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

                                    FORM 10-K


(Mark One)

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
     EXCHANGE ACT OF 1934

For the fiscal year ended September 30, 1999

                                       or

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
     EXCHANGE ACT OF 1934

For the transition period from _____________ to _____________

                         Commission file number 0-21504


                            QUAD SYSTEMS CORPORATION
             (Exact name of registrant as specified in its charter)

                    DELAWARE                               23-2180139
          ----------------------------               ----------------------
          (State or other jurisdiction                 (I. R. S. Employer
        of incorporation or organization)             Identification Number)


     2405 MARYLAND ROAD, WILLOW GROVE, PENNSYLVANIA               19090
     ----------------------------------------------               -----
     (Address of principal executive offices)                  (Zip Code)

Registrant's telephone number, including area code:  (215)  657-6202

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

                                      None

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

                          COMMON STOCK, $.03 PAR VALUE
          SERIES A JUNIOR PARTICIPATING PREFERRED STOCK PURCHASE RIGHTS
                                (Title of Class)


<PAGE>

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. [X]

As of December 31, 1999, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was approximately $4,900,000.*

As of December 31, 1999, 4,474,060 shares of common stock, $.03 par value, were
outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

Part III- Portions of the Registrant's definitive Proxy Statement with respect
to the Registrant's 1999 Annual Meeting of Stockholders, to be filed no later
than 120 days after the end the Registrant's fiscal year covered by this report.


----------
*    Calculated by excluding all shares that may be deemed to be beneficially
     owned by executive officers and directors of the Registrant, without
     conceding that all such persons are "affiliates" of the Registrant for
     purposes of the federal securities laws.



<PAGE>

                                     PART I

ITEM 1.   BUSINESS

GENERAL

The principal business of Quad Systems Corporation (the "Company" or "Quad") is
the distribution, marketing, design, manufacture and support of surface mount
technology ("SMT") equipment used in the assembly of printed circuit wiring
boards. Quad sells and distributes SMT assembly equipment primarily in low to
medium volume production environments. The Company's SMT assembly equipment
conveys and positions printed circuit wiring boards in preparation for the
precision placement of a broad range of electronic components. In conjunction
with the Company's primary business of selling SMT assembly equipment, the
Company also markets screen printers, reflow ovens and certain other peripherals
such as component feeders, matrix tray handlers, material handling conveyors and
machine vision systems.

Under SMT, printed circuit or wiring boards ("PWBs") are prepared by
screen-printing solder paste onto numerous contact pads at the termination of
each PWB trace. Components are added to the PWB by an assembly system that picks
a component and places it precisely on trace terminations that have been
appropriately prepared with solder paste. Leads from each component, of which
there may be as few as two or as many as several hundred, must be aligned with
the contact pads to assure proper electrical connections. After the components
are placed, the entire PWB is heated to a temperature just above the melting
point of the solder in the solder paste. The resulting reflow of the solder
provides a permanent physical and electrical bond between each lead of each
component and the pads and traces of the PWB.

The Company sells its SMT equipment as separate, individual units as well as in
turnkey systems incorporating the major elements of a SMT production line:
namely, a screen printer, an assembly system, a reflow oven and material
handling conveyors. The Company's turnkey systems are sold under the name
"QuadLineTM". The Company purchases and resells from third party manufacturers
several components of the Company's turnkey systems. The Company distributes and
sells its Meridian Series of products, under a distribution agreement with Mirae
Corporation, a Korean SMT equipment manufacturer. The Company purchases and
resells its screen printers from Speedline Technologies, Inc., to whom the
Company sold in fiscal 1999 substantially all of the assets and liabilities of
one of its European subsidiaries that manufactured such screen printers.
Finally, the Company purchases its material handling conveyors and certain of
its peripherals from third party sources. The remainder of the Company's
assembly systems, along with its reflow ovens, are designed and manufactured by
the Company. From time to time, the Company evaluates the products it
manufactures and those produced by third parties to determine whether the mix of
products to be produced and directly offered by the Company and those to be
offered by the Company from third party sources should be changed. As further
described herein, the Company is currently involved in disputes with the
supplier of its screen printers, Speedline Technologies, Inc., and the supplier
of its component tape feeders, Samsung Aerospace Industries, which could
adversely affect the supply of both products.

In addition to its SMT business, the Company designs, manufactures, markets and
supports advanced packaging technology ("APT") equipment used in processes such
as "chip on board", "flip chip" and "chip scale package" assembly. The Company
has entered into the APT market segment to a small extent only, and APT
therefore is not yet a significant portion of the Company's business and there
can be no assurance that the Company will ever be able to generate substantial
APT sales. APT combines semiconductor assembly processes and SMT assembly
processes with a wide range of substrate materials to produce products that are
significantly smaller, faster and lighter than previously possible. APT is an
enabling technology that the Company believes is becoming increasingly more
cost-effective compared against competing technologies. The Company also
believes that the APT marketplace is continuing to evolve and customer
requirements are not yet fully defined. While the APT processes described above
are not exhaustive, they include what the Company believes are some of the most
commercially feasible processes currently being utilized. The Company's current
APT product offering meets certain of the APT market's application requirements.
The Company's products do not seek to address all currently identified needs for
the APT marketplace. The Company is continuing to develop and market additional
features for its APS-1 assembler, seeking to meet targeted needs of this
evolving market. There can be no assurance that the Company will be successful
in doing so. Additionally, new technologies and competitive models may be
introduced in the future that might cause the Company's current APT product
offerings to become obsolete.

                                       1
<PAGE>


As described above, at the beginning of the Company's 1999 fiscal year, the
Company sold substantially all of the assets and liabilities of one of its
European subsidiaries, SMTech Limited ("SMTech"), to Speedline Technologies,
Inc. ("Speedline") for $14.8 million in cash, subject to a holdback of $750,000.
This holdback is payable to the Company once all disagreements and potential
litigation identified by Speedline and communicated to the Company are resolved.
SMTech's principal business was the manufacture and sale of screen printers used
in the Company's turnkey systems, which also were sold separately. The Company
is liable for various representations and warranties provided to Speedline under
this agreement and is liable for certain indemnification obligations with
respect to the intellectual property transferred to Speedline. In connection
with the sale, Quad and Speedline's MPM Corporation division ("MPM") entered
into an agreement under which MPM will supply Quad on an OEM basis with the
former SMTech screen printer product line. See Note 6 to the Consolidated
Financial Statements for further information relating to the sale of the net
assets of SMTech.

The Company was incorporated in Pennsylvania in 1980 and changed its state of
incorporation to Delaware in 1987.

PRODUCTS AND SERVICES

The Company offers various SMT and APT process equipment and related services
for the electronics manufacturing market. The products offered by the Company
are sold both as part of a turnkey system marketed by the Company under the
"QuadLineTM" name and are sold separately. Most of the Company's currently
marketed SMT and APT equipment is compatible with the Company's current and
prior software and component handling sub-systems. The Company attempts to
provide suitable upgrade paths for its products.

Primary Surface Mount Assembly Equipment

<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------------------
                                                                                        FISCAL YEAR
        PRODUCT                      CAPABILITIES                     MARKET FOCUS      INTRODUCED
----------------------------------------------------------------------------------------------------
<S>                   <C>                                          <C>                     <C>
Quad Meridian         Limited range of fine pitch capability       High volume             1999
1010/1010P Series     Chip shooter placement rates of up to        SMT assembly
                      28,000 components per hour (CPH)             market
----------------------------------------------------------------------------------------------------
Quad Meridian         Limited range of large and fine pitch        Medium volume           1999
1020/1020P Series     capability Chip shooter                      SMT assembly
                      Placement rates of up to 15,000 CPH          market
----------------------------------------------------------------------------------------------------
Quad Meridian         Limited range of fine pitch capability       Low                     1999
1030/1030P Series     Chip shooter placement rates of up to        volume/high job
                      11,000 CPH                                   mix SMT
                                                                   assembly market
----------------------------------------------------------------------------------------------------
Quad Meridian         Specialized range assembler and tray         Memory modules          1999
1050M                 handler
                      Placement rates of up to 8,000 CPH
----------------------------------------------------------------------------------------------------
QSA-30  Series        Limited range of fine pitch capability       Medium volume           1997
                       "QuadAlign" component centering             SMT assembly
                      Placement rates of up to 13,300 CPH          market
----------------------------------------------------------------------------------------------------
QSV-1  (part of the   Full range fine pitch capability             Medium volume           1997
"Q" Series)           "QuadAlign" component centering              SMT assembly
                      Placement rates of up to 7,000 CPH           market
----------------------------------------------------------------------------------------------------
QSP-2 (part of the    Full range of fine pitch capability          Medium volume           1994
"Q" Series)           "QuadAlign" component centering              SMT assembly
                      Placement rates of up to 14,000 CPH          market
----------------------------------------------------------------------------------------------------

</TABLE>

* See note below on the QSA-30.


                                       2
<PAGE>

"MERIDIAN" SERIES OF PRODUCTS

The Company distributes the Meridian Series of products under a three year
purchase and distribution agreement with Mirae Corporation ("Mirae"), a Korean
SMT equipment manufacturer. Under the terms of the distribution agreement,
executed in June 1999, Mirae appointed the Company as Mirae's exclusive private
label distributor of Mirae's SMT placement systems throughout North and South
America and Europe. The distribution agreement provides for an initial term of
three years, with options to extend the term. This new product line is called
the Quad "Meridian Series" and initially is to consist of seven fully compatible
high-speed SMT assembler models designed to meet a wide variety of production
requirements. The new assemblers have the potential to help manufacturers
achieve increased return on investment by providing high quality and
productivity for the production of PWB's, low setup and operating costs,
effective line optimization and operation monitoring tools.

The Company intends to use products from the Meridian Series to replace the
QSA-30 machine, to supplement the Company's current "Q" Series and "C" Series of
products and to help gain entry into the high volume production SMT placement
market. During the first quarter of fiscal 2000, the Company commenced shipping
Meridian Series of products to beta sites for customer evaluation. The Company
believes that during the second half of fiscal 2000 Meridian Series product
sales will represent a major portion of the Company's total sales. Attainment of
this goal will be a critical factor towards improving the Company's financial
position. There can be no assurance, however, that this goal will be attained or
that the Company will be successful marketing and selling the Meridian Series of
products.

The Meridian Series is a recently developed and previously unmarketed product
line, with several models in final stages of development. There can be no
assurance that the products will achieve market acceptance or penetration. In
addition, there can be no assurance that the Meridian Series will achieve the
required customer satisfaction or satisfactorily meet applicable reliability
standards and criteria.

1010/1010P
The Meridian Series 1010 and 1010P are designed for use in high volume
environments where throughput is the primary concern. The modular head on the
Meridian Series 1010 is designed for chip and small IC type component
placements. The Meridian Series 1010P has a precision head that allows the user
to extend the component range to include large and fine pitch component
placements.

1020/1020P
The Meridian Series 1020 and 1020P are designed for use in medium volume
environments where both accuracy and throughput are concerns. The modular head
on the Meridian Series 1020 is designed for chip and small IC type component
placements. The Meridian Series 1020P also has a precision head that allows the
user to extend the component range to include large and fine pitch component
placements.


                                       3
<PAGE>



1030/1030P
The Meridian Series 1030 and 1030P are designed for use in low volume/high job
mix environments where overall placement system cost is the primary concern. The
modular head on the Meridian Series 1030 is designed for chip and small IC type
component placements. The Meridian Series 1030P also has a precision head that
allows the user to extend the component range to include large and fine pitch
component placements.

1050M
The Meridian 1050M is designed for the assembly of memory modules. It
incorporates two important innovations: a high capacity matrix tray handler and
a programmable nozzle pitch that allow the 1050M to sustain high rates of tray
packaged component placement.

"Q" SERIES OF PRODUCTS

The "Q" Series were designed and manufactured by the Company and consist of
multi-functional SMT assemblers offering a range of throughput rates, precision
and capabilities. "Q" Series assemblers share several common technologies,
including Quad's patented QuadAlign technology, a component processing alignment
system that allows the assembler to process fine pitch components "on-the-fly,"
the P4 (Pick-Pick-Place-Place) head and QSOFT(TM), Quad's proprietary software
for electronic assembly machine programming and operation. QSOFT enables
assemblers of the "Q" Series to be combined more efficiently than otherwise
would be the case, to form higher capacity production lines. In addition, all
standard Quad component feeder systems and accessories are compatible with the
"Q" Series assemblers and can be used in combination with the Company's docking
feeder carts. All "Q" Series models share Quad's proprietary IQ (TM) feeder
setup verification technology. The Company believes that this technology
increases machine utilization and yield. Approximately 44% of the Company's
fiscal year 1999 net sales were attributable to sales of the "Q" Series,
including accessories.

QSP-2
The QSP-2 is a medium-speed multi-functional "Q" Series SMT assembler with fine
pitch capabilities. The QSP-2 was introduced in February 1994 and was the first
"Q" Series production assembler to utilize QuadAlign. The ability of the QSP-2
to place a large range of components at high throughput rates provides
flexibility in production line balancing, allowing easier optimization of
production. The QSP-2 is designed for applications with placement rates,
depending upon customer applications, of up to 14,000 CPH.

QSV-1
The QSV-1 is a low to medium volume multi-functional "Q" Series SMT assembler
with fine pitch capabilities. The QSV-1 was introduced in June 1996 and is
designed for applications with placement rates, depending upon customer
application, of up to 7,000 CPH.

QSX-1
The QSX-1 is a medium-speed "Q" Series SMT assembler that is capable of placing
ultra-fine-pitch components onto very large PWBs. This precision assembly system
combines an advanced mechanical platform and direct linear drive motor system
with the common QSOFT, QuadAlign and P4 head technologies. The QSX-1 was
designed for use in full-production fine-pitch IC placement applications. The
Company began full production and shipments of the QSX-1 during the fourth
fiscal quarter of 1996.

QSA-30 Series
The QSA-30 Series were medium volume SMT assemblers, developed in partnership
with and purchased from Samsung. The QSA-30, QSA-30A and QSA-30V models utilize
QuadAlign, Quad tape feeders and docking feeder carts. The QSA-30 Series is
designed for applications with placement rates, depending upon customer
applications, of up to 13,300 components per hour, while placing components
ranging in size from very small passive components to fine pitch components. In
March 1999, the supply agreement with Samsung under which the Company purchased
the QSA-30 units from Samsung terminated. The Company expects to fill the market
serviced by the QSA-30 products from the Company's new Meridian Series.


                                       5
<PAGE>

APS-1
The APS-1 (Advanced Packaging System) is a "Q" Series assembler designed to
address the evolving requirements of both the advanced SMT and APT markets. The
APS-1, introduced in fiscal 1997, is designed to place semiconductor die,
including flip chip on a variety of substrates, in addition to placing a broad
range of SMT components, at throughput rates of up to 5,000 CPH, depending upon
customer applications. The APS-1 has been designed to be flexible, with optional
modular sub-systems to meet a variety of customer applications. Options
currently available include Wafer Presentation Systems, a Die Inverter, an
Automatic Wafer Transfer System, a Dip Fluxer and a variety of Waffle Pack
Holders.

The Company's APT products meet certain of the APT current market application
requirements. The Company's products do not address the needs for all APT
processes in the marketplace. The Company is continuing to develop and market
additional features for its APS-1 assembler, to meet targeted needs the Company
has identified for this evolving market. There can be no assurance that the
Company will be successful in doing so. Additionally, new technologies and
competitive models may be introduced in the future which might cause the
Company's current APT product offerings to become obsolete. The Company
continually attempts to improve its products to expand and increase the
application of its products, although there can be no assurance the Company will
be successful.

"C" SERIES OF PRODUCTS

The "C" Series are modular, low to mid-range assembly systems, which can be
configured with a wide variety of accessories designed to meet the specific
processing requirements of Quad's customers. The "C" Series also incorporates
QuadAlign. Components placed by the "C" Series range from very small passive
components, to multi-leaded, fine pitch component parts with lead spacing down
to 15 mils. All of the Company's standard accessories and QuadVu TM vision
systems are available as options for the "C" Series. Approximately 8% of the
Company's fiscal 1999 net sales were attributable to sales of the current "C"
Series and its predecessors, including accessories. The "C" Series includes the
IvcMk2 which is currently nearing the end of its product life.

IIc
The IIc is an entry-level system, providing a limited range of fine pitch
capability. The IIc is based on the original IVc. The IIc includes a belt-driven
system for positioning of the X and Y-axes, while it maintains the precision
advantage of linear glass scale encoders for positional accuracy. The IIc offers
large board capacity that may be configured in a standard workholder, an in-line
board transport or a side shuttle configuration.

