##### Table of Contents



FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

|                               |  |              
|------------------------------ |  | -------------
|For the quarterly period ended |  | June 30, 2002
|                               | 
|                              
|Commission file number         |  | 0-10691      
|                               | 

DELPHAX TECHNOLOGIES
INC.

|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|Minnesota                                                      |  | 41-1392000                       
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification No.)

|                                         |  |           
|---------------------------------------- |  | ----------
|12500 Whitewater Drive                   |  |           
|Minnetonka, Minnesota                    |  | 55343-9420
|(Address of principal executive offices) |  | (Zip Code)

(952) 939-9000

---

Not Applicable

---



| |                                                                                                                                                                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 periods that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.   
Yes
X                 
No



| |                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------
| | Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practical date.

| |                                                                               
| | ------------------------------------------------------------------------------
|
| | As of August 5, 2002, there were 6,175,898 shares outstanding of Common Stock.

1



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TABLE OF CONTENTS



|                                                                                              |  |                                                                                                      |  |  |  |  |  | 
|--------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION                                                                
|Item 1. Financial Statements (Unaudited)                                                     
|                                                                                              |  | Condensed consolidated balance sheets  June 30, 2002 and September 30, 2001                        
|                                                                                              |  | Condensed consolidated statements of operations  Three and nine months ended June 30, 2002 and 2001
|                                                                                              |  | Condensed consolidated statements of cash flows  Nine months ended June 30, 2002 and 2001          
|                                                                                              |  | Condensed notes to consolidated financial statements  June 30, 2002                                
|Item 2. Managements Discussion and Analysis of Results of Operations and Financial Condition
|Item 3. Quantitative and Qualitative Disclosure of Market Risk                               
|PART II. OTHER INFORMATION                                                                   
|Item 6. Exhibits and Reports on Form 8-K                                                     
|                                                                                              |  | Exhibit 99.1 Certification                                                                          
|SIGNATURES                                                                                   
|EX-99.1 Certification Pursuant to 18 USC Sec. 1350                                           



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##### Table of Contents



INDEX

DELPHAX TECHNOLOGIES INC. AND SUBSIDIARIES

|                              |                                                                                                     
|----------------------------- | ----------------------------------------------------------------------------------------------------
|PART
I. FINANCIAL INFORMATION
|                             
|Item 1.                       | Financial Statements (Unaudited)                                                                    
|                             
|                              | Condensed consolidated balance sheets  June 30, 2002 and September 30, 2001                        
|                             
|                              | Condensed consolidated statements of operations  Three and nine months ended June 30,
2002 and 2001
|                             
|                              | Condensed consolidated statements of cash flows  Nine months ended June 30, 2002 and 2001          
|                             
|                              | Condensed notes to consolidated financial statements  June 30, 2002                                
|                             
|Item 2.                       | Managements Discussion and Analysis of Results of Operations and Financial Condition               
|                             
|Item 3.                       | Quantitative and Qualitative Disclosure of Market Risk                                              
|                             
|PART
II. OTHER INFORMATION   
|                             
|Item 6.                       | Exhibits and Reports on Form 8-K                                                                    
|                             
|                              | Exhibit 99.1 Certification                                                                          
|                             
|SIGNATURES                   

2



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##### Table of Contents












PART I. FINANCIAL INFORMATION

DELPHAX TECHNOLOGIES INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

|                       |                                                                                                                                            |                                   |            |            |            |   |               |            |           | 
|---------------------- | ------------------------------------------------------------------------------------------------------------------------------------------ | --------------------------------- | ---------- | ---------- | ---------- | - | ------------- | ---------- | --------- | 
|                       |                                                                                                                                            |                                   |            | June 30,   |            |   | September 30, |           
|                       |                                                                                                                                            |                                   |            | 2002       |            |   | 2001          |           
|                       |                                                                                                                                            |                                   |            |            |            |   |               |           
|ASSETS                 |                                                                                                                                            |                                   |            |            |            |   |               |           
|CURRENT ASSETS         |                                                                                                                                            |                                   |            |            |            |   |               |           
|                       | Cash and cash equivalents                                                                                                                  |                                   | $          | 903,938    |            |   | $             | 591,536    |          
|                       | Short-term investments                                                                                                                     |                                   |            | 74,550     |            |   |               |           |          
|                       | Accounts receivable, less allowance for doubtful
accounts of $122,186 and $51,749 as of June 30,
2002 and September 30, 2001, respectively |                                   |            | 11,288,804 |            |   |               | 10,129,470 |          
|                       | Inventory:                                                                                                                                 |                                   |            |            |            |   |               |            |          
|                       |                                                                                                                                            | Raw materials and component parts |            |            | 11,380,550 |   |               |            | 7,519,015 | 
|                       |                                                                                                                                            | Work-in-progress                  |            |            | 676,276    |   |               |            | 317,800   | 
|                       |                                                                                                                                            | Finished goods                    |            |            | 11,123,132 |   |               |            | 3,998,855 | 
|                       |                                                                                                                                            |                                   |            |            |            |   |              
|                       |                                                                                                                                            |                                   | 23,179,958 |            |            |   | 11,835,670    |           
|                       |                                                                                                                                            |                                   |            |            |            |   |              
|                       | Deferred income taxes                                                                                                                      |                                   |            | 1,301,654  |            |   |               | 842,851    |          
|                       | Other current assets                                                                                                                       |                                   |            | 2,041,184  |            |   |               | 1,349,280  |          
|                       |                                                                                                                                            |                                   |            |            |            |   |              
|TOTAL CURRENT ASSETS   |                                                                                                                                            |                                   | 38,790,088 |            |            |   | 24,748,807    |           
|                       |                                                                                                                                            |                                   |            |            |            |   |              
|EQUIPMENT AND FIXTURES |                                                                                                                                            |                                   |            |            |            |   |               |           
|                       | Machinery and equipment                                                                                                                    |                                   |            | 19,740,079 |            |   |               | 2,192,448  |          
|                       | Furniture and fixtures                                                                                                                     |                                   |            | 12,128,532 |            |   |               | 2,440,243  |          
|                       | Leasehold improvements                                                                                                                     |                                   |            | 7,766,071  |            |   |               | 309,932    |          
|                       |                                                                                                                                            |                                   |            |            |            |   |              
|                       |                                                                                                                                            |                                   | 39,634,682 |            |            |   | 4,942,623     |           
|                       | Less accumulated depreciation and amortization                                                                                             |                                   |            | 35,075,492 |            |   |               | 3,904,814  |          
|                       |                                                                                                                                            |                                   |            |            |            |   |              
|                       |                                                                                                                                            |                                   | 4,559,190  |            |            |   | 1,037,809     |           
|                       |                                                                                                                                            |                                   |            |            |            |   |              
|TOTAL ASSETS           |                                                                                                                                            | $                                 | 43,349,278 |            |            | $ | 25,786,616    |           
|                       |                                                                                                                                            |                                   |            |            |            |   |              

See condensed notes to consolidated financial statements.

