##### 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, 2000
|                               |              

|                       |         | 
|---------------------- | ------- | 
|Commission file number | 0-10691
|                       |        

CHECK TECHNOLOGY CORPORATION

---

(Exact name of registrant as specified in its charter)

|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|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

---

Registrants telephone number, including area code

Not Applicable

---

Former name, former address and former fiscal year, if changed
since last report

|                                                                                                                                                                                                                                                                                                                                                          |          
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------
|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

|                                                                    | 
|------------------------------------------------------------------- | 
|Common Stock, $.10 Par Value Shares 6,190,353 as of August 8, 2000.

1



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TABLE OF CONTENTS



|                                                                                              |                                                      |  |  |  |  |  |  | 
|--------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  |  | 
|Part I. FINANCIAL INFORMATION                                                                
|                                                                                              | Condensed consolidated balance sheets               
|Item 1. Financial Statements (Unaudited)                                                     
|                                                                                              | Condensed consolidated statements of operations     
|                                                                                              | Condensed consolidated statements of cash flows     
|                                                                                              | Condensed notes to consolidated financial statements
|Item 2. Managements Discussion and Analysis of Results of Operations and Financial Condition
|Item 3. Quantitative and Qualitative Disclosures about Market Risk                           
|PART II. OTHER INFORMATION                                                                   
|Item 6. Exhibits and reports on Form 8-K                                                     
|SIGNATURES                                                                                   
|Financial Data Schedule                                                                      



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INDEX
CHECK TECHNOLOGY CORPORATION AND SUBSIDIARIES

|                              |  |                                                                                                                                            
|----------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------
|Part I. FINANCIAL INFORMATION
|                             
|                             
|                             
|                             
|Item 1.                       |  | Financial Statements (Unaudited)                                                                                                           
|                             
|                             
|                             
|                             
|                              |  | Condensed consolidated balance sheets  - June 30, 2000 and
September 30, 1999.                                                            
|                             
|                             
|                             
|                             
|                              |  | Condensed consolidated statements of operations  - Three months
ended June 30, 2000 and 1999 and nine months ended June 30, 2000
and 1999.
|                             
|                             
|                             
|                             
|                              |  | Condensed consolidated statements of cash flows  - Nine months
ended June 30, 2000 and 1999.                                              
|                             
|                             
|                             
|                             
|                              |  | Condensed notes to consolidated financial statements  - June
30, 2000.                                                                    
|                             
|                             
|                             
|                             
|Item 2.                       |  | Managements Discussion and Analysis of Results of Operations and
Financial Condition                                                      
|                             
|                             
|                             
|                             
|Item 3.                       |  | Quantitative and Qualitative Disclosures about Market Risk                                                                                 
|                             
|                             
|                             
|                             
|                              |  | See Market Risk in Managements Discussion and Analysis.                                                                                   
|                             
|                             
|                             
|                             
|PART II. OTHER INFORMATION   
|                             
|                             
|                             
|                             
|Item 6.                       |  | Exhibits and reports on Form 8-K                                                                                                           
|                             
|                             
|                             
|                             
|SIGNATURES                   

2



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##### Table of Contents






Part I. FINANCIAL INFORMATION

CHECK TECHNOLOGY CORPORATION AND SUBSIDIARIES




CONDENSED CONSOLIDATED BALANCE SHEETS




(Unaudited)

