 6,900
Repayments of mortgage term loan (556) (518) (456)
Proceeds from lease line of credit 5,959 4,041 --
Repayments of lease line of credit (787) (112) --
Net payments of revolving line of credit -- -- (4,800)
Payment of Heath Custom Press, Inc.'s
revolving line of credit -- -- (600)
- ---------------------------------------------------------- -------- -------- --------
Net cash provided by financing activities 10,566 4,019 2,780
- ---------------------------------------------------------- -------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (6,681) (404) 13,879
CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD 18,653 19,057 4,939
Cash acquired from Heath Custom Press, Inc. -- -- 239
- ---------------------------------------------------------- -------- -------- --------
CASH AND CASH EQUIVALENTS END OF PERIOD $ 11,972 $ 18,653 $ 19,057
========================================================== ======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 813 $ 114 $ 225
========================================================== ======== ======== ========
Income taxes $ 55 $ -- $ 250
========================================================== ======== ======== ========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Warrants issued in exchange for consulting
services rendered $ 2,488 $ -- $ --
========================================================== ======== ======== ========
Issuance of unregistered shares of common
stock in settlement of the Derivative
Lawsuit $ 950 $ -- $ --
========================================================== ======== ======== ========
Issuance of unregistered shares of common
stock in settlement of the Class Action
Lawsuit $ 22,000 $ -- $ --
========================================================== ======== ======== ========
Common stock issued and net assets acquired
relating to the acquisition of
RH Consulting, Inc. $ -- $ 1,410 $ --
========================================================== ======== ======== ========
Common stock issued and net assets acquired
relating to the acquisition of Heath
Custom Press, Inc. $ -- $ -- $ 2,407
========================================================== ======== ======== ========
See notes to financial statements
F-6
PRESSTEK, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
NATURE OF BUSINESS - Presstek, Inc. ("Presstek", or "the Company") is a leading
developer of non-photographic, digital imaging and printing plate technologies
for the printing and graphic arts industries. Presstek's products and
applications incorporate PEARL(R) and DI(R) digital imaging technologies and
utilize PEARL consumables for CTP and direct-to-press applications. The
Company's patented DI and PEARL, thermal laser diode product family, enables its
customers to produce high quality, full-color lithographic printed materials
more quickly and cost efficiently.
In April 2000 the Company incorporated an Arizona subsidiary, LaserTel, Inc.
("LaserTel") for the purpose of securing its supply of laser diodes. LaserTel
is located in the former Delta V Technologies, Inc. ("Delta V") facility in
Tucson, Arizona. LaserTel operates as a subsidiary of Presstek, and is primarily
engaged in the manufacture and development of the Company's high-powered laser
diodes.
In November 1999 the Company acquired 100% of the stock of R/H Consulting, Inc.
("R/H"). R/H was principally engaged in the research and development of laser
imageable printing plates. See Note 2 of notes to the financial statements. In
January 1998, the Company acquired 100% of the stock of Heath Custom Press, Inc.
("Heath"). In October 1998 the Company sold certain assets of Heath, which was
engaged in the design and manufacture of custom printing presses. See Note 2 of
notes to the financial statements.
The divestiture of Delta V was recorded in the quarter ended October 2, 1999,
and the financial statements for all periods reflect Delta V as a discontinued
operation. See Note 3 of notes to the financial statements. All of the following
notes, unless otherwise indicated, refer to the continuing operations of
Presstek.
The Company operates in two reportable segments, the Digital Imaging Products
segment and the LaserTel segment. The Digital Imaging Products segment is
primarily engaged in the development, manufacture and sales of proprietary
digital imaging systems and printing plate technologies for CTP and
direct-to-press applications. The LaserTel segment is primarily engaged in the
manufacture and development of Presstek's high-powered laser diodes. See Note 10
of notes to the financial statements.
PRINCIPLES OF CONSOLIDATION - The financial statements for the fiscal years
ended December 30, 2000, January 1, 2000 and January 2, 1999, include the
accounts of the Company and its subsidiaries. Significant intercompany accounts
and transactions have been eliminated.
FISCAL YEAR - The Company operates and reports on a 52/53 week fiscal year
ending on the Saturday closest to December 31. Accordingly, the financial
statements include the 52 week fiscal years ended December 30, 2000 ("fiscal
2000"), January 1, 2000 ("fiscal 1999") and January 2, 1999 ("fiscal 1998").
USE OF ESTIMATES - The Company prepares its financial statements in conformity
with generally accepted accounting principles. This 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 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, patents, and software development
costs.
RECLASSIFICATION - Certain prior fiscal years' accounts have been reclassified
for comparative purposes to conform to the presentation in the current fiscal
year.
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.
F-7
Revenues from fixed-price and modified fixed-price development contracts are
recognized on the percentage-of-completion method, measured by the percentage of
costs incurred to date compared to the estimated total of direct costs for each
contract. As contracts may 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.
Deferred revenues include certain customer advances received as a result of the
Company's supply and distribution agreements. These revenues are recognized as
product is shipped or services are performed.
SHIPPING AND HANDLING COSTS - Shipping and handling costs billed to customers
are recorded as revenue. The costs associated with shipping goods to customers
are recorded as a cost of sales.
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 December 30, 2000 and January 1, 2000, accrued expenses
included accrued warranty costs of $598,000 and $1.0 million.
RESEARCH AND DEVELOPMENT COSTS - Research and development costs are expensed as
incurred for financial reporting purposes.
COMPREHENSIVE INCOME - The Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130 "Reporting Comprehensive Income" in the first quarter
of fiscal 1998. SFAS No 130 sets standards for the reporting and display of
comprehensive income, its components and accumulated balances. Comprehensive
income is comprised of net income and all changes in stockholders' equity except
those due to investments by owners and distributions to owners, which for the
Company includes unrealized gains (losses) on marketable securities. The Company
has elected to disclose comprehensive income in its Statement of Changes in
Stockholders' Equity.
