PRINTWARE, INC.
1270 Eagan Industrial Road
St. Paul, MN 55121
May 20, 2002
Securities and Exchange Commission
Washington, D.C. 20549
Gentlemen:
Pursuant to the requirements of the Securities Exchange Act of
1934, we are transmitting herewith the attached Form 10-QSB.
Sincerely,
PRINTWARE, INC.
/s/ MARK G. EISENSCHENK
___________________________________________
Mark G. Eisenschenk, Chief Financial Officer
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 2002
Commission file Number 000-20729
PRINTWARE, INC.
(Exact name of registrant as specified in its charter.)
Minnesota 41-1522267
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1270 Eagan Industrial Road, St. Paul, MN 55121
(Address of principal executive offices) (Zip Code)
(651) 456-1400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant(1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practical
date:
Common Stock, no Par Value--3,589,305 shares as of
May 20, 2002.
PRINTWARE, INC.
Notes To Condensed Financial Statements
March 31, 2002
(Unaudited)
1. FINANCIAL STATEMENT PRESENTATION
Readers of this quarterly report should refer to the audited financial
statements of Printware, Inc. (the "Company") as of and for the year ended
December 31, 2001 which are included in the Company's 2001 Form 10-KSB, as
certain footnote disclosures which would substantially duplicate those
contained in such audited statements and have been omitted from this report.
On April 16, 2002, Company's shareholders approved and adopted a Plan of
Complete and Voluntary Liquidation and Dissolution of Printware, Inc.
Accordingly, the accompanying financial statements are presented utilizing the
liquidation basis of accounting. The financial statements reflect the
liquidation basis of accounting effective March 31, 2002 and include the
following adjustments to the going concern based financial statements (000's):
Adjustments to Liquidation Basis
Select Comfort Corporation Securities
The Company's most significant asset, other than cash and cash equivalents, is
its investment in Select Comfort Corporation (Nasdaq: SCSS) securities. The
Select Comfort Corporation securities have been reflected in the accompanying
Statement of Net Assets in Liquidation, based on the Black-Scholes valuation
model, at a value of $8,117,000. The securities consist of a convertible
debenture with a face amount of $1,500,000 bearing interest at 8% per annum and
warrants to acquire 600,000 unregistered shares of Select Comfort Corporation
common stock for $600,000 in cash or for an equivalent value of Select Comfort
Corporation common stock via cashless exercise of the warrants. After June 6,
2002, if Select Comfort Corporation common stock trades at or above $4.00 per
share for a period of at least ten out of twenty consecutive trading days, the
principal amount of the debenture will automatically convert into 1,500,000
shares of unregistered Select Comfort Corporation common stock. Both of these
securities are carried at estimated net realizable value and are subject to
significant fluctuations in value.
If a sufficient amount of Select Comfort Corporation securities held by others
participate in initiating a demand registration of common stock issuable by
Select Comfort Corporation, the Company may be able to demand registration of
the securities. There is no assurance, however, that the Select Comfort
Corporation shares which the Company would hold will be registered.
No income taxes have been accrued for relating to appreciation of the Select
Comfort Corporation securities during the three month period ended March 31,
2002. This is because if the investment is sold or distributed at its
estimated net realizable value the Company intent would be to offset any
taxable gain with available net operating loss carryforwards. Such tax loss
carryforwards are currently not recognized in the condensed statements of net
assets in liquidation. Depending on a variety of factors, however, sale or
distribution of Select Comfort Corporation securities could cause the Company
to incur income taxes on appreciation of the securities.
2. LIQUIDATION OF THE COMPANY
Key liquidation related activities in 2002 included the following:
Creditor Notifications
Pursuant to Minnesota statutes, the Company has published in legal newspapers
its notice of intent to dissolve and mailed letters to its creditors for the
purpose of identifying any unknown liabilities or claims. The deadline for
creditors to submit claims to the Company is July 23, 2002.
Accrued Lease Obligation
In April 2002, the Company entered into an assignment and assumption agreement
with Printware, LLC an unrelated entity whereby, in exchange for $350,000,
Printware, LLC agreed to assume all remaining financial and nonfinancial
obligations relating to the Company's Eagan, Minnesota facility lease. As a
result of this transaction, the Company reduced its accrued lease obligation to
$350,000. This resulted in recording an $89,000 favorable adjustment to the
Company's net assets in liquidation.
