The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements, which involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the risks described below in the section entitled "Information Regarding Forward-Looking Statements" and in "Part I, Item 1A, Risk Factors" of our Annual Report on Form 10-K for the year ended January 3, 2009, as filed with the SEC on March 24, 2009.

Overview of the Company

The Company is a provider of high-technology, digital-based printing solutions to the commercial print segment of the graphics communications industry. The Company designs, manufactures and distributes proprietary and non-proprietary solutions aimed at serving the needs of a wide range of print service providers worldwide. Our proprietary digital imaging and advanced technology consumables offer superior business solutions for commercial printing focusing on the growing need for short-run, high quality color applications. We are helping to lead the industry's transformation from analog print production methods to digital imaging technology. We are a leader in the development of advanced printing systems using digital imaging equipment, workflow and consumables-based solutions that economically benefit the user through streamlined operations and chemistry-free, environmentally responsible solutions. We are also a leading sales and service channel across a broadly served market in the small to mid-sized commercial, quick and in-plant printing segments.

Presstek's business model is a capital equipment and consumables model. In this model, approximately two-thirds (on average) of our revenue is recurring revenue. Our model is designed so that each placement of either a DIŽ press or a CTP system generally results in recurring aftermarket revenue for consumables and service.

Through our various operations, we:

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

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

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

ˇ manufacture and distribute printing plates for conventional print applications.

We have developed DIŽ solution, a proprietary system by which digital images are transferred onto printing plates for direct imaging on-press applications. Our advanced DIŽ technology is integrated into a direct imaging press to produce a waterless, easy to use, high quality printing press that is fully automated and provides our users with competitive advantages over alternative print technologies. We believe that our process results in a DIŽ press which, in combination with our proprietary printing plates and streamlined workflow, produces a superior print solution. By combining advanced digital technology with the reliability and economic advantages of offset printing, we believe our customers are better able to grow their businesses, generate higher profits and better serve the needs of their customers.

Similar digital imaging technologies are used in our CTP systems. Our Presstek segment also designs and manufactures CTP systems that incorporate our technology to image our chemistry-free printing plates. Our chemistry-free digital imaging systems enable customers to produce high-quality, full color lithographic printed materials more quickly and cost effectively than conventional methods that employ more complicated workflows and toxic chemical processing. This results in reduced printing cycle time and lowers the effective cost of production for commercial printers. Our solutions make it more cost effective for printers to meet the increasing demand for shorter print runs, higher quality color and faster turn-around times.

We have executed a major transformation in the way we go to market. In the past, we had been reliant on OEM partners to deliver our business solutions to customers. Today, more than 90% of our sales are through our own distribution channels.

In addition to marketing, selling and servicing our proprietary digital products, we also market, sell and service traditional (or analog) products for the commercial print market. This analog equipment is manufactured by third party strategic partners and the analog consumables are manufactured by either us or our strategic partners. The addition of these non-proprietary products and our ability to directly sell and service them was made possible by the A.B. Dick and Precision acquisitions, which we completed in 2004.

Our operations are currently organized into two segments: (i) Presstek and (ii) Lasertel. Segment operating results are based on the current organizational structure as reviewed by our management to evaluate the results of each business. A description of the types of products and services provided by each business segment follows.

ˇ Presstek is primarily engaged in the development, manufacture, sale, distribution, and servicing of our business solutions using patented digital imaging systems and patented printing plate technologies. We also provide traditional, analog systems and related equipment and supplies for the graphic arts and printing industries.

ˇ Lasertel manufactures and develops high-powered laser diodes and related laser products for Presstek and for sale to external customers.

On September 24, 2008, the Board of Directors approved a plan to sell the Lasertel subsidiary; as such the Company has presented the results of operations of this subsidiary within discontinued operations.

We generate revenue through four main sources: (i) the sale of our equipment and related workflow software, including DIŽ presses and CTP devices, (ii) the sale of high-powered laser diodes for the graphic arts, defense and industrial sectors; (iii) the sale of our proprietary and non-proprietary consumables and supplies; and (iv) the servicing of offset printing systems and analog and CTP systems and related equipment.

Strategy

Our business strategy is centered on maximizing the sale of consumable products, such as printing plates, and therefore our business efforts focus on the sale of "consumable burning engines" such as our DIŽ presses and CTP devices, as well as the servicing of customers using our business solutions. Our strategy centers on increasing the number of our DIŽ and CTP units, which increases the demand for our consumables.

