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 September 30, 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 - 3,293,178 shares outstanding as
of November 8, 2000.
PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
PRINTWARE, INC.
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
3 AND 9 MONTHS ENDED SEPTEMBER 30, 2000 AND OCTOBER 2, 1999
DOLLARS IN THOUSANDS EXCEPT PER SHARE
(UNAUDITED)
Three months ended Nine months ended
Sep 30 Oct 2 Sep 30 Oct 2
______ ______ ______ ______
2000 1999 2000 1999
______ ______ ______ ______
TOTAL REVENUES $1,095 $1,355 $3,964 $3,541
COST OF REVENUES 674 981 2,308 2,306
______ ______ ______ ______
GROSS MARGIN 421 374 1,656 1,235
PERIOD COSTS:
Research and development 147 177 446 547
Selling, general and administrative 510 327 1,231 1,193
Proxy contest costs 2 - 360 -
______ ______ ______ ______
Total 659 504 2,037 1,740
______ ______ ______ ______
LOSS FROM OPERATIONS (238) (130) (381) (505)
OTHER INCOME (EXPENSE):
Interest expense - - - -
Interest and other income 110 151 346 530
_____ ______ ______ _____
(LOSS) INCOME BEFORE INCOME TAXES (128) 21 (35) 25
INCOME TAX BENEFIT 49 - 14 -
______ ______ ______ ______
NET (LOSS) INCOME $ (79) $ 21 $ (21) $ 25
====== ====== ====== ======
NET (LOSS) INCOME PER COMMON SHARE:
BASIC AND DILUTED $ (.02) $ .01 $ (.01) $ .01
====== ====== ====== ======
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING--BASIC
AND DILUTED 3,288,134 3,681,397 3,279,266 4,455,639
========= ========= ========= =========
OTHER COMPREHENSIVE (LOSS) INCOME
BEFORE TAX:
Unrealized gains on securities:
Unrealized holding losses
arising during period $ 59 $ (25) $ 36 $ (275)
Add reclassification adjustment
for (loss) included in net income - - (1) -
______ ______ ______ ______
OTHER COMPREHENSIVE (LOSS) INCOME,
BEFORE TAX 59 (25) 35 (275)
INCOME TAX BENEFIT (EXPENSE) RELATED
TO ITEMS OF OTHER COMPREHENSIVE
INCOME (24) (25) (11) 96
______ ______ ______ ______
OTHER COMPREHENSIVE INCOME (LOSS),
NET OF TAX $ 35 $ (50) $ 24 $ (179)
====== ====== ====== ======
COMPREHENSIVE (LOSS) INCOME $ (44) $ (29) $ 3 $ (154)
====== ====== ====== ======
See notes to condensed financial statements.
PRINTWARE, INC.
CONDENSED BALANCE SHEETS
DOLLARS IN THOUSANDS EXCEPT PER SHARE INFORMATION
(UNAUDITED)
ASSETS
September 30, December 31,
2000 1999
____________ ____________
CURRENT ASSETS:
Cash and cash equivalents $ 648 $ 56
Marketable securities available-for-sale 5,733 7,492
Receivables 440 445
Lease receivables--current 968 757
Inventories 2,472 2,142
Deferred income taxes--current 415 426
Prepaid expenses 109 56
_______ _______
Total Current Assets 10,785 11,374
PROPERTY AND EQUIPMENT, net of accumulated
depreciation and amortization 149 186
INTANGIBLE ASSETS, net of accumulated
amortization 20 22
LEASE RECEIVABLES--long-term 2,169 1,717
DEFERRED INCOME TAXES--long-term 2,066 2,057
RESTRICTED ASSETS HELD IN TRUST 607 -
_______ _______
$15,796 $15,356
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 724 $ 392
Accrued expenses 447 407
Deferred revenues 25 35
_______ _______
Total Current Liabilities 1,196 834
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
3,293,178 shares at September 30, 2000;
3,269,494 shares at December 31, 1999,
respectively 19,105 19,031
Accumulated deficit (4,467) (4,446)
Accumulated other comprehensive loss (38) (63)
_______ _______
Total shareholders' equity 14,600 14,522
_______ _______
$15,796 $15,356
======= =======
See notes to condensed financial statements.
