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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

|                               |  |              
|------------------------------ |  | -------------
|For the quarterly period ended |  | June 30, 2003
|                               | 
|                               |  |              
|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
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 period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.

Yes X No



| |                                                                                                               
| | --------------------------------------------------------------------------------------------------------------
| | Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange
Act Rule 12b-2).

Yes  No X



| |                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 8, 2003, there were 6,214,073 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, 2003 and September 30, 2002                        
|                                                                                              | Condensed Consolidated Statements of Operations  Three and nine months ended June 30, 2003 and 2002
|                                                                                              | Condensed Consolidated Statements of Cash Flows  Nine months ended June 30, 2003 and 2002          
|                                                                                              | Condensed Notes to Consolidated Financial Statements  June 30, 2003                                
|Item 2. Managements Discussion and Analysis of Results of Operations and Financial Condition
|Item 3. Quantitative and Qualitative Disclosures about Market Risk                           
|Item 4. Controls and Procedures                                                              
|PART II. OTHER INFORMATION                                                                   
|Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                                                                                   
|EX-31.1 Certification of CEO Pursuant to Rule 302                                            
|EX-31.2 Certification of CFO Pursuant to Rule 302                                            
|EX-32 Certifications Pursuant to 18 USC Sec. 906                                             



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INDEX

DELPHAX TECHNOLOGIES INC. AND SUBSIDIARIES





PART I. FINANCIAL INFORMATION

|        |  |                                                                                                     
|------- |  | ----------------------------------------------------------------------------------------------------
|Item 1. |  | Financial Statements (Unaudited)                                                                    
|       
|        |  | Condensed Consolidated Balance Sheets  June 30, 2003 and September 30, 2002                        
|       
|        |  | Condensed Consolidated Statements of Operations  Three and nine months ended June 30,
2003 and 2002
|       
|        |  | Condensed Consolidated Statements of Cash Flows  Nine months ended June 30, 2003 and 2002          
|       
|        |  | Condensed Notes to Consolidated Financial Statements  June 30, 2003                                
|       
|Item 2. |  | Managements Discussion and Analysis of Results of Operations and Financial Condition               
|       
|Item 3. |  | Quantitative and Qualitative Disclosures about Market Risk                                          
|       
|Item 4. |  | Controls and Procedures                                                                             

PART II. OTHER INFORMATION

|        |  |                                 
|------- |  | --------------------------------
|Item 6. |  | Exhibits and Reports on Form 8-K

SIGNATURES

CERTIFICATIONS

2



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PART I. FINANCIAL INFORMATION

DELPHAX TECHNOLOGIES INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

|                                                     |                                                                                                                                             |                                   |            |            |            |   |               |            |            | 
|---------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------- | ---------- | ---------- | ---------- | - | ------------- | ---------- | ---------- | 
|                                                     |                                                                                                                                             |                                   |            | June 30,   |            |   | September 30, |           
|                                                     |                                                                                                                                             |                                   |            | 2003       |            |   | 2002          |           
|                                                     |                                                                                                                                             |                                   |            |            |            |   |               |           
|ASSETS                                               |                                                                                                                                             |                                   |            |            |            |   |               |           
|CURRENT ASSETS                                       |                                                                                                                                             |                                   |            |            |            |   |               |           
|                                                     | Cash and cash equivalents                                                                                                                   |                                   | $          | 1,198,462  |            |   | $             | 1,717,973  |           
|                                                     | Short-term investments                                                                                                                      |                                   |            | 83,940     |            |   |               | 78,430     |           
|                                                     | Accounts receivable, less allowance for doubtful
accounts of $220,778 and $253,106 as of June 30,
2003 and September 30, 2002, respectively |                                   |            | 12,632,604 |            |   |               | 10,712,889 |           
|                                                     | Current portion of notes receivable from customers                                                                                          |                                   |            | 105,377    |            |   |               |           |           
|                                                     | Inventory:                                                                                                                                  |                                   |            |            |            |   |               |            |           
|                                                     |                                                                                                                                             | Raw materials and component parts |            |            | 12,080,755 |   |               |            | 13,602,964 | 
|                                                     |                                                                                                                                             | Work-in-progress                  |            |            | 568,041    |   |               |            | 597,388    | 
|                                                     |                                                                                                                                             | Finished goods                    |            |            | 5,676,955  |   |               |            | 6,672,664  | 
|                                                     |                                                                                                                                             |                                   |            |            |            |  
|                                                     |                                                                                                                                             |                                   | 18,325,751 |            |            |   | 20,873,016    |           
|                                                     |                                                                                                                                             |                                   |            |            |            |  
|                                                     | Other current assets                                                                                                                        |                                   |            | 1,679,387  |            |   |               | 1,525,695  |           
|                                                     |                                                                                                                                             |                                   |            |            |            |  
|TOTAL CURRENT ASSETS                                 |                                                                                                                                             |                                   | 34,025,521 |            |            |   | 34,908,003    |           
|                                                     |                                                                                                                                             |                                   |            |            |            |  
|Long-term portion of notes receivable from customers |                                                                                                                                             |                                   | 614,408    |            |            |   |              |           
|EQUIPMENT AND FIXTURES                               |                                                                                                                                             |                                   |            |            |            |   |               |           
|                                                     | Machinery and equipment                                                                                                                     |                                   |            | 4,907,654  |            |   |               | 4,853,798  |           
|                                                     | Furniture and fixtures                                                                                                                      |                                   |            | 3,588,271  |            |   |               | 3,190,447  |           
|                                                     | Leasehold improvements                                                                                                                      |                                   |            | 2,343,421  |            |   |               | 2,386,996  |           
|                                                     |                                                                                                                                             |                                   |            |            |            |  
|                                                     |                                                                                                                                             |                                   | 10,839,346 |            |            |   | 10,431,241    |           
|                                                     | Less accumulated depreciation and amortization                                                                                              |                                   |            | 6,975,847  |            |   |               | 5,671,854  |           
|                                                     |                                                                                                                                             |                                   |            |            |            |  
|                                                     |                                                                                                                                             |                                   | 3,863,499  |            |            |   | 4,759,387     |           
|                                                     |                                                                                                                                             |                                   |            |            |            |  
|TOTAL ASSETS                                         |                                                                                                                                             | $                                 | 38,503,428 |            |            | $ | 39,667,390    |           
|                                                     |                                                                                                                                             |                                   |            |            |            |  

See condensed notes to consolidated financial statements.

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DELPHAX TECHNOLOGIES INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

|                                           |                                                                                                                                                                      |   |            |            |   |               |            |            |  
|------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ---------- | ---------- | - | ------------- | ---------- | ---------- | -
|                                           |                                                                                                                                                                      |   | June 30,   |            |   | September 30, |           
|                                           |                                                                                                                                                                      |   | 2003       |            |   | 2002          |           
|                                           |                                                                                                                                                                      |   |            |            |   |               |           
|LIABILITIES AND SHAREHOLDERS