|                       |                                                                     |                                   |           |            |            |  |               |            |            |  | 
|---------------------- | ------------------------------------------------------------------- | --------------------------------- | --------- | ---------- | ---------- |  | ------------- | ---------- | ---------- |  | 
|                       |                                                                     |                                   |           |            | June
30,   |  | September 30,
|                       |                                                                     |                                   |           |            | 2000       |  | 1999         
|                       |                                                                     |                                   |           |            |            |  |              
|ASSETS                
|                      
|                      
|                      
|                      
|CURRENT ASSETS        
|                      
|                      
|                      
|                      
|                       | Cash and cash equivalents                                           |                                   | $         | 1,925,152  |            |  | $             | 2,882,618  |           
|                      
|                      
|                      
|                      
|                       | Shortterm investments                                              |                                   |           | 796,144    |            |  |               | 164,380    |           
|                      
|                      
|                      
|                      
|                       | Accounts receivable less allowance for
doubtful accounts of $50,000 |                                   |           | 4,000,591  |            |  |               | 3,542,350  |           
|                      
|                      
|                      
|                      
|                       | Inventories                                                        
|                      
|                      
|                      
|                      
|                       |                                                                     | Raw materials and component parts |           |            | 6,112,626  |  |               |            | 6,128,748  | 
|                      
|                      
|                      
|                      
|                       |                                                                     | Work-in-process                   |           |            | 952,818    |  |               |            | 107,622    | 
|                      
|                      
|                      
|                      
|                       |                                                                     | Finished Goods                    |           |            | 3,325,379  |  |               |            | 4,218,621  | 
|                       |                                                                     |                                   |           |            |            |  |               |           
|                      
|                      
|                      
|                      
|                       |                                                                     |                                   |           |            | 10,390,823 |  |               |            | 10,454,991 | 
|                      
|                      
|                      
|                      
|                       |                                                                     |                                   |           |            |            |  |               |            |            | 
|                      
|                      
|                      
|                      
|                       | Deferred income taxes                                               |                                   |           | 1,934,300  |            |  |               | 1,570,884  |           
|                      
|                      
|                      
|                      
|                       |                                                                     |                                   |           |            |            |  |               |            |            | 
|                      
|                      
|                      
|                      
|                       | Other current assets                                                |                                   |           | 1,282,885  |            |  |               | 870,633    |           
|                       |                                                                     |                                   |           |            |            |  |               |           
|                       | TOTAL CURRENT ASSETS                                                |                                   |           | 20,329,895 |            |  |               | 19,485,856 |           
|                      
|                      
|                      
|                      
|                       |                                                                     |                                   |           |            |            |  |               |            |            | 
|                      
|                      
|                      
|                      
|                       |                                                                     |                                   |           |            |            |  |               |            |            | 
|                      
|                      
|                      
|                      
|EQUIPMENT AND FIXTURES
|                      
|                      
|                      
|                      
|                       | Machinery and equipment                                             |                                   |           | 1,953,642  |            |  |               | 2,005,512  |           
|                      
|                      
|                      
|                      
|                       | Furniture and fixtures                                              |                                   |           | 2,116,057  |            |  |               | 1,958,732  |           
|                      
|                      
|                      
|                      
|                       | Leasehold improvements                                              |                                   |           | 322,427    |            |  |               | 316,850    |           
|                       |                                                                     |                                   |           |            |            |  |               |           
|                       |                                                                     |                                   | 4,392,126 |            |            |  | 4,308,094     |           
|                      
|                      
|                      
|                      
|                       | Less accumulated depreciation and amortization                      |                                   |           | (3,510,847 | )          |  |               | (3,338,081 | )         
|                       |                                                                     |                                   |           |            |            |  |               |           
|                      
|                      
|                      
|                      
|                       |                                                                     |                                   | 881,279   |            |            |  | 970,013       |           
|                       |                                                                     |                                   |           |            |            |  |               |           
|                       | TOTAL ASSETS                                                        |                                   | $         | 21,211,174 |            |  | $             | 20,455,869 |           
|                       |                                                                     |                                   |           |            |            |  |               |           

See notes to consolidated financial statements.

3



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##### Table of Contents



LIABILITIES AND STOCKHOLDERS EQUITY

