SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

X    Annual Report  Pursuant to Section 13 or 15(d) of the  Securities  Exchange
     Act of 1934 for the fiscal year ended January 1, 2000

                                       OR

__   Transition  Report  Pursuant  to  Section  13 or  15(d)  of the  Securities
     Exchange  Act of 1934 for the  transition  period from  _______________  to
     _______________.

                                     0-17541
                              (Commission File No.)

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

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

              9 Commercial Street, Hudson, New Hampshire 03051-3907
           (Address of principal executive offices including zip code)

Registrant's telephone number, including area code: (603) 595-7000

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

Securities registered pursuant to Section 12(g) of the Act:

                          Common Stock, $.01 par value

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports)  and  (2)  has  been  subject  to such  filing
requirements for the past 90 days. Yes X No __

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The  aggregate   market  value  of  the   registrant's   common  stock  held  by
non-affiliates  of the  registrant  as of  March  10,  2000,  was  approximately
$665,000,000.

As of March 10, 2000, there were 32,575,188  shares of the  registrant's  common
stock outstanding.

                      Documents Incorporated by Reference:

Parts of the definitive Proxy Statement for the  Registrant's  Annual Meeting of
Stockholders to be held on June 19, 2000 are incorporated by reference into Part
III of this Form 10-K.


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                                     PART I

Item 1. Business.

     "Safe Harbor" Statement under the Private Securities  Litigation Reform Act
of  1995:   Certain   statements   contained   in  this  Form  10-K   constitute
"forward-looking  statements"  within  the  meaning  of the  Private  Securities
Litigation Reform Act of 1995. Such forward-looking  statements involve a number
of known and unknown risks,  uncertainties and other factors which may cause the
actual  results,  performance  or  achievements  of the Company to be materially
different  from any future  results,  performance or  achievements  expressed or
implied by such  forward-looking  statements.  Such factors include, but are not
limited  to,  the  risks of  uncertainty  of  patent  protection,  the  risks of
uncertainty  of  strategic  alliances,  the  impact  of  third-party  suppliers,
manufacturing  constraints or difficulties,  market acceptance of and demand for
the Company's  products and resulting  revenues,  development  of technology and
manufacturing   capabilities,   impact  of  competitive  products  and  pricing,
litigation  and other  risks  detailed in this  report and the  Company's  other
filings  with  the  Securities  and  Exchange  Commission.  The  words  "looking
forward,"   "believe,"    "demonstrate,"    "intend,"   "expect,"    "estimate,"
"anticipate,"   "likely"  and  similar  expressions   identify   forward-looking
statements.  Readers  are  cautioned  not  to  place  undue  reliance  on  these
forward-looking  statements,  which speak only as of the date the  statement was
made.

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

A2 (4-up)                          a printing term referring to a standard paper
                                   size  capable  of  printing  four  8.5" x 11"
                                   pages on a sheet of paper

A3 (2-up)                          a printing term referring to a standard paper
                                   size capable of printing two 8.5" x 11" pages
                                   on a sheet of paper

Ablation                           a controlled  detachment/vaporization  caused
                                   by a  thermal  event.  This  process  is used
                                   during   the   imaging   of   the   Company's
                                   PEARL(R)consumables

Computer-to-plate (CTP),           a general  term  referring to the exposure of
(direct-to-plate)                  lithographic  plate  material  from a digital
                                   database, off-press

Dampening solution                 Traditional  lithographic  printing  chemical
                                   bath  used to coat the  non-image  areas of a
                                   printing plate

Direct Imaging (DI(R))             Digital  imaging  systems  that  allow  image
                                   information  technologies  carriers (film and
                                   plates) to be imaged from a digital database,
                                   on- and off-press

Dots per inch (dpi)                a measurement  of the resolving  power or the
                                   addressability of an imaging device

Effluents                          waste  materials that flow from  photographic
                                   processing  equipment,  which are often toxic
                                   in nature

GTO-DI                             the  first   generation  of  direct  imaging,
                                   waterless  presses available in two, four and
                                   five printing station configurations, a joint
                                   effort between Heidelberg and Presstek

Halftone                           a   printing   reproduction   process   which
                                   converts the image into dots of various sizes
                                   and equal spacing between centers

Heidelberg                         Heidelberger  Druckmaschinen  AG, the world's
                                   largest    printing    press    manufacturer,
                                   headquartered in Heidelberg, Germany

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Hydrophobic/                       used in  lithographic  printing  to  describe
Hydrophilic                        whether  a   material   will   reject   water
                                   (hydrophobic)  or  will  be  water  receptive
                                   (hydrophilic)

Infrared                           lying outside of the visible  spectrum beyond
                                   its   red-end    characterized    by   longer
                                   wavelengths;  used in the  Company's  thermal
                                   imaging process

Large Format                       a printing term referring to printing layouts
                                   that  include  four or more pages on a single
                                   sheet of paper

Lithographic                       printing  from a single plane  surface  under
                                   the principle that image area carries ink and
                                   the nonimage  area does not, and that ink and
                                   water do not mix

Off-press                          Making a printing plate from either an analog
                                   or digital source  independently of the press
                                   on which it will be used

Oleophilic/                        used  in  printing  to  describe   whether  a
Oleophobic                         material will be ink  receptive  (oleophilic)
                                   or reject ink (oleophobic)

On-demand                          a  manufacturing  philosophy  when applied to
                                   printing provides faster service, shorter run
                                   lengths and less inventory

On-press                           the   use  of   Presstek's   direct   imaging
                                   technologies  to make a plate directly from a
                                   digital file on the press

PEARL(R)                           the name associated  with Presstek's  current
                                   laser   imaging   technologies   and  related
                                   products and consumables

PEARL imaging systems              the Presstek components required to convert a
                                   conventional  printing  press  into a  direct
                                   imaging press,  including laser diode arrays,
                                   computers, electronics

PEARLsetter(TM)/Dimension400(TM)   the  Company's  product line of  computer-to-
PEARLhdp(TM)                       plate,  off-press  plate  making and  digital
                                   proofing equipment

Photosensitive                     silver halide emulsions exposed by a reaction
                                   to  light  requiring  a  subsequent  chemical
                                   development and stabilization process

Plate making                       the process of applying a printable  image to
                                   a printing plate

Prepress                           Graphic  arts  operations  and  methodologies
                                   that  occur  prior to the  printing  process;
                                   typically    these    include    photography,
                                   scanning,  image assembly,  color correction,
                                   exposure  of  image   carriers  (film  and/or
                                   plate), proofing

Proofer/proof                      a machine  that  creates  an image  that is a
                                   simulation  of what will be  printed,  or the
                                   simulated image itself.

Quickmaster DI                     the  second  generation  of  direct  imaging,
                                   waterless  presses,   highly  automated  with
                                   roll-fed  PEARL  plate   material,   a  joint
                                   development  effort  between  Heidelberg  and
                                   Presstek

Semiconductor laser diode          a high-powered,  infrared imaging  technology
                                   employed in the PEARL imaging system

Short-run markets/printing         a graphic arts  classification used to denote
                                   an emerging trend for lower print quantities

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Thermally-based                    a method of digitally exposing a material via
                                   the heat generated from a laser beam

Vapor 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 so that it
                                   does not require a dampening system

"YAG" laser                        one of the more  commonly  used laser sources
                                   for direct-to-plate imaging systems

General

     Presstek, Inc. (the "Company" or "Presstek"), incorporated in Delaware, was
founded in September 1987 as a development  company to find a new way to produce
color offset  printing.  This new printing  method would take full  advantage of
computer  based,  electronic  prepress  processes  which were  rapidly  becoming
available and expedite the design, image manipulation, page assembly and related
aspects used to produce high quality color pages in a totally digital manner. At
that time,  digitally  created pages could not be easily  converted to finished,
four or more color offset  printed pages.  The process used involved  costly and
time  consuming  methods  including the use of specialized  photosensitive  film
recording  systems and related  plate  exposure  devices  along with the need to
chemically  process  these   photosensitive   analog  films  and  plates.  These
photographically  based methods generated waste effluents that were difficult to
dispose of in an environmentally  sound manner.  The Company's  objective was to
eliminate these non-digital  processes and develop a new system that would allow
digitally  formatted  file  data  to be used to  image a plate  directly  on the
printing press. This would reduce cost,  eliminate the time it normally takes to
make films and plates,  and improve the quality of the finished  printed  offset
page.

     The Company's  development work ultimately led to the  commercialization of
its proprietary  PEARL(R) based direct imaging  technology.  This direct imaging
technology,  which uses high  powered  semiconductor  laser  diodes and  thermal
ablation printing plate materials,  is currently being used in a variety of both
on-press and off-press applications. The Company has also recently developed its
next-generation  DI(R) technology,  the ProFire(TM)  integrated  imaging system.
With  ProFire,  the  Company  has  developed  a highly  advanced  laser  imaging
technology  combining  all the  components  of a thermal  imager in one  compact
package.  The Company  believes that both PEARL and DI represent a technological
breakthrough for the worldwide printing and publishing industry,  since they can
be used for both on-press and off-press applications. This capability provides a
number of new  applications  for direct imaging systems and proprietary  thermal
based  digital  media  and  consumable   printing  plates.  The  Company's  past
investments in its  proprietary  digital imaging  technologies  have resulted in
more than 160 patents issued or allowed and 160 applications  pending throughout
the world. The Company believes these patents, together with its twelve years of
experience  in  developing  digital  imaging  systems  place  the  Company  in a
significant  position  in the  markets  it  has  chosen  to  serve.  To  further
strengthen  its patent  portfolio,  the Company  acquired R/H  Consulting,  Inc.
("R/H") in 1999 and Heath Custom Press, Inc. ("Heath") in 1998. See "Patents and
Proprietary Rights".

     The Company  discontinued the operations of its Delta V Technologies,  Inc.
("Delta V") subsidiary at the end of fiscal 1999 to allow the Company to further
focus  its  efforts  on  the  core   business  of  digital   imaging  and  plate
manufacturing.   Located  in  Tucson,  Arizona,  Delta  V  was  engaged  in  the
development,  manufacture and sale of vacuum  deposition  coating  equipment for
vacuum  coating  applications.  As a result of the  divestiture  of Delta V, the
Company incurred a $8.5 million loss on disposal of discontinued  operations for
fiscal 1999. This included actual closing costs and operating losses incurred in
the fourth  quarter of fiscal 1999 of $2.2 million,  a provision of $1.6 million
for anticipated closing costs, $6.1 million related to the write off of goodwill
and other  intangible  assets,  and a reduction  in other  asset  values of $1.6
million.  These costs were partially offset by proceeds of $3.0 million received
from Minnesota  Mining and  Manufacturing  Co. ("3M"),  for the licensing of its
intellectual   property   relating  to   vacuum-deposited   polymer   multilayer
technology.

                                       4

<PAGE>

Strategy, Background, and Important Relationships

     The  Company's  business  strategy  is  based  in  part  on  alliances  and
relationships  with major  companies  in the  graphic  arts  industry  and other
markets. This strategy includes licensing the intellectual property; specialized
product  development based on the Company's  proprietary  technologies;  and the
manufacture of imaging systems for inclusion in other  manufacturers'  products.
The  manufacture  of the Company's own end user and private label  products,  as
well as the  manufacture  of  proprietary  thermal  plate  materials  for use in
Presstek's and other  manufacturers'  imaging hardware and printing presses,  is
also an important aspect of the business strategy.

     This  strategy  led  to  the  development  of an  important  and  long-term
relationship with Heidelberger  Druckmaschinen  AG  ("Heidelberg"),  the world's
largest  manufacturer  of printing  presses  and  printing  equipment,  based in
Germany. This relationship was formalized with the signing of a Master Agreement
and a Technology  License  Agreement in January 1991.  The Master  Agreement and
Technology License Agreement are sometimes collectively referred to hereafter as
the "Heidelberg Agreements."

The Heidelberg Agreements

     The Heidelberg Agreements and amendments govern the Company's  relationship
with  Heidelberg  and  relate to the  integration  of the PEARL  Direct  Imaging
technology into various presses  manufactured by Heidelberg.  The manufacture of
components,  at specified rates, for such presses and the  commercialization  of
such presses are also covered.

     The Heidelberg  Agreements expire in December 2011 subject to certain early
termination and extension provisions. Under these agreements,  Heidelberg agreed
to pay  royalties  to the  Company  based on the net  sales  prices  of  various
specified  types of  Heidelberg  presses  on which the  Company's  PEARL  Direct
Imaging  technology  would  be  used.  Pursuant  to the  Heidelberg  Agreements,
Heidelberg has been provided with certain  exclusive rights for use of the PEARL
Direct  Imaging  technology  for the  Quickmaster  DI format  size.  The  Master
Agreement has also been modified to provide Heidelberg with a fixed royalty rate
for the Company's PEARL Direct Imaging systems used in the Quickmaster DI.

     In fiscal 1998 and 1999 the Company materially reduced production levels of
direct imaging systems used in the  Quickmaster DI press,  based on requirements
from  Heidelberg.  The Company received orders in fiscal 1999 from Heidelberg in
connection  with its direct imaging systems used in the Quickmaster DI. Based on
the delivery  schedule for these orders,  the Company  resumed  production  with
initial low level  shipments  of its direct  imaging  systems  late in the third
quarter of fiscal 1999. The Company  expects to continue  shipments  through the
end of fiscal 2000. Additionally, the Company believes production levels through
the end of fiscal 2000 will increase in line with the actual rate of Quickmaster
DI's made by Heidelberg.

Other Business Relationships

     In  addition  to its  association  with  Heidelberg,  the  Company has also
developed  and  expanded  business  relationships  with other  companies  in the
industry.  Certain of these relationships involve proposed new products that the
Company  believes  may  be  available  late  in  fiscal  2000.  There  can be no
assurance,  however  that these  products  will be  commercially  successful  or
produce significant revenues for the Company.

     Adamovske  Strojirny a.s. ("Adast"),  a Czech Republic company,  which uses
the  Company's  direct  imaging  technology  on a  larger  format  (19"  x  26")
multicolor  offset press,  has  announced,  together with the Company,  a highly
automated,  two-page  direct  imaging  printing  press.  This press will use the
Company's internal automated plate cylinder design and PEARLdry Plus plates.

     Imation  Corp.  ("Imation")  and the Company have  jointly  developed a new
method for the  production  of true  halftone  "dot for dot" color  proofs using
Presstek's   computer-to-plate  imaging  system,  the  PEARLhdp(TM),   specially
modified for this  application.  Imation is also now  marketing the PEARLhdp and
providing all sales support and service worldwide.

                                       5

<PAGE>

     Fuji Photo Film Ltd., ("Fuji"), one of the world's leading suppliers to the
graphic communications industry, announced with the Company in 1997, the signing
of a long-range  Development  and Sales  Agreement which will involve the use of
the  Company's  proprietary  intellectual  property,  and the sale of Presstek's
off-press CTP imagers and PEARLgold(TM) plates in Japan.

     The Company has entered into an agreement with Sakurai's Graphic Systems of
Japan  ("Sakurai")  to provide  the  newest  version  of its DI  technology  for
Sakurai's  larger format  multicolor  offset press.  When used in DI mode,  this
press will also use the Company's PEARLgold plate media.

     Presstek  and Akiyama  Printing  Machinery  Manufacturing  Corp.,  of Japan
("Akiyama"),  have also jointly  announced a development  program to create a DI
version of Akiyama's J Print press for the book printing market. The new J Print
press will  incorporate  the  Company's  direct  imaging and digital plate media
technologies.

     Scitex  Corporation  Limited  ("Scitex"),  a leading supplier of electronic
pre-press  products and systems,  along with KBA-Planeta AG, a major supplier of
medium and large format sheet-fed offset printing  presses,  established a joint
venture to  develop,  produce and market a new digital  offset  press.  This new
press, the 74 Karat uses the Company's  direct imaging and related  intellectual
property under license from Presstek,  and Presstek's  patented thermal ablation
printing plates.

     Nilpeter  A/S  ("Nilpeter"),  of Denmark is marketing an offset label press
that utilizes the Company's digital imaging technology and printing plates.

     Alcoa Packaging  Equipment,  a division of the Aluminum Company of America,
("Alcoa"),  has  publicly  shown a new  method of  printing  halftone  images on
beverage cans that is based on Presstek's digital imaging technology and thermal
ablation printing plates.

     The Company  also signed a  non-binding  agreement  with Xerox  Corporation
("Xerox"), to form a strategic alliance. The potential alliance, if consummated,
is expected to result in the interface of the Xerox DigiPath(TM)  workflows with
the Company's digitally based products.  There can be no assurance however, that
a formal strategic alliance with Xerox will be achieved.

     The  Company is  pursuing  other  business  relationships  that it believes
should result in broader use of the Company's digital imaging and printing plate
technologies  in  existing,  as  well  as,  new  applications.  There  can be no
assurance,  however,  that the  Company,  any  Company  product or any  products
incorporating the Company's  technology will be able to compete  successfully in
the market.

     The Company has also established a worldwide  distribution  network through
which it markets,  sells and supports its  computer-to-plate  and PEARL  thermal
plate products.  This network currently encompasses 34 dealers located worldwide
and includes the largest  graphic arts dealer in the United  States,  the Pitman
Company,  which  sells  its  products  through  multiple  branch  locations.  In
addition,  Fuji Graphic Systems Canada is the Company's exclusive dealer for its
products in Canada.

The Company's PEARL and DI Digital Imaging Systems and Their Manufacture

     The Company's PEARL digital imaging system is composed of a series of solid
state  semiconductor  laser diodes held in a fixed array that can range in size,
depending on the  application,  from as few as 8 diodes to as many as 32 or more
diodes.  Each diode is under  computer  control  and can be turned off and on at
high speeds,  usually measured in  microseconds.  When the diode is turned on it
creates a miniature,  precise,  micron-measured  beam of high powered,  infrared
laser  light.  The beam is  focused  on a  specific  area on the  surface of the
thermal  printing plate causing this area of the plate to  instantaneously  heat
up, creating an ablation  effect and producing a microscopic  hole. This hole on
the surface of the printing plate is ink  receptive.  The area  surrounding  the
hole that has not been  exposed to the laser  beam is not,  thus an image can be
created by  controlling  the  placement  of each laser  beam.  This  laser-based
imaging   concept  is  used  on  both  the   Company's   computer-to-press   and
computer-to-plate systems.

     The Company's most recent laser imaging technology, ProFire, integrates the
lasers,  laser drivers,  digital  electronics,  and motion control into a single
package design that can be adapted to many computer-to-

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plate devices or direct imaging presses. ProFire has three major components: the
FirePower(TM)  laser diode system,  made up of unique four-beam laser diodes and
laser drivers,  the integrated  motion system that controls the placement of the
laser diodes, and the  FireStation(TM)  digital controller and data server. This
highly  modular system allows the Company to expand the number of diodes mounted
on a fixed array,  increasing speed and overall imaging performance.  Due to its
compact size, the integrated  imaging  module fits  universally  within the side
rails  of  most  printing  presses.  The  drop-in  module  is also  more  easily
incorporated into computer-to-plate products for off-press imaging.

     The  manufacturing  of these  imaging  systems  has  recently  moved to the
Company's 55 Executive Drive facility located in Hudson, New Hampshire.