3



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DELPHAX TECHNOLOGIES INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

|                                           |                                                                                                 |   |            |            |   |   |               |            |   | 
|------------------------------------------ | ----------------------------------------------------------------------------------------------- | - | ---------- | ---------- | - | - | ------------- | ---------- | - | 
|                                           |                                                                                                 |   |            | June 30,   |   |   | September 30, |           
|                                           |                                                                                                 |   |            | 2002       |   |   | 2001          |           
|                                           |                                                                                                 |   |            |            |   |   |               |           
|LIABILITIES AND SHAREHOLDERS EQUITY       |                                                                                                 |   |            |            |   |   |               |           
|CURRENT LIABILITIES                        |                                                                                                 |   |            |            |   |   |               |           
|                                           | Accounts payable                                                                                |   | $          | 4,365,867  |   |   | $             | 4,143,228  |  
|                                           | Accrued expenses                                                                                |   |            | 4,079,897  |   |   |               | 1,763,739  |  
|                                           | Income taxes payable                                                                            |   |            | 308,563    |   |   |               | 248,132    |  
|                                           | Current portion of bank note payable                                                            |   |            | 16,274,371 |   |   |               | 595,000    |  
|                                           | Deferred revenue                                                                                |   |            | 338,339    |   |   |               | 1,053,893  |  
|                                           | Warranty reserves                                                                               |   |            | 313,835    |   |   |               |           |  
|                                           |                                                                                                 |   |            |            |   |   |              
|TOTAL CURRENT LIABILITIES                  |                                                                                                 |   | 25,680,872 |            |   |   | 7,803,992     |           
|                                           |                                                                                                 |   |            |            |   |   |              
|TOTAL LIABILITIES                          |                                                                                                 |   | 25,680,872 |            |   |   | 7,803,992     |           
|                                           |                                                                                                 |   |            |            |   |   |              
|SHAREHOLDERS EQUITY                       |                                                                                                 |   |            |            |   |   |               |           
|                                           | Common stock  par value $.10 per share  authorized
50,000,000 shares; issued and outstanding: |   |            |            |   |   |               |            |  
|                                           | 6,175,898 and 6,161,138 as of June 30,
2002 and September 30, 2001, respectively                |   |            | 617,588    |   |   |               | 616,114    |  
|                                           | Additional paid-in capital                                                                      |   |            | 17,059,838 |   |   |               | 17,010,008 |  
|                                           | Accumulated other comprehensive loss                                                            |   |            | (1,827,204 | ) |   |               | (2,089,483 | )
|                                           | Retained earnings                                                                               |   |            | 1,818,184  |   |   |               | 2,445,985  |  
|                                           |                                                                                                 |   |            |            |   |   |              
|TOTAL SHAREHOLDERS EQUITY                 |                                                                                                 |   | 17,668,406 |            |   |   | 17,982,624    |           
|                                           |                                                                                                 |   |            |            |   |   |              
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |                                                                                                 | $ | 43,349,278 |            |   | $ | 25,786,616    |           
|                                           |                                                                                                 |   |            |            |   |   |              

See condensed notes to consolidated financial statements.

4



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DELPHAX TECHNOLOGIES INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

|                                                                                                   |                                     |   |                            |            |  |                           |            |           |      |   |            |            |  |   |            |            | 
|-------------------------------------------------------------------------------------------------- | ----------------------------------- | - | -------------------------- | ---------- |  | ------------------------- | ---------- | --------- | ---- | - | ---------- | ---------- |  | - | ---------- | ---------- | 
|                                                                                                   |                                     |   | For the Three Months Ended |            |  | For the Nine Months Ended |           
|                                                                                                   |                                     |   | June 30,                   |            |  | June 30,                  |           
|                                                                                                   |                                     |   |                            |            |  |                           |           
|                                                                                                   |                                     |   | 2002                       |            |  | 2001                      |            |           | 2002 |   |            | 2001       | 
|                                                                                                   |                                     |   |                            |            |  |                           |            |           |      |   |            |            | 
|Sales:                                                                                             |                                     |   |                            |            |  |                           |            |           |      |   |            |            |  |   |            |           
|                                                                                                   | Printing equipment                  |   | $                          | 2,345,341  |  |                           | $          | 7,111,323 |      |   | $          | 12,035,974 |  |   | $          | 21,600,919 | 
|                                                                                                   | Maintenance, spares and supplies    |   |                            | 11,185,673 |  |                           |            | 3,903,899 |      |   |            | 26,339,621 |  |   |            | 11,221,707 | 
|                                                                                                   |                                     |   |                            |            |  |                           |            |           |      |   |            |            | 
|NET SALES                                                                                          |                                     |   | 13,531,014                 |            |  |                           | 11,015,222 |           |      |   | 38,375,595 |            |  |   | 32,822,626 |           
|Costs and Expenses:                                                                                |                                     |   |                            |            |  |                           |            |           |      |   |            |            |  |   |            |           
|                                                                                                   | Cost of sales                       |   |                            | 6,635,960  |  |                           |            | 5,757,112 |      |   |            | 19,070,880 |  |   |            | 17,087,105 | 
|                                                                                                   | Selling, general and administrative |   |                            | 5,832,610  |  |                           |            | 3,941,524 |      |   |            | 15,392,324 |  |   |            | 11,795,496 | 
|                                                                                                   | Research and development            |   |                            | 1,708,238  |  |                           |            | 680,235   |      |   |            | 4,194,553  |  |   |            | 2,031,819  | 
|                                                                                                   |                                     |   |                            |            |  |                           |            |           |      |   |            |            | 
|                                                                                                   |                                     |   | 14,176,808                 |            |  |                           | 10,378,871 |           |      |   | 38,657,757 |            |  |   | 30,914,420 |           
|                                                                                                   |                                     |   |                            |            |  |                           |            |           |      |   |            |            | 
|(LOSS) INCOME FROM SYSTEM SALES AND
SERVICE                                                        |                                     |   | (645,794                   | )          |  |                           | 636,351    |           |      |   | (282,162   | )          |  |   | 1,908,206  |           
|Interest expense                                                                                   |                                     |   | 250,549                    |            |  |                           | 24,999     |           |      |   | 556,448    |            |  |   | 41,046     |           
|Interest income                                                                                    |                                     |   | (9,758                     | )          |  |                           | (9,834     | )         |      |   | (23,422    | )          |  |   | (37,917    | )         
|Net realized exchange (gain) loss                                                                  |                                     |   | (22,948                    | )          |  |                           | 34,236     |           |      |   | (13,377    | )          |  |   | 143,831    |           
|Net unrealized exchange (gain)                                                                     |                                     |   | (46,747                    | )          |  |                           | (153,396   | )         |      |   | (77,024    | )          |  |   | (90,038    | )         
|                                                                                                   |                                     |   |                            |            |  |                           |            |           |      |   |            |            | 
|(LOSS) INCOME BEFORE INCOME TAXES                                                                  |                                     |   | (816,890                   | )          |  |                           | 740,346    |           |      |   | (724,787   | )          |  |   | 1,851,284  |           
|Income tax (benefit) expense                                                                       |                                     |   | (358,400                   | )          |  |                           | 288,330    |           |      |   | (326,100   | )          |  |   | 710,487    |           
|                                                                                                   |                                     |   |                            |            |  |                           |            |           |      |   |            |            | 
|NET (LOSS) INCOME                                                                                  |                                     | $ | (458,490                   | )          |  | $                         | 452,016    |           |      | $ | (398,687   | )          |  | $ | 1,140,797  |           
|                                                                                                   |                                     |   |                            |            |  |                           |            |           |      |   |            |            | 
|Basic and diluted (loss) earnings per common share                                                 |                                     | $ | (0.07                      | )          |  | $                         | 0.07       |           |      | $ | (0.06      | )          |  | $ | 0.18       |           
|Weighted average number of shares
outstanding during the period                                    |                                     |   | 6,171,365                  |            |  |                           | 6,169,038  |           |      |   | 6,164,267  |            |  |   | 6,175,938  |           
|Weighted average number of shares and equivalents
outstanding during the period, assuming dilution |                                     |   | 6,171,365                  |            |  |                           | 6,203,568  |           |      |   | 6,164,267  |            |  |   | 6,232,896  |           

See condensed notes to consolidated financial statements.