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE - Basic earnings (loss) per share is
computed by dividing net income (loss) by the weighted average numbers of shares
of common stock outstanding during the period. Diluted earnings (loss) per
share, is computed giving effect to all diluted potential common shares that
were outstanding during the period. Dilutive potential common shares consist of
the incremental common shares issuable upon the exercise of stock options. For
fiscal 1999 and 1998, potentially dilutive securities that related to shares
issuable upon the exercise of stock options granted by the Company were
excluded, as their effect was antidilutive. See Note 4 of notes to the financial
statements.
CASH EQUIVALENTS AND MARKETABLE SECURITIES - For purposes of reporting cash
flows, the Company considers all savings deposits, certificates of deposit,
money market funds and deposits purchased, and short term investments with a
maturity of three months or less to be cash equivalents. Marketable securities
are classified as available for sale and are stated at fair market value. All
unrealized gains and losses, if any, are recorded as a separate component of
stockholders' equity. At December 30, 2000 and January 1, 2000 cash and cash
equivalents consisted of cash balances on deposit and money market funds, and
high-quality debt securities and commercial paper with a maturity of three
months or less.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying values of cash equivalents,
accounts receivable, and accounts payable approximate fair value due to the
short-term maturity of these instruments. The carrying amounts of the Company's
bank borrowings under its lease line of credit agreement approximates fair value
because the interest rates are based on floating rates identified by reference
to market rates. The fair value of the Company's other long-term debt is
estimated based on quoted market prices. At December 30, 2000 and January 1,
2000, the fair value of the Company's long-term debt approximated carrying
value.
CONCENTRATION OF CREDIT RISK - Financial instruments that potentially subject
the Company to concentrations of credit risk consists primarily of cash
equivalents and accounts receivable. The Company invests in high-quality money
market instruments, securities of the U.S government, and high-quality corporate
issues. Accounts receivable are generally unsecured and are derived from the
Company's customers located around the world. The Company performs ongoing
credit evaluations of its customers and maintains reserves for
F-8
potential credit losses. Concentration of credit risk with respect to accounts
receivable results from a significant portion of the Company's receivables
concentrated with two major customers. See Note 10 of notes to the financial
statements.
INVENTORIES - Inventories are valued at the lower of cost or market value, with
cost determined using the first-in, first-out method. At December 30, 2000 and
January 1, 2000, inventories consisted of the following:
(In thousands) 2000 1999
---------------- -------- --------
Raw materials $ 3,800 $ 1,915
Work in process 5,082 3,055
Finished goods 3,163 2,244
---------------- -------- --------
Total $ 12,045 $ 7,214
================ ======== ========
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.
PATENT APPLICATION 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
obtained in the Company's acquisitions. 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 fiscal 2000, 1999 and 1998, was
$779,000, $516,000 and $453,000, 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 2000, 1999 and 1998, the
Company did not incur material costs subject to capitalization. Through fiscal
1996, the Company incurred and capitalized $895,000 million of costs subject to
capitalization. Amortization of these costs commenced in fiscal 1995 when the
related product was released to customers. Amortization expense reported for the
fiscal years 1999 and 1998, were $40,000, and $80,000, respectively. There was
no amortization expense for fiscal 2000. Amortization expense was 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. As of January
1, 2000, all software development costs had been fully amortized.
LONG LIVED ASSETS - Long-lived assets, such as intangible assets and 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. As a result of the divestiture of Delta V, the
Company recorded a charge of $6.1 million in fiscal 1999 related to the write-
down of goodwill and other intangibles. No other write-downs were necessary for
fiscal 2000, 1999 and 1998.
STOCK-BASED COMPENSATION - The Company accounts for stock options granted to
employees under the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"), as permitted by Statement
of Financial Accounting Standards No. 123, ("SFAS 123") "Accounting for
Stock-Based Compensation. APB 25 provides for compensation cost to be recognized
over the vesting period of the options based on the difference, if any, between
the fair market value of the Company's stock and the option price on the grant
date. SFAS 123 requires companies that follow APB 25 to provide pro forma
disclosure of the effect of applying the optional fair value method. See Note 8
of notes to the financial statements.
EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS - In December 1999, the Securities and
Exchange Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 101,
"Revenue Recognition in Financial Statements." SAB 101 summarizes certain of the
SEC's views in applying generally accepted accounting principles to
F-9
revenue recognition in financial statements. SAB 101 was adopted in fiscal 2000
and did not have a material impact on the Company's financial position or
results of operations.
In March 2000, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation an Interpretation of APB No. 25" ("FIN No. 44'). FIN No. 44
clarifies the application of Opinion No. 25 for certain issues including: (a)
the definition of employee for purposes of applying Opinion No. 25, (b) the
criteria for determining whether a plan qualifies as a non-compensatory plan,
(c) the accounting of an exchange of stock compensation awards in a business
combination. In general, FIN No. 44 was effective July 1, 2000. The adoption of
FIN No. 44 did not have a material impact on the Company's financial position or
results of operations.
In June 1998 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133; "Accounting for Derivative Instruments
and Hedging Activities," ("SFAS No. 133"). SFAS No. 133 (as amended by SFAS No.
137) requires companies to recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. SFAS No. 133 is effective for fiscal years beginning after June
15, 2000. The Company does not presently enter into any transactions involving
derivative financial instruments and, accordingly, does not anticipate the new
standard will have any effect on its financial statements for the foreseeable
future.
2. BUSINESS ACQUISITIONS
---------------------
In November 1999 the Company acquired 100% of the stock of R/H. R/H was
principally engaged in the research and development of laser imageable printing
plates. R/H was purchased for $500,000 in cash and 142,855 shares of the
Company's common stock. The excess of the purchase price paid over the book
value of net assets acquired of $1.9 million has been allocated to the patents
acquired. The acquisition was accounted for as a purchase and accordingly, the
results of R/H's operations subsequent to November 1999 have been included in
the financial statements for fiscal 2000 and for the fourth quarter of fiscal
1999. The results of R/H's operations for 1999 and 1998 would not have had a
material impact on the Company's results of operations for the comparable
periods.