To complement our direct sales efforts, in certain territories, we maintain relationships with key press manufacturers such as Ryobi Limited ("Ryobi"), Heidelberger Druckmaschinen AG ("Heidelberg"), and Koenig & Bauer, AG of Germany ("KBA"), who market printing presses and/or press solutions that use our proprietary consumables.

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

Since 2007, management has been taking steps to improve the Company's cost structure and strengthen its balance sheet in order to enable Presstek to increase profitability on improved revenue growth when economic conditions in the United States and elsewhere recover. Our improved level of profitability and balance sheet improvements to date are, in large part, the result of our Business Improvement Plan (the "BIP") as described in more detail below, as well as our review and strengthening of inventory and accounts receivable.

Business Improvement Plan

In the fourth quarter of fiscal 2007, we announced our Business Improvement Plan ("BIP"). The plan involves virtually every aspect of the business and includes pricing actions, improved manufacturing efficiencies, increased utilization of field service resources, right-sizing of operating expenses, and cash flow improvements driven by working capital reductions and the sale of selected real estate assets.

Since the second quarter of fiscal 2007, headcount has been reduced by 15.7%, leased facilities have been consolidated, operating expenses, excluding special charges, have been reduced from $21.5 million in the second quarter of 2007 to $13.9 million in the first quarter of 2009, working capital has decreased from $39.8 million at June 30, 2007 to $35.1 million at April 4, 2009, short term debt decreased by approximately $13.1 million from $28.0 million at June 30, 2007 to $14.9 million at April 4, 2009 and in the third quarter of fiscal 2008, the Company completed the sale of real estate property located in Tucson, Arizona, of which the proceeds were used to pay down debt. The sale of this property included a sale-leaseback of a portion of the facility for the Lasertel operations.

General

We operate and report on a 52- or 53-week, fiscal year ending on the Saturday closest to December 31. Accordingly, the accompanying consolidated financial statements include the thirteen week periods ended April 4, 2009 (the "first quarter and first three months of fiscal 2009" or "the three months ended April 4, 2009") and March 29, 2008 (the "first quarter and first three months of fiscal 2008" or "the three months ended March 29, 2008").

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

RESULTS OF OPERATIONS

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

                                                                  Three months ended
                                                      April 4, 2009                 March 29, 2008
                                                                  % of                          % of
                                                                revenue                       revenue
Revenue
 Product                                        $  26,896            78.1      $  41,390           81.5
 Service and parts                                  7,564            21.9          9,404           18.5
   Total revenue                                   34,460           100.0         50,794          100.0

Cost of revenue
 Cost of product                                   16,377            47.5         25,468           50.2
 Cost of service and parts                          5,989            17.4          6,926           13.6
   Total cost of revenue                           22,366            64.9         32,394           63.8

Gross profit                                       12,094            35.1         18,400           36.2

Operating expenses
 Research and product development                   1,260             3.7          1,363            2.7
 Sales, marketing and customer support              6,365            18.5          7,420           14.6
 General and administrative                         5,972            17.3          6,973           13.7
 Amortization of intangible assets                    254             0.7            291            0.6
 Restructuring and other charges                       84             0.2            635            1.2
   Total operating expenses                        13,935            40.4         16,682           32.8

Operating income (loss)                            (1,841 )          (5.3 )        1,718            3.4

Interest and other income (expense), net              460             1.3           (472 )         (0.9 )
Provision (benefit) for income taxes                 (275 )          (0.8 )          359            0.7

Income (loss) from continuing operations           (1,106 )          (3.2 )          887            1.8
Loss from discontinued operations, net of tax         (85 )          (0.2 )         (669 )         (1.3 )
Net income (loss)                               $  (1,191 )          (3.4 )    $     218            0.5

Three months ended April 4, 2009 compared to three months ended March 29, 2008

Revenue

Consolidated Revenue

Consolidated revenues were $34.5 million in the first quarter of 2009, a decline of $16.3 million, or 32%, compared to $50.8 million in the first quarter of 2008. The decline in revenues was driven primarily by the recent deterioration in the global economy, the continuing decline in our traditional lines of business, and an unfavorable change in foreign exchange rates. Overall, sales of Presstek's "growth" portfolio of products, defined as 34DI and 52DI digital offset solutions and the Presstek family of chemistry free CtP solutions, decreased $9.5 million, or 40%, from $23.7 million in the first quarter of 2008 to $14.2 million in 2009.