|                                               |                                                                                                                                                                  |                                              |                            |            |           |            |               |            |           |            | 
|---------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------- | -------------------------- | ---------- | --------- | ---------- | ------------- | ---------- | --------- | ---------- | 
|                                               |                                                                                                                                                                  |                                              |                            |            | June 30,  |            | September 30,
|                                               |                                                                                                                                                                  |                                              |                            |            | 2000      |            | 1999         
|                                               |                                                                                                                                                                  |                                              |                            |            |           |            |              
|CURRENT LIABILITIES                           
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                                                                                  | Accounts payable and accrued expenses        |                            | $          | 2,853,738 |            |               | $          | 2,533,952 |           
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                                                                                  | Employee compensation and related taxes      |                            |            | 479,202   |            |               |            | 553,185   |           
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                                                                                  | Income taxes payable                         |                            |            | 69,827    |            |               |            | 175,449   |           
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                                                                                  | Deferred revenue                             |                            |            | 1,733,079 |            |               |            | 448,335   |           
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                                                                                  | Deferred tax current                         |                            |            | 4,230     |            |               |            | 0         |           
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                                                                                  | Current portion of capital lease obligations |                            |            | 0         |            |               |            | 38,888    |           
|                                               |                                                                                                                                                                  |                                              |                            |            |           |            |               |           
|                                               |                                                                                                                                                                  | TOTAL CURRENT LIABILITIES                    |                            |            | 5,140,076 |            |               |            | 3,749,809 |           
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                                                                                  |                                              | TOTAL LIABILITIES          |            |           | 5,140,076  |               |            |           | 3,749,809  | 
|                                              
|                                              
|                                              
|                                              
|STOCKHOLDERS EQUITY                          
|                                              
|                                              
|                                              
|                                              
|                                               | Capital Stock                                                                                                                                                   
|                                              
|                                              
|                                              
|                                              
|                                               | Common Stockpar value $.10 per shareauthorized
25,000,000 shares; issued and outstanding
June 30, 2000 6,170,482 shares;
September 30, 1999 6,154,157 shares |                                              |                            | 617,048    |           |            |               | 615,416    |          
|                                              
|                                              
|                                              
|                                              
|                                               | Additional paid in capital                                                                                                                                       |                                              |                            | 16,958,932 |           |            |               | 16,861,417 |          
|                                              
|                                              
|                                              
|                                              
|                                               | Accumulated other comprehensive (loss) income                                                                                                                    |                                              |                            | (1,798,018 | )         |            |               | (1,184,070 | )        
|                                              
|                                              
|                                              
|                                              
|                                               | Retained earnings                                                                                                                                                |                                              |                            | 293,136    |           |            |               | 413,297    |          
|                                               |                                                                                                                                                                  |                                              |                            |            |           |            |               |           
|                                               |                                                                                                                                                                  |                                              | TOTAL STOCKHOLDERS EQUITY |            |           | 16,071,098 |               |            |           | 16,706,060 | 
|                                              
|                                              
|                                              
|                                              
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY     |                                                                                                                                                                  | $                                            | 21,211,174                 |            |           | $          | 20,455,869    |           
|                                               |                                                                                                                                                                  |                                              |                            |            |           |            |               |           
|See notes to consolidated financial statements