SCREEN PRINTERS

The Company sells screen printers manufactured by Speedline Technologies, Inc.
("Speedline"), under the agreement described below. The VMP (TM) Series and AVX
500 (TM) models are screen printers that offer high precision and repeatable
application of solder paste onto PWBs. The models range from entry level through
fully automated in-line full-size 29" screen printers.


                                       6
<PAGE>

In conjunction with the sale of substantially all of the assets and business of
its U.K. subsidiary SMTech to Speedline, as discussed above, (See Note 6 to the
Consolidated Financial Statements for further information relating to the sale
of SMTech), the Company entered into a supply agreement dated September 30, 1998
with Speedline for the purchase and resale of the former SMTech line of screen
printers (the "Printer Supply Agreement"). The terms of the Printer Supply
Agreement includes minimum purchase requirements for one specific printer, the
AVX 500, and fixed pricing for all products, subject to periodic renegotiations
by the parties.

Within the first six months of commencement of the Printer Supply Agreement,
Speedline adjusted its selling prices on the Speedline equivalent of the AVX 500
to its customers to levels approximately equal to the fixed pricing paid for the
printer by the Company under the Printer Supply Agreement. This action forced
the Company to lower its selling prices of the AVX 500 to levels that resulted
in marginal income and occasional losses to the Company in order to compete with
Speedline. As a result, during the first supply term ending November 1999, the
Company had purchased only 17 units of the minimum purchase requirement of 40
units. The Company is currently negotiating a reduction in the minimum purchase
requirements on account of the pricing policies established by Speedline. There
can be no assurance, however, that the Company will be successful in obtaining
relief from the minimum purchase requirements.

Approximately 10% of the Company's fiscal year 1999 net sales were attributable
to sales of screen printers. Consequently, a disruption of the supply of screen
printers from Speedline could adversely affect the ability of the Company to
meet its customers' needs and could adversely affect the sale of the Company's
other products. If Speedline were to stop supplying Quad with screen printers,
the Company has the right to use alternative suppliers. The Company believes
that there are other suitable screen printer products that can be obtained from
other screen printer manufacturers.

REFLOW OVENS

The Company also sells convection dominant reflow ovens manufactured by its
wholly-owned subsidiary Quad Europe Limited ("QEL"). QEL, located in High
Wycombe, England, was acquired by the Company in 1993. Oven features include a
passive pre-heat section and an integrated thermal profiling system. Based on a
modular frame design, Quad's convection reflow ovens are available in several
models. Approximately 6% of the Company's fiscal year 1999 net sales were
attributable to sales of reflow ovens, which was the same as last year.

PROFILE SERIES OF OVENS

The Company's high performance Profile Series reflow ovens feature what the
Company believes is an advanced airflow and thermal dynamics technology that
supports high-production throughputs. The A.I.R.TM (Adaptive Intelligent Reflow)
option for the Profile Series utilizes a computerized thermal camera inside the
oven and an independent computer system to monitor and control the temperature
of each PWB processed.

QCR Series Ovens
The QCR Series reflow ovens are designed for low to medium volume production
environments and for highly consistent reflow of assembled PWBs. QCR ovens are
available in two models, with four or eight independently controlled convection
zones, and belt, rail or combination transport systems.

MATERIAL HANDLING CONVEYORS

Quad sells material handling conveyors manufactured by third parties. Such
conveyors include wiring board loaders and unloaders, manual inspection stations
and other conveyor systems. Conveyor systems automate the material transfer
steps throughout the SMT assembly processing system.


                                       7


<PAGE>

QUADLINE

The Company provides its customers with the major elements of turnkey SMT
production lines, under the name "QuadLine," a service that integrates a full
line of assembly equipment. The Company believes that offering the major
elements of a turnkey production line system complements the Company's primary
business of selling surface mount assemblers. The Company also believes that
QuadLine enhances the Company's overall market position by providing customers
with a sole source of responsibility and service for, and increased
compatibility among, the equipment in customers' assembly production lines.
During fiscal year 1999, the Company's sales of such systems accounted for
approximately 29% of net sales.

PERIPHERALS AND SERVICE

Component Feeders and Accessories

The Company sells, both in conjunction with its assembler products and on a
stand-alone basis to its customers, a variety of tape, vibratory and waffle tray
feeders. In June 1996, the Company licensed its then current tape feeder
technology to Samsung Aerospace Technologies, Ltd. ("Samsung") and, in
conjunction with such license, the Company entered into a long-term tape feeder
supply agreement with Samsung, under which Samsung became the Company's sole
supplier of electronic component tape feeders (the "Feeder Supply Agreement").
The Feeder Supply Agreement carries a six-year term with minimum purchase
requirements and revised product pricing established every two years during the
term of the agreement. Deliveries under the Feeder Supply Agreement commenced in
fiscal year 1997, with the first two years of the six year supply period ending
approximately the middle of June 2000. The Company's electronic tape feeders are
available in 8mm, 12mm, 16mm, 24mm, 32mm, 44mm and other special formats and are
compatible with all Quad assembly systems, although certain of the Meridian
Series of products work at their optimal performance level in conjunction with a
modified tape feeder product currently manufactured by and obtained from
Samsung. In addition, the Company offers docking feeder carts that can be loaded
with tape feeders off-line and rapidly rolled into place to prepare the
assembler to populate a new PWB. This feature can greatly reduce the time
involved in changing over the assembler from assembling one PWB to another.

During the spring of 1999, the Company notified Samsung of Samsung's
non-compliance with certain quantity and quality requirements in its supply of
tape feeders under the Feeder Supply Agreement. As required under the terms of
the Feeder Supply Agreement, the Company supplied Samsung in late summer 1999
with its good faith requirements of the tape feeders for years three and four of
the six year supply term. In late November, 1999, Samsung notified the Company
of Samsung's disagreement with the Company's good faith purchase requirements
and threatened to terminate the agreement and declare the Company in breach. The
Company disputes Samsung's claims of non-compliance with the Feeder Supply
Agreement and believes it has adequate defenses to such claims.

A disruption of the supply of component tape feeders, whether through a
termination of the Feeder Supply Agreement or otherwise, could adversely affect
the ability of the Company to meet its customers' needs and therefore, could
adversely affect the Company's revenues and earnings. If Samsung were to stop
supplying Quad with component tape feeders, Quad has the right under the tape
feeder supply agreement to resume manufacturing or use alternative suppliers.
The Company believes it has sufficient access to alternative sources of
component tape feeders to meet its needs should any disruption in supply from
Samsung occur, although there can be no assurance that such alternate sources
will be available or will be sufficient to meet the Company's requirements.


                                       8
<PAGE>

The Company's MT-20 waffle tray handler can present up to twenty different
waffle trays to the assembler and is compatible with most of the Company's
assemblers. The Company's vibratory feeders are compatible with all of its
assembly systems.

QuadCareTM

QuadCare is the Company's integrated service and support program, offering
complete coverage for preventive and unscheduled maintenance, including parts
and labor, software and firmware upgrades, telephone consultations, application
engineering support and periodic retraining. The provision of software and
firmware upgrades under QuadCare permits existing customers to benefit from the
Company's development activities both to improve the operation of their
assemblers and to provide support for additional peripheral equipment and
modular enhancements. The Company views this line of business as supporting the
marketing of the Company's assembly equipment and not as a substantial
additional line of business.

MANUFACTURING

The Company's current principal manufacturing activities consist of
sub-assembly, final assembly and testing of the Company's SMT and APT assembly
products in Willow Grove, Pennsylvania, and of reflow ovens in High Wycombe,
England. Virtually all of the Company's PWBs, machine parts, component tape
feeders and some of the Company's sub-assemblies are manufactured by third
parties. Logistical and sourcing assistance, technical training for testing and
debugging and quality assurance coordination is provided to the Company's
subcontractors on an ongoing basis as a method of seeking to ensure quality and
low-cost production.

The Company believes it is advantageous to use multiple sources for PWBs,
fabricated parts and other essential components and generally, with the
exception of tape feeders, screen printers and Meridian Series products,
attempts to maintain more than one qualified vendor for the manufacture of each
fabricated part used in production of the Company's products. Certain parts,
however, currently are available from or have been subcontracted out to only one
source. The Company purchases components from suppliers pursuant to standard
purchase orders. Should the Company experience interruptions in any of these
supplies, or increases in costs of essential components, production delays or
cost increases could result, which would have a materially adverse effect on the
Company's business. On occasion, the Company has experienced delays due to
supply shortages, but such delays have not had a material adverse effect on the
Company.

Prior to the start of fiscal 1999, the Company manufactured a majority of its
SMT assembler products and all of its screen printers. On account of the
termination of the agreement with Samsung for the supply of the QSA-30 assembler
and the delays associated with the development with Samsung of the QSA-60 and
the need for a new line of assembler products to supplement the Company's then
current assembler line, the Company entered into a three year distribution
agreement with Mirae for the purchase and sale of the Company's new Meridian
line of assemblers.

The Company provides its customers with a one-year warranty on parts and labor
on all new products, whether manufactured by the Company or purchased from third
party suppliers.

SALES AND MARKETING

The Company markets its products and services in North America through a
combination of a direct sales force, regional sales managers and manufacturers'
representatives. At the end of fiscal year 1999, the Company employed 24 people
in sales and marketing, including 10 in direct sales and 19 manufacturers'
representative firms in North America. In addition to the sales and service
personnel located at the Company's headquarters in Willow Grove, Pennsylvania,
the Company has sales or service personnel at 34 other locations in North
America.


                                       9
<PAGE>

Outside of North America, the Company has a direct sales force in the United
Kingdom and has sales representative arrangements with firms located in Brazil,
Argentina, Mexico, India, Indonesia, Taiwan, Korea, Singapore (also covering
Malaysia and Thailand), Hong Kong, China, Japan, Philippines, Australia, New
Zealand, Turkey, Egypt, Israel and in several Western European countries, other
than the U.K.

Sales to customers outside of the United States represented approximately 45%,
39% and 44% of net sales in fiscal year 1999, 1998 and 1997, respectively. The
Company derives its international sales from Quad Europe Limited, one of its
wholly-owned foreign operating subsidiaries in the United Kingdom, that both
manufactures and sells product, as well as from international sales shipped from
its U.S. operations. Prior to October, 1998, the Company also manufactured and
sold product through its European subsidiary SMTech. Substantially all of the
assets and liabilities of SMTech were sold to Speedline in October 1998.

The increase in the Company's international sales as a percentage of total sales
(international sales decreased approximately $9 million in fiscal year 1999) is
primarily the result of significant decreases in the Company's U.S. domestic
sales rather than due to an increase in international sales. For financial
information on the Company's foreign operations and the sale of SMTech, see
Notes 6 and 11 to the Consolidated Financial Statements included herein.

BACKLOG

Backlog of orders as of September 30, 1999, totaled $4.3 million compared to
$8.8 million as of September 30, 1998. The following table sets forth certain
backlog information by product line for the periods indicated (in thousands):

                              YEAR ENDED
                             SEPTEMBER 30,
                          -----------------
                          1999          1998
                          ----          ----
Assemblers              $1,572         $5,519
Screen printers            127          1,103
Reflow ovens               215            240

The remainder of backlog consists of other products. The Company expects to ship
all backlog orders outstanding at September 30, 1999 during fiscal year 2000.
Due to increased competition and over overcapacity within the SMT industry,
orders are being completed within a shorter timeframe. It has been the Company's
experience that purchasers of capital equipment have not issued purchase orders
calling for delivery of products over an extended period. Therefore, backlog may
not necessarily be indicative of future sales.

ENGINEERING, RESEARCH AND DEVELOPMENT

The Company's product development activities focus on developing new equipment
and on improving current system features, including accuracy, reliability and
flexibility, while increasing placement rates and yield. These efforts include
seeking to improve manufacturing techniques and further enhancing and developing
software used in the Company's products. In addition, the Company seeks to
develop process systems that support advances in component packaging and device
design technologies. These efforts produced IQ(TM) Feeder Setup Verification
System, a component handling platform that presents SMT components to the
assembler while monitoring inventory status in the component feeders; QuadAlign,
a component processing alignment system used in many of the Company's products;
new products such as the APS-1 and the QSV-1; enhanced software functionality in
"Q" Series products and third party product integration software. These efforts
from time to time may include obtaining additional research and development
support from third parties.


                                       10
<PAGE>

Engineering, research and development is currently conducted at the Company's
headquarters in Willow Grove, Pennsylvania and at QEL's headquarters in High
Wycombe, England. Engineering, research and development expenses for fiscal
1999, 1998 and 1997 were approximately $4.9 million, $7.5 million and $6.8
million, respectively. This represented approximately 10.8%, 10.0% and 8.3% of
net sales, for fiscal year 1999, 1998 and 1997, respectively.

In regards to the Meridian Series of products, the Company provided significant
resources to Mirae related to the development of the Meridian Series.
Significant and ongoing engineering, research and development expense have been
utilized in the final preparation of the Meridian Series of products and its
introduction to the market. The Company anticipates significant expenses will be
generated for the duration of the distribution agreement with Mirae, as sales
derived from the Meridian Series of products are anticipated to be a significant
portion of the Company's overall future sales.

COMPETITION

The markets in which the Company competes are characterized by intense
competition, rapid technological and product changes, changing market
requirements and significant expenditures for product and market development.
The Company has a number of present and potential competitors in its markets,
many of whom have more diverse product lines and greater financial, marketing
and other resources than the Company. The Company's principal domestic
competitors are Amistar Corp., BTU International, Inc., Conceptronic, Inc.,
Contact Systems, Inc., Heller Industries, Kulicke & Soffa Industries, Inc.,
Speedline (MPM Corporation), MRSI, Palomar Products, Inc., Universal
Instruments, Inc. and Vitronics Corp. The Company's principal foreign
competitors are DEK Printing Machines, Inc., Fuji Heavy Machinery Company, Ltd.,
Hitachi, Juki Automation Systems, Mydata Automation, Inc., Panasonic Factory
Automation Division of Matsushita Electric Corporation of America, Phillips SMD
Technology, Inc., Toshiba Corp., Samsung Aerospace, Sanyo High Technology Co.,
Ltd., Shinkawa Ltd., Siemens Factory Automation Inc., and The Zevatech Group.

With the introduction of the Company's Meridian Series and the offering of a
high speed assembler products (Meridian 1010), the Company expects to enter into
the high speed SMT market, which therefore will represent an additional customer
base. Because the Company is new to the high speed SMT market, the Company is
faced with the challenge of entering into this market with new and untested
products. There can be no assurance that the Company will be able to compete
effectively or efficiently in these new markets and against these new
competitors.

The Company believes that the principal competitive factors in the segments of
the SMT and APT assembly markets in which it competes and it expects to compete
are accuracy, reliability, speed, ease of use, service and support, throughput,
price, flexibility, enabling technology and the ability to meet demand in a
timely manner. The Company believes that it addresses these issues through its
emphasis on quality control and investments in product development and customer
responsiveness.


                                       11
<PAGE>

PATENTS AND LICENSES

The Company holds four United States patents and expects to apply for additional
patents for protection of technology under development by the Company, although
there can be no assurance that any such patents will be issued or will be
sufficient to protect the Company's competitive position. One of the Company's
patents, which was granted in 1996, covers the Company's non-contact component
alignment sub-systems (known as QuadAlign), used in certain of the Company "C"
Series and all of the "Q" Series products. Although the QuadAlign patent and any
other patents that may be obtained are considered valuable intellectual
property, the Company believes that they are not determinative of any success
the Company enjoys, which the Company believes depends principally upon
engineering, marketing, service and manufacturing skills.

The Company enters into technology licensing arrangements with others when it
believes it is appropriate to do so. The Company has an agreement with Speedline
to supply Quad on an OEM basis with the former SMTech screen printer product
line. This agreement provides, among other things, that Quad will purchase a
minimum of $7.4 million of AVX 500 screen printers by December 31, 2000. This
agreement, however, is subject to certain provisions that could reduce the
minimum commitment required.

The Company had an agreement with Samsung for the sale and distribution of the
QSA-30 Series, which terminated in March 1999. The Company intends to replace
the QSA-30 with one or more offerings under the Meridian Series of products.

In 1996, the Company granted an exclusive license to Samsung for Samsung to be
the Company's sole supplier of component tape feeders, which are currently used
on all of the Company's assembly systems. The contract has a six-year term and
requires Quad to purchase a minimum quantity of component tape feeders with a
value of at least $6.8 million during the first two years of the contract and in
amounts to be negotiated for each subsequent two-year period of the term.
Samsung's remedy if Quad fails to meet the target for a particular two-year
period is to terminate the agreement. Under the agreement, Samsung paid to Quad
a total of $300,000, representing a combination of licensing fees and a
reimbursement for expenses incurred in transferring technology to Samsung for
use in production of the component tape feeders. Samsung began to supply
component tape feeders to the Company during fiscal year 1997.