     The Company uses a number of outside vendors who supply many of the imaging
system's  components  and  assemblies.   These  assemblies  and  components  are
manufactured  and  assembled  by the  Company  into  completed  systems - either
computer-to-press, direct imaging systems such as the Quickmaster DI systems, or
PEARLsetter(TM)  computer-to-plate  imaging  systems.  Both of these systems use
semiconductor  laser diode  devices built to the  Company's  specifications  and
currently  supplied by one source  pursuant to a supply  agreement.  The Company
believes  however,  that there are several sources  available to manufacture the
laser diodes to its specifications, if required in the future.

The Company's PEARL Digital Media and Plates and Their Manufacture

     The Company continues to develop its proprietary thermally-based consumable
plate products that are imaged by both its own direct imaging systems as well as
high-energy  laser-based,  computer-to-plate and direct-to-press systems offered
by companies such as Scitex, Creo and others.

     The  Company's  PEARL  digital  media and plates are available in waterless
form,  such as PEARLdry(TM)  Plus for the Quickmaster DI,  PEARLgold for presses
equipped with dampening systems, or Anthem(TM), the Company's recently announced
thermal plate for  computer-to-plate  imaging.  All of these plates are based on
the Company's proprietary thermal ablation imaging technology,  which means they
respond to heat and not to light.  Presstek's  plates  are able to  convert  the
laser light into heat because of a special  metalized layer that is sensitive to
the wave length of the laser light source.  The Company's plate materials have a
wide infrared  spectral  sensitivity  range (800 to 1200  nanometers) and can be
used with a variety of both "YAG" and semiconductor diode laser imaging systems.

     The  Company's  latest  plate  technology,  Anthem,  is  the  first  in  an
anticipated  family of plates  for wet offset  lithography.  Anthem is a grained
anodized  aluminum  plate based on Presstek's  patented  imaging  technology and
combines ablative imaging and chemically-free cleaning with run lengths of up to
100,000  impressions.  The  Anthem  plate  runs  with a wide  range of  fountain
chemistry and inks and can be imaged on many thermal computer-to-plate  systems.
Anthem's  market  includes a broad  base of  installed  conventional  wet offset
presses,  currently the largest  segment of the printing  industry.  The Company
believes  this wet offset plate  product has broad market  potential  due to the
large number of wet offset  printing  presses  installed  on a worldwide  basis.
There  can be no  assurance,  however  that  printers  currently  equipped  with
conventional wet offset presses will purchase computer-to-plate systems that use
Anthem plates.

     PEARLgold is a first generation plate for wet, lithographic offset printing
specifically  targeted  to the  short-run,  color  market.  It  requires no post
imaging cleaning or chemical processing. PEARLgold is an ablation based printing
plate using a metalized infrared absorbing material with an additional metalized
layer  placed  over the  infrared  absorber.  This  additional  metal layer is a
hydrophilic material and ink will not adhere to it (ink, which is oil based, and
water do not mix) but ink will adhere to those areas of the plate that have been
ablated  away by the laser  beam thus  forming a  printable  image.  The  market
opportunity  for the first  generation  PEARLgold  plate is limited to short-run
(25,000 impressions or less) applications and may require modifications of press
conditions to accommodate the  characteristics of this unique,  no-process plate
technology.  The Company is  continuing  to develop this plate and believes that
future  generations of PEARLgold  will be suitable for use in markets  requiring
longer run lengths.  Although,  the Company believes it can compete successfully
in this newly developing market, there can be no assurances that it can do so.

     The  PEARLdry  Plus is a second  generation  plate  based on the  Company's
PEARLdry  technology.  The  PEARLdry  Plus  plate  uses a  specially  formulated
silicone material that is coated over the metalized infrared

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absorbing  layer.  The silicone  layer is oleophobic  and when the imaging laser
causes the ablation process to occur, the resulting hole created by the laser in
the silicone becomes ink receptive.  Presstek's PEARLdry Plus plates are used in
the Quickmaster DI, the GTO-DI,  the Adast 705C DI, the Scitex/KBA 74 Karat, the
Alcoa can  decorating  imaging system and the Kammann CD Imaging  system.  Other
direct-to-plate systems also are able to image the Company's PEARLdry Plus plate
that can then be used on a conventional waterless press.

     The  Company's  PEARL  digital  plate  products  are  manufactured  at  the
Company's facility located at 55 Executive Drive in Hudson, New Hampshire.  This
building now includes the Company's thin film vacuum  sputtering  coater,  plate
converting and finishing  equipment,  and the new  atmospheric  coater which the
Company expects will be operational in the first half of 2000. The Company's new
Anthem thermal plate is currently  manufactured  by one source under an existing
supply agreement.

     The  Company  may still need to enter into  manufacturing  agreements  with
third parties as it more vertically  integrates the  manufacturing  of its PEARL
digital  plate  products,  and  believes  there  currently  are several  sources
available to manufacture these consumable products.

The PEARLsetter Product Line

     The PEARLsetter is a  computer-to-plate  imaging device that can image both
the  Company's  wet and dry  thermal  offset  plates in both an A3 (2-up) and A2
(4-up) format size. The product can produce  completely  imaged printing plates,
ready to be mounted on a printing press, within 4 to 8 minutes, depending on the
resolution  (number of dots per inch) chosen by the user. If the  PEARLsetter is
imaging PEARLgold plates,  these plates can be mounted  immediately on the press
with no further cleaning or processing. In the case of PEARLdry plates, the user
must first wipe the ablated  debris from the imaging  process off the surface of
the plate.  Anthem  plates  require a simple water wash after imaging to prepare
the plate for mounting on the press.

     The Company  has  recently  announced  the first in a series of new thermal
computer-to-plate  devices,  the  Dimension400(TM).  The  Dimension400  utilizes
Presstek's  next-generation  direct imaging  technology.  The Dimension400  will
image most thermal plates including the Company's own Anthem thermal plate.

     In addition to making printing  plates,  a specially  modified  PEARLsetter
product  referred to as the  PEARLhdp  (halftone  digital  proofer),  which uses
proofing  materials  supplied  by  Imation  is also  being  manufactured  by the
Company.  This  halftone  proofing  system  offers the user the  ability to make
proofs that  replicate the dot  structure  used for imaging  plates.  Imation is
currently marketing this product.

     The Company has entered into  distribution  agreements with 34 graphic arts
dealers to sell,  support and service its products in various  countries  around
the world.  The Company has also entered into  Original  Equipment  Manufacturer
("OEM")  arrangements or reseller  relationships with respect to the PEARLsetter
product line and/or its PEARL based  consumable  products with companies such as
Sakurai  Machinery  Company and Fuji Photo Film Co. Ltd. These agreements permit
the OEM resellers to sell the PEARL based products under their own label.

     The Company  continues to develop and  commercialize its PEARL and DI based
computer-to-plate  and  Imation  proofing  systems.  However,  there  can  be no
assurance   that  the  Company  will  be  able  to   successfully   complete  or
commercialize these or other products, or enter into any additional arrangements
which will  result in the further  commercialization  of its  PEARLsetter  based
product line.

     Market  acceptance  for any products  incorporating  the Company's  various
technologies and proprietary know-how will require substantial marketing efforts
and the  expenditure  of  significant  sums,  either by the Company,  and/or its
strategic and OEM partners.  There can be no assurance  that any existing or new
products will achieve market acceptance or be commercially viable.

Patents, Trademarks and Proprietary Rights

     As of March 10, 2000, the Company and its  subsidiaries  hold  eighty-seven
U.S. patents, (including three design patents), of which the Company has elected
to maintain  sixty-seven in force.  The Company has also been issued  fifty-four
foreign patents, and has received notice of allowance, for twenty-one additional

                                       8

<PAGE>

patents consisting of six U.S. and fifteen foreign.  The Company has applied for
and is pursuing its applications for twenty-four additional U.S. patents and one
hundred  thirty-nine  foreign  patents.  The Company  also holds two  registered
trademarks,  PEARL  and DI.  The  Company  anticipates  that it will  apply  for
additional patents, trademarks, and copyrights, as deemed appropriate. There can
be no  assurance as to the issuance of any such patents or the breadth or degree
of protection which the Company's  patents or copyrights may afford the Company.
There is rapid technological  development in the computer and image reproduction
industries,  resulting in extensive  patent filings and a rapid rate of issuance
of new  patents.  Although the Company  believes  that its  technology  has been
independently developed, and that the products it markets and proposes to market
will not infringe on the patents, or violate other proprietary rights of others,
it is  possible  that  such  infringement  of  existing  or future  patents,  or
violation  of  proprietary  rights may occur.  In such event the  Company may be
required  to modify its design or obtain a license.  No  assurance  can be given
that the Company will be able to do so in a timely manner, upon acceptable terms
and  conditions,  or at all. The failure to do any of the foregoing could have a
material adverse effect on the Company.  Furthermore,  there can be no assurance
that the  Company  will  have the  financial  or other  resources  necessary  to
successfully  defend a  patent  infringement  or  proprietary  rights  violation
action.  Moreover, the Company may be unable, for financial or other reasons, to
enforce its rights under any of its patents.

     The Company  intends to rely on proprietary  know-how and to employ various
methods to protect its source code,  concepts,  ideas and  documentation  of its
proprietary  software,  which  methods may  include  copyrights.  However,  such
methods may not afford  complete  protection  and there can be no assurance that
others will not  independently  develop  such  know-how or obtain  access to the
Company's  know-how  or  software  codes,  concepts,  ideas  and  documentation.
Furthermore,  although  the  Company  has and  expects  to have  confidentiality
agreements with its employees and appropriate vendors, there can be no assurance
that such arrangements will adequately protect the Company's trade secrets.

Competition

     The Company believes that its imaging, thermal plate and other intellectual
property,  its  proprietary   technologies,   its  thermal  plate  manufacturing
facilities,  along  with its  strategic  alliances  and  worldwide  distribution
network, provide the Company with a competitive advantage.  However, the Company
is also  aware of a number of other  companies  that  address  markets  in which
Presstek  products are used, and are  competitive  to the Company's  proprietary
direct imaging, thermal plate technologies and related capabilities.

     In the  area  of  direct  imaging  and  the  short-run,  on-demand  market,
potential competitive companies use  electrophotographic  technology,  sometimes
referred to as xerography,  as the basis of their product lines. These companies
include,  among  others,  Canon  Inc.,  Indigo  N.V.,  Xeikon  N.V.,  and  Xerox
Corporation.  Agfa Gevaert N.V, IBM, and Scitex are marketing  product  versions
manufactured by these companies.  These electrophotographic  imaging systems use
either  wet or dry  toners  to  create  one to four  color  images  on paper and
typically offer resolutions of between 400 and 800 dots per inch.

     The Company is aware that most of the major  entities  in the graphic  arts
industry  have  developed   and/or  are   developing  and  marketing   off-press
computer-to-plate  imaging systems.  To date, these devices,  for the most part,
utilize  printing  plates that require a post imaging  photochemical  developing
step  and/or  other  post  processing  steps such as heat  treatment.  Potential
competitors in this area include, among others, Agfa Gevaert N.V., Creo Products
Inc., DaiNippon Screen Mfg, Ltd.,  Heidelberger  Druckmaschinen AG, Krause GmbH,
Scitex Corporation Ltd.,  combinations of these companies,  and other smaller or
lesser known companies. The Company's PEARLsetter  computer-to-plate,  off-press
plate  imaging  system is, in the  Company's  opinion,  a further  technological
advancement  because it eliminates  the need for post chemical  processing.  The
Company  believes  however,  that some of the graphic arts  companies  mentioned
above are likely to be working on similar plate  concepts  that would  eliminate
the need for post image chemical processing.

     The Company also anticipates  competition from printing plate manufacturing
companies  that  manufacture,  or have the  potential  to  manufacture,  digital
thermal  plates.  Such  companies  include Agfa Gevaert N.V.,  Kodak  Polychrome
Graphics LLC, Fuji Photo Film Co., Ltd., and others.

     Products  incorporating the Company's  technologies can also be expected to
face competition  from  conventional  methods of printing and creating  printing
plates. While these methods are considered by the

                                       9

<PAGE>

Company  to be more  costly,  less  efficient  and  are  not as  environmentally
conscious as those being  implemented by the Company,  they do offer their users
the  ability  to  continue  to employ  their  existing  means of print and plate
production. Companies offering these more traditional means and methods are also
refining these technologies to make them more acceptable to the market.

     Most of the companies marketing  competitive products or with the potential
to do so are well established,  have  substantially  greater financial and other
resources than the Company,  and have  established  records in the  development,
sale and service of products.  There can be no assurance  that the Company,  any
Company product or any products  incorporating the Company's  technology will be
able to compete successfully in the future.

Research and Development

     Research and product development expenses were $17.7 million, $15.4 million
and $10.7  million in fiscal 1999,  1998 and 1997  respectively,  related to the
Company's  continued  development  of  products  incorporating  its PEARL and DI
technologies.

Backlog

     As of March 10,  2000,  the Company and its  subsidiaries  had a backlog of
products and royalties under contract  aggregating  approximately  $19.3 million
compared  to a backlog of  approximately  $21.6  million  as of March 11,  1999.
Substantially  all  backlog of products as of March 10, 2000 is expected to ship
in 2000.

Employees

     As of March 10,  2000,  the  Company and its  subsidiaries  had two hundred
fifty-five   employees.   One  hundred  twenty-five  are  engaged  primarily  in
engineering,  research and development,  service and marketing;  ninety-four are
engaged  primarily  in  manufacturing,  manufacturing  engineering  and  quality
control;  and  thirty  six  are  engaged  primarily  in  corporate   management,
administration  and finance.  The Company  considers its  relationship  with its
employees to be good.

Item 2. Properties.

     The Company is located in three facilities in Hudson, New Hampshire.

     The  Company  leases  approximately  36,000  square  feet of  property at 9
Commercial  Street.  The Company's  corporate  offices and marketing  operations
occupy  18,000  square  feet,  6,000  square feet are being  utilized as general
warehouse  space,  and the  Company is  subleasing  12,000  square  feet of this
facility. The lease specifies a base monthly rent of $15,281, adjusted annually,
plus a pro  rata  share of real  estate  taxes,  utilities,  and  certain  other
expenses.  The lease expires on June 30, 2000, subject to an option to renew for
an additional  three years and the Company's  right of first refusal to purchase
the property.  The Company expects to relocate these operations to its corporate
headquarters at 55 Executive Drive, Hudson, NH.

     The Company also leases  approximately 50,000 square feet of property at 18
Hampshire Drive. This facility houses the consumables and equipment research and
development  groups.  The lease of these  premises,  which  expires in May 2001,
provides for rent at the rate of $16,667 per month,  adjusted  annually,  plus a
pro rata share of real estate taxes, utilities,  and certain other expenses. The
Company is currently negotiating to extend the lease for two additional years.

     The Company leases certain other property in Hudson, New Hampshire which is
not considered to be material.

     The Company's equipment and consumable product manufacturing operations are
located in a 100,000  square foot  facility  at 55  Executive  Drive,  which the
Company  owns.  The  Company  began  construction  of the  second  phase of this
facility in February 2000. This  additional  facility will include the Company's
corporate  offices,  sales  and  marketing  facilities,  as well  as  additional
manufacturing facilities for its manufacture of its digital media and consumable
products.

                                       10

<PAGE>

     The Company owns a 70,000 square foot facility in Tucson, Arizona, which is
currently  available for sale. This facility previously housed the manufacturing
operations  of Delta V. The Company  discontinued  the  operations of Delta V in
fiscal 1999.

     The Company's properties at 55 Executive Drive in Hudson, New Hampshire and
Tucson,  Arizona  with an  aggregate  cost of $17.0  million  are  secured  by a
ten-year mortgage term loan in the principal amount of $6.9 million.

Item 3. Legal Proceedings.

     As previously  disclosed,  seven  federal class action  lawsuits were filed
against the Company and others,  all of which have been consolidated  before the
United  States  District  Court,  District  of New  Hampshire,  under the common
caption Bill Berke, et al. V. Presstek, Inc., et al. The plaintiffs have jointly
filed and served a Second Consolidated Amended Class Action Complaint naming the
Company,  certain of its present or former  officers and  directors  ("the Berke
Officer  and  Director  Defendants"),  and  other  parties  as  defendants.  The
plaintiffs allege, among other things, that the Company and/or the Berke Officer
and Director Defendants violated Section 10(b) ("Sect. 10(b)") of the Securities
Exchange  Act of 1934,  (the  "Exchange  Act")  and Rule  10b-5  ("Rule  10b-5")
promulgated  thereunder,  and  violated  New  Hampshire  law; and that the Berke
Officer and Director Defendants  violated Section 20(a) ("Sect.  20(a)") Section
20A of the Exchange Act. The  Complaint  alleges,  among other things,  that the
Company  and/or the Berke  Officer  and  Director  Defendants  issued  false and
misleading  reports,  failed to disclose material facts including a misstatement
of earnings in the Company's  financial  statements  for the first quarter ended
March 30, 1996,  misstated  or failed to fully  disclose  the  Company's  supply
contracts  with,  payments  received  from,  sales  made by,  backlog  of orders
received from, and delays in production by the Company's principal customer, the
alleged  circulation of, and alleged failure to correct certain research reports
concerning  the Company  that  contained  alleged  misrepresentations  regarding
allegedly  inflated  financial  projections  and the alleged failure to properly
disclose the scope of an investigation by the Securities and Exchange Commission
("SEC").  Certain of the Berke  Officer and Director  Defendants  are alleged to
have sold the Company's  common stock at  artificially  inflated prices while in
possession  of material  non-public  information  concerning  the  Company.  The
plaintiffs seek  unspecified  compensatory  and punitive  damages,  attorney and
expert  fees  and  other  costs  and  expenses  incurred  by the  plaintiffs  in
connection with the action.

     On March 30, 1999 the United States  District Court for the District of New
Hampshire  issued orders  dismissing  several of the claims brought  against the
Company and others in the Berke lawsuit.

     As previously  disclosed,  on July 16, 1996,  Richard  Strauss  commenced a
derivative  suit on behalf of the  Company in the Court of Chancery of the State
of Delaware,  New Castle County,  against certain  officers and directors of the
Company ("the Strauss Officer and Director  Defendants").  The plaintiff alleges
that the Strauss Officer and Director Defendants breached their fiduciary duties
to the Company  and its public  stockholders  and wasted  corporate  assets,  by
making allegedly false and misleading  statements of fact or concealing material
facts concerning the viability of the Company's "key" patent and its proprietary
interest  in its PEARL  technology,  causing  the  Company  to fail to  properly
disclose  the scope of an  investigation  by the SEC, and causing the Company to
misstate its financial results for the first quarter of 1996. The plaintiff also
alleges  that  certain of the  Strauss  Officer  and  Director  Defendants  sold
securities  of the Company at inflated  prices while they were in  possession of
material non-public  information  concerning the Company.  The plaintiff alleges
that the actions of the Officer and Director  Defendants resulted in breaches of
Sect.  10(b) and Rule 10b-5 which  resulted in other  lawsuits  being  commenced
against  the Company  which will  require  the  Company to expend  resources  to
defend.  The plaintiff seeks to recover,  on behalf of the Company,  unspecified
damages  allegedly  sustained  by the  Company  as a result  of the  defendants'
alleged  breaches of fiduciary  duty,  disgorgement  of any profits derived from
their sale of the Company's  common stock, as well as other relief.  This action
had been stayed pending the outcome of the Berke action.