Equipment revenues were $5.0 million in the first quarter of 2009, a decrease of $8.2 million, or 62%, from the comparable prior year period. Equipment sales were significantly impacted by the deterioration of the economy and were consistent with trends in global capital equipment markets. Potential customers are delaying purchasing decisions and lenders are delaying financing commitments in anticipation of a continuing sluggish economy. Sales of growth portfolio DI presses declined from $9.8 million in the first quarter of 2008 to $3.5 million in the first quarter of 2009, a reduction of 64%. Sales of our remaining growth portfolio of equipment, Dimension, Dimension Pro, Compass and Vector TX52 platesetters, declined from $2.8 million in the first quarter of 2008 to $1.1 million in 2009, a decrease of 60%. Equipment sales of our "traditional" line of products, defined as QMDI presses, polyester CtP platesetters, and conventional equipment, were lower in the first quarter of 2009 compared to 2008 due to the ongoing transition of our customer base from analog to digital technologies. Revenues from our traditional line of equipment products declined from $1.6 million in 2008 to $1.1 million in 2009, a decrease of 27%.

Consumables product revenues declined from $28.2 million in the first quarter of 2008 to $21.9 million in the first quarter of 2009, a decrease of 22%. The decline was due primarily to lower sales of our "traditional" portfolio of consumables products resulting from the continuing migration of our customer base from analog to digital solutions. Total sales of Presstek's traditional products declined from $19.0 million in the first quarter of 2008 to $14.5 million in the first quarter of 2009, a decrease of 24%, driven primarily by lower sales of QMDI plates and conventional consumables. Sales of Presstek's "growth" portfolio of consumables, defined as 52DI, 34DI, and chemistry-free CtP plates, declined from $9.2 million in 2008 to $7.5 million in 2009, a decrease of 19%, reflecting underutilized capacity in the printing markets resulting from the slow economy as well as customer inventory reductions. Sales of 52DI and 34DI plates decreased by $0.8 million, or 16%, from $4.8 million in the first quarter of 2008 to $4.0 million in 2009. Sales of chemistry-free CtP plates declined from $4.4 million in the first quarter of 2008 to $3.4 million in 2009.

Service and parts revenues were $7.6 million in the first quarter of fiscal 2009, reflecting a decrease of $1.8 million, or 20%, from the comparable prior year period. The decrease is due primarily to lower contract service and parts revenue resulting from the transition of our customer base from analog to digital solutions as well as lower equipment usage.

Cost of Revenue

Consolidated cost of product, consisting of costs of material, labor and overhead, shipping and handling costs and warranty expenses, was $16.4 million in the first quarter of fiscal year 2009, compared to $25.5 million in the first quarter of fiscal year 2008, a decrease of 36%. The decrease was due primarily to lower revenues as well as benefits from our Business Improvement Plan and further costs actions taken during late 2008.

Consolidated cost of service and parts was $6.0 million in the first quarter of fiscal year 2009, compared to $6.9 million in the same prior year period. These amounts represent the costs of spare parts, labor and overhead associated with the ongoing service of products. The reduction in overall cost is due primarily to a restructuring of our Service organization intended to realign our service costs with a declining analog revenue base, as well as lower parts revenues.

Gross Profit

Consolidated gross profit as a percentage of total revenue was 35.1% in the first quarter of fiscal year 2009, compared to 36.2% in the first quarter of fiscal year 2008.

Gross profit as a percentage of product revenues was 39.1% in the first quarter of 2009 compared to 38.5% in the comparable prior year period. Increased gross profit margin resulted primarily from favorable product mix, offset partially by the negative impacts of foreign exchange.

Gross profit as a percentage of service revenues decreased from 26.3% in the first quarter of 2008 to 20.8% in the first quarter of 2009. Lower gross profit resulted primarily from lower service margins due to lower sales, as well as the negative impact of foreign exchange.

Research and Development

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

Research and development expenses were $1.3 million in the first quarter of fiscal year 2009 compared to $1.4 million in the first quarter of fiscal year 2008. Favorable spending was due primarily to lower labor costs and lower parts and supplies expense related to product development.

Sales, Marketing and Customer Support

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

Sales, marketing and customer support expenses decreased from $7.4 million in the first quarter of fiscal year 2008 to $6.4 million in the first quarter of 2009, a decrease of $1.0 million, or 14.2%. The decline in expenses resulted primarily from lower payroll, commission, trade show, and travel related costs.

General and Administrative

General and administrative expenses are primarily comprised of payroll and related expenses, including stock compensation, for personnel and contracted professional services necessary to conduct our general management, finance, information systems, human resources and administrative activities.

General and administrative expenses were $6.0 million in the first quarter of fiscal year 2009 compared to $7.0 million in 2008, a decrease of $1.0 million, or 14.4%. Lower expenses resulted primarily from lower payroll and consulting related costs.