5



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DELPHAX TECHNOLOGIES INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

|                                                                                     |                                            |   |                           |             |   |      |            |            |  
|------------------------------------------------------------------------------------ | ------------------------------------------ | - | ------------------------- | ----------- | - | ---- | ---------- | ---------- | -
|                                                                                     |                                            |   | For the Nine Months Ended |            
|                                                                                     |                                            |   | June 30,                  |            
|                                                                                     |                                            |   |                           |            
|                                                                                     |                                            |   | 2002                      |             |   | 2001 |           
|                                                                                     |                                            |   |                           |             |   |      |           
|OPERATING ACTIVITIES                                                                 |                                            |   |                           |             |   |      |            |           
|Net (loss) income                                                                    |                                            | $ | (398,687                  | )           |   | $    | 1,140,797  |           
|Adjustments to reconcile net (loss) income to net cash
used in operating activities: |                                            |   |                           |             |   |      |            |           
|                                                                                     | Depreciation and amortization              |   |                           | 1,193,793   |   |      |            | 272,400    |  
|                                                                                     | Loss on disposal of equipment and fixtures |   |                           | 247,533     |   |      |            | 25,212     |  
|                                                                                     | Forgiveness of executive officer note      |   |                           |            |   |      |            | 135,186    |  
|                                                                                     | Other                                      |   |                           | (5,923      | ) |      |            | 61,672     |  
|Changes in operating assets and liabilities:                                         |                                            |   |                           |             |   |      |            |           
|                                                                                     | Accounts receivable, net                   |   |                           | (1,088,420  | ) |      |            | (3,170,549 | )
|                                                                                     | Inventory                                  |   |                           | (11,331,963 | ) |      |            | (319,386   | )
|                                                                                     | Other current assets                       |   |                           | (1,371,693  | ) |      |            | 727,843    |  
|                                                                                     | Accounts payable and accrued expenses      |   |                           | 2,806,215   |   |      |            | 907,567    |  
|                                                                                     | Deferred revenue                           |   |                           | (717,814    | ) |      |            | (3,033,242 | )
|                                                                                     | Warranty reserves                          |   |                           | 313,835     |   |      |            |           |  
|                                                                                     |                                            |   |                           |             |   |     
|NET CASH USED IN OPERATING ACTIVITIES                                                |                                            |   | (10,353,124               | )           |   |      | (3,252,500 | )         
|INVESTING ACTIVITIES                                                                 |                                            |   |                           |             |   |      |            |           
|Purchase of equipment and fixtures                                                   |                                            |   | (4,958,885                | )           |   |      | (463,069   | )         
|Purchase of short-term investments                                                   |                                            |   | (125,106                  | )           |   |      | (133,487   | )         
|Proceeds from sale of short-term investments                                         |                                            |   | 66,687                    |             |   |      | 176,849    |           
|                                                                                     |                                            |   |                           |             |   |     
|NET CASH USED IN INVESTING ACTIVITIES                                                |                                            |   | (5,017,304                | )           |   |      | (419,707   | )         
|FINANCING ACTIVITIES                                                                 |                                            |   |                           |             |   |      |            |           
|Issuance of common stock                                                             |                                            |   | 73,356                    |             |   |      | 18,191     |           
|Repurchase of common stock                                                           |                                            |   | (22,050                   | )           |   |      | (78,383    | )         
|Borrowing on bank line of credit, net                                                |                                            |   | 15,679,371                |             |   |      | 1,895,000  |           
|                                                                                     |                                            |   |                           |             |   |     
|NET CASH PROVIDED BY FINANCING ACTIVITIES                                            |                                            |   | 15,730,677                |             |   |      | 1,834,808  |           
|EFFECT OF EXCHANGE RATE CHANGES ON CASH                                              |                                            |   | (47,847                   | )           |   |      | (30,731    | )         
|                                                                                     |                                            |   |                           |             |   |     
|INCREASE (DECREASE) IN CASH AND EQUIVALENTS                                          |                                            |   | 312,402                   |             |   |      | (1,868,130 | )         
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                       |                                            |   | 591,536                   |             |   |      | 3,043,754  |           
|                                                                                     |                                            |   |                           |             |   |     
|CASH AND CASH EQUIVALENTS, END OF PERIOD                                             |                                            | $ | 903,938                   |             |   | $    | 1,175,624  |           
|                                                                                     |                                            |   |                           |             |   |     
|Supplemental Schedule                                                                |                                            |   |                           |             |   |      |            |           
|Forgiveness of executive officer note                                                |                                            |   |                          |             |   |      | 135,186    |           

See condensed notes to consolidated financial statements.

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DELPHAX TECHNOLOGIES INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2002

NOTE A  Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been
included. For further information, refer to the consolidated financial statements and footnotes thereto included
in the Companys annual report on Form 10-K for the year ended September 30, 2001.

Reclassifications have been made in the prior year to conform to classifications in the current year.

NOTE B  Earnings per Share

The following table sets forth the computation of basic and diluted loss and earnings per share:

|             |                                                                                                      |  |                            |           |   |                           |   |           |      |  |   |           |   |  |   |           | 
|------------ | ---------------------------------------------------------------------------------------------------- |  | -------------------------- | --------- | - | ------------------------- | - | --------- | ---- |  | - | --------- | - |  | - | --------- | 
|             |                                                                                                      |  | For the Three Months Ended |           |   | For the Nine Months Ended |  
|             |                                                                                                      |  | June 30,                   |           |   | June 30,                  |  
|             |                                                                                                      |  |                            |           |   |                           |  
|             |                                                                                                      |  | 2002                       |           |   | 2001                      |   |           | 2002 |  |   | 2001      |  
|             |                                                                                                      |  |                            |           |   |                           |   |           |      |  |   |           |  
|Numerator:   |                                                                                                      |  |                            |           |   |                           |   |           |      |  |   |           |   |  |   |          
|             | Net (loss) income                                                                                    |  | $                          | (458,490  | ) |                           | $ | 452,016   |      |  | $ | (398,687  | ) |  | $ | 1,140,797 | 
|             |                                                                                                      |  |                            |           |   |                           |   |           |      |  |   |           |  
|             | Numerator for basic and diluted earnings
per share  (loss) income applicable to
common shareholders |  | $                          | (458,490  | ) |                           | $ | 452,016   |      |  | $ | (398,687  | ) |  | $ | 1,140,797 | 
|Denominator: |                                                                                                      |  |                            |           |   |                           |   |           |      |  |   |           |   |  |   |          
|             | Denominator for basic earnings per share,
weighted average shares                                    |  |                            | 6,171,365 |   |                           |   | 6,169,038 |      |  |   | 6,164,267 |   |  |   | 6,175,938 | 
|             | Dilutive potential common shares, employee
stock options                                             |  |                            |          | a |                           |   | 34,530    |      |  |   |          | a |  |   | 56,958    | 
|             |                                                                                                      |  |                            |           |   |                           |   |           |      |  |   |           |  
|             | Denominator for earnings per share, assuming
dilution, adjusted weighted average shares              |  |                            | 6,171,365 |   |                           |   | 6,203,568 |      |  |   | 6,164,267 |   |  |   | 6,232,896 | 
|             | (Loss) earnings per common share                                                                     |  | $                          | (0.07     | ) |                           | $ | 0.07      |      |  | $ | (0.06     | ) |  | $ | 0.18      | 
|             | (Loss) earnings per common share,
assuming dilution                                                  |  |                            | (0.07     | ) |                           |   | 0.07      |      |  |   | (0.06     | ) |  |   | 0.18      | 

a  No incremental shares related to options are included because the impact would be antidilutive.