                                       11

<PAGE>


     As previously  disclosed,  on March 14, 1997, James P. Cassidy  commenced a
derivative suit on behalf of the Company in the United States District Court for
the District of New Hampshire  against,  among others,  certain of the Company's
officers and directors  (the  "Cassidy  Officer and Director  Defendants").  The
plaintiff  alleges  that the Cassidy  Officer and Director  Defendants  breached
their  fiduciary  duty to the  Company  and its public  stockholders  and wasted
corporate assets by making false and misleading statements of fact or concealing
material facts concerning the scope and viability of the Company's "key" patents
and its proprietary interest in its PEARL technology, and causing the Company to
issue  false and  misleading  reports  or  failure to  disclose  material  facts
including a misstatement of earnings in the Company's  financial  statements for
the year ended  December 30,  1995,  and for the first  quarter  ended March 30,
1996.  The  plaintiff  also  alleges  that  certain of the  Cassidy  Officer and
Director Defendants sold securities of the Company at inflated prices while they
were in possession of material  non-public  information  concerning the Company.
The plaintiff also alleges that the actions of the Cassidy  Officer and Director
Defendants  resulted in breaches of Sect. 10(b) and Rule 10b-5 which resulted in
other  lawsuits  being  commenced  against  the Company  which will  require the
Company to expend resources to defend, and also constituted gross negligence and
breaches of their contractual obligations to the Company. The plaintiff seeks to
recover on behalf of the Company  unspecified damages allegedly sustained by the
Company as a result of the Defendants'  actions as alleged,  disgorgement of any
profits from the sale of the  Company's  common  stock,  as well as other relief
against the defendants.

     As  previously  disclosed,  on  June  16,  1997,  Seena  Stevens  Silverman
commenced a purported  class action in the United States  District Court for the
District of New Hampshire  against the Company and certain of its present and/or
former officers and directors (the "Silverman Officer and Director Defendants"),
and other  parties.  The plaintiff  purports to bring this action on behalf of a
class of persons who sold put options in the common stock of the Company between
November 7, 1995 and June 20, 1996. The complaint  alleges,  among other things,
that the Company and/or the Silverman Officer and Director  Defendants  violated
Sect.  10(b) and Rule  10b-5,  and  violated  New  Hampshire  law;  and that the
Silverman  Officer and Director  Defendants  violated Sect. 20(a). The plaintiff
alleges that the defendants defrauded the putative class members by manipulating
the price and supply of the Company's common stock, issuing false and misleading
statements  regarding the nature of the Company's  proprietary PEARL technology,
failing to disclose  the true depth and target of an  investigation  by the SEC,
and making  misleading  statements  regarding the Company's  claims to its PEARL
technology and its contract with the Company's principal customer. The plaintiff
also alleges that certain of the Silverman Officer and Director  Defendants sold
securities  of the Company at inflated  prices while they were in  possession of
material non-public  information  concerning the Company. The plaintiff seeks to
recover unspecified  compensatory and punitive damages on behalf of the putative
class, as well other relief.

     The Company has recently  entered into an agreement  with the plaintiffs to
settle the class action lawsuit,  and has executed a memorandum of understanding
with respect to settlement of the derivative  law suits.  Under the terms of the
class action settlement,  $22.0 million,  in the form of shares of the Company's
common stock,  will be paid to the class, with the number of shares to be issued
determined by a formula valuing the stock at different time periods. The Company
has reserved the right to pay the  settlement in cash at the time the settlement
becomes  effective.  In  the  memorandum  of  understanding  in  the  derivative
litigation,  the Company has agreed to certain  therapeutic  improvements to its
internal policies, some of which have already been instituted, including Company
policies  on  insider  trading,  the  functioning  and  membership  of its audit
committee, and policies pertaining to corporate  communications.  The settlement
of both the class action and  derivative  actions  require final approval of the
United States District Court. The Company has recorded a charge of $23.2 million
in the fourth quarter of fiscal 1999 related to the  settlement.  See Note 14 of
notes to the financial statements.

     In August 1999 Creo Products, Inc., ("Creo"), filed an action in the United
States District Court for the District of Delaware against the Company asserting
that Creo has a  "reasonable  apprehension  that it will be sued by Presstek for
infringement"  of two of the Company's  patents and seeking a  declaration  that
Creo's products "do not and will not infringe any valid and enforceable  claims"
of the patents in question.  In September 1999, the Company filed a counterclaim
against Creo for patent infringement. The Company claims that Creo has infringed
two direct imaging  patents owned by the Company which were recently the subject
of re-examination by the U. S. Patent and Trademark Office.

     Presstek intends to vigorously enforce its patent rights.

     In February, 2000 a complaint was filed by PPG, Inc. against Delta V in the
United States District Court for the Western  District of Pennsylvania  alleging
that Delta V sold to the plaintiff that certain vacuum  coating  equipment,  did
not meet certain  product  specifications.  In its complaint,  which has not yet
been  served on Delta V, the  plaintiff  is  seeking  damages  in excess of $5.0
million. The Company intends to vigorously defend this action.

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

     Not Applicable.

                                       12

<PAGE>

                                     PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.

     The Company's common stock has traded in the over-the-counter market on the
NASDAQ  National  Market System under the symbol PRST since July 18, 1990,  and,
prior thereto, from May 11, 1990, to July 17, 1990, traded on the NASDAQ System.
From the Company's  initial  public  offering  until May 11, 1990, the principal
redemption date of the Warrants,  the Company's Units, common stock and Warrants
were  traded on the NASDAQ  System.  The  following  table sets  forth,  for the
periods  indicated,  the high and low sales prices of the Company's common stock
as reported by NASDAQ.

Fiscal Year Ended
January 1, 2000                      High                     Low
---------------                      ----                     ---

First Quarter                      $11 7/16                 $ 6 13/16

Second Quarter                       9 7/8                    6 1/2

Third Quarter                        7 15/16                  5

Fourth Quarter                      19 7/8                    5 15/16

Fiscal Year Ended
January 2, 1999
---------------

First Quarter                      $30 1/4                  $15

Second Quarter                      18 5/8                   10 15/16

Third Quarter                       13 13/16                  7 1/4

Fourth Quarter                      10                        5 1/4

     On March 10,  2000  there were  1,308  holders  of record of the  Company's
common stock.

Dividend Policy

     To date,  the Company has not paid any cash  dividends on its common stock.
The payment of cash dividends, if any in the future, is within the discretion of
the Company's  Board of Directors  and will depend upon the Company's  earnings,
its capital requirements and financial condition and other relevant factors. The
Board of  Directors  does not  intend  to  declare  any  cash  dividends  in the
foreseeable future, but instead intends to retain all earnings,  if any, for use
in the Company's business operations.

Issuance of Unregistered Securities

         During the quarter ended January 1, 2000, the Company issued to certain
employees,  options to purchase 4,000 shares of its common stock pursuant to the
Company's  1991 Stock Option Plan.  These options were granted at prices ranging
from $7.31 to $15.88 per share with expiration  dates ranging between October 4,
and  December  13,  2009.  The  foregoing  options  were issued  pursuant to the
exemption from  registration  provided by Section 2(a)(3) and/or Section 4(2) of
the Securities Act of 1933 (the "Act").

         On November 19, 1999 the Company issued 142,855  unregistered shares of
common  stock  for  the  acquisition  of  R/H  Consulting,  Inc.  in  a  private
transaction exempt under 4(2) of the Act and Regulation D thereunder.

                                       13

<PAGE>


Item 6.       Selected Financial Data

     The following  selected financial data of the Company has been derived from
the financial  statements of the Company appearing  elsewhere herein (except for
the  statement  of  operations  data for the years ended  December  28, 1996 and
December  30, 1995 and the balance  sheet data at January 3, 1998,  December 28,
1996 and December 30, 1995, which is not included in such financial statements).
All  references  to common  shares and earnings  (loss) per share data have been
restated  retroactively  to reflect the fiscal 1997 and fiscal 1995  two-for-one
stock splits, effected in the form of stock dividends.

<TABLE>
<CAPTION>
                                                                                       Statements of Operations
                                                                    JAN 1,        JAN 2,        JAN 3,        DEC 28,       DEC 30,
For the Fiscal Years Ended                                           2000          1999          1998          1996          1995
                                                                   --------      --------      --------      --------      --------
                                                                                 (In thousands, except per share data)
<S>                                                                <C>           <C>           <C>           <C>           <C>
Revenues:                                                          $ 54,964      $ 74,165      $ 89,793      $ 46,678      $ 27,611
Costs and Expenses:
  Costs of products sold                                             33,326        46,606        43,854        20,409        14,924
  Engineering and product development                                17,671        15,413        10,656         8,894         6,155
  Sales and marketing                                                 5,934         5,620         4,302         2,588         1,727
  General and administrative                                          6,006         8,845         5,162         3,736         2,050
  Provision for settlement of shareholder litigation(1)              23,200          --            --            --            --
                                                                   --------      --------      --------      --------      --------
      Total costs and expenses                                       86,137        76,484        63,974        35,627        24,856
                                                                   --------      --------      --------      --------      --------
Other Income (Expense):
  Dividend and interest, net                                            501           623           374           782           327
  Other, net                                                             38           109          (244)         (228)           (2)
                                                                   --------      --------      --------      --------      --------
      Other income, net                                                 539           732           130           554           325
                                                                   --------      --------      --------      --------      --------

Income (Loss) From Continuing Operations                            (30,634)       (1,587)       25,949        11,605         3,080
Provision for Income Taxes(2)                                          --            --           9,460         3,984           220
                                                                   --------      --------      --------      --------      --------
Income (Loss) From Continuing Operations                            (30,634)       (1,587)       16,489         7,621         2,860

Discontinued Operations:(3)
   Loss from discontinued operations                                   (448)       (1,094)       (2,117)         (500)         --
   Loss on disposal of discontinued operations                       (8,534)         --            --            --            --
                                                                   --------      --------      --------      --------      --------
Loss From Discontinued Operations                                    (8,982)       (1,094)       (2,117)         (500)         --
                                                                   --------      --------      --------      --------      --------

Net Income (Loss)                                                  $(39,616)     $ (2,681)     $ 14,372      $  7,121      $  2,860
                                                                   ========      ========      ========      ========      ========

Earnings (Loss) Per Share - Basic:
  From continuing operations                                       $  (0.95)     $  (0.05)     $   0.53      $   0.26      $   0.10
                                                                   ========      ========      ========      ========      ========
  From discontinued operations                                     $  (0.28)     $  (0.03)     $  (0.07)     $  (0.02)     $   --
                                                                   ========      ========      ========      ========      ========
Earnings (Loss) Per Share - Basic                                  $  (1.23)     $  (0.08)     $   0.46      $   0.24      $   0.10
                                                                   ========      ========      ========      ========      ========

Earnings (Loss) Per Share - Diluted:
  From continuing operations                                       $  (0.95)     $  (0.05)     $   0.50      $   0.23      $   0.09
                                                                   ========      ========      ========      ========      ========
  From discontinued operations                                     $  (0.28)     $  (0.03)     $  (0.06)     $  (0.02)     $   --
                                                                   ========      ========      ========      ========      ========
Earnings (Loss) Per Share - Diluted                                $  (1.23)     $  (0.08)     $   0.44      $   0.21      $   0.09
                                                                   ========      ========      ========      ========      ========

Weighted Average Common Shares Outstanding - Basic                   32,336        31,986        31,300        29,858        29,124
                                                                   ========      ========      ========      ========      ========
Weighted Average Common Shares Outstanding - Diluted                 32,336        31,986        32,695        33,163        31,710
                                                                   ========      ========      ========      ========      ========
</TABLE>

                                       14

<PAGE>

Item 6. Selected Financial Data - Continued:

                               Balance Sheet Data

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                    JAN 1,        JAN 2,        JAN 3,        DEC 28,       DEC 30,
As of                                                                2000          1999          1998          1996          1995
                                                                   --------      --------      --------      --------      --------
                                                                                            (In thousands)
<S>                                                                <C>           <C>           <C>           <C>           <C>
Working Capital                                                    $ 25,373      $ 37,080      $ 32,962      $ 29,179      $  16,837
Total Assets                                                         94,633       106,670        99,655        66,618         26,669
Short-Term Debt                                                       1,024           522         4,800            --             --
Long-Term Debt                                                        8,830         5,922            --            --             --
Other Long-Term Liabilities                                          22,950            --            --            --             --
Stockholders' Equity                                                 49,855        87,453        85,990        57,443         22,726
Cash Dividends                                                           --            --            --            --             --
</TABLE>

1.   Provision  for the proposed  settlements  with the  plaintiffs in the class
     actions and related derivative suits filed in 1996. See Note 14 of notes to
     the financial statements.

2.   Tax expense in fiscal 1997 and 1996  represented  charges in lieu of income
     taxes,  although  no tax was  payable  as a result  of  stock  compensation
     deductions.  Accordingly,  no tax benefit was recorded in fiscal 1999.  See
     Note 5 of notes to the financial statements.

3.   Includes the operations of Delta V Technologies,  Inc., which were divested
     in fiscal 1999. See Note 3 of notes to the financial statements.



                                       15
<PAGE>

Item 7. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations.

Background

     Presstek, Inc. (The "Company" or "Presstek"), incorporated in Delaware, was
founded in September 1987 as a development company. It was established to find a
new  way to  produce  color  offset  printing.  Heidelberger  Druckmaschinen  AG
("Heidelberg"), the world's largest printing press manufacturer, and the Company
established  a  relationship  that was  formalized  in 1991. In 1993 the Company
completed the  development  of its high  resolution,  semiconductor  based laser
diode  imaging and thermal  plate  technology  referred to as PEARL(R).  PEARL's
thermal laser imaging technology enables its customers to image various types of
Presstek  printing plates either off-press or on-press which may then be used to
produce high-quality, full color lithographic printed materials for the printing
and graphic arts industries.  These printed materials  typically can be produced
at a lower cost than traditional competitive methods. The PEARL-based GTO-DI was
introduced  in  late  1993,  and in  May  of  1995,  Heidelberg  introduced  the
Quickmaster DI. The Quickmaster DI design is centered around Presstek's  digital
imaging and plate  technology,  and includes the  Company's  patented  automatic
plate  changing  cylinder.  The  unique  design  feeds  plates  from  inside the
cylinder,  eliminating  the need to manually  change plates  between  jobs.  The
Company began shipment of its PEARL-based  Quickmaster direct imaging systems to
Heidelberg in the second quarter of 1995.  The Company  estimates that as of the
end of 1999, there are more than 1,100 PEARL-equipped  GTO-DI and Quickmaster DI
presses  installed  utilizing  the  Company's  proprietary  consumable  printing
plates.

     The Company is also  engaged in the  development  of  additional  PEARL and
DI(R)  products that  incorporate  its patented,  proprietary,  digital  imaging
system and  process  free  thermal  ablation  printing  plate  technologies  for
computer-to-plate  and  direct-to-press  applications.  During fiscal 1996,  the
Company  began  shipments  of  its  PEARL   platesetter,   referred  to  as  the
PEARLsetter.  The PEARLsetter is a computer-to-plate  imaging system that images
both the Company's wet and dry offset  plates.  Also in 1996,  the Company began
shipments  of its direct  imaging  system for a larger  format Adast (19" x 26")
multicolor  press,  the  Adast  705C DI series of  presses.  In fiscal  1998 the
Company  began  shipments of its PEARLhdp  laser imaging  system.  The PEARLhdp,
jointly developed with Imation Corp., is a digital halftone, proofing device. It
can produce true  halftone  "dot for dot" color press proofs using the Company's
computer-to-plate imaging system specially modified for this unique application.
The Company has entered into a comprehensive agreement whereby Imation Corp. has
been granted  exclusive  rights for sales,  marketing  and  distribution  of the
PEARLhdp proofing system.

     The Company also has agreements with a number of other companies  including
Scitex  Corporation  LTD.,  Nilpeter A/S, Werner Kammann  Maschinenfabrik  GmbH,
Alcoa Packaging  Equipment,  Sakurai Graphic Systems Corp., Fuji Photo Film Co.,
Ltd. and Akiyama Printing Machinery Manufacturing Corporation.  These agreements
typically are for the use of the Company's  direct imaging  systems,  technology
licenses,  and/or thermal plate materials. They include a variety of "direct-to"
offset  printing  applications  ranging from high quality label  production  and
printing on aluminum cans to the production of normal four-color printing.

     During the third  quarter of fiscal 1999 the Company  determined to sell or
otherwise discontinue the operations of its Delta V Technologies,  Inc., ("Delta
V")  subsidiary  to allow the  Company to further  focus its efforts on the core
business of digital imaging and plate manufacturing. Located in Tucson, Arizona,
Delta  V was  engaged  in the  development,  manufacture,  and  sale  of  vacuum
deposition  coating  equipment  for vacuum  coating  applications.  The  Company
discontinued the operations of Delta V as of the end of fiscal 1999.

     As a result of the  divestiture  of Delta V, the  Company  incurred  a $8.5
million loss on disposal of  discontinued  operations  for the fiscal year ended
January 1,  2000.  This  included  actual  closing  costs and  operating  losses
incurred in the fourth  quarter of fiscal 1999 of $2.2 million,  a provision for
anticipated closing costs of $1.6 million, $6.1 million related to the write off
of goodwill and other intangibles  assets, and a reduction in other asset values
of $1.6 million.  These costs were partially  offset by proceeds of $3.0 million
received from Minnesota Mining and Manufacturing  Co. ("3M"),  for the licensing
of the Company's  intellectual  property  relating to  vacuum-deposited  polymer
multilayer  technology.  Delta  V  is  reported  separately  as  a  discontinued
operation,  and prior  periods  have been  restated in the  Company's  financial
statements,  related  footnotes and the management's  discussion and analysis to
conform to this presentation.


                                       16
<PAGE>

     In November 1999 the Company  acquired 100% of the stock of R/H Consulting,
Inc.  ("R/H").  R/H was  principally  engaged in the research and development of
laser  imageable  printing  plates.  R/H was  purchased for $500,000 and 142,855
shares of the Company's  common stock. The excess purchase price over book value
of net  assets  acquired  of $1.9  million  has been  allocated  to the  patents
acquired.  The  acquisition  was accounted for as a purchase and accordingly the
results of R/H's  operations  subsequent to November 1999 (which are immaterial)
have been included in the financial  statements  for fiscal 1999. The results of
R/H's  operations for 1999 and 1998 would not have had a material  impact on the
Company's results of operations for the comparable periods.

     In October 1998, the Company sold, for their book value,  certain assets of
Heath Custom Press, Inc. ("Heath"), which had been purchased in January 1998 for
94,865  unregistered  shares of the Company's common stock. Heath was engaged in
the design and manufacture of custom printing presses.

     The Company  operates and reports on a 52/53,  week fiscal year,  ending on
the  Saturday  closest to December 31.  Accordingly,  the  financial  statements
include the 52 week period ended  January 1, 2000 ("fiscal  1999"),  the 52 week
period  ended  January 2, 1999  ("fiscal  1998"),  and the 53 week period  ended
January 3, 1998 ("fiscal 1997").

     As a result of the  divestiture of Delta V, the Company  determined that it
operates in one reportable  segment,  the development and manufacture of digital
imaging and  printing  plate  technologies  for the  printing  and graphic  arts
industry.

