UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10QSB
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended July 1, 2000
[ ] Transition report under Section 13 or 15(d) of the
Securities Exchange Act.
Commission file Number 000-20729
PRINTWARE, INC.
(Exact name of small business issuer 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 - 3,288,021 shares outstanding as
of August 9, 2000.
PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
PRINTWARE, INC.
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
3 AND 6 MONTHS ENDED JULY 1, 2000 AND JULY 3, 1999
DOLLARS IN THOUSANDS EXCEPT PER SHARE
(UNAUDITED)
Three months ended Six months ended
July 1 July 3 July 1 July 3
______ ______ ______ ______
2000 1999 2000 1999
______ ______ ______ ______
TOTAL REVENUES $1,605 $1,266 $2,869 $2,186
COST OF REVENUES 897 741 1,634 1,325
______ ______ ______ ______
GROSS MARGIN 708 525 1,235 861
PERIOD COSTS:
Research and development 145 180 299 370
Selling, general and administrative 365 429 721 866
Proxy contest costs 358 - 358 -
______ ______ ______ ______
Total 868 609 1,378 1,236
______ ______ ______ ______
LOSS FROM OPERATIONS (160) (84) (143) (375)
OTHER INCOME (EXPENSE):
Interest expense - - - -
Interest and other income 112 185 236 379
_____ ______ ______ _____
(LOSS) INCOME BEFORE INCOME TAXES (48) 101 93 4
INCOME TAX (BENEFIT) EXPENSE (14) - 35 -
______ ______ ______ ______
NET (LOSS) INCOME $ (34) $ 101 $ 58 $ 4
====== ====== ====== ======
NET (LOSS) INCOME PER COMMON:
BASIC AND DILUTED $ (.01) $ .02 $ .02 $ .00
====== ====== ====== ======
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING--BASIC 3,282,503 4,842,423 3,278,950 4,838,551
========= ========= ========= =========
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING--DILUTED 3,282,503 4,842,423 3,287,999 4,838,551
========= ========= ========= =========
OTHER COMPREHENSIVE (LOSS) INCOME
BEFORE TAX:
Unrealized gains on securities:
Unrealized holding losses
arising during period $ (1) $ (165) $ (23) $ (250)
Add reclassification adjustment
for (loss) included in net income (1) - (1) -
______ ______ ______ ______
OTHER COMPREHENSIVE (LOSS) INCOME,
BEFORE TAX (2) (165) (24) (250)
INCOME TAX BENEFIT (EXPENSE) RELATED
TO ITEMS OF OTHER COMPREHENSIVE
INCOME 5 58 13 121
______ ______ ______ ______
OTHER COMPREHENSIVE INCOME (LOSS),
NET OF TAX $ 3 $ (107) $ (11) $ (129)
====== ====== ====== ======
COMPREHENSIVE (LOSS) INCOME $ (31) $ (6) $ 47 $ (125)
====== ====== ====== ======
See notes to condensed financial statements.
PRINTWARE, INC.
CONDENSED BALANCE SHEETS
DOLLARS IN THOUSANDS EXCEPT PER SHARE INFORMATION
(UNAUDITED)
ASSETS
July 1, December 31,
2000 1999
____________ ____________
CURRENT ASSETS:
Cash and cash equivalents $ 613 $ 56
Marketable securities available-for-sale 5,683 7,492
Receivables 651 445
Lease receivables--current 946 757
Inventories 2,318 2,142
Deferred income taxes--current 438 426
Prepaid expenses 62 56
_______ _______
Total Current Assets 10,711 11,374
PROPERTY AND EQUIPMENT, net of accumulated
depreciation and amortization 161 186
INTANGIBLE ASSETS, net of accumulated
amortization 20 22
LEASE RECEIVABLES--long-term 2,164 1,717
DEFERRED INCOME TAXES--long-term 2,018 2,057
RESTRICTED ASSETS HELD IN TRUST 596 -
_______ _______
$15,670 $15,356
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 642 $ 392
Accrued expenses 389 407
Deferred revenues 33 35
_______ _______
Total Current Liabilities 1,064 834
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred Stock, no specified par value;
1,000,000 shares authorized;
none issued and outstanding - -
Common Stock, no par value, authorized
15,000,000 shares: issued and outstanding
3,288,021 shares at July 1, 2000;
3,269,494 shares at December 31, 1999,
respectively 19,068 19,031
Accumulated deficit (4,388) (4,446)
Accumulated other comprehensive loss (74) (63)
_______ _______
Total shareholders' equity 14,606 14,522
_______ _______
$15,670 $15,356
======= =======
See notes to condensed financial statements.