4



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##### Table of Contents



CHECK TECHNOLOGY CORPORATION AND SUBSIDIARIES




CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

|                                                                                                          |                                     |                            |           |                    |           |                   |            |           |            |      |            |            |            |   |            |            |            |  
|--------------------------------------------------------------------------------------------------------- | ----------------------------------- | -------------------------- | --------- | ------------------ | --------- | ----------------- | ---------- | --------- | ---------- | ---- | ---------- | ---------- | ---------- | - | ---------- | ---------- | ---------- | -
|                                                                                                          |                                     |                            |           | Three Month Period |           | Nine Month Period
|                                                                                                          |                                     |                            |           | Ending June 30,    |           | Ending June 30,  
|                                                                                                          |                                     |                            |           | 2000               |           | 1999              |            | 2000      |            | 1999
|                                                                                                          |                                     |                            |           |                    |           |                   |            |           |            |     
|Sales:                                                                                                   
|                                                                                                         
|                                                                                                         
|                                                                                                         
|                                                                                                         
|                                                                                                          | Printing equipment                  |                            | $         | 3,795,589          |           |                   | $          | 814,680   |            |      | $          | 10,358,341 |            |   | $          | 3,778,318  |           
|                                                                                                         
|                                                                                                         
|                                                                                                         
|                                                                                                         
|                                                                                                          | Maintenance, spares and supplies    |                            |           | 3,322,026          |           |                   |            | 3,405,071 |            |      |            | 9,969,311  |            |   |            | 11,008,176 |           
|                                                                                                          |                                     |                            |           |                    |           |                   |            |           |            |      |            |            |            |   |            |           
|                                                                                                          |                                     | Net Sales                  |           |                    | 7,117,615 |                   |            |           | 4,219,751  |      |            |            | 20,327,652 |   |            |            | 14,786,494 |  
|                                                                                                         
|                                                                                                         
|                                                                                                         
|                                                                                                         
|Costs and expenses:                                                                                      
|                                                                                                         
|                                                                                                         
|                                                                                                         
|                                                                                                         
|                                                                                                          | Cost of sales                       |                            |           | 3,523,477          |           |                   |            | 2,037,063 |            |      |            | 9,905,381  |            |   |            | 6,908,091  |           
|                                                                                                         
|                                                                                                         
|                                                                                                         
|                                                                                                         
|                                                                                                          | Selling, general and administrative |                            |           | 2,887,843          |           |                   |            | 2,657,671 |            |      |            | 8,680,326  |            |   |            | 8,230,122  |           
|                                                                                                         
|                                                                                                         
|                                                                                                         
|                                                                                                         
|                                                                                                          | Research and Development            |                            |           | 685,838            |           |                   |            | 650,566   |            |      |            | 2,045,765  |            |   |            | 2,010,506  |           
|                                                                                                          |                                     |                            |           |                    |           |                   |            |           |            |      |            |            |            |   |            |           
|                                                                                                          |                                     |                            | 7,097,158 |                    |           |                   | 5,345,300  |           |            |      | 20,631,472 |            |            |   | 17,148,179 |           
|                                                                                                          |                                     |                            |           |                    |           |                   |            |           |            |      |            |            |            |   |            |           
|(Loss) income from system sales and
service                                                               |                                     |                            | 20,457    |                    |           |                   | (1,125,549 | )         |            |      | (303,820   | )          |            |   | (2,362,225 | )         
|                                                                                                         
|                                                                                                         
|                                                                                                         
|                                                                                                         
|Interest income, net                                                                                      |                                     |                            | 38,962    |                    |           |                   | 13,190     |           |            |      | 91,085     |            |            |   | 98,688     |           
|                                                                                                         
|                                                                                                         
|                                                                                                         
|                                                                                                         
|Unrealized exchange (loss) gain                                                                           |                                     |                            | 6,918     |                    |           |                   | (57,726    | )         |            |      | (143,278   | )          |            |   | (182,065   | )         
|                                                                                                          |                                     |                            |           |                    |           |                   |            |           |            |      |            |            |            |   |            |           
|                                                                                                          |                                     | (Loss) income before taxes |           |                    | 66,337    |                   |            |           | (1,170,085 | )    |            |            | (356,013   | ) |            |            | (2,445,602 | )
|                                                                                                         
|                                                                                                         
|                                                                                                         
|                                                                                                         
|Income taxes                                                                                              |                                     |                            | (65,134   | )                  |           |                   | 45,000     |           |            |      | (160,116   | )          |            |   | (401,000   | )         
|                                                                                                         
|                                                                                                         
|                                                                                                         
|                                                                                                         
|                                                                                                          |                                     | Net (loss) income          |           | $                  | 131,471   |                   |            | $         | (1,215,085 | )    |            | $          | (195,897   | ) |            | $          | (2,044,602 | )
|                                                                                                          |                                     |                            |           |                    |           |                   |            |           |            |      |            |            |            |   |            |           
|(Loss) earnings per common share
Basic and diluted                                                        |                                     | $                          | .02       |                    |           | $                 | (.20       | )         |            | $    | (.03       | )          |            | $ | (0.33      | )         
|                                                                                                          |                                     |                            |           |                    |           |                   |            |           |            |      |            |            |            |   |            |           
|Weighted average number of shares
and share equivalents outstanding
during the period                     |                                     |                            | 6,151,933 |                    |           |                   | 6,130,038  |           |            |      | 6,139,291  |            |            |   | 6,132,949  |           
|                                                                                                         
|                                                                                                         
|                                                                                                         
|                                                                                                         
|Weighted average number of shares
and share equivalents outstanding
during the period  assuming
dilution |                                     |                            | 6,349,124 |                    |           |                   | 6,130,038  |           |            |      | 6,139,291  |            |            |   | 6,132,949  |           