Results of Operations

Fiscal 1999 versus Fiscal 1998

Revenues

     Revenues  for  fiscal  1999 and 1998 of $55.0  million  and $74.2  million,
respectively,   consisted   of  product   sales,   royalties,   fees  and  other
reimbursements.  Revenues  for fiscal  1999  decreased  $19.2  million or 26% as
compared to fiscal  1998.  Product  sales for fiscal 1999 were $47.9  million as
compared to $60.8  million in fiscal 1998,  a decrease of $12.9  million or 21%.
The decrease was due  primarily  to a decrease of  shipments to  Heidelberg  for
direct imaging  systems used in the  Quickmaster  DI, and a decrease in sales of
custom  printing press  products.  These  decreases were partially  offset by an
increase in sales of the  Company's  proprietary  digital  media and  consumable
products. The revenues generated from the sale of the Company's PEARLdry(TM) and
other  consumable  products  were $37.1  million for fiscal 1999, an increase of
$8.8  million  or 31%,  as  compared  to $28.3  million  in fiscal  1998.  These
consumable  product revenues included $17.2 million and $11.4 million for fiscal
1999 and 1998, respectively, sold under the Company's agreements with Heidelberg
and its distributors.

     Royalties and fees from licensees for fiscal 1999 of $7.0 million decreased
$6.3  million or 47% as  compared  to  royalties  and fees of $13.3  million for
fiscal 1998.  Royalties  decreased $7.0 million or 91% comparing  fiscal 1999 to
fiscal 1998 offset by an increase in engineering  fees primarily from Fuji Photo
Film Co., Ltd., of $634,000 or 11% in fiscal 1999. The decrease is primarily the
result of the reduction in shipments of direct imaging systems to Heidelberg for
use in the Quickmaster DI.

     Revenues  generated under the Company's  agreements with Heidelberg and its
distributors  were $21.6  million in fiscal 1999, a decrease of $20.5 million or
49% from  fiscal  1998  revenues  of $42.1  million.  Revenues  from  Heidelberg
represented  39% and 57% of total  revenues  for the fiscal years 1999 and 1998,
respectively.

     In fiscal 1998 and 1999, the Company  materially  reduced production levels
of  direct  imaging  systems  used  in  the  Quickmaster  DI  press,   based  on
requirements  from  Heidelberg.  The Company received orders in fiscal 1999 from
Heidelberg in connection with its direct imaging systems used in the Quickmaster
DI.  Based on the  delivery  schedule  for these  orders,  the  Company  resumed
production  with initial low level  shipments of its direct imaging systems late
in the third quarter of fiscal 1999. The Company  expects to continue  shipments
through the end of fiscal 2000.  Additionally,  the Company believes  production
levels through the end of fiscal 2000 will increase in line with the actual rate
of Quickmaster DI's made by Heidelberg.

                                       17
<PAGE>

     The Company believes that revenues will increase in fiscal 2000 as compared
to fiscal  1999,  primarily  due to the  increased  requirements  for the direct
imaging  systems  used in the  Quickmaster  DI, and  related  increases  for the
Company's  proprietary  consumables  sold  for  the  Quickmaster  DI  and  other
equipment.  There can be no  assurance,  however  that the Company  will achieve
these anticipated revenue increases.

Cost of Products Sold

     Cost of products sold consists of the costs of material, labor and overhead
as well as future warranty costs associated with product sales. Cost of products
sold for fiscal 1999 were $33.3  million,  a decrease of $13.3 million or 29% as
compared to fiscal 1998.  The gross  margin  increase to 30% in fiscal 1999 from
23% in fiscal 1998 is  primarily  the result of  economies  related to increased
manufacturing  volumes of proprietary digital media and consumable  products,  a
reduction in allowances  provided as a result of product requirement changes and
inventory   obsolescence,   offset  by   inefficiencies   related   to   reduced
manufacturing  volumes of direct  imaging  systems sold to Heidelberg for use in
its Quickmaster DI.

     The  Company  anticipates  that the gross  margin  on  product  sales  will
continue to improve in fiscal 2000, as the Company increases  production volumes
for its  direct  imaging  systems  sold to  Heidelberg  and  implements  process
improvements  for its digital  media and  consumable  products.  There can be no
assurance  however  that  the  actual  gross  margins  will  not be  lower  than
anticipated.

Research and Product Development

     Research and product development  expenses consist primarily of payroll and
related  expenses for personnel,  parts and supplies,  and  contracted  services
required to conduct the Company's  equipment and consumable product  development
efforts.

     Research  and product  development  expenses  were $17.7  million or 32% of
revenues  for fiscal  1999 as  compared  to $15.4  million or 21% of fiscal 1998
revenues.  The increase  resulted  principally  from increased  expenditures for
labor and professional  services related to the Company's continued  development
of  products  incorporating  its PEARL and DI  technologies.  Included  in these
development  efforts were  significant  expenditures  for the Company's  digital
plate  media  and  consumable   products,   as  well  as  expenditures  for  its
next-generation   ProFire(TM)   integrated  imaging  system  and  other  product
development  efforts.  These  increased  expenditures  were  also  a  result  of
increased  engineering  programs  related to the development  contract with Fuji
Photo Film Co., Ltd.

     The Company  expects these increased  development  expenditures to continue
through fiscal 2000, as it prepares for the introduction of its  next-generation
integrated  imaging  system,  expands its  offerings of  proprietary  consumable
printing  plates,  and pursues the  development  of additional  products for the
DRUPA 2000  international  printing-media  trade show. There can be no assurance
however, that these expenses will not be greater than anticipated.

Sales and Marketing

     Sales and  marketing  expenses  consist  primarily  of payroll  and related
expenses for personnel,  advertising and promotional expenses, and travel costs.
Sales and  marketing  expenses  were $5.9  million or 11% of revenues for fiscal
1999  compared  to $5.6  million or 8% of fiscal  1998  revenues.  The  increase
resulted  primarily  from  increased  expenditures  for labor  and  professional
services,  and other related costs  associated with the Company's  attendance at
trade shows and the continued expansion of its worldwide sales, distribution and
customer support network.

     It is expected that these  expenditures  will continue to increase  through
fiscal  2000 as the  Company  continues  to expand  its direct  sales  force and
customer  support  network  for  its  products.   The  Company  also  expects  a
significant  increase in expenditures in the second quarter of fiscal 2000, as a
result  of its  planned  attendance  at  Drupa  2000  in  May.  There  can be no
assurance,  however,  that these expenditures will not be greater than currently
anticipated.

General and Administrative

     General  and  administrative  expenses  consist  primarily  of payroll  and
related expenses for personnel,  and contracted  professional services.  General
and administrative expenses for fiscal 1999 were $6.0 million or 11% of revenues
compared to $8.8  million or 12% of fiscal 1998  revenues.  The decrease of $2.8
million  related   primarily  to  decreases  in   expenditures   for  contracted
professional services required to conduct the finance,  information systems, and
administrative  functions  of the  Company,  as well as,  the  reduction  in the


                                       18
<PAGE>

provision  for  uncollectable  accounts.  The Company  recorded a charge of $2.2
million for certain disputed and uncollectable accounts in fiscal 1998.

     The Company  anticipates that general and  administrative  costs for fiscal
2000 will increase over current levels,  however, there can be no assurance that
these expenses will not be greater than anticipated.

Provision For the Settlement of Shareholder Litigation

     The Company has  recorded a charge of $23.2  million in fiscal 1999 related
to the proposed  settlement  with the plaintiffs in the class actions which were
filed in 1996 in the  United  States  District  Court  for the  District  of New
Hampshire on behalf of the Company's  shareholders,  and with the  plaintiffs in
the related derivative suits. The charge includes the $22.9 million  settlement,
and related administrative costs in the amount of $250,000.

Other Income and Expense

     Other  income was  $539,000 or 1% of revenues  for fiscal 1999  compared to
$732,000  or 1% of  revenues  for fiscal  1998.  The  decrease  of  $193,000  is
primarily  the  result of a decrease  in average  cash  balances  available  for
investment,  as well as interest expense incurred on the Company's lease line of
credit with Keybank National Association.

Provision for Income Taxes

     The Company did not record  provisions for federal or state income taxes or
charges in lieu of federal or state income taxes for fiscal 1999 and 1998,  as a
result of the net operating  losses incurred prior to tax deductions  related to
stock compensation in both periods.

Loss from Continuing Operations

     As a result of the  foregoing,  the  Company  had  losses  from  continuing
operations  of $30.6  million  for  fiscal  1999,  as  compared  to losses  from
continuing operations of $1.6 million for fiscal 1998.

Loss from Discontinued Operations

     The  results  of  operations  of  Delta  V are  presented  as  discontinued
operations.  For  fiscal  1999 the  Company  incurred  a loss from  discontinued
operations  of $448,000,  as compared to a loss of $1.1 million for fiscal 1998.
In  addition,  for fiscal  1999 the  Company  recorded a loss on disposal of its
discontinued  operations of $8.5 million. This included actual closing costs and
operating  losses incurred in the fourth quarter of fiscal 1999 of $2.2 million,
a provision for anticipated closing costs of $1.6 million,  $6.1 million related
to the write off of goodwill  and other  intangible  assets,  and a reduction in
other  asset  values of $1.6  million.  These  costs  were  partially  offset by
proceeds of $3.0 million  received  from 3M for the  licensing of the  Company's
intellectual   property   relating  to   vacuum-deposited   polymer   multilayer
technology.

Fiscal 1998 versus Fiscal 1997

Revenues

     Revenues for fiscal year 1998 of $74.2 million consisting of product sales,
royalties,  fees and other  reimbursements,  decreased  $15.6  million or 17% as
compared to revenues of $89.8 million for fiscal 1997.

     Net product sales for fiscal 1998 of $60.8 million  decreased $10.5 million
or 15% as  compared  to net  product  sales of $71.3  million  in  fiscal  1997,
primarily as a result of a reduction in sales volume of direct  imaging  systems
to Heidelberg for use in the  Quickmaster  DI. These  reductions  were partially
offset by the increased sales volume of custom  printing  presses as a result of
the  acquisition  of Heath in 1998,  as well as  increased  sales  volume of the
Company's  proprietary  thermal printing plates. The revenues generated from the
sale of the Company's PEARLdry and other consumable  products were $28.3 million
for the fiscal year 1998,  an increase of $10.8  million or 62% over fiscal 1997
due to increased sales volume.



                                       19
<PAGE>

     Royalties  and  fees  from  licensees  for  fiscal  1998 of  $13.3  million
decreased $5.2 million or 28% as compared to royalties and fees of $18.5 million
for fiscal 1997.  Royalties  decreased $9.5 million or 56% comparing fiscal 1998
to fiscal 1997, as a result of the  reduction in sales volume of direct  imaging
systems to Heidelberg for use in the Quickmaster DI.  Engineering fees increased
$4.3  million or 302% in fiscal 1998  primarily as a result of  engineering  and
other fees received from Fuji Photo Film Co., Ltd.  Included in fiscal 1997 were
certain fees related to the Company's  agreement to license its on-press imaging
patents to Scitex Corporation Ltd.

     Revenues  generated under the Company's  agreements with Heidelberg and its
distributors  were $42.1  million in fiscal 1998, a decrease of $31.6 million or
43% from  fiscal  1997  revenues  of $73.7  million.  Revenues  from  Heidelberg
represented  57% and 82% of total  revenues  for the fiscal years 1998 and 1997,
respectively.

Cost of Products Sold

     Cost of products  sold for fiscal 1998 were $46.6  million,  an increase of
$2.8 million or 6% as compared to fiscal 1997. The gross margin  decrease to 23%
from 38% in fiscal 1997 was primarily the result of reduced manufacturing volume
of the direct imaging  systems sold to Heidelberg for use in the QM-DI,  as well
as increased fixed costs associated with the Hudson, New Hampshire manufacturing
operations.  Also  included  in fiscal  1998 was an  allowance  of $1.3  million
provided  to a major  supplier  as a result of a change in  requirements  and an
allowance of $1.6 million for inventory  obsolescence as a result of the planned
introduction of the Company's next-generation laser technology.

Research and Product Development

     Research  and product  development  expenses  were $15.4  million or 21% of
revenues  for fiscal  1998 as  compared  to $10.7  million or 12% of fiscal 1997
revenues.  The increase  resulted  principally  from increased  expenditures for
parts and supplies  related to the Company's  continued  development of products
incorporating its PEARL technology.  Included in these development  efforts were
significant  expenditures for the Company's  PEARLgold(TM)  and other consumable
products as well as expenditures for its next-generation  laser diode technology
and other product development efforts.  These increased expenditures were also a
result of increased  engineering  programs  related to the development  contract
with Fuji Photo Film Co., Ltd.

Sales and Marketing

     Sales and marketing expenses were $5.6 million or 8% of revenues for fiscal
1998  compared  to $4.3  million or 5% of fiscal  1997  revenues.  The  increase
resulted  primarily from increased  expenditures for  professional  services and
other related costs associated with the Company's  attendance at trade shows and
the  continued  expansion of its  worldwide  sales,  distribution  and technical
support network.

General and Administrative

     General and  administrative  expenses  for fiscal 1998 were $8.8 million or
12% of revenues  compared to $5.2  million or 6% of fiscal  1997  revenues.  The
increase  of $3.6  million  related  primarily  to  increased  expenditures  for
additional personnel required to conduct, the finance,  information systems, and
administrative  functions of the Company.  In addition,  the Company  recorded a
charge of $2.2 million for certain disputed and uncollectable accounts.

Other Income and Expense

     Other  income was  $732,000 or 1% of revenues  for fiscal 1998  compared to
$130,000 or .1% of revenues  for fiscal  1997.  The  increase of $602,000 can be
attributed to increased  interest  income  earned as a result of higher  average
balances of funds available for  investment,  the gain from the sale of a parcel
of land in Hudson,  New  Hampshire,  as well as the absence of foreign  exchange
losses incurred on certain receivables from Heidelberg in fiscal 1997.

                                       20
<PAGE>

Provision for Income Taxes

     For fiscal 1998, the Company did not record a provision for income taxes as
a result of the tax loss prior to deductions  related to stock  compensation for
the period.  The provision for income taxes for fiscal 1997  represents  the tax
benefit  arising  from  stock  option  deductions  and  the  realization  of net
operating  loss  carryforwards  resulting from  compensation  deductions for tax
purposes.  The tax  benefit  related to such stock  option  deductions  has been
recorded as additional paid in capital.

Income (Loss) from Continuing Operations

     As a result of the  foregoing,  the  Company  had  losses  from  continuing
operations  of $1.6  million  for  fiscal  1998,  compared  to net  income  from
continuing operations of $16.5 million for fiscal 1997.

Loss from Discontinued Operations

     The  results  of  operations  of  Delta  V are  presented  as  discontinued
operations.  For  fiscal  1998 the  Company  recorded  a loss from  discontinued
operations of $1.1 million compared to a loss of $2.1 million for fiscal 1997.

Liquidity and Capital Resources

     At January 1, 2000,  the  Company  had cash and cash  equivalents  of $18.7
million  and  working  capital  of $25.4  million as  compared  to cash and cash
equivalents of $19.1 million and working  capital of $37.1 million at January 2,
1999.

     Net cash provided by operating activities of continuing operations was $8.4
million  for the fiscal  year ended  January  1,  2000.  The cash flow  resulted
primarily  from  reductions  in  accounts  receivable  and  inventories  of $9.7
million,  less the loss from continuing  operations of $30.6 million,  offset by
non-cash items of depreciation and amortization of $5.7 million,  provisions for
uncollectable  accounts of $1.8 million, and the provision for the settlement of
shareholder  litigation of $23.0 million.  Cash flow from continuing  operations
was also  affected by the decrease in billings in excess of costs and  estimated
earnings on uncompleted  contracts of $2.0 million.  This decrease was primarily
the  result  of  a  decrease  in  advance  payments  related  to  the  Company's
development program with Fuji Photo Film Co., Ltd.

     Net cash used in investing  activities of continuing  operations  was $12.9
million for the fiscal year ended  January 1, 2000 and  consisted  primarily  of
additions to property,  plant and equipment  used in the  Company's  business of
$11.8  million.  These  additions  included  $6.8 million for  additional  plate
manufacturing equipment that is expected to reduce the cost of manufacturing the
Company's  proprietary  digital media and  consumable  products and $885,000 for
additional equipment that will enhance the Company's development capabilities.

     Net cash  provided  by  financing  activities  during the fiscal year ended
January 1, 2000  totaled $4.0  million and  consisted  primarily of the proceeds
from  Company's  lease  line of credit of $4.0  million  and  proceeds  from the
issuance of common  stock of $608,000,  offset by payments on the mortgage  term
loan and the lease line of credit of $630,000.

     In  September  1999,  the Company  borrowed  $4.0  million  against a $10.0
million  lease  line of  credit  facility  from  Keybank  National  Association.
Borrowings  are secured by equipment  valued at $5.2  million.  The loan bears a
variable rate of interest,  currently  7.25%,  based upon the prime rate, with a
fixed rate  conversion  provision.  Principal  and interest on the lease line of
credit  facility are payable in 84 monthly  installments  beginning  October 31,
1999. The commitment for the balance of $6.0 million  available  under the lease
line of credit is scheduled to expire on April 30, 2000.

     The  Company's   credit   facilities  with  Citizens  Bank  New  Hampshire,
("Citizens")  include a  ten-year  mortgage  term loan and a  revolving  line of
credit loan. The mortgage term loan in the amount of $6.9 million, is secured by
land and buildings with a cost of approximately $17.0 million.  The loan bears a
fixed  rate of  interest  of 7.12% per year  during  the first  five years and a
variable  rate of interest at the LIBOR rate plus 2%, (7.82% at January 1, 2000)
for the remaining five years.  Principal and interest  payments during the first
five years of the


                                       21
<PAGE>

loan will be made in 60 monthly  installments  of $80,500.  During the remaining
five years,  principal and interest  payments will be made on a monthly basis in
the amount of one-sixtieth of the outstanding  principal  amount as of the first
day of the second five year period,  plus accrued  interest  through the monthly
payment date. All  outstanding  principal and accrued and unpaid interest is due
and payable on February 6, 2008.

     The revolving line of credit loan, under which the Company may borrow $10.0
million,  is secured by substantially all of the Company's  assets.  Interest on
the line of credit is payable at the LIBOR rate plus 1.50%  (7.32% at January 1,
2000). The loan agreement terminates on July 31, 2000, at which date, the entire
principal  and accrued  interest is due and payable.  The Company  currently has
$10.0 million available under the line of credit loan agreement.

     Under the terms of the mortgage term loan, the lease line of credit and the
revolving  line of credit  agreements,  the Company is required to meet  certain
financial  covenants on a quarterly  and annual basis.  At January 1, 2000,  the
Company was in compliance with all debt covenants.

     The Company has approved  expenditures  for fiscal 2000 of $5.0 million for
the second  phase of its  corporate  headquarters  at 55  Executive  Drive.  The
Company will initially  fund the  construction  through  existing funds and cash
flow from  operations.  This  additional  facility  will  include the  Company's
corporate  offices,  sales  and  marketing  operations,  as well  as  additional
manufacturing facilities, and is expected to be completed in October 2000.

     The Company believes that existing, funds, cash flows from operations,  and
cash  available  under its  revolving  line of credit  and lease  line of credit
should be  sufficient  to  satisfy  working  capital  requirements  and  capital
expenditures for the next twelve months.

Effect of Inflation

     Inflation has not had, and is not expected to have, a material  impact upon
the Company's operations.

