form10k.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

R
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
 
For the fiscal year ended December 29, 2007
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

PRESSTEK, INC.
(Exact name of registrant as specified in its charter)

Delaware
02-0415170
(State or other jurisdiction of incorporation or organization)
(I.R.S.Employer Identification No.)

2 Greenwich Office Park, Suite 300, Greenwich, Connecticut 06831
(Address of principal executive offices including zip code)

Registrant’s telephone number, including area code:
(203) 485-7523

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
[Missing Graphic Reference]
 
Name of each exchange on which registered
[Missing Graphic Reference]
Common stock, par value $0.01 per share
 
The NASDAQ Global Market

Securities registered pursuant to Section 12(g) of the Act:
None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes £    No R

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.   Yes £    No R

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 R    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.  £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  (See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act).
Large accelerated filer £                                           Accelerated filer R    Non-accelerated filer £                                                                           Smaller reporting company £

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes£    No R

The aggregate market value of common stock held by non-affiliates of the registrant as of June 30, 2007 was $219,205,922.

The number of shares outstanding of the registrant’s common stock as of April 23, 2008 was 36,602,840.


 
 

 

PRESSTEK, INC.
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 29, 2007



     
PAGE
PART 1
     
  Item
     
      1.
 
Business
3
      1A.
 
Risk Factors
17
      1B.
 
Unresolved Staff Comments
25
      2.
 
Properties
26
      3.
 
Legal Proceedings
27
      4.
 
Submission of Matters to a Vote of Security Holders
28
       
PART II
     
  Item
     
      5.
 
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
29
      6.
 
Selected Financial Data
30
      7.
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
32
      7A.
 
Quantitative and Qualitative Disclosures About Market Risk
52
      8.
 
Financial Statements and Supplementary Data
53
      9.
 
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
91
      9A.
 
Controls and Procedures
91
      9B.
 
Other Information
96
       
PART III
     
  Item
     
      10.
 
Directors, Executive Officers and Corporate Governance
96
      11.
 
Executive Compensation
98
      12.
 
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
118
      13.
 
Certain Relationships and Related Transactions, and Director Independence
121
      14.
 
Principal Accountant Fees and Services
122
       
PART IV
     
  Item
     
      15.
 
Exhibits and Financial Statement Schedules
123
       
       


See Part I – Item 1A of this Annual Report for cautionary statements regarding forward-looking statements included in this report.
 

PART I
Item 1.  Business Overview

General

Presstek’s address is 55 Executive Drive, Hudson, NH 03051. We also maintain executive offices at 2 Greenwich Office Park, Suite 300, Greenwich, CT 06831. The Company’s website is www.presstek.com.

Presstek is a leading manufacturer and marketer of environmentally-friendly digital offset printing solutions. These products are engineered to provide a streamlined workflow that shortens the print cycle time, reduces overall production costs, and meets the market’s increasing demand for fast turnaround high-quality short run color printing. Presstek’s subsidiary, Lasertel, Inc., manufactures semiconductor laser diodes for Presstek and external customer applications.

Our products include DI® Presses, chemistry-free computer-to-plate systems (CTP), workflow solutions, and a complete line of prepress and press room consumables. Presstek also offers a range of technical services for its customers.

Background

Since its founding in 1987 Presstek has served the commercial print industry by offering innovative digital offset printing solutions for commercial printing applications. We:

·  
invented the technology that enables DI® presses;
·  
invented chemistry-free printing plates;
·  
have significantly streamlined the print production workflow;
·  
have helped transition offset printing from a craft-based manual process to an automated manufacturing process and;
·  
plan to continue to innovate by providing high quality fully integrated digital solutions and services that form an all-encompassing relationship with our customers

Primary Markets

Presstek serves the global print market.  The two primary opportunities for Presstek’s solutions lie in the commercial and corporate segments.

Commercial markets include companies that provide printing and print-related services, such as design, prepress, and bindery, on a print-for-pay basis. Many firms in the commercial printing industry have some type of process expertise or geographic focus. This market is further segmented by employee size (i.e. < 10, 10 - 19, 20 – 49, 50 – 99, 100 +) and by equipment capability (e.g. format size 2-page, 4-page, 8-page; type of equipment - sheetfed or web press).

The corporate market includes in-plant print shops and data center printing departments that provide copying and printing services to support the primary business of a company or organization. These are companies whose primary business includes anything other than printing (i.e. insurance, manufacturing, financial services, education, or government).

Historically, Presstek has primarily served smaller commercial printers with less than 20 employees as well as the in-plant printing market.




 
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Market Trends

The commercial printing market is shifting to increasingly faster production of smaller order quantities (shorter runs) with an increasing use of color. Key trends include the following:

·  
80% of four-color jobs are now produced in runs of less than 5,000
·  
10% of digital color work is versioned or personalized
·  
A 27% growth in production digital color page volume is expected to occur by 2009
·  
By 2010, 33% of all print jobs are expected to require a 24-hour turnaround

Providing Solutions for New Market Requirements

Presstek offers a range of products to meet these changing market demands including DI® presses and chemistry-free CTP systems. Presstek DI® presses incorporate Presstek’s ProFire Excel laser imaging technology, unique press design, and thermal plates to create an optimized offset printing system for runs from 250 to 20,000 sheets.  With this automated print system, digital files are sent to the printing press where all four printing plates are imaged on press in precise register, resulting in a highly streamlined digital workflow that is designed to allow the fastest way to achieve finished offset press sheets. With our CTP solutions, digital files are sent directly from the prepress workflow to the plate-imaging device; the plates are imaged off line, and then mounted on a conventional offset press. Presstek introduced the concept of chemistry-free printing to the market and continues to lead the market in pursuit of this more environmentally friendly and efficient manner of producing offset printing plates.

Organizational Structure

To better address the worldwide print market, Presstek has aligned its resources into three strategic business units. The structure allows the Company to continue to focus on its traditional base of small commercial and in-plant customers, while expanding the range of products it can bring to market around the world. The structure is also designed to better position the Company to more effectively address the needs of larger commercial printers. New strategic business units are:

·  
Digital Printing Business Unit, which includes digital presses, consumables and workflow
·  
CTP Business Unit, responsible for digital platemaking systems, consumables and workflow
·  
Traditional Business Unit, consists of polyester CTP platemaking and pressroom supplies

Geographic Structure

Presstek supplies equipment to support the growing print market; currently 67% of Presstek’s revenues come from North America, 27% from Europe; 4% from Asia Pacific and 2% from other various regions. To facilitate growth Presstek has established three sales regions that work closely with the business units to bring integrated solutions to local markets. The three sales regions are:
·  
Europe (Europe, Middle East, Africa)
·  
Americas  (North America and Latin America)
·  
Asia Pacific


Our Business Segments

We operate in two reportable segments: the Presstek segment, and the Lasertel segment.  The Presstek segment is primarily engaged in the development, manufacture, sales, distribution, and servicing of digital offset printing solutions for the graphic arts industries. The Lasertel segment is primarily engaged in the manufacture and development of high-powered laser diodes for a variety of industry segments.

 
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For an analysis of our revenue from sales to external customers, operating profit and assets by business segment as well as revenue from sales to external customer and long-lived assets by geographic area, see Note 16 of the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K.

The Presstek Segment

The Presstek segment provides research, new product development and manufacturing. It also serves as the center for marketing, sales and service for our digital offset printing solutions as well as the distribution of our third-party products. In addition, the Presstek segment serves as the central organization under which our subsidiary functions.

Our products are sold to end-user customers through either our direct sales force, our dealer channel, or through OEM partners. We also have an established catalog of pressroom supplies and consumables.

Presstek branded equipment is serviced either by our direct service organization or by our dealer channel. Our direct service organization primarily serves customers located in the United States, Canada, and the U.K.

Manufacturing

At our 165,000-square-foot facility in Hudson, New Hampshire, we manufacture ProFire® Digital Media, PearlDry® Plus, and PearlDry® printing plates.  The ProFire Excel imaging kits that are incorporated into DI® presses are also assembled in Hudson. All CTP systems are manufactured in Hudson, including the Dimension® Excel series, Vector TX52 and the ABDick®-branded Digital PlateMaster® system. At our South Hadley, Massachusetts, manufacturing facility, we manufacture aluminum-based printing plates, including chemistry-free Presstek-branded Anthem® Pro, Freedom® and Aurora digital printing plates.

Plate manufacturing at our Hudson facility uses vacuum deposition technology to create ultra-thin imaging layers.  We have a state-of-the-art solution coater capable of handling aqueous or solvent-based fluids with best available environmental controls throughout the process.  PET substrates are laminated to aluminum webs (spools) using electron beam curing technology.  This eliminates the need for environmental emissions from a drying process.  We utilize full converting capability, which provides high-speed slitting, spooling, formatting and final packaging.

The facility located in South Hadley, Massachusetts, consists of 50,000 square feet in a single building, and performs aluminum plate manufacturing including in-line graining, anodizing, silicating, and multiple layer coatings.  Raw aluminum is processed into lithographic printing plates for digital markets.


 
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Distribution

Our sales strategy is designed to emphasize the distribution of Presstek DI presses and CTP solutions and related consumables, as well as a full catalog of conventional products.  These products are offered to customers through our direct sales force, independent graphic arts dealers and strategic OEM partnerships.

We have an established distribution network in North America, and in Europe we are currently strengthening our position by growing our dealer network. We are in the process of developing distribution in other parts of the world to strengthen our global position.

Service and Support

Presstek also has an established service organization throughout the United States, Canada and the UK to service its equipment. In other regions, Presstek authorized dealers are the primary source of service, with Presstek providing training and advanced technical support.

The Lasertel Segment

Our Lasertel segment is a developer and manufacturer of high-powered laser diodes. These diodes are used in Presstek DI®  presses and the Dimension Series of CTP systems. Lasertel also provides diodes to external customers in a range of industries (i.e. defense, industrial, medical, and telecommunications).

Lasertel operates a 75,000-square-foot facility located in Tucson, Arizona.  The facility includes 10,000 square feet of clean room space and complete process equipment for semiconductor laser manufacturing.  Lasertel’s manufacturing process begins with molecular beam epitaxy reactors to grow semiconductor laser wafers, and extends through the final polishing techniques for the optical fiber.

In December of 2005, Lasertel received ISO 9001:2000 certification. An ISO 9001:2000 certification recognizes the quality of a company’s management system.  ISO is a non-governmental federation of the national standard boards of countries from all regions of the world that set the standards and requirements for state-of-the-art products, services, processes, materials and systems, as well as for good conformity assessment, managerial and organizational practice.

The 2005 purchase of a high capacity molecular beam epitaxy (“MBE”) reactor enabled Lasertel to improve yields and increase revenue substantially during 2006 and 2007. During 2006 the performance and reliability of Lasertel products was demonstrated by the first use of a Lasertel diode laser on the space shuttle. The laser manufactured by Lasertel is used in a system enabling the crew of the space shuttle and engineers on the ground to determine the health of Discovery’s heat shield.  The success of the system led to its use on shuttle missions.  In July of 2007 Lasertel received a purchase contract for more than $3 million from SELEX Sensors and Airborne Systems to supply laser diode arrays for use in military aerospace targeting systems. This order was one in a series of contracts awarded to Lasertel as part of a strategic supply agreement in place between SELEX S&AS and Lasertel.  The agreement demonstrates that defense is an important segment for Lasertel.

Strategy

Our vision is to provide high quality, fully integrated digital solutions and services in order to form an all-encompassing relationship with our customers. Our business strategy is to offer innovative digital imaging and plate technologies that address the opportunities of today and tomorrow in the graphic arts and commercial printing market.


 
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This strategy includes several imperatives:

1. Focus on the growth of our consumables product line

Presstek provides digital offset solutions that aid printers in meeting the changing needs of today’s market – shorter run lengths, faster turn-around times, and more color. Our DI press and CTP solutions use our chemistry-free printing plates. With our direct sales force and network of distribution partners, we feel we are well positioned to expand our installation base of these solutions.  Another step in growing our consumables business is to develop plates (consumables) that can be imaged on non-Presstek manufactured devices, an open systems approach. The first step in executing this strategy is the launch of Aurora Pro, our open-platform, chemistry-free printing plate, which is designed to be used on thermal CTP systems marketed by other manufacturers, planned for commercialization during 2008. The Company also believes that it can stem the erosion of its traditional consumables (ink, pressroom and proofing supplies, etc.) and has dedicated a strategic business unit to this effort.

2. Emphasize attractive market segments

Large print providers were the first to adopt digital technology, and they have driven the digital transformation of the commercial printing market.  Today the benefits of a digital workflow are well understood and all segments of the commercial print market are adopting digital technologies.  With our range of digital solutions and the strength of our direct sales and service force, we have experienced most of our success in these segments:

a.  
Commercial printers (generally those with less than 20 employees) that need to increase their production capacity, level of productivity and output quality while improving profitability have demonstrated success with our digital offset products.  These printers are often acquiring their first four-color press when they acquire a Presstek product.

b.  
Digital printers and copy shops, facilities that primarily operate toner-based digital printing equipment, are acquiring DI presses as complementary devices. They are using DI presses for jobs that require run lengths greater than 250 copies, a higher level of quality, or a substrate (coated stock, thick stock, plastics, etc.) that can not be effectively produced on a toner based device.

c.  
In-plant print shops that operate within corporations, colleges and universities and government agencies are attracted to the ease-of-use, compact footprint and environmentally responsible nature of our solutions.

3. Focus on key growth areas

a.  
Growth within the existing segments that Presstek serves today. Historically Presstek has served print shops with less than 20 employees, this segment makes up approximately 75% of the industry (i.e..number of printers), and many have not yet fully embraced digital printing technologies. In addition, owners of existing DI presses and CTP systems will be looking to add capacity or to upgrade their capabilities (i.e. upgrade a 34DI press to a 52DI or a semi-automated CTP system to a fully automated solution).

b.  
Growth up-market to larger print shops. As print buyers request shorter runs with faster turnaround times, larger shops often need to outsource these jobs or run them inefficiently on their larger offset presses or toner presses. A Presstek DI press is a good solution for these shops, because it is an offset printing solution that allows color to be matched to the output of their larger presses. The DI press may also open up new applications for the larger print shop.


 
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c.  
Growth of computer-to-plate (CTP) consumables. It is estimated that the worldwide thermal printing plate market in 2006 was $2.22 billion.  This market is expected to grow by as much as 53% to $3.41 billion based on research from PIRA International and PRIMIR Research.  Presstek plans to further penetrate this large consumables market by expanding its range of CTP plates. These plates will work on both imaging systems sold by Presstek and on third party imaging devices. Aurora Pro is an example of a product that fits into this area of growth

d.  
Growth in geographic regions. The largest portion of Presstek’s sales has historically come from the United States and Canada. However, the largest portion of the worldwide print market is outside North America   Presstek has established three sales regions, the Americas, Europe, and Asia Pacific, to establish proper distribution by region and to help develop solutions that fit that markets specific geographic requirements.


4. Enable customers to better compete by offering diverse range of products

Because our goal is to provide high quality, fully integrated digital solutions and services that form an all-encompassing relationship with our customers, we deliver solutions that allow the printers to differentiate their print businesses in a competitive marketplace.  Presstek’s products can be divided into two primary categories: DI® presses and CTP systems, along with the supplies and services that they require. Ease of use, environmentally friendly chemistry-free imaging, and a small footprint are common benefits of the two product lines.

Our DI® presses, the Presstek 52DI and Presstek 34DI, allow printers to offer high-quality offset printing on a wide range of substrates at run lengths starting at 250 sheets for a competitive price. DI® presses are able to do this because of their short make-ready time, which is possible because of three Presstek technologies—laser imaging, press design, and thermal plate technology—working in unison to create an optimized printing system.

Presstek offers a full range of CTP systems, from a two-page polyester system to an eight-page aluminum system. In 2007, Presstek upgraded the Dimension250 Excel and Dimension450 Excel to include full automation.

Presstek has also recently expanded its workflow offering by partnering with third parties.  This allows users to better implement Presstek’s DI® and CTP solutions while improving the flow of jobs through production. An example of this is the recent agreement Presstek signed with Press-sense to offer a web-to-print solution that allows printers to efficiently accept work via the Internet.

5. Provide solutions that meet the growth in demand for short-run, fast turnaround high-quality color printing.

According to market research commissioned by Presstek and conducted by industry consultant Dr. Joseph Webb of Strategies for Management, “Much of the print industry’s decline in shipment volume has been in long-run printed documents. Short-run printing is actually mainstream. Short-run printing weighs on the capital base that was purchased to produce long-run printing, and until that installed base is replaced, profits are negatively affected.” Dr. Webb concludes, “Presstek has a unique opportunity and position in the reshaping of the printing industry's workflow and production methods. Presstek as a company, and print as a medium, are at a fascinating crossroads of technology, market opportunities, and competition. The company's products allow printers to compress their workflow to eliminate costly steps, leveraging the modern content creator’s capabilities to make better, richer, and more predictable printable files.”