The Company believes that much of its important technology resides in its
proprietary software (much of which has not received federal copyright
registration or is not patented) and trade secrets. Insofar as the Company
relies on trade secrets and unpatented knowledge to maintain its competitive
position, there is no assurance that others may not independently develop
similar technologies. In addition, although the Company executes non-disclosure
agreements with its employees, selected vendors and others, there can be no
assurance that secrecy obligations will not be breached. Any loss of such
know-how or breach of such agreements could have a material adverse effect on
the Company.

The Company owns a registered trademark for the name "Quad" in both the United
States and Canada for use with electronic assembly equipment.

In connection with the Company's new revolving asset based line of credit
agreement entered into on January 7, 2000 and the Company's reaffirmed bank term
loan entered into on December 9, 1999, the Company granted the lenders security
interests in the Company's intellectual property, including its patents,
trademarks and trade secrets, to secure the Company's obligations thereunder.
Upon an event of default under either loan agreement evidencing the line of
credit or the reaffirmed term loan, the lenders are permitted to satisfy the
Company's obligations to the lender by selling, assigning or licensing the
Company's intellectual property to third parties.


                                       12
<PAGE>

EMPLOYEES

At the end of fiscal year 1999, the Company employed 255 persons on a full-time
basis of which 214 were domestic and 41 were foreign based. None of the
Company's employees are represented by a labor union. Management considers its
relations with its employees to be good.


ITEM 2.   PROPERTIES

The Company maintains its headquarters and principal manufacturing facility in a
leased 106,000 square foot facility in Willow Grove, Pennsylvania. The facility
is leased for a term ending December 2006, and the current monthly rental for
the space is approximately $68,000 plus taxes, insurance, maintenance and
utilities.

QEL occupies a 9,600 square foot facility in High Wycombe, England, for a term
of 25 years ending in December 2018 with a current monthly rental of
approximately $8,000 (at current exchange rates), plus taxes, insurance,
maintenance and utilities. SMTech occupied a 19,000 square foot facility in
Dorchester, England, for a term of 15 years ending in April 2011 with a current
monthly rental of approximately $9,000 (at current exchange rates), plus taxes,
insurance, maintenance and utilities (see discussion below). Both the QEL and
SMTech facilities have clauses that permit the tenant to vacate at no cost after
ten and five years, respectively, from the beginning of their leases. The
Company believes that its existing facilities are adequate to meet its current
needs.

As discussed earlier, the Company sold substantially all of the assets and
liabilities of SMTech to Speedline in the beginning of fiscal year 1999.
Subsequent to the sale, Speedline subleased the SMTech facility from the
Company, which sublease terminated in September 1999. The Company is currently
seeking to sublease the facility to other tenants.


ITEM 3.   LEGAL PROCEEDINGS

In 1996, the Company was named a defendant in a patent infringement lawsuit
filed by The Zevatech Group in Munich, Germany. The complaint alleges that the
Company infringed on the plaintiff's German patents relating to pick and place
assemblers. The Company has responded with an action against the plaintiff in
Munich, Germany seeking to have such plaintiff's patents invalidated. Management
believes the lawsuit to be without merit and is vigorously defending itself
against the lawsuit. Accordingly, no provision for this lawsuit has been
recorded since its inception.


ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

          None.


                                       13

<PAGE>

                EXECUTIVE OFFICERS, OTHER OFFICERS AND DIRECTORS

The executive officers, other officers and directors of the Company are as
follows:

<TABLE>
<CAPTION>

       NAME            AGE      POSITION
       ----            ---      --------
<S>                     <C>     <C>
Theodore J. Shoneck     42      President
Anthony R. Drury        57      Senior Vice President, Finance and Chief Financial Officer
Craig C. Ramsey         46      Senior Vice President, Marketing
John D. Dreibelbis      45      Vice President and Chief Technology Officer
William W. Pease        52      Vice President, North American Sales & Customer Support
Vahram V. Erdekian      51      Director
Roger E. Gower          59      Director
Robert P. Pinkas        46      Director
David H. Young          52      Director

</TABLE>

Directors hold office until the next annual meeting of the stockholders, or
until their successors are duly elected and qualified. Officers are elected by
and serve at the pleasure of the Board of Directors.

Mr. Shoneck has been President of the Company since April 1998. From December
1997 until April 1998, he was the Company's Chief Operating Officer. From May
1996 until December 1997, he was the Chief Operating Officer of Cutting Edge
Technologies, Inc. From April 1994 until May 1996, he was the Vice President and
General Manager of KMI Surgical Products, Inc. Prior to April 1994, Mr. Shoneck
was the Manager of Operations Services for Alcon Laboratories, Inc.

Mr. Drury has been Senior Vice President, Finance of the Company since December
1993. Mr. Drury has also been Chief Financial Officer of the Company since
January 1990.

Mr. Ramsey has been Senior Vice President, Marketing since November 1998. From
January 1996 until November 1998, he was the Company's Vice President, Product
Assurance and Marketing. From November 1994 until January 1996, Mr. Ramsey was
the Company's Vice President, Product Assurance. Prior to November 1994, he was
the Company's Vice President, Engineering.

Mr. Dreibelbis has been Vice President and Chief Technology Officer of the
Company since March 1997. From September 1995 until March 1997, he was an
engineering fellow at Kulicke & Soffa Industries, Inc. and from January 1989 to
September 1995 he was founder and President of Blue Ridge Technologies.

Mr. Pease has been Vice President, North American Sales and Customer Support
since June 1999. Prior to his promotion, Mr. Pease had served many functions for
the Company within North American Sales beginning in 1985. Most recently, Mr.
Pease served as the Company's director of North American sales and northeast
regional sales manager.

Mr. Erdekian has served on the Board of Directors of the Company since July
1996. Since October 1998, he has been the Vice President, Strategic Account
Management of Solectron Corporation. From January 1998 until October 1998, Mr.
Erdekian was the Vice President, Mergers and Acquisitions of Bay Networks, Inc.
("Bay Networks"). From October 1996 until January 1998, he was Vice President,
Worldwide Manufacturing Operations of Bay Networks. From October 1994 until
October 1996, he was Vice President, Manufacturing Product Operations of Bay
Networks. From September 1993 until October 1994, Mr. Erdekian was the Vice
President, Manufacturing Operations of Wellfleet Communications, which merged
with Synoptics Corporation to form Bay Networks in August 1994. Prior to
September 1993, he was an operations consultant to private and public
corporations. Mr. Erdekian has advised the Company that he will not be seeking
re-election to the Board at the 2000 Annual Meeting of Stockholders.


                                       14
<PAGE>

Mr. Gower has served on the Company's Board of Directors since May 1999. Mr.
Gower is currently Chairman, President and Chief Executive Officer of Micro
Component Technology, Inc. ("Micro") Prior to his position at Micro, Mr. Gower
served as President and Chief Executive Officer of Datamedia Corporation from
1991 to 1995.

Mr. Pinkas has served on the Board of Directors of the Company since 1982 and
has been a general partner of Brantley Venture Partners, L.P. a venture capital
firm, for more than ten years. Since August 1996, Mr. Pinkas has also been a
general partner of Brantley Venture Management, L.P. Mr. Pinkas is also a
director of Gliatech, Inc., Pediatric Services of America, Inc., Medirisk, Inc.
and Waterlink, Inc. Since November 1996, Mr. Pinkas has also been the Chairman
of the Board, Chief Executive Officer, Treasurer and Director of Brantley
Capital Corporation. Mr. Pinkas was the Company's Treasurer from March 1982
until October 1987.

Mr. Young is the founder of the Company and has served on the Company's Board of
Directors since its inception. In March 1998, Mr. Young was elected Chairman of
the Board. Mr. Young has been the President of Two Technologies, Inc., a company
that manufactures hand-held computers, for more than five years. Mr. Young
served as the Company's President from its inception until October 1985.

Mr. Randall had served on the Board of Directors of the Company since January
1988. Since January 1995, he has been the Vice President, Finance and Chief
Financial Officer of CFM Technologies, Inc. From May 1994 until June 1995, Mr.
Randall was the President and Chief Executive Officer of Greenwich
Pharmaceuticals Incorporated ("GPI") (now known as Boston Life Sciences, Inc.).
From September 1991 until May 1994, he was the Chief Financial Officer and Vice
President of GPI. Mr. Randall was Quad's President and Chief Executive Officer
from August 1988 until January 1990 and was the Company's Vice President,
Operations and Chief Financial Officer from May 1985 until July 1988. Mr.
Randall resigned as a director from the Board of Directors effective December
16, 1999 due to pressures from other business obligations.

                                       15

<PAGE>

                                    PART II

ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
          STOCKHOLDER MATTERS

PRICE RANGE OF COMMON STOCK

The Company's Common Stock trades on The Nasdaq Stock Market Inc.'s National
Market under the symbol "QSYS". The quarterly range of high and low bid
quotations for 1999 and 1998 are set forth below. Such high and low bid
quotations reflect inter-dealer prices without retail mark-up, mark-down or
commissions and may not necessarily represent actual transactions.



YEAR ENDED SEPTEMBER 30, 1999           HIGH        LOW
-----------------------------           ----        ---
First Quarter                           $2.94      $0.75
Second Quarter                          $2.94      $1.88
Third Quarter                           $2.22      $1.75
Fourth Quarter                          $1.94      $1.50

YEAR ENDED SEPTEMBER 30, 1998           HIGH        LOW
-----------------------------           ----        ---
First Quarter                           $8.38      $5.00
Second Quarter                          $5.56      $3.56
Third Quarter                           $5.50      $2.44
Fourth Quarter                          $2.81      $1.06


NUMBER OF HOLDERS OF COMMON STOCK

At January 4, 1999, there were approximately 93 stockholders of record of the
Company's Common Stock. Based on information obtained from the Company's
transfer agent, the Company believes that the number of beneficial owners of its
Common Stock is approximately 1,300.


DIVIDENDS

The Company has never paid cash dividends on its Common Stock. The Company
currently intends to retain earnings for use in its business and, therefore,
does not anticipate paying cash dividends on its Common Stock in the foreseeable
future. Payment of dividends is restricted under terms of the Company's credit
agreement.


                                       16
<PAGE>



ITEM 6.   SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>


                                                                        Year Ended September 30, (1)
                                                    --------------------------------------------------------------------
                                                     1999           1998            1997           1996           1995
                                                     ----           ----            ----           ----           ----
                                                            (In Thousands, Except Per Share Amounts)

STATEMENT OF OPERATIONS DATA:

<S>                                                 <C>            <C>            <C>            <C>            <C>
Net sales                                           $ 45,124       $ 74,859       $ 81,723       $ 71,591       $ 62,591
Cost of products sold                                 34,416         52,128         51,417         43,912         39,537
                                                    --------       --------       --------       --------       --------
     Gross profit                                     10,708         22,731         30,306         27,679         23,054
Operating expenses:
     Engineering, research and development             4,889          7,515          6,759          6,153          4,844
     Selling and marketing                             9,612         14,542         14,197         12,076         10,276
     Administrative and general                        4,457          6,955          5,912          5,561          3,997
                                                    --------       --------       --------       --------       --------
        Total operating expenses                      18,958         29,012         26,868         23,790         19,117
                                                    --------       --------       --------       --------       --------
          Income (loss) from operations               (8,250)        (6,281)         3,438          3,889          3,937
Interest income (expense), net                            68           (684)          (381)          (195)          (124)
Gain on Sale of SMTech, Ltd.                           8,375           --             --             --             --
Settlement of securities litigation                     --             --             --           (1,287)          (180)
                                                    --------       --------       --------       --------       --------
Income (loss) before income taxes                        193         (6,965)         3,057          2,407          3,633
Income tax expense (benefit)                           6,494         (1,915)         1,070            915            945
                                                    ========       ========       ========       ========       ========
     Net income (loss)                              $ (6,301)      $ (5,050)      $  1,987       $  1,492       $  2,688
                                                    ========       ========       ========       ========       ========
Net income (loss) per share:
      Basic                                         $  (1.43)      $  (1.16)      $   0.46       $   0.35       $   0.65
      Diluted                                       $  (1.43)      $  (1.16)      $   0.45       $   0.35       $   0.62

Weighted average number of shares outstanding:
      Basic                                            4,419          4,359          4,287          4,222          4,130
      Diluted                                          4,419          4,359          4,464          4,321          4,329

BALANCE SHEET DATA:

Working capital                                     $ 18,395       $ 20,863       $ 25,954       $ 23,317       $ 22,229
Total assets                                          33,780         50,976         50,037         43,823         41,175
Line of credit and current portion
     of long-term debt                                 1,954          9,429          5,540            700            700
Long-term debt                                         1,126          1,761          2,325          1,750          2,450
Stockholders' equity                                  19,766         26,212         30,778         28,091         26,380

</TABLE>

----------
(1)   For ease of presentation, the Company has indicated its fiscal year as
      ending on September 30; whereas, in fact, the Company reports on a 52-53
      week fiscal year ending on the last Sunday in September. Fiscal 1999,
      which ended on September 26, 1999, and fiscal 1998, 1997, 1995 and 1994
      which ended on September 27, 1998, September 28, 1997, September 24, 1995,
      and September 25, 1994, respectively, each included 52 weeks. Fiscal 1996,
      which ended on September 29, 1996, included 53 weeks.


                                       17

<PAGE>


ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
          AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

For ease of presentation, the Company has indicated its fiscal year as ending on
September 30, whereas, in fact, the Company reports on a 52-53 week fiscal year
ending on the last Sunday in September. Fiscal years 1999, 1998 and 1997, which
ended on September 26, 1999, September 27, 1998, and September 28, 1997,
respectively, each included 52 weeks.

The following table sets forth certain financial data as a percentage of net
sales for the years indicated:

                                                 YEAR ENDED SEPTEMBER 30,
                                             --------------------------------
                                              1999         1998        1997
                                              ----         ----        ----
Net sales                                    100.0%       100.0%       100.0%
Gross margin                                  23.7         30.4         37.1
Engineering, research and development         10.8         10.0          8.3
Selling and marketing                         21.3         19.4         17.4
Administrative and general                     9.9          9.3          7.2
Income (loss) from operations                (18.3)        (8.4)         4.2
Income (loss) before income taxes              0.4         (9.3)         3.7
Net income (loss)                            (14.0)        (6.7)         2.4

Net Sales. The Company derives net sales from the sale of its assembler products
and peripherals, reflow ovens, the resale of products manufactured by third
parties (including certain of its assembly products, peripherals and screen
printers) and services. Sales are recorded upon shipment of products configured
to meet customer application requirements. Net sales decreased $29,735,000 or
39.7% in 1999 over net sales in 1998. The following table sets forth sales of
certain product lines for the periods indicated (in thousands):

                                YEAR ENDED SEPTEMBER 30,
                         --------------------------------------
                          1999            1998            1997
                          ----            ----            ----
Assemblers              $24,465         $42,199         $49,175
Screen printers           4,416          13,570          13,748
Reflow ovens              2,598           4,130           4,129

The Company believes that demand for the Company's SMT assembly equipment
decreased as a result of the continuing impact of the severe market downturns in
the electronics and semiconductor industries that commenced in fiscal year 1998
coupled with limited assembler product offerings capable of servicing medium to
high volume manufacturing environments where low cost throughput (i.e. cost per
placement sensitivity) is a primary concern. The Company's recently discontinued
QSA-30 assembler addressed only a small portion of this cost per placement
sensitive sector.

To meet this sector's requirements and to address competitive product offerings,
in June 1999, the Company entered into a distribution agreement with Mirae
Corporation ("Mirae") a Korean SMT equipment manufacturer. Under the terms of
the distribution agreement, Mirae appointed the Company as Mirae's exclusive
private label distributor of Mirae's SMT assembler equipment. The new assemblers
are referred to as the Quad "Meridian Series" and initially consist of seven
fully compatible high-speed SMT assembler models designed to meet a wide variety
of production requirements, including servicing medium to high volume
manufacturing environments where cost per placement sensitive is a primary
concern.

                                       18
<PAGE>


Regarding decreased sales of screen printers, the sale of SMTech Limited
("SMTech") at the beginning of fiscal year 1999 has had a significant adverse
impact on sales of screen printers, as the Company lost sales revenue previously
recorded by SMTech, although the Company realized a substantial gain on the
sale.

Order bookings for fiscal 1999 were $40,612,000 compared to $72,791,000 for
1998, a decrease of 44.2%. This decrease was due to the above mentioned factors.
The consolidated backlog of unshipped orders as of September 30, 1999, was
$4,300,000 compared to $8,800,000 as of September 30, 1998. It has been the
Company's experience that purchasers of capital equipment have not issued
purchase orders calling for delivery of products over an extended period. Also,
due to increased competition and overcapacity within the SMT industry, orders
are being completed within a shorter timeframe. Therefore, backlog may not
necessarily be indicative of future sales.