See notes to consolidated financial statements.

5



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##### Table of Contents



CHECK TECHNOLOGY CORPORATION AND SUBSIDIARIES




CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

|                                                 |                                              |                                                                                          |                               |          |                    |         |            |            |            |         | 
|------------------------------------------------ | -------------------------------------------- | ---------------------------------------------------------------------------------------- | ----------------------------- | -------- | ------------------ | ------- | ---------- | ---------- | ---------- | ------- | 
|                                                 |                                              |                                                                                          |                               |          | Nine Months Ending
|                                                 |                                              |                                                                                          |                               |          | June 30,          
|                                                 |                                              |                                                                                          |                               |          |                   
|                                                 |                                              |                                                                                          |                               |          | 2000               |         | 1999      
|                                                 |                                              |                                                                                          |                               |          |                    |         |           
|OPERATING ACTIVITIES                            
|                                                
|                                                
|                                                
|                                                
|                                                 | Net (loss) income                            |                                                                                          | $                             | (195,897 | )                  |         | $          | (2,044,602 | )         
|                                                
|                                                
|                                                
|                                                
|                                                 |                                              | Adjustments to reconcile net income to net cash provided (used) by
operating activities:
|                                                
|                                                
|                                                
|                                                
|                                                 |                                              |                                                                                          | Depreciation and amortization |          |                    | 282,591 |            |            |            | 267,581 | 
|                                                
|                                                
|                                                
|                                                
|                                                 |                                              |                                                                                          | Other                         |          |                    | 41,278  |            |            |            | 71,152  | 
|                                                
|                                                
|                                                
|                                                
|                                                 | Changes in operating assets and liabilities:
|                                                
|                                                
|                                                
|                                                
|                                                 |                                              | Accounts receivable                                                                      |                               |          | (712,641           | )       |            |            | 42,536     |        
|                                                
|                                                
|                                                
|                                                
|                                                 |                                              | Inventories                                                                              |                               |          | (187,852           | )       |            |            | (1,317,379 | )      
|                                                
|                                                
|                                                
|                                                
|                                                 |                                              | Other current assets                                                                     |                               |          | (857,338           | )       |            |            | (177,270   | )      
|                                                
|                                                
|                                                
|                                                
|                                                 |                                              | Accounts payable and accrued expenses                                                    |                               |          | 246,788            |         |            |            | (288,402   | )      
|                                                
|                                                
|                                                
|                                                
|                                                 |                                              | Deferred revenue                                                                         |                               |          | 1,291,434          |         |            |            | 10,219     |        
|                                                 |                                              |                                                                                          |                               |          |                    |         |            |           
|NET CASH PROVIDED (USED IN) OPERATING ACTIVITIES |                                              |                                                                                          | (91,637                       | )        |                    |         | (3,436,165 | )         
|                                                 |                                              |                                                                                          |                               |          |                    |         |            |           
|INVESTING ACTIVITIES                            
|                                                
|                                                
|                                                
|                                                
|                                                 | Purchase of equipment and fixtures           |                                                                                          |                               | (269,822 | )                  |         |            | (333,370   | )         
|                                                
|                                                
|                                                
|                                                
|                                                 | Proceeds from sale of equipment              |                                                                                          |                               | 56,602   |                    |         |            |           |           
|                                                
|                                                
|                                                
|                                                
|                                                 | Purchase of short-term investments           |                                                                                          |                               | (727,975 | )                  |         |            | (1,765,828 | )         
|                                                
|                                                
|                                                
|                                                
|                                                 | Proceeds from sale of short-term investments |                                                                                          |                               | 93,275   |                    |         |            | 4,365,897  |           
|                                                 |                                              |                                                                                          |                               |          |                    |         |            |           
|NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES |                                              |                                                                                          | (847,920                      | )        |                    |         | 2,266,699  |           
|                                                 |                                              |                                                                                          |                               |          |                    |         |            |           
|FINANCING ACTIVITIES                            
|                                                
|                                                
|                                                
|                                                
|                                                 | Proceeds from(Purchase of) common stock      |                                                                                          |                               | 99,147   |                    |         |            | (143,043   | )         
|                                                
|                                                
|                                                
|                                                
|                                                 | Repayment of note receivable from stock sale |                                                                                          |                               |         |                    |         |            | 14,804     |           
|                                                
|                                                
|                                                
|                                                
|                                                 | Repayment of capital leases                  |                                                                                          |                               | (36,833  | )                  |         |            | (9,340     | )         
|                                                 |                                              |                                                                                          |                               |          |                    |         |            |           
|NET CASH PROVIDED (USED IN) FINANCING ACTIVITIES |                                              |                                                                                          | 62,314                        |          |                    |         | (137,579   | )         
|                                                 |                                              |                                                                                          |                               |          |                    |         |            |           
|EFFECT OF EXCHANGE RATE CHANGES ON CASH          |                                              |                                                                                          | (80,223                       | )        |                    |         | (57,354    | )         
|                                                 |                                              |                                                                                          |                               |          |                    |         |            |           
|INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS   |                                              |                                                                                          | (957,466                      | )        |                    |         | (1,364,399 | )         
|                                                
|                                                
|                                                
|                                                
|CASH & CASH EQUIVALENTS AT BEGINNING OF YEAR     |                                              |                                                                                          | 2,882,618                     |          |                    |         | 2,701,888  |           
|                                                 |                                              |                                                                                          |                               |          |                    |         |            |           
|CASH AND CASH EQUIVALENTS AT END OF PERIOD       |                                              | $                                                                                        | 1,925,152                     |          |                    | $       | 1,337,489  |           
|                                                 |                                              |                                                                                          |                               |          |                    |         |            |           

See notes to consolidated financial statements.

6



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##### Table of Contents



CHECK TECHNOLOGY CORPORATION AND SUBSIDIARIES




CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

June 30, 2000

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, 1999.

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

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##### Table of Contents



CHECK TECHNOLOGY CORPORATION AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