In January 1998, the Company acquired 100% of the stock of Heath Custom Press,
Inc. ("Heath"). Heath was engaged in the design and manufacture of custom
printing presses. Heath was purchased for 94,865 unregistered shares of the
Company's common stock. The purchase price of $2.4 million has been allocated to
assets acquired and liabilities assumed based on the fair market value at the
date of acquisition as follows: current assets, $2.2 million; patents, $1.8
million; long-term assets, $.2 million; other liabilities, $1.8 million. The
acquisition was accounted for as a purchase and accordingly, the results of
Heath's operations have been included in the Company's financial statements for
the fiscal years 2000, 1999 and 1998.
In October 1998, the Company sold certain assets of Heath for $1.0 million,
which approximated book value. The Company retained all rights to Heath's
patents.
3. DISCONTINUED OPERATIONS
-----------------------
During fiscal 1999 the Company discontinued the operations of Delta V to allow
the Company to further focus its efforts on the core business of digital imaging
and plate manufacturing. Located in Tucson, Arizona, Delta V was engaged in the
development, manufacture, and sale of vacuum deposition coating equipment for
vacuum coating applications. The Company concluded the operations of Delta V at
the end of fiscal 1999.
As a result of the divestiture of Delta V, the Company incurred an $8.5 million
loss on disposal of discontinued operations for the fiscal year ended January 1,
2000. This included actual closing costs and operating losses incurred in the
fourth quarter of fiscal 1999 of $2.2 million, a provision for anticipated
closing costs of $1.6 million, $6.1 million related to the write off of goodwill
and other intangible assets, a reduction in other asset values of $1.6 million.
These costs were partially offset by proceeds of $3.0 million received from
Minnesota Mining and Manufacturing Co. ("3M"), for the licensing of the
Company's intellectual property relating to vacuum-deposited polymer multi-layer
technology.
F-10
Delta V is reported separately as a discontinued operation, and prior periods
have been restated in the Company's financials statements, related footnotes and
the management's discussion and analysis to conform to this presentation.
Revenues and income from discontinued operations for fiscal 2000, 1999 and 1998
were as follows:
(In thousands) 2000 1999 1998
- ----------------------------------------------- ------- ------- -------
Revenues $ -- $ 7,248 $10,221
Costs and expenses -- 8,365 11,479
- ----------------------------------------------- ------- ------- -------
Loss from operations -- (1,117) (1,258)
Other income 600 669 164
- ----------------------------------------------- ------- ------- -------
Net Income (loss) from discontinued operations $ 600 $ (448) $(1,094)
=============================================== ======= ======= =======
Net current liabilities of discontinued operations at December 30, 2000 and
January 1, 2000 were as follows:
(In thousands) 2000 1999
- -------------------------------------------------- ------- -------
Cash $ -- $ 222
Accounts receivable -- 700
Other current assets -- 1
Accrual for anticipated closing costs -- (1,626)
Other current liabilities (1,568) (1,114)
- -------------------------------------------------- ------- -------
Net current liabilities of discontinued operations $(1,568) $(1,817)
================================================== ======= =======
Net income from Delta V's discontinued operations of $600,000 for fiscal 2000
resulted from payments received from 3M for the licensing of the Company's
intellectual property relating to vacuum-deposited polymer multi-layer
technology. Net liabilities of discontinued operations represent primarily
product warranties and other liabilities related to Delta V's equipment
installations.
Land and building in Tucson, Arizona, included in net assets of discontinued
operations in fiscal 1999, was reclassified to property, plant and equipment.
This property is currently in use by LaserTel.
4. EARNINGS (LOSS) PER SHARE
-------------------------
The following represents the calculation of basic and diluted earnings (loss)
per share for fiscal 2000, 1999 and 1998:
(In thousands, except per share data) 2000 1999 1998
- ----------------------------------------------- ---------- ---------- ----------
Income (loss) from continuing operations $ 5,300 $ (30,634) $ (1,587)
Income (loss) from discontinued operations 600 (8,982) (1,094)
- ----------------------------------------------- ---------- ---------- ----------
Net income (loss) $ 5,900 $ (39,616) $ (2,681)
=============================================== ========== ========== ==========
Weighted average common shares Outstanding -
Basic 32,826 32,336 31,986
Effect of assumed conversion of stock options 2,494 -- --
- ----------------------------------------------- ---------- ---------- ----------
Weighted average common shares Outstanding -
Diluted 35,320 32,336 31,986
=============================================== ========== ========== ==========
Earnings (loss) per share - Basic:
From continuing operations $ 0.16 $ (0.95) $ (0.05)
=============================================== ========== ========== ==========
From discontinued operations $ 0.02 $ (0.28) $ (0.03)
=============================================== ========== ========== ==========
Earnings (loss) per share - Basic $ 0.18 $ (1.23) $ (0.08)
=============================================== ========== ========== ==========
Earnings (loss) per share - Diluted:
From continuing operations $ 0.15 $ (0.95) $ (0.05)
=============================================== ========== ========== ==========
From discontinued operations $ 0.02 $ (0.28) $ (0.03)
=============================================== ========== ========== ==========
Earnings (loss) per share - Diluted $ 0.17 $ (1.23) $ (0.08)
=============================================== ========== ========== ==========
F-11
Options and warrants to purchase 318,250 shares of common stock at exercise
prices ranging from $18.50 to $26.94 per share were outstanding during a portion
of fiscal 2000. These options and warrants were not included in the computation
of diluted earnings per share as the exercise prices of the options and warrants
were greater than the average market price of the common shares. These options
and warrants, which expire between January 26, 2010 and September 29, 2010, were
all outstanding at the end of fiscal 2000.
All stock options outstanding have been excluded from the fiscal 1999 and 1998
calculation of diluted earnings per share, as their effect would be
anti-dilutive.
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 Company did not record a provision for or a
charge in lieu of United States federal income taxes in fiscal 2000, as a result
of net operating loss carryforwards incurred prior to tax deductions related to
stock compensation. The Company did not record a provision for or a charge in
lieu of United States federal income taxes or state income taxes in fiscal 1999
or 1998, as a result of net operating losses incurred prior to tax deductions
related to stock compensation. The Company recorded a provision of $150,000 for
state income taxes for fiscal 2000.