Amortization of Intangible Assets

Amortization expense was $0.3 million in the first quarter of both fiscal 2009 and fiscal 2008. These expenses relate to intangible assets recorded in connection with the Company's 2004 ABDick acquisition, patents and other purchased intangible assets.

Goodwill

In accordance with the provisions of SFAS 142, goodwill is tested at least annually, on the first business day of the third quarter, for impairment, or more frequently, if indicators of potential impairment arise. The Company's impairment review is based on a fair value test. The Company uses its judgment in conducting ongoing assessments of whether assets may have become impaired between annual impairment tests. Indicators such as unexpected adverse business conditions, economic factors, unanticipated technological change or competitive activities, loss of key personnel and acts by governments and courts may signal that an asset has been impaired. Should the fair value of goodwill, as determined by the Company at any measurement date, fall below its carrying value, a charge for impairment of goodwill will be recorded in the period. Based on events such as the decline in the Company's stock price during the first quarter of 2009 and the unstable economic and credit conditions, the Company assessed the value of goodwill as of April 4, 2009. No goodwill impairment was identified as of the end of the first quarter of 2009. Depending on market and economic conditions, impairment could be identified in future periods, which would result in a non-cash impairment charge.

Restructuring and Other Charges

In the first quarter of 2009, we recognized $0.1 million of restructuring costs related to employee severance. In the first quarter of 2008, we recognized $0.6 million of restructuring and other related costs associated with our business improvement plan.

Interest and Other Expense, Net

Net interest and other income was $0.5 million in the first quarter of 2009 compared to net interest and other expense of $0.5 million in the first quarter of 2008. Net interest expense of $0.1 million in the first quarter of 2009 reflected a decrease of $0.3 million from the comparable prior year period due to lower interest rates as well as a lower balance on our revolving credit facility. In the first quarter of 2009 the Company recorded proceeds of $1.2 million resulting from the favorable resolution of an insurance contract lawsuit settlement. Other net expense, consisting primarily of unrealized foreign currency exchange losses, was $0.6 million in the first quarter of 2009 compared to $0.1 million in the first quarter of 2008.

Provision for Income Taxes

Our tax benefit was $0.3 million for the three months ended April 4, 2009 compared to a tax expense of $0.4 million for the three months ended March 29, 2008, on pre-tax income (loss) from continuing operations of ($1.4) million and $1.2 million for the respective periods. The estimated annual effective tax rate excluding discrete items is expected to be approximately 20%.

Discontinued Operations

On September 24, 2008, the Board of Directors approved a plan to sell the Lasertel subsidiary as the Lasertel business is not a core focus for the Presstek graphics business. Although Lasertel is a supplier of diodes for the Company, it has grown its presence in the external market, and management believes that Lasertel would be in a better position to realize its full potential in conjunction with other companies or investors who can focus resources on the external market. The disposal of this asset group is currently anticipated to be an asset sale and to occur within a one year period. As such, the Company has presented the results of operations of this subsidiary within discontinued operations, classified the assets as "Assets of discontinued operations" and liabilities as "Liabilities of discontinued operations". The Lasertel business will continue to operate as it previously operated, including its marketing and new business/product development activities. Presstek has no intentions to shut down the business.

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

                                                   Three months ended
                                          April 4 , 2009        March 29 , 2008
     Revenues from external customers    $          1,975      $           1,637
     Loss before income taxes                        (107 )               (1,107 )
     Benefit from income taxes                        (22 )                 (438 )
     Loss from discontinued operations   $            (85 )    $            (669 )
     Loss per share                      $           0.00      $           (0.02 )

Assets and liabilities of the discontinued business of Lasertel consist of the following (in thousands):

                                           April 4, 2009       January 3, 2009

       Cash and cash equivalents          $            59     $             369
       Receivables, net                             2,059                 2,187
       Inventories                                  5,461                 4,478
       Other current assets                           115                   134
       Property, plant & equipment, net             5,291                 5,263
       Intangible assets, net                         899                   899
         Total assets                     $        13,884     $          13,330

       Accounts payable                   $           930     $             884
       Accrued expenses                               443                   448
       Deferred revenue                                --                    --
       Deferred gain                                4,266                 4,370
        Total Liabilities                 $         5,639     $           5,702

Liquidity and Capital Resources

Financial Condition (Sources and Uses of Cash)

We finance our operating and capital investment requirements primarily through cash flows from operations and borrowings. At April 4, 2009, we had $5.3 million of cash and cash equivalents and $35.1 million of working capital, including $2.5 million of short term debt, compared to $6.4 million of cash and cash equivalents and $35.7 million of working capital, including $7.0 million of short term debt at March 29, 2008.

Continuing Operations

. . .