PRINTWARE, INC.
CONDENSED STATEMENTS OF CASH FLOWS
9 MONTHS ENDED SEPTEMBER 30, 2000 AND OCTOBER 2, 1999
DOLLARS IN THOUSANDS
(UNAUDITED)
September 30, October 2,
2000 1999
_______ ______
OPERATING ACTIVITIES:
Net (loss) income $ (21) $ 25
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 48 52
Warrants issued for services 26 -
Provision for bad debts - 9
Provision for inventory write-downs 81 45
Deferred income taxes 2 (86)
Changes in operating assets and liabilities:
Receivables 5 204
Inventories (411) (407)
Prepaid expenses (53) (23)
Accounts payable 332 (16)
Accrued expenses 40 (32)
Deferred revenues (10) (1)
______ ______
Net cash used in operating activities 39 (230)
INVESTING ACTIVITIES:
Purchases of available-for-sale securities - (1,275)
Maturities and sales of available-for-sale
securities 1,784 4,834
Increase in lease receivables (663) (833)
Purchases of property and equipment (11) (30)
Proceeds from sale of property and equipment 2 -
Increase in other assets (607) -
______ ______
Net cash provided by
investing activities 505 2696
FINANCING ACTIVITIES:
Proceeds from issuance of Common Stock 48 46
Common Stock redeemed and retired - (3,016)
______ ______
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 592 (504)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 56 654
______ ______
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 648 $ 150
====== ======
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid during the period for:
Income taxes $ - $ -
====== ======
Interest $ - $ -
====== ======
See notes to condensed financial statements.
PRINTWARE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
3 AND 9 MONTHS ENDED SEPTEMBER 30, 2000 AND OCTOBER 2, 1999
1. INTERIM FINANCIAL INFORMATION
The accompanying condensed balance sheet as of September 30, 2000 and
the condensed statements of operations and comprehensive income for the
three and nine months ended September 30, 2000 and October 2, 1999, and the
condensed statements of cash flows for the nine months ended September 30, 2000
and October 2, 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.
September 30, December 31,
2000 1999
_____________ ____________
2. INVENTORIES:
Raw materials $1,002 $1,353
Work-in-process 262 236
Finished goods 1,208 553
______ ______
Total inventories $2,472 $2,142
====== ======
ITEM 2. MANAGEMENT'S DISCUSSION
AND ANALYSIS OR PLAN OF OPERATIONS
RESULTS OF OPERATIONS FOR THE QUARTER ENDED
SEPTEMBER 30, 2000 AND OCTOBER 2, 1999
Total revenues for the third quarter of 2000 were $1.10 million, a
decrease of 19% from third quarter 1999 revenues of $1.36 million. The
decrease was due primarily to a decrease in equipment sales in the third
quarter of 2000 compared to the same quarter in 1999 due to a depleted
backlog at the beginning of the quarter. Sales of supplies products in the
third quarter of 2000 increased 42% compared to the same period in 1999,
all from supplies for the Company's current generation of platesetters that
were not yet available in the 1999 quarter.
The Company's gross margin was $421,000 in the third quarter of 2000
versus $374,000 in the comparable quarter in 1999. Gross margin as a
percentage of revenue increased to 38% in the third quarter 2000 from
28% in third quarter 1999. The increased margin in 2000 was due primarily
to reduced manufacturing costs and to higher expenses in the 1999 quarter for
service costs and write-offs of certain obsolete inventory.
Research and development expenses decreased to $147,000 in the third
quarter 2000 from $177,000 in the third 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 development
of the new low-priced PlateStream-SC platesetter model and Internet-related
Web-to-Plate development activities.
Selling, general and administrative expenses increased to $512,000 in
the third quarter of 2000 from $327,000 in the third quarter of 1999.