Net Operating Loss Carryforwards

     As of January 1, 2000,  the Company had net  operating  loss  carryforwards
totaling   approximately   $38.0  million  resulting  from  stock   compensation
deductions,  for tax purposes,  relative to stock option plans and $15.0 million
resulting from operating  losses.  To the extent net operating  losses resulting
from stock option plan compensation  deductions become  realizable,  the benefit
will be credited  directly to additional paid in capital.  The amount of the net
operating  loss  carryforwards  that may be utilized in any future period may be
subject  to certain  limitations,  based upon  changes in the  ownership  of the
Company's common stock.

Recently Issued Accounting Standards

     In June 1998, the Financial  Accounting Standards Board issued Statement of
Financial Accounting  Standards No. 133, "Accounting for Derivative  Instruments
and Hedging Activities." ("SFAS No. 133"), which requires companies to recognize
all  derivatives  as either assets or  liabilities in the statement of financial
position and measure those  instruments at fair value.  SFAS No. 133 (as amended
by SFAS No. 137) is effective  for fiscal years  beginning  after June 15, 2000.
The Company does not presently enter into any transactions  involving derivative
financial  instruments  and,  accordingly,  does not anticipate the new standard
will have any effect on its financial statements for the foreseeable future.

Year 2000

     The Company  established a program to determine the impact of the Y2K issue
on the software and hardware utilized in the Company's  internal  operations and
incorporated in its products manufactured for sale to customers. This assessment
included  applications  and  systems  software,  information  technology  ("IT")
infrastructure,  manufacturing  and process  control  technology,  products  and
services,  and  third  party  suppliers  and  customers.  As of the date of this
report,  the  Company   successfully   completed  the  Y2K  transition  with  no
significant  impact  to  its  business,  results  of  operations,  or  financial
condition.  The total costs  associated  with  becoming Y2K  compliant  were not
material to the  Company's  financial  position or  operations.  Costs  incurred


                                       22
<PAGE>

through January 1, 2000 have been incurred as part of normal IT operating costs.
The Company  will  continue to monitor its critical  systems and  infrastructure
throughout the year 2000.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

     The  Company is  exposed to market  risk from  changes  in  interest  rates
primarily as a result of its  borrowing and  investing  activities.  The Company
does not enter  into  interest  rate swap  agreements  or other  speculative  or
leveraged  transactions.  The  Company  currently  has no  material  exposure to
interest rate  fluctuations on its short-term  investments or variable rate debt
instruments.

Item 8. Financial Statements and Supplementary Data.

     The financial  statements required by Item 8 of Form 10-K appear after Item
14 of this report.

Item  9.  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
          Financial Disclosure.

     Not applicable



                                       23
<PAGE>

                                    PART III

Item 10. Directors and Executive Officers of the Registrant.

     The  information  required by this item will be set forth under the caption
"Election of Directors" and "Executive  Officers" in the Proxy Statement for the
Annual Meeting of Stockholders to be held on June 19, 2000, to be filed with the
Securities and Exchange Commission (the "Proxy Statement"),  and is incorporated
herein by reference.

Item 11. Executive Compensation.

     The  information  required by this item will be set forth under the caption
"Executive  Compensation"  in the Proxy Statement and is incorporated  herein by
reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management.

     The  information  required by this item will be set forth under the caption
"Voting Security  Ownership of Certain  Beneficial Owners and Management" in the
Proxy Statement, and is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions.

     The  information  required by this item will be set forth under the caption
"Certain Relationships and Related Transactions" in the Proxy Statement,  and is
incorporated herein by reference.




                                       24
<PAGE>

                                     PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

(a)(1)    Financial Statements

                                                                            Page
                                                                            ----
          Report of Independent Certified Public
          Accountants                                                        F-2

          Balance Sheets as of January 1, 2000,
          and January 2, 1999                                                F-3

          Statements of Operations for the fiscal years
          ended January 1, 2000, January 2, 1999, and
          January 3, 1998                                                    F-4

          Statements of Changes in Stockholders' Equity
          for the fiscal years ended
          January 1, 2000, January 2, 1999, and
          January 3, 1998                                                    F-5

          Statements of Cash Flows for the fiscal
          years ended January 1, 2000, January 2, 1999,
          and January 3, 1998                                                F-6

          Notes to Financial Statements                                      F-7

(a)(2)    Financial Statement Schedules

          Schedule II-Valuation and Qualifying Accounts and Reserves.       FS-1

          All other schedules are omitted because they are not applicable or the
          required  information  is shown in the  financial  statements or notes
          thereto.

(a)(3)    Exhibits

Exhibit
Number    Description

3(a)      Amended and Restated  Certificate of Incorporation of the Company,  as
          amended,  incorporated  by  reference  to  Exhibit 3 to the  Company's
          Quarterly Report on Form 10-Q for the Quarter ended June 29, 1996.

3(b)      By-laws of the Company.***

10(a)     Confidentiality   Agreement   between  the  Company  and  Heidelberger
          Druckmaschinen   A.G.,   effective   December   7,  1989  as  amended,
          incorporated  by reference to Exhibit  10(i) of the  Company's  Annual
          Report on Form 10-K for the fiscal year ended December 31, 1989.

10(b)     Master   Agreement   effective   January  1,  1991,   by  and  between
          Heidelberger   Druckmaschinen   Aktiengesellschaft  and  the  Company,
          incorporated  by reference to the Company's Form 8-K, dated January 1,
          1991.

                                       25
<PAGE>

10(c)     Technology   License   effective  January  1,  1991,  by  and  between
          Heidelberger   Druckmaschinen   Aktiengesellschaft  and  the  Company,
          incorporated  by reference to the Company's Form 8-K, dated January 1,
          1991.

10(d)     Memorandum  of  Performance  No. 3 dated April 27, 1993, to the Master
          Agreement,  Technology  License,  and  Supply  Agreement  between  the
          Company   and    Heidelberger    Druckmaschinen    Aktiengesellschaft,
          incorporated  by reference to the Company's  Quarterly  Report on Form
          10-Q for the Quarter Ended June 30, 1993.

10(e)     Modification  to Memorandum of Performance No. 3 dated April 27, 1993,
          to the Master  Agreement,  Technology  License,  and Supply  Agreement
          between     the    Company     and     Heidelberger     Druckmaschinen
          Aktiengesellschaft.+

10(f)     Memorandum  of  Understanding  No. 4 dated  November  9, 1995,  to the
          Master Agreement and Technology  License and Supply Agreement  between
          the Company and Heidelberger Druckmaschinen Aktiengesellschaft. ***(I)

10(g)     Lease relating to real property  located at 9 Commercial St.,  Hudson,
          NH. +++

10(h)     Lease  relating  to real  property  located  at 18-20  Hampshire  Dr.,
          Hudson, New Hampshire. +++

10(i)(1)  Employment  Agreement  dated  March 30,  1999  between the Company and
          Richard Williams. ****

10(j)(1)  1991 Stock Option Plan. *

10(k)(1)  1994 Stock Option Plan. +

10(l)(1)  Non-Employee Director Stock Option Plan. ****

10(m)(1)  1997 Interim Stock Option Plan. ++

10(n)     Memorandum  of  Understanding  No. 5 dated  March 7, 1997  between the
          Company and Heidelberger Druckmaschinen Aktiengesellschaft. ***(I)

10(o)     Amendment to Loan Agreement between the Company and Citizens Bank, New
          Hampshire. ****

10(p)     Replacement  Revolving  Line of  Credit  Promissory  Note in  favor of
          Citizens Bank, New Hampshire. ****

10(q)(1)  1998 Stock Incentive Plan ++++

10(r)(1)  Employment Agreement by and between the Company and Robert W. Hallman.
          +++++

10(s)(1)  Master Security  agreement and related Promissory Note, by and between
          the Company and Keycorp Leasing,  a Division of Key Corporate Capital,
          Inc.,  dated  September  27,  1999,  incorporated  by reference to the
          Company's Form 10-Q for the quarter ended October 1, 1999.

10(t)     Amendment  to  existing  loan   agreement   with  Citizens  Bank,  New
          Hampshire.

10(u)     Amendment to existing loan agreement with Keybank  Corporate  Capital,
          Inc.

11        Calculations of earnings per share

21        Subsidiaries of the Company.

23(a)     Consent of BDO Seidman, LLP.

27        Financial  Data  Schedule  (for SEC use only)

                                       26
<PAGE>

(b)       No Form 8-K's were filed during the quarter ended January 1, 2000.

(c)       See Item 14(a)(3) above.

(d)       See Item 14(a)(2) above.

*         Previously  filed as an exhibit to the Company's Annual report on Form
          10-K for the fiscal year ended December 31, 1991 and  incorporated  by
          reference thereto.

**        Previously filed as an exhibit to the Company's Form 8-K for the event
          dated February 15, 1996 and incorporated by reference thereto.

***       Previously  filed as an exhibit with the  Company's  Form 10-K for the
          fiscal year ended  December  30, 1995 and  incorporated  by  reference
          thereto.

****      Previously  filed as an exhibit with the  Company's  Form 10-K for the
          fiscal year ended January 2, 1999.

(I)       The SEC has granted the Company's  request of  confidential  treatment
          with respect to a portion of this exhibit.

+         Previously  filed as an exhibit to the Company's Annual report on Form
          10-K for the fiscal year ended December 31, 1994 and  incorporated  by
          reference thereto.

++        Incorporated  by  reference  to the exhibit  filed with the  Company's
          Quarterly  report on Form 10-Q for the  quarter  ended  September  27,
          1997.

+++       Previously  filed as an exhibit filed with the Company's Annual Report
          on Form  10-K  for  the  fiscal  year  ended  December  28,  1996  and
          incorporated by reference thereto.

++++      Incorporated  by reference to the exhibit to the  Company's  April 23,
          1998 Proxy Statement.

+++++     Previously  filed as an  exhibit  filed with the  Company's  Quarterly
          report  on Form  10-Q  for the  Quarter  ended  October  3,  1998  and
          incorporated by reference thereto.

(1)       Denotes management employment contracts or compensatory plans.



                                       27
<PAGE>

                          INDEX TO FINANCIAL STATEMENTS

                                                                            Page
                                                                            ----

Report of Independent Certified Public Accountants                          F-2

Balance Sheets as of January 1, 2000
   and January 2, 1999                                                      F-3

Statements of Operations for the fiscal years ended
   January 1, 2000, January 2, 1999, and
   January 3, 1998                                                          F-4

Statements of Changes in Stockholders' Equity
   for the fiscal years ended January 1, 2000,
   January 2, 1999, and January 3, 1998                                     F-5

Statements of Cash Flows for the fiscal years ended
   January 1, 2000, January 2, 1999, and
   January 3, 1998                                                          F-6

Notes to Financial Statements                                               F-7

Financial Statement Schedule:

   Schedule II - Valuation and qualifying accounts
      and reserves                                                         FS-1


                                      F-1
<PAGE>

                              REPORT OF INDEPENDENT
                          CERTIFIED PUBLIC ACCOUNTANTS


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

We have audited the accompanying balance sheets of Presstek,  Inc. as of January
1, 2000 and January 2, 1999, and the related  statements of operations,  changes
in  stockholders'  equity,  and cash flows for the fiscal years ended January 1,
2000,  January 2, 1999 and January 3, 1998.  We have also audited the  financial
statement schedule listed in the accompanying index. These financial  statements
and  schedule  are  the   responsibility  of  the  Company's   management.   Our
responsibility  is to  express  an opinion  on these  financial  statements  and
schedule based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable  assurance  about whether the financial  statements  and schedule are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence supporting the amounts and disclosures in the financial  statements and
schedule.  An audit also includes  assessing the accounting  principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
presentation  of the  financial  statements  and  schedule.  We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly in all
material respects,  the financial position of Presstek,  Inc. at January 1, 2000
and January 2, 1999,  and the results of its  operations  and its cash flows for
the fiscal years ended January 1, 2000, January 2, 1999, and January 3, 1998, in
conformity with generally accepted accounting principles.

Also, in our opinion,  the schedule presents fairly,  in all material  respects,
the information set forth therein.


/s/ BDO SEIDMAN, LLP
    BDO SEIDMAN, LLP

New York, New York
February 14, 2000, except for note 14, as to which the date is March 24, 2000.



                                      F-2
<PAGE>

                         PART 1 - FINANCIAL INFORMATION

Item 1. Financial Statements

                                 PRESSTEK, INC.
                                 BALANCE SHEETS
                    (amounts in thousands, except share data)

<TABLE>
<CAPTION>
                                                                            January 1,    January 2,
                                                                               2000          1999
                                                                            ----------    ----------
<S>                                                                          <C>           <C>
ASSETS
CURRENT ASSETS:
  Cash and cash equivalents                                                  $ 18,653      $ 19,057
  Accounts receivable, net of allowance for losses
    Of $3,302 and $2,536 in fiscal 1999 and 1998, respectively                 11,645        20,626
  Inventories                                                                   7,214         9,724
  Other current assets                                                            859           968
                                                                             --------      --------
          Total current assets                                                 38,371        50,375
                                                                             --------      --------

PROPERTY, PLANT AND EQUIPMENT, NET                                             45,695        39,497
                                                                             --------      --------

OTHER ASSETS:
  Patent application costs and license rights, net                              5,126         3,195
  Other                                                                           146           176
  Net non-current assets of discontinued operations                             5,295        13,427
                                                                             --------      --------
          Total other assets                                                   10,567        16,798
                                                                             --------      --------

                TOTAL                                                        $ 94,633      $106,670
                                                                             ========      ========

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Current portion of long term debt                                          $  1,024      $    522
  Accounts payable and accrued expenses                                         8,844         8,893
  Accrued salaries and employee benefits                                        1,269           937
  Billings in excess of costs and estimated
    Earnings on uncompleted contracts                                              44         1,995
  Net current liabilities of discontinued operations                            1,817           948
                                                                             --------      --------
       Total current liabilities                                               12,998        13,295
                                                                             --------      --------

LONG-TERM DEBT, NET OF CURRENT PORTION                                          8,830         5,922
                                                                             --------      --------

OTHER LONG-TERM  LIABILITIES                                                   22,950          --
                                                                             --------      --------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
  Preferred stock, $.01 par value; authorized
    1,000,000 shares; no shares issues or outstanding                            --            --
  Common stock, $.01 par value; authorized 75,000,000 shares;
    Issued and outstanding 32,515,651 shares at January 1, 2000;
    32,276,263 shares at January 2, 1999                                          325           323
  Additional paid-in capital                                                   69,312        67,296
  Retained earnings (deficit)                                                 (19,782)       19,834
                                                                             --------      --------
           Total stockholders' equity                                          49,855        87,453
                                                                             --------      --------
            TOTAL                                                            $ 94,633      $106,670
                                                                             ========      ========
</TABLE>

                        See notes to financial statements

                                      F-3

<PAGE>

                                 PRESSTEK, INC.
                            STATEMENTS OF OPERATIONS
                           For the Fiscal Years Ended
                  (amounts in thousands, except per share data)

<TABLE>
<CAPTION>
                                                           January 1,       January 2,       January 3,
                                                              2000             1999             1998
                                                           ----------       ----------       ----------
<S>                                                         <C>              <C>              <C>
REVENUES:
  Product sales                                             $ 47,948         $ 60,833         $ 71,278
  Royalties and fees from licensees                            7,016           13,332           18,515
                                                            --------         --------         --------
      Total revenues                                          54,964           74,165           89,793
                                                            --------         --------         --------

COSTS AND EXPENSES:
  Cost of products sold                                       33,326           46,606           43,854
  Research and product development                            17,671           15,413           10,656
  Sales and marketing                                          5,934            5,620            4,302
  General and administrative                                   6,006            8,845            5,162
  Provision for settlement of shareholder litigation          23,200             --               --
                                                            --------         --------         --------
      Total costs and expenses                                86,137           76,484           63,974
                                                            --------         --------         --------
INCOME (LOSS) FROM OPERATIONS                                (31,173)          (2,319)          25,819
                                                            --------         --------         --------

OTHER INCOME (EXPENSE):
  Dividend and interest, net                                     501              623              374
  Other, net                                                      38              109             (244)
                                                            --------         --------         --------
      Total other income, net                                    539              732              130
                                                            --------         --------         --------

INCOME (LOSS) FROM CONTINUING OPERATIONS
  BEFORE INCOME TAXES                                        (30,634)          (1,587)          25,949
PROVISION FOR INCOME TAXES                                      --               --              9,460
                                                            --------         --------         --------
INCOME (LOSS) FROM CONTINUING OPERATIONS                     (30,634)          (1,587)          16,489
                                                            --------         --------         --------

DISCONTINUED OPERATIONS:
  Loss from discontinued operations                             (448)          (1,094)          (2,117)
  Loss on disposal of discontinued operations                 (8,534)            --               --
                                                            --------         --------         --------
LOSS FROM DISCONTINUED OPERATIONS                             (8,982)          (1,094)          (2,117)
                                                            --------         --------         --------

NET INCOME (LOSS)                                           $(39,616)        $ (2,681)        $ 14,372
                                                            ========         ========         ========

EARNINGS (LOSS) PER SHARE - BASIC:
  FROM CONTINUING OPERATIONS                                $  (0.95)        $  (0.05)        $   0.53
                                                            ========         ========         ========
  FROM DISCONTINUED OPERATIONS                              $  (0.28)        $  (0.03)        $  (0.07)
                                                            ========         ========         ========
EARNINGS (LOSS) PER SHARE - BASIC                           $  (1.23)        $  (0.08)        $   0.46
                                                            ========         ========         ========

EARNINGS (LOSS) PER SHARE - DILUTED:
    FROM CONTINUING OPERATIONS                              $  (0.95)        $  (0.05)        $   0.50
                                                            ========         ========         ========
  FROM DISCONTINUED OPERATIONS                              $  (0.28)        $  (0.03)        $  (0.06)
                                                            ========         ========         ========
EARNINGS (LOSS) PER SHARE - DILUTED                         $  (1.23)        $  (0.08)        $   0.44
                                                            ========         ========         ========

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - BASIC            32,336           31,986           31,300
                                                            ========         ========         ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - DILUTED          32,336           31,986           32,695
                                                            ========         ========         ========
</TABLE>

                        See notes to financial statements


                                      F-4

<PAGE>

                  STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                           For the Fiscal Years Ended
                January 1, 2000, January 2, 1999, January 3, 1998
                      (in thousands, except per share data)

<TABLE>
<CAPTION>

                                                                                                      Additional        Retained
                                                                              Common Stock             Paid-in          Earnings
                                                                         Shares         Amount         Capital          (Deficit)
                                                                         ------         ------         -------          ---------
<S>                                                                      <C>           <C>             <C>              <C>
BALANCE AT DECEMBER 28, 1996                                             15,392        $    154        $ 49,188         $  8,143
Comprehensive income:
  Net income for the fiscal year                                                                                          14,372
  Other comprehensive income (loss):
    Unrealized gain on marketable securities
Comprehensive income for the fiscal year
Issuance of common stock relative to the
  exercise of incentive and non-qualified stock
  options at $2.85 - $35.00 per share                                       924              10           4,855
Two-for-one stock split effected in the form
  Of a 100% stock dividend                                               15,551             155            (155)
Tax benefit arising from stock option deductions                             --              --           9,269               --
                                                                       --------        --------        --------         --------
BALANCE AT JANUARY 3, 1998                                               31,867             319          63,157           22,515
Comprehensive loss:
  Net loss for the fiscal year                                                                                            (2,681)
  Other comprehensive loss:
    Unrealized gain on marketable securities
Comprehensive loss for the fiscal year
Issuance of unregistered shares of common stock relative to the
acquisition of Heath Custom Press, Inc. at $25.38 per share                  94               1           2,406