 
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6.  Provide environmentally responsible solutions through our application of technology.

Our thermally imaged chemistry-free plate technologies are designed to provide both a streamlined workflow and an environmentally responsible solution.  Besides contributing to a cleaner and safer printing operation, environmental responsibility is sound business practice in that our DI and CTP solutions reduce labor needs, reduce space requirement, eliminates plate-oriented waste disposal, and results in fewer manufacturing process errors.

Technology

Imaging Technology

Presstek developed the imaging technology for the world's first DI® press. Over the past 20 years, we have continuously improved on this technology. Today we offer our fourth generation of imaging technology which we call ProFire Excel. The ProFire Excel system has three major components: the 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 digital controller and data server.  The image data board of the ProFire Excel controls 16-micron diodes with patented Image Plus technology.  Among the advantages of Image Plus is a writing mode that increases image quality while significantly reducing moiré patterns in standard screen sets, allowing for a range of FM (stochastic) screening options.

The laser diodes that we use for our imaging system are manufactured at Lasertel.  Lasertel manufactures epitaxial wafers, which are subsequently processed into chips or bars.  Lasertel then assembles these devices into fiber-coupled modules called multiple emitter packages (“MEPs”), which contain four lasers per module.  These MEPs are then sent to our manufacturing facility in Hudson, New Hampshire.  We assemble Lasertel-manufactured laser imaging modules into imaging kits that are designed for DI® press or Dimension CTP units.  These kits are then incorporated into DI printing presses, by our manufacturing partner, or into CTP systems assembled at our Hudson, NH facility.

Before direct-to-plate imaging, platemaking and pre-press activities had occurred as a separate and specialized activity in the printing operation, primarily using analog film-based technology, chemical processing and manual skill-based processes. Conventional or analog printing plates are produced using labor and chemical-intensive, multi-step processes.  By consolidating or eliminating process steps required to prepare a digital file for printing, Presstek DI® presses and CTP systems deliver efficiencies that allow increased print productivity at a lower cost and with better quality than conventional offset methods.  At the same time, by imaging chemistry-free plates, Presstek products eliminate the reliance on the chemical processing that is generally associated with imaging traditional printing plates.  In addition to being more efficient to operate, our solutions are more environmentally responsible than traditional methods of printing.  The result is higher quality, faster turnaround offset printing with a lower cost of operation that is also environmentally safe.

Plate Technology

We manufacture digital printing plates for both on-press imaging with DI® presses and Computer-to-Plate printing applications. Our plates are based on our patented chemistry-free thermal imaging technology. Our printing plates respond to heat generated by high-powered lasers (thermal imaging) using a process known as ablation to enable chemistry-free plate production.

Thermal ablation refers to the process in which the thermal laser ablates (removes) areas of the emulsion while the plate is being imaged. This is the method employed in Presstek’s plates. Plates that are imaged using thermal ablation typically consist of a basic substrate such as a grained aluminum plate or polyester, an oleophilic (ink receptive) imaging layer, and an ink-rejecting micro porous hydrophilic layer.

 
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The high-powered laser of the imaging system selectively burns tiny holes in the thin plate coating, causing it to burst away from the base. This technique thus requires the imaging system to be equipped with a means of collecting the debris, typically a vacuum with filters.  The result is a high-contrast image that can be examined and measured prior to mounting on a printing press.

 
Products

DI® Presses

Presstek 52DI® Press
The Presstek 52DI is a landscape format 52cm direct imaging press with a maximum sheet size of 20.47” x 14.76”. The 52DI has a maximum image area of 20.07” x 14.17,” one of the largest in its class.  This press is highly automated and designed to deliver superior economics and faster turnaround times, require lower skilled operators and reduced paper waste.  The Presstek 52DI images all four chemistry-free printing plates on press in 4.5 minutes in precise register at 2540 dpi and supports up to 300 lpi and FM screening.  The press design which features Zero Transfer Printing technology, results in consistent quality, an exceptionally fast make-ready time and reliable handling across a wide range of substrates. The 52DI has a maximum operating speed of 10,000 full size sheets per hour which is the equivalent of 20,000 letter-sized sheets.

Presstek 34DI® Press
The Presstek 34DI is a portrait format 34cm direct imaging press with a maximum sheet size of 13.39” x 18.11” and a maximum image area of 12.99” x 17.22”.  This press is highly automated and designed to deliver superior economics, faster turnaround times, require lower skilled operators and reduced paper waste.  The Presstek 34DI images all four chemistry-free printing plates on press in 4.5 minutes in precise register at 2540 dpi and supports up to 300 lpi and FM screening.  The press’ design using Zero Transfer Printing technology, results in consistent quality, an exceptionally fast make-ready time and reliable handling across a wide range of substrates. The 34DI has a maximum operating speed of 7,000 full size sheets per hour which is the equivalent of 14,000 letter-sized sheets. The 34DI is available as the 34DI-X, a high productivity model and the 34DI-E an entry-level configuration.

DI® Plates

ProFire® Digital Media
ProFire Digital Media is designed to work as a system with the laser imaging and press components of ProFire® and ProFire® Excel enabled DI presses (such as the Presstek 34 and 52DI). ProFire® Digital Media for DI® presses is rated for 20,000 impressions. It is manufactured with an ink-accepting polyester base layer, a middle layer of titanium, and a top layer of silicone. During imaging, the heat from lasers removes the top two layers of the plate, exposing the ink receptive polyester layer. Areas that remain covered with the top layer of silicone will repel the ink. The imaging process is a highly consistent, heat sensitive, physical reaction without the variables of exposure and chemistry. The result is sharper and better-defined details and halftone dots.

PearlDry Plus
Formulated in a similar fashion as ProFire® Digital media, PearlDry Plus is designed to work in conjunction with previous generation DI® presses. In conjunction with Presstek DI imaging PearlDry Plus allows presses to produce a high resolution, 21 micron spot and supports print quality up to 200-line screen. For DI applications PearlDry Plus is delivered in polyester-based spools. PearlDry Plus is rated for 20,000 impressions.

PearlDry
PearlDry is used for direct-to-press applications that require an aluminum-backed plate such as the 74Karat press manufactured by Koenig and Bauer (“KBA”) of Germany.  The plate uses a specially formulated silicone material that is coated over the metalized infrared absorbing layer that is then bonded to an aluminum base.


 
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CTP Products

Dimension Excel
The Dimension Excel series of platesetters are CTP imaging devices that are engineered to image our chemistry-free Anthem Pro thermal plates in an A3 (2-page), or A2 (4-page) format size.  The Dimension Excel is available in both standard (Dimension225 and 425) and automated (Dimension250-AL and 450-AL) configurations. Standard models offer operator attended throughput of up to 11 plates per hour, while automated models provide an operating speed of up to 17 plates an hour without any operator intervention.

Dimension800
The Dimension800 is a CTP platesetter that images our Anthem Pro thermal plates in an A1 (8-page) or smaller format size. Utilizing Presstek’s ProFire® imaging technology for chemistry-free operation, this is one of the most compact and efficient eight-page platesetters available in the market.

Vector TX52
The Vector TX52 platesetter is a CTP imaging system that is engineered to image our chemistry-free Freedom thermal plates.  The Vector TX52 is a two-page (52 cm and under) metal CTP system that utilizes our SureFire laser imaging technology. The Vector TX52 can produce 15 landscape or 20 portrait press ready plates per hour.

The Digital PlateMaster
Digital PlateMaster (DPM) is an easy-to-use platesetter that is equipped with an integrated Harlequin RIP and uses conventional polyester-based plates. The DPM is designed for use with small-format portrait presses. The internal plate processor and daylight-loading materials cassette help facilitate plate production. The DPM also supports paper-based printing plates.

CTP Plates

Anthem Pro
Anthem Pro delivers improved print performance with the addition of Presstek's exclusive PRO graining technology. Anthem Pro plates for Dimension CTP systems feature our patented polymer-ceramic technology and combine ablative imaging and chemistry-free cleaning (a simple water wash) with run lengths of up to 100,000 impressions.  The Anthem Pro plate runs with a wide range of fountain chemistry and inks.

Freedom
The Freedom plate operates in conjunction with Presstek’s Vector TX52 CTP solution. Like our Anthem Pro plate, Freedom requires only a simple wash with water before printing.  The unique surface structure of the plate results in a fast makeready and greater ink/water latitude.  In addition, Freedom plates accommodate a wide range of industry standard inks and fountain solutions.  Freedom plates deliver the performance characteristics and stability of conventional aluminum printing plates.

Aurora Pro
Aurora Pro is Presstek’s first chemistry-free CTP thermal plate designed to operate with thermal CTP systems from other manufacturers.  This further extends the opportunity for printers to leverage innovative Presstek chemistry-free technology with their existing installed base of CTP systems, eliminating the need to purchase, store and dispose of toxic chemicals.

Workflow Products

Presstek Momentum RIP
Momentum RIP is designed to drive Presstek CTP and DI® systems as well as ABDick branded CTP systems. Momentum comes complete with input and output mechanisms that allow flexibility for controlling jobs. Momentum is based on Harlequin RIP technology.


 
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Presstek Momentum Pro Integrated PDF Workflow Solution
Presstek Momentum Pro is a fully integrated workflow and RIP. Building on Momentum RIP technology, the Momentum Pro workflow is designed to streamline and automate the production process using Certified PDF tools. The workflow can be used as a centralized PDF creation and preflight system, ensuring consistent output to multiple devices. Momentum Pro is a simple, easy-to-use and affordable PDF workflow solution for small to mid-size printers.

Presstek Momentum Pro Workflow and Press-sense Suite
The Press-sense suite adds to Momentum Pro a Web storefront that manages and automates the entire operation. Press-sense iWayTM and Press-sense Manager™ are a complete Business Flow Automation, workflow and tracking system that seamlessly integrates the entire process from a request for a quote all the way through to delivery and billing in one, out-of-the-box solution.

Lasertel Diode Products

The graphic arts industry continues to demand a high degree of speed, imaging resolution and accuracy without increasing costs.  Our high-powered laser diodes are designed to achieve greater imaging power, uniformity and reliability with a low unit cost for the diode array.  Writing speed and accuracy are increased, without increasing space and costs, by combining four fiber channels into a single optical module.  These diodes, manufactured at our Lasertel subsidiary, also incorporate a number of packaging innovations that reduce the size of the device and facilitate incorporation into the ProFire Excel imaging module.  In addition to manufacturing Presstek products, Lasertel also manufactures products for third-party customers in the industrial, medical, defense and telecommunications sectors.

Competition

The markets for our products are characterized by evolving industry standards and business models, rapid software and hardware technology developments and frequent new product introductions. Our future success will depend on our ability to enhance our existing products, introduce new products in a timely and cost-effective manner, meet changing customer needs, extend our core technology into new applications, and anticipate and respond to emerging standards, business models and other technological changes.

We believe that our patented technologies, other intellectual property, thermal plate manufacturing facilities, strategic alliances, distribution network and knowledge of the marketplace puts us in a strong position to compete in today’s market.  However, several other companies address markets in which our products are used and have products that are competitive.

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 Presstek and its subsidiaries, and have established records in the development, sale and servicing of products.  There can be no assurance that Presstek, Lasertel, or any of our products or any products incorporating our technology, will be able to compete successfully in the future.

DI® Presses

Potential competition for DI® presses comes from several areas including manufacturers of high-end electrophotographic technology and manufacturers of conventional offset printing presses.

Manufacturers of high-end electrophotographic technology include, among others, Canon Inc., Hewlett Packard Company, Ricoh, Kodak, and Xerox.  These electrophotographic imaging systems use either liquid or dry toners to create one to four (or more) color images on paper and typically offer resolutions of between 400 and 1200 dots per inch.  These technologies are generally best suited for ultra-short runs of less than 250 copies or for printing variable data.

 
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Manufacturers of conventional offset printing presses include Heidelberg, KBA, Sakurai, Ryobi, MAN, and others. The level of automation on new presses is improving and when combined with an automated CTP system an effective workflow can be established. We believe that conventional offset is best suited for production runs of 10,000 or longer. The quality of print from a conventional offset press will depend on the skill of the operator as well as the process the print establishment uses to deliver the plate to the press.

DaiNippon Screen Mfg., Ltd., known as Screen, offers the TruePress 344 press. This press is an A3 four color digital offset press that prints up to 7,000 impressions per hour and with a conventional wet offset process.

The Presstek 34DI also competes against the Ryobi 3404DI® for end user sales. Ryobi is an OEM partner of Presstek’s and the Ryobi 3404DI uses Presstek’s imaging technology, printing plates and press design.

VIM Technologies Ltd., an Israeli based company, has announced a competitive plate for certain DI® presses In February of 2008 Presstek filed a Complaint with the International Trade Commission (ITC) against VIM for infringement of Presstek’s patent and trademark rights.  Kodak is also marketing a competitive plate product as an alternative to Presstek’s PearlDry and PearlDry Plus for certain digital offset presses.  As further discussed below, Presstek has initiated patent infringement actions against Fuji Photo Film Corporation, Ltd. (“Fuji”),  and Creo, Inc. (“Creo”), which was subsequently acquired by Kodak,  in the Federal Republic of Germany and the United States, respectively.

These competitive plates could have an impact on Presstek’s revenue.  They could also lead to downward pricing pressure on our full line of spooled consumable products, which could have a material adverse effect on our business, results of operations and financial condition.

Computer-to-Plate

Most of the major companies in the industry have developed off-press CTP imaging systems.  Potential competitors in this area include, among others, Agfa, Kodak, DaiNippon Screen Mfg., Ltd., Fuji, and Heidelberg, combinations of these companies, and other smaller or lesser-known companies.  Many of these devices utilize printing plates that require a post-imaging photochemical developing step and/or other post processing steps such as heat treatment.

We are seeing competition from printing plate companies that manufacture, or have the potential to manufacture, digital thermal plates.  Such companies include, among others, Agfa, Kodak, and Fuji.  Some companies, including Agfa, Kodak, and Fuji, have announced or released plates that reportedly eliminate the need for post image chemical processing.

Products incorporating our technologies can also be expected to face competition from products using conventional methods of creating and printing plates and producing printed product.  While these methods are considered to be more costly, less efficient and not as environmentally conscious as those we implement, 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.

Supplies

The broad portfolio of equipment, supplies, and service added to our portfolio through the acquisition of the ABDick business has several competitors.  In addition to those mentioned above, competitors include for Prepress: ECRM and RIPit; for Press: Ryobi, Hamada, Xerox, Canon, Ricoh and HP; for Service: GBC, Kodak, Service On Demand and some independent providers; for Dealers: xpedx, Pitman and Enovation.

Lasertel

Lasertel’s products can also be expected to face competition from a number of companies marketing competitive, high-powered laser diode products such as Coherent Inc. and JDS Uniphase Corporation.


 
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Patents, Trademarks and Proprietary Rights

Our general policy has been to seek patent protection for those inventions and improvements likely to be incorporated into our products and services or where proprietary rights will improve our competitive position.  As of December 29, 2007, our worldwide patent portfolio included over 500 patents.  We believe these patents, which expire from 2008 through 2025, are material in the aggregate to our business.  We have applied for and are pursuing applications for 9 additional U.S. patents and 26 foreign patents.  We have registered, or applied to register, certain trademarks in the U.S. and other countries, including Presstek, DI®, Dimension, ProFire®, Anthem, Applause and PearlDry. We anticipate that we will apply for additional patents, trademarks, and copyrights, as deemed appropriate.

In addition to the Presstek patents indicated, there is currently one U.S. patent assigned to Precision, which will expire in 2017 and one active patent assigned to Lasertel, which will expire in 2012.

In September 2003, we filed an action against Fuji, in the District Court of Mannheim, Germany for patent infringement.  In this action, we allege that Fuji has manufactured and distributed a product that violates a Presstek European Patent. We are seeking an order from the court that Fuji refrain from offering the infringing product for sale, from using the infringing material or introducing it for the named purposes, and from possessing such infringing material.  A trial on the matter was held in November 2004 and March 2005, and we are currently in discussions with Fuji to resolve this action.

In March 2005, we filed an action against Creo, Inc. (subsequently acquired by Kodak) in the U.S. District for the District of New Hampshire for patent infringement.  In this action, we allege that Creo has manufactured and distributed a product that violates a Presstek U.S. Patent.  We are seeking an order from the court holding that Creo has infringed the patent, permanently enjoining Kodak from infringing, inducing others to infringe or contributing to the infringement of the Patent, and seeking damages from Creo for the infringement.

In February 2008, we filed a complaint with the International Trade Commission (ITC) against Israeli printing plate manufacturer VIM Technologies, Ltd. and its manufacturing partner Hanita Coatings RCA, Ltd. for infringement of certain of our patent and trademark rights.  Presstek also sued three U.S. based distributors of VIM products: Guaranteed Service & Supplies, Inc., Ohio Graphco Inc., and Recognition Systems Inc., as well as one Canadian based distributor, AteCe Canada.  Presstek is seeking, among other things, an order from the ITC forbidding the importation and sale of the VIM printing plates in the United States; such an order would be enforced at all U.S. borders by the U.S. Customs Service. In March of 2008 Presstek was notified by the ITC that it was instituting an investigation related to the complaint. In April 2008 we filed a complaint against VIM Technologies, Ltd. in German courts for patent infringement.