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 December 30, 2000 and January 1, 2000:
(In thousands) 2000 1999
- ----------------------------------------------------- -------- --------
Deferred tax assets:
Net operating loss carryforwards $ 27,000 $ 18,500
Tax credits 4,600 3,600
Warranty provisions, litigation and other accruals 3,000 11,400
- ----------------------------------------------------- -------- --------
Gross deferred tax assets 34,600 33,500
- ----------------------------------------------------- -------- --------
Deferred tax liabilities:
Amortizable and depreciable assets 400 400
Accumulated depreciation and amortization 5,000 5,100
- ----------------------------------------------------- -------- --------
Gross deferred tax liabilities 5,400 5,500
- ----------------------------------------------------- -------- --------
29,200 28,000
Less valuation allowance (29,150) (27,950)
- ----------------------------------------------------- -------- --------
Deferred tax assets - net $ 50 $ 50
===================================================== ======== ========
The $50,000 deferred tax asset was included in other current assets at December
30, 2000 and January 1, 2000. The valuation allowance increased $1.2 million and
$15.2 million in fiscal 2000 and 1999, respectively.
The difference between income taxes at the United States federal income tax rate
and the effective income tax rate was primarily a result of an increase in the
valuation allowance for fiscal 2000, 1999 and 1998.
As of December 30, 2000, the Company had net operating loss carryforwards
totaling approximately $78.7 million of which $47.7 million resulted from
compensation deductions for tax purposes relative to stock option plans and
$31.0 million resulted from operating losses. 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 that 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.
F-12
The following is a breakdown of the net operating losses and their expiration
dates:
AMOUNT OF REMAINING NET
OPERATING LOSS CARRYFORWARDS
EXPIRATION DATE (In thousands)
--------------- ----------------------------
2005 $ 2,240
2006 5,020
2008 50
2009 500
2010 9,570
2011 22,710
2012 4,410
2013 1,080
2014 12,310
2015 20,850
In addition, the Company has available tax credit carryforwards (adjusted to
reflect provisions of the Tax Reform Act of 1986) of approximately $4.6 million
which are available to offset future income tax liabilities when incurred.
6. PROPERTY, PLANT AND EQUIPMENT, NET
----------------------------------
Property, plant and equipment, at cost consisted of the following at December
30, 2000 and January 1, 2000:
(In thousands) 2000 1999
------------------------------------ -------- --------
Land and improvements $ 2,038 $ 2,038
Buildings and leasehold improvements 26,711 20,474
Production equipment and other 44,610 34,452
Construction in progress 6,450 8,341
------------------------------------ -------- --------
79,809 65,305
Less accumulated depreciation (19,561) (14,315)
------------------------------------ -------- --------
$ 60,248 $ 50,990
==================================== ======== ========
The Company's construction in progress includes $1.2 million for additional
plate manufacturing equipment for the Company's proprietary digital media and
consumable products, additional test and related equipment totaling $1.1
million, as well as $4.2 million in equipment purchases related to the
manufacture of laser diodes at the Company's LaserTel subsidiary. The Company
anticipates completion of its current equipment construction in progress in the
first half of 2001, with an estimated cost to complete of approximately $2.0
million.
7. LONG-TERM DEBT
--------------
Long-term debt consisted of the following at December 30, 2000 and January 1,
2000:
(In thousands) 2000 1999
------------------------------------ -------- --------
Mortgage term loan $ 9,369 $ 5,925
Lease line of credit 9,101 3,929
------------------------------------ -------- --------
18,470 9,854
Less current portion (1,989) (1,024)
------------------------------------ -------- --------
$ 16,481 $ 8,830
==================================== ======== ========
F-13
In June 2000, the Company borrowed the remaining $6.0 million under a $10.0
million lease line of credit facility from Keybank National Association. The
$10.0 million in borrowings is secured by equipment valued at $13.4 million. The
loan bears a variable rate of interest based upon the prime rate, currently 8.5%
with a fixed rate conversion provision. Principal and interest under the lease
line are payable in 84 monthly installments beginning on July 31, 2000 for the
$6.0 million in borrowings. Payments on the initial $4.0 million borrowed in
September 1999 commenced in October 1999. The Company has received a commitment
for an additional $5.0 million lease line of credit from Keybank, which expires
on April 30, 2001.
On October 30, 2000 the Company renewed its credit facilities with Citizens Bank
New Hampshire ("Citizens"). These credit facilities, which expire in September
2002, include renewal of the current ten-year mortgage term loan in the amount
of $6.9 million, an additional ten-year mortgage term loan in the amount of $4.0
million, and a revolving line of credit loan.
The ten-year mortgage term loan in the amount of $6.9 million bears a fixed rate
of interest of 7.12% per year during the first five years, a variable rate of
interest at the LIBOR rate plus 2%, (8.56% at December 30, 2000) for the
remaining five years. Principal and interest payments during the first five
years of the loan will be made in 60 monthly installments of $80,500. During the
remaining five years, principal and interest payments will be made on a 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 interest is due and payable
on February 6, 2008.
The ten-year mortgage term loan in the amount of $4.0 million bears a fixed rate
of interest equal to 7.95% per year during the first five years, a fixed rate of
interest equal to United States Treasury Notes or Bills with a maturity date
closest to the end of the second five years, plus 225 basis points for the
remaining five years. During the first five years, principal and interest shall
be paid in 60 monthly installments of $48,425. During the remaining five years,
principal and interest payments will be made on a monthly basis in the amount of
one-sixtieth of the outstanding principal amount as of the first day of the
second five year period, plus accrued interest through the monthly payment date.
All outstanding principal and accrued and unpaid interest is due and payable on
October 30, 2010.
The ten-year mortgage term loans are secured by land and buildings with a cost
of approximately $22.0 million.
The revolving line of credit loan, under which the Company may borrow $16.0
million, is subject to certain restrictions based on applicable percentages of
accounts receivable and inventory, as defined by the loan agreement, and the
amount of all letters of credit outstanding. The revolving line of credit loan
is secured by substantially all of the Company's assets, with interest payable
at the LIBOR rate plus 1.50% (8.06% at December 30, 2000). As of December 30,
2000, the Company had $6.0 million outstanding under a standby letter of credit,
and $10.0 million available under the revolving line of credit loan.