Issuance of common stock relative to the exercise of
incentive and non-qualified stock options at $2.85 - $10.94
per share                                                                   315               3           1,733               --
                                                                       --------        --------        --------         --------
BALANCE AT JANUARY 2, 1999                                               32,276             323          67,296           19,834
Comprehensive loss:
  Net loss for the fiscal year                                                                                           (39,616)
  Other comprehensive loss:
Comprehensive loss for the fiscal year
Issuance of unregistered shares of common stock
  relative to the acquisition of R/H Consulting, Inc.
  at $9.875 per share                                                       143               1           1,409

Issuance of common stock relative to the exercise of incentive
  and non-qualified stock options at $3.55 - $13.75 per share                97               1             607               --
                                                                       --------        --------        --------         --------
BALANCE AT JANUARY 1, 2000                                               32,516        $    325        $ 69,312         $(19,782)
                                                                       ========        ========        ========         ========
<CAPTION>
                                                                          Accumulated
                                                                             Other            Total
                                                                         Comprehensive    Stockholders'
                                                                         Income (Loss)       Equity
                                                                         -------------       ------
<S>                                                                        <C>              <C>
BALANCE AT DECEMBER 28, 1996                                               $    (43)        $ 57,442
Comprehensive income:
  Net income for the fiscal year                                                              14,372
  Other comprehensive income (loss):
    Unrealized gain on marketable securities                                     42               42
                                                                                            --------
Comprehensive income for the fiscal year                                                      14,414
                                                                                            --------
Issuance of common stock relative to the
  exercise of incentive and non-qualified stock
  options at $2.85 - $35.00 per share                                                          4,865
Two-for-one stock split effected in the form
  Of a 100% stock dividend                                                                        --
Tax benefit arising from stock option deductions                                 --            9,269
                                                                           --------         --------
BALANCE AT JANUARY 3, 1998                                                       (1)          85,990
Comprehensive loss:
  Net loss for the fiscal year                                                                (2,681)
  Other comprehensive loss:
    Unrealized gain on marketable securities                                      1                1
                                                                                            --------
Comprehensive loss for the fiscal year                                                        (2,680)
                                                                                            --------
Issuance of unregistered shares of common stock relative to the
acquisition of Heath Custom Press, Inc. at $25.38 per share                                    2,407

Issuance of common stock relative to the exercise of
incentive and non-qualified stock options at $2.85 - $10.94
per share                                                                        --            1,736
                                                                           --------         --------
BALANCE AT JANUARY 2, 1999                                                       (0)          87,453
Comprehensive loss:
  Net loss for the fiscal year                                                               (39,616)
  Other comprehensive loss                                                                        --
                                                                                            --------
Comprehensive loss for the fiscal year                                                       (39,616)
                                                                                            --------
Issuance of unregistered shares of common stock
  relative to the acquisition of R/H Consulting, Inc.
  at $9.875 per share                                                                          1,410

Issuance of common stock relative to the exercise of incentive
  and non-qualified stock options at $3.55 - $13.75 per share                    --              608
                                                                           --------         --------
BALANCE AT JANUARY 1, 2000                                                 $     (0)        $ 49,855
                                                                           ========         ========
</TABLE>

                        See notes to financial statements

                                      F-5

<PAGE>

                                                            PRESSTEK, INC.
                                                       STATEMENTS OF CASH FLOWS
                                                      For the Fiscal Years Ended
                                                            (in thousands)
<TABLE>
<CAPTION>
                                                                                          January 1,      January 2,      January 3,
                                                                                             2000            1999            1998
                                                                                           --------        --------        --------
<S>                                                                                        <C>             <C>             <C>
CASH FLOWS - OPERATING ACTIVITIES:
  Income (loss) from continuing operations                                                 $(30,634)       $ (1,587)       $ 16,489
   Adjustments to reconcile income (loss) from continuing operations
    To net cash provided by operating activities of continuing operations:
     Tax benefit arising from stock option deductions                                            --              --           9,269
     Depreciation                                                                             5,113           3,502           1,803
     Amortization                                                                               569             547             456
     Provision for warranty and other costs                                                     290             679           1,113
     Provision for losses on accounts receivable                                              1,790           4,655           1,053
     Provision for shareholder litigation settlement                                         22,950              --              --
     Other, net                                                                                  41              38              34
Changes in operating assets and liabilities, net of effects from acquisitions:
     Decrease (increase) in accounts receivable                                               7,191           1,392         (11,232)
     Decrease (increase) in inventories                                                       2,510           4,093          (2,569)
     Decrease in costs and estimated earnings in excess of
      billings on uncompleted contracts                                                          --             899             182
     Decrease (increase) in other current assets                                                109            (538)            (47)
     Increase (decrease) in accounts payable and accrued expenses                               100            (702)         (1,607)
     Increase in accrued salaries and employee benefits                                         332             117              56
     Billings in excess of costs and estimated
      earnings on uncompleted contracts                                                      (1,951)          1,995              --
                                                                                           --------        --------        --------
       Net cash provided by operating activities of continuing operations                     8,410          15,090          15,000
       Net cash provided by (used in) operating activities of discontinued operations        (7,196)            744            (864)
                                                                                           --------        --------        --------
       Net cash provided by operating activities                                              1,214          15,834          14,136
                                                                                           --------        --------        --------

CASH FLOWS - INVESTING ACTIVITIES:
     Investment in subsidiary, net of cash acquired                                            (494)             --              --
     Purchases of property, plant and equipment                                             (11,812)         (6,410)        (22,758)
     Proceeds from sale of land and equipment                                                   459             442             538
     Proceeds from sale of certain net assets
      of Heath Custom Press, Inc.                                                                --             732              --
     Increase in other assets                                                                (1,005)           (584)           (365)
     Sales and maturities of marketable securities                                               --           1,000           5,452
                                                                                           --------        --------        --------
       Net cash used in investing activities of continuing operations                       (12,852)         (4,820)        (17,133)
       Net cash provided by (used in) investing activities of discontinued operations         7,215              85          (5,152)
                                                                                           --------        --------        --------
       Net cash used in investing activities                                                 (5,637)         (4,735)        (22,285)
                                                                                           --------        --------        --------

CASH FLOWS - FINANCING ACTIVITIES:
     Net proceeds from sale of common stock                                                     608           1,736           4,865
     Proceeds from mortgage term loan                                                            --           6,900            --
     Repayments of mortgage term loan                                                          (518)           (456)           --
     Proceeds from lease line of credit                                                       4,041            --              --
     Repayments of lease line of credit                                                        (112)           --              --
     Proceeds from (net payments of) revolving line of credit                                    --          (4,800)          4,800
     Payment of Heath Custom Press, Inc.'s
      revolving line of credit                                                                   --            (600)             --
                                                                                           --------        --------        --------
       Net cash provided by financing activities                                              4,019           2,780           9,665
                                                                                           --------        --------        --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                               (404)         13,879           1,516
CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD                                                19,057           4,939           3,423
     Cash acquired from Heath Custom Press, Inc.                                                 --             239            --
                                                                                           --------        --------        --------
CASH AND CASH EQUIVALENTS END OF PERIOD                                                    $ 18,653        $ 19,057        $  4,939
                                                                                           ========        ========        ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
  Cash paid during the period for:
     Interest                                                                              $    114        $    225        $    171
                                                                                           ========        ========        ========
     Income taxes                                                                          $     --        $    250        $     90
                                                                                           ========        ========        ========
NON-CASH INVESTING AND FINANCING ACTIVITY:
  Common stock issued and net assets acquired relating
    To the acquisition of RH Consulting, Inc.                                              $  1,410        $     --        $     --
                                                                                           ========        ========        ========
  Common stock issued and net assets acquired relating
    To the acquisition of Heath Custom Press, Inc.                                         $     --        $  2,407        $     --
                                                                                           ========        ========        ========
</TABLE>

                                               See notes to financial statements

                                      F-6

<PAGE>

                                 PRESSTEK, INC.
                          NOTES TO FINANCIAL STATEMENTS

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Nature of  Business - Presstek,  Inc.("Presstek",  or "the  Company")  is a
leading  developer  of  non-photographic,  digital  imaging and  printing  plate
technologies for the printing and graphic arts industries.  Presstek's  products
and applications incorporate PEARL(R) and DI(R) digital imaging technologies and
utilize   PEARL   consumables   for    computer-to-plate   and   direct-to-press
applications.  The Company's patented DI and PEARL thermal laser diode family of
products enables its customers to produce high quality,  full-color lithographic
printed materials more quickly and cost efficiently.

     In November 1999 the Company  acquired 100% of the stock of R/H Consulting,
Inc.  ("R/H").  R/H was  principally  engaged in the research and development of
laser  imageable  printing  plates.  See  Note  2  of  notes  to  the  financial
statements.  In January  1998,  the Company  acquired 100% of the stock of Heath
Custom Press, Inc. ("Heath"). In October 1998 the Company sold certain assets of
Heath,  which was  engaged  in the  design and  manufacture  of custom  printing
presses. See Note 2 of notes to the financial statements.

     The divestiture of Delta V Technologies,  Inc.  ("Delta V") was recorded in
the quarter ended October 2, 1999, and the financial  statements for all periods
reflect Delta V as a discontinued operation.  All of the following notes, unless
otherwise indicated,  refer to the continuing operations of Presstek. See Note 3
of notes to the financial statements.

     As a result of the  divestiture of Delta V, the Company  determined that it
operates in one reportable business segment,  the development and manufacture of
digital  imaging and printing  plate  technologies  for the printing and graphic
arts industries.

     Principles of Consolidation - The financial statements for the fiscal years
ended  January  1,  2000,  January 2, 1999,  and  January 3, 1998,  include  the
accounts of the Company and its subsidiaries.  Significant intercompany accounts
and transactions have been eliminated.

     Fiscal Year - The Company operates and reports on a 52/53, week fiscal year
ending on the  Saturday  closest to  December  31.  Accordingly,  the  financial
statements include the 52 week period ended January 1, 2000 ("fiscal 1999"), the
52 week period ended  January 2, 1999  ("fiscal  1998"),  and the 53 week period
ended January 3, 1998 ("fiscal 1997').

     Use of  Estimates  - The  Company  prepares  its  financial  statements  in
conformity  with  generally  accepted  accounting   principles.   This  requires
management to make estimates and assumptions that affect the reported amounts of
assets and  liabilities  and disclosure of contingent  assets and liabilities at
the date of the financial  statements  and the reported  amounts of revenues and
expenses  during the reporting  period.  Actual  results could differ from these
estimates. Many of the Company's estimates and assumptions used in the financial
statements  relate  to the  Company's  products,  which  are  subject  to  rapid
technological  change.  It is reasonably  possible that changes may occur in the
near term that would affect management's  estimates with respect to the carrying
values of  inventories,  property  plant and  equipment,  patents,  and software
development costs.

     Reclassification   -  Certain  prior  fiscal  years'   accounts  have  been
reclassified  for  comparative  purposes to conform to the  presentation  in the
current fiscal year.

     Revenue  Recognition  - The Company  records  revenues on product sales and
related royalties at the time of shipment. Certain fees and other reimbursements
are  recognized as revenue when the related  services have been performed or the
revenues otherwise earned.

     Revenues from fixed-price and modified  fixed-price  development  contracts
are  recognized  on  the   percentage-of-completion   method,  measured  by  the
percentage of costs  incurred to date compared to the estimated  total of direct
costs for each  contract.  As contracts  can extend over one or more  accounting
periods,


                                      F-7
<PAGE>

revisions  in costs and  earnings  estimated  during  the course of the work are
reflected  during the  accounting  period in which the facts that  required such
revisions become known.

     Product  Warranties - The Company  warrants its products against defects in
material and workmanship for a period of one year.  Anticipated  future warranty
costs are accrued by a charge to expense as products are shipped and the related
revenue  recognized.  At January 1, 2000 and January 2, 1999,  accrued  expenses
included accrued warranty costs of $1.0 million and $930,000.

     Research  and  Development  Costs -  Research  and  development  costs  are
expensed as incurred for financial  reporting  purposes.  Such costs  aggregated
$17.7 million, $15.4 million, and $10.7 million, for fiscal 1999, 1998 and 1997,
respectively.

     Comprehensive   Income  -  The  Company  adopted   Statement  of  Financial
Accounting  Standards ("SFAS") No. 130 "Reporting  Comprehensive  Income" in the
first quarter of fiscal 1998.  SFAS No 130 sets  standards for the reporting and
display of  comprehensive  income,  its  components  and  accumulated  balances.
Comprehensive income is comprised of net income and all changes in stockholders'
equity except those due to  investments by owners and  distributions  to owners,
which  for  the  Company  includes   unrealized  gains  (losses)  on  marketable
securities.  The Company has  elected to  disclose  comprehensive  income in its
Statement of Changes in Stockholders' Equity.

     Basic and Diluted  Earnings  (Loss) per Share - Basic  earnings  (loss) per
share is computed by dividing net income (loss) by the weighted  average numbers
of shares of common stock outstanding during the period. Diluted earnings (loss)
per share is computed giving effect to all diluted  potential common shares that
were outstanding during the period.  Dilutive potential common shares consist of
the incremental  common shares issuable upon the exercise of stock options.  For
fiscal 1999 and 1998,  potentially  dilutive  securities  that related to shares
issuable  upon the  exercise  of  stock  options  granted  by the  Company  were
excluded, as their effect was antidilutive. See Note 4 of notes to the financial
statements.

     Cash  Equivalents,  and  Marketable  Securities - For purposes of reporting
cash flows, the Company considers all savings deposits, certificates of deposit,
money market funds and deposits  purchased,  and short term  investments  with a
maturity of three months or less to be cash equivalents.  Marketable  securities
are  classified as available  for sale and are stated at fair market value.  All
unrealized  gains and losses,  if any, are  recorded as a separate  component of
stockholders'  equity.  At  January  1, 2000 and  January  2, 1999 cash and cash
equivalents  consisted of cash balances on deposit and money market  funds,  and
high-quality  debt  securities  and  commercial  paper with a maturity  of three
months or less.

     Fair  Value  of  Financial  Instruments  -  The  carrying  values  of  cash
equivalents,  accounts  receivable,  and accounts payable approximate fair value
due to the short-term maturity of these instruments. The carrying amounts of the
Company's bank borrowings under its lease line of credit agreement  approximates
fair value because the interest rates are based on floating rates  identified by
reference to market rates.  The fair value of the Company's other long-term debt
is estimated  based on quoted market prices.  At January 1, 2000, the fair value
of the Company's long term debt approximated carrying value.

     Concentration  of Credit  Risk -  Financial  instruments  that  potentially
subject the Company to concentrations of credit risk consists  primarily of cash
equivalents and accounts  receivable.  The Company invests in high-quality money
market instruments, securities of the U.S government, and high-quality corporate
issues.  Account  receivables  are generally  unsecured and are derived from the
Company's  customers  located  around the world.  The Company  performs  ongoing
credit  evaluations of its customers and maintains reserves for potential credit
losses. Concentration of credit risk with respect to account receivables results
from a significant  portion of the Company's  receivables  concentrated with two
major customers. See Note 10 of notes to the financial statements.


                                      F-8

<PAGE>

     Inventories - Inventories  are valued at the lower of cost or market value,
with cost determined using the first-in,  first-out  method.  At January 1, 2000
and January 2, 1999, inventories consisted of the following:

                                  1999          1998
                                    (In thousands)
          Raw materials          $1,915        $7,156
          Work in process         3,055           690
          Finished goods          2,244         1,878
                                 ------        ------
               Total             $7,214        $9,724
                                 ======        ======

     Property, Plant and Equipment - Property, plant and equipment are stated at
cost  and are  depreciated  using a  straight-line  method  for  both  financial
reporting and for tax purposes over their estimated useful lives (ranging from 3
to 30 years).  Leasehold  improvements  are amortized over the life of the lease
for financial reporting purposes.

     Patent  Application  Costs and License  Rights - Patent  application  costs
represent  the  expense  of  preparing  and  filing  applications  to patent the
Company's  proprietary  technologies,  in addition to certain patent and license
rights obtained in the Company's  acquisitions.  Such costs are amortized over a
period  ranging from five to seven  years,  beginning on the date the patents or
rights are issued or acquired.  Amortization  expense for fiscal 1999,  1998 and
1997, was $516,000, $453,000, and $145,000, respectively.

     Software  Development  Costs - Software  development costs for products and
certain product enhancements are capitalized  subsequent to the establishment of
their technological feasibility (as defined in Statement of Financial Accounting
Standards  No. 86) based upon the  existence  of working  models of the products
which are ready for  initial  customer  testing.  Costs  incurred  prior to such
technological  feasibility  or  subsequent  to a  product's  general  release to
customers  are expensed as incurred.  During  fiscal  1999,  1998 and 1997,  the
Company did not incur material costs subject to  capitalization.  Through fiscal
1996, the Company incurred and capitalized  $895,000 million of costs subject to
capitalization.  Amortization  of these costs  commenced in fiscal 1995 when the
related product was released to customers. Amortization expense reported for the
fiscal  years  1999,  1998,  and 1997,  were  $40,000,  $80,000,  and  $311,000,
respectively.  Amortization  expense is based upon the ratio that current  gross
revenues bear to total  estimated  gross  revenues,  which was an amount greater
than amortization on a straight-line  method over the estimated economic life of
the  product  from three to five  years.  As of January  1, 2000,  all  software
development costs have been fully amortized.

     Long  Lived  Assets -  Long-lived  assets,  such as  intangible  assets and
property and equipment,  are evaluated for impairment  when events or changes in
circumstances  indicate  that  the  carrying  amount  of the  assets  may not be
recoverable through the estimated undiscounted future cash flows from the use of
these  assets.  When any such  impairment  exists,  the  related  assets will be
written  down to fair  value.  As a result  of the  divestiture  of Delta V, the
Company  recorded a charge of $6.1 million related to the write down of goodwill
and other intangibles. No other write downs were necessary for fiscal 1999, 1998
and 1997.

     Stock-Based  Compensation - The Company  accounts for stock options granted
to employees under the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"), as permitted by Statement
of  Financial  Accounting  Standards  No.  123,  ("SFAS  123")  "Accounting  for
Stock-Based Compensation. APB 25 provides for compensation cost to be recognized
over the vesting period of the options based on the difference,  if any, between
the fair market value of the  Company's  stock and the option price on the grant
date.  SFAS 123  requires  companies  that  follow APB 25 to  provide  pro forma
disclosure of the effect of applying the optional fair value method.  See Note 8
of notes to the financial statements.

     Effect  of New  Accounting  Pronouncements  - In June  1998  the  Financial
Accounting  Standards Board, issued Statement of Financial  Accounting Standards
No. 133; "Accounting for Derivative  Instruments and Hedging Activities," ("SFAS
No.  133").  SFAS No. 133 (as amended by SFAS No.  137)  requires  companies  to
recognize all  derivatives  as either assets or  liabilities in the statement of
financial  position and measure those instruments at fair value. SFAS No. 133 is
effective for fiscal years  beginning  after June 15, 2000. The Company does not
presently enter into any transactions involving derivative financial instruments
and,


                                      F-9
<PAGE>

accordingly,  does not  anticipate  the new standard will have any effect on its
financial statements for the foreseeable future.