We intend to rely on proprietary know-how and to employ various methods to protect our source code, concepts, trade secrets, ideas and documentation of our proprietary software and laser diode technology.  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, software codes, concepts, trade secrets, ideas, and documentation.

Research and Development

Research and development expenses related to our continued development of products incorporating DI® and CTP technologies, including our semiconductor laser diodes, were $6.2 million, $6.4 million and $7.3 million in fiscal 2007, fiscal 2006 and fiscal 2005, respectively.  These research and development expenditures are primarily related to the Presstek segment.


 
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Backlog

We generally sell our products under standard sales orders and distributor contracts. Orders constituting our backlog are subject to changes in delivery schedules and are typically cancelable by our customers until a specified time prior to the scheduled delivery date. Accordingly, we believe our backlog is not necessarily an accurate indication of future sales.

Employees

At December 29, 2007, we had 712 employees worldwide.  Of these, 34 are engaged primarily in engineering, research and development; 152 are engaged in sales and marketing, 263 are engaged in service and customer support, 182 are engaged primarily in manufacturing, manufacturing engineering and quality control; and 81 are engaged primarily in corporate management, administration and finance.

Investor Information

Financial and other information about us is available on our website, www.presstek.com. We make available, free of charge on our website, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

Glossary

Set forth below is a glossary of certain terms used in this report:

A1 (8-page)
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-page)
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-page)
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 Presstek’s PEARL and Anthem Pro consumables
   
Anthem Pro
Presstek’s line of wet offset digital plates with a unique polymer-ceramic construction
   
Computer-to-plate (CTP)
a general term referring to the exposure of lithographic plate material from a digital database, off-press
   
Creo, Inc.
A company acquired by Kodak
   
Direct Imaging (DI®)
Presstek’s registered trademark for digital imaging systems that allow image carriers (film and plates) to be imaged from a digital database, on and off-press
   
Dimension
Presstek’s product line of CTP off-press plate making equipment
   
Dots per inch (dpi)
a measurement of the resolving power or the addressability of an imaging device
   
Heidelberg
Heidelberger Druckmaschinen AG, one of the world’s largest printing press manufacturers, headquartered in Heidelberg, Germany
   

 
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Infrared
light lying outside of the visible spectrum beyond its red-end, characterized by longer wavelengths; used in our thermal imaging process
   
KBA
Koenig & Bauer, AG, one of the world’s largest printing press manufacturers, headquartered in Wurzburg, Germany
   
Kodak
Eastman Kodak Company, a leading supplier of digital, conventional and business solutions for the graphic arts industry, headquartered in Rochester, New York
   
Lithography
printing from a single plane surface under the principle that the image area carries ink and the non-image area does not, and that ink and water do not mix
   
Off-press
making a printing plate from either an analog or digital source independent of the press on which it will be used
   
On-press
the use of Presstek’s direct imaging technologies to make a plate directly from a digital file on the press
   
PEARL
the name associated with Presstek’s first generation laser imaging technologies and related products and consumables
   
ProFire and ProFire Excel
imaging systems
the Presstek components required to convert a conventional printing press into a direct imaging press, including laser diode arrays, computers, electronics
   
Platemaking
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 and processing
   
Quickmaster DI (QMDI)
the second generation of direct imaging, waterless presses, highly automated with roll-fed PearlDry Plus plate material, a joint development effort between Heidelberg and Presstek
   
Ryobi
Ryobi Limited of Japan, a printing press manufacturer headquartered in Japan
   
Ryobi 3404DI
an A3 format size four-color sheetfed press, incorporating Presstek’s dual plate cylinder concept and PearlDry Plus spooled plates, a joint development effort between Ryobi and Presstek
   
Semiconductor laser diode
a high-powered, infrared imaging technology employed in the DI® imaging systems
   
Short-run markets/printing
a graphic arts classification used to denote an emerging growth market for lower print quantities. InfoTrends, Inc. has examined the market to better understand which run lengths are increasing and which are decreasing. The findings: run lengths above 10,000 sheets are clearly in decline. Run lengths between 5,000 and 9,999 are essentially stable with a slight increase. Run lengths below 5,000 show significant increases, especially in the range of 500 – 999 sheets.
   
Thermal
a method of digitally exposing a material via the heat generated from a laser beam
   
Vacuum deposition process
a technology to accurately, uniformly coat substrates in a controlled environment
   
Waterless
a lithographic printing method that uses dry offset printing plates and inks and does not require a dampening system


 
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Item 1A.  Risk Factors

Certain of the statements contained in this report (other than the historical financial data and other statements of historical fact), including, without limitation, statements as to management’s expectations and beliefs, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  Words such as “believe(s),” “should,” “plan,” “expect(s),” “project(s),” “anticipate(s),” “may,” “likely,” “potential,” “opportunity” and similar expressions identify forward-looking statements.  Forward-looking statements are made based upon management’s good faith expectations and beliefs concerning future developments and their potential effect upon the Company.  There can be no assurance that future developments will be in accordance with such expectations or that the effect of future developments on the Company will be those anticipated by management. Many important factors could cause actual results to differ materially from management’s expectations, including:

Such forward-looking statements involve a number of known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements 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. 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.

Significant factors that could cause actual results to differ materially from management’s expectations or otherwise impact the Company’s financial condition or results of operations include, without limitation, the following:

We are substantially dependent on our strategic alliances, as well as our manufacturing and distribution relationships to develop and grow our business.  The loss or failure of one or more of our strategic partners could significantly harm our business.

Our business strategy to date has included entering into strategic alliances with major companies in the graphic arts industry and other markets.  The implementation of 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 manufacturing and distribution partners to aid in developing new market channels for our products.  This strategy led to the development of our relationship with our strategic partners.  We are dependent on many of these partners for future sales of both existing and planned products.  This 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 relationships with them and may cause them to terminate their relationship with us.  Our strategic partners may not develop markets for our products at the pace or in the manner we expect, which may have an adverse effect on our business.  They may also terminate their relationships with us for circumstances beyond our control, including factors unique to their businesses or their business decisions.  In addition, we may mutually agree with one or more of our partners to terminate our relationship with them for a variety of reasons.  We cannot assure you that the termination of any of our other relationships with our strategic partners will not have an adverse impact on our business in the future.

We are also unable to control factors related to the businesses of our strategic partners.  There can be no assurance that similar events will not occur with our strategic partners.

 
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Though we take precautions designed to achieve success, given the uncertainties surrounding many of our strategic partners, there can be no assurance that our existing strategic relationships will prove successful.  There can also be no assurance that our existing relationships with any of our strategic, manufacturing or distribution partners will be successful.  The loss of principal customers or strategic partners could have a materially adverse effect on our business, results of operations and financial condition.

While we continue to explore possibilities for additional strategic relationships and alliances, there can be no assurance we will be successful in this regard.  Our failure to develop new relationships and alliances could have a significant adverse effect on our business.

If we are unable to manage acquisitions successfully it could harm our financial results, business and prospects.

As part of our business strategy, we may expand our business through the acquisition of other businesses.  We will need to integrate acquired businesses with our existing operations.  We cannot assure you that we will effectively assimilate the business or product offerings of acquired companies into our business or product offerings. Integrating the operations and personnel of acquired companies into our existing operations may result in difficulties and expense, disrupt our business or divert management’s time and attention.  If we are unable to successfully integrate future acquisitions, it could adversely impact our competitiveness and profitability. Acquisitions involve numerous other risks, including potential exposure to unknown liabilities of acquired companies and the possible loss of key employees and customers of the acquired business.  In connection with acquisitions or joint venture investments outside the U.S., we may enter into derivative contracts to purchase foreign currency in order to hedge against the risk of foreign currency fluctuations in connection with such acquisitions or joint venture investments, which subjects us to the risk of foreign currency fluctuations associated with such derivative contracts.

Our growth strategy may include the licensing or acquisition of technologies, which entail a number of risks.

As part of our strategy to grow our business, we may license technologies from third parties.  We may not be successful in integrating the acquired technology into our existing business to achieve the desired results.

Our lengthy and variable sales cycle makes it difficult for us to predict when or if sales will occur and therefore we may experience an unplanned shortfall in revenues.

Many of our products have a lengthy and unpredictable sales cycle that contributes to the uncertainty of our operating results.  Customers view the purchase of our products as a significant capital outlay and, therefore, a strategic decision.  As a result, customers generally evaluate these products and determine their impact on existing infrastructure over a lengthy period of time.  The sale of our products may be subject to delays if the customer has lengthy internal budgeting, approval and evaluation processes.  We may incur significant selling and marketing expenses during a customer’s evaluation period.  If revenues anticipated during a particular period are not realized or are delayed, we may experience a shortfall in anticipated revenues, which could have an adverse effect on our business, results of operations and financial condition.

We may not be able to increase revenues if we do not expand our sales and distribution channels.  We face risks associated with our efforts to expand into international markets.

We intend to expand our global sales operations and enter additional international markets, in order to increase market awareness and acceptance of our line of products and generate increased revenues, which will require significant management attention and financial resources.  International sales are subject to a variety of risks, including difficulties in establishing and managing international distribution channels, in serving and supporting products sold outside the United States and in translating products and related materials into foreign languages.  International operations are also subject to difficulties in collecting accounts receivable, staffing and managing personnel and enforcing intellectual property rights.  Other factors that can adversely affect international operations include fluctuations in the value of foreign currencies and currency exchange rates, changes in import/export duties and quotas, introduction of tariff or non-tariff barriers and economic or political changes in international markets.

 
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 If our international sales increase, our revenues may also be affected to a greater extent by seasonal fluctuations resulting from lower levels of sales that typically occur during the summer months in Europe and other parts of the world.  There can be no assurance that these factors will not have a adverse effect on our business, results of operations and financial condition.

We have experienced losses in the past, could incur substantial losses in the future, and may not be able to maintain profitability.

We incurred substantial net losses from continuing operations in the fiscal year ended December 29, 2007, at which date we had an accumulated deficit of $10.4 million.  We may need to generate significant increases in revenues to generate profits, and we may not be able to do so.  If our revenues grow more slowly than we anticipate, or if our operating expenses increase more than we expect or cannot be reduced in the event of lower revenues, our business will be adversely affected.  Even if we maintain profitability in the future on a quarterly or annual basis, we may not be able to sustain or increase such profitability year to year.  In October 2007, we announced a business improvement plan designed to create greater efficiencies, productivity enhancements, reductions in of operating expenses, and optimization of resources.  We may not achieve the benefits of this program as rapidly or to the full extent anticipated by management due unexpected delays or greater than anticipated costs or adjustments in the implementation of the program.

Our quarterly revenues and operating results are likely to fluctuate significantly.

Our quarterly revenues and operating results are sometimes difficult to predict, have varied in the past, and are likely to fluctuate significantly in the future.  We typically realize a significant percentage of our revenues for a fiscal quarter in the third month of the quarter.  Accordingly, our quarterly results may be difficult to predict prior to the end of the quarter.  Any inability to obtain sufficient orders or to fulfill shipments in the period immediately preceding the end of any particular quarter may cause the results for that quarter to fail to meet our revenue targets.  In addition, we base our current and future expense levels in part on our estimates of future revenues.  Our expenses are largely fixed in the short-term and we may not be able to adjust our spending quickly if our revenues fall short of our expectations.  Accordingly, a revenue shortfall in a particular quarter would have an adverse effect on our operating results for that quarter.  In addition, our quarterly operating results may fluctuate for many reasons, including, without limitation:

·  
a long and unpredictable sales cycle;

·  
changes in demand for our products and consumables, including seasonal differences; and

·  
changes in the mix of our products and consumables.

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 affect us.

We are dependent on third-party suppliers for critical components and our increased demand for these components may strain the ability of our third-party suppliers to deliver such critical components in a timely manner.  For example, we have a requirement for advanced technology laser diodes for use in products incorporating our DI® technology.  Although we have established our subsidiary, Lasertel, to help us meet our demand for laser diodes, we are still dependent on other third-party manufacturers to supply us with other necessary components.  If we are unable for any reason to secure an uninterrupted source of other critical components at prices acceptable to us, our operations could be materially adversely affected.  We cannot be certain that Lasertel will be able to manufacture advanced laser diodes in quantities that will fulfill our future needs, or with manufacturing volumes or yields that will make our operation cost effective. There can be no assurance that we will be able to obtain alternative suppliers for our laser diodes or other critical components should our current supply channels prove inadequate.


 
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Our manufacturing capabilities may be insufficient to meet the demand for our products.

If demand for our products grows beyond our expectations, 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 a material adverse effect on our business, the success of any product affected by the delay, and our revenue, and may harm our relationships with our strategic partners.

In addition, many of our manufacturing processes are extremely sophisticated and demand specific environmental conditions.  Though we take precautions to avoid interruptions in manufacturing and to ensure that the products that are manufactured meet our exacting performance standards, our yields may be affected by difficulties in our manufacturing processes.  If such an affect occurred, it could increase manufacturing costs, detrimentally affecting margins, or cause a delay in the finishing and shipping of products.  Any manufacturing delay could have a material adverse effect on our business, the success of any product affected by the delay, and our revenue, and may harm our relationships with our strategic partners.

New 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.  Additionally, there can be no assurance that our existing and newer product offerings such as  DI® 34 and DI® 52 presses, Anthem, and Auora Pro plates, and Dimension 400 800, and Vector TX 52 platesetters will maintain/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.  There can be no assurance that these presses, or our other products, will achieve market acceptance.  In addition, if our new product offerings do not achieve anticipated market acceptance, we may not achieve anticipated revenue.

New products that incorporate our technology may result in substantial support costs and warranty expenditures.

Introducing new products carries substantial risk.  While we do extensive testing on our new products before introducing them to our customers, no amount of testing can replace or approximate actual field conditions at our customer locations.  As a result, when we introduce new products we can incur increased expenditures in ensuring that the new product meets and performs in accordance with its specifications.  We cannot, however, always estimate precisely the expected costs that may arise out of new product installations.  There can be no assurance that we will not incur increased warranty, support and other costs associated with new product introductions in the future.  In addition, the occurrence of these expenditures may have a material adverse effect on our business, results of operations and financial condition.

If the United States and global economies slow down or other difficult market conditions prevail, the demand for our products could decrease and our business, results of operations and financial condition may be materially adversely affected.

The demand for our products is dependent upon various factors, many of which are beyond our control, such as interest rates, availability of credit, inflation rates, economic uncertainty, changes in laws (including laws relating to taxation), trade barriers, commodity prices, currency exchange rates and controls and national and international political circumstances (including wars, terrorist acts or security operations).  For example, general economic conditions affect or delay the overall capital spending by businesses and consumers, particularly for capital equipment such as presses.  An economic slowdown in the U.S. and abroad or the prevalence of other difficult market conditions could result in a decrease in spending and spending projections on capital equipment that could impact the demand for our products or have other material adverse effects on our business, results of operations and financial condition.

 
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Management has identified material weaknesses in internal control over financial reporting, and concluded that these controls and our disclosure controls and procedures were not effective at December 29, 2007.  If we fail to establish and maintain an effective system of internal and disclosure controls, we may not be able to accurately report our financial results or prevent fraud.  As a result, investors may lose confidence in our financial reporting and disclosures.

The Sarbanes-Oxley Act of 2002 and SEC rules require that management report annually on the effectiveness of our internal control over financial reporting.  Among other things, management must conduct an assessment of our internal control over financial reporting to allow management to report on, and our independent registered public accounting firm to audit, our assessment of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act.  A “significant deficiency” is defined as “a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness yet important enough to merit attention by those responsible for oversight of the company's financial reporting.”  A “material weakness” is defined as “a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis.”
 

Management’s Report on Internal Control over Financial Reporting included in this Form 10-K, concludes that as of December 29, 2007 our internal control over financial reporting was not effective.  Accordingly, as set forth in Item 9A of this Form 10-K, our Chief Executive Officer and our Chief Financial Officer also determined that our disclosure controls and procedures were not effective.  In addition, in the future, our continued assessment, or the subsequent assessment by our independent registered public accounting firm, may reveal additional deficiencies in our internal control over financial reporting and our disclosure controls or procedures, some of which may require disclosure in future reports.

Although we have made and are continuing to make improvements in our internal control over financial reporting, if we are unsuccessful in remediating the material weaknesses impacting our internal control over financial reporting, or if we discover other deficiencies, it may adversely impact our ability to report accurately and in a timely manner our financial condition and results of operations in the future, which may cause investors to lose confidence in our financial reporting.  Moreover, effective internal and disclosure controls are necessary to produce accurate, reliable financial reports and to detect or prevent fraud.  If we continue to have deficiencies in our internal control over financial reporting and disclosure controls and procedures, that may negatively impact our business and operations.