PRINTWARE, INC.
CONDENSED STATEMENTS OF CASH FLOWS
6 MONTHS ENDED JULY 1, 2000 AND JULY 3, 1999
DOLLARS IN THOUSANDS
(UNAUDITED)
July 1, July 3,
2000 1999
_______ ______
OPERATING ACTIVITIES:
Net income $ 58 $ 4
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 30 38
Provision for bad debts - 6
Provision for inventory write-downs 54 30
Deferred income taxes 27 (52)
Changes in operating assets and liabilities:
Receivables (206) 313
Inventories (230) (498)
Prepaid expenses (6) (25)
Accounts payable 250 (105)
Accrued expenses (18) (62)
Deferred revenues (2) 17
______ ______
Net cash used in operating activities (43) (334)
INVESTING ACTIVITIES:
Purchases of available-for-sale securities - (1,275)
Maturities and sales of available-for-sale
securities 1,798 2,074
Increase in lease receivables (636) (587)
Purchases of property and equipment (8) (27)
Disposal of property and equipment 3 -
Increase in other assets (594) -
______ ______
Net cash provided by
investing activities 563 185
FINANCING ACTIVITIES:
Proceeds from issuance of Common Stock 37 33
______ ______
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 557 (116)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 56 654
______ ______
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 613 $ 538
====== ======
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid during the period for:
Income taxes $ - $ -
====== ======
See notes to condensed financial statements.
PRINTWARE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
3 AND 6 MONTHS ENDED JULY 1, 2000 AND JULY 3, 1999
1. INTERIM FINANCIAL INFORMATION
The accompanying condensed balance sheet as of July 1, 2000 and
the condensed statements of operations and comprehensive income for the
three and six months ended July 1, 2000 and July 3, 1999, and the condensed
statements of cash flows for the six months ended July 1, 2000 and July 3,
1999 are unaudited. In the opinion of management, such unaudited financial
statements include all adjustments, consisting of only normal, recurring
accruals necessary for a fair presentation thereof. The results of operations
for any interim period are not necessarily indicative of the results for the
year.
July 1, December 31,
2000 1999
_________ ____________
2. RECEIVABLES:
Trade $ 114 $ 117
Interest 584 378
Employees 4 1
Allowance for doubtful accounts (51) (51)
______ ______
Total receivables $ 651 $ 445
====== ======
3. INVENTORIES:
Raw materials $1,454 $1,353
Work-in-process 310 236
Finished goods 554 553
______ ______
Total inventories $2,318 $2,142
====== ======
4. PROPERTY AND EQUIPMENT:
Office equipment $ 516 $ 511
Software 108 108
Machinery and equipment 322 322
Leasehold improvements 126 126
Tooling and spares 338 338
Motor vehicles 14 24
______ ______
Total property and equipment 1,424 1,429
Less accumulated depreciation and amortization 1,263 1,243
______ ______
Net property and equipment $ 161 $ 186
====== ======
PRINTWARE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
QUARTERS ENDED JULY 1, 2000 AND JULY 3, 1999
(Continued)
July 1, December 31,
2000 1999
______ ___________
5. INTANGIBLE ASSETS:
License rights $ 560 $ 560
Patents 54 54
______ ______
Total intangible assets 614 614
Less: accumulated amortization 594 592
______ ______
Net intangible assets $ 20 $ 22
====== ======
6. ACCRUED EXPENSES:
Accrued payroll and related $ 46 $ 50
Accrued vacation and benefits 185 187
Accrued professional services 51 48
Accrued warranty reserve 43 46
Accrued income taxes 24 28
Accrued other 40 48
______ ______
Total accrued expenses $ 389 $ 407
====== ======
7. MARKETABLE SECURITIES
The Company classifies its marketable securities as available-for-sale.
At July 1, 2000 and December 31, 1999, securities available-for-sale are
carried at fair value with the net unrealized holding gain or loss included
in shareholders' equity.
8. SHAREHOLDERS' EQUITY
During the six months ended July 1, 2000, the Company issued 18,527
shares of Common Stock in connection with the Employee Stock Purchase Plan
at prices of $2.28, $1.91 and $1.86 per share.