7



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NOTE C  Comprehensive Income

The components of comprehensive loss and income, net of related tax, for the three- and nine-month periods ended
June 30, 2002 and 2001 are as follows:

|                                        |  |                            |          |   |                           |   |          |      |  |   |          |   |  |   |           |  
|--------------------------------------- |  | -------------------------- | -------- | - | ------------------------- | - | -------- | ---- |  | - | -------- | - |  | - | --------- | -
|                                        |  | For the Three Months Ended |          |   | For the Nine Months Ended |  
|                                        |  | June 30,                   |          |   | June 30,                  |  
|                                        |  |                            |          |   |                           |  
|                                        |  | 2002                       |          |   | 2001                      |   |          | 2002 |  |   | 2001     |  
|                                        |  |                            |          |   |                           |   |          |      |  |   |          |  
|Net (loss) income                       |  | $                          | (458,490 | ) |                           | $ | 452,016  |      |  | $ | (398,687 | ) |  | $ | 1,140,797 |  
|Foreign currency translation adjustment |  |                            | 329,174  |   |                           |   | (119,591 | )    |  |   | 262,279  |   |  |   | (288,530  | )
|                                        |  |                            |          |   |                           |   |          |      |  |   |          |  
|Comprehensive (loss) income             |  | $                          | (129,316 | ) |                           | $ | 332,425  |      |  | $ | (136,408 | ) |  | $ | 852,267   |  
|                                        |  |                            |          |   |                           |   |          |      |  |   |          |  

NOTE D  Acquisition of Delphax Systems, Corporate Name Change and Workforce Reduction

On December 20, 2001, the Company and its newly organized Canadian subsidiary acquired substantially all of the
North American business assets of Delphax Systems, a Massachusetts general partnership, and Delphax Systems,
Inc., a Delaware corporation (collectively, the Acquired Company). The Acquired Company is located in suburban
Toronto, Ontario and is engaged in the development, manufacture and distribution of print engines, print
management software and a range of digital printing systems incorporating the Acquired Companys proprietary
electron-beam imaging technology. The Acquired Company is the supplier of the print engines used in a number of
the Companys products.

The purchase price consisted of approximately $15.8 million in cash plus the assumption of approximately $3.4
million of liabilities. The property acquired included fixed assets, inventory, accounts receivable, contract
rights, various intellectual property and intangibles, including rights to the name Delphax. Effective April
1, 2002, following an affirmative shareholder vote at the March 21, 2002 annual meeting of shareholders, the
Company changed its name from Check Technology Corporation to Delphax Technologies Inc. The wholly-owned
subsidiaries of the Company have also been renamed. New and former names are as follows:

|                                 |  |                              |  |               
|-------------------------------- |  | ---------------------------- |  | --------------
|New Name                         |  | Former Name                  |  | Country       
|                                 |  |                              |  |               
|Delphax Technologies Inc.        |  | Check Technology Corporation |  | United States 
|Delphax Technologies Canada Ltd. |  | Check Technology Canada Ltd. |  | Canada        
|Delphax Technologies Limited     |  | Check Technology Limited     |  | United Kingdom
|Delphax Technologies S.A.        |  | Check Technology France S.A. |  | France        

The Company intends to continue to use the purchased assets in substantially the same manner as used by the
Acquired Company. As part of the acquisition, the Company anticipated that efficiencies could be achieved in
integrating the two companies, and, as a result, included in accrued expenses in the Consolidated Balance Sheets
and in the cost of the acquisition $875,000 for restructuring in accordance with Statement of Financial
Accounting Standards No. 141, Business Combinations(SFAS 141). On April 23, 2002, the Company effected a
workforce reduction, eliminating approximately 40 positions in the Canadian subsidiary. Benefits are paid on
either a lump-sum basis or over time. As of June 30, 2002, the accrued liability for benefits payable in the
future was $523,000. It is estimated that this balance will be sufficient to cover the remaining obligation
under the workforce reduction plan.

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NOTE D  Acquisition of Delphax Systems, Corporate Name Change and Workforce Reduction (Continued)

The following unaudited pro forma combined summary statements of operations for the three- and nine-month periods
ended June 30, 2002 and 2001 were prepared in accordance with SFAS 141 and Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assetsand assumes the acquisition had occurred at the beginning
of the nine-month periods presented. The following pro forma data reflects adjustments for interest expense in
both periods, and the nine months ended June 30, 2001 includes an expense of approximately $13.1 million for
inventory reserves and an expense of approximately $2.0 million for write-down of equipment and fixtures in the
first quarter of the period. The unaudited pro forma financial information is provided for informational
purposes only and does not purport to be indicative of future results of the Company.

Unaudited Pro Forma
Combined Summary Statements of Operations

|                                                   |  |                             |            |   |                            |   |            |      |  |   |            |   |  |   |             |  
|-------------------------------------------------- |  | --------------------------- | ---------- | - | -------------------------- | - | ---------- | ---- |  | - | ---------- | - |  | - | ----------- | -
|                                                   |  | Three Months Ended June 30, |            |   | Nine Months Ended June 30, |  
|                                                   |  |                             |            |   |                            |  
|                                                   |  | 2002                        |            |   | 2001                       |   |            | 2002 |  |   | 2001       |  
|                                                   |  |                             |            |   |                            |   |            |      |  |   |            |  
|Net sales                                          |  | $                           | 13,531,014 |   |                            | $ | 17,914,686 |      |  | $ | 44,059,851 |   |  | $ | 55,742,245  |  
|Net (loss) income                                  |  |                             | (458,490   | ) |                            |   | 506,295    |      |  |   | (766,764   | ) |  |   | (10,506,858 | )
|Basic and diluted (loss) earnings
per common share |  |                             | (0.07      | ) |                            |   | 0.08       |      |  |   | (0.12      | ) |  |   | (1.71       | )

NOTE E  Credit Agreement

Effective December 20, 2001, the Company entered into a bank credit agreement, secured by substantially all the
assets of the Company, expiring December 19, 2004. The credit agreement provides two types of loans, term and
revolving, including letters of credit. The term loan portion of the credit facility was advanced as a single
borrowing on December 20, 2001, in the amount of $4.0 million, also outstanding as of June 30, 2002. No amount
repaid or prepaid on any term loan may be borrowed again. The Company may borrow on a revolving loan basis up to
the lesser of: (i) the revolving credit commitment in effect at such time and (ii) the borrowing base as then
determined and computed. The revolving credit commitment was $15.0 million as of June 30, 2002, and is subject
to a commitment fee of 0.5% per annum on the unused portion of the commitment. As of June 30, 2002, revolving
loans outstanding were $12.3 million. Term loans and revolving loans, at the Companys election, may be
outstanding as base rate loans or Eurodollar loans, provided that $3.0 million of the principal amount of the
revolving loans bear interest at the fixed rate of 7.35% per annum.

Principal payments on the term loan are due in installments of $250,000 on the last day of each March, June,
September and December in each year commencing with June 30, 2002, with any remaining principal and interest due
on December 19, 2004. Similarly, the revolving credit commitment will be permanently reduced by $250,000 on the
last day of each March, June, September and December in each year commencing June 30, 2002.

Because June 30, 2002, was a Sunday, the scheduled reductions in both the term loan and the revolving credit
commitment were effected on July 1, 2002. As of that date, outstanding term loans were paid down to $3.75
million and the revolving credit commitment was reduced to $14.75 million.

Outstanding base rate loans accrue interest at the banks prime rate plus 0.5%. Outstanding Eurodollar loans
accrue interest at adjusted LIBOR plus 3%. As of June 30, 2002, $2.8 million was outstanding as base rate loans
and $13.5 million was outstanding as Eurodollar loans, at a weighted average interest rate of approximately 5.9%.