The expansion of Lasertel into areas other than the production of laser diodes for our printing business may be unsuccessful.

Lasertel, which was formed for the purpose of supplying us with laser diodes, has also explored other markets for its laser technology.  Lasertel has developed laser products for the defense industry and has continued its plans to develop laser prototypes for qualification in the medical and industrial industries.  There can be no assurance that these products or prototypes will gain acceptance in these industries and likewise, there can be no assurance that these products will be commercially successful.

The failure of Lasertel to develop, commercialize or sell its products or future products to various other industries could distract its management’s attention and/or have an adverse impact on its financial condition or results of operations, any of which could materially adversely affect our financial condition.  Conversely, any success that Lasertel achieves in developing, commercializing or selling its products or future products to various other industries could cause delays in manufacturing of the laser diodes that it supplies to us, which could harm our business and could have an adverse effect on our financial condition or results of operations.


 
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Lasertel may require additional working capital infusions from us, which may have a material adverse effect on our business.

Lasertel has required a significant amount of capital investment by Presstek in past years in order to expand its manufacturing operations.  Lasertel’s capital and working capital needs may exceed our ability to provide such funds, requiring us to borrow against our credit facilities or seek to obtain outside financing for Lasertel’s operations.  This could have a material adverse effect on our business, results of operations and financial condition.

Our success is dependent on our ability to maintain and protect our proprietary rights.

Our future success will depend, in large part, upon our intellectual property rights, including patents, trademarks, trade secrets, proprietary know-how, source codes and continuing technological innovation.  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 seven 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 that our patents, trademarks or other intellectual property may afford us.  The steps we have taken to protect our intellectual property may not adequately prevent misappropriation or ensure that others will not develop competitive technologies or products.  Further, the laws of certain territories in which our products are or may be developed, manufactured or sold, may not protect our products and intellectual property rights to the same extent as the laws of the United States.

There is rapid technological development in the electronic image reproduction industry, 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 the proprietary rights of others, it is possible that such infringement of existing or future patents or violation of proprietary rights may occur.

In this regard, third parties may in the future assert claims against us concerning our existing products or with respect to future products under development by us. 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 our business, results of operations and financial condition.  Furthermore, we have agreements with several of our strategic partners which require us to indemnify the strategic partner from claims made by third parties against them concerning our intellectual property, and to defend the validity of the patents or otherwise ensure the technology’s availability to the strategic partner.  The costs of an indemnification claim under any such agreement could have a material adverse effect on our business.

We have taken, are currently taking, and may take in the future, legal action to protect our patent and trademark rights from infringement by others.  We have also defended actions brought against us relating to the validity of our patent rights.  In the course of pursuing or defending any of these actions we could incur significant costs and diversion of our resources.  Due to the competitive nature of our industry, it is unlikely that we could increase our product prices to cover such costs.  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.  Such litigation is costly and is subject to uncertain results that could have a material effect on our business, results of operations and financial condition.

We also rely on proprietary know-how and employ various methods to protect the source codes, concepts, trade secrets, ideas and documentation relating to our proprietary software and laser diode technology.  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, trade secrets, ideas and documentation.  Although we have and expect to have confidentiality agreements with our employees and appropriate vendors, there can be no assurance, however, that such arrangements will adequately protect our trade secrets and proprietary know-how.


 
- 22 -

 

We use hazardous materials in the production of many of our products at our various manufacturing facilities.

As a manufacturing company, we are subject to environmental, health and safety laws and regulations, including those governing the use of hazardous materials.  The cost of compliance with environmental, health and safety regulations is substantial.  Some of our business activities involve the controlled use of hazardous materials and we cannot eliminate the risk or potential liability of accidental contamination, release or injury from these materials.  In the event of an accident or environmental discharge, we may be held liable for any resulting damages, which may exceed our financial resources and the limits of any insurance coverage, and our production of plates could be delayed indefinitely, either of which could materially harm our business, financial condition and results of operations.

We face 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 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., Hewlett Packard Company, Kodak and Xerox Corporation are companies that have introduced color electrophotographic copier products.  Various companies are marketing product versions manufactured by these companies.

We also compete with 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 are 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.  Competitors in this area include, among others, Agfa Gevaert N.V., Dai Nippon Screen Manufacturing Ltd., Heidelberg and Kodak.

We also have competition from plate manufacturing companies that manufacture printing plates, including digital thermal plates.  These companies include Agfa Gevaert N.V., Kodak and Fuji.    The introduction of a competitive plate could reduce the revenue generated by Presstek under its relationship with strategic partners and could have a material adverse effect on our business, results of operations and financial condition.

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.

While we believe we have strong intellectual property protection covering many of our technologies, there is no assurance that the breadth or degree of such protection will be sufficient to prohibit or otherwise delay the introduction of competitive products or technologies.  The introduction of competitive products and technologies may have a material adverse effect on our business, results of operations and financial condition.

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 focus such efforts.  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 future success will depend, in part, on our ability to respond to changing technology and industry standards in a timely and cost-effective manner.  We may not be successful in effectively using new technologies, developing new products or enhancing our existing products and technology on a timely basis.  Our new technologies or enhancements may not achieve market acceptance. Our pursuit of new technologies may require substantial time and expense.

 
- 23 -

 

We may need to license new technologies to respond to technological change. These licenses may not be available to us on terms that we can accept.  Finally, we may not succeed in adapting our products to new technologies as they emerge.

Ongoing litigation and a pending investigation by the Securities and Exchange Commission could have an adverse impact on our business.

We are parties to ongoing litigation, including but not limited to a purported securities class action lawsuit. In addition, we are subject to a pending formal investigation by the Securities and Exchange Commission (“SEC”) regarding our announcement of preliminary financial results for the third quarter of 2006.  The litigation to which we are a party, and the SEC investigation, require management time and the expenditure of significant legal expense to represent us in these matters.  In addition, the Company faces the risk that these matters will result in a significant judgment or penalty assessed against the Company for which there is inadequate insurance coverage.  The result of these matters could have a material adverse effect on our business, results of operations and financial condition.

We have a material amount of intangible assets, such as goodwill and trademarks, and if we are required to write-down any of these intangible assets, it would reduce our net income, which in turn could have a material adverse effect on our results of operations.

We have a significant amount of intangible assets, such as goodwill and trademarks.  Under Financial Accounting Standards Board issued Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets,”, goodwill and indefinite lived intangible assets are no longer amortized, but instead are subject to a periodic impairment evaluation.  Reductions in our net income caused by the write-down of any of these intangible assets could materially and adversely affect our results of operations.

Increases in the cost of energy could affect our profitability.

We have experienced significant increases in energy costs, and energy costs could continue to rise, which would result in higher transportation, freight and other operating costs.  Our future operating expenses and margins will be dependent on our ability to manage the impact of cost increases.  We cannot guarantee that we will be able to pass along increased energy costs to our customers through increased prices.

Our reliance upon complex information systems distributed worldwide and our reliance upon third party global networks means we could experience interruptions to our business services.

We depend on information technology to enable us to operate efficiently and interface with customers, as well as maintain financial accuracy and efficiency.  If we do not allocate, and effectively manage, the resources necessary to build and sustain the proper technology infrastructure, we could be subject to transaction errors, processing inefficiencies, the loss of customers, business disruptions, or the loss of or damage to intellectual property through security breach.  As with all large systems, our information systems could be penetrated by outside parties intent on extracting information, corrupting information or disrupting business processes.  Such unauthorized access could disrupt our business and could result in the loss of assets.

Changes in accounting standards could affect our financial results.

New accounting standards or pronouncements that may become applicable to us from time to time, or changes in the interpretation of existing standards and pronouncements, could have a significant effect on our reported results for the affected periods.


 
- 24 -

 

The loss or unavailability of our key personnel would have a material adverse effect on our business.

Our success is largely dependent on the personal efforts of our senior management team.  The loss or interruption of the services of any or all of these individuals could have an adverse effect on our business and prospects.

Our success is 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 can be intense, and there can be no assurance that we will be able to hire or retain additional qualified personnel.
 
If we are not current in our SEC filings, we will face several adverse consequences.
 
For several reporting periods in the past year, we were not current in our SEC filings. If we are unable to remain current in our SEC filings, we will not be able to have a registration statement under the Securities Act of 1933, covering a public offering of securities, declared effective by the SEC, and we will not be able to make offerings pursuant to existing registration statements.  In addition, we will not be eligible to make offerings using a “short form” registration statement on Form S-3, and we may not be able to conduct offerings on Form S-8 (covering employee stock plans), or pursuant to certain “private placement” rules of the SEC under Regulation D to any purchasers not qualifying as “accredited investors.”  Finally, we may be at risk of being delisted from the NASDAQ Global Market as a result of the late filings.  These restrictions may impair our ability to raise capital in the public markets should we desire to do so, and to attract and retain key employees.
 
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 and the Nasdaq National Market in particular, have experienced, and are likely to experience in the future, significant price and volume fluctuations that 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;

·  
significant 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.

These factors may materially and adversely affect our stock price, regardless of our operating performance.


Item 1B.  Unresolved Staff Comments

None.


 
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Item 2.  Properties

The following table summarizes our significant occupied properties:

 
Location
 
 
Functions
 
Square footage (approximate)
 
Ownership status/
lease expiration
             
Hudson, New Hampshire
 
Corporate headquarters, manufacturing, research and development, marketing, demonstration activities, administrative and customer support
 
165,000
 
Owned
             
South Hadley, Massachusetts (two buildings)
 
Manufacturing, research and development, administrative support
 
100,000
 
Owned
             
             
Tucson, Arizona
 
Manufacturing, research and development, administrative supports
 
75,000
 
Owned
             
Greenwich, Connecticut
 
Executive offices
 
N/A
 
Services agreement expires in September 2008
             
Des Plaines, Illinois
 
Distribution center
 
127,000
 
Lease expires in February 2013
             
Des Plaines, Illinois
 
Sales, service
 
10,000
 
Lease expires in April 2008
             
Mississauga, Ontario
 
Sales, service
 
28,000
 
Lease expires in March 2010
             
Heathrow, United Kingdom
 
European headquarters, sales, service
 
20,000
 
Lease expires in November 2020, with an option to cancel in November 2010
             

Our Hudson, New Hampshire facility, in its capacity as corporate headquarters, is utilized by all of our operating segments.

 
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Our Presstek segment utilizes the facilities in New Hampshire, Massachusetts, Connecticut, Illinois, Ontario and the United Kingdom.  Subsequent to December 29, 2007, the Company vacated the Ontario facility and bought out the remainder of the lease.

Our Lasertel segment utilizes the facilities in Arizona.

In addition to the properties referenced above, we also lease a number of small sales and marketing offices in the United States and internationally.  At December 29, 2007, we were productively utilizing substantially all of the space in our facilities, with the exception of the Massachusetts facility, of which one of the two buildings is not being fully utilized.  This building was subject to a chemical release on October 30, 2006 and has not been fully utilized subsequent to this event.  In addition, our Lasertel operation is using only a portion of its facility in Arizona. We are currently marketing the property for sale, and would expect to lease back the required space. We believe that our existing facilities are adequate for our needs for at least the next twelve months.

All of the properties we own are secured by our five-year, $80.0 million credit facilities.

We believe that our existing facilities are well maintained, in good operating condition and are adequate for our current and expected future operations.

Item 3.  Legal Proceedings

On October 26, 2006, the Company was served with a complaint naming the Company, together with certain of its former executive officers, as defendants in a purported securities class action suit filed in the United States District Court for the District of New Hampshire.  The suit claims to be brought on behalf of purchasers of Presstek’s common stock during the period from July 27, 2006 through September 29, 2006.  The complaint alleges, among other things, that the Company and the other defendants violated Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated there under based on allegedly false forecasts of fiscal third quarter and annual 2006 revenues.  As relief, the plaintiff seeks an unspecified amount of monetary damages, but makes no allegation as to losses incurred by any purported class member other than himself, court costs and attorneys’ fees.  The Company believes the allegations are without merit and intends to continue to vigorously defend against them.

In March 2005, we filed an action against Creo, Inc. (subsequently acquired by Kodak) in the U.S. District for the District of New Hampshire for patent infringement.  In this action, we allege that Creo has distributed a product that violates a Presstek U.S. Patent.  We are seeking an order from the court that Creo refrain from offering the infringing product for sale, from using the infringing material or introducing it for the named purposes, or from possessing such infringing material, and for the payment of damages associated with the infringement.  A trial is scheduled for the fall of 2008.

In September 2003, Presstek filed an action against Fuji Photo Film Corporation, Ltd., in the District Court of Mannheim, Germany for patent infringement.  In this action, Presstek alleges that Fuji has manufactured and distributed a product that violates Presstek European Patent 0 644 047 registered under number DE 694 17 129 with the German Patent and Trademark Office.  Presstek seeks an order from the court that Fuji refrain from offering the infringing product for sale, from using the infringing material or introducing it for the named purposes, and from possessing such infringing material.  A trial was held in November 2004 and March 2005, and we await a final determination from the Court.

In August 2007, an Arbitrator from the International Centre for Dispute Resolution issued a partial award against the Company and in favor of Reda National Company (“Reda”), a former Company distributor operating in the Middle East.  Reda claims that the Company breached an exclusive distributor agreement by entering into a distribution agreement with another party covering the same territory assigned to Reda.  Reda has claimed damages totaling approximately $9.7 million.  In the partial award the Arbitrator found that the Company had breached its agreement with Reda and found the Company liable to Reda for arbitration costs, attorneys’ fees, and incidental expenses incurred by Reda in connection with the arbitration.

 
- 27 -

 

The Arbitrator also ordered that a further hearing to determine additional damages, if any, would be scheduled.  The damages hearing was held in December 2007 and the parties are awaiting the findings of the Arbitrator.  The Company believes that it has meritorious defenses to Reda’s damages claim and has vigorously contested the claim.

In February 2008 we filed a Complaint with the International Trade Commission (ITC) against Israeli printing plate manufacturer VIM Technologies, Ltd. and its manufacturing partner Hanita Coatings RCA, Ltd. for infringement of Presstek’s patent and trademark rights.  Presstek also sued three U.S. based distributors of VIM products: Guaranteed Service & Supplies, Inc., Ohio Graphco Inc., and Recognition Systems Inc., as well as one Canadian based distributor, AteCe Canada.  Presstek is seeking, among other things, an Order from the ITC forbidding the importation and sale of the VIM printing plates in the United States; such an Order would be enforced at all U.S. borders by the U.S. Customs Service. In March of 2008 Presstek was notified by the ITC that it was instituting an investigation related to the Complaint. In April 2008 we filed a Complaint against VIM Technologies, Ltd. in German courts for patent infringement.

On February 4, 2008, the Company received from the U.S. Securities and Exchange Commission (the "SEC") a formal order of investigation relating to the previously disclosed SEC inquiry regarding the Company's announcement of preliminary financial results for the third quarter of 2006.  The Company is cooperating fully with the SEC's investigation.

In January 2008 the Company was served with an Administrative Complaint filed by the U.S. Environmental Protection Agency (“EPA”).  The EPA seeks to assess penalties against the Company for alleged violations of certain provisions of the Clean Air Act and the Comprehensive Environmental Response, Compensation and Liability Act arising from an incident occurring at a facility of the Company located in South Hadley, Massachusetts on October 30, 2006.  The Company has recorded its best estimate of any losses associated with this matter.

Presstek is a party to other litigation that it considers routine and incidental to its business however it does not expect the results of any of these actions to have a material adverse effect on its business, results of operation or financial condition.

Item 4.  Submission of Matters to a Vote of Security Holders

Not applicable.

 
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PART II

 
Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchasers of Equity Securities

Our common stock is quoted on The NASDAQ Global Market under the symbol “PRST”.  The following table sets forth the high and low sales prices per share of common stock for each full quarterly period within the two most recently completed fiscal years as reported by The NASDAQ Global Market.

   
High
   
Low
 
Fiscal year ended December 29, 2007
           
First quarter
  $ 6.53     $ 5.47  
Second quarter
  $ 8.38     $ 5.88  
Third quarter
  $ 8.70     $ 6.14  
Fourth quarter
  $ 7.50     $ 4.60  
                 
Fiscal year ended December 30, 2006
               
First quarter
  $ 12.72     $ 8.90  
Second quarter
  $ 12.05     $ 8.93  
Third quarter
  $ 10.62     $ 4.83  
Fourth quarter
  $ 6.89     $ 5.09  

On April 23, 2008, there were 2,850 holders of record of our common stock.  The closing price of our common stock was $4.54 per share on April 23, 2008.

Dividend Policy

To date, we have not paid any cash dividends on our common stock.  Under the terms of our credit facilities, we are prohibited from declaring or distributing dividends to shareholders.  The payment of cash dividends in the future is within the discretion of our Board of Directors, and will depend upon our earnings, capital requirements, financial condition and other relevant factors, including the current prohibition on such dividends described above.  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 our business operations.