International sales represented approximately 44.5%, 38.9%, and 43.7% of net
sales for the years 1999, 1998 and 1997, respectively. The Company derived
international sales from one wholly-owned U.K. foreign subsidiary in fiscal 1999
and two wholly-owned subsidiaries in fiscal 1998 and 1997 that both manufacture
and sell product, as well as from international sales shipped from its U.S.
operation. The Company also derives a small level of sales from certain non-U.K.
wholly-owned foreign subsidiaries. The increase in the Company's international
sales percentage was primarily caused by significant decreases in domestic sales
as international sales also decreased $9,013,000 in fiscal year 1999.

In 1998, net sales decreased $6,864,000 or 8.4% over net sales in the preceding
year. The decrease in net sales in 1998 was due to a decrease in assembler sales
resulting from market downturns in the electronics and semiconductor industries,
which resulted in increased price competition and decreased margins.

Gross Margin. Gross margin decreased to 23.7% in fiscal 1999 from 30.4% in
fiscal 1998. During fiscal 1999, the continued market downturn in the
electronics industry has continued to cause intense price competition between
the Company and its competitors due to overcapacity within the SMT industry as
well as an excess supply of new SMT equipment available in the market.
Additionally, the Company recorded $750,000 in inventory reserves for product
obsolescence as the Company continued its inventory reduction programs.
Excluding the $750,000 in additional inventory reserves, the gross margin for
fiscal 1999 was 25.4%. The Company did, however, experience improved margins in
the fourth quarter and believes the Company could realize higher gross margins
in subsequent periods if market conditions in the electronics industry continue
to improve, sales of the Meridian Series of products materialize and cost
reduction programs, which the Company is continually working on, are successful.

During 1998, gross margin decreased to 30.4% from 37.1% in 1997. This resulted
in part because the Company recorded a total of $2.1 million of inventory
reserve charges for discontinued products and slow moving inventory and a severe
downturn in the electronics and semiconductor industries. Excluding the $2.1
million special inventory reserve charges, gross margin for 1998 was 33.2%.

Engineering, Research and Development Expenses. Engineering, research and
development expenses decreased $2,626,000 or 34.9% in fiscal year 1999 over
fiscal year 1998 resulting from a combination of workforce reductions and
deferral of certain development efforts, as well as the absence of engineering,
research and development expenses from SMTech, which was sold in the first
quarter of fiscal year 1999. The Company anticipates increased spending related
to research and development related to the continued development of key products
as the electronics market continues to recover.


                                       19
<PAGE>

During 1998, engineering, research and development expenses increased $756,000
or 11.2% in 1998 over 1997 due to the addition of personnel to the engineering,
research and development departments as the Company increased product
development activities associated with various products such as the APS-1
assembler, new SMT assembly equipment and other option features for the "Q"
Series. The Company continued to develop additional features for the APS-1
assembler, seeking to further expand market penetration and increase the
functionality of this product.

Selling and Marketing Expenses. Selling and marketing expenses decreased
$4,930,000 or 33.9% in 1999 as compared to the prior year. The decrease is
primarily related to sales volume decreases of 39.7% and from the absence of
selling and marketing expenses related to SMTech. Selling expenses are expected
to increase if sales of the Meridian Series of products materialize as
anticipated, therefore increasing commission expense.

During 1998, selling and marketing expenses increased $345,000 or 2.4% as
compared to the prior year. This increase was due to higher overall commission
rates. Excluding the increase in commission rates, selling and marketing
expenses decreased $478,000 or 3.4% which is the result of decreased net sales
in 1998 compared to net sales in 1997.

Administrative and General Expenses. Administrative and general expenses
decreased $2,498,000 or 35.9% in 1999 over the prior year. The decrease is
mainly due to the elimination of administrative and general expenses of SMTech
and the absence of one-time costs incurred in fiscal 1998, including $1.0
million for a paid-up license of patented technology from MPM Corporation and
severance costs of $451,000 related to reductions in the workforce. The decrease
in these expenses was partially offset by the write off of goodwill of $442,000,
as management believed the carrying value of this asset was not recoverable.

During 1998, administrative and general expenses increased $1,043,000 or 17.6%
over 1997. The increase was mostly due to one-time costs incurred in 1998,
including $1.0 million to obtain a paid-up license of patented technology and
severance costs of $451,000 related to reductions in the workforce. Excluding
these costs, administrative and general expenses decreased approximately
$408,000 or 6.9% in 1998 compared to last year.

Income Tax Expense. The Company incurred income tax expense of $6,494,000 in
1999, which includes approximately $3,100,000 of tax expense on the sale of the
SMTech subsidiary. In addition, the current year tax expense includes the
recording of a valuation allowance in the second quarter of 1999 against the
Company's net deferred tax assets as the Company believed the realization of the
deferred tax assets was uncertain based on the information available at that
time.

In 1998, the Company's effective income tax rate was 27.5%, amounting to a tax
benefit of $1,915,000, and 35.0% in 1997, amounting to income tax expense of
$1,070,000. Income tax expense (benefit) differs from the amount that would
result from applying the Federal statutory tax rate to pretax income (loss)
primarily due to permanent differences in taxable income (loss) versus book
income (loss). Income tax expense for 1997 was partially offset by tax benefits
realized from the Company's foreign sales corporation.


LIQUIDITY AND CAPITAL RESOURCES

The Company's working capital decreased to $18.4 million as of September 30,
1999, including cash balances of $2.9 million, compared to working capital of
$20.9 million as of September 30, 1998, including cash balances of $2.1 million.
Net cash used in operations amounted to $4.6 million, this amount was funded
principally by the gain on sale of SMTech of $8.4 million. Purchases of
equipment and cash used in operations was mainly financed by the proceeds from
the sale of SMTech. Proceeds from the SMTech sale have amounted to $14,050,000.
The Company used part of these proceeds to repay its then outstanding line of
credit with First Union National Bank, which line of credit totaled $8,795,000
at the end of fiscal 1998.


                                       20
<PAGE>


On January 7, 2000, the Company entered into a loan agreement with Congress
Financial Corporation ("Congress"), an affiliate of First Union National Bank
("Congress Loan Agreement"), that provides for an asset based revolving line of
credit and letters of credit. This agreement will expire on January 6, 2003. The
Congress Loan Agreement permits maximum borrowings not to exceed $12,000,000,
based on a percentage of eligible receivables and inventory.

The Company's obligations under the Congress Loan Agreement are secured by a
lien on all of the assets of the Company and its wholly-owned subsidiaries, and
pledges of the outstanding shares of stock of and guarantees of the Company's
obligations by the Company's wholly-owned subsidiaries. Interest on borrowings
is payable monthly at either 0.25% above the bank's published prime rate or
LIBOR plus 2.75%, at the Company's election. The interest rate will be reduced
0.25% provided no event of default has occurred and the Company meets a certain
net income level for fiscal 2000. The agreement also contains various operating
and reporting covenants and requires maintenance of minimum tangible net worth
levels.

The Congress Loan Agreement required the payment of commitment fees and closing
fees aggregating approximately $250,000. The Company may terminate the Congress
Loan Agreement prior to its expiration date upon the payment of a termination
fee ranging from 1% to 3% of a maximum borrowing base of $12,000,000, depending
on the date of termination. However, if the Company replaces the Congress Loan
Agreement with a facility with First Union National Bank, the early termination
fee is waived.

Under the Congress Loan Agreement, Congress is granted discretion to reduce
substantially the amount of permitted borrowings under the agreement if Congress
determines in good faith that the receivables, inventory, or other collateral
under the Congress Loan Agreement is impaired. Any such action could impair the
Company's ability to obtain the necessary working capital needed for its
operations. In addition, the Congress Loan Agreement includes conditions,
restrictions, or circumstances under which an event of default can occur.
Management believes that such clauses are normal and typical to secure asset
based financing arrangements. Upon the occurrence of an event of default under
the Congress Loan Agreement, Congress is permitted to liquidate the collateral
to satisfy the Company's obligations to Congress. Any such action by Congress
could materially adversely affect the Company's ability to operate its business
in an ongoing manner.

The Congress Loan Agreement replaces a revolving credit agreement with First
Union National Bank ("First Union") dated October 27, 1999 (the "First Union
Agreement), which permitted maximum borrowings not to exceed $8,000,000 and was
to expire on February 29, 2000. As with the Congress Loan Agreement, the First
Union Credit Agreement was also secured by a lien on all of the assets of the
Company and its wholly-owned subsidiaries. Although the revolving loan agreement
with First Union was replaced by the Congress Loan Agreement, the First Union
lien continues to secure a one million dollar term loan obtained by the Company
pursuant to a reaffirmed bank term loan dated December 9, 1999 with First Union
(the "Term Loan"). The Term Loan agreement is cross defaulted with the Congress
Loan Agreement. The First Union Agreement replaced a prior unsecured revolving
line of credit initially obtained by the Company in 1997.

The Company believes that its existing cash balances, cash flow from operations
and its borrowing capacity from the new asset based line of credit will be
sufficient for the Company to meet its working capital needs through fiscal year
2000.


                                       21
<PAGE>

SALE OF SMTECH LIMITED

In the first quarter of fiscal year 1999, the Company sold substantially all of
the assets and liabilities of SMTech to Speedline for $14,800,000 million in
cash paid at closing, subject to a holdback of $750,000. The Company is liable
for various representations and warranties provided to Speedline under this
agreement. The Company recorded an after-tax net gain of approximately
$5,100,000 million in the first quarter of fiscal 1999. In connection with the
sale, Quad and Speedline's MPM division entered into an agreement whereby MPM
will supply Quad on an OEM basis with the former SMTech screen printer product
line(Note 6). Proceeds from the sale were used to repay the Company's
outstanding line of credit as well as fund purchases of equipment and cash used
in operations.

The Company invested $871,000 in equipment and leasehold improvements in 1999 as
compared to $1,384,000 in 1998 and $2,099,000 in 1997. Capital spending for 1997
included significant costs associated with site preparation and internal
furnishings for the corporate headquarters and U.S.
manufacturing facility into which the Company moved in January 1997.

COMMITMENTS

As of September 30, 1999, the Company had entered into various purchase order
agreements with vendors whereby the Company has committed to acquire inventory
for approximately $12,600,000. Such commitments are anticipated for delivery and
payment in the next twelve months. This total includes approximately $900,000 of
purchase orders with Samsung in accordance with an agreement to purchase
electronic tape feeders used in the Company's assemblers and approximately
$3,500,000 of purchase orders with Mirae in accordance with a distributorship
agreement (see below).

DISTRIBUTION AGREEMENTS

In June 1999, the Company reached an agreement with Mirae Corporation appointing
the Company as Mirae's exclusive private label distributor of Mirae SMT
placement systems throughout North and South America and Europe. The systems,
called the Meridian Series, consist of a series of seven high-speed SMT
assembler models that are designed to meet a wide variety of production
requirements, especially targeted at the cost per placement sensitive market
segments. The distribution agreement between the Company and Mirae provides for
an initial term of three years in length, with options to extend the length of
the term.

Under a long-term supply agreement with the Company executed in June 1996,
Samsung is the Company's sole supplier of electronic component tape feeders,
which are used in conjunction with the Company's SMT assembler products and are
sold on a stand-alone basis. The supply agreement carries a six-year term with
minimum purchase requirements and revised product pricing established every two
years during the term of the agreement. Deliveries under the agreement commenced
in fiscal year 1997, with the first two years of the six year supply period
ending in June 2000. The Company's electronic tape feeders are available in 8mm,
12mm, 16mm, 24mm, 32mm, 44mm and other special formats and are compatible with
all Quad assembly systems, although certain of the Meridian Series of products
work at their optimal performance level in conjunction with a modified tape
feeder product currently manufactured and supplied by Samsung. In addition, the
Company offers docking feeder carts that can be loaded with tape feeders
off-line and rapidly rolled into place to prepare the assembler to populate a
new PWB. This feature can greatly reduce the time involved in changing over the
assembler from assembling one PWB to another.


                                       22
<PAGE>

During the spring of 1999, the Company notified Samsung of Samsung's
non-compliance with certain quantity and quality requirements in its supply of
tape feeders under the Feeder Supply Agreement. As required under the terms of
the Feeder Supply Agreement, the Company supplied Samsung in late summer 1999
with its good faith requirements of the tape feeders for years three and four of
the six year supply term. In late November, 1999 and again in early January
2000, Samsung notified the Company of Samsung's disagreement with the Company's
good faith purchase requirements and threatened to terminate the agreement and
declare the Company in breach. The Company disputes Samsung's claims of
non-compliance with the Feeder Supply Agreement and believes it has adequate
defenses to such claims.

A disruption of the supply of component tape feeders, whether through a
termination of the Feeder Supply Agreement or otherwise, could adversely affect
the ability of the Company to meet its customers' needs and therefore, could
adversely affect the Company's revenues and earnings. If Samsung were to stop
supplying Quad with component tape feeders, Quad has the right under the tape
feeder supply agreement to resume manufacturing or use alternative suppliers.
The Company believes it has sufficient access to alternative sources of
component tape feeders to meet its needs should any disruption in supply from
Samsung occur, although there can be no assurance that such alternate sources
will be available or will be sufficient to meet the Company's requirements.

In addition to the component feeder supply agreement, the Company and Samsung
have been involved in other product development programs, including a Joint
Development and Distribution Agreement dated September 22, 1997 for the joint
development and subsequent distribution of a high speed, high volume SMT
assembler, designated as the QSA-60 (the "Development Agreement"). Pursuant to
the Development Agreement, the Company and Samsung jointly participated in the
development of a new SMT assembler, based in part on the QSA-30 assembler
previously distributed by the Company. The Development Agreement also provided
for the subsequent distribution of the developed product. The parties are
currently in disagreement with respect to several issues relating to the
Development Agreement, including the parties' respective liability for funding
of the development project and their respective obligations relating to the
future distribution of the developed product. Each of the parties have claimed
that the other has breached its obligations under the Development Agreement, and
Samsung back in late November 1999 and in early January 2000 has threatened
litigation with respect thereto claiming substantial damanges. While the Company
believes it has defenses to these claims asserted by Samsung, the resolution to
the claims remains uncertain.

In conjunction with the sale of substantially all of the assets and business of
its U.K. subsidiary SMTech to Speedline, as discussed above, (See Note 6 to the
Consolidated Financial Statements for further information relating to the sale
of SMTech), the Company entered into a supply agreement dated September 30, 1998
with Speedline for the purchase and resale of the former SMTech line of screen
printers (the "Printer Supply Agreement"). The terms of the Printer Supply
Agreement includes minimum purchase requirements for one specific printer, the
AVX 500, and fixed pricing for all products, subject to periodic renegotiations
by the parties.

Within the first six months of commencement of the Printer Supply Agreement,
Speedline adjusted its selling prices on the Speedline equivalent of the AVX 500
to its customers to levels approximately equal to the fixed pricing paid for the
printer by the Company under the Printer Supply Agreement. This action forced
the Company to lower its selling prices of the AVX 500 to levels that resulted
in marginal income and occasional losses to the Company in order to compete with
Speedline. As a result, during the first supply term ending November 1999, the
Company had purchased only 17 units of the minimum purchase requirement of 40
units. The Company is currently negotiating a reduction in the minimum purchase
requirements on account of the pricing policies established by Speedline. There
can be no assurance, however, that the Company will be successful in obtaining
relief from the minimum purchase requirements.

Approximately 10% of the Company's fiscal year 1999 net sales were attributable
to sales of screen printers. Consequently, a disruption of the supply of screen
printers from Speedline could adversely affect the ability of the Company to
meet its customers' needs and could adversely affect the sale of the Company's
other products. If Speedline were to stop supplying Quad with screen printers,
the Company has the right to use alternative suppliers. The Company believes
that there are other suitable screen printer products that can be obtained from
other screen printer manufacturers.

                                       23
<PAGE>

YEAR 2000

The Company developed plans to address the possible exposures related to the
impact on its computer systems of the Year 2000. Key financial, informational,
and operational systems, including equipment with embedded microprocessors, have
been inventoried and assessed, and the required systems modifications or
replacements. Progress against these plans has been monitored and reported to
management and to the Audit Committee of the Board of Directors on a periodic
basis. In January 1999, the Company successfully replaced its existing business
and accounting system in the Willow Grove manufacturing facility with an
enterprise-wide business system that is certified by the supplier to be Year
2000 compliant. Year-to-date spending on this management information system
upgrade has totaled approximately $145,000. Internal staffing costs and
re-engineering costs, if any, associated with this system implementation project
are being expensed as incurred. Required Year 2000 readiness changes to the
business and accounting systems at the Willow Grove headquarters were completed
in June 1999. The Company believes that this business unit is now fully Y2K
compliant. Additional Year 2000 expenditures for all other business and
accounting systems in fiscal 1999 did not exceed $150,000.