2.   BUSINESS ACQUISITIONS

     In November 1999 the Company  acquired 100% of the stock of R/H Consulting,
Inc.  ("R/H").  R/H was  principally  engaged in the research and development of
laser  imageable  printing  plates.  R/H was  purchased for $500,000 and 142,855
shares of the Company's  common stock. The excess purchase price over book value
of net  assets  acquired  of $1.9  million  has been  allocated  to the  patents
acquired. The acquisition was accounted for as a purchase and, accordingly,  the
results of R/H's  operations  subsequent to November 1999 (which are immaterial)
have been included in the financial  statements  for fiscal 1999. The results of
R/H's  operations for 1999 and 1998 would not have had a material  impact on the
Company's results of operations for the comparable periods.

     In January 1998, the Company acquired 100% of the stock of Heath. Heath was
engaged in the design and  manufacture  of custom  printing  presses.  Heath was
purchased  for 94,865  unregistered  shares of the Company's  common stock.  The
purchase  price of $2.4  million  has been  allocated  to  assets  acquired  and
liabilities assumed based on the fair market value at the date of acquisition as
follows: current assets, $2.2 million; patents, $1.8 million;  long-term assets,
$.2 million; other liabilities,  $1.8 million. The acquisition was accounted for
as a purchase  and,  accordingly,  the results of Heath's  operations  have been
included  in the  Company's  financial  statements  for the fiscal year 1999 and
1998. The results of Heath's  operations would not have had a material impact on
the Company's results of operations for fiscal 1997.

     In October 1998, the Company sold certain assets of Heath for $1.0 million,
which  approximated  book  value.  The  Company  retained  all rights to Heath's
patents.

3.   DISCONTINUED OPERATIONS

     During the third  quarter of fiscal 1999 the Company  determined to sell or
otherwise  discontinue  the  operations  of its Delta V subsidiary  to allow the
Company to further focus its efforts on the core business of digital imaging and
plate  manufacturing.  Located in Tucson,  Arizona,  Delta V was  engaged in the
development,  manufacture,  and sale of vacuum deposition  coating equipment for
vacuum coating applications.  The Company discontinued the operations of Delta V
at the end of fiscal 1999.

     As a result of the  divestiture  of Delta V, the  Company  incurred  a $8.5
million  loss on  disposal  of  discontinued  operations  for fiscal  year ended
January 1,  2000.  This  included  actual  closing  costs and  operating  losses
incurred in the fourth  quarter of fiscal 1999 of $2.2 million,  a provision for
anticipated closing costs of $1.6 million, $6.1 million related to the write off
of goodwill and other intangibles  assets, and a reduction in other asset values
of $1.6 million.  These costs were partially  offset by proceeds of $3.0 million
received from Minnesota Mining and Manufacturing  Co. ("3M"),  for the licensing
of the Company's  intellectual  property  relating to  vacuum-deposited  polymer
mulitayer technology.

     Delta V is  reported  separately  as a  discontinued  operation,  and prior
periods have been restated in the financial statements and related footnotes.

     Revenues and income from discontinued  operations for fiscal 1999, 1998 and
1997 were as follows:

                                                    1999       1998       1997
                                                  -------    -------    -------
                                                      (amounts in thousands)

          Revenues                                $ 7,248    $10,221    $ 1,769
          Costs and expenses                        8,365     11,479      3,979
                                                  -------    -------    -------
          Loss from operations                     (1,117)    (1,258)    (2,210)
          Other income                                669        164         93
                                                  -------    -------    -------
          Net loss from discontinued operations   $  (448)   $(1,094)   $(2,117)
                                                  =======    =======    =======


                                      F-10
<PAGE>

     Net assets of  discontinued  operations  at January 1, 2000 and  January 2,
1999 were as follows:

<TABLE>
<CAPTION>
                                                                       1999               1998
                                                                       ----               ----
                                                                        (amounts in thousands)

<S>                                                                 <C>                <C>
             Cash                                                   $     222          $     224
             Accounts receivable                                          700                 12
             Other current assets                                           1                968
             Accrual for anticipated closing costs                     (1,626)                --
             Other current liabilities                                 (1,114)            (2,152)
                                                                     --------            -------
             Net current liabilities of
                 discontinued  operations                            $ (1,817)         $    (948)
                                                                     ========            =======

             Land and buildings                                      $  5,295           $  5,491
             Equipment                                                     --              1,405
             Goodwill                                                      --              5,996
             Other                                                         --                535
                                                                     --------            -------
             Net non-current assets of  discontinued operations      $  5,295            $13,427
                                                                     ========            =======
</TABLE>

4.   EARNINGS (LOSS) PER SHARE

     The following  represents  the  calculation  of basic and diluted  earnings
(loss) per share for fiscal 1999, 1998 and 1997:

<TABLE>
<CAPTION>
                                                 1999         1998        1997
                                                 ----         ----        ----
                                           (amounts in thousands, except per share data)

<S>                                            <C>          <C>         <C>
   Income (loss) from continuing operations    $(30,634)    $(1,587)    $16,489
   Loss from discontinued operations             (8,982)     (1,094)     (2,117)
                                               --------     -------     -------
   Net income (loss)                           $(39,616)    $(2,681)    $14,372
                                               ========     =======     =======

   Weighted average common shares                32,336      31,986      31,300
   Outstanding - Basic

   Effect of assumed conversion
   of stock options                                --          --         1,395
                                               --------     -------     -------

   Weighted average common shares
   Outstanding - Diluted                         32,336      31,986      32,695
                                               ========     =======     =======

   Earnings (loss) per share - Basic:

   From continuing operations                  $  (0.95)    $ (0.05)    $  0.53
                                               ========     =======     =======
   From discontinued operations                $  (0.28)    $ (0.03)    $ (0.07)
                                               ========     =======     =======
   Earnings (loss) per share - Basic           $  (1.23)    $ (0.08)    $  0.46
                                               ========     =======     =======
   Earnings (loss) per share - Diluted:

   From continuing operations                  $  (0.95)    $ (0.05)    $  0.50
                                               ========     =======     =======
   From discontinued operations                $  (0.28)    $ (0.03)    $ (0.06)
                                               ========     =======     =======
   Earnings (loss) per share - Diluted         $  (1.23)    $ (0.08)    $  0.44
                                               ========     =======     =======
</TABLE>

     On May 30, 1997,  the Company's  Board of Directors  declared a two-for-one
stock  split  effected  in the form of a 100%  stock  dividend  during the third
quarter of fiscal 1997. The split resulted in the issuance of 15,549,862  shares
of common stock.  All  references to average  number of shares  outstanding  and
prices per share have been restated retroactively to reflect the split.

     All stock  options  outstanding  are excluded from the fiscal 1999 and 1998
calculation of diluted loss per share,  as their effect would be  anti-dilutive.
Options to purchase  1,111,000 shares of common stock at exercise prices ranging
from  $26.56 to $49.38  per share  were  outstanding  during a portion of fiscal
1997. These options were not included in the computation of diluted earnings per
share as the exercise prices of the options were greater than the average market
price of the common shares. These options,  which expire between January 2, 2001
and December 22, 2003, were all outstanding at the end of fiscal 1997.


                                      F-11
<PAGE>

5.   INCOME TAXES

     The  Company  utilizes  an  asset  and  liability  approach  for  financial
accounting and reporting for income taxes. The primary  objectives of accounting
for income taxes are to (a)  recognize the amount of tax payable for the current
fiscal year (b)  recognize the amount of deferred tax liability or asset for the
future tax  consequences  of events that have been  reflected  in the  Company's
financial statements or tax returns.

     The components of the provision for income taxes for fiscal 1999,  1998 and
1997 were as follows:

                                           1999          1997            1998
                                         --------      --------        --------
                                                    (In thousands)

     Current tax expense - State         $     --      $     --        $    191

     Charge in lieu of income taxes:
     Federal                                   --            --           7,740

     State                                     --            --           1,529
                                         --------      --------        --------

     Total provision                     $     --      $     --        $  9,460
                                         ========      ========        ========

     The Company did not record a provision for United  States  federal or state
income taxes or a charge in lieu of federal or state income taxes due to the tax
losses  in  fiscal  1999 and  1998,  prior to the  deductions  related  to stock
compensation.  The charge in lieu of income  taxes  included  in the fiscal 1997
provision for income taxes  represents the tax benefit arising from stock option
deductions in that year and the realization of net operating loss  carryforwards
resulting from such deductions for tax purposes. The tax benefit related to such
stock option deductions has been recorded as additional paid in capital.

     Deferred income taxes reflect the impact of temporary  differences  between
the amount of assets and liabilities for financial  reporting  purposes and such
amounts  as  measured  by tax laws and  regulations.  Deferred  tax  assets  and
liabilities consisted of the following at January 1, 2000, and January 2, 1999:

                                                            1999         1998
                                                          --------     --------
                                                              (In thousands)
     Deferred tax assets:
     Net operating loss carryforwards                     $ 18,500     $ 13,300
     Tax credits                                             3,600        2,200
     Warranty provisions, litigation and otheraccruals      11,400        3,000
                                                          --------     --------
     Gross deferred tax assets                              33,500       18,500
                                                          --------     --------

     Deferred tax liabilities:
     Amortizable and depreciable assets                        400          650
     Accumulated depreciation and amortization               5,100        5,000
                                                          --------     --------
     Gross deferred tax liabilities                          5,500        5,650
                                                          --------     --------

                                                            28,000       12,850

     Less valuation allowance                              (27,950)     (12,800)
                                                          --------     --------
     Deferred tax asset - net                             $     50     $     50
                                                          ========     ========

     The $50,000  deferred  tax asset was  included in other  current  assets at
January 1, 2000 and January 2, 1999.  The valuation  allowance  increased  $15.2
million and $1.1 million in fiscal 1999 and 1998, respectively.

                                      F-12

<PAGE>

     The difference between income taxes at the United States federal income tax
rate and the effective  income tax rate was as follows for fiscal 1999, 1998 and
1997:

                                              1999        1998        1997
                                              ----        ----        ----

     Computed at federal statutory rate       (34)%       (34)%        35%
     State tax, net of federal benefit          -%          -%          4%
     Increase in valuation allowance           34%         34%          1%
                                              ---         ---          ---
     Effective rate, net                        0%          0%         40%
                                              ===         ===          ===

     As of January 1, 2000,  the Company had net  operating  loss  carryforwards
totaling  approximately  $53.0  million of which  $38.0  million  resulted  from
compensation  deductions  for tax  purposes  relative to stock  option plans and
$15.0 million resulted from operating losses. To the extent net operating losses
resulting from stock option plan compensation deductions become realizable,  the
benefit will be credited  directly to additional paid in capital.  The amount of
the net  operating  loss  carryforwards  that may be utilized  to offset  future
taxable income, when earned, may be subject to certain  limitations,  based upon
changes in the  ownership of the  Company's  common  stock.  The  following is a
breakdown of the net operating losses and their expiration dates:

                                               Amount of Remaining
                                                    Net Operating
               Expiration date                   Loss Carryforwards
               ---------------                   ------------------
                                                  (in thousands)

                    2005                             $ 2,240
                    2006                               5,020
                    2008                                  50
                    2009                                 500
                    2010                               9,570
                    2011                              14,850
                    2012                               4,410
                    2013                               1,080
                    2014                              15,230

     In addition,  the Company has available tax credit carryforwards  (adjusted
to  reflect  provisions  of the Tax Reform  Act of 1986) of  approximately  $3.6
million  which are  available  to offset  future  income  tax  liabilities  when
incurred.

6.   PROPERTY, PLANT AND EQUIPMENT, NET

     Property,  plant and  equipment,  at cost  consisted  of the  following  at
January 1, 2000 and January 2,1999:

                                                 1999           1998
                                               --------       --------
                                                    (in thousands)
     Land and improvements                     $  1,115       $  1,489
     Buildings and leasehold improvements        15,611         14,304
     Production equipment and other              34,452         31,291
     Construction in progress                     8,341          1,167
                                               --------       --------
                                                 59,519         48,251
          Less accumulated depreciation         (13,824)        (8,754)
                                               --------       --------
                                               $ 45,695       $ 39,497
                                               ========       ========

     The Company's construction in progress includes $6.8 million for additional
plate   manufacturing   equipment  that  is  expected  to  reduce  the  cost  of
manufacturing the Company's  proprietary digital media and consumable  products,
$885,000 for additional  equipment  that will enhance the Company's  development
capabilities,  and other test  equipment  of $656,000.  The Company  anticipates
completion of its current  equipment  construction in progress in the first half
of 2000, with an estimated cost to complete of approximately $1.7 million.



                                      F-13
<PAGE>

7.   LONG-TERM DEBT

     Long-term debt consisted of the following at January 1, 2000 and January 2,
1999:

                                       1999                      1998
                                       ----                      ----
                                                (in thousands)
     Mortgage term loan              $ 5,925                   $ 6,444
     Lease line of credit              3,929                       -
                                     -------                   -------
                                       9,854                     6,444
     Less current portion             (1,024)                     (522)
                                     -------                   -------
                                     $ 8,830                   $ 5,922
                                     =======                   =======

     In  September  1999,  the Company  borrowed  $4.0  million  against a $10.0
million  lease  line of  credit  facility  from  Keybank  National  Association.
Borrowings  are secured by equipment  valued at $5.2  million.  The loan bears a
variable rate of interest  based upon the prime rate,  currently  7.25%,  with a
fixed rate  conversion  provision.  Principle  and interest on the lease line of
credit  facility are payable in 84 monthly  installments  beginning  October 31,
1999. The commitment for the balance of $6.0 million  available  under the lease
line of credit is scheduled to expire on April 30, 2000.

     The  Company's   credit   facilities   with  Citizens  Bank  New  Hampshire
("Citizens"),  include a ten-year  mortgage  term loan and a  revolving  line of
credit loan. The mortgage term loan in the amount of $6.9 million, is secured by
land and buildings with a cost of approximately $17.0 million.  The loan bears a
fixed  rate of  interest  of 7.12% per year  during  the first  five years and a
variable  rate of interest at the LIBOR rate plus 2%, (7.82% at January 1, 2000)
for the remaining five years.  Principal and interest  payments during the first
five  years of the loan  will be made in 60  monthly  installments  of  $80,500.
During the remaining five years,  principal and interest  payments shall be made
on a monthly basis in the amount of one-sixtieth  of the  outstanding  principal
amount as of the first day of the second five year period, plus accrued interest
through the monthly  payment  date.  All  outstanding  principal and accrued and
unpaid interest is due and payable on February 6, 2008.

     The revolving line of credit loan, under which the Company may borrow $10.0
million,  is secured by substantially all of the Company's  assets.  Interest on
the line of credit is payable at the LIBOR rate plus 1.50%  (7.32% at January 1,
2000). The loan agreement terminates on July 31, 2000, at which date, the entire
principal  and accrued  interest is due and payable.  The Company  currently has
$10.0 million available under the line of credit loan agreement.

     As of January 1, 2000, aggregate debt maturities for Long-Term Debt were as
follows:

                                             (in thousands)
                2000                             $1,024
                2001                              1,107
                2002                              1,190
                2003                              1,278
                2004                              1,373

     Under the terms of the mortgage term loan, the lease line of credit and the
revolving  line of credit  agreements,  the Company is required to meet  certain
financial  covenants on a quarterly  and annual basis.  At January 1, 2000,  the
Company was in compliance with all debt covenants.

8.   STOCKHOLDERS' EQUITY

     References  herein to shares,  options,  warrants  and the prices per share
have  been  restated  for all  stock  splits,  effected  in the  form  of  stock
dividends.

     Preferred Stock - The Company's  certificate of incorporation  empowers the
Board of  Directors,  without  stockholder  approval,  to issue up to  1,000,000
shares  of  $.01  par  value  preferred  stock,   with  dividend,   liquidation,
conversion,  and voting or other rights to be  determined  upon  issuance by the
Board of Directors.

                                      F-14
<PAGE>

     Restricted  Stock Purchase Plan - On August 22, 1988 the Company  adopted a
Restricted  Stock  Purchase  Plan  ("the  Purchase  Plan").  The  Purchase  Plan
originally  authorizing  the sale of up to 125,000 shares of common stock to its
employees at a price to be determined by the Board of Directors, but in no event
to be less  than  $.01 per share or  greater  than 110% of the then fair  market
value. This plan expired August 21, 1998.

     Stock  Option  Plans - As of  January  1, 2000 the  Company  had four stock
option plans in effect.  The 1991 Stock Option Plan (the "1991 Plan"),  the 1994
Stock Option Plan (the "1994  Plan"),  the 1997  Interim  Stock Option Plan (the
"1997 Plan") and the 1998 Stock Incentive Plan (the "1998 Plan"). The 1988 Stock
Option Plan (the "1988 Plan")  expired on August 21, 1998. No future grants will
be issued under this plan,  however  18,743 shares remain  outstanding  and will
expire according to the specified expiration terms under the individual grants.

     The 1991 Plan and the 1994 Plan  provide for the award of  options,  to key
employees and other persons, to purchase up to 2,500,000 shares of the Company's
common stock.  Options  granted under these plans may be either  Incentive Stock
Options ("ISOs") or Nonqualified Options ("NQOs").  Generally,  ISOs may only be
granted to employees of the Company,  at an exercise price of not less than fair
market  value of the  stock at the date of  grant.  NQOs may be  granted  to any
person, at any exercise price not less than par value,  within the discretion of
the Board of  Directors  or a  committee  appointed  by the  Board of  Directors
("Committee").  The 1997 Plan provides for the award of options to key employees
and other  persons,  to purchase up to 250,000  shares of the  Company's  common
stock. Only NQOs may be granted under this plan.

     Under the 1997,  1994 and 1991 Plans,  any options  granted will  generally
become  exercisable in increments over a period not to exceed ten years from the
date of grant,  to be determined  by the Board of Directors or Committee.  These
options generally will expire not more than ten years from the date of grant.

     The 1998 Plan  provides  for the  award  (collectively  "awards")  of stock
options,  restricted  stock,  deferred  stock,  and other stock based  awards to
officers,  directors,  employees,  and other key  persons.  A total of 3,000,000
shares of common stock, subject to anti-dilution  adjustments have been reserved
for this plan.  Options under the 1998 Plan become  exercisable upon the earlier
of a date set by the Board of Directors or Committee at the time of grant or the
close of business on the day before the tenth  anniversary of the stock options'
date of grant.  Options become  exercisable the day before the fifth anniversary
of the date of grant in the case of an ISO.

     Director  Stock Option Plan - The  Company's  Non-employee  Director  Stock
Option Plan (the  "Director  Plan")  allows only  non-employee  directors of the
Company  (other than Robert  Howard or Dr.  Lawrence  Howard) to receive  grants
under the Director  Plan.  The Director Plan  provides  that eligible  directors
automatically  receive a grant of options  to  purchase  5,000  shares of common
stock at fair market value upon first  becoming a director and,  thereafter,  an
annual grant,  in January of each year,  of options to purchase  2,500 shares at
fair market value. Options granted under this plan become 100% exercisable after
one year and terminate five years from date of grant.