 
- 29 -

 

Performance Graph

The Stock Performance Graph set forth below compares the cumulative total return on the Company’s Common Stock from December 27, 2002 through December 28, 2007, with the cumulative total return for the Nasdaq Stock Market Index and the returns of the following two companies (the “Peer Index”) having the Printing Trades Machinery and Equipment SIC Code; Baldwin Technology (AMEX: BLD) and Delphax Technologies, Inc. (Nasdaq: DLPX).  The comparison assumes that $100 was invested on December 27, 2002 in the Company’s Common Stock, the Nasdaq Stock Market Index and the stock of the SIC Code Printing Trades Machinery and Equipment Index and assumes the reinvestment of all dividends, if any.

Item 6.  Selected Financial Data

The selected consolidated financial data set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included as Part II Item 7 of this Annual Report on Form 10-K and our consolidated financial statements and notes thereto included in Part II Item 8 of this Annual Report on Form 10-K. On December 28, 2006, the Audit Committee of the Company’s Board of Directors ratified a plan submitted by management to terminate production in South Hadley, Massachusetts of Precision-branded analog plates used in newspaper applications.  The results of operations for the years ended December 31, 2005 and January 1, 2005 have been restated to reflect the analog newspaper business as discontinued operations for all periods presented.  The historical results provided below are not necessarily indicative of future results.


 
- 30 -

 

(in thousands, except per-share data)
                         
   
Fiscal year ended
 
   
December 29,
   
December 30,
   
December 31,
   
January 1,
   
January 3,
 
   
2007
   
2006
   
2005
   
2005 (1)
   
2004 (2)
 
                               
Revenue
  $ 254,843     $ 265,694     $ 259,134     $ 121,453     $ 87,232  
Cost of revenue
    184,167       186,716       176,814       78,180       51,151  
                                         
Gross profit
    70,676       78,978       82,320       43,273       36,081  
                                         
Operating expenses
                                       
  Research and development
    6,217       6,409       7,335       6,460       7,061  
  Sales, marketing and customer support
    39,870       39,970       40,241       17,574       12,272  
  General and administrative
    34,211       19,938       20,970       12,399       8,399  
  Amortization of intangible assets
    2,408       2,980       2,595       1,261       964  
  Restructuring and special charges (credits)
    2,714       5,481       874       (392 )     550  
    Total operating expenses
    85,420       74,778       72,015       37,302       29,246  
                                         
Operating income (loss)
    (14,744 )     4,200       10,305       5,971       6,835  
                                         
Other income (expense), net
    (2,424 )     (1,826 )     (2,220 )     (870 )     (167 )
                                         
Income (loss) from continuing operations
                                 
  before income taxes
    (17,168 )     2,374       8,085       5,101       6,668  
Provision (benefit) for income taxes
    (5,018 )     (10,643 )     1,164       166       -  
                                         
Income (loss) from continuing operations
    (12,150 )     13,017       6,921       4,935       6,668  
Income (loss) from discontinued operations, net of income tax
    (54 )     (3,273 )     (835 )     (1,070 )     1,429  
                                         
Net income (loss)
  $ (12,204 )   $ 9,744     $ 6,086     $ 3,865     $ 8,097  
                                         
Earnings (loss) per share - basic
                                       
  Income (loss) from continuing operations
  $ (0.34 )   $ 0.36     $ 0.20     $ 0.14     $ 0.20  
  Income (loss) from discontinued operations
    (0.00 )     (0.09 )     (0.03 )     (0.03 )     0.04  
    $ (0.34 )   $ 0.27     $ 0.17     $ 0.11     $ 0.24  
                                         
Earnings (loss) per share - diluted
                                       
  Income (loss) from continuing operations
  $ (0.34 )   $ 0.36     $ 0.19     $ 0.14     $ 0.20  
  Income (loss) from discontinued operations
    (0.00 )     (0.09 )     (0.02 )     (0.03 )     0.04  
    $ (0.34 )   $ 0.27     $ 0.17     $ 0.11     $ 0.24  
                                         
Weighted average shares outstanding
                                 
  Basic
    36,199       35,565       35,153       34,558       34,167  
  Diluted
    36,199       35,856       35,572       35,357       34,400  
                                         
                                         
   
As of
 
   
December 29,
   
December 30,
   
December 31,
   
January 1,
   
January 3,
 
   
2007
   
2006
   
2005
   
2005 (1)
   
2004 (2)
 
                                         
Working capital
  $ 39,198     $ 47,498     $ 41,392     $ 41,117     $ 42,512  
Total assets
  $ 192,827     $ 198,014     $ 181,487     $ 171,318     $ 106,528  
Total debt and capital lease obligations
  $ 35,535     $ 37,572     $ 35,643     $ 41,822     $ 14,464  
Stockholders' equity
  $ 106,892     $ 111,237     $ 98,633     $ 89,402     $ 80,183  
                                         
                                         
                                         
                                         
(1) Amounts include results of operations of ABD International, Inc. (which acquired certain assets and assumed certain liabilities of
 
The A.B. Dick Company on November 5, 2004) and Precision Lithograining Corp. (acquired July 30, 2004) for the periods subsequent
 
      to their respective acquisitions.
                                       
(2) The income from discontinued operations amount relates to the operations of Delta V Technologies, Inc., which were shut down
 
      in fiscal 1999.
                                       
                                         
 

 
- 31 -

 


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 1A. Risk Factors”, “Item 6. Selected Financial Data”, “Item 7A. Quantitative and Qualitative Disclosures about Market Risks” and the Company’s Consolidated Financial Statements and Notes thereto included in this Annual Report on Form 10-K.  Certain terms used in the discussion below are defined in Item 1 of this Form 10-K.

Overview

We are a market-focused company primarily engaged in the design, manufacture, sales and service of high-technology digital imaging solutions to the graphic arts industry worldwide.  We are helping to lead the industry’s transformation from analog print production methods to digital imaging technology.  We are a leader in the development of advanced printing systems using digital imaging equipment and consumables-based solutions that economically benefit the user through a streamlined workflow and chemistry free, environmentally responsible operation.  We are also a leading sales and service channel in the small to mid-sized commercial, quick and in-plant printing markets offering a wide range of solutions to over 20,000 customers worldwide.

Presstek’s business model is a capital equipment and consumables (razor and blade) model.  In this model, approximately 62% of our revenue is recurring revenue.  Our model is designed so that each placement of either a Direct Imaging Press or a Computer to Plate system results in recurring aftermarket revenue for consumables and service.

Through our various operations, we:

·  
provide advanced print solutions through the development and manufacture of digital laser imaging equipment and advanced technology chemistry-free printing plates, which we call consumables, for commercial and in-plant print providers targeting the growing market for high quality, fast turnaround short-run color printing;

·  
are a leading sales and services company delivering Presstek digital solutions and solutions from other manufacturing partners through our direct sales and service force and through distribution partners worldwide;

·  
manufacture semiconductor solid state laser diodes for Presstek imaging applications and for use in external applications; and

·  
distribute printing plates for conventional print applications, as well as related equipment and supplies for the graphic arts and printing industries.

We have developed a proprietary system by which digital images are transferred onto printing plates for Direct Imaging on-press applications and for computer-to-plate applications.  We refer to Direct Imaging as DI® and computer-to-plate as CTP.  Our digital imaging systems enable customers to produce high-quality, full color lithographic printed materials more quickly and cost effectively than conventional methods that employ more complicated workflows and toxic chemical processing.  This results in reduced printing cycle time and lowers the effective cost of production for commercial printers.  Our solutions make it more cost effective for printers to meet the increasing demand for shorter print runs, higher quality color and faster turn-around times.

Our groundbreaking DI technology is  used in our CTP systems.  Our Presstek business segment designs and manufactures CTP systems that incorporate our imaging technology and image our chemistry free printing plates.

 
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In addition to marketing, selling and servicing our proprietary digital products, we also market, sell and service traditional, or analog products for the commercial print market.  This analog equipment is manufactured by third party strategic partners and analog consumables are manufactured by our various partners.

Lasertel, Inc., a subsidiary of Presstek, is primarily engaged in the manufacture and development of high-powered laser diodes for Presstek and for sale to external customers.  Lasertel’s products include semiconductor lasers and active components for the graphics, defense, industrial, and medical industries.  Lasertel offers high-powered laser diodes in both standard and customized configurations, including chip on sub-mount, un-mounted bars, and fiber-coupled devices, to support various applications.

Our operations are organized based on the market application of our products and related services and consist of two reportable segments: Presstek and Lasertel.  The Presstek segment is primarily engaged in the development, manufacture, sale and servicing of our patented digital imaging systems and patented printing plate technologies as well as traditional, analog systems and related equipment and supplies for the graphic arts and printing industries, primarily the short-run, full-color market segment.  The Lasertel segment manufactures and develops high-powered laser diodes for Presstek and for sale to external customers.

We generate revenue through four main sources: (i) the sale of our equipment, including DI® presses and CTP devices, as well as imaging kits, which are  incorporated by leading press manufacturers into direct imaging presses for the graphic arts industry; (ii) the sale of high-powered laser diodes for the graphic arts, defense, medical and industrial sectors; (iii) the sale of our proprietary and non-proprietary consumables and supplies; and (iv) the servicing of offset printing systems and analog and CTP systems and related equipment.

Our business strategy is centered on maximizing the sale of consumable products, such as printing plates, and therefore our business efforts focus on the sale of “consumable burning engines” such as our DI® presses and CTP devices.  Our strategy to grow our consumables has two parts.  The first part is to increase the number of our DI® and CTP units in the field.  By increasing the number of consumable burning engines we expect to increase the demand for our consumables.

We rely on partnerships with press manufacturers such as Ryobi Limited, Heidelberger Druckmaschinen AG, or Heidelberg, and Koenig & Bower AG, or KBA, to market printing presses and press solutions that use our proprietary consumables.  We also rely on distribution partners, such as Eastman Kodak, to sell related proprietary consumable products.

Another method of growing the market for consumables is to develop consumables that can be imaged by non-Presstek devices.  In addition to expanding our base of our consumable burning engines, an element of our focus is to reach beyond our proprietary systems and penetrate the installed base of CTP devices in all market segments with our chemistry free and process-free offerings.  The first step in executing this strategy was the launch of our non-proprietary Aurora chemistry-free printing plate designed to be used with consumable burning engines manufactured by thermal CTP market leaders Screen and Kodak.  We continue to work with other CTP manufacturers to qualify our consumables on their systems.  We believe this shift in strategy fundamentally enhances our ability to expand and control our business.

We operate and report on a 52- or 53-week, fiscal year ending on the Saturday closest to December 31.  Accordingly, the consolidated financial statements include the financial reports for the 52-week fiscal year ended December 29, 2007, which we refer to as “fiscal 2007”, the 52-week fiscal year ended December 30, 2006, which we refer to as “fiscal 2006”, and the 52-week fiscal year ended December 31, 2005, which we refer to as “fiscal 2005”.

We intend the discussion of our financial condition and results of operations that follows to provide information that will assist in understanding our consolidated financial statements, the changes in certain key items in those financial statements from year to year, and the primary factors that accounted for those changes, as well as how certain accounting principles, policies and estimates affect our consolidated financial statements.

 
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The discussion of results of operations at the consolidated level is presented together with results of operations by business segment.

RESULTS OF OPERATIONS

Results of operations in dollars and as a percentage of revenue were as follows (in thousands of dollars):

   
Fiscal year ended
 
   
December 29, 2007
   
December 30, 2006
   
December 31, 2005
 
         
% of
revenue
         
% of
revenue
         
% of
revenue
 
Revenue
                                   
  Product
  $ 215,875       84.7     $ 220,724       83.1     $ 210,613       81.3  
  Service and parts
    38,968       15.3       44,970       16.9       48,521       18.7  
          Total revenue
    254,843       100.0       265,694       100.0       259,134       100.0  
                                                 
Cost of revenue
                                               
  Product
    152,545       59.9       154,250       58.1       143,952       55.5  
  Service and parts
    31,622       12.4       32,466       12.2       32,862       12.7  
          Total cost of revenue
    184,167       72.3       186,716       70.3       176,814       68.2  
                                                 
Gross profit
    70,676       27.7       78,978       29.7       82,320       31.8  
                                                 
Operating expenses
                                               
  Research and development
    6,217       2.4       6,409       2.4       7,335       2.8  
  Sales, marketing and customer support
    39,870       15.6       39,970       15.0       40,241       15.6  
  General and administrative
    34,211       13.4       19,938       7.5       20,970       8.1  
  Amortization of intangible assets
    2,408       1.0       2,980       1.1       2,595       1.0  
  Restructuring and other charges
    2,714       1.1       5,481       2.1       874       0.3  
          Total operating expenses
    85,420       33.5       74,778       28.1       72,015       27.8  
                                                 
Operating income (loss)
    (14,744 )     5.8       4,200       1.6       10,305       4.0  
Interest and other expense, net
    (2,424 )     0.9       (1,826 )     (0.7 )     (2,220 )     (0.9 )
   Income (loss) from continuing operations before income taxes
    (17,168 )     6.7       2,374       0.9       8,085       3.1  
Provision (benefit) for income taxes
    (5,018 )     1.9       (10,643 )     (4.0 )     1,164       0.4  
                                                 
Income (loss) from continuing operations
    (12,150 )     4.8       13,017       4.9       6,921       2.7  
Loss from discontinued operations
    (54 )     0.0       (3,273 )     (1.2 )     (835 )     (0.3 )
                                                 
Net income (loss)
  $ (12,204 )     4.8     $ 9,744       3.7     $ 6,086       2.4  


 
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Fiscal 2007 Compared to Fiscal 2006

Revenue

Consolidated revenues were $254.8 million in 2007, a decrease of $10.9 million, or 4.1%, from $265.7 million in 2006.  Equipment revenues reflected a decrease of $1.6 million, or 1.6%, compared to 2006, as strong sales of 52DI presses and increases in our Lasertel business were not enough to offset significant declines in our analog and CTP product lines, particularly lower sales of DPM machines.  Consumables revenues declined by $3.2 million, or 2.6%, due primarily to lower sales of QMDI plates.  Revenues in our service business were lower by $6.0 million, or 13.3%, in 2007 due to lower contract service revenues resulting from the transition of our customer base from analog to digital solutions.  Overall, sales of Presstek’s “growth” portfolio of products, defined as 34DI and 52DI digital offset solutions, the Presstek family of chemistry free CTP solutions, and Lasertel, increased $18.2 million, or 16.6%, from $109.9 million in 2006 to $128.1 million in 2007.

Presstek segment equipment revenues were $87.7 million in 2007 vs. $90.7 million in 2006, a decrease of $3.1 million, or 3.4%.  Gross sales of Presstek’s growth portfolio of equipment increased to $77.1 million in 2007 from $69.3 million in 2006.  Revenues from the sale of DI® equipment in 2007 of $64.0 million reflects an increase of $10.0 million, or 18.4%, vs. 2006 due to strong marketplace demand for the 52DI press, which was first introduced in the third quarter of 2006.  Total unit sales of the 52DI press reached 59 in 2007, and 52DI revenues as a percentage of total DI® press revenue increased from 10.0% in 2006 to 44.1% in 2007.  Sales of our remaining growth portfolio of equipment, Presstek CTP platesetters and Vector TX52 machines, declined from $15.3 million in 2006 to $13.1 million in 2007, a decrease of 14.2%, due in part to the company’s continued emphasis on marketing higher margin DI® presses, as well as a large decline in the sale of DPM machines consistent with industry trends.   In addition, unit sales of the Vector TX52 were negatively impacted early in 2007 from the carry-over impact of quality issues experienced during the second half of 2006.  These issues have since been successfully resolved.  Equipment sales of our “traditional” line of products, defined as QMDI presses, polyester CTP platesetters, and conventional equipment, were all lower in 2007 compared to 2006 due to the ongoing transition of our customer base from analog to digital technologies.  Gross revenues from our traditional equipment products decreased from $25.8 million in 2006 to $16.2 million in 2007, a decline of 37.2%.  As a percentage of total equipment revenue within the Presstek segment, net sales of growth portfolio products increased from 73.0% of revenue in 2006 to 82.6% of revenue in 2007.

Revenue for the Lasertel segment, including intercompany revenue, was $12.5 million in 2007, and reflects an increase of $1.0 million, or 8.9%, compared to 2006.  The favorable increase in 2007 is principally the result of additional sales of laser diode array products to external customers, which more than offset lower sales to the Presstek segment.

Consumables product revenues decreased from $123.1 million in 2006 to $119.9 million in 2007, a reduction of $3.2 million, or 2.6%.  The decline in revenues resulted from the anticipated slowdown of certain products in Presstek’s traditional line, including QMDI plates and conventional consumables, and was consistent with industry trends.  QMDI plates declined from $24.6 million in 2006 to $19.5 million in 2007, a decrease of 20.5%.  Sales of conventional consumables declined from $40.6 million in fiscal 2006 to $35.1 million in the comparable 2007 period.  Partially offsetting this decline were sales of Presstek’s “growth portfolio” of consumables, defined as 52DI, 34DI, and chemistry-free CTP plates, which grew from $30.4 million in 2006 to $37.5 million in 2007, an increase of $7.1 million, or 23.5%.