9. NEW ACCOUNTING PRONOUNCEMENT
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," was issued by the Financial Accounting Standards Board in
June 1998. The Standard will require the Company to recognize all
derivatives on the balance sheet at fair value. Derivatives that are
not hedges must be adjusted to fair value through income. If the
derivative is a hedge, depending on the nature of the hedge, changes in
the fair value of derivatives will either be offset against the change in
fair value of the hedged assets, liabilities, or firm commitments through
earnings, or recognized in other comprehensive income until the hedged item
is recognized in earnings. The change in a derivative's fair value related
to the ineffective portion of a hedge, if any, will be immediately recognized
in earnings. The Company expects to adopt this Standard as of the beginning
of its fiscal year 2001. The effect of adopting the Standard is currently
being evaluated, but is not expected to have a material effect on the
Company's financial position or results in operations.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting bulletin ("SAB") No. 101 "Revenue Recognition in Financial
Statements". SAB No. 101 summarizes certain of the SEC staff's view in applying
generally accepted accounting principles to selected revenue recognition issues.
SAB No. 101 is to be implemented by the Company no later than the fourth quarter
of fiscal 2000. The Company is currently reviewing SAB 101 and its effects on
the financial statements, but has not yet determined the effect on its financial
position or results of its operations.
ITEM 2. MANAGEMENT'S DISCUSSION
AND ANALYSIS OR PLAN OF OPERATIONS
RESULTS OF OPERATIONS FOR THE QUARTER ENDED
JULY 1, 2000 AND JULY 3, 1999
Total revenues for the second quarter of 2000 were $1.61 million, an
increase of 27% from second quarter 1999 revenues of $1.27 million. The
increase was due primarily to an increase in equipment sales in the second
quarter of 2000 compared to the same quarter in 1999, and the addition of
supplies products in 2000 for the Company's current generation of platesetters.
The Company also earned its first Web-to-Plate revenues in this quarter.
The Company's gross margin was $708,000 in the second quarter of 2000
versus $525,000 in the comparable quarter in 1999. Gross margin as a
percentage of revenue increased to 44% in the second quarter 2000 from
41% in second quarter 1999. The increased margin in 2000 was due primarily
to some specific equipment sales at above average historical prices combined
with reduced manufacturing costs.
Research and development expenses decreased to $145,000 in the second
quarter 2000 from $180,000 in the second quarter in 1999. The decrease
was largely due to lower headcount and related costs caused by the completion
of the PlateStream development and despite increased expenses for the new
Internet-related Web-to-Plate developments.
Selling, general and administrative expenses decreased to $365,000 in
the second quarter of 2000 from $429,000 in the second quarter of 1999.
Selling expenses decreased by approximately $38,000 in the second quarter
2000 primarily due to loss of sales people that were in the process of being
replaced at the end of the current period. General and administrative expenses
were down approximately $26,000 in the second quarter of 2000 due primarily to
improved efficiency and lower headcount.
The proxy contest costs in the second quarter of 2000 were the result of
a contested election of the Board of Directors. The Company incurred expenses
for legal, proxy solicitation, and printing of $153,000, in support of the
incumbent Board, with the expenses of the Committee to Improve Printware
Shareholder Value for similar activities totaling $205,000. The proxy contest
ended with the election of the dissident slate as the new Board of Directors on
June 16, 2000. The Company has accrued for the reimbursement of the
Committee's expenses pending approval by the new Board. Expenses are
expected to be reimbursed in the third quarter 2000 if approved by the new
Board.
Interest and other income were $112,000 in the second quarter of 2000
compared to $185,000 in the same quarter in 1999. The decrease in interest
income in 2000 was due to lower interest rates and a decrease in cash and
investments of $4.8 million from the second quarter in 1999 compared to the
same quarter in 2000. This was primarily due to the $3.0 million buyback of
stock from Deluxe Corporation in July 1999, and the Company's financing of its
leasing activity.
The Company's income tax (benefit) expense primarily consists of federal
and state taxes due in the current year and is based on the estimated
annualized effective rate. In 1999, the Company did not record income taxes
because income tax expense was offset by a reduction in the valuation allowance
and the deferred.
RESULTS OF OPERATIONS FOR THE 6 MONTHS ENDED JULY 1, 2000 and JULY 3, 1999
Total revenues for the first half of 2000 were $2.87 million, an increase
of 31% from the same period in 1999. The increase in 2000 revenues versus the
year-ago period was primarily due to an increase in equipment sales with a
growing contribution from sales of the new supplies products for the current
generation of platesetters.
The Company's gross margin as a percentage of revenue in the first half of
2000 was 43%, up from 39% in the same period in 1999. This was due largely to
higher-margin equipment sales in the first half of 2000, combined with lower
manufacturing costs.