June 30, 2000

NOTE B   Earnings Per Share

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

|                                                   |                                                                                                     |                                            |                                   |         |                    |           |                   |            |           |           |      |          |           |           |      |            |           |           | 
|-------------------------------------------------- | --------------------------------------------------------------------------------------------------- | ------------------------------------------ | --------------------------------- | ------- | ------------------ | --------- | ----------------- | ---------- | --------- | --------- | ---- | -------- | --------- | --------- | ---- | ---------- | --------- | --------- | 
|                                                   |                                                                                                     |                                            |                                   |         | Three Month Period |           | Nine Month Period
|                                                   |                                                                                                     |                                            |                                   |         | Ended June 30,     |           | Ended June 30,   
|                                                   |                                                                                                     |                                            |                                   |         |                    |           |                  
|                                                   |                                                                                                     |                                            |                                   |         | 2000               |           | 1999              |            | 2000      |           | 1999
|                                                   |                                                                                                     |                                            |                                   |         |                    |           |                   |            |           |           |     
|Numerator:                                        
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Net Income (Loss)                                                                                   |                                            |                                   | 131,471 |                    |           |                   | (1,215,085 | )         |           |      | (195,897 | )         |           |      | (2,044,602 | )        
|                                                   |                                                                                                     |                                            |                                   |         |                    |           |                   |            |           |           |      |          |           |           |      |           
|                                                   | Numerator for basic and
diluted earnings per share 
income(loss) applicable to
common stockholders |                                            |                                   | 131,471 |                    |           |                   | (1,215,085 | )         |           |      | (195,897 | )         |           |      | (2,044,602 | )        
|                                                  
|                                                  
|                                                  
|                                                  
|Denominator:                                      
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Denominator for basic
earnings per share                                                          
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                                                                     | Weighted-average shares                    |                                   |         | 6,151,933          |           |                   |            | 6,130,038 |           |      |          | 6,139,291 |           |      |            | 6,132,949 |          
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Effect of dilutive securites:                                                                      
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                                                                     |                                            | Employee stock options            |         |                    | 197,191   |                   |            |           |          |      |          |           |          |      |            |           |          | 
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                                                                     |                                            | Employee stock grants             |         |                    |          |                   |            |           |          |      |          |           |          |      |            |           |          | 
|                                                   |                                                                                                     |                                            |                                   |         |                    |           |                   |            |           |           |      |          |           |           |      |           
|                                                   | Dilutive potential common
shares                                                                    |                                            |                                   | 197,191 |                    |           |                   | --  a      |           |           |      | -- a     |           |           |      | -- a       |          
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                                                                     | Denominator for diluted
earnings per share
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                                                                     |                                            | Adjusted weighted-
average shares |         |                    | 6,349,124 |                   |            |           | 6,130,038 |      |          |           | 6,139,291 |      |            |           | 6,132,949 | 
|                                                   |                                                                                                     |                                            |                                   |         |                    |           |                   |            |           |           |      |          |           |           |      |           
|                                                  
|                                                  
|                                                  
|                                                  
|Earnings (loss) per common share
basic and diluted |                                                                                                     | $                                          | .02                               |         |                    | $         | (.20              | )          |           | $         | (.03 | )        |           | $         | (.33 | )         
|                                                   |                                                                                                     |                                            |                                   |         |                    |           |                   |            |           |           |      |          |           |           |      |           

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

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##### Table of Contents



CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

June 30, 2000

NOTE C   Comprehensive Income

As of October 1, 1998, the Company adopted Statement of Financial Accounting
Standards Number 130 (Statement No. 130) Reporting Comprehensive Income.
Statement No. 130 establishes standards for the reporting and display of
comprehensive income and its components; however, the adoption of this
statement had no impact on the Companys net income or stockholders equity.
Statement No. 130 requires foreign currency translation adjustments, which
prior to adoption were reported separately in stockholders equity, to be
included in other comprehensive income. Amounts in prior year financial
statements have been reclassified to conform to Statement No. 130.

The components of comprehensive income, net of related tax, for the three and
nine month periods ended June 30, 2000 and 1999 are as follows:

|                                         |  |                    |          |                   |  |      |            |      |  |   |          |   |  |   |            |  
|---------------------------------------- |  | ------------------ | -------- | ----------------- |  | ---- | ---------- | ---- |  | - | -------- | - |  | - | ---------- | -
|                                         |  | Three Month Period |          | Nine
Month Period
|                                         |  | Ending June 30,    |          | Ending June 30,  
|                                         |  |                    |          |                  
|                                         |  | 2000               |          | 1999              |  | 2000 |            | 1999
|                                         |  |                    |          |                   |  |      |            |     
|Net (loss) income                        |  | $                  | 131,471  |                   |  | $    | (1,215,085 | )    |  | $ | (195,897 | ) |  | $ | (2,044,602 | )
|                                        
|                                        
|                                        
|                                        
|Foreign currency
translation
adjustments |  |                    | (217,762 | )                 |  |      | (92,985    | )    |  |   | (613,948 | ) |  |   | (437,985   | )
|                                         |  |                    |          |                   |  |      |            |      |  |   |          |   |  |   |            |  
|Comprehensive income                     |  | $                  | (86,291  | )                 |  | $    | (1,308,070 | )    |  | $ | (809,845 | ) |  | $ | (2,482,587 | )
|                                         |  |                    |          |                   |  |      |            |      |  |   |          |   |  |   |            |  

NOTE D   Executive Loan

In May 2000, the Company modified the terms of its executive officer loan to
extend the term of the loan until May 2001 and forgive the loan on a
straight-line basis over the period May 2000 until May 2001.

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Item 2




Managements Discussion and Analysis of Results
of Operations and Financial Condition

Results of Operations

The Companys revenues consist of (i) sales of document production systems and
related equipment and (ii) maintenance contracts, spare parts, supplies and
consumable items. For the three-month period and nine-month periods ended June
30, 2000, total revenues were up 69 percent and 37 percent respectively,
compared with those of the same periods in fiscal 1999. Revenues from the sale
of document production equipment for the fiscal 2000 third quarter increased
$3.0 million from the same period in fiscal 1999 primarily due to increased
North American sales of the Imaggia product line. In the fiscal 2000 third
quarter, revenues from document production equipment included approximately
$3.0 million from the sale of the Companys Imaggia product line.