Sale of the Company's 10% Equity Interest in Printware, LLC
In April 2002, the Company sold its 10% equity interest in Printware, LLC
for $55,556 to a third party which was equal to the carrying value of the
investment. The transaction resulted in no gain or loss to the Company and had
no impact on the amount of the Company's net assets in liquidation.
Sale of $750,000 Promissory Note Receivable
In April 2002, the Company, in connection with settling other outstanding
matters with Printware, LLC, sold its $750,000 promissory note receivable to
Printware, LLC for $564,219. Accordingly, the promissory note has been
reflected in the accompanying March 31, 2002 Condensed Statement of Net Assets
in Liquidation at its realizable value of $564,219 after discount of
$185,781. The transaction has been reflected in adjustments to liquidation
basis in the accompanying Statement of Changes in Net Assets in Liquidation for
the three months ended March 31, 2002.
Sale of Quipp, Inc. Common Stock
In April and May 2002, the Company sold its remaining investment of 6,005
shares of Quipp, Inc. common stock for $82,992. A corresponding loss of
approximately $65,000 has been recorded as an adjustment to liquidation basis
in the accompanying Condensed Statement of Changes in Net Assets in Liquidation
for the three months ended March 31, 2002. The Company no longer holds any
investment in that company.
Stock Option Exercises
During the three months ended March 31, 2002, certain employees exercised their
stock options and purchased a total of 4,099 shares of Printware, Inc. common
stock at prices ranging from $2.00 to $2.57 per share.
In April 2002 a nonemployee option holder exercised options to purchase 10,000
shares of Printware, Inc. common stock at prices ranging from $2.66 to $2.88
per share. Also in April 2002 directors and officers exercised options to
purchase 273,000 shares of Printware, Inc. common stock at prices ranging from
$2.32 to $3.55 per share. The effect of these transactions has not been
reflected in the net assets in liquidation as of March 31, 2002.
Securities Outstanding and Stock Options Available for Exercise
As of May 20, 2002, there were 3,589,305 shares of Printware, Inc. common stock
outstanding. In addition, as of May 20, 2002 there were 40,000 options
outstanding to purchase Printware, Inc. common stock at exercise prices ranging
from $2.32 to $3.88 per share.
3. DISTRIBUTIONS
On May 7, 2002, the Company announced it would make a distribution of $2.00 per
share in cash to shareholders of record as of April 16, 2002. The distribution
is scheduled to occur on or about June 3, 2002.
ITEM 2. MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
Certain statements in this quarterly report that are not historical in fact
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements are based on our
current expectations, estimates and projections. These statements are not a
guaranty of future performance. Without limiting the foregoing, words such as
"believes," "intends," "anticipates," "expects" and similar expressions are
intended to identify forward-looking statements which are subject to a number
of risks and uncertainties, including, among other things:
- General and specific investment risks, particularly in regard to the
Company's holdings of Select Comfort Corporation securities; - Income tax consequences;
- Resolution of known and unknown liabilities and claims;
- Inability to collect interest and principal on equipment leases receivable;
- Condition of the United States economy in general and its impact on
operations and values in particular; - Failure to sell our remaining assets on terms beneficial to the Company,
if at all; - Potential inadequacy of cash reserves to satisfy claims, contingencies and
liquidation costs; - Adverse consequences of a loss of Company officers;
- Failure or inability to comply with or effectuate the Plan of Complete
and Voluntary Dissolution of Printware, Inc.
Actual results could differ materially from those projected in these forward-
looking statements.
On April 16, 2002, our shareholders adopted a Plan of Complete and Voluntary
Liquidation and Dissolution of Printware, Inc. (the "Plan") under which our
Company will be dissolved, the obligations of the Company will be paid,
reserves will be made and the net assets will be distributed to our shareholders.
During the quarter ended March 31, 2002 and through the date of this report,
the following liquidation-related transactions occurred:
Accrued Lease Obligation
In April 2002, the Company entered into an assignment and assumption agreement
with Printware, LLC an unrelated entity whereby, in exchange for $350,000,
Printware, LLC agreed to assume all remaining financial and nonfinancial
obligations relating to the Company's Eagan, Minnesota facility lease. As a
result of this transaction, the Company reduced its accrued lease obligation to
$350,000. This resulted in recording an $89,000 favorable adjustment to the
Company's net assets in liquidation.