The Company's key suppliers have been queried as to their Year 2000
preparedness. All of the Company's key suppliers have answered affirmatively as
to Year 2000 readiness. In addition, the Company has conducted an evaluation of
the operating software used in the Company's products for possible Year 2000
issues. The Company has addressed the single deficiency identified during this
evaluation. The cost of this project did not exceed $5,000. The Company does not
believe that the operation of recently manufactured equipment sold to customers
will be affected by the transition to the Year 2000. Accordingly, the Company
does not currently anticipate any material disruption in its business operations
as a consequence of the Year 2000 issue.

The Company's risk management program includes emergency backup and recovery
procedures to be followed in the event of failure of a business-critical system.
Contingency plans to protect the business from Year 2000-related interruptions
have been developed. These plans have been completed and include, for example,
development of backup procedures, identification of alternate suppliers and
possible increases in safety inventory levels.

FORWARD-LOOKING STATEMENTS

The discussions above regarding the Company's expectations of future sales and
bookings, gross margins, operating expenses, the success of a distribution
arrangement with Mirae, renegotiating the supply agreement with Speedline,
access to sources of component tape feeders, continued access to financial
availability, Year 2000 compliance and the outlook for the SMT and APT
industries include certain forward-looking statements on these subjects. As
such, actual results may vary materially from such expectations. Among the
meaningful factors that may affect the realization of such expectations are
variations in the level of order bookings, which can be affected by general
economic conditions and growth rates for the SMT and APT industries and the
intensity of competition, marketplace acceptance of and response to the new
Meridian product line, product development delays, performance problems or the
ability to meet expected performance levels of Meridian SMT assemblers, timing
of future product releases, product development delays or performance problems
or difficulties in penetrating the APT market, difficulties or delays in
software functionality and performance, the timing of future software releases,
failure to respond adequately either to changes in technology or to customer
preferences, failures in the source of supply for tape feeders, assemblers or
screen printers manufactured by a third party, a reduction in the level of
permitted borrowings under or termination of the Loan Agreement by Congress on
account of the Company's failure to achieve the minimum tangible net worth
levels and/or attain the other operating and reporting requirements contained in
the Congress Loan Agreement, failure to maintain various operating and reporting
covenants and requirements as required by the loan agreement with Congress, the
timely resolution of any Year 2000 issues by the Company and its customers and
suppliers, failure to successfully defend itself against the patent infringement
litigation, foreign exchange rate fluctuations, risks of nonpayment of accounts
receivable or changes in forecasted costs, including unexpected required
additional engineering costs.


                                       24
<PAGE>


ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The report of independent auditors and consolidated financial statements and
financial statement schedule of the Company required by this item are filed as
exhibits hereto, are listed under Item 14(a)(1) and (2).


ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
            AND FINANCIAL DISCLOSURE

None.



                                       25

<PAGE>

                                    PART III

ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by Item 10 is contained in the Company's definitive
Proxy Statement with respect to the Company's Annual Meeting of Stockholders, to
be filed with the Securities and Exchange Commission no later than 120 days
after the end of the Company's fiscal year, and is incorporated herein by
reference thereto.

ITEM 11.   EXECUTIVE COMPENSATION

The information required by Item 11 is contained in the Company's definitive
Proxy Statement with respect to the Company's Annual Meeting of Stockholders, to
be filed with the Securities and Exchange Commission no later than 120 days
after the end of the Company's fiscal year, and is incorporated herein by
reference thereto.

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
           MANAGEMENT

The information required by Item 12 is contained in the Company's definitive
Proxy Statement with respect to the Company's Annual Meeting of Stockholders, to
be filed with the Securities and Exchange Commission no later than 120 days
after the end of the Company's fiscal year, and is incorporated herein by
reference thereto.

ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by Item 13 is contained in the Company's definitive
Proxy Statement with respect to the Company's Annual Meeting of Stockholders, to
be filed with the Securities and Exchange Commission no later than 120 days
after the end of the Company's fiscal year, and is incorporated herein by
reference thereto.



                                       26
<PAGE>

                                    PART IV


ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8K

(a) The following documents are filed as part of this report:

1.   CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Auditors.

Consolidated Balance Sheets as of September 30, 1999 and 1998.

Consolidated Statements of Operations for the years ended September 30, 1999,
1998 and 1997.

Consolidated Statements of Stockholders' Equity for the years ended September
30, 1999, 1998 and 1997.

Consolidated Statements of Cash Flows for the years ended September 30, 1999,
1998 and 1997.

Notes to Consolidated Financial Statements.


2.   CONSOLIDATED FINANCIAL STATEMENT SCHEDULES

Schedule II - Valuation and Qualifying Accounts.

All other schedules have been omitted since the required information is not
present or not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the Consolidated
Financial Statements or the Notes thereto.


3.   LISTING OF EXHIBITS

  EXHIBIT
    NO.       DESCRIPTION
    ---       -----------

     3.1  Certificate of Incorporation of the Registrant, as amended -
          Incorporated by reference to Exhibit 3.1 to Amendment No. 2 to the
          Registrant's Registration Statement on Form S-1 (No. 33-60588) filed
          with the Securities and Exchange Commission on May 7, 1993.

     3.2  By-laws of the Registrant, as amended - Incorporated by reference to
          Exhibit 3.2 to the Registrant's Registration Statement on Form S-1
          (No. 33-60588) filed with the Securities and Exchange Commission on
          April 5, 1993.

     4.1  Shareholder's Rights Agreement dated November 12, 1997 - Incorporated
          by reference to Exhibit 1 and 2 to the Registrant's Registration
          Statement on Form 8-A filed with the Securities and Exchange
          Commission on February 2, 1998.

    *10.1 1986 Stock Option Plan, as amended - Incorporated by reference to
          Exhibit 4.1 to the Registrant's Registration Statement on Form S-8
          (No. 33-71590) filed with the Securities and Exchange Commission on
          November 12, 1993.

    *10.2 1993 Stock Option Plan, as amended - Incorporated by reference to
          Exhibit 10.2 filed under Form 10-Q for the period ended March 31,
          1998.



                                       27

<PAGE>



    *10.3 Quad Systems Corporation Employee Stock Purchase Plan, as amended -
          Incorporated by reference to Exhibit 10.3 to Registrant's Registration
          Statement on Form S-8 (No. 033-93436) filed with the Securities and
          Exchange Commission on May 25, 1999.

    *10.4 401(k) Salary Reduction Plan and Trust dated October 1, 1989, as
          amended - Incorporated by reference to Exhibit 10.8 to the
          Registrant's Registration Statement on Form S-1 (No. 33-60588) filed
          with the Securities and Exchange Commission on April 5, 1993.

    *10.5 Executive Severance Pay Plan - Incorporated by reference to Exhibit
          10.3 filed under Form 10-Q for the period ended June 30, 1998.

    *10.6 Employment memorandum dated April 27, 1998, between the Company and
          Theodore J. Shoneck Incorporated by reference to Exhibit 10.4 filed
          under Form 10-Q for the period ended June 30, 1998.

    *10.7 Employment memorandum dated April 27, 1998, between the Company and
          Anthony R. Drury Incorporated by reference to Exhibit 10.5 filed under
          Form 10-Q for the period ended June 30, 1998.

     10.8 Lease dated August 27, 1996, between the Registrant and Marave
          Associates, L.P. - Incorporated by reference to Exhibit 10.5.2 filed
          under the Company's Annual Report on Form 10-K for the fiscal year
          ended September 29, 1996.

   10.9.1 Credit Agreement dated April 11, 1997, between the Company and
          CoreStates Bank, NA - Incorporated by reference to Exhibit 10.7.1
          filed under the Company's Annual Report on Form 10-K for the fiscal
          year ended September 30, 1997.

   10.9.2 First Amendment to Credit Agreement dated September 11, 1997, between
          the Company and CoreStates Bank, NA - Incorporated by reference to
          Exhibit 10.7.2 filed under the Company's Annual Report on Form 10-K
          for the fiscal year ended September 30, 1997.

  10.10.1 Agreement dated November 1, 1993, between the Registrant and
          Samsung Aerospace Industries, Ltd. Incorporated herein by reference to
          Exhibit 10.9 filed under the Company's Annual Report on Form 10-K for
          the fiscal year ended September 26, 1993 (portions redacted pursuant
          to SEC order granting confidential treatment to certain provisions).

  10.10.2 Agreement dated June 20, 1996 between the Registrant and Samsung
          Aerospace Industries, Ltd.-Incorporated herein by reference to Exhibit
          10.1 filed under Form 10-Q for the period ended June 23, 1996
          (portions redacted pursuant to SEC order granting confidential
          treatment to certain provisions).

  10.10.3 Agreement dated March 19, 1997, between the Registrant and Samsung
          Aerospace Industries, Ltd. Incorporated by reference to Exhibit 10.11
          filed under the Company's Annual Report on Form 10-K for the fiscal
          year ended September 30, 1997 (portions redacted pursuant to SEC order
          granting confidential treatment to certain provisions).

    10.11 OEM and Distributorship Agreement dated December 2, 1997 between the
          Registrant and Kaijo Corporation for the distribution of the
          Registrant's APS-1 product - Incorporated by reference to Exhibit 10.1
          filed under Form 10-Q for the period ended December 31, 1997 (portions
          redacted pursuant to SEC order granting confidential treatment to
          certain provisions).

   *10.12 Severance Agreement dated March 30, 1998, as further amended on
          April 7, 1998, between the Company and David W. Smith - Incorporated
          by reference to Exhibit 10.1 filed under Form 10-Q for the period
          ended June 30, 1998.

   *10.13 Severance Agreement dated April 6, 1998, between the Company and
          Joseph L. Gasper - Incorporated by reference to Exhibit 10.2 filed
          under Form 10-Q for the period ended June 30, 1998.


                                       28
<PAGE>


  10.14.1 Agreement relating to the sale and purchase of the business and
          assets of SMTech Limited, dated September 30, 1998, between the
          Registrant, SMTech Limited and Speedline Technologies, Inc.
          Incorporated by reference to Exhibit 2.1 filed under Current Report on
          Form 8-K filed with the Securities and Exchange Commission on October
          14, 1998.

  10.14.2 Agreement relating to the goodwill and intellectual property
          assignment of SMTech Limited, dated September 30, 1998, between the
          Registrant, SMTech Limited and Speedline Technologies, Inc.
          Incorporated by reference to Exhibit 2.2 filed under Current Report on
          Form 8-K filed with the Securities and Exchange Commission on October
          14, 1998.

    10.15 Supply agreement dated September 30, 1998 between the Registrant and
          Speedline Technologies, Inc. for the resale of SMTech stencil printers
          - Incorporated by reference to Exhibit 2.3 filed under Current Report
          on Form 8-K filed with the Securities and Exchange Commission on
          October 14, 1998 (portions redacted pursuant to SEC order granting
          confidential treatment to certain provisions).

    10.16 Distribution agreement dated June 1, 1999 between the Registrant and
          Mirae Corporation for the appointment of the Company as Mirae's
          exclusive distributor of certain products in North America, South
          America, Europe, Africa, Israel and Turkey - Incorporated by reference
          to Exhibit 10.1 filed under Current Report on Form 8-K filed with the
          Securities and Exchange Commission on August 6, 1999 (portions
          redacted pursuant to SEC order granting confidential treatment to
          certain provisions).

   o10.17 Reaffirmation of Term Loan agreement dated December 9, 1999.

   o10.18 Secured Line of Credit agreement dated January 7, 2000 between
          Registrant and Congress Financing Company.

    o21   Subsidiaries of the registrant.

    o23   Consent of Ernst & Young LLP.

    o27   Financial Data Schedule.


----------

*    Constitutes compensatory plan or arrangement required to be filed as an
     exhibit to this form.

o    Filed herewith


                                       29
<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 January
11, 2000 on its behalf by the undersigned, thereunto duly authorized.

                                        QUAD SYSTEMS CORPORATION

                                        By:   /s/ THEODORE J. SHONECK
                                             -------------------------------
                                              Theodore J. Shoneck, President

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.


/s/ THEODORE J. SHONECK          Principal Executive           January 11, 2000
-----------------------          Officer
Theodore J. Shoneck


/s/ ANTHONY R. DRURY             Principal Financial           January 11, 2000
-------------------------        and Accounting Officer
Anthony R. Drury


/s/ VAHRAM V. ERDEKIAN           Director                      January 11, 2000
-------------------------
Vahram V. Erdekian


/s/ ROBERT P. PINKAS             Director                      January 11, 2000
-------------------------
Robert P. Pinkas


/s/ DAVID H. YOUNG               Director                      January 11, 2000
-------------------------
David H. Young


/s/ ROGER E. GOWER               Director                      January 11, 2000
-------------------------
David H. Young



                                       30
<PAGE>

                            QUAD SYSTEMS CORPORATION
                          INDEX TO FINANCIAL STATEMENTS

Report of Independent Auditors..........................................F-2

Consolidated Balance Sheets as of September 30,
1999 and 1998...........................................................F-3

Consolidated Statements of Operations for the
Years Ended September 30, 1999, 1998 and 1997...........................F-4

Consolidated Statements of Stockholders'
Equity for the Years Ended
September 30, 1999, 1998 and 1997.......................................F-5

Consolidated Statements of Cash Flows for the
Years Ended September 30, 1999, 1998 and 1997...........................F-6

Notes to Consolidated Financial Statements..............................F-7




                                       F-1
<PAGE>



                         REPORT OF INDEPENDENT AUDITORS



Board of Directors and Stockholders
Quad Systems Corporation

We have audited the accompanying consolidated balance sheets of Quad Systems
Corporation as of September 30, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended September 30, 1999. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). 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 auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Quad
Systems Corporation at September 30, 1999 and 1998, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended September 30, 1999, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.


                                                           /s/ Ernst & Young LLP

Philadelphia, Pennsylvania
November 8, 1999,
except for Note 13 as to which the date is
January 7, 2000



                                       F-2

<PAGE>
                            QUAD SYSTEMS CORPORATION
                           CONSOLIDATED BALANCE SHEETS
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


<TABLE>
<CAPTION>

                                        ASSETS

                                                                                   SEPTEMBER 30,
                                                                               1999             1998
                                                                               ----             ----
<S>                                                                           <C>            <C>
Current assets:
       Cash and cash equivalents                                              $  2,890       $  2,116
       Accounts receivable, net of allowance for doubtful accounts-
           $493 and $1,196 at September 30, 1999 and 1998, respectively          9,695         15,003
       Inventory:
           Raw materials                                                         6,597          7,752
           Work in process                                                       1,926          2,446
           Finished goods                                                        7,923         10,320
                                                                              --------       --------
                                                                                16,446         20,518
       Deferred income taxes                                                        --          3,886
       Income taxes receivable                                                     549          1,088
       Prepaid expenses and other current assets                                 1,703          1,255
                                                                              --------       --------
            Total current assets                                                31,283         43,866

Property and equipment, net                                                      2,497          3,498
Deferred income taxes                                                               --            653
Goodwill, net of accumulated amortization                                           --          2,594
Other assets                                                                        --            365
                                                                              --------       --------
Total assets                                                                  $ 33,780       $ 50,976
                                                                              ========       ========

                         LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
       Line of credit                                                         $  1,318       $  8,795
       Accounts payable                                                          3,887          4,937
       Accrued expenses                                                          5,790          6,908
       Deferred service revenue                                                    986          1,220
       Customer deposits                                                           271            509
       Current portion of long-term debt                                           636            634
                                                                              --------       --------
            Total current liabilities                                           12,888         23,003

Long-term debt, less current portion                                             1,126          1,761
                                                                              --------       --------
                Total liabilities                                               14,014         24,764

Stockholders' equity:
       Preferred Stock, par value $.01 per share; authorized shares:
           1,000,000; no shares issued at September 30, 1999 and 1998             --             --
       Common Stock, par value $.03 per share; authorized shares:
           15,000,000; shares issued:  4,444,072 and 4,398,706 at
           September 30, 1999 and 1998, respectively                               133            132
       Additional paid-in capital                                               24,657         24,719
       Retained earnings (accumulated deficit)                                  (4,906)         1,395
       Accumulated other comprehensive income (loss)                              (118)           142
       Less treasury stock, at cost, 13,908 shares at September 30, 1998            --           (176)
                                                                              --------       --------
            Total  stockholders' equity                                         19,766         26,212
                                                                              --------       --------
Total liabilities and stockholders' equity                                    $ 33,780       $ 50,976
                                                                              ========       ========


</TABLE>

                            See accompanying notes.