Selling expenses increased by approximately $16,000 in the third quarter
2000 primarily due to recruiting of four field sales people in the current
period. General and administrative expenses were up by approximately $143,000
in the third quarter of 2000 due primarily to expenses from retaining
consultants in strategic planning and market research, combined with
additional expenses for corporate development, directors and officers
insurance, and legal fees. In addition, general and administrative
expenses in the 1999 quarter were reduced due a reduction of $61,000 of
accruals of executive incentive compensation.
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 ("the Committee") for similar activities totaling $205,000.
The proxy contest ended with the election of the Committee's slate as the new
Board of Directors on June 16, 2000. The Company accrued for the reimbursement
of the Committee's expenses in the second quarter of 2000.
Interest and other income were $110,000 in the third quarter of 2000
compared to $151,000 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 $1.6 million from the third quarter in 1999 compared to the same
quarter in 2000. The decrease in cash and investments was primarily due to
increased financing of leases and the establishing of a Rabbi trust, restricted
assets held in trust, related to the change in control severance agreements
with the Company's officers.
The Company's income tax (benefit) expense primarily consists of federal
and state taxes due or receivable in the current year and is based on the
estimated annualized effective rate of 38%. In 1999, the Company did not
record income taxes because income tax expense was offset by a reduction in
the valuation allowance on the deferred tax assets.
RESULTS OF OPERATIONS FOR THE 9 MONTHS ENDED SEPTEMBER 30, 2000 and
OCTOBER 2, 1999
Total revenues for the first nine months of 2000 were $3.96 million, an
increase of 12% from the same period in 1999. The increase in 2000 revenues
versus the year-ago period was primarily due to sales of new supplies products
for the current generation of platesetters that were not yet available for sale
in the 1999 period.
The Company's gross margin as a percentage of revenue in the first nine
months of 2000 was 42%, up from 35% in the same period in 1999. This was due
largely to higher-margin equipment sales in the first nine months of 2000,
combined with lower manufacturing costs.
Research and development expenses for the first nine months of 2000
decreased 23% over the same period 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 development of the new low-
priced PlateStream-SC, platesetter model, and Internet-related Web-to-Plate
development activities.
Selling, general and administrative expenses increased $398,000 in the
first nine months of 2000 compared to the same period in 1999. This included
a 7% decrease in marketing and sales costs due largely to the attrition of
personnel that were replaced by the end of the third quarter. General and
administrative expenses increased 95% over the first nine months of 1999
primarily due to $456,000 of proxy contest related costs.
Interest and other income totaled $346,000 in the first nine months of
2000 compared to $530,000 in the same period in 1999. The decrease in 2000 was
due to lower interest rates and a decrease in cash and investments. The
decrease in cash and investments was primarily due to increased financing of
leases and the establishment of a Rabbi trust, restricted assets held in trust,
related to the change in control severance agreements with the Company's
officers.
The Company's income tax (benefit) expense primarily consists of federal
and state taxes due or receivable in the current year, and is based on the
estimated annualized effective rates of 38%. In 1999, the Company did not
record income taxes because income tax expense was offset by a reduction in
the valuation allowance on the deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $9.6 million at September 30, 2000 compared to $10.5 at
December 31, 1999. Cash, cash equivalents and investments decreased by
approximately $1.2 million at September 30, 2000 compared to December 31, 1999.
The decrease was primarily due an increase in lease receivables of $663,000 and
to the establishment and funding of $607,000 (including interest) 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.
The Company is exploring the transfer of its lease portfolio to a third
party leasing company. While no final decisions have been made by the Company
regarding such a transfer, if a transfer occurred it would be expected to
result in a loss between $100,000 and $300,000 and, depending upon the
transaction structure, would be accounted for either as a sale or financing.
The transfer would add between $2.6 million and $2.8 million to cash and cash
equivalents.
Management believes working capital is adequate for its current needs.
As of September 30, 2000 the Company has no material commitments which would
result in a significant cash outflow other than purchases of inventory.