                                      F-15

<PAGE>

     The following table summarizes  information about stock options outstanding
at January 1, 2000:


<TABLE>
<CAPTION>
                                            OPTIONS OUTSTANDING                                              OPTIONS EXERCISABLE

                            Outstanding       Weighted-Average                                Exercisable as
         Range of              as of             Remaining           Weighted-Average              of           Weighted-Average
     Exercise Prices           1/1/00        Contractual Years        Exercise Price             1/1/00         Exercise Price
     ---------------           ------        -----------------        --------------             ------         --------------
<S>                         <C>                     <C>                   <C>                  <C>                   <C>
$2.85  - $ 7.19               563,850               9.4                    $6.84                   1,300              $ 4.85

$7.20  - $ 7.89               867,338               5.5                    $7.72                 706,338              $ 7.76

$7.90  - $13.74               618,915               6.2                    $9.72                 403,415              $ 9.99

$13.75                        887,200               8.2                   $13.75                 491,025             $ 13.75

$13.76 - $22.00               146,500               6.2                   $14.36                  57,000             $ 14.67
                            ---------                                                          ---------
                            3,083,803               7.1                   $10.01               1,659,078             $ 10.31
                            =========                                                          =========
</TABLE>


     Information  concerning  all stock option  activity  under the 1988,  1991,
1994,  1997,  1998 and the Director  Plans for the fiscal years ended January 1,
2000, January 2, 1999 and January 3, 1998 is summarized as follows:


<TABLE>
<CAPTION>
                                                                                          Weighted
                                    Option                    Option Price            Average Price
                                    Shares                      Per Share               Per Share
                                  ---------                   ------------            -------------
<S>                               <C>                        <C>                          <C>
Outstanding at
December 28, 1996                 3,593,332                  $  2.85 - $49.62             $12.92


Granted                             604,600                  $ 22.00 - $49.38             $29.70
Exercised                        (1,082,002)                 $  2.85 - $35.00             $ 4.50
Cancelled/Expired                   (83,250)                 $  7.90 - $44.75             $35.91
                                  ---------

Outstanding at
January 3, 1998                   3,032,680                  $  2.85 - $49.62             $18.64

Granted                           1,503,000                  $  7.19 - $25.00             $13.40
Exercised                          (314,844)                 $  2.85 - $10.94             $ 5.51
Cancelled/Expired                (1,719,800)                 $  4.85 - $49.63             $26.96
                                  ---------

Outstanding at
January 2, 1999                   2,501,036                  $  3.55 - $44.75             $11.43

Granted                             817,000                  $  5.88 - $15.88             $ 7.16
Exercised                           (96,533)                 $  3.55 - $13.75             $ 6.30
Cancelled/Expired                  (137,700)                 $  5.50 - $44.75             $21.48
                                  ---------

Outstanding at
January 1, 2000                   3,083,803                  $  4.85 - $16.81             $10.01
                                  =========
</TABLE>

     The incentive  and  nonqualified  stock options  summarized in the previous
table were granted under various  vesting  schedules  ranging from  immediate to
five years,  with termination dates ranging from five to ten years from dates of
grant and may be subject to earlier termination as provided in the plans.

                                      F-16
<PAGE>

     In April 1998, the Company repriced grants  previously issued between April
10, 1995 and March 30, 1998 under its 1988,  1991,  1994, 1997 and  Non-Employee
Director Stock Option Plans. A total of 1,127,000  options with exercise  prices
ranging  from  $18.00 to $49.63 per share were  repriced to $13.75 or $14.75 per
share.  These options are reflected in the previous table as options granted and
cancelled for fiscal 1998.

     In September 1999, the Company  extended the expiration  dates to ten years
for all eligible stock options  originally  granted with expiration dates of six
years.  As the market value on the date of extension  was less than the exercise
price of the options,  no  compensation  expense was  recorded.  The grants were
treated as newly issued for purposes of the pro forma disclosure of net loss and
loss per share indicated in the table below.

     The  proceeds to the Company from stock  options  exercised  during  fiscal
years 1999, 1998 and 1997,  totaled  $608,000,  $1.7 million,  and $4.9 million,
respectively.

     Statement  of  Financial   Accounting   Standards  No.  123  ("SFAS  123"),
"Accounting for Stock-Based  Compensation",  requires the Company to provide pro
forma  disclosure  of net income and earnings per share as if the optional  fair
value method had been applied to determine  compensation costs for the Company's
Stock Option plans. The Company has used the Black-Scholes  option-pricing model
to estimate the fair value of $9.25, $7.22, and $13.21,  respectively,  for each
stock option issued in fiscal 1999,  1998, and 1997 using he following  weighted
average  assumptions:  a risk-free interest rate of 6.13%,  5.11%, and 5.62%; an
expected  option  life of 6.68  years,  4.09  years,  and 4.65  years;  expected
volatility of 79.6%, 72.92%, and 65.84%; and no dividends paid.

     Accordingly,  the  Company's net income (loss) and earnings per share would
have been reduced to the pro forma amounts indicated in the following table:

                                   1999             1998           1997
                                 --------         -------        -------
                                  (In thousands, except per share data)

Net income (loss)
   As reported                   $(39,616)        $(2,681)       $14,372
   Pro forma                     $(60,981)        $(9,036)       $ 8,772

Earnings (loss)
per share - Basic
   As reported                   $  (1.23)        $  (.08)        $  .46
   Pro forma                     $  (1.89)        $  (.28)        $  .28

Earnings (loss)
per share - Diluted
   As reported                   $  (1.23)        $  (.08)        $  .44
   Pro forma                     $  (1.89)        $  (.28)        $  .27

     The above pro forma's net income  (loss) and net income (loss) per share do
not recognize the related tax benefits in fiscal 1997 of $2.0 million,  as these
deferred tax assets would be fully offset by a valuation allowance. There was no
related tax benefit for fiscal 1999 or 1998.

     In November  1999, the Company issued 142,855 shares of its common stock at
$9.875 to acquire the net assets of R/H for an aggregate  cost of $1.4  million,
plus $500,000 paid to certain of its officers.

9.   RELATED PARTIES

     During fiscal 1999, 1998, and 1997, the Company recorded sales of equipment
and consumables to Pitman Company ("Pitman") of $15.5 million, $13.7 million and
$7.6 million,  respectively. At January 1, 2000 and January 2, 1999, the Company
had accounts receivable from Pitman of $2.4 million and $3.8 million,


                                      F-17
<PAGE>

respectively. John Dreyer, who has been a director of the Company since February
1996, is Pitman's President and Chief Executive Officer.

     On February 28, 1998,  the Company made a loan to Robert E. Verrando in the
amount of $200,000 at an interest  rate of 8% per annum,  with the principal and
accrued  interest  payable  on demand.  At January 1, 2000 and  January 2, 1999,
$185,000 and $213,000, respectively was due to the Company. Mr. Verrando was the
President  and Chief  Operating  Officer of the Company  from  February  1996 to
January 1999 when he retired from these positions. He was appointed Secretary of
the Company in September 1998. He also remains a director on the Company's Board
of Directors, and a consultant to the Company.

     The  Company  paid Robert  Howard,  the  Company's  Chairman  Emeritus  for
consulting  services  provided to the Company.  In each of the fiscal years 1999
and 1998 the  Company  paid  $133,000,  and in  fiscal  1997  the  Company  paid
$145,000.  The  Company had a payable to Mr.  Howard of $12,000  for  consulting
services  at January 1, 2000 and  January 2, 1999.  In fiscal  1998 and 1997 the
Company subleased certain of its office facilities as a tenant-at-will  from Mr.
Howard. Payments totaled $38,000 for fiscal 1998 and $36,000 for fiscal 1997.

10. MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION

     The geographic information included in the following table for fiscal 1999,
1998 and 1997  attributes  revenues  to the  geographic  locations  based on the
location of the Company's customer.

                                        1999        1998           1997
                                      -------      -------       -------
                                               (in thousands)

          Geographic Revenues:

             United States            $20,636      $23,243       $ 9,679

             Germany                   14,100       40,824        70,726

             Japan                      8,106        4,912         1,438

             All Other                 12,122        5,186         7,950
                                      -------      -------       -------
                                      $54,964      $74,165       $89,793
                                      =======      =======       =======

     Revenues  generated under the Company's  agreements with Heidelberg and its
distributors totaled $21.6 million,  $42.1 million, and $73.7 million for fiscal
1999, 1998, and 1997, respectively.  Accounts receivable from Heidelberg totaled
$6.5 million and $12.4 million, respectively, at January 1, 2000, and January 2,
1999.  Revenues  generated  under the Company's  agreements  with Pitman totaled
$15.5  million,  $13.7 million and $7.6 million for fiscal 1999,  1998 and 1997,
respectively.  Accounts  receivable  from Pitman  totaled  $2.4 million and $3.8
million, respectively, at January 1, 2000 and January 2, 1999. No other customer
represented  more than ten percent of the  Company's  revenues  in fiscal  1999,
1998, and 1997.

11.  COMMITMENTS AND CONTINGENCIES

     The  Company  leases  a  number  of  its  facilities  under  non-cancelable
operating  leases,  many  of  which  contain  renewal  options.  The  agreements
generally  require minimum  monthly rents,  adjusted  annually,  plus a pro rata
share of real estate taxes and certain other expenses.  Total rental expenses as
a result of these  agreements  were $449,000  $513,000,  and $542,000 for fiscal
1999, 1998, and 1997, respectively.  As of January 1, 2000, future minimum lease
payments under these agreements were as follows:

                     2000                 $300,000
                     2001                   93,000
                     2002                    4,000
                                          --------
                     Total                $397,000
                                          ========

     The Company has employment agreements with two key executive officers.  The
agreements provide for minimum salary levels,  subject to periodic review by the
Company's  Board of Directors.  The employment  agreements  also contain certain
change in control  provisions,  as defined,  which  entitle  each  executive  to
receive  up to three  times  his  five-year  average  annual  compensation.  The
Company's  maximum  contingent  liability under such agreements as of January 1,
2000 would be $1.3 million.



                                      F-18
<PAGE>

12.  HEIDELBERG AGREEMENTS

     In  January  1991,  the  Company  entered  into a  Master  Agreement  and a
Technology  License  Agreement  (collectively  referred  to as  the  "Heidelberg
Agreements") with Heidelberg.

     The Heidelberg Agreements and amendments govern the Company's  relationship
with  Heidelberg  and  relate to the  integration  of the PEARL  Direct  Imaging
technology into various presses  manufactured by Heidelberg.  The manufacture of
components,  at specified rates, for such presses and the  commercialization  of
such presses are also covered.

     The Heidelberg  Agreements expire in December 2011 subject to certain early
termination and extension provisions. Under these agreements,  Heidelberg agreed
to pay  royalties  to the  Company  based on the net  sales  prices  of  various
specified  types of  Heidelberg  presses  on which the  Company's  PEARL  Direct
Imaging  technology  would  be  used.  Pursuant  to the  Heidelberg  Agreements,
Heidelberg has been provided with certain  exclusive rights for use of the PEARL
Direct  Imaging  technology  for the  Quickmaster  DI format  size.  The  Master
Agreement has also been modified to provide Heidelberg with a fixed royalty rate
for the Company's PEARL Direct Imaging systems used in the Quickmaster DI.

     In fiscal 1998 and 1999, the Company  materially  reduced production levels
of  direct  imaging  systems  used  in  the  Quickmaster  DI  press,   based  on
requirements  from  Heidelberg.  The Company received orders in fiscal 1999 from
Heidelberg in connection with its direct imaging systems used in the Quickmaster
DI.  Based on the  delivery  schedule  for these  orders,  the  Company  resumed
production  with initial low level  shipments of its direct imaging systems late
in the third quarter of fiscal 1999. The Company  expects to continue  shipments
through the end of fiscal 2000.  Additionally,  the Company believes  production
levels through the end of fiscal 2000 will increase in line with the actual rate
of Quickmaster DI's made by Heidelberg.

13.  OTHER INFORMATION

     Since June 28, 1996,  several class action lawsuits have been filed against
the Company and certain other defendants, including, but not limited to, certain
of the Company's officers and directors. These actions have been consolidated in
the United States  District Court,  District of New Hampshire,  under the common
caption "Bill Berke, et al. V. Presstek,  Inc., et al.  ("Berke"),  and a single
consolidated   amended  complaint  has  been  filed  by  lead  counsel  for  the
plaintiffs. In addition, two actions have been filed derivatively,  on behalf of
the Company, one in the Chancery Court of the State of Delaware and the other in
the United States District Court, District of New Hampshire.

     The lawsuits each contain a variety of allegations  including,  among other
things,  that the defendants  violated Section 10(b) of the Securities  Exchange
Act of  1934  (the  "Exchange  Act")  and  Rule  10b-5  promulgated  thereunder,
violations of Section 20(a) and 20(A) of the Exchange Act,  common law fraud and
deceit,   negligent   misrepresentation  and  waste  of  corporate  assets.  The
allegations  include  claims  that  the  Company  issued  false  and  misleading
financial  statements,  and failed to properly disclose (a) adverse  information
concerning the Company's patents; (b) the nature and extent of the investigation
by the Securities and Exchange  Commission with respect to activities by certain
unnamed  persons and entities in connection  with the  securities of the Company
(c) the backlog of orders from,  supply  contracts  with, and orders received by
its  principal  customer.  The  Company's  officer and director  defendants  are
alleged to have sold the Company's  common stock while in possession of material
non-public  information.   The  plaintiffs  generally  are  seeking  to  recover
unspecified  damages and  reimbursement of their costs and expenses  incurred in
connection with the action.  Moreover, the plaintiff in the derivative action in
Delaware is also  seeking a return to the Company of all  salaries and the value
of other remuneration paid to the defendants by the Company during the time they
were  in  breach  of  their  fiduciary   duties  and  an  accounting  of  and/or
constructive  trust on the proceeds of  defendants'  trading  activities  in the
common stock.

     On March 30, 1999 the United States  District Court for the District of New
Hampshire  issued orders  dismissing  several of the claims brought  against the
Company and others in the Berke lawsuit.

     The Company has entered into an agreement with the plaintiffs to settle the
class  action  lawsuit,  and has  executed a memorandum  of  understanding  with
respect to settlement of the derivative law suits.  Under


                                      F-19
<PAGE>

the terms of the class action settlement,  $22.0 million,  in the form of shares
of the  Company's  common stock,  will be paid to the class,  with the number of
shares to be issued  determined by a formula valuing the stock at different time
periods. The Company has reserved the right to pay the settlement in cash at the
time the settlement becomes effective. In the memorandum of understanding in the
derivative   litigation,   the  Company   has  agreed  to  certain   therapeutic
improvements  to  its  internal  policies,  some  of  which  have  already  been
instituted,  including Company policies on insider trading,  the functioning and
membership  of its audit  committee,  and the policies  pertaining  to corporate
communications.  The settlement of both the class action and derivative  actions
require final  approval of the United  States  District  Court.  The Company has
recorded a charge of $23.2 million in the fourth  quarter of fiscal 1999 related
to the settlement. See Note 14 of notes to financial statements.

     In August 1999 Creo Products, Inc., ("Creo"), filed an action in the United
States District Court for the District of Delaware against the Company asserting
that Creo has a  "reasonable  apprehension  that it will be sued by Presstek for
infringement"  of two of the Company's  patents and seeking a  declaration  that
Creo's products "do not and will not infringe any valid and enforceable  claims"
of the patents in question.  In September 1999, the Company filed a counterclaim
against Creo for patent infringement. The Company claims that Creo has infringed
two direct imaging  patents owned by the Company which were recently the subject
of re-examination by the U.S. Patent and Trademark Office.

     The Company intends to vigorously enforce its patent rights.

     The  Company is involved in other  litigation  arising out of the  ordinary
course of  business.  Management  believes  that these  matters  will not have a
material adverse effect on the accompanying financial statements.

14.  FOURTH QUARTER ADJUSTMENTS

     On March 24, 2000,  subject to approval by the court, the Company reached a
settlement with the plaintiffs in the class actions,  filed in 1996 on behalf of
the Company's  shareholders  against the Company and certain  other  defendants,
including  but not limited to certain of the Company's  officers and  directors.
These actions were consolidated in the United States District Court, District of
New Hampshire.  The Company has also reached a settlement with the plaintiffs in
the related  derivative  suits  filed on behalf of the  Company in the  Chancery
Court of the State of Delaware and in the United States District Court, District
of New  Hampshire.  Under the terms of the  settlement,  the Company  will issue
common stock in the amount of $22.9  million.  The Company has recorded a charge
of $23.2 million in the fourth quarter of fiscal 1999 related to the settlement,
which includes the $22.9 million settlement and related  administrative costs in
the amount of $250,000.




                                      F-20

<PAGE>

                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                             PRESSTEK, INC.

Dated: March 31, 2000                   By:  /S/ Robert W. Hallman
                                             ----------------------------
                                             Robert W. Hallman
                                             Chief Executive Officer

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
     Signature                                   Title                        Date
     ---------                                   -----                        ----
<S>                                 <C>                                  <C>
/s/ Richard A. Williams             Chairman of the Board, and           March 31, 2000
------------------------            Chief Scientific Officer
Richard A. Williams

/s/ Robert W. Hallman               Chief Executive Officer,             March 31, 2000
------------------------            President, and Director
Robert W. Hallman                   (Principal Executive Officer)

/s/ Robert Howard                   Director                             March 31, 2000
------------------------
Robert Howard

/s/ Dr. Lawrence Howard             Director                             March 31, 2000
------------------------
Dr. Lawrence Howard

/s/ Robert E. Verrando              Director                             March 31, 2000
------------------------
Robert E. Verrando

/s/ Harold N. Sparks                Director                             March 31, 2000
------------------------
Harold N. Sparks

/s/ John W. Dreyer                  Director                             March 31, 2000
------------------------
John W. Dreyer
------------------------

/s/ John B. Evans                   Director                             March 31, 2000
------------------------
John B. Evan

/s/ Edward J. Marino                Director                             March 31, 2000
------------------------
Edward J. Marino

/s/ Daniel S. Ebenstein             Director                             March 31, 2000
------------------------
Daniel S. Ebenstein

/s/ Neil Rossen                     Chief Financial Officer              March 31, 2000
------------------------            (Principal Financial and
Neil Rossen                         Accounting Officer)
</TABLE>

                                       28

<PAGE>

                                 PRESSTEK, INC.

                                   SCHEDULE II
                        VALUATION AND QUALIFYING ACCOUNTS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                         Charges
                                        Balance at       Charged to      Charged to        Add            Balance at
Fiscal                                 Beginning of      Costs and    Other Account      (Deduct)           End of
 Year              Description          Fiscal Year      Expenses        Describe        Describe         Fiscal Year
 ----              -----------          -----------      --------        --------        --------         -----------
<S>       <C>                              <C>             <C>            <C>            <C>                <C>
 1997     Allowance for losses on
            accounts receivable            $  184          $1,074         $   --         $  (317) (1)       $  941
                                           ======          ======         ======         =======            ======
          Warranty reserve                    486           1,114             --            (717) (2)          883
                                           ======          ======         ======         =======            ======

 1998     Allowance for losses on
            accounts receivable            $  941          $5,006         $  169(3)      $(3,580) (1)       $2,536
                                           ======          ======         ======         =======            ======
          Warranty reserve                    883             679             --            (632) (2)          930
                                           ======          ======         ======         =======            ======

 1999     Allowance for losses on
            accounts receivable            $2,536          $2,240         $   --         $(1,474) (1)       $3,302
                                           ======          ======         ======         =======            ======
           Warranty reserve                   930             290             --            (263) (2)          957
                                           ======          ======         ======         =======            ======
</TABLE>

(1)  Allowance for losses

(2)  Warranty expenditures

(3)  Heath Custom Press, Inc. Acquisition


                                      FS -1