                                      F-3

<PAGE>


                            QUAD SYSTEMS CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>


                                                              YEAR ENDED SEPTEMBER 30,
                                                    -----------------------------------------------
                                                        1999               1998              1997
                                                        ----               ----              ----
<S>                                                 <C>               <C>               <C>
Net sales                                           $    45,124       $    74,859       $    81,723
Cost of products sold                                    34,416            52,128            51,417
                                                    -----------       -----------       -----------
          Gross profit                                   10,708            22,731            30,306

Operating expenses:
     Engineering, research and
          development                                     4,889             7,515             6,759
     Selling and marketing                                9,612            14,542            14,197
     Administrative and general                           4,457             6,955             5,912
                                                    -----------       -----------       -----------
                                                         18,958            29,012            26,868
          Income (loss) from operations                  (8,250)           (6,281)            3,438
Gain on sale of  SMTech, Ltd.                             8,375                 0                 0
Interest expense                                           (257)             (722)             (484)
Interest income                                             325                38               103
                                                    -----------       -----------       -----------
Income (loss) before income taxes                           193            (6,965)            3,057
Income tax expense (benefit)                              6,494            (1,915)            1,070
                                                    -----------       -----------       -----------
Net income (loss)                                   $    (6,301)      $    (5,050)      $     1,987
                                                    ===========       ===========       ===========

Net income (loss) per share:
     Basic                                          $     (1.43)      $     (1.16)      $      0.46
     Diluted                                        $     (1.43)      $     (1.16)      $      0.45

Weighted average number of shares outstanding:
     Basic                                            4,419,148         4,359,494         4,286,556
     Diluted                                          4,419,148         4,359,494         4,463,813


</TABLE>


                            See accompanying notes.

                                      F-4

<PAGE>

                            QUAD SYSTEMS CORPORATION
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>


                                               COMMON STOCK                      RETAINED    ACCUMULATED
                                         -----------------------    ADDITIONAL   EARNINGS       OTHER
                                            SHARES                  PAID-IN    (ACCUMULATED  COMPREHENSIVE   TREASURY  STOCKHOLDERS'
                                         OUTSTANDING     AMOUNT     CAPITAL      DEFICIT)    INCOME (LOSS)    STOCK      EQUITY
                                         -----------     ------     -------      --------    -----------      -----      ------

<S>                                        <C>          <C>         <C>         <C>           <C>           <C>         <C>
Balance at September 30, 1996              4,241,114    $   128     $23,713     $   4,458     $   (32)      $  (176)    $  28,091

Net income                                      --         --          --           1,987        --            --           1,987
Foreign currency translation adjustment         --         --          --            --            66          --              66
                                                                                                                        ---------
     Comprehensive income (loss)                --         --          --            --          --            --           2,053
Compensation related to the issuance
     of stock options                           --         --             5          --          --            --               5
Common Stock issued under
     employee benefit plans                   82,445          2         528          --          --            --             530
Tax benefit related to stock
     options exercised                          --         --            99          --          --            --              99
                                           ---------    -------     -------     ---------     -------       -------     ---------
Balance at September 30, 1997              4,323,559        130      24,345         6,445          34          (176)       30,778

Net loss                                        --         --          --          (5,050)       --            --          (5,050)
Foreign currency translation adjustment         --         --          --            --           108          --             108
                                                                                                                        ---------
     Comprehensive income (loss)                --         --          --            --          --            --          (4,942)
Compensation related to the issuance
     of stock options                           --         --           100          --          --            --             100
Common Stock issued under
     employee benefit plans                   61,239          2         264          --          --            --             266
Tax benefit related to stock
     options exercised                          --         --            10          --          --            --              10
                                           ---------    -------     -------     ---------     -------       -------     ---------
Balance at September 30, 1998              4,384,798        132      24,719         1,395         142          (176)       26,212

Net loss                                        --         --          --          (6,301)       --            --          (6,301)
Foreign currency translation adjustment         --         --          --            --          (260)         --            (260)
                                                                                                                        ---------
     Comprehensive income (loss)                --         --          --            --          --            --          (6,561)
Common Stock issued under
     employee benefit plans                   59,274          1         111          --          --            --             112
Tax benefit related to shares issued
     under employee benefit plans               --         --             3          --          --            --               3
Retirement of treasury stock                    --         --          (176)         --          --             176             0
                                           ---------    -------     -------     ---------     -------       -------     ---------
Balance at September 30, 1999              4,444,072    $   133     $24,657     $  (4,906)    $  (118)      $  --       $  19,766
                                           =========    =======     =======     =========     =======       =======     =========

</TABLE>

                            See accompanying notes.

                                      F-5
<PAGE>
                            QUAD SYSTEMS CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                               YEAR ENDED SEPTEMBER 30,
                                                                        ---------------------------------------
                                                                          1999            1998           1997
                                                                          ----            ----           ----
<S>                                                                     <C>            <C>            <C>
OPERATING ACTIVITIES
Net income (loss)                                                       $ (6,301)      $ (5,050)      $  1,987
Adjustments to reconcile net income (loss) to net
   cash used in operating activities:
       Depreciation                                                        1,009          1,218          1,421
       Amortization                                                            -            383            379
       Provision for goodwill writedown                                      442
       Provision for (recovery from) losses on accounts receivable          (175)           420            204
       Provision for (benefit from) deferred income taxes                  4,539         (1,246)          (169)
       Stock option compensation                                               -            100              5
       Gain on sale of Smtech, Ltd.                                       (8,375)             -              -
       Changes in operating assets and liabilities, net:
        Accounts receivable                                                4,532          4,811         (5,362)
        Inventory                                                          1,827         (3,421)          (785)
        Income taxes receivable                                              539         (1,088)          --
        Other assets                                                        (379)          (309)          (392)
        Accounts payable                                                     (43)         1,029           (862)
        Accrued expenses                                                  (1,694)         1,382           (503)
        Customer deposits                                                   (238)          (187)          (605)
        Deferred service revenue                                            (234)           185            303
        Income taxes payable                                                   -           (219)          (122)
                                                                        --------       --------       --------
Net cash used in operating activities                                     (4,551)        (1,992)        (4,501)

INVESTING ACTIVITIES
Proceeds from the sale of SMTech, Ltd.                                    14,050              -              -
Purchases of property and equipment                                         (871)        (1,384)        (2,099)
Proceeds from the sale of property and equipment                             144              -              -
                                                                        --------       --------       --------
Net cash provided by (used in) investing activities                       13,323         (1,384)        (2,099)

FINANCING ACTIVITIES
Net proceeds from (repayments on) line of credit                          (7,477)         3,875          4,920
Proceeds from term loan                                                        -              -          3,100
Principal payments on long-term debt and capital leases                     (633)          (630)        (2,605)
Common Stock issued under employee benefit plans                             112            266            530
                                                                        --------       --------       --------
Net cash provided by (used in) financing activities                       (7,998)         3,511          5,945

Net increase (decrease) in cash and cash equivalents                         774            135           (655)
Cash and cash equivalents at beginning of year                             2,116          1,981          2,636
                                                                        --------       --------       --------
Cash and cash equivalents at end of year                                $  2,890       $  2,116       $  1,981
                                                                        ========       ========       ========


</TABLE>


                            See accompanying notes.

                                      F-6

<PAGE>



                            QUAD SYSTEMS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        SEPTEMBER 30, 1999, 1998 AND 1997



1.  DESCRIPTION OF THE BUSINESS

The Company distributes, markets, designs, manufactures and supports flexible,
high-performance surface mount technology ("SMT") and advanced packaging
technology ("APT") equipment used in the assembly of SMT printed circuit wiring
boards, advanced packages and other semiconductor assembly processes.

2.  SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The consolidated financial statements include the accounts of Quad Systems
Corporation and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. Certain
reclassifications have been made to the 1998 and 1997 financial statements to
conform with the 1999 presentation.

FISCAL YEAR

For ease of presentation, the Company has indicated its fiscal year as ending on
September 30; whereas, in fact, the Company reports on a 52-53 week fiscal year
ending on the last Sunday in September. Fiscal 1999, which ended on September
26, 1999, fiscal 1998, which ended on September 27, 1998, and fiscal 1997, which
ended on September 28, 1997, each included 52 weeks.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from those estimates.

CONCENTRATIONS OF CREDIT RISK

Financial instruments that potentially subject the Company to concentrations of
credit risk consist primarily of cash equivalents and trade receivables.
Concentrations of credit risk with respect to trade receivables is related to
the Company selling primarily to customers in the SMT industry in the United
States and abroad. The Company performs ongoing credit evaluations of customers
and generally does not require collateral. Allowances are maintained for
potential credit losses and such losses have been within management's
expectations. At September 30, 1999, the Company had no significant
concentrations of credit risk.

                                      F-7
<PAGE>


                            QUAD SYSTEMS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        SEPTEMBER 30, 1999, 1998 AND 1997



CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents.

Supplemental disclosure of cash flow information (in thousands):

                                                  YEAR ENDED SEPTEMBER 30,
                                              ---------------------------------
                                              1999         1998          1997
                                              ----         ----          ----
Schedule of noncash activity:
Equipment acquired under capital lease
                                             $ --          $  81        $    -
                                             ======        =====        ======
Tax benefit related
   to employee stock benefit plans           $    3        $  10        $   99
                                             ======        =====        ======
Cash paid during the year for:
Interest                                     $  288        $ 730        $  483
                                             ======        =====        ======
Income taxes                                 $1,235        $ 157        $1,678
                                             ======        =====        ======

INVENTORY

The Company values its inventory at the lower of cost (first-in, first-out
method) or market.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation on assets is provided
using the straight-line method over the estimated useful lives of the related
assets.

LONG-LIVED ASSETS

In accordance with Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of", the Company reviews its long lived assets, including intangible
assets, for impairment whenever events or circumstances indicate that the
carrying value of the asset may not be recoverable. If this review indicates
that the asset will not be recoverable based on the expected undiscounted net
cash flows of the related asset, the asset's carrying value is reduced by the
estimated excess of such value over projected discounted cash flow. As a result
of this evaluation during fiscal year 1999, the Company wrote-off the remaining
balance of Quad Europe Limited's (QEL) unamortized goodwill of $442,000, as
management believed the carrying value was not recoverable. This charge is
included in operating expenses in the 1999 consolidated statement of operations.

During fiscal year 1999, the Company sold substantially all of the assets and
liabilities of one of its European subsidiaries, SMTech Limited (Note 6). As a
result of the sale, the Company wrote off goodwill of $2,152,000 associated with
the business.



                                      F-8
<PAGE>


                            QUAD SYSTEMS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        SEPTEMBER 30, 1999, 1998 AND 1997



PRODUCT WARRANTY

The consolidated financial statements reflect estimated accruals for potential
product warranty claims based on the Company's claim experience. Such costs are
accrued at the time sales are recognized. The Company's actual product warranty
costs have not differed materially from accrued estimated amounts.

REVENUE RECOGNITION

Revenue from the sale of products is generally recognized upon shipment. Service
and support revenues are recognized over the life of the relevant contract on a
straight-line basis. Such revenues were $2,221,000, $1,853,000 and $1,522,000
for the years ended September 30, 1999, 1998 and 1997, respectively.

FAIR VALUE OF FINANCIAL INSTRUMENTS

SFAS No. 107, "Disclosures About Fair Value of Financial Instruments", defines
the fair value of a financial instrument as the amount at which the instrument
could be exchanged in a current transaction between willing parties. Cash, cash
equivalents, accounts receivable, other current assets, accounts payable,
accrued expenses and the line of credit reported in the consolidated balance
sheets equal or approximate fair value due to their short maturities. For
long-term debt, including current maturities, the fair value of the Company's
long-term debt approximates historically recorded cost since interest rates
approximate market.

INCOME TAXES

The Company accounts for income taxes under the liability method, whereby,
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using enacted tax rates and laws that will be in effect when the differences are
expected to reverse. No provision is made for U.S. income taxes applicable to
undistributed earnings of foreign subsidiaries that are indefinitely reinvested
in foreign operations.

FOREIGN CURRENCY TRANSLATION

Assets and liabilities of the Company's international operations are translated
into U.S. dollars at fiscal year-end exchange rates. Income and expense items
are translated at the average exchange rate prevailing during the fiscal year.
The resulting translation adjustments are recorded as a component of
stockholders' equity.

NET INCOME (LOSS) PER SHARE

Basic earnings per share is calculated by dividing net income (loss) by the
weighted average common shares outstanding for the period. Diluted earnings per
share is calculated by dividing net income (loss) by the weighted average common
shares outstanding for the period plus the dilutive effect of stock options and
other dilutive securities.

                                      F-9
<PAGE>


                            QUAD SYSTEMS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        SEPTEMBER 30, 1999, 1998 AND 1997


The following table sets forth the computation of basic and diluted earnings
(loss) per share (in thousands, except for share and per share amounts):

<TABLE>
<CAPTION>

                                                            YEAR ENDED SEPTEMBER 30,
                                                 ---------------------------------------------
                                                   1999              1998              1997
                                                   ----              ----              ----
<S>                                              <C>              <C>               <C>
Numerator:
   Net income (loss)                             $  (6,301)       $  (5,050)        $   1,987
                                                 =========        =========         =========
Denominator:
   Denominator for basic earnings (loss)
        per share-weighted average shares        4,419,148        4,359,494         4,286,556

   Effect of dilutive securities:
        Employee stock options                        --               --             177,154
        Employee stock purchase plan                  --               --                 103
                                                 ---------        ---------         ---------
   Dilutive potential Common Stock                    --               --             177,257
   Denominator for diluted earnings (loss)
        per share-weighted average shares        4,419,148        4,359,494         4,463,813
                                                 =========        =========         =========

   Basic earnings (loss) per share                  $(1.43)          $(1.16)            $0.46
                                                 =========        =========         =========
   Diluted earnings (loss) per share                $(1.43)          $(1.16)            $0.45
                                                 =========        =========         =========

</TABLE>


The effect of dilutive securities for the years ended September 30, 1999 and
1998 were not included in the computation of diluted (loss) per share because
they were antidilutive.

IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income".
SFAS No. 130 establishes standards for reporting and display of comprehensive
income and its components in the financial statements. SFAS No. 130 is effective
for fiscal years beginning after December 15, 1997. Reclassification of
financial statements for earlier periods provided for comparative purposes is
required. The adoption of SFAS No. 130 had no impact on the Company's
consolidated results of operations, financial position or cash flows, but did
effect the consolidated statements of stockholders' equity disclosure.

In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information". SFAS No. 131 establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports. It
also establishes standards for related disclosures about products and services,
geographical areas and major customers. SFAS No. 131 is effective for fiscal
years beginning after December 15, 1997. The adoption of SFAS No. 131 did not
effect results of operations of financial position, but did effect the
disclosure of segment information (see Note 11).

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes
accounting and reporting standards for derivative instruments and hedging
activities. It requires entities to record all derivative instruments on the
balance sheet at fair value. Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge transaction
and the type of hedge transaction. The ineffective portion of all hedges will be
recognized in earnings. In June 1999, the FASB voted to defer the implementation
date of SFAS 133 to be effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000. Management has not completed its review of SFAS
133, but does not expect the adoption of SFAS 133 to have a material impact on
its future earnings or financial position.


                                      F-10

<PAGE>


                            QUAD SYSTEMS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        SEPTEMBER 30, 1999, 1998 AND 1997


3. PROPERTY AND EQUIPMENT

Property and equipment consist of the following (in thousands):



                                             SEPTEMBER 30,
                                       --------------------------
                                         1999             1998
                                         ----             ----
Computer hardware and software          $2,596           $3,244
Machinery and equipment                  2,493            3,149
Furniture and fixtures                     566            1,141
Leasehold improvements                     562              843
Equipment under capital lease               81               81
                                       -------          -------
                                         6,298            8,458
Less accumulated depreciation           (3,801)          (4,960)
                                       -------          -------
                                        $2,497           $3,498
                                       =======          =======


4. ACCRUED EXPENSES

Accrued expenses consist of the following (in thousands):

                                             SEPTEMBER 30,
                                       ----------------------
                                        1999            1998
                                        ----            ----
Accrued commissions                   $  909            $1,776
Accrued warranty                         563               932
Employee compensation and
  related taxes                          815               892
Reserve for losses on firm
  purchase commmitments                  552               992
Other                                  2,951             2,316
                                      ------            ------
                                      $5,790            $6,908
                                      ======            ======



                                      F-11

<PAGE>


                            QUAD SYSTEMS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        SEPTEMBER 30, 1999, 1998 AND 1997


5. LONG-TERM DEBT

Long-term debt consists of the following (in thousands):

                                                               SEPTEMBER 30,
                                                           -------------------
                                                            1999         1998
                                                            ----         ----
Term loan, requiring quarterly principal payments of
  $155, bearing interest at 7.95% per annum and
  maturing in April 2002. The term loan contains
  various covenants and requires maintenance of
  certain ratios as defined in the loan agreement.         $1,705       $2,325

Other                                                          57           70
                                                           ------       ------
                                                            1,762        2,395
Less current portion                                          636          634
                                                           ------       ------
                                                           $1,126       $1,761
                                                           ======       ======

Maturities of long-term debt outstanding at September 30, 1999 are as follows:
$636,000-2000; $637,000-2001; $484,000-2002; $5,000-2003.