Under the terms of the mortgage term loans, the lease line of credit and the
revolving line of credit agreements, the Company is required to meet certain
covenants on a quarterly and annual basis. At December 30, 2000 the Company was
in compliance with all financial covenants.
As of December 30, 2000, aggregate debt maturities for Long-Term Debt were as
follows:
(In thousands)
============== ==============
2001 $ 1,989
2002 2,222
2003 2,380
2004 2,579
2005 2,797
Thereafter 6,503
-------------- --------------
$ 18,470
============== ==============
F-14
8. STOCKHOLDERS' EQUITY
--------------------
References herein to shares, options, warrants and the prices per share have
been restated for all stock splits, effected in the form of stock dividends.
PREFERRED STOCK - The Company's 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.
STOCK OPTION PLANS - As of December 30, 2000 the Company had four stock option
plans in effect. The 1991 Stock Option Plan (the "1991 Plan"), the 1994 Stock
Option Plan (the "1994 Plan"), the 1997 Interim Stock Option Plan (the "1997
Plan") and the 1998 Stock Incentive Plan (the "1998 Plan"). The 1988 Stock
Option Plan (the "1988 Plan") expired on August 21, 1998. No future grants will
be issued under this plan, however 8,100 shares remain outstanding and will
expire according to the specified expiration terms under the individual grants.
The 1991 Plan and the 1994 Plan provide for the award of options, to key
employees and other persons, to purchase up to 2,500,000 shares of the Company's
common stock. Options granted under these plans may be either Incentive Stock
Options ("ISOs") or Nonqualified Options ("NQOs"). 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. NQOs 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"). The 1997 Plan provides for the award of options to key employees
and other persons, to purchase up to 250,000 shares of the Company's common
stock. Only NQOs may be granted under this plan.
Under the 1997, 1994 and 1991 Plans, 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. These options
generally will expire not more than ten years from the date of grant.
The 1998 Plan provides for the award (collectively "awards") of stock options,
restricted stock, deferred stock, and other stock based awards to officers,
directors, employees, and other key persons. A total of 3,000,000 shares of
common stock, subject to anti-dilution adjustments have been reserved for this
plan. Options under the 1998 Plan become exercisable upon the earlier of a date
set by the Board of Directors or Committee at the time of grant or the close of
business on the day before the tenth anniversary of the stock options' date of
grant. Options become exercisable the day before the fifth anniversary of the
date of grant in the case of an ISO.
DIRECTOR STOCK OPTION PLAN - The Company's Non-employee Director Stock Option
Plan (the "Director Plan") allows only non-employee directors of the Company to
receive grants under the plan. The 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, of options to purchase 2,500 shares at
fair 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 all stock options outstanding
at December 30, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- -------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE
RANGE OF OUTSTANDING REMAINING WEIGHTED AVERAGE EXERCISABLE WEIGHTED AVERAGE
EXERCISE PRICES AS OF 12/30/00 CONTRACTUAL YEARS EXERCISE PRICE AS OF 12/30/00 EXERCISE PRICE
- --------------- -------------- ----------------- -------------- -------------- --------------
$ 4.96 - $ 7.77 664,026 8.1 $ 7.02 175,043 $ 7.10
$ 7.78 606,460 3.5 $ 7.78 606,460 $ 7.78
$ 7.79 - $12.50 596,100 5.5 $ 9.67 440,975 $ 9.82
$12.51 - $13.75 823,251 7.0 $13.74 622,301 $13.75
$13.76 - $26.94 503,000 8.3 $15.74 167,625 $15.46
-------------- --------------
3,192,837 6.5 $10.77 2,012,404 $10.65
============== ==============
Information concerning all stock option activity under the 1988, 1991, 1994,
1997, 1998 and the Director Plans for the fiscal years ended December 30, 2000,
January 1, 2000 and January 2, 1999 is summarized as follows:
WEIGHTED AVERAGE
OPTION SHARES OPTION PRICE PER SHARE PRICE PER SHARE
- -------------------------------- ------------- ---------------------- ---------------
Outstanding at January 3, 1998 3,032,680 $ 2.85 - $49.62 $18.64
Granted 1,503,000 $ 7.19 - $25.00 $13.40
Exercised (314,844) $ 2.85 - $10.94 $ 5.51
Cancelled/Expired (1,719,800) $ 4.85 - $49.63 $26.96
- -------------------------------- ------------- ---------------------- ---------------
Outstanding at January 2, 1999 2,501,036 $ 3.55 - $44.75 $11.43
Granted 817,000 $ 5.88 - $15.88 $ 7.16
Exercised (96,533) $ 3.55 - $13.75 $ 6.30
Cancelled/Expired (137,700) $ 5.50 - $44.75 $21.48
- -------------------------------- ------------- ---------------------- ---------------
Outstanding at January 1, 2000 3,083,803 $ 4.85 - $16.81 $10.01
Granted 399,000 $ 10.00 - $26.94 $16.13
Exercised (206,502) $ 4.85 - $14.75 $ 9.44
Cancelled/Expired (83,464) $ 6.00 - $22.75 $11.82
- -------------------------------- ------------- ---------------------- ---------------
OUTSTANDING AT DECEMBER 30, 2000 3,192,837 $ 5.88 - $26.94 $10.77
================================ ============= ====================== ===============
The incentive and non-qualified 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 ten years from dates of grant
and may be subject to earlier termination as provided in the plans.
In April 1998, the Company repriced grants previously issued between April 10,
1995 and March 30, 1998 under its 1988, 1991, 1994, 1997 and Non-Employee
Director Stock Option Plans. A total of 1,127,000 options with exercise prices
ranging from $18.00 to $49.63 per share were repriced to $13.75 or $14.75 per
share. These options are reflected in the previous table as options granted and
cancelled for fiscal 1998.
In September 1999, the Company extended the expiration dates to ten years for
all eligible stock options originally granted with expiration dates of six
years. As the market value on the date of extension was less than the exercise
price of the options, no compensation expense was recorded. The grants were
treated as newly issued for purposes of the pro forma disclosure of net loss and
loss per share indicated in the table below.