For some time, the Company has held a dominant position in many of the
international markets in which its Checktronic equipment is sold. Demand for
the Checktronic product line has softened in these international markets and
revenues from this product line are now largely dependent on sales to emerging
markets such as Latin America, Asia and Africa. The present uncertain economic
environment in many of the countries within these emerging markets has limited
the Companys current opportunities to sell high-end capital equipment into
those regions.

For the three and nine-month periods ended June 30, 2000, revenues from
maintenance contracts, spare parts, supplies and consumable items decreased
$80,000 and $1.1 million respectively, from the same period a year ago. For
the nine-month period ended June 30, 2000, approximately $320,000 of the
revenue decline was attributable to the effect of foreign currency exchange. A
reduction in consumable revenues from Western European customers and the
continued reduction in maintenance and consumables revenue from Pacific Rim
customers accounted for the remainder of the decline. The Company expects
domestic revenues from maintenance contracts, spare parts, supplies and
consumable items to increase with the projected growth of the Imaggia product
line and begin to offset the reduced international maintenance and consumables
revenues.

The gross margin percentage for the three and nine-month periods ended June 30,
2000, was 50 percent and 51 percent, compared to 52 percent and 53 percent for
the same periods a year ago. The decrease was due to a shift in the product
mix from the Checktronic product line to the Imaggia product line and the
decreased revenue from the sale of maintenance, spares, and supplies. The
Company anticipates that its gross margin percentage for fiscal 2000 will be
lower than fiscal 1999 as revenue from the Imaggia and Océ lines constitutes a
larger portion of the Companys total revenues.

For the three and nine-month periods ended June 30, 2000, selling, general and
administrative expenses were $2.9 million and $8.7 million respectively,
compared with $2.7 million and $8.2 million for the same periods a year ago.
Research and development expense for the three-month period and nine-month

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period ended June 30, 2000 were $0.7 million and $2.0 million respectively,
flat with the research and development expenses for the same periods last year.

Net interest income for the three and nine-month periods ended June 30, 2000,
was $39,000 and $91,000 respectively, compared to $13,000 and $99,000 for the
same period a year ago. The increase for the three-month period ending June
30, 2000 was due to increased cash balances available for investment.

The net exchange gain for the three-month period ended June 30, 2000 was $7,000
compared to a loss of $58,000 for the same period a year ago. The net exchange
loss for the nine-month period ended June 30, 2000 was $143,000 compared to a
loss of $182,000 for the same period a year ago. The Company anticipates that
it will continue to have exchange gains or losses from foreign operations in
the future.

For the three-month period ended June 30, 2000, the income before income taxes
was $66,000 compared to the loss before income taxes of $1.2 million for the
same period a year ago. For the nine-month period ended June 30, 2000, the loss
before income taxes was $356,000 compared to the loss before income taxes of
$2.4 million for the same period a year ago. Income taxes for the three and
nine-month periods ended June 30, 2000 were a benefit of $65,000 and $160,000
respectively, compared to an expense of $45,000 and a benefit of $401,000 for
the same periods respectively last year. The income tax benefit for fiscal
2000 is primarily attributable to the net operating loss generated by foreign
operations. In fiscal 1999, the income tax benefit was primarily attributable
to the net operating loss generated by domestic operations.

For the three-month period ended June 30, 2000, the Company reported net
earnings of $0.02 per share as compared to a net loss of $0.20 per share for
the same period a year ago. The improvement was primarily attributable to the
increase in equipment revenue, the unrealized foreign currency exchange gain,
and the income tax benefit. For the nine-month period ended June 30, 2000, the
Company reported a net loss of $0.03 per share as compared to a net loss of
$0.33 per share for the same period a year ago. The improvement was primarily
attributable to the increase in equipment revenue offset by a reduction in the
income tax benefit.




Market Risk:

The Company presently has three foreign subsidiaries, located in England,
France and Australia, does business in 51 countries, and generates
approximately 50 percent of its revenues from outside North America. The
Companys ability to sell its products in these foreign markets may be affected
by changes in economic, political or market conditions in the foreign markets
in which it does business.

The Company experiences foreign currency gains and losses, which are reflected
on the Companys income statement, due to the strengthening and weakening of
the U.S. dollar against the currencies of the Companys three foreign
subsidiaries and the resulting effect on the valuation of the intercompany
accounts and certain assets of the subsidiaries, which are denominated in U.S.
dollars.