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NOTE E  Credit Agreement (Continued)

As of June 30, 2002, the Company was not in compliance with one of the financial covenants of the credit
agreement. The lender has advised the Company that it is reserving all rights and remedies under the credit
agreement and will consider further requests for loans on a case-by-case basis. Since the loan is in default,
the lender could, but has not, declared the loans due and payable. Thus, the Company has classified the entire
outstanding loan balance as a current liability.

NOTE F  Executive Loan

During fiscal 1995, the President and Chief Executive Officer exercised 40,000 options to purchase common stock
at $2.00 per share, by executing a $148,996, five-year, full recourse note, bearing interest at a floating rate,
under the Executive Loan Program. The purpose of the loan was to provide cash for the exercise of the options
and to pay the related income taxes. When exercised, the Companys stock had a market value of $6.375 per
share. In 1998, the loan terms were amended to change the loan from full recourse to non-recourse, and the
floating rate was fixed at 5.25%. In May of fiscal 2000, the Company extended the term of the loan to May 2001
and granted forgiveness of the loan ratably over the extension period. These modifications resulted in the
options being treated as a fixed stock award. The Company recognized the fair market value of the stock award of
$225,000 over the extension period, which concluded in the third quarter of fiscal 2001. As a result, no expense
was incurred in fiscal 2002; $135,186 was recognized as compensation expense related to the stock award in fiscal
2001. Over the life of the loan, total principal payments were $54,671.

NOTE G  Closure of the Companys Australian Subsidiary

In February 2001, the Company committed to a plan to close its subsidiary in Australia, developed a formal exit
plan to cease operations effective September 30, 2001, and communicated the plan to all 14 full- and part-time
employees of the subsidiary. The Company determined that operations in the market served by the Australian
subsidiary could be more profitably served by alternative means, including independent distributors and sales
agents. At the commitment date, exit costs were estimated at $115,000, comprised solely of termination benefits,
which were included with selling, general and administrative expenses in the Consolidated Statements of Operation
and with accrued expenses in the Consolidated Balance Sheets. Customer service and transition issues delayed the
office closing until the first quarter of fiscal 2002. As a result of this delay and refinement of closing cost
estimates, an additional charge of $100,000 was recorded in the fourth quarter of fiscal 2001, bringing the total
one-time charge to $215,000. As of December 31, 2001, operations of the subsidiary had ceased and all employees
were terminated.

NOTE H  Accounting for Derivative Instruments and Hedging Activities

As of October 1, 2000, the Company adopted Statement of Financial Accounting Standards Number 133, Accounting for
Derivative Instruments and Hedging Activities(SFAS 133). SFAS 133 requires companies to account for derivatives
and hedging activities, including the following two elements: (i) all derivatives are measured at fair value and
recognized in the balance sheets as assets or liabilities, and (ii) derivatives meeting certain criteria could be
specifically designated as a hedge. The adoption of this Statement had no impact on the Companys operating
results or financial position.

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NOTE I  Revenue Recognition in Financial Statements

On December 3, 1999, the Securities and Exchange Commission issued SEC Staff Accounting Bulletin Number 101,
Revenue Recognition in Financial Statements(SAB 101). SAB 101 summarizes certain of the staffs views on
applying generally accepted accounting principles to revenue recognition in financial statements. SAB 101 was
effective for the Company in the fourth quarter of fiscal 2001 and had no material impact on the Companys
operations or financial position.

NOTE J  Business Combinations and Goodwill and Other Intangible Assets

On June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No.
141, Business Combinations(SFAS 141) and Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets(SFAS 142). SFAS 141 eliminates the pooling-of-interests method of accounting for business
combinations, clarifies the criteria for recognizing intangible assets separately from goodwill and is effective
for business combinations completed subsequent to June 30, 2001. Under SFAS 142, goodwill and indefinite lived
intangible assets are no longer amortized but are reviewed at least annually for impairment. Separable
intangible assets not deemed to have an indefinite life will continue to be amortized over their useful lives,
but with no maximum life. The amortization provisions of SFAS 142 apply immediately to goodwill and intangible
assets acquired after June 30, 2001 and is required to be adopted for all prior acquisitions in years beginning
after October 1, 2002, our fiscal 2003. SFAS 141 has been applied in accounting for the acquisition of the
Canadian subsidiary described above in NOTE D. The Company believes SFAS 142 will have no material effect on the
Companys results of operations or financial position.

NOTE K  Impairment or Disposal of Long-Lived Assets

In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets(SFAS 144), which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and the accounting and
reporting provisions of APB Opinion No. 30, Reporting the Results of Operationsfor a disposal of a segment of a
business. SFAS 144 is effective for fiscal years beginning after December 15, 2001, with earlier application
encouraged. The Company expects to adopt SFAS 144 as of October 1, 2002 and does not expect that adoption of the
Statement will have a significant impact on the Companys financial position and results of operations.

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Item 2. Managements Discussion and Analysis of Results of Operations and Financial Condition

Results of Operations

The Condensed Consolidated Statements of Operations for the three and nine months ended June 30, 2002 include the
post-acquisition results of the business acquired by the Company on December 20, 2001. See Note D to the
financial statements.

The following table sets forth the Companys Statements of Operations as a percentage of net sales and should be
read in connection with the Condensed Consolidated Financial Statements and notes thereto presented elsewhere in
this report.

|                                            |                                     |  |                            |      |   |                           |       |      |      |  |       |      |   |  |       |      |  
|------------------------------------------- | ----------------------------------- |  | -------------------------- | ---- | - | ------------------------- | ----- | ---- | ---- |  | ----- | ---- | - |  | ----- | ---- | -
|                                            |                                     |  | For the Three Months Ended |      |   | For the Nine Months Ended |      
|                                            |                                     |  | June 30,                   |      |   | June 30,                  |      
|                                            |                                     |  |                            |      |   |                           |      
|                                            |                                     |  | 2002                       |      |   | 2001                      |       |      | 2002 |  |       | 2001 |  
|                                            |                                     |  |                            |      |   |                           |       |      |      |  |       |      |  
|Sales:                                      |                                     |  |                            |      |   |                           |       |      |      |  |       |      |   |  |       |     
|                                            | Printing equipment                  |  |                            | 17.3 | % |                           |       | 64.6 | %    |  |       | 31.4 | % |  |       | 65.8 | %
|                                            | Maintenance, spares and supplies    |  |                            | 82.7 |   |                           |       | 35.4 |      |  |       | 68.6 |   |  |       | 34.2 |  
|                                            |                                     |  |                            |      |   |                           |       |      |      |  |       |      |  
|NET SALES                                   |                                     |  | 100.0                      |      |   |                           | 100.0 |      |      |  | 100.0 |      |   |  | 100.0 |     
|Costs and Expenses:                         |                                     |  |                            |      |   |                           |       |      |      |  |       |      |   |  |       |     
|                                            | Cost of sales                       |  |                            | 49.1 |   |                           |       | 52.3 |      |  |       | 49.7 |   |  |       | 52.1 |  
|                                            | Selling, general and administrative |  |                            | 43.1 |   |                           |       | 35.7 |      |  |       | 40.1 |   |  |       | 35.9 |  
|                                            | Research and development            |  |                            | 12.6 |   |                           |       | 6.2  |      |  |       | 10.9 |   |  |       | 6.2  |  
|                                            |                                     |  |                            |      |   |                           |       |      |      |  |       |      |  
|                                            |                                     |  | 104.8                      |      |   |                           | 94.2  |      |      |  | 100.7 |      |   |  | 94.2  |     
|                                            |                                     |  |                            |      |   |                           |       |      |      |  |       |      |  
|(LOSS) INCOME FROM SYSTEM SALES AND
SERVICE |                                     |  | (4.8                       | )    |   |                           | 5.8   |      |      |  | (0.7  | )    |   |  | 5.8   |     
|                                            |                                     |  |                            |      |   |                           |       |      |      |  |       |      |  
|Interest expense                            |                                     |  | 1.8                        |      |   |                           | 0.2   |      |      |  | 1.5   |      |   |  | 0.1   |     
|Interest income                             |                                     |  | (0.1                       | )    |   |                           | (0.1  | )    |      |  | (0.1  | )    |   |  | (0.1  | )   
|Net realized exchange (gain) loss           |                                     |  | (0.2                       | )    |   |                           | 0.3   |      |      |  | (0.0  | )    |   |  | 0.5   |     
|Net unrealized exchange (gain)              |                                     |  | (0.3                       | )    |   |                           | (1.3  | )    |      |  | (0.2  | )    |   |  | (0.3  | )   
|                                            |                                     |  |                            |      |   |                           |       |      |      |  |       |      |  
|(LOSS) INCOME BEFORE INCOME TAXES           |                                     |  | (6.0                       | )    |   |                           | 6.7   |      |      |  | (1.9  | )    |   |  | 5.6   |     
|Income tax (benefit) expense                |                                     |  | (2.6                       | )    |   |                           | 2.6   |      |      |  | (0.9  | )    |   |  | 2.1   |     
|                                            |                                     |  |                            |      |   |                           |       |      |      |  |       |      |  
|NET (LOSS) INCOME                           |                                     |  | (3.4                       | )%   |   |                           | 4.1   | %    |      |  | (1.0  | )%   |   |  | 3.5   | %   
|                                            |                                     |  |                            |      |   |                           |       |      |      |  |       |      |  