The proceeds to the Company from stock options exercised during fiscal years
2000, 1999 and 1998, totaled $2.0 million, $608,000, and $1.7 million,
respectively.
In addition to the above mentioned plans, as of December 30, 2000, the Company's
LaserTel subsidiary had in effect a stock option plan, The LaserTel Inc. 2000
Stock Incentive Plan (the "LaserTel Plan"). The LaserTel Plan provides for the
award of NQO's to employees and other key individuals of LaserTel and Presstek,
to purchase up to 3,500,000 shares of LaserTel's common stock.
As of December 30, 2000, options to purchase 2,565,300 shares of LaserTel common
stock had been granted at exercise prices ranging from $.10 to $.75, which
represented the estimated fair market value of LaserTel's common stock at the
time of grant. The options granted as of December 30, 2000 had a weighted
average exercise price of $.11 per share. These options generally vest over a
period of four years, with termination dates generally ten years from the date
of grant and are subject to earlier termination as provided in the LaserTel
Plan.
The LaserTel Plan contains a provision that in the event that a public offering
of LaserTel's common stock has not occurred prior to a specified date during
2004, LaserTel is obligated to repurchase the outstanding and then exercisable
options at the then fair market value of LaserTel's common stock (less the
applicable exercise price for each option). Fair market value is to be
determined by an independent third party.
In May 2000, the Company issued warrants to purchase 300,000 shares of common
stock at a price of $20.81 in exchange for consulting services. These warrants
were valued at $2.5 million, using the Black-Scholes pricing model. The
valuation was recorded as a long-term asset, and is being amortized over the
five year term of the consulting agreement. Amortization expense recorded in
fiscal 2000 was $415,000.
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 $11.81, $9.25, and $7.22, respectively, for each
stock option issued in fiscal 2000, 1999 and 1998 using the following weighted
average assumptions: a risk-free interest rate of 6.13%, 6.13%, and 5.11%; an
expected option life of 6.61 years, 6.68 years, and 4.09 years; expected
volatility of 75.95%, 79.6%, and 72.92%; and no dividends paid.
F-16
Accordingly, the Company's net income (loss) and earnings (loss) per share would
have been reduced to the pro forma amounts indicated in the following table:
(In thousands, except per share data) 2000 1999 1998
- ------------------------------------ --------- --------- ---------
Net income (loss)
As reported $ 5,900 $ (39,616) $ (2,681)
Pro forma $ 2,904 $ (60,981) $ (9,036)
Earnings (loss) per share - Basic
As reported $ 0.18 $ (1.23) $ (0.08)
Pro forma $ 0.09 $ (1.89) $ (0.28)
Earnings (loss) per share - Diluted
As reported $ 0.17 $ (1.23) $ (0.08)
Pro forma $ 0.08 $ (1.89) $ (.028)
The above pro forma's net income (loss) and net income (loss) per share have no
related tax benefit in fiscal 2000, fiscal 1999 or fiscal 1998.
On November 15, 2000 the Company issued 437,196 shares of common stock pursuant
to the settlement of the Class Action Lawsuit. On August 2, 2000 the Company
issued 60,582 shares of common stock pursuant to the settlement of the
derivative lawsuit. The Company expects to distribute the remaining 808,050
shares of common stock in the fiscal year ending December 29, 2001. These shares
have been recorded in the financial statements as if issued in fiscal 2000. See
Note 13 of notes to the financial statements.
In November 1999, the Company issued 142,855 shares of its common stock at
$9.875 to acquire the net assets of R/H for an aggregate cost of $1.4 million,
plus $500,000 paid to certain of its officers.
9. RELATED PARTIES
---------------
During fiscal 2000, 1999 and 1998, the Company recorded sales of equipment and
consumables to Pitman Company ("Pitman") of $15.4 million, $15.5 million and
$13.7 million, respectively. At December 30, 2000 and January 1, 2000, the
Company had accounts receivable from Pitman of $2.0 million and $2.4 million,
respectively. John Dreyer, who has been a director of the Company since February
1996, was Pitman's Chairman of the Board and Chief Executive Officer at December
30, 2000.
On February 28, 1998, the Company made a loan to Robert E. Verrando in the
amount of $200,000 at an interest rate of 8% per annum, with the principal and
accrued interest payable on demand. At December 30, 2000 and January 1, 2000,
$185,000 was due to the Company. Mr. Verrando was the President and Chief
Operating Officer of the Company from February 1996 to January 1999 when he
retired from these positions. He was Secretary of the Company from September
1998 to December 2000, and he served as a Director of the Company's Board of
Directors from November 1987 to December 2000, when he resigned from these
positions. Mr. Verrando remains an employee of the Company.
The Company paid Robert Howard for consulting services provided to the Company
in the amount of $181,000 in fiscal 2000 and $133,000 in each of the fiscal
years 1999 and 1998. Mr. Howard served as the Company's Chairman Emeritus from
October 1998 to December 2000, when he resigned from this position. The Company
had a payable to Mr. Howard of $12,000 for consulting services at January 1,
2000. The Company subleased certain of its office facilities as a tenant-at-will
from Mr. Howard in fiscal 1998 of which payments totaled $38,000.
10. SEGMENT INFORMATION
-------------------
The Company operates in two reportable segments, the Digital Imaging Products
segment and the LaserTel segment. The Digital Imaging Products segment is
primarily engaged in the development, manufacture and sales of its proprietary
digital imaging systems and printing plate technologies for CTP and
direct-to-press applications. The LaserTel segment is primarily engaged in the
manufacture and development of the
F-17
Company's high-powered laser diodes. The Company operated in one business
segment for fiscal 1999 and fiscal 1998.
The accounting policies of the reportable segments are the same as those
described in Note 1, "Summary of Significant Accounting Policies." Sales between
the segments are recorded at prices which approximate pricing for sales
conducted at an arm's length basis. The segments are measured on operating
profits or losses before net interest income, minority interest and income
taxes.