Sale of the Company's 10% Equity Interest in Printware, LLC
In April 2002, the Company sold its 10% equity interest in Printware, LLC
for $55,556 to a third party which was equal to the carrying value of the
investment. The transaction resulted in no gain or loss to the Company and had
no impact on the amount of the Company's net assets in liquidation.
Sale of $750,000 Promissory Note Receivable
In April 2002, the Company, in connection with settling other outstanding
matters with Printware, LLC, sold its $750,000 promissory note receivable to
Printware, LLC for $564,219. Accordingly, the promissory note has been
reflected in the accompanying March 31, 2002 Condensed Statement of Net Assets
in Liquidation at its realizable value of $564,219 after discount of
$185,781. The transaction has been reflected in adjustments to liquidation
basis in the accompanying Statement of Changes in Net Assets in Liquidation for
the three months ended March 31, 2002.
Sale of Quipp, Inc. Common Stock
In April and May 2002, the Company sold its remaining investment of 6,005
shares of Quipp, Inc. common stock for $82,992. A corresponding loss of
approximately $65,000 has been recorded as an adjustment to liquidation basis
in the accompanying Condensed Statement of Changes in Net Assets in Liquidation
for the three months ended March 31, 2002. The Company no longer holds any
investment in that company.
RESULTS OF OPERATIONS
On April 16, 2002, our shareholders adopted a Plan of Complete and
Voluntary Liquidation and Dissolution under which the Company will be
dissolved. As a result of the adoption of the Plan, the Company adopted the
liquidation basis of accounting effective March 31, 2002. The Statement of
Changes in Net Assets in Liquidation differs from the Statement of Operations
in that we have accrued for, as of March 31, 2002, all the estimated known
liabilities associated with liquidating the Company in the Statement of Net
Assets in Liquidation, and have recorded all losses and all gains which are
recognized when sales transactions or firm contracts provide competent
evidential matter as to the net realizability of assets as of the date of the
net assets in liquidation date which were settled after March 31, 2002 but
before the filing of this Form-10-QSB.
For the three months ended March 31, 2002, our net assets in liquidation
increased by approximately $3.3 million from approximately $12.1 million to
approximately $15.4 million. This increase is partially the result of an
operating loss of approximately $137,000 offset by interest earned on
investments of $100,000 and an unrealized holding gain on Select Comfort
Corporation securities of $1.3 million. However, the Select Comfort
Corporation investment is highly volatile and could materially change in value
at anytime until liquidation.
At March 31, 2002, our total assets were approximately $16.2million, an
increase of approximately $3.5 million from total assets at December 31, 2001
of approximately $12.7 million. Our liabilities totaled approximately
$800,000 at March 31, 2002, a decrease of approximately $200,000 from
approximately $600,000 at December 31, 2001. At March 31, 2002, our net assets
in liquidation were approximately $15.4million, an increase of approximately
$3.3 million from approximately $12.1 million at December 31, 2001.
Cash and cash equivalents consist of cash and short-term investments. Our
cash and cash equivalents balance increased by approximately $2.0million to
approximately $7.1 million at March 31, 2002 from approximately $5.1 million
at December 31, 2001. The increase in total cash and cash equivalents was due
primarily to collection of Whitebox Arbitrage investment of approximately
$2,100,000 in January, 2002.
PART II--OTHER INFORMATION
Item #6 Exhibits and Reports on Form 8-K
a. Exhibits
none
b. Reports on Form 8-K
Form 8-K filed January 16, 2002 announcing plan of liquidation.
On May 8, 2002, the Company filed form 8-K disclosing its intention
to distribute $2.00 per share to shareholders of record on April 16,
2002.
PRINTWARE, INC.
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934,
the registrant has duly cause this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRINTWARE, INC.
Registrant
Date: May 20, 2002 /s/ MARK G. EISENSCHENK
________________________
Mark G. Eisenschenk
CHIEF FINANCIAL OFFICER
(Principal Financial Officer)
Date: May 20, 2002 /s/ STANLEY GOLDBERG
________________________
Stanley Goldberg
PRESIDENT
& CHIEF EXECUTIVE OFFICER
(Principal Executive Officer)