The Companys revenues consists of (i) sales of printing systems and related equipment, and (ii) maintenance
contracts, spare parts, supplies and consumable items. For the three-month period ended June 30, 2002 (third
quarter of fiscal 2002), net revenues were $13.5 million, up 23% from $11.0 million for the three-month period
ended June 30, 2001 (third quarter of fiscal 2001). Revenues from the sale of printing equipment were $2.3
million for the third quarter of fiscal 2002, down 67% from $7.1 million for the same period in fiscal 2001. For
the nine months ended June 30, 2002, net revenues were $38.4 million, up 17% from $32.8 million for the same
period a year ago. Revenues from the sale of printing equipment for the first nine months of fiscal 2002 were
$12.0 million, down 44% from $21.6 million for the first nine months of fiscal 2001.

The Companys printing systems primarily consist of the Imaggiaproduct line, the Checktronic andFoliotronic
product lines (our legacy products) and the PS MICRsystems product line (manufactured by Océ Printing Systems
GmbH and sold on a private label basis as the PS75 MICRand PS155 MICR). In addition, with the acquisition of
the Canadian subsidiary in December 2001, the Company expanded its product lines to include the CR Seriesand RS

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Seriesof continuous-feed print systems. In June 2002, the Company reached an agreement with LexisNexis Matthew
Bender for the establishment of the first major reference site for the Delphax high-speed CR Seriespublishing
system. This installation, which currently includes twoCR900P continuous-feed digital publishing systems
capable of producing 900 pages per minute, is significant in that it represents the Companys initial step into
the publishing market.

The decline in revenues from printing equipment for the first nine months of fiscal 2002 compared with the same
period a year ago was primarily due to significantly lower sales of the Imaggiaproduct line, only slightly
offset by stronger sales of the Foliotronicand other legacy products in the second quarter of fiscal 2002.
Printing equipment revenues for the three and nine months ended June 30, 2002 included (i) $665,000 and $7.7
million, respectively, from the sale of the Companys Imaggiaproduct line, a decrease of 88% and 56% from the
$5.6 million and $17.5 million for the comparable year-ago periods and (ii) $1.7 million and $4.3 million,
respectively, for all other products combined, up 14% and 7%, respectively, from year-ago sales of $1.5 million
and $4.1 million. The Company attributes lower printing equipment sales to customer postponement of equipment
purchases in a period of economic uncertainty for high-end capital equipment.

For the third quarter of fiscal 2002, revenues from maintenance contracts, spare parts, supplies and consumable
items increased 187%, from $3.9 million for the third quarter of fiscal 2001 to $11.2 million for the most recent
fiscal quarter. Revenues from maintenance contracts, spares parts, supplies and consumable items for the
nine-month periods increased 135%, from $11.2 million for the first nine months of fiscal 2001 to $26.3 million
for the first nine months of fiscal 2002. The increases between the quarter and year-to-date periods were due
primarily to incremental revenues from the fiscal 2002 acquisition of the Canadian subsidiary, which contributed
$12.0 million to fiscal-year-to-date revenues and $5.9 million in the third quarter. In addition, revenues from
maintenance contracts, spare parts, supplies and consumable items were also higher due to the larger installed
base of Imaggia. For both these reasons, the Company expects domestic revenues from maintenance contracts, spare
parts, supplies and consumable items to continue throughout fiscal 2002 at levels higher than in fiscal 2001.

The Companys gross margin percentages for the third quarter and first nine months of fiscal 2002 were 51% and
50%, respectively, compared with 48% for both the quarter and fiscal-year-to-date periods in fiscal 2001. The
improved margins are primarily due to the increase in consumables and supplies revenues generated by the Canadian
acquisition. However, in general for fiscal 2002, the Company anticipates that its gross margin percentage will
be about the same as for fiscal 2001.

Selling, general and administrative expenses for the third quarter increased 48%, from $3.9 million in fiscal
2001 to $5.8 million in fiscal 2002, and increased as a percentage of net sales from 36% to 43%. Similarly, for
the nine-month periods ended June 30, 2002 and 2001, selling, general and administrative expense increased 30%,
from $11.8 million in fiscal 2001 to $15.4 million in fiscal 2002. Research and development expenses for the
three-month periods ended June 30, 2002 and 2001 were $1.7 million and $680,000, respectively, higher by 151%
year to year, and increased as a percentage of net sales from 6% to 13% for the most recent fiscal quarter.
Similarly, for the nine-month periods ended June 30, 2002 and 2001, research and development expense increased
106%, from $2.0 million for the first nine months of fiscal 2001, to $4.2 million for the first nine months of
fiscal 2002. These significant increases in both selling, general and administrative expenses and research and
development expenses were primarily due to the acquisition of the Canadian subsidiary, the impact of which is
reflected in full for the second and third quarters of fiscal 2002. In particular, selling, general and
administrative expenses were higher primarily due to the increase in customer service staff and associated
expenses required to support the increase in revenues from maintenance contracts, spare parts, supplies and
consumable items. The Company anticipates that its expense levels through the remainder of fiscal 2002 will be
higher than in fiscal 2001 due to the acquisition.

Interest expense for the three and nine months ended June 30, 2002, was $251,000 and $556,000, respectively,
compared with $25,000 and $41,000 for the same periods in fiscal 2001. Interest income for the three and nine
months ended June 30, 2002, was $10,000 and $23,000, respectively, compared with $10,000 and $38,000 for the same
periods in fiscal 2001. Due to the Company borrowing to finance the acquisition of the Canadian subsidiary, and,
to a lesser extent, to fund increases in inventory in the fiscal 2002 periods, the Company incurred higher
interest expense and had less funds available for short-term investments in the current versus prior fiscal year
periods.