The Companys net investment in its foreign subsidiaries was $7,805,000 and
$8,443,000 at June 30, 2000, and September 30, 1999, translated into U.S.
dollars at the closing exchange rates. The potential loss in value resulting
from a hypothetical 10% change in foreign exchange rates is not material. The
impact of the stronger U.S. dollar on the translation of foreign currency
denominated sales and related gross profit thereon was not material in 1999.
For the first nine-months of fiscal 2000 the Company experienced approximately
$320,000 in reduced revenues due to the impact of the stronger U.S. dollar on

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##### Table of Contents



the translation of foreign currency denominated sales and a reduction of
approximately $115,000 in related gross profit.

Factors Affecting Results of Operations:

The Company is continuing development of the Imaggia system, including
improving its overall reliability and robustness. The Company is using the
Gemini digital print technology, which has been developed by Delphax Systems,
as the print engine for the Imaggia system. Over the course of the
development, the Company has experienced delays due in part to development
delays associated with the Gemini print engine and finalization of the engines
toner formulation, which are outside of the Companys control. No assurance
can be given that further delays will not occur or that product development or
warranty expenses will not be higher than anticipated.

In January 2000, the Company accepted a three-year equipment and service
contract, valued at approximately $40.0 million, for its Imaggia system. The
contract value includes the sale of document production systems and related
equipment, maintenance, spare parts, supplies and consumable items for the
three-year period. Equipment deliveries under the contract began in the second
quarter of fiscal 2000 with delivery completion expected during the fourth
quarter of fiscal 2001. Achievement of the Companys future revenue plans
depends upon the successful completion of the three-year contract.

The Companys revenues 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 could result in significant
fluctuations in operating results from period to period.

Year 2000:

The Company satisfactorily completed its Year 2000 readiness work. Since
entering the Year 2000, the Company has not experienced any major disruptions
to its business nor is it aware of any significant Year 2000-related
disruptions impacting its customers or suppliers. The Company will continue to
monitor its critical systems during the calendar year 2000 but does not
anticipate any significant impacts due to Year 2000 exposures from its internal
systems or from the activities of its suppliers or customers. Costs incurred
to achieve Year 2000 readiness were approximately $300 thousand.

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 will be between January 1, 1999 and January 1, 2002. The
Company has prepared for the introduction of the Euro and has 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 impacts on
the

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processes for preparing taxation and accounting records. The Company
believes the Euro conversion will not have a material impact on its financial
statements.

Revenue Recognition:

On December 3, 1999, the Securities and Exchange Commission issued SEC Staff
Accounting Bulletin Number 101 (SAB No.101) Revenue Recognition in Financial
Statements. SAB No. 101 summarizes certain of the staffs views in applying
generally accepted accounting principles to revenue recognition in financial
statements. SAB No. 101 will be effective for the Company in the fourth
quarter of fiscal 2001. The Company is in the process of determining the impact
of SAB No. 101.

Liquidity and Capital Resources:

Working capital was $15.2 million at June 30, 2000, compared to $15.7 million
at September 30, 1999. The Companys inventory levels decreased from $10.5
million at September 30, 1999, to $10.4 million at June 30, 2000. Cash and
short-term investments amounted to $2.7 million at June 30, 2000, compared to
$3.0 million at September 30, 1999.

Stockholders equity was $16.1 million at June 30, 2000, compared to $16.7
million at September 30, 1999. In September 1998, the Company announced a
stock repurchase program of up to 500,000 shares. At June 30, 2000, the
Company had repurchased 170,500 shares at a cost of $434,000.

The Companys long-term debt to equity ratio was less than 0.01 at June 30,
2000, and September 30, 1999. The Company maintains a $2.5 million unsecured
bank line of credit expiring March 31, 2001. At June 30, 2000, the line was
unused. The Company believes that its current financial arrangements and
anticipated level of internally generated funds will be sufficient to fund its
working capital requirements in fiscal 2000.

At June 30, 2000, the Company had no material commitments for capital
expenditures.

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 stockholders, 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.

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.

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##### Table of Contents






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, 2000.

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##### Table of Contents






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.

| |  |  |  |                                       
| |  |  |  | --------------------------------------
| |  |  |  | CHECK
TECHNOLOGY CORPORATIONRegistrant

|     |  |                 |  |                                      
|---- |  | --------------- |  | -------------------------------------
|Date |  | August 10, 2000 |  | /s/ Jay A. Herman                    
|     |  |                 |  |                                      
|     |  |                 |  | Jay A. Herman                        
|    
|    
|    
|    
|     |  |                 |  | President and Chief Executive Officer

|     |  |                 |  |                                           
|---- |  | --------------- |  | ------------------------------------------
|Date |  | August 10, 2000 |  | /s/ Robert M. Barniskis                   
|     |  |                 |  |                                           
|     |  |                 |  | Robert M. Barniskis                       
|    
|    
|    
|    
|     |  |                 |  | Vice President and Chief Financial Officer

15