Service and parts revenues declined from $45.0 million in 2006 to $39.0 million in 2007, a decrease of 13.3%.  Lower revenues resulted primarily from the anticipated shift away from our less profitable legacy service contract base which, in the short term, is declining faster than our digital service business is accelerating.


 
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Cost of Revenue

Consolidated cost of revenue was $184.2 million in fiscal 2007, a decrease of $2.5 million, or 1.4%, compared to fiscal 2006.  Product cost of revenue in 2007 includes $5.4 million of charges related to excess and obsolete inventory, warranty, and accrued purchase commitments related to product portfolio changes, planned changes for the Vector TX52 product line, physical inventory results, and other adjustments.   Service and parts cost of revenue in fiscal 2007 includes a charge of $1.1 million related to write-downs of field service parts inventory.

Cost of product, consisting of costs of material, labor and overhead, shipping and handling costs and warranty expenses, was $152.5 million in fiscal 2007 compared to $154.3 million in fiscal 2006.

Cost of product in the Presstek segment was $145.7 million in fiscal 2007 compared to $149.3 million in the same prior year period.  In 2007, the Company recorded inventory-related charges of $4.9 million, consisting of $2.3 million for the write-off of excess and obsolete inventory, $2.5 million of inventory write-downs related to the Vector TX52, $0.6 million of warranty-related expenses, and other adjustments.  Offsetting these costs were lower costs related to favorable equipment product mix, production efficiencies in our plate manufacturing processes, and lower freight costs.

Cost of revenue in the Lasertel segment, including intercompany, was $11.5 million in fiscal 2007 compared to $10.1 million in the comparable prior year period.  In fiscal 2007, the company recorded excess and obsolete inventory charges of $0.2 million, and $0.3 million related to physical inventory losses.

Cost of service in 2007, including the previously discussed $1.1 million write down of field service parts inventory, was $31.6 million compared to $32.5 million same prior year period.  These amounts represent the costs of spare parts, labor and overhead associated with the ongoing service of products.  Service costs were favorably impacted by the improved utilization of the field service organization in North America, the result of a restructuring plan intended to realign our service organization with a declining analog revenue base.

Gross Profit

Consolidated gross profit as a percentage of total revenue was 27.7% in 2007 compared to 29.7% in 2006.  Gross margins were negatively impacted in 2007 by excess and obsolete inventory and warranty charges related to product portfolio changes and field service parts inventory changes.

Gross profit as a percentage of product revenue was 29.3% in fiscal 2007 compared to 30.1% in fiscal 2006.  Gross margins were negatively impacted in 2007 by excess and obsolete inventory and warranty charges related principally to product portfolio changes and field service parts inventory changes.  Offsetting this somewhat was the favorable impact of a higher mix of DI® revenues, which are predominately higher margin products than our CTP and traditional lines of business, as well as improved production efficiencies in our plate manufacturing.

Gross profit as a percentage of service revenue was 18.9% in 2007 compared to 27.8% in 2006.  Service margins in 2007 were negatively impacted by charges for losses on field service parts inventory of $1.1 million.  Lower service margins also reflect the declining analog contract revenue base, which more than offset cost savings resulting from reductions in field service personnel.

Research and Development

Research and development expenses consist primarily of payroll and related expenses for personnel, parts and supplies, and contracted services required to conduct our equipment, consumables and laser diode development efforts.

Consolidated research and development expenses of $6.2 million in fiscal 2007 were essentially unchanged from $6.4 million in the comparable prior year period.

 
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Research and development expenses for the Presstek segment were $5.0 million in 2007 compared to $5.3 million in 2006.  The decrease was due to lower payroll related expenses resulting from turnover of personnel.

Research and development expenses for the Lasertel segment were $1.2 million in 2007 compared to $1.1 million in the same prior year period.  The increased expense in 2007 relates primarily to incremental parts and supplies consumed in the product development process.

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 associated with sales, marketing and customer support activities.

Consolidated sales, marketing and customer support expenses of $39.9 million in 2007 were flat compared to expenses of $40.0 million in 2006.

Sales, marketing and customer support expenses for the Presstek segment of $39.2 million in fiscal 2007 decreased $0.3 million from the comparable prior year expense of $39.5 million due primarily to lower payroll, commission, and travel and entertainment expenses, offset somewhat by increased marketing costs in Europe necessary to support planned growth.

Sales, marketing and customer support expenses for the Lasertel segment increased from $0.5 million in 2006 to $0.7 million in 2007.  Higher expenses in 2007 were due primarily to additional contract labor and advertising expense to continue expanding external sales.

General and Administrative

Consolidated general and administrative expenses consist primarily of payroll and related expenses for personnel and contracted professional services necessary to conduct our finance, information systems, legal, human resources and administrative activities.  General and Administrative costs also include stock based compensation expenses, as well as bad debt reserves.

Consolidated general and administrative expenses were $34.2 million compared to $19.9 million in the comparable prior year period.  General and administrative expense increases were primarily the result of higher patent defense and litigation activities of $4.6 million; increased bad debt expense of $2.0 million and increased professional fees of $3.4 million related primarily to various detailed financial reviews conducted during the year.   General and administrative expenses in 2007 also include an increase of $2.1 million in stock compensation related to stock option grants to officers, directors and employees compared to the same period in fiscal 2006, as well as a $1.5 million increase in expense related to restricted stock compensation granted to our CEO.


General and administrative expenses for the Presstek segment were $33.2 million in 2007 compared to $18.9 million in 2006.  The increased expense was due primarily to the increased professional fees, litigation, stock compensation, and bad debt expenses noted above.

General and administrative expenses for the Lasertel segment of $1.04 million in fiscal 2007 were essentially flat compared to $1.06 million in fiscal 2006.

Amortization of Intangible Assets

Amortization expense of $2.4 million in fiscal 2007 declined from $3.0 million in the comparable prior year period.  These expenses relate to intangible assets recorded in connection with the Company’s 2004 acquisition of the business of the A.B. Dick Company, patents and other purchased intangible assets.


 
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Restructuring and Other Charges

Consolidated restructuring and other charges of $2.7 million in 2007 decreased from $5.5 million in 2006.  2007 restructuring expenses represent the cost of severance and separation expenses for employment contracts of former executives, as well as costs related to implementation of our Business Improvement Plan (BIP).  The BIP costs include the consolidation of the Canadian back-office operations and certain Des Plaines, Illinois activities into the Hudson, New Hampshire operations, and include restructuring costs relating to severance, operating lease run-out and inventory consolidation.

In fiscal 2006, the Company recognized restructuring and other charges of $5.5 million.  These charges included $2.3 million related to impairment of intangible assets associated with patent defense costs on the Creo/Kodak litigation matter, $2.8 million related to impairment of goodwill resulting from SFAS 144 valuation adjustments of long lived assets at Precision as a result of the decision to discontinue its newspaper analog business, $0.5 million for merger-related costs primarily related to additional professional fees, and $0.3 million related to the impairment of other assets.  In addition, approximately $0.4 million of previously established accruals at the Presstek segment were recognized in income in fiscal 2006 due principally to changes in the scope of previously announced severance programs.

Interest and Other Income (Expense), Net

Consolidated net interest and other expense in 2007 was $2.4 million compared to $1.8 million in the comparable prior year period.  Increased expense in 2007 was due primarily to higher interest expense resulting from higher balances on our revolving credit facility, as well as higher interest rates.  Offsetting this somewhat were gains on foreign currency translation.

Provision (Benefit) for Income Taxes

Our effective tax rate was (29.2%) in fiscal 2007 and (448.3%) in fiscal 2006.  In fiscal 2006, in accordance with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes”, (“FAS 109”), the Company recognized through its tax provision a $11.2 million deferred tax benefit from the reversal of the previously recorded valuation allowance established on its U.S. federal, state and local deferred tax assets, except for that portion where the evidence does not yet support a reversal.  To support the determination that is more likely than not that the Company’s deferred tax assets will be realized in the future, FAS 109 requires that the Company consider all available positive and negative evidence.  Based on a detailed analysis, the Company concluded that evidence exists to support the U.S. valuation allowance reversal as of December 30, 2006.

Fiscal 2006 Compared to Fiscal 2005

Revenue

Consolidated Revenue

Consolidated revenues were $265.7 million in fiscal 2006, an increase of $6.6 million, or 2.5%, from $259.1 million in fiscal 2005.  Equipment revenues increased $13.7 million over fiscal 2005 resulting from strong DI unit sales, including the introduction of the new 52DI press.  Partially offsetting increases in equipment revenue was a decline in both consumables and service revenues ($3.6 million each) driven principally  from a continuing slowdown in analog sales.  Consistent with our strategy of migrating our customer base to digital solutions,  digital product sales improved from $143.4 million in 2005 to $170.5 million in 2006, an increase of 18.9% year over year.  As a percentage of total product revenues, sales of digital solutions increased from approximately 68% in 2005 to approximately 77% in 2006.

 
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Equipment revenues were $97.6 million in 2006 compared to $83.9 million in 2005, an increase of $13.7 million, or 16.4%.  Growth in equipment revenues was due primarily to a 72.8% increase in the number of DI® presses sold in fiscal 2006 compared to fiscal 2005, driven largely by growth in our 34DI product sales and the introduction of the new 52DI press.  Total DI® equipment sales were strong in both the North American and European markets during 2006, as revenues improved by $12.2 million, or 46.7%, and $12.3 million, or 220.0%, respectively.  Fiscal 2006 equipment revenues were also favorably impacted by the launch of a new generation CTP system, the Vector TX52, in the fourth quarter of 2005.  The Vector TX52 accounted for $4.1 million of revenue in fiscal 2006, an increase of $2.0 million, or 96.0%, compared to fiscal 2005.  Offsetting these items were lower DPM and Dimension sales, which declined by $3.7 million, or 51.5%, and $3.4 million, or 25.8%, respectively.  Sales of these units were impacted by competitive pressures, as well as quality issues on both equipment units and related consumable plates (AnthemPro).  Analog equipment revenues also declined from $22.7 million in 2005 to $14.0 million in 2006.  This decline reflects the transition of our customer base from analog to digital solutions.  Overall, digital equipment sales in the Presstek segment increased 34.8% from $57.0 million in 2005 to $76.8 million in 2006.  On a consolidated basis, digital sales as a percentage of total equipment revenues in 2006 accounted for 85.6% of sales compared to 72.5% in 2005.

Revenue for the Lasertel segment of $11.5 million in 2006 represented a year over year increase of 47.8%, or $3.7 million, due primarily to the addition of two new customers, as well as higher sales to the Presstek segment.

Revenues generated from consumables sales decreased 3.0% year over year, from $126.8 million in 2005 to $123.1 million in 2006.  The decrease in sales was primarily attributable to the anticipated slowdown in the analog market resulting from the continued migration of our customer base from analog to digital solutions.  Total analog consumables sales declined from $44.5 million in 2005 to $36.1 million in 2006, a decrease of 18.9%.  Partially offsetting this decline were improved sales of digital products, which increased from $82.4 million in 2005 to $87.0 million in 2006.  This increase was primarily due to increased placements of DI® and CTP equipment and strengthening relationships with OEM partners.   These increases were partially offset by declines in older technology digital lines such as DPM consumables.  Overall, digital sales of consumables products increased $4.6 million year over year, or 5.6%, from $82.4 million in fiscal 2005 to $87.0 million in fiscal 2006.  As a percentage of total consumables revenues, digital sales accounted for 70.6% of sales in 2006 compared to 65.0% in 2005.

Service and parts revenues were $45.0 million in 2006, a decrease of $3.5 million, or 7.3%, compared to $48.5 million in 2005.  The decrease in revenue was due primarily to the elimination of certain legacy service contracts, as well as a reduction in billable service and analog parts sales as our customer base continues to migrate to digital solutions.

Cost of Revenue

Consolidated cost of product, consisting of costs of material, labor and overhead, shipping and handling costs and warranty expenses, was $154.2 million in fiscal 2006, an increase of $10.3 million, or 7.2%, compared to fiscal 2005.  This increase was primarily the result of increased product revenues year over year.  In addition, Presstek recorded $0.6 million of incremental warranty costs related to the Vector TX52 and AnthemPro plate quality issues experienced during 2006.

Consolidated cost of service and parts revenues was $32.5 million in fiscal 2006, slightly lower than the $32.9 million reported in 2005.  These amounts represent the costs of spare parts, labor and overhead associated with the ongoing service of products.  Costs in 2006 were impacted by higher fuel expenses, as well as increased technology costs related to an upgrade of the communications and logistics capabilities of our service technicians and engineers.  These costs were offset by the termination of 47 service personnel in North America and the use of independent service contractors during the second half of 2006, the result of a restructuring plan intended to realign our service costs with a declining analog revenue base.

 
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Gross Margin

Consolidated gross margin as a percentage of total revenue was 29.7% in 2006 compared to 31.8% in 2005.  Gross margin as a percentage of product revenue was 30.1% compared to 31.7% in 2005.   The product gross margin decrease reflects a heavier mix of equipment revenues as a percentage of total sales, which historically carry significantly lower margins than Presstek’s consumables line of products, increased warranty costs related to quality issues experienced with our Vector TX52 and AnthemPro plates, partially offset by improved margins in our Lasertel segment.

Gross margin as a percentage of service and parts revenues decreased from 32.3% in 2005 to 27.8% in 2006.  The decrease in margin percentage is principally due to a decline in the analog contract revenue base, which despite restructuring action taken to realign fixed service delivery costs in the second half of 2006, negatively impacted margins.  We are currently working to transition our legacy analog service contracts to a time and materials model which, in the short-term, due to fixed price arrangements on these contracts, has exerted additional downward pressure on our service margins.

Research and Development

Research and development expenses primarily consist of payroll and related expenses for personnel, parts and supplies, and contracted services required to conduct our equipment, consumables and laser diode development efforts.  Consolidated research and development expenses were $6.4 million in fiscal 2006 compared to $7.3 million in fiscal 2005.  The decrease is principally attributable to efficiencies realized from the integration of the acquired ABDick business into the company during the fourth quarter of 2005.

Research and development expenses for the Presstek segment were $5.3 million in 2006, a decrease of $1.1 million compared to 2005.  This decrease is primarily attributable to efficiencies realized from the integration of the ABDick business into this segment.

Research and development expenses for the Lasertel segment were $1.1 million in 2006 compared to $0.9 million in 2005.  The increase reflects increased development costs associated with specialized new products for third party foreign customers.

Sales, Marketing and Customer Support

Sales, marketing and customer support expenses primarily consist of payroll and related expenses for personnel, advertising, trade shows, promotional expenses, and travel costs associated with sales, marketing and customer support activities.

To improve operations, we took steps in both fiscal 2005 and 2006 to strengthen capacity and capability within the sales, marketing and customer support area through reorganization, training in advanced technology products and services, and changes in key personnel.  We also eliminated costs, primarily for customer support and marketing personnel by integrating U.S. marketing and customer support operations within the Presstek segment.

Consolidated sales, marketing and customer support expenses of $40.0 million in fiscal 2006 were relatively unchanged from expenses of $40.2 million in fiscal 2005.

Sales, marketing and customer support expenses for the Presstek segment were $39.5 million and $39.9 million in 2006 and 2005, respectively.

Sales, marketing and customer support expenses for the Lasertel segment increased from $0.3 million in 2005 to $0.5 million in 2006.


 
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General and Administrative

Consolidated general and administrative expenses, primarily comprised of payroll and related expenses for personnel, and contracted professional services necessary to conduct our finance, information systems, human resources and administrative activities, were $19.9 million in 2006 compared to $21.0 million in 2005.  This  decrease is primarily attributable to cost savings realized by the integration of the ABDick U.S. operations into Presstek.  As a percentage of total sales, consolidated general and administrative expenses declined from 8.1% in 2005 to 7.5% in 2006.

General and administrative expenses for the Presstek segment were $18.9 million in fiscal 2006, compared to $20.1 million in fiscal 2005.  The decrease in expense is primarily attributable to the elimination of redundant costs resulting from the integration of the ABDick U.S. operations into the segment.

General and administrative expenses for the Lasertel segment increased $0.3 million to $1.1 million in fiscal 2006 from $0.8 million in fiscal 2005.  This increase was due primarily  to a change in allowance for doubtful accounts arising from certain customer accounts.


Amortization of Intangible Assets

Intangible asset amortization expense increased from $2.6 million in 2005 to $3.0 million in 2006.   Amortization relates to intangible assets recorded in connection with the Company’s 2004 ABDick and Precision acquisitions, patents and other purchased intangible assets.