A summary of the Company's operations by segment for the year ended December 30,
2000 were as follows:
Digital Imaging
(In thousands) Products LaserTel Total
------------------------------------------------------------------
Revenues $ 85,794 $ 1,500 $ 87,294
Inter-segment sales -- 170 170
Income (loss) from operations 7,555 (2,153) 5,402
Total assets 102,017 13,885 115,902
Depreciation and amortization 6,517 136 6,653
Capital expenditures 8,590 6,655 15,245
The geographic information included in the following table for fiscal 2000, 1999
and 1998 attributes revenues to the geographic locations based on the location
of the Company's customer.
(In thousands) 2000 1999 1998
------------------------------------------------------------------
Geographic Revenues:
United States $ 28,544 $ 20,636 $ 23,243
Germany 39,333 14,100 40,824
Japan 4,769 8,106 4,912
All Other 14,648 12,122 5,186
----------------------------- -------- -------- --------
$ 87,294 $ 54,964 $ 74,165
============================= ======== ======== ========
The Company's long term assets are located in the United States.
Revenues generated under the Company's agreements with Heidelberg and its
distributors totaled $49.4 million, $21.6 million, and $42.1 million for fiscal
2000, 1999 and 1998, respectively. Accounts receivable from Heidelberg totaled
$9.5 million and $6.5 million, respectively, at December 30, 2000 and January 1,
2000. Revenues generated under the Company's agreements with Pitman totaled
$15.4 million, $15.5 million and $13.7 million for fiscal 2000, 1999 and 1998,
respectively. Accounts receivable from Pitman totaled $2.0 million and $2.4
million, respectively, at December 30, 2000 and January 1, 2000. No other
customer represented more than ten percent of the Company's revenues in fiscal
2000, 1999 and 1998.
11. COMMITMENTS AND CONTINGENCIES
-----------------------------
The Company leases a number of its facilities under non-cancelable 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 as a result of these
agreements were $424,000, $449,000, and $513,000 for fiscal 2000, 1999 and 1998,
respectively.
As of December 30, 2000, future minimum lease payments under these agreements
were as follows:
2001 $246,000
2002 274,000
2003 115,000
------------------------ --------------
Total $635,000
======================== ==============
F-18
The Company has employment agreements with two key executive officers. The
agreements provide for minimum salary levels, subject to periodic review by the
Company's Board of Directors or Compensation Committee. The employment
agreements also contain certain termination and change in control provisions, as
defined in the agreements. The Company's maximum contingent liability under such
agreements as of December 30, 2000 would be $2.4 million.
12. 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 and amendments govern the Company's relationship with
Heidelberg and relate to the integration of the PEARL Direct Imaging technology
into various presses manufactured by Heidelberg. The manufacture of components,
at specified rates, for such presses and the commercialization of such presses
are also covered.
The Heidelberg Agreements expire in December 2011 subject to certain early
termination and extension provisions. Under these agreements, Heidelberg agreed
to pay royalties to the Company based on the net sales prices of various
specified types of Heidelberg presses on which the Company's PEARL Direct
Imaging technology is used. Pursuant to the Heidelberg Agreements, Heidelberg
has been provided with certain rights for use of the PEARL Direct Imaging
technology for the Quickmaster DI format size. The Heidelberg Agreements have
also been modified to provide Heidelberg with a fixed royalty rate for the
Company's PEARL Direct Imaging systems used in the Quickmaster DI.
In fiscal 1998 and 1999 the Company materially reduced production levels of
direct imaging systems used in the Quickmaster DI press, based on requirements
from Heidelberg. The Company resumed production with initial low level shipments
of its direct imaging systems late in the third quarter of fiscal 1999, and
increased production levels in fiscal 2000 in line with the actual rate of
Quickmaster DI's produced by Heidelberg.
13. OTHER INFORMATION
-----------------
In March 2000, the Company entered into an agreement with the plaintiffs in
several class actions lawsuits consolidated under the common caption "Bill
Berke, et al. v. Presstek, Inc., et al." in the United States District Court,
District of New Hampshire to settle the class action lawsuit. The Company also
executed a memorandum of understanding with respect to the settlement of the
derivatives lawsuits, filed on behalf of the Company, one in the Chancery Court
of the State of Delaware and the other in the United States District Court,
District of New Hampshire. Under the terms of the class action settlement, $22.0
million, in the form of 1,245,246 shares of the Company's common stock, will be
paid to the class. The Company issued 437,196 of such shares in the fourth
quarter of fiscal 2000 and expects to distribute the remaining 808,050 shares of
common stock in the fiscal year ending December 29, 2001. In the memorandum of
understanding in the derivative litigation, the Company agreed to issue 60,582
shares of common stock and certain therapeutic improvements to its internal
policies, some of which have already been instituted. The Company issued 60,582
of such shares in the third quarter of fiscal 2000. The Company recorded a
charge of $23.2 million in the fourth quarter of fiscal 1999 related to the
settlements, $22.9 million of which was recorded as a long-term liability.
In August 1999 Creo Products, Inc., ("Creo"), filed an action in the United
States District Court for the District of Delaware against the Company asserting
that Creo has a "reasonable apprehension that it will be sued by Presstek for
infringement" of two of the Company's patents and seeking a declaration that
Creo's products "do not and will not infringe any valid and enforceable claims"
of the patents in question. In September 1999, the Company filed a counterclaim
against Creo for patent infringement. The Company claims that Creo has infringed
two direct imaging patents owned by the Company which were recently the subject
of re-examination by the U. S. Patent and Trademark Office. Presstek intends to
vigorously enforce its patent rights.
F-19
In December of 1999 a complaint was filed by PPG, Inc. ("PPG") against Delta V
in the United States District Court for the Western District of Pennsylvania
alleging that Delta V sold to PPG certain vacuum coating equipment that did not
meet certain product specifications. An amended complaint was filed in April of
2000. In the suit, PPG seeks damages in excess of $7.0 million. In addition to
naming Delta V as a defendant in the complaint, PPG also named Presstek as a
defendant, seeking damages from Presstek and attempting to hold Presstek liable
for the alleged breach of contract by its subsidiary, Delta V, on a theory of
indirect liability. Motions to dismiss for lack of venue have been filed,
briefed and argued, and a decision on these motions is pending before the court.
The Company intends to continue to vigorously defend this action.