PART II--OTHER INFORMATION
Item #2 Changes in Securities and Use of Proceeds
Pursuant to a consulting contract (see Exhibit 10 filed herewith)
between the Company and Stanley Goldberg, a director of the Company, and his
business development firm Goldmark Advisors, warrants were granted to
purchase 25,000 shares of the Company's common stock. The warrants are
exercisable at $2.375, the market value of such common stock on the warrant
issuance date July 27, 2000. The value of the warrants was calculated at
approximately $26,000 using the Black-Scholes pricing model and was included
in expenses for the third quarter 2000. The warrants are immediately 100%
vested. The warrants' term is five years and their provisions contain rights
and privileges relating to dilution.
Item #5 Other Information
1. The Board of Directors amended the Company's Bylaws effective as of July 27,
2000. The full text of the Bylaw amendment is attached as an exhibit hereto. The
Bylaw amendment establishes an advance notice provision for shareholders who
wish to bring business before a shareholders' meeting and also establishes a
procedure that shareholders must follow if they wish to nominate directors for
election.
The proxy rules of the Securities and Exchange Commission permit shareholders
of a company, after timely notice to the company, to present proposals for
shareholder action in the Company's Proxy Statement where such proposals are
consistent with applicable law, pertain to matters appropriate for shareholder
action and are not properly omitted by action of the Company in accordance with
the proxy rules. In order for a shareholder proposal to be considered for
inclusion in the Proxy Statement for the 2001 Annual Meeting of Shareholders,
the proposal prepared in accordance with the proxy rules must be received by
the Secretary of the Company in writing no later than January 10, 2001. In
addition, if the Company receives notice of a shareholder proposal before March
18, 2001 or after April 17, 2001, such proposal will be considered untimely
pursuant to Rules 14a-4 and 14a-5(e) and the persons named in proxies solicited
by the Board of Directors for its fiscal 2001 Annual Meeting of Shareholders
may exercise discretionary voting power with respect to such proposal.
The Company's Bylaws provide that certain additional requirements be met in
order that business may properly come before the shareholders at the Annual
Meeting. Among other things, shareholders intending to bring business before the
Annual Meeting or intending to nominate directors for election must provide
written notice of such intent to the Secretary of the Company. Such notice must
be given not less than 60 days nor more than 90 days prior to a meeting date
corresponding with the previous year's Annual Meeting date, and must contain
certain required information. Shareholders desiring to bring matters for
action at an Annual Meeting or to nominate directors should review the Bylaw
amendment attached as an exhibit to this Form 10-QSB.
2. The Company entered into a consulting contract with Stanley Goldberg, a
current director of the Company, and his business development firm Goldmark
Advisors. This contract is filed herewith as Exhibit 10. The contract has
subsequently been extended for an additional 30-day period.
3. The Company is negotiating an agreement with Thomas W. Petschauer, the
Company's Executive Vice President and Chief Financial Officer, on terms of
the termination of Mr. Petschauer's employment. Mr. Petschauer's employment
is expected to end in early 2001. The Company plans to accrue and charge to
operations an amount approximately equal to the payment which would have been
due Mr. Petschauer under his change in control severance agreement to cover
anticipated severance payments to Mr. Petschauer.
Item #6 Exhibits and Reports of Form 8-K
a. Exhibits
Exhibit 3. Amendment to the Bylaws
Exhibit 10. Consulting contract with a director
Exhibit 11. Statement re computation of per share earnings
Exhibit 27. Financial Data Schedule
b. Reports on Form 8-K
No reports have been filed on Form 8-K during this quarter.
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: November 14, 2000 /s/ THOMAS W. PETSCHAUER
________________________
Thomas W. Petschauer
EXECUTIVE VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER
(Principal Financial Officer)
Date: November 14, 2000 /s/ DANIEL A. BAKER
________________________
Daniel A. Baker, Ph.D.,
PRESIDENT
AND CHIEF EXECUTIVE OFFICER
(Principal Executive Officer)
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