At September 30, 1999, the Company had a revolving line of credit agreement
which permitted borrowings up to a maximum of $10,000,000 with interest at the
bank's base rate of interest (6.78% as of September 30, 1999) or at the
Company's option, the bank's prime rate or LIBOR plus 1.30% when the outstanding
balance is greater than $500,000. This line of credit is secured only by a
pledge by the Company's United Kingdom holding company, Quad Systems Holdings
Limited, of 65% of the outstanding shares of it's two wholly-owned United
Kingdom operating subsidiaries. In connection will the SMTech sale (Note 6), the
bank released the pledge on the SMTech pledged shares. The Company paid a fee of
 .25% on the unused portion of the line of credit. This credit agreement expires
in April 2000. The line of credit agreement restricts the payment or declaration
of any dividends on an annual basis in excess of 50% of such year's pre-tax
income. This line of credit agreement also contains various operating and
reporting covenants and requires maintenance of certain financial ratios. On
October 27, 1998, this agreement was replaced (see Note 13).

As of September 30, 1999 and 1998, total borrowings under this line of credit
were $1,318,000 and $8,795,000, respectively. The weighted average interest
rates on short-term borrowings for the years ended September 30, 1999 and 1998
were 6.59% and 7.11%, respectively.

The Company has issued and outstanding letters of credit totaling $1,747,000 at
September 30, 1999. These instruments are maintained primarily to guarantee
certain settlements and are deducted from the available line of credit.

                                      F-12
<PAGE>


                            QUAD SYSTEMS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        SEPTEMBER 30, 1999, 1998 AND 1997


6.   SALE OF SMTECH LIMITED

During the first quarter of fiscal 1999, the Company sold substantially all of
the assets and liabilities of one of its U.K. subsidiaries, SMTech Limited
("SMTech") to Speedline Technologies, Inc. ("Speedline") for $14,800,000 in cash
paid at closing, subject to a holdback of $750,000. The Company is liable for
various representations and warranties provided to Speedline under this
agreement. The Company recorded an after-tax net gain of $5,127,000. In
connection with the sale, the Company and MPM Corporation ("MPM"), a Speedline
division entered into an agreement whereby MPM has agreed to supply the Company
on an OEM basis with the former SMTech screen printer product line. This
agreement provides, among other things, that the Company will purchase a minimum
of $7,400,000 of AVX 500 screen printers by December 31, 2000 (see Note 7). The
Company is currently in negotiations with MPM to reduce the minimum purchase
commitment. There can be no assurance, however, that the Company will be
successful in doing so.

Sumarized financial information for SMTech as of September 30, 1998 and for the
year then ended is as follows:

Total assets                               $4,502
Total liabilities                          $2,117
Revenues                                   $6,620

The following unaudited pro forma results of operations for the fiscal year
ended September 30, 1998 assumes that SMTech was disposed of on October 1, 1997
and the Company repaid its outstanding line of credit balance with a portion of
the sale proceeds on October 1, 1997:

                                              1998
                                              ----
Net sales                                   $ 68,239
Net income (loss)                           $ (4,192)
Diluted net income (loss) per share         $  (0.96)


7.  COMMITMENTS

As of September 30, 1999, the Company had entered into various purchase order
agreements with vendors whereby the Company has committed to acquire inventory
for approximately $12,600,000. Such commitments are anticipated for delivery and
payment in the next twelve months. This total includes approximately $900,000 of
purchase orders with Samsung Aerospace Industries, Ltd. ("Samsung") in
accordance with an agreement to purchase electronic tape feeders used in the
Company's assemblers and approximately $3,500,000 of purchase orders with Mirae
Corporation ("Mirae") in accordance with a distributorship agreement (see
below). At September 30, 1999, the Company recorded reserves of approximately
$552,000 for losses on firm purchase commitments which are in excess of the
estimated net realizable value of this inventory.

In June 1999, the Company reached an agreement with Mirae whereby the Company
was appointed as Mirae's exclusive private label distributor of Mirae SMT
placement systems throughout North and South America and Europe. The placement
systems consist of a series of seven high-speed SMT assembler models that are
designed to meet a wide variety of production requirements. The distribution
agreement between the Company and Mirae provides for an initial term of three
years, with options to extend the length of the term.

Prior to March 1999, the Company has an agreement with Samsung for the sale and
distribution of the QSA-30 Series assemblers. In March 1999, Samsung notified
the Company, that in connection with the expiration of the first "supply term"
under the QSA-30 agreement, Samsung would no longer be manufacturing the QSA-30
Series, which constituted a termination of the QSA-30 Agreement.

The Company also has a long-term supply agreement with Samsung, whereas Samsung
is the Company's sole supplier of component tape feeders, which are used with
the Company's SMT assembler products. The supply contract expires in 2004. The
Company has notified Samsung of Samsung's non-compliance with certain supply
obligations under the agreement. Samsung has denied the allegations of
non-compliance and disputes the Company's position on these issues. The parties
have entered into discussions in an attempt to come to a mutually acceptable
resolution to this matter. If Samsung were to stop supplying the Company with
component tape feeders, the Company has the right to resume manufacturing or use
alternative suppliers. The Company maintains an inventory of component tape
feeders that it believes will sustain the business during such a transition, if
any.


                                      F-13

<PAGE>

                            QUAD SYSTEMS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        SEPTEMBER 30, 1999, 1998 AND 1997


As of September 30, 1999, the Company has the following commitments for future
minimum lease payments under various operating leases for real estate and
equipment (in thousands):


                  2000                               $1,108
                  2001                                  235
                  2002                                  182
                  2003                                  182
                  2004 and thereafter                   419


Rent expense was approximately $965,000, $1,156,000 and $980,000 for the years
ended September 30, 1999, 1998 and 1997, respectively.

8.  INCOME TAXES

For financial reporting purposes, income (loss) before income taxes includes the
following (in thousands):


                                      Year Ended September 30,
                              -----------------------------------------
                                1999             1998             1997
                                ----             ----             ----
Pretax income (loss):
   United States              $(7,552)         $(3,143)         $ 2,942
   Foreign                      7,745           (3,822)             115
                              -------          -------          -------
                              $   193          $(6,965)         $ 3,057
                              =======          =======          =======

Income tax expense (benefit) for the fiscal years ended September 30, 1999, 1998
and 1997 consists of (in thousands):

                                       Year Ended September 30,
                                  -----------------------------------
                                    1999          1998          1997
                                    ----          ----          ----
Current:
         Federal                  $(1,046)      $  (657)      $   887
         State                       --               3            19
         Foreign                    3,001           (15)          333
                                  -------       -------       -------
                                    1,955          (669)        1,239
Deferred:
         Federal                    3,426          (237)          (73)
         State                        442           (42)          (47)
         Foreign                      671          (967)          (49)
                                  -------       -------       -------
                                    4,539        (1,246)         (169)
                                  -------       -------       -------
Income tax expense (benefit)      $ 6,494       $(1,915)      $ 1,070
                                  =======       =======       =======



                                      F-14

<PAGE>
                            QUAD SYSTEMS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        SEPTEMBER 30, 1999, 1998 AND 1997



A reconciliation of the Company's effective income tax rate to the federal
statutory rate is as follows (in thousands):

<TABLE>
<CAPTION>

                                                          Year Ended September 30,
                                                     ---------------------------------
                                                      1999          1998          1997
                                                      ----          ----          ----

<S>                                                  <C>          <C>           <C>
Tax expense at the federal statutory rate (34%)      $    66      $(2,368)      $ 1,039
Valuation allowance                                    5,243         --            --
Research and development tax credit                        0         --            (203)
Permanent - goodwill                                     729          119           121
Permanent - other                                         39           73            45
Lapse of state net operating
     loss carryforward                                  --             50          --
State taxes, net of federal benefit                     --            (39)         --
Foreign sales corporation benefit                       --           --            (118)
Other                                                    417          250           186
                                                     -------      -------       -------
Income tax expense (benefit)                         $ 6,494      $(1,915)      $ 1,070
                                                     =======      =======       =======

</TABLE>


Significant components of the Company's deferred tax assets and liabilities are
as follows (in thousands):

                                                               September 30,
                                                          ---------------------
                                                            1999          1998
                                                            ----          ----
Deferred tax assets:
   Net operating loss carry forwards                      $ 1,717       $   979
   Research and development tax credit carryforwards          249           552
   Tax credit carryforwards                                   120           151
   Inventory and accounts receivable reserves               2,493         2,011
   Warranty and other accruals                                119           138
   Deferred service and other unearned revenue                536           580
   Deferred compensation                                       72           137
   Other                                                       40            88
                                                          -------       -------
Total deferred tax assets                                   5,346         4,636
Deferred tax liability:
   Prepaid expenses                                            53            47
                                                          -------       -------
Deferred tax assets, net                                    5,293         4,589
Valuation allowance for deferred tax assets                (5,293)          (50)
                                                          -------       -------
Net deferred tax assets                                   $   --        $ 4,539
                                                          =======       =======


During the second quarter of the fiscal year ending September 30, 1999, the
Company was unable to conclude, that it was more likely than not, that it would
earn sufficient taxable income in order to realize the prior period net deferred
tax assets recorded. Accordingly, a valuation allowance was recorded to fully
reserve the net deferred tax assets.

At September 30, 1999, the Company has the following net operating loss and tax
credit carryforwards (in thousands):


                                                AMOUNT        EXPIRATION DATE
                                                ------        ---------------

      Net operating loss carryforwards          $5,049         2019
      Research and development tax credit          249         2001 to 2008
      Alternative minimum tax credit               120         indefinite


                                      F-15
<PAGE>

                            QUAD SYSTEMS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        SEPTEMBER 30, 1999, 1998 AND 1997


9.  STOCKHOLDERS' EQUITY

Under the Company's Certificate of Incorporation, the Board of Directors, at its
discretion, may issue up to 1,000,000 shares of preferred stock and establish
the voting, dividend, liquidation, and other rights, designations and
preferences of the preferred shares. At September 30, 1999, no shares of
preferred stock were outstanding.

During November 1997, the Company adopted a Stockholder Rights Plan (the "Plan")
designed to protect the Company's stockholders in the event of an attempt to
acquire control of the Company on terms which do not deal fairly with all of the
Company's stockholders. Under the Plan, the Company distributed one right per
Common Stock on the stated record date, which becomes exercisable in certain
events involving the acquisition of 15% or more of the Company's Common Stock.
Upon the occurrence of such an event, each right entitles its holder to purchase
one one-hundredth of a share of a new series of preferred stock at a price of
$45.00. In addition, upon the occurrence of certain events, holders of the
rights will be entitled to purchase either the Company's stock or shares in an
"acquiring entity" at half of market value.

10.  STOCK PLANS AND EMPLOYEE BENEFITS

Stock Option Plans

The Company has adopted stock option plans, as amended (the "Plans"), under
which incentive stock options and non-incentive stock options may be granted to
employees and other qualified individuals. The Plans provide that the option
price shall not be less than the fair market value of the shares on the date of
grant and that no portion of the option may be exercised beyond ten years from
that date. Options vest as determined by the Stock Option and Compensation
Committee of the Board of Directors (the "Committee"). The Plans provide for
full vesting of the option in the event there is a Change of Control (as defined
in the Plans). The Committee has the authority to determine the number, terms
and type of stock options to be granted. No additional options may be granted
under the 1986 Stock Option Plan. The 1993 Stock Option Plan provides for the
issuance of up to 900,000 shares of Common Stock pursuant to the exercise of
options.


                                      F-16
<PAGE>

                            QUAD SYSTEMS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        SEPTEMBER 30, 1999, 1998 AND 1997



Changes in the number of outstanding options and number of available shares for
grant under the Plans are summarized as follows:

<TABLE>
<CAPTION>

                                               NUMBER OF SHARES          WEIGHTED
                                           -------------------------      AVERAGE
                                                             UNDER       EXERCISE
                                           AVAILABLE         OPTION       PRICE
                                           ---------       --------      --------
<S>                                         <C>            <C>           <C>
Outstanding, September 30, 1996             265,525        784,270       $   7.81
     Granted                               (243,400)       243,400           9.77
     Exercised                                 --          (54,797)          5.72
     Canceled                               129,821       (129,821)          9.17
     Shares expired from 1986 plan           (5,638)          --              --
                                            -------        -------       --------
Outstanding, September 30, 1997             146,308        843,052           8.31
     Granted                               (471,396)       471,396           4.28
     Exercised                                 --           (1,301)          3.00
     Canceled                               603,175       (603,175)          8.52
     Shares expired from 1986 plan          (19,970)          --              --
                                            -------        -------       --------
Outstanding, September 30, 1998             258,117        709,972           5.46
     Granted                               (204,400)       204,400           1.57
     Canceled                               269,429       (269,429)          5.53
     Shares expired from 1986 plan          (65,502)          --              --
                                            -------        -------       --------
Outstanding, September 30, 1999             257,644        644,943       $   4.20
                                            =======        =======       ========
</TABLE>

During fiscal year 1998, the Company's Board of Directors authorized a stock
option repricing program whereby all holders (except Company executive officers
and Board of Directors) of stock options granted under the Company's 1993 Stock
Option Plan were offered an opportunity to cancel their current outstanding
stock options for new options. As a result of this repricing program, 361,225
stock options were canceled and 258,446 stock options were granted at the market
price of the underlying Common Stock on the date of grant. Accordingly, no
compensation expense was recognized.

The following table summarizes information about options outstanding at
September 30, 1999:

<TABLE>
<CAPTION>
                                                            Weighted
                                         Weighted        Avg. Remaining                       Weighted
    Range of            Options        Avg. Exercise    Contractual Life      Options       Avg. Exercise
 Exercise Prices      Outstanding          Price            (Years)         Exercisable         Price
 ---------------      -----------          -----            -------         -----------         -----
<S>                     <C>                <C>                <C>             <C>              <C>
$1.50 - $1.68           174,700            $1.52              9.19               --             $ --
$1.75 - $3.88           214,726             3.46              7.97              66,739           3.46
$4.37 - $7.00           177,267             5.34              7.06             103,517           5.80
$7.25 - $13.75           78,250             9.62              6.87              35,050           9.38
                        -------            -----              ----             -------          -----
                        644,943            $4.20              7.33             205,306          $5.65
                        =======            =====              ====             =======          =====
</TABLE>


Employee Stock Purchase Plan

The Company has adopted an employee stock purchase plan under which the sale of
300,000 shares of its Common Stock has been authorized (150,000 was authorized
during fiscal 1999). The stock purchase plan is based on six-month offering
periods and no more than 30,000 shares of Common Stock are available for
purchase during each offering period. Shares are purchased at the end of each
offering period at 85% of the fair market value of the shares on the first or
last day of the offering period, whichever is lower. Eligible employees may
authorize payroll deductions not to exceed the lesser of 25% of their
compensation or $6,250 during each six-month offering period. Under the plan,
59,274 and 59,938 shares were issued at an average price of $1.88 and $4.38
during the years ended September 30, 1999 and 1998, respectively. Shares
available for future grant were approximately 120,040 and 29,314 shares at
September 30, 1999 and 1998, respectively.

                                      F-17

<PAGE>
                            QUAD SYSTEMS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        SEPTEMBER 30, 1999, 1998 AND 1997


The Company has elected to follow APB 25 for these plans. Under APB 25, because
the exercise price of the Company's stock options equals the market price of the
underlying Common Stock on the date of grant, no compensation cost is
recognized. For the purposes of the required disclosure and pro forma
information required under SFAS 123, "Accounting for Stock-Based Compensation",
the estimated fair value of the Company's options is amortized to expense over
the options' vesting period. The Company's pro forma information follows (in
thousands, except earnings (loss) per share):

<TABLE>
<CAPTION>
                                                              Year Ended September 30,
                                                        -----------------------------------
                                                          1999         1998           1997
                                                          ----         ----           ----

<S>                                                     <C>          <C>             <C>
Net income (loss)                    As reported        $(6,301)     $(5,050)        $1,987
                                     Pro forma          $(6,697)     $(5,356)        $1,577

Diluted earnings (loss) per share    As reported        $(1.43)       $(1.16)         $0.45
                                     Pro forma          $(1.52)       $(1.23)         $0.35

</TABLE>


Pro forma compensation costs were estimated using the Black-Scholes option
valuation model using the following weighted average assumptions for grants in
1999, 1998 and 1997, respectively: a dividend yield rate of zero for each year;
expected lives of 4.3, 4.3 and 5.2 years; expected volatility of 97.51%, 111.06%
and 60.93%; and risk free interest rates of 4.88%, 5.57% and 6.22%. The
Black-Scholes valuation model was developed for use in estimating the fair value
of traded options that have no vesting restrictions and are fully transferable.
In addition, option valuation models require the input of highly subjective
assumptions, including the expected stock price volatility. Because the
Company's stock options have characteristics significantly different from those
of trade options, and because changes in subjective input assumptions can
materially affect the fair value estimate, in the opinion of management, the
existing models do not necessarily provide a reliable single measure of fair
value of the Company's stock options. The effects of applying SFAS 123 to
provide the disclosures above are not likely to be representative of the effects
on reported net income (loss) for future years.