F-20
14. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
=================================================================================================
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(In thousands, except per share data)
=================================================================================================
FISCAL 2000 Q1 Q2 Q3 Q4
- ---------------------------------------------- -------- -------- -------- --------
Total revenues $ 19,035 $ 21,216 $ 22,038 $ 25,005
- ---------------------------------------------- -------- -------- -------- --------
Total costs and expenses 18,743 20,648 20,309 22,192
- ---------------------------------------------- -------- -------- -------- --------
Net income (loss) from continuing operations 391 568 1,656 2,685
- ---------------------------------------------- -------- -------- -------- --------
Net income (loss) from discontinued operations -- -- -- 600
- ---------------------------------------------- -------- -------- -------- --------
Net income (loss) $ 391 $ 568 $ 1,656 $ 3,285
- ---------------------------------------------- -------- -------- -------- --------
Earnings (loss) per share - Basic:
- ---------------------------------------------- -------- -------- -------- --------
From continuing operations $ 0.01 $ 0.02 $ 0.05 $ 0.08
- ---------------------------------------------- -------- -------- -------- --------
From discontinued operations $ 0.00 $ 0.00 $ 0.00 $ 0.02
- ---------------------------------------------- -------- -------- -------- --------
Earnings (loss) per share - Basic $ 0.01 $ 0.02 $ 0.05 $ 0.10
- ---------------------------------------------- -------- -------- -------- --------
- ---------------------------------------------- -------- -------- -------- --------
Earnings (loss) per share - Diluted:
- ---------------------------------------------- -------- -------- -------- --------
From continuing operations $ 0.01 $ 0.02 $ 0.05 $ 0.08
- ---------------------------------------------- -------- -------- -------- --------
From discontinued operations $ 0.00 $ 0.00 $ 0.00 $ 0.01
- ---------------------------------------------- -------- -------- -------- --------
Earnings (loss) per share - Diluted $ 0.01 $ 0.02 $ 0.05 $ 0.09
- ---------------------------------------------- -------- -------- -------- --------
- ---------------------------------------------- -------- -------- -------- --------
Weighted average common shares outstanding -
Basic 32,561 32,601 32,659 33,443
- ---------------------------------------------- -------- -------- -------- --------
- ---------------------------------------------- -------- -------- -------- --------
Weighted average common shares outstanding -
Diluted 34,195 34,106 33,800 34,846
- ---------------------------------------------- -------- -------- -------- --------
FISCAL 1999 Q1 Q2 Q3 Q4
- ---------------------------------------------- -------- -------- -------- --------
Total revenues $ 11,536 $ 12,246 $ 14,155 $ 17,027
- ---------------------------------------------- -------- -------- -------- --------
Total costs and expenses1 14,881 15,296 16,051 39,909
- ---------------------------------------------- -------- -------- -------- --------
Net income (loss) from continuing operations (3,097) (2,928) (1,778) (22,831)
- ---------------------------------------------- -------- -------- -------- --------
Net income (loss) from discontinued operations(2) 13 94 (11,055) 1,966
- ---------------------------------------------- -------- -------- -------- --------
Net income (loss) $ (3,084) $ (2,834) $(12,833) $(20,865)
- ---------------------------------------------- -------- -------- -------- --------
- ---------------------------------------------- -------- -------- -------- --------
Earnings (loss) per share - Basic:
- ---------------------------------------------- -------- -------- -------- --------
From continuing operations $ (0.10) $ (0.09) $ (0.06) $ (0.70)
- ---------------------------------------------- -------- -------- -------- --------
From discontinued operations $ 0.00 $ 0.00 $ (0.34) $ 0.06
- ---------------------------------------------- -------- -------- -------- --------
Earnings (loss) per share - Basic $ (0.10) $ (0.09) $ (0.40) $ (0.64)
- ---------------------------------------------- -------- -------- -------- --------
- ---------------------------------------------- -------- -------- -------- --------
Earnings (loss) per share - Diluted:
- ---------------------------------------------- -------- -------- -------- --------
From continuing operations $ (0.10) $ (0.09) $ (0.06) $ (0.70)
- ---------------------------------------------- -------- -------- -------- --------
From discontinued operations $ 0.00 $ 0.00 $ (0.34) $ 0.06
- ---------------------------------------------- -------- -------- -------- --------
Earnings (loss) per share - Diluted $ (0.10) $ (0.09) $ (0.40) $ (0.64)
- ---------------------------------------------- -------- -------- -------- --------
- ---------------------------------------------- -------- -------- -------- --------
Weighted average common shares
outstanding - Basic 32,298 32,311 32,317 32,417
- ---------------------------------------------- -------- -------- -------- --------
- ---------------------------------------------- -------- -------- -------- --------
Weighted average common shares
outstanding - Diluted 32,298 32,311 32,317 32,417
- ---------------------------------------------- -------- -------- -------- --------
1 Q4 Includes the provision for the proposed settlements with the plaintiffs
in the class actions and derivative suits filed in 1996. See Note 13 of
notes to the financial statements.
2 Relates to the operations of Delta V Technologies, Inc., which were
divested in fiscal 1999. See Note 3 of notes to the financial statements.
F-21
PRESSTEK, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(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
- ---- ----------------------- ----------- -------- -------- ------------- -----------
1998 Allowance for losses on
accounts receivable $ 941 $5,006 $ 169(3) $(3,580)(1) $ 2,536
==== ======================= =========== ======== ======== ============= ===========
Warranty reserve 883 679 -- (632)(2) 930
==== ======================= =========== ======== ======== ============= ===========
1999 Allowance for losses on
accounts receivable $2,536 $2,240 $ -- $(1,474)(1) $ 3,302
==== ======================= =========== ======== ======== ============= ===========
Warranty reserve 930 290 -- (263)(2) 957
==== ======================= =========== ======== ======== ============= ===========
2000 Allowance for losses on
accounts receivable $3,302 $ 686 $ -- $1,146(1) $ 2,842
==== ======================= =========== ======== ======== ============= ===========
Warranty reserve 957 862 -- (1,221)(2) 598
==== ======================= =========== ======== ======== ============= ===========
(1) Allowance for losses
(2) Warranty expenditures
(3) Heath Custom Press, Inc. Acquisition
FS-1