Research and development expenses for the first half of 2000 decreased 19%
over the same period in 1999 due primarily to the reduction in headcount.
The decrease was largely due to lower headcount and related costs caused by
the completion of the PlateStream development and despite increased expenses
for the new Internet-related Web-to-Plate developments.
Selling, general and administrative expenses decreased $145,000 in the
first half of 2000 compared to the same period in 1999. This was due to a 13%
decrease in marketing and sales costs due largely to the attrition of personnel
expected to be replaced later this year. General and administrative expenses
decreased of 21% from the first half of 1999 primarily due to improved
efficiency, reduction in headcount, and lower accrual of executive incentive
compensation.
Interest and other income were $236,000 in the first half of 2000 compared
to $379,000 in the same period in 1999. The decrease in 2000 was due to lower
interest rates and a decrease in cash and investments. This was primarily
due to the $3.0 million buyback of stock from Deluxe Corporation in July 1999,
and the Company's financing of its leasing activity.
The Company's income tax (benefit) expense primarily consists of federal
and state taxes due in the current year, and is based on the estimated
annualized effective rates. In 1999, the Company did not record income taxes
because income tax expense was offset by a reduction in the valuation allowance
and deferred.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was over $9.6 million at July 1, 2000 compared to $10.5 at
December 31, 1999. Cash, cash equivalents and investments decreased by
approximately $1.0 million at July 1, 2000 compared to December 31, 1999. The
decrease was primarily due to the establishment and funding of $596,000 for a
Rabbi trust to cover potential payments to the Company's officers who are
parties to change-in-control severance agreements with the Company.
Management believes working capital is adequate for its current needs.
As of July 1, 2000 the Company has no material commitments which would
result in a significant cash outflow other than purchases of inventory and
the financing of Platesetter leases.
PART II--OTHER INFORMATION
Item #4 Submission of Matters to a Vote of Security Holders
a. An annual meeting of shareholders was held commencing on April 13,
2000 and concluding on June 16, 2000.
b. The meeting resulted in the election as directors of the following
individuals, all of whom were nominees in opposition to management's nominees:
Charles Bolger, Stanley Goldberg, Gary S. Kohler, Douglas M. Pihl, Roger C.
Lucas, and Andrew J. Redleaf. No director previously holding office had a term
of office continuing after the meeting.
c. The voting for director nominees at the annual meeting was as
follows:
For Withheld Broker Non-votes
Opposition Nominees:
Charles Bolger 1,506,102 51,000 Not Applicable
Stanley Goldberg 1,506,102 51,000 Not Applicable
Gary S. Kohler 1,506,102 0 Not Applicable
Douglas M. Pihl 1,506,102 51,000 Not Applicable
Roger C. Lucas 1,506,102 51,000 Not Applicable
Andrew J. Redleaf 1,506,102 0 Not Applicable
Management Nominees:
Daniel A. Baker 1,112,181 38,383 Not Applicable
Michael C. Berg 1,112,181 38,383 Not Applicable
Brian D. Shiffman 1,112,181 38,383 Not Applicable
Allen L. Taylor 1,112,181 38,383 Not Applicable
Victor H. Weiss 1,112,181 38,383 Not Applicable
The voting to increase the number of directors to six was as follows:
For Against Abstain Broker Non-Votes
1,553,802 1,151,574 2,300 Not Applicable
Item #6 Exhibits and Reports of Form 8-K
a. Exhibits
Exhibit 11. Statement re computation of per share earnings
Exhibit 27. Financial Data Schedule
b. Reports on Form 8-K
A current report on Form 8-K was filed on June 20, 2000 to
report under Item 1 (changes in Control of Registrant) of Form 8-K
the election of a new board of six directors by a vote of the
shareholders at the annual meeting that concluded on June 16, 2000.
The results of the meeting are further detailed in Item #4 above.
PRINTWARE, INC.
SIGNATURES
In accordance with the requirement of the Securities Exchange Act of 1934,
the registrant has caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
PRINTWARE, INC.
Registrant
Date: August 10, 2000 /s/ THOMAS W. PETSCHAUER
________________________
Thomas W. Petschauer
EXECUTIVE VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER
(Principal Financial Officer)
Date: August 10, 2000 /s/ DANIEL A. BAKER
________________________
Daniel A. Baker, Ph.D.,
PRESIDENT
AND CHIEF EXECUTIVE OFFICER
(Principal Executive Officer)
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