Restructuring and Other Charges (Credits)

In fiscal 2006, the Company recognized restructuring and other charges of $5.5 million.  These charges included $2.3 million related to impairment of intangible assets associated with patent defense costs on the Creo litigation matter, $2.8 million related to impairment of goodwill resulting from SFAS 144 valuation adjustments of long lived assets at Precision as a result of the decision to discontinue its newspaper analog business, $0.5 million for merger-related costs primarily related to additional professional fees, and $0.3 million related to the impairment of other assets.  In addition, approximately $0.4 million of previously established accruals at the Presstek segment were recognized in income in fiscal 2006 due principally to changes in the scope of previously announced severance programs.

In fiscal 2005, we recognized $0.9 million of restructuring and other charges related to Precision and ABDick.  These charges included severance and fringe benefit costs, executive and other contractual obligations, and a settlement with previously terminated employees.


Interest and Other Income (Expense), Net

Net interest expense was $2.2 million in fiscal 2006 compared to $2.3 million in fiscal 2005.  The decrease in the current year period is attributable to lower outstanding long-term debt resulting from the repayments of principal.

On September 7, 2006, an agreement related to the ABDick acquisition under which we were reimbursed $1.2 million was approved by the United States Bankruptcy Court for the District of Delaware.  The net amount, after reductions for legal fees and additional adjustments for settlement of various assets and liabilities related to this action, totaled $0.3 million, and is included as a component of Interest and other income (expense), net, in our Consolidated Statements of Operations for the year ended December 30, 2006.  The balance of other income (expense), net relates to gains or losses on foreign currency transactions for all periods presented.

 
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Provision (Benefit) for Income Taxes

Our effective tax rate was (448.3%) in fiscal 2006 and 14.4% in fiscal 2005.  The variance from the federal statutory rate for fiscal 2006 was primarily due to the reversal of valuation allowance provided against our net deferred tax assets in the U.S.

The variance from the federal statutory rate for fiscal 2005 was primarily due to the utilization of net operating losses previously offset by a valuation allowance, foreign taxes, and alternative minimum taxes.

In fiscal 2006, in accordance with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes”, (“FAS 109”), the Company recognized through its tax provision a $11.2 million deferred tax benefit from the reversal of the previously recorded valuation allowance established on its U.S. federal, state and local deferred tax assets, except for that portion where the evidence does not yet support a reversal.  To support the determination that is more likely than not that the Company’s deferred tax assets will be realized in the future, FAS 109 requires that the Company consider all available positive and negative evidence.  Based on a detailed analysis conducted during fiscal 2006, the Company concluded that evidence exists to support the U.S. valuation allowance reversal as of December 30, 2006.
 
Discontinued Operations

The Company accounts for its discontinued operations under the provisions of SFAS No. 144, Accounting for Impairment or Disposal of Long-Lived Assets, (SFAS 144).  Accordingly, results of operations and the related charges for discontinued operations have been classified as “Loss from discontinued operations, net of income taxes” in the accompanying Consolidated Statements of Operations.  Assets and liabilities of discontinued operations have been reclassified and reflected on the accompanying Consolidated Balance Sheets as “Assets of discontinued operations” and “Liabilities of discontinued operations”.  For comparative purposes, all prior periods presented have been reclassified on a consistent basis.

Precision Lithograining Corp. – Analog Newspaper Business
During December 2006, the Company terminated production in South Hadley, Massachusetts of Precision-branded analog plates used in newspaper applications.

Results of operations of the discontinued analog newspaper business of Precision consist of the following (in thousands, except per-share data):

   
December 29, 2007
   
December 30, 2006
   
December 31, 2005
 
Revenue
  $ 196     $ 10,816     $ 15,006  
Loss before income taxes
    (108 )     (2,267 )     (825 )
  Provision (benefit) for income taxes
    (54 )     (771 )     10  
Loss from discontinued operations
    (54 )     (1,496 )     (835 )
Loss from disposal of discontinued operations, net of tax benefit of  $915 for the year ended December 30, 2006
     --       (1,777 )      --  
Net loss from discontinued operations
  $ (54 )   $ (3,273 )   $ (835 )
    Loss per diluted share
  $ (0.00 )   $ (0.09 )   $ (0.02 )



 
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As of December 30, 2006, and in accordance with SFAS 144 and SFAS 142, the Company reviewed the potential impairment of long-lived assets associated with the analog newspaper business and goodwill of the Precision reporting unit and determined that impairment charges aggregating $4.0 million were required.  Of this amount $2.8 million relates to the impairment of goodwill, $0.3 million relates to the acceleration of depreciation on fixed assets abandoned, $0.6 million relates to the acceleration of amortization on certain intangible assets and $0.3 million relates to the adjustment of inventory on hand to the lower of cost or market.  Impairment charges of the reporting unit goodwill resulting from the abandonment of the analog newspaper business are reflected within restructuring and other charges of continuing operations, and the remaining charges included in the loss from discontinued operations for fiscal 2006. There have been no further impairment charges incurred in fiscal 2007 relating to this matter.

Liquidity and Capital Resources

We finance our operating and capital investment requirements primarily through cash flows from operations and borrowings.  At December 29, 2007, we had $13.2 million of cash and $39.2 million of working capital, compared to $9.4 million of cash and $47.5 million of working capital at December 30, 2006.

Continuing Operations

Our operating activities provided $4.8 million of cash in fiscal 2007.  Cash provided by operating activities came from net income, after adjustments for non-cash depreciation, amortization, restructuring and merger-related expenses, provisions for warranty costs and accounts receivable allowances, stock compensation expense, deferred income taxes, and losses on the disposal of assets.  Cash provided by operating activities were further benefited from a decrease in accounts receivable of $7.7 million and an increase of $7.5 million in accrued expenses.  The decrease in accounts receivable reflects our continued focus on cash management.  Accrued expense increases are primarily related to increased professional fee accruals resulting from the review of inventory and receivable reserves, as well as accruals related to certain legal matters.  These amounts were partially offset by an increase of $3.0 million in inventory, a decrease of $8.5 million in accounts payable, an increase of $2.1 million in other current assets, and a decrease in deferred revenue of $0.7 million.  Inventory increases at December 29, 2007 are primarily attributable to timing of certain press deliveries.  Day’s sales outstanding were 58 at December 29, 2007 and 63 at December 30, 2006.  The decrease in accounts payable relates primarily to the timing of purchases and payments to suppliers.  The increase in other current asset relates to an insurance recovery receivable.  The decrease in deferred revenue relates to a reduction in service contracts resulting from the continuing erosion of our analog customer base.

We used $3.4 million of net cash for investing activities during 2007, comprised of $3.0 million of additions to property, plant and equipment, $0.2 million of investments in patents and other intangible assets and $0.1 million of transaction and accrued integration costs paid related to the acquisition of the ABDick business.  Our additions to property, plant and equipment primarily relate to production equipment and investments in our infrastructure, including costs related to the implementation of a new service management system.

Our financing activities generated $1.1 million of net cash, comprised of $3.1 million of cash received from the exercise of stock options and purchase of common stock under our employee stock purchase program and $5.0 million of net borrowings under our current line of credit.  These amounts were offset by payments on our current term loan and capital lease aggregating $7.0 million.

Discontinued Operations

Operating activities of discontinued operations provided $0.4 million in cash in fiscal 2007.  Cash generated by operating activities reflect a net loss of $0.1 million, after adjustments for non-cash depreciation, amortization, provisions for warranty and accounts receivable allowances.  Cash generated by operating activities also included a decrease of $1.9 million in accounts receivable and $1.4 million in inventory.


 
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Our current senior secured credit facilities, referred to as the Facilities, include a $35.0 million five year secured term loan, referred to as the Term Loan, and a $45.0 million five year secured revolving line of credit, referred to as the Revolver.  At December 29, 2007, the outstanding balance on the revolver was $20.0 million and we had $1.3 million outstanding under letters of credit, thereby reducing the amount available under the Revolver to $23.7 million.  At December 29, 2007 and December 30, 2006, the interest rates on the outstanding balance of the Revolver were 7.5% and 7.1%, respectively.  Principal payments on the Term Loan are made in consecutive quarterly installments of $1.75 million, with a final settlement of all remaining principal and unpaid interest on November 4, 2009.

The Facilities were used to partially finance the acquisition of the business of ABDick, and are available for working capital requirements, capital expenditures, acquisitions, and general corporate purposes.  Borrowings under the Facilities bear interest at either (i) the London InterBank Offered Rate, or LIBOR, plus applicable margins or (ii) the Prime Rate, as defined in the agreement, plus applicable margins.  The applicable margins range from 1.25% to 4.0% for LIBOR, or up to 1.75% for the Prime Rate, based on certain financial performance.  At December 29, 2007 and December 30, 2006, the effective interest rates on the Term Loan were 7.5% and 7.1%, respectively.

Under the terms of the Revolver and Term Loan, we are required to meet various financial covenants on a quarterly and annual basis, including maximum funded debt to EBITDA, a non-U.S. GAAP measurement that is defined in the Facilities as earnings before interest, taxes, depreciation, amortization and restructuring and other charges (credits), and minimum fixed charge coverage covenants.  At December 29, 2007, we were in compliance with all financial covenants.  Due to delays in reporting financial statements for the period ended December 29, 2007 to its lenders, the Company amended the terms of the Revolver and Term Loan with the lenders to provide that annual financial statements could be delivered to the lenders on or before April 30, 2008.
The Company entered into interest rate swap agreements with its lenders in October 2003, which were intended to protect the Company’s long-term debt against fluctuations in LIBOR rates.  Under the interest rate swaps LIBOR was set at a minimum of 1.15% and a maximum of 4.25%.  Because the interest rate swap agreement did not qualify as a hedge for accounting purposes under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”), and related amendments, including SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities (“SFAS 149”), the Company recorded a reduction to expense of $22,500, $40,000 and $28,000 in fiscal 2007, fiscal 2006 and fiscal 2005, respectively, to mark these interest rate swap agreements to market.

On November 23, 2005, we purchased equipment under a capital lease arrangement qualifying under Statement of Financial Accounting Standards (“SFAS”) No. 13, Accounting for Leases (“SFAS 13”).  The equipment is included as a component of property, plant and equipment and the current and long-term principal amounts of the lease obligation are included in our Consolidated Balance Sheets.

We believe that existing funds, cash flows from operations, and cash available under our Revolver should be sufficient to satisfy working capital requirements and capital expenditures through at least the next twelve months.  There can be no assurance, however, that we will not require additional financing, or that such additional financing, if needed, would be available on acceptable terms.


 
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Contractual Obligations

Our contractual obligations at December 29, 2007 consist of the following (in thousands):

         
Payments due by period
 
   
Total
   
Less than one year
   
One to three years
   
Three to five years
   
Five or more years
 
                               
Senior Secured Credit Facilities
  $ 35,500     $ 27,000     $ 8,500     $ --     $ --  
Estimated interest payments on Senior Secured Credit Facilities
    2,516       1,986       530       --       --  
Capital lease, including contractual interest
    35       35       --       --       --  
Royalty obligation
    6,184       976       1,516       1,464       2,228  
Executive contractual obligations
    5,227       1,915       3,312       --       --  
Operating leases
    6,421       2,386       2,659       1,375       --  
                                         
  Total contractual obligations
  $ 55,883     $ 34,298     $ 16,517     $ 2,839     $ 2,228  


The amounts above related to estimated interest payments on the Facilities are based upon the interest rates in effect at December 29, 2007.  Actual interest amounts could differ from the estimates above.

In fiscal 2000, we entered into an agreement with Fuji, whereby minimum royalty payments to Fuji are required based on specified sales volumes of our A3 format size four-color sheet-fed press.  The agreement provides for total royalty payments to be no less than $6 million and not greater than $14 million over the life of the agreement.  As of December 29, 2007, the Company had paid Fuji $7.8 million related to this agreement.

We have employment agreements with certain of our employees, some of which include change of control agreements that provide them with benefits should their employment with us be terminated other than for cause or their disability or death, or if they resign for good reason, as defined in these agreements, within a certain period of time from the date of any change of control of us.

From time to time we have engaged in sales of equipment that is leased by or intended to be leased by a third party purchaser to another party.  In certain situations, we may retain recourse obligations to a financing institution involved in providing financing to the ultimate lessee in the event the lessee of the equipment defaults on its lease obligations.  In certain such instances, we may refurbish and remarket the equipment on behalf of the financing company, should the ultimate lessee default on payment of the lease.  In certain circumstances, should the resale price of such equipment fall below certain predetermined levels, we would, under these arrangements, reimburse the financing company for any such shortfall in sale price (a “shortfall payment”).  The maximum contingent obligation under these shortfall payment arrangements is estimated to be $1.3 million at December 29, 2007.

Effect of Inflation

Inflation has not had a material impact on our financial conditions or results of operations, although this risk is discussed under Item 1 of this Form 10-K.


 
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Net Operating Loss Carryforwards

At December 29, 2007, we had net operating loss carryforwards for tax purposes totaling $83.2 million, of which $61.5 million resulted from stock option compensation deductions for U.S. federal tax purposes and $21.7 million resulted from operating losses.  To the extent that net operating losses resulting from stock option compensation deductions result in reduction of current taxes payable, the benefit will be credited directly to additional paid-in capital.  The Company’s ability to utilize its net operating loss and credit carryforwards may be limited in the future if the company experiences an ownership change, as defined by the Internal Revenue Code.  An ownership change occurs when the ownership percentage of 5% or greater of stockholders changes by more than 50% over a three year period.

Critical Accounting Policies and Estimates

General

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles as adopted in the United States.  The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and related disclosure of contingent assets and liabilities at the date of the financial statements.  Estimates and assumptions also affect the amount of reported revenue and expenses during the period.  Management believes the most judgmental estimates include  those related to product returns; warranty obligations; allowances for doubtful accounts; slow-moving and obsolete inventories; income taxes; the valuation of goodwill, intangible assets, long-lived assets and deferred tax assets; stock-based compensation and litigation.  We base our estimates and assumptions on historical experience and various other appropriate factors, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the amounts of revenue and expenses that are not readily apparent from other sources. Actual results could differ from those estimates.

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements. For a complete discussion of our accounting policies, see Note 2 to our consolidated financial statements appearing elsewhere herein.

Revenue Recognition

Revenue Recognition

The Company recognizes revenue principally from the sale of products (equipment, consumables, laser diodes) and services (equipment maintenance contracts, installation, training, support, and spare parts).  Revenue is recognized when persuasive evidence of a sales arrangement exists, delivery has occurred or services have been rendered, the price to the customer is fixed or determinable and collection is reasonably assured.  In accordance with Staff Accounting Bulletin (“SAB”) No. 104 Revenue Recognition (“SAB 104”) and Emerging Issues Task Force (“EITF”) Issue 00-21 Revenue Arrangements with Multiple Deliverables (“EITF 00-21”), when a sales arrangement contains multiple elements, such as equipment and services, revenue is allocated to each element based on its relative fair value.  Amounts invoiced to customers in excess of revenue recognized are recorded as deferred revenue until all revenue recognition criteria are met.

Product revenue

End-Users - Under the Company’s standard terms and conditions of sale of equipment, title and risk of loss are transferred to end-user customers upon completion of installation and revenue is recognized at that time, unless customer acceptance is uncertain or significant deliverables remain.  Sales of other products, including printing plates, are generally recognized at the time of shipment.

 
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OEMs - Product revenue and any related royalties for products sold to Original Equipment Manufacturers (“OEM”) are recognized at the time of shipment as installation is not required and title and risk of loss pass at shipment. OEM contracts do not generally include price protection or product return rights; however, the Company may elect, in certain circumstances, to accept returns of product.

Distributors - Revenue for product sold to distributors, whereby the distributor is responsible for installation, is recognized at shipment, unless other revenue recognition criteria have not been met.  Revenue for product sold to distributors under contracts which involve Company installation of equipment is recognized upon installation, unless end-user customer acceptance is uncertain, significant deliverables remain, or other revenue recognition criteria have not been met.  Except in cases of contract termination (which may include limited product return rights), distributor contracts do not generally include price protection or product return rights; however, the Company may elect, in certain circumstances, to accept returns of product.

Service and parts revenue

Revenue for installation services, including time and material billings, are recognized as services are rendered.  Revenue associated with maintenance or extended service agreements is recognized ratably over the contract period.  Revenue associated with training and support services is recognized as services are rendered.  Certain fees and other reimbursements are recognized as revenue when the related services have been performed or the revenue is otherwise earned.

Leases

The Company may offer customer financing to assist customers in the acquisition of Presstek products.  At the time a financing transaction is consummated, which qualifies as a sales-type lease, the Company records equipment revenue equal to the net present value of future lease payments.  Any remaining balance is recognized as finance income using the effective interest method over the term of the lease.  Leases not qualifying as sales-type leases are accounted for as operating leases.  The company recognizes revenue from operating leases on an accrual basis as the rental payments become due.

Multiple element arrangements

In accordance with Staff Accounting Bulletin (“SAB”) No. 104 Revenue Recognition (“SAB 104”) and Emerging Issues Task Force (“EITF”) Issue 00-21 Revenue Arrangements with Multiple Deliverables (“EITF 00-21”), when a sales arrangement contains multiple elements, such as equipment, consumables or services, revenue is allocated to each element based on its relative fair value.  The fair value of any undelivered elements, such as warranty, training and services, is deferred until delivery has occurred or services have been rendered.