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For the three and nine months ended June 30, 2002, the Company realized net exchange gains of $23,000 and
$13,000, respectively, compared with net realized exchange losses of $34,000 and $144,000, respectively, for the
same periods in the previous fiscal year. In the first quarter of fiscal 2002, a realized exchange loss of
$152,000 was incurred due to recognition of accumulated unrealized exchange losses of the Australian subsidiary
upon closure of the subsidiary during the quarter. The Company incurs realized foreign exchange gains and losses
on currency conversion transactions. The Company experiences unrealized foreign currency gains and losses, which
are reflected on the Companys statements of operations, with unrealized gains due to the weakening, and
unrealized losses due to the strengthening, of the U.S. dollar against the currencies of the Companys foreign
subsidiaries and the resulting effect of currency translation on the valuation of the intercompany accounts and
certain assets of the subsidiaries, which are denominated in U.S. dollars. Net unrealized exchange gains for the
three and nine months ended June 30, 2002 were $47,000 and $77,000, respectively, compared with net unrealized
exchange gains of $153,000 and $90,000, respectively, for the same periods in fiscal 2001. The Company
anticipates that it will continue to have transactional and translational foreign exchange gains or losses in the
future, although strategies to reduce the size of the gains or losses will be reviewed and implemented whenever
economical and practical.

Income tax benefit for the three months ended June 30, 2002 was $358,000, compared with income tax expense of
$288,000 for the third quarter of fiscal 2001. For the nine months ended June 30, 2002, income tax benefit was
$326,000, compared with income tax expense of $710,000 for the same period in fiscal 2001, reflecting estimated
annual effective tax rates of 45% and 38%, respectively. Interim effective tax rates vary based on sources of
income or loss and estimates of the annual effective tax rate for the fiscal year.

For the third quarter of fiscal 2002, the Companys basic and diluted loss per share was $0.07, compared with
basic and diluted earnings per share of $0.07 for the comparable prior year period. For the nine months ended
June 30, 2002, basic and diluted loss per share was $0.06, compared with basic and diluted earnings per share for
the first nine months of fiscal 2001 of $0.18. The decline in earnings in both the three- and nine-months
periods was primarily attributable to the significant decrease in equipment revenues as customers postponed
equipment purchases in a period of continued economic uncertainty, significantly higher operating expense levels
due to the acquisition of the Canadian subsidiary and interest on debt financing for the acquisition, only
partially offset by the significantly higher maintenance spares and supplies revenues generated by the Canadian
acquisition and the tax benefit for the fiscal 2002 periods.

In February 2001, the Company committed to close its subsidiary in Australia, developed a formal exit plan to
cease operations effective September 30, 2001, and communicated the plan to all 14 full- and part-time employees
of the subsidiary. The Company determined that operations in the market served by the Australian subsidiary could
be more profitably served by alternative means, including independent distributors and sales agents. At the
commitment date, exit costs were estimated at $115,000. Customer service and transition issues delayed the
office closing until the first quarter of fiscal 2002. As a result of this delay and refinement of closing cost
estimates, an additional charge of $100,000 was recorded in the fourth quarter of fiscal 2001, bringing the total
one-time charge to $215,000. As of December 31, 2001, operations of the subsidiary had ceased and all employees
were terminated. By taking this action, the Company anticipated eliminating annual operating expenses of
approximately $500,000, beginning in fiscal 2002, with no further loss of revenues from Pacific Rim customers as
a result of this change.

On April 23, 2002, the Company effected a workforce reduction, eliminating approximately 40 positions in the
Canadian subsidiary. The cost of terminating the employees in these positions, estimated at approximately
$875,000, was included in the cost of the acquisition in accordance with SFAS 141 and included in accrued
expenses in the Consolidated Balance Sheets. Benefits are paid on either a lump-sum basis or over time. As of
June 30, 2002, the accrued liability for benefits payable in the future was $523,000. It is estimated that this
balance will be sufficient to cover the remaining obligation under the workforce reduction plan. By taking this
action, the Company anticipates eliminating annual operating expenses of approximately $1.3 million without
affecting its ability to fulfill current or future orders.

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Market Risk

The Company has foreign subsidiaries located in Canada, England and France, does business in 60 countries and
generates approximately 24% of its revenues from outside North America. This percentage is significantly lower
in fiscal 2002 than in fiscal 2001 due to the maintenance, spares and supplies revenues derived from the
acquisition of the Canadian subsidiary as, predominantly, this business is with U.S. customers. The Companys
ability to sell its products in foreign markets may be affected by changes in economic, political or market
conditions in these foreign markets.

The Companys net investment in its foreign subsidiaries was $7.1 million and $5.7 million at June 30, 2002 and
September 30, 2001, respectively, translated into U.S. dollars at the closing exchange rates. The potential loss
based on end-of-period balances and prevailing exchange rates resulting from a hypothetical 10% strengthening of
the dollar against foreign currencies was not material in the quarter ended June 30, 2002.

From time to time, the Company has entered into foreign exchange contracts as a hedge against specific foreign
currency receivables. In the first nine months of fiscal 2002, the Company did not enter into any foreign
exchange contracts and does not anticipate entering into any such contracts through the remainder of the fiscal
year.

Factors Affecting Results of Operations

The Companys revenues are subject to fluctuations which may be material.

In January 2000, the Company entered into a three-year equipment and service contract with a significant customer
for Imaggia systems and related supplies and consumables that was valued at approximately $40.0 million.
Equipment deliveries under the contract began in the second quarter of fiscal 2000 and concluded in the third
quarter of fiscal 2001. In the fourth quarter of fiscal 2001, the Company executed a new contract with this
customer, valued at approximately $19.5 million, of which approximately $11.5 million was for Imaggiasystems and
an estimated $8.0 million over three years is for supplies and consumable items. Equipment deliveries under the
most recent contract concluded in the second quarter of fiscal 2002. Under both contracts, the Company recorded
printing systems and related equipment revenues with the delivery of each component piece of equipment. The
Company records revenues for maintenance, spares and supplies based on the monthly usage of these components.
Revenues from this customer have been significant, representing 57% and 32% of total revenues for fiscal 2001 and
2000, respectively. The Company anticipates that revenues from this customer will also be significant in fiscal
2002, but to a lesser extent than in fiscal 2001.

On December 20, 2001, the Company and its newly organized Canadian subsidiary acquired substantially all of the
North American business assets of Delphax Systems, a Massachusetts general partnership, and Delphax Systems,
Inc., a Delaware corporation (collectively, the Acquired Company). The Acquired Company is located in suburban
Toronto, Ontario and is engaged in the development, manufacture and distribution of print engines, print
management software and a range of digital printing systems incorporating the Acquired Companys proprietary
electron-beam imaging technology. The Acquired Company is the supplier of the print engines used in a number of
the Companys products. Through June 30, 2002, the acquisition has contributed approximately $12.0 million in
incremental revenues. The Company anticipates that the acquisition will contribute incremental maintenance,
spares and supplies revenues in the fourth quarter in excess of $5.0 million and have a positive earnings
impact. While the Company expects the acquisition to provide increased revenues and incremental operating income
in the future, there can be no assurance that actual results will be as anticipated. In addition, the
acquisition expanded the Companys product lines to include the
CR Series and RS Series of continuous-feed print
systems. In June of 2002, the Company reached an agreement with LexisNexis Matthew Bender for the establishment
of the first major reference site for the Delphax high-speed CR
Series publishing system. To date no other CR
Series systems and only one RS Series system have been sold and there can be no assurance that such systems will
be sold in the future.

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The CompanysPS MICRsystems product line is marketed under an agreement with Océ Printing Systems GmbH for the
right to private label, sell and service thePS75 MICRproduct and other high-performance sheet-fed MICR and
non-MICR printing systems manufactured by Océ. The Company agreed to purchase a minimum number of PS75 MICR
units from Océ to maintain the exclusive right to sell thePS75 MICRproduct. The Company purchased less than
the minimum, and as a result, the Company incurred a penalty and forfeited certain rights of exclusivity. The
Company plans to continue offering thePS MICRsystems for sale, but there is no assurance that significant sales
will be made.

The Companys net sales and operating results may also fluctuate from quarter to quarter because (i) the
Companys sales cycle is relatively long, (ii) the size of orders may vary significantly, (iii) the availability
of financing for customers in some countries is variable, (iv) customers may postpone or cancel orders, and (v)
economic, political and market conditions in some markets change with minimal notice and effect the timing and
size of orders. Because the Companys operating expenses are based on anticipated revenue levels and a high
percentage of the Companys operating costs are relatively fixed, variations in the timing of revenue recognition
will result in significant fluctuations in operating results from period to period.

Euro Conversion

On January 1, 1999, certain member countries of the European Union established fixed conversion rates between
their existing currencies and the European Unions common currency (Euro). The transition period for the
introduction of the Euro was from January 1, 1999 to January 1, 2002. The Company prepared for the introduction
of the Euro and evaluated methods to address the many issues involved with the introduction of the Euro,
including the conversion of information technology systems, recalculating currency risk, strategies concerning
continuity of contracts, and ramifications on the processes for preparing taxation and accounting records. The
conversion on January 1, 2002 had no material impact on the Companys financial statements.

Revenue Recognition

On December 3, 1999, the Securities and Exchange Commission issued SEC Staff Accounting Bulletin Number 101Revenue Recognition in Financial Statements(SAB 101). SAB 101 summarizes certain of the SEC staffs views on
applying generally accepted accounting principles to revenue recognition in financial statements. SAB 101 was
effective for the Company in the fourth quarter of fiscal 2001 and had no material impact on the Companys
operations or financial position.

Liquidity and Capital Resources

Working capital was $13.1 million at June 30, 2002, compared with $16.9 million at September 30, 2001. Of the
$3.8 million decrease, approximately $15.1 million was a result of borrowing on the credit facility to purchase
the Canadian subsidiary, partially offset by the current assets and current liabilities of the acquired entity.
The Companys inventory levels increased to $23.2 million at June 30, 2002, from $11.8 million at September 30,
2001. Inventory acquired from acquisition of the Canadian subsidiary comprised approximately $8.7 million of the
increase. Accounts receivable increased to $11.3 million at June 30, 2002, from $10.1 million at September 30,
2001, with approximately $4.1 million of the increase due to the Canadian acquisition, offset by collection of
receivables and lower second and third quarter equipment sales. Cash and short-term investments amounted to
$978,000 at June 30, 2002, compared with $592,000 at September 30, 2001. The increase in cash and short-term
investments was primarily due to the timing of borrowing and repaying amounts under the Companys credit
facility. Deferred revenue was $338,000 at June 30, 2002, compared with $1.1 million at September 30, 2001. This
decrease was principally due to completion of deliveries under the equipment portion of the equipment contract
with the significant customer that is described above and the earning of the related deferred revenue. As of
June 30, 2002, deferred revenue was comprised primarily of unearned maintenance contract revenues.

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The Company has undertaken no significant investing activities. No significant capital investment has been
undertaken or is planned, and at June 30, 2002, the Company had no material commitments for capital expenditures.
Short-term investments are purchased as cash is available and sold as they mature.

To finance the acquisition of the Canadian subsidiary on December 20, 2001, the Company entered into a bank
credit agreement, secured by substantially all the assets of the Company, expiring December 19, 2004. The credit
agreement provides two types of loans, term and revolving, including letters of credit. The term loan portion of
the credit facility was advanced as a single borrowing on December 20, 2001, in the amount of $4.0 million, also
outstanding as of June 30, 2002. No amount repaid or prepaid on any term loan may be borrowed again. The
Company may borrow on a revolving loan basis up to the lesser of: (i) the revolving credit commitment in effect
at such time and (ii) the borrowing base as then determined and computed. The revolving credit commitment was
$15.0 million as of June 30, 2002, and is subject to a commitment fee of 0.5% per annum on the unused portion of
the commitment. As of June 30, 2002, revolving loans outstanding were $12.3 million. Term loans and revolving
loans, at the Companys election, may be outstanding as base rate loans or Eurodollar loans, provided that $3.0
million of the principal amount of the revolving loans bear interest at the fixed rate of 7.35% per annum.

Principal payments on the term loan are due in installments of $250,000 on the last day of each March, June,
September and December in each year commencing with June 30, 2002, with any remaining principal and interest due
on December 19, 2004. Similarly, the revolving credit commitment will be permanently reduced by $250,000 on the
last day of each March, June, September and December in each year commencing June 30, 2002.

Because June 30, 2002, was a Sunday, the scheduled reductions in both the term loan and the revolving credit
commitment were effected on July 1, 2002. As of that date, outstanding term loans were paid down to $3.75
million and the revolving credit commitment was reduced to $14.75 million.

Outstanding base rate loans accrue interest at the banks prime rate plus 0.5%. Outstanding Eurodollar loans
accrue interest at adjusted LIBOR plus 3%. As of June 30, 2002, $2.8 million was outstanding as base rate loans
and $13.5 million was outstanding as Eurodollar loans, at a weighted average interest rate of approximately 5.9%.

As of June 30, 2002, the Company was not in compliance with one of the financial covenants of the credit
agreement. The lender has advised the Company that it is reserving all rights and remedies under the credit
agreement and will consider further requests for loans on a case-by-case basis. Since the loan is in default,
the lender could, but has not, declared the loans due and payable. Thus, the Company has classified the entire
outstanding loan balance as a current liability.

The Company is engaged in discussions with the
lender to determine remedies and renegotiate the terms of the credit agreement. While the Company believes it will be successful in renegotiating the terms
of the credit agreement, there is no assurance that it will be. The Companys ability to fund its future working
capital requirements is dependent on successful completion of these negotiations.

Cautionary Statement

Statements included in this Managements Discussion and Analysis of Financial Condition and Results of
Operations, the Companys Annual Report, the Companys Form 10-K, in other filings with the Securities and
Exchange Commission, in the Companys press releases and in oral statements made to securities market analysts
and shareholders, which are not historical or current facts, are forward-looking statements made pursuant to
the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are subject
to certain risks and uncertainties that could cause the Companys actual results to differ materially from
historical earnings and those presently anticipated or projected.

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The factors mentioned under the subheading Factors Affecting Results of Operations are among those that in some
cases have affected, and in the future could affect, the Companys actual results, and could cause the Companys
actual financial performance to differ materially from that expressed in any forward-looking statement.




Item 3. Quantitative and Qualitative Disclosure of Market Risk

The information called for by this item is provided under the caption Market Risk under Item 2.  Managements
Discussion and Analysis of Financial Condition and Results of Operations.




PART II. OTHER INFORMATION







Item 6. Exhibits and Reports on Form 8-K

The Company did not file any reports on Form 8-K during the three months ended June 30, 2002.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto duly authorized.



|                    |  |                         |  |                                           
|------------------- |  | ----------------------- |  | ------------------------------------------
|                    |  |                         |  | DELPHAX
TECHNOLOGIES INC.                 
|                    |  |                         |  | Registrant                                
|                    |  |                         |  |                                           
|                    |  |                         |  |                                           
|                    |  |                         |  |                                           
|DateAugust 12,
2002 |  | /s/ Jay A.
Herman      
|                    |  |                         |  | Jay A. Herman                             
|                    |  |                         |  | Chairman and Chief Executive Officer      
|                    |  |                         |  |                                           
|                    |  |                         |  |                                           
|DateAugust 12,
2002 |  | /s/ Robert M.
Barniskis
|                    |  |                         |  | Robert M. Barniskis                       
|                    |  |                         |  | Vice President and Chief Financial Officer

19