The weighted average fair value of options granted during fiscal 1999 and 1998
was $1.12 and $3.28, respectively. The weighted average fair value of options
associated with the Company's Employee Stock Purchase Plan for fiscal 1999 and
1998 was $1.03 and $2.70, respectively.

Savings Plan

The Company sponsors an employee savings plan that provides for eligible
employees to make pre-tax contributions up to 15% of eligible compensation,
subject to certain limitations imposed by Section 401(k) of the Internal Revenue
Code. The Company matches 50% of the first 4% of the employee's compensation, up
to a maximum of $1,000 per year. The Company made discretionary contributions
representing 2% of net income to the plan in fiscal year ending September 30,
1997 and none during the fiscal years ending September 30, 1999 and 1998. The
Company's total contributions were approximately $125,000, $139,000, and
$189,000 for the years ending September 30, 1999, 1998 and 1997, respectively.


                                      F-18
<PAGE>

                            QUAD SYSTEMS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        SEPTEMBER 30, 1999, 1998 AND 1997


11.  SEGMENT REPORTING

The Company, operates exclusively in one industry segment, the business of
developing, designing, manufacturing, marketing and supporting the SMT and APT
assembly equipment and related peripherals market. In addition to its principal
manufacturing operations and markets in the United States, the Company conducts
sales, customer support, and service operations out of locations in Europe and
North America. The following table presents financial information by geographic
region for the fiscal years ended September 30, 1999, 1998, and 1997 (in
thousands):


<TABLE>
<CAPTION>

                                         United
                                         States           Europe       Eliminations      Consolidated
                                         ------           ------       ------------      ------------
<S>                                      <C>              <C>              <C>              <C>
Year ended September 30, 1999
Total net sales:
          Unaffiliated customers         $31,139          $13,985         $   --            $45,124
          Interarea transfers              7,497              994           (8,491)            --
                                         -------          -------         --------          -------
                   Total                 $38,636          $14,979         $ (8,491)         $45,124
                                         =======          =======         ========          =======
Loss from operations                     $(8,176)         $(1,256)        $  1,182          $(8,250)
                                         =======          =======         ========          =======
Total assets                             $33,383          $12,595         $(12,198)         $33,780
                                         =======          =======         ========          =======
Property and equipment, net              $ 1,899          $   598         $   --            $ 2,497
                                         =======          =======         ========          =======

Year ended September 30, 1998
Total net sales:
          Unaffiliated customers         $53,185          $21,674         $   --            $74,859
          Interarea transfers             10,890           10,356          (21,246)            --
                                         -------          -------         --------          -------
                   Total                 $64,075          $32,030         $(21,246)         $74,859
                                         =======          =======         ========          =======
Loss from operations                     $(3,199)         $(2,815)        $   (267)         $(6,281)
                                         =======          =======         ========          =======
Total assets                             $54,108          $10,215         $(13,347)         $50,976
                                         =======          =======         ========          =======
Property and equipment, net              $ 2,239          $ 1,259         $   --            $ 3,498
                                         =======          =======         ========          =======

Year ended September 30, 1997
Total net sales:
          Unaffiliated customers         $56,435          $25,288         $   --            $81,723
          Interarea transfers             14,154            8,940          (23,094)            --
                                         -------          -------         --------          -------
                   Total                 $70,589          $34,228         $(23,094)         $81,723
                                         =======          =======         ========          =======
Income from operations                   $ 2,874          $   487         $     77          $ 3,438
                                         -------          -------         --------          -------
Total assets                             $51,265          $11,846         $(13,074)         $50,037
                                         =======          =======         ========          =======

</TABLE>

Interarea transfers primarily represent sales to and from the Company's United
Kingdom subsidiaries. These transfers are accounted for at cost, plus a
reasonable profit, and have been eliminated from consolidated net sales.

Sales by geographic area made by the Company's United States operations are as
follows (in thousands):

                                         YEAR ENDED SEPTEMBER 30,
                                 ---------------------------------------
                                  1999            1998            1997
                                  ----            ----            ----
United States                    $25,026         $45,748         $45,981
Pacific                            4,423           4,890           7,034
Canada and Latin America           1,639           2,065           3,420
Other                                 51             482            --
                                 -------         -------         -------
                                 $31,139         $53,185         $56,435
                                 =======         =======         =======


                                      F-19
<PAGE>

                            QUAD SYSTEMS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        SEPTEMBER 30, 1999, 1998 AND 1997



12.  LITIGATION

In 1996, the Company was named a defendant in a patent infringement lawsuit
filed by The Zevatech Group in Munich, Germany. The complaint alleges that the
Company infringed on the plaintiff's German patents relating to pick and place
assemblers. The Company has responded with an action against the plaintiff in
Munich, Germany seeking to have such plaintiff's patents invalidated. Management
believes the lawsuit to be without merit and is vigorously defending itself
against the lawsuit. Accordingly, no provision for this lawsuit has been
recorded since its inception.


13.  SUBSEQUENT EVENTS

On October 27, 1999, the Company entered into a revolving bank line of credit
agreement. This agreement, which replaced the line of credit facility in place
as of September 30, 1999, permitted maximum borrowings not to exceed $8,000,000
and expired on February 29, 2000. This line of credit was a secured line with
maximum borrowings based on a percentage of eligible receivables and inventory.
Interest was payable monthly at LIBOR plus 2.50%. The agreement also contained
various operating and reporting covenants and required the maintenance of
certain financial ratios.

On January 7, 2000, the Company entered into a revolving asset based line of
credit agreement, which replaced the revolving line of credit agreement of
October 27, 1999. The new agreement permits maximum borrowings not to exceed
$12,000,000, based on a percentage of eligible receivables and inventory. This
agreement expires on January 6, 2003. The line is secured by a lien on all of
the assets of the Company and its wholly-owned subsidiaries, and pledges of all
the outstanding shares of stock and guarantees of the Company's obligations by
the Company's wholly-owned subsidiaries. Interest on borrowings is payable
monthly, at the Company's election, at either 0.25% above the bank's published
prime rate or LIBOR plus 2.75%. The interest rate will be reduced 0.25% provided
no event of default has occurred and the Company meets a certain net income
level for fiscal 2000. The agreement also contains various operating and
reporting covenants and requires maintenance of a net tangible worth financial
ratio.

On January 7, 2000, the Company received a letter from Samsung which threatened
litigation with respect to the matters discussed in Note 7. While the Company
believes it has defenses to these claims asserted by Samsung, the resolution
to these claims remains uncertain.


                                      F-20

<PAGE>
                            Quad Systems Corporation
                Schedule II - Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
             COL. A                          COL. B               COL. C                  COL. D              COL. E
             ------                          ------               ------                  ------              ------
                                                                 Additions
                                                          -------------------------
                                                                         Charged to
                                           Balance at      Charged to       Other                           Balance at
                                           Beginning       Costs and       Accounts      Deductions           End of
           Description                     of Period       Expenses       -Describe       Describe            Period
           -----------                     ---------       --------       ---------       --------            ------
<S>                                      <C>             <C>              <C>                  <C>          <C>
Year ended September 30, 1997:
Deducted from asset accounts:
     Allowance for doubtful accounts     $   633,000     $   204,000      $     -     $    49,000(1)        $   788,000
     Reserves for inventory                2,534,000         898,000            -         764,000(2)          2,668,000
                                         -----------     -----------      -------     -----------           -----------
          Total                          $ 3,167,000     $ 1,102,000      $     -     $   813,000           $ 3,456,000
                                         ===========     ===========      =======     ===========           ===========

Reserve for product returns and
     allowances                          $   475,000     $  (288,000)     $     -     $         -           $   187,000
                                         ===========     ===========      =======     ===========           ===========


Year ended September 30, 1998:
Deducted from asset accounts:
     Allowance for doubtful accounts     $   788,000     $   420,000                  $    12,000(1)        $ 1,196,000
     Reserves for inventory                2,668,000       2,354,000            -         799,000(2)          4,223,000
                                         -----------     -----------      -------     -----------           -----------
          Total                          $ 3,456,000     $ 2,774,000      $     -     $   811,000           $ 5,419,000
                                         ===========     ===========      =======     ===========           ===========

Reserve for product returns and
     allowances                          $   187,000     $   190,000      $     -     $         -           $   377,000
                                         ===========     ===========      =======     ===========           ===========


Year ended September 30, 1999:
Deducted from asset accounts:
     Allowance for doubtful accounts     $ 1,196,000     $  (175,000)                 $   528,000(1)(3)     $   493,000
     Reserves for inventory                4,223,000       1,450,000            -       1,427,000(2)(3)       4,246,000
                                         -----------     -----------      -------     -----------           -----------
          Total                          $ 5,419,000     $ 1,275,000      $     -     $ 1,955,000           $ 4,739,000
                                         ===========     ===========      =======     ===========           ===========

Reserve for product returns and
     allowances                          $   377,000     $   350,000      $     -     $    43,000           $   684,000
                                         ===========     ===========      =======     ===========           ===========

<FN>
(1) Uncollectible accounts written off, net of recoveries.
(2) Disposals of obsolete inventory.
(3) Subsidiary sold 10/1/98
</FN>
</TABLE>


                                      S-1
<PAGE>



                                  EXHIBIT INDEX

  EXHIBIT
    NO.       DESCRIPTION
    ---       -----------

     3.1  Certificate of Incorporation of the Registrant, as amended -
          Incorporated by reference to Exhibit 3.1 to Amendment No. 2 to the
          Registrant's Registration Statement on Form S-1 (No. 33-60588) filed
          with the Securities and Exchange Commission on May 7, 1993.

     3.2  By-laws of the Registrant, as amended - Incorporated by reference to
          Exhibit 3.2 to the Registrant's Registration Statement on Form S-1
          (No. 33-60588) filed with the Securities and Exchange Commission on
          April 5, 1993.

     4.1  Shareholder's Rights Agreement dated November 12, 1997 - Incorporated
          by reference to Exhibit 1 and 2 to the Registrant's Registration
          Statement on Form 8-A filed with the Securities and Exchange
          Commission on February 2, 1998.

    *10.1 1986 Stock Option Plan, as amended - Incorporated by reference to
          Exhibit 4.1 to the Registrant's Registration Statement on Form S-8
          (No. 33-71590) filed with the Securities and Exchange Commission on
          November 12, 1993.

    *10.2 1993 Stock Option Plan, as amended - Incorporated by reference to
          Exhibit 10.2 filed under Form 10-Q for the period ended March 31,
          1998.

<PAGE>



    *10.3 Quad Systems Corporation Employee Stock Purchase Plan, as amended -
          Incorporated by reference to Exhibit 10.3 to Registrant's Registration
          Statement on Form S-8 (No. 033-93436) filed with the Securities and
          Exchange Commission on May 25, 1999.

    *10.4 401(k) Salary Reduction Plan and Trust dated October 1, 1989, as
          amended - Incorporated by reference to Exhibit 10.8 to the
          Registrant's Registration Statement on Form S-1 (No. 33-60588) filed
          with the Securities and Exchange Commission on April 5, 1993.

    *10.5 Executive Severance Pay Plan - Incorporated by reference to Exhibit
          10.3 filed under Form 10-Q for the period ended June 30, 1998.

    *10.6 Employment memorandum dated April 27, 1998, between the Company and
          Theodore J. Shoneck Incorporated by reference to Exhibit 10.4 filed
          under Form 10-Q for the period ended June 30, 1998.

    *10.7 Employment memorandum dated April 27, 1998, between the Company and
          Anthony R. Drury Incorporated by reference to Exhibit 10.5 filed under
          Form 10-Q for the period ended June 30, 1998.

     10.8 Lease dated August 27, 1996, between the Registrant and Marave
          Associates, L.P. - Incorporated by reference to Exhibit 10.5.2 filed
          under the Company's Annual Report on Form 10-K for the fiscal year
          ended September 29, 1996.

   10.9.1 Credit Agreement dated April 11, 1997, between the Company and
          CoreStates Bank, NA - Incorporated by reference to Exhibit 10.7.1
          filed under the Company's Annual Report on Form 10-K for the fiscal
          year ended September 30, 1997.

   10.9.2 First Amendment to Credit Agreement dated September 11, 1997, between
          the Company and CoreStates Bank, NA - Incorporated by reference to
          Exhibit 10.7.2 filed under the Company's Annual Report on Form 10-K
          for the fiscal year ended September 30, 1997.

  10.10.1 Agreement dated November 1, 1993, between the Registrant and
          Samsung Aerospace Industries, Ltd. Incorporated herein by reference to
          Exhibit 10.9 filed under the Company's Annual Report on Form 10-K for
          the fiscal year ended September 26, 1993 (portions redacted pursuant
          to SEC order granting confidential treatment to certain provisions).

  10.10.2 Agreement dated June 20, 1996 between the Registrant and Samsung
          Aerospace Industries, Ltd.-Incorporated herein by reference to Exhibit
          10.1 filed under Form 10-Q for the period ended June 23, 1996
          (portions redacted pursuant to SEC order granting confidential
          treatment to certain provisions).

  10.10.3 Agreement dated March 19, 1997, between the Registrant and Samsung
          Aerospace Industries, Ltd. Incorporated by reference to Exhibit 10.11
          filed under the Company's Annual Report on Form 10-K for the fiscal
          year ended September 30, 1997 (portions redacted pursuant to SEC order
          granting confidential treatment to certain provisions).

    10.11 OEM and Distributorship Agreement dated December 2, 1997 between the
          Registrant and Kaijo Corporation for the distribution of the
          Registrant's APS-1 product - Incorporated by reference to Exhibit 10.1
          filed under Form 10-Q for the period ended December 31, 1997 (portions
          redacted pursuant to SEC order granting confidential treatment to
          certain provisions).

   *10.12 Severance Agreement dated March 30, 1998, as further amended on
          April 7, 1998, between the Company and David W. Smith - Incorporated
          by reference to Exhibit 10.1 filed under Form 10-Q for the period
          ended June 30, 1998.

   *10.13 Severance Agreement dated April 6, 1998, between the Company and
          Joseph L. Gasper - Incorporated by reference to Exhibit 10.2 filed
          under Form 10-Q for the period ended June 30, 1998.



<PAGE>


  10.14.1 Agreement relating to the sale and purchase of the business and
          assets of SMTech Limited, dated September 30, 1998, between the
          Registrant, SMTech Limited and Speedline Technologies, Inc.
          Incorporated by reference to Exhibit 2.1 filed under Current Report on
          Form 8-K filed with the Securities and Exchange Commission on October
          14, 1998.

  10.14.2 Agreement relating to the goodwill and intellectual property
          assignment of SMTech Limited, dated September 30, 1998, between the
          Registrant, SMTech Limited and Speedline Technologies, Inc.
          Incorporated by reference to Exhibit 2.2 filed under Current Report on
          Form 8-K filed with the Securities and Exchange Commission on October
          14, 1998.

    10.15 Supply agreement dated September 30, 1998 between the Registrant and
          Speedline Technologies, Inc. for the resale of SMTech stencil printers
          - Incorporated by reference to Exhibit 2.3 filed under Current Report
          on Form 8-K filed with the Securities and Exchange Commission on
          October 14, 1998 (portions redacted pursuant to SEC order granting
          confidential treatment to certain provisions).

    10.16 Distribution agreement dated June 1, 1999 between the Registrant and
          Mirae Corporation for the appointment of the Company as Mirae's
          exclusive distributor of certain products in North America, South
          America, Europe, Africa, Israel and Turkey - Incorporated by reference
          to Exhibit 10.1 filed under Current Report on Form 8-K filed with the
          Securities and Exchange Commission on August 6, 1999 (portions
          redacted pursuant to SEC order granting confidential treatment to
          certain provisions).

   o10.17 Reaffirmation of Term Loan agreement dated December 9, 1999.

   o10.18 Secured Line of Credit agreement dated January 7, 2000 between
          Registrant and Congress Financing Company.

    o21   Subsidiaries of the registrant.

    o23   Consent of Ernst & Young LLP.

    o27   Financial Data Schedule.


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*    Constitutes compensatory plan or arrangement required to be filed as an
     exhibit to this form.

o    Filed herewith