Rights of return

A general right of return or cancellation does not exist once product is delivered to the customer; however, the Company may elect, in certain circumstances, to accept returns of product.  Product revenues are recorded net of estimated returns, which are adjusted periodically, based upon historical rates of return.

Shipping and handling

The Company accounts for shipping and handling fees passed on to customers as revenue.  Shipping and handling costs are reported as components of cost of revenue (product) and cost of revenue (service and parts).


 
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Allowance for Doubtful Accounts

The Company’s accounts receivable are customer obligations due under normal trade terms, carried at face value less an allowance for doubtful accounts.  The Company evaluates its allowance for doubtful accounts on an ongoing basis and adjusts for potential credit losses when it determines that receivables are at risk for collection based upon the length of time receivables are outstanding, past transaction history and various other criteria.  Receivables are written off against reserves in the period they are determined to be uncollectible.

Inventory Valuation

Inventories are valued at the lower of cost or net realizable value, with cost determined using the first-in, first-out method.  We assess the recoverability of inventory to determine whether adjustments for impairment are required.
Inventory that is in excess of future requirements is written down to its estimated market value based upon forecasted demand for its products.  If actual demand is less favorable than what has been forecasted by management, additional inventory write-downs may be required.

Goodwill and Intangible Assets

Goodwill and intangible assets with indefinite lives are tested annually for impairment in accordance with the provisions of SFAS No. 142 Goodwill and Other Intangible Assets (“SFAS 142”).  Intangible assets with estimated lives and other long-lived assets are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS 144”).  Recoverability of intangible assets with estimated lives and other long-lived assets is measured by comparison of the carrying amount of an asset or asset group to future net undiscounted pretax cash flows expected to be generated by the asset or asset group.  If these comparisons indicate that an asset is not recoverable, the Company will recognize an impairment loss for the amount by which the carrying value of the asset or asset group exceeds the related estimated fair value.  Estimated fair value is based on either discounted future pretax operating cash flows or appraised values, depending on the nature of the asset.  The Company determines the discount rate for this analysis based on the expected internal rate of return of the related business and does not allocate interest charges to the asset or asset group being measured.  Considerable judgment is required to estimate discounted future operating cash flows.  Judgment is also required in determining whether an event has occurred that may impair the value of goodwill or identifiable intangible assets.  Factors that could indicate that an impairment may exist include significant underperformance relative to plan or long-term projections, strategic changes in business strategy, significant negative industry or economic trends or a significant decline in our stock price for a sustained period of time.  We must make assumptions about future cash flows, future operating plans, discount rates and other factors in the models and valuation reports.  To the extent these future projections and estimates change, the estimated amounts of impairment could differ from current estimates.

Patents represent the cost 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 or other related transactions.  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.

From time to time, the Company enters into agreements with third parties under which the party will design and prototype a product incorporating Presstek products and technology.  The capitalized costs associated with rights or intellectual property under these agreements will be amortized over the estimated sales life-cycle and future cash flows of the product.  The Company does not amortize capitalized costs related to either patents or purchased intellectual property until the respective asset has been placed into service.


 
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The Company amortizes license agreements and loan origination fees over the term of the respective agreement.
The amortizable lives of the Company’s other intangible assets are as follows:

Trade names
2 –   3 years
Customer relationships
      10 years
Software licenses
        3 years
Non-compete covenants
        5 years

 
Stock-Based Compensation
 
Prior to January 1, 2006, we accounted for all of employee and non-employee director stock-based compensation awards using the intrinsic value method under APB 25, and provided the required disclosures in accordance with SFAS 123. On January 1, 2006, we adopted SFAS 123R, using the modified prospective transition method. We recognize the fair value of stock compensation in our consolidated financial statements over the requisite service period, generally on a straight-line basis for time-vested awards. Under the fair value recognition provisions of SFAS 123R, stock-based compensation cost is measured at the grant date based on the value of the award and is recognized as expense over the service period. Further, we have elected under SFAS 123R to recognize the fair value of awards with pro-rata vesting on a straight-line basis. Previously, we had followed Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations, which resulted in the accounting for employee share options at their intrinsic value in the consolidated financial statements.
 
Under SFAS 123R, our stock-based compensation is affected by our stock price as well as valuation assumptions, including the volatility of our stock price, expected term of the option, risk-free interest rate and expected dividends. We utilize the Black-Scholes valuation model for estimating the fair value on the date of grant of employee stock options. Prior to January 1, 2006, we used historical volatility to estimate the grant-date fair value of stock options. Starting on January 1, 2006, we estimated future volatility using a combination of historical and implied volatility. We believe that a combination of historical and implied volatility results in a more accurate estimate of the grant-date fair value of employee stock options because it more appropriately reflects the market's expectations of future volatility. Any changes in these assumptions may materially affect the estimated fair value of the stock-based award.

Accounting for Income Taxes

The process of accounting for income taxes involves calculating our current tax obligation or refund and assessing the nature and measurements of temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences and our net operating loss (“NOL”) and credit carryforwards, result in deferred tax assets and liabilities. In each period, we assess the likelihood that our deferred tax assets will be recovered from existing deferred tax liabilities or future taxable income in each jurisdiction. To the extent we believe that we would not meet the test that recovery is “more likely than not”, we would establish a valuation allowance. To the extent that we establish a valuation allowance or change this allowance in a period, we would adjust our tax provision or tax benefit in the consolidated statement of operations. We use our judgment to determine our provision or benefit for income taxes, including estimates associated with uncertain tax positions and any valuation allowance recorded against our deferred tax assets based on the weight of all positive and negative factors, including cumulative trends in profitability.

We have accumulated U.S. federal and state income tax NOL carryforwards, research and experimentation tax credit carryforwards and alternative minimum tax credit carryforwards. In the fourth quarter of 2006, we reversed the valuation allowance on a deferred tax asset on our balance sheet primarily representing NOLs from our U.S. operations. Previously, we had recorded a valuation allowance against deferred tax assets on our balance sheet until it was “more likely than not” that the tax assets related to either our U.S. or international operations would be realized.


 
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We assess our ability to utilize our NOL and tax credit carryforwards in future periods and record any resulting adjustments that may be required to defer income tax expense. In addition, we reduce the deferred income tax asset for the benefits of NOL and tax credit carryforwards utilized currently. The future impact on net income may therefore be positive or negative, depending on the net result of such adjustments and charges.

Based upon a review of historical operating performance through 2007, and our expectation that we will generate profits in the U.S. and our international operations in the foreseeable future, we continue to believe it is more likely than not that the U.S. and international deferred tax assets will be fully realized.

Recently Issued Accounting Standards

In June 2006, the Emerging Issues Task Force (“EITF”) reached a consensus on EITF Issue No. 06-3, How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation) (“EITF 06-3”). EITF 06-3 is effective for periods beginning after December 15, 2006, with earlier application permitted. EITF 06-3 requires disclosure of the accounting policy for any tax assessed by a governmental authority that is directly imposed on a revenue-producing transaction (i.e., sales, use, value added) on a gross basis (included in revenues and costs) or net basis (excluded from revenues and costs). The Company excludes these amounts from its revenues and costs; accordingly, no additional disclosure will be required.

In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes by prescribing the recognition threshold a tax position is required to meet before being recognized in the financial statements. It also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 was adopted by the Company in the first quarter of fiscal 2007. The adoption of FIN 48 did not have a material impact on the consolidated results of operations and financial condition.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 provides guidance for using fair value to measure assets and liabilities. It also responds to investors' requests for expanded information about the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings. SFAS 157 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value, and does not expand the use of fair value in any new circumstances. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and is required to be adopted by the Company in fiscal 2008. The Company is currently evaluating the effect that the adoption of SFAS 157 will have on its consolidated results of operations and financial condition but does not expect it to have a material impact.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No 115 ("SFAS 159"). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS 159 is effective for fiscal years beginning after November 15, 2007. Early adoption is permitted, provided the entity also elects to apply the provisions of SFAS 157. The Company is currently evaluating the effect that the adoption of SFAS 159 will have on its consolidated results of operations and financial condition but does not expect it to have a material impact.

In June 2007, the FASB also ratified EITF 07-3, Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities ("EITF 07-3"). EITF 07-3 requires that nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities be deferred and capitalized and recognized as an expense as the goods are delivered or the related services are performed. EITF 07-3 is effective, on a prospective basis, for fiscal years beginning after December 15, 2007 and will be adopted by the Company in the first quarter of fiscal 2008. The Company does not expect the adoption of EITF 07-3 to have a material effect on its consolidated results of operations and financial condition.

 
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In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations ("SFAS 141R"). SFAS 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. SFAS 141R also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. SFAS 141R is effective as of the beginning of an entity's fiscal year that begins after December 15, 2008, and will be adopted by the Company in the first quarter of fiscal 2009. The Company will apply SFAS 141R prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008.

Also in December 2007, the FASB issued Statement No. 160, Non-controlling Interests in Consolidated Financial Statements (“SFAS 160”), which is effective for fiscal years beginning after December 15, 2008. This statement requires all entities to report non-controlling (minority) interests in subsidiaries in the same manner– as equity in the consolidated financial statements. This eliminates the diversity that currently exists in accounting for transactions between an entity and non-controlling interests by requiring that they be treated as equity transactions. The Company will be required to adopt the provisions of SFAS 160 in the first quarter of 2009 and is currently evaluating the impact of such adoption on its Consolidated Financial Statements.

Off-Balance Sheet Arrangements

We do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities (“SPEs”), which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purpose.  As of December 29, 2007, we were not involved in any unconsolidated SPE transactions.


 
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Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

We are exposed to a variety of market risks, including changes in interest rates primarily as a result of our borrowing activities, commodity price risk, and to a lesser extent, our investing activities and foreign currency fluctuations.  The Company has established procedures to manage its fluctuations in interest rates and foreign currency exchange rates.

Our long-term borrowings are in variable rate instruments, with interest rates tied to either the Prime Rate or the LIBOR.  A 100 basis point change in these rates would have an impact of approximately $0.1 million on our annual interest expense, assuming consistent levels of floating rate debt with those held at the end of fiscal 2007.

Commodity price movements create a market risk by affecting the price we must pay for certain raw materials.  The Company purchases aluminum for use in manufacturing consumables products and is embedded in certain components we purchase from major suppliers.  From time to time, we enter into agreements with certain suppliers to manage price risks within a specified range of prices; however, our suppliers generally pass on significant
commodity price changes to us in the form of revised prices on future purchases.  In general, the Company has not used commodity forward or option contracts to manage this market risk.

The Company operates foreign subsidiaries in Canada and Europe and is exposed to foreign currency exchange rate risk inherent in our sales commitments, anticipated sales, anticipated purchases and assets and liabilities denominated in currencies other than the U.S. dollar.  Presstek routinely evaluates whether the foreign exchange risk associated with its foreign currency exposures acts as a natural foreign currency hedge for other offsetting amounts denominated in the same currency.  In general, the Company does not hedge the net assets or net income of its foreign subsidiaries.  In addition, certain key customers and strategic partners are not located in the United States.  As a result, these parties may be 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 our products could be adversely affected and our products may become less competitive to them.  This may have an adverse impact on our business.  Likewise, certain major suppliers are not located in the United States and thus, such suppliers are subject to foreign exchange rate risks in transactions with us.  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 our business.

 
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PART II


Item 8.  Financial Statements and Supplementary Data

 
Page
   
Reports of Independent Registered Public Accounting Firms
  54
Consolidated Balance Sheets as of December 29, 2007 and December 30, 2006
  56
Consolidated Statements of Operations for the fiscal years ended December 29, 2007, December 30, 2006 and December 31, 2005
  57
Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income for the fiscal years ended December 29, 2007, December 30, 2006 and December 31, 2005
  58
Consolidated Statements of Cash Flows for the fiscal years ended December 29, 2007, December 30, 2006 and December 31, 2005
  59
Notes to Consolidated Financial Statements
  60
   
   
   
   
   
   
   
   


 
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Report of Independent Registered Public Accounting Firm
 
The Board of Directors and Stockholders
Presstek, Inc.:
 
We have audited the accompanying consolidated balance sheets as of December 29, 2007 and December 30, 2006 of Presstek, Inc. and subsidiaries (the Company) and the related consolidated statements of operations, changes in stockholders’ equity and comprehensive income, and cash flows for each of the years ended December 29, 2007 and December 30, 2006. In connection with our audits of the consolidated financial statements, we also have audited financial statement schedule II. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 29, 2007 and December 30, 2006, and the results of their operations and their cash flows for each of the years ended December 29, 2007 and December 30, 2006, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule II, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 29, 2007, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated April 30, 2008 expressed an adverse opinion on the effectiveness of the Company’s internal control over financial reporting.
 
 
/s/ KPMG LLP
 
Boston, Massachusetts
 
April 30, 2008
 

 
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders
Presstek, Inc.
Hudson, New Hampshire

We have audited the accompanying consolidated balance sheets of Presstek, Inc. and its subsidiaries as of December 31, 2005 and the related consolidated statements of income, changes in stockholders’ equity and comprehensive income and cash flows for the fiscal years ended December 31, 2005 and January 1, 2005.  We have also audited the accompanying financial statement Schedule II for the years then ended.  These consolidated financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated 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 consolidated 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 consolidated financial statements and schedule. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly in all material respects, the financial position of Presstek, Inc. and its subsidiaries at December 31, 2005 and the results of their operations and their cash flows for the fiscal years ended December 31, 2005 and January 1, 2005 in conformity with accounting principles generally accepted in the United States of America.  Also in our opinion, the related financial statements schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
 
Also, in our opinion, the schedule presents fairly, in all material respects, the information set forth therein.



/s/ BDO Seidman, LLP
BDO Seidman, LLP

Boston, Massachusetts
March 16, 2006, except for the effects of the
discontinued operation as to which the date is April 24, 2007




 
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
       
             
PRESSTEK, INC. AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
 
(in thousands, except share data)
 
             
   
December 29,
 
December 30,
 
   
2007
   
2006
 
             
           
Current assets
           
Cash and cash equivalents
  $ 13,249     $ 9,449  
Accounts receivable, net
    42,879       53,158  
Inventories, net
    49,084       46,050  
Assets of discontinued operations
    15       3,321  
Deferred income taxes
    6,740       4,162  
Other current assets
    4,666       2,600  
Total current assets
    116,633       118,740  
                 
Property, plant and equipment, net
    38,023       42,194  
Intangible assets, net
    6,287       8,741  
Goodwill
    19,891       20,280  
Deferred income taxes
    11,124       7,515  
Other noncurrent assets
    869       544  
                 
Total assets
  $ 192,827     $ 198,014  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
Current liabilities
               
Current portion of long-term debt and capital lease obligation
  $ 7,035     $ 7,037  
Line of credit
    20,000       15,000  
Accounts payable
    18,603       27,126  
Accrued expenses
    23,713       10,471  
Deferred revenue
    7,196       7,901  
Liabilities of discontinued operations
    888       3,707  
Total current liabilities
    77,435       71,242  
                 
Long-term debt and capital lease obligation, less current portion
    8,500       15,535  
                 
Total liabilities
    85,935       86,777  
                 
Commitments and contingencies (See Note 19)
               
                 
Stockholders' equity
               
Preferred stock, $0.01 par value, 1,000,000 shares authorized, no shares issued
    -       -  
Common stock, $0.01 par value, 75,000,000 shares authorized, 36,565,474 and
 
35,662,318 shares issued and outstanding at December 29, 2007 and
         
December 30, 2006, respectively
    366       357  
Additional paid-in capital
    115,884       108,769  
Accumulated other comprehensive income
    1,032       297  
Retained earnings (accumulated deficit)
    (10,390 )     1,814  
Total stockholders' equity
    106,892       111,237  
                 
Total liabilities and stockholders' equity
  $ 192,827     $ 198,014  
                 
                 
The accompanying notes are an integral part of these consolidated financial statements.
 
                 
               

 
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PRESSTEK, INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF OPERATIONS
 
(in thousands, except per-share data)
 
                     
     
Fiscal year ended
 
     
December 29,
   
December 30,
   
December 31,
 
     
2007
   
2006
   
2005
 
                     
                 
 
Product
  $ 215,875     $ 220,724     $ 210,613  
 
Service and parts
    38,968       44,970       48,521  
 
Total revenue
    254,843       265,694       259,134  
                           
Cost of revenue
                       
 
Product
    152,545       154,250       143,952  
 
Service and parts
    31,622       32,466       32,862  
 
Total cost of revenue
    184,167       186,716       176,814  
                           
Gross profit
    70,676       78,978       82,320  
                           
Operating expenses
                       
 
Research and development
    6,217       6,409       7,335  
 
Sales, marketing and customer support
    39,870       39,970       40,241  
 
General and administrative
    34,211       19,938       20,970  
 
Amortization of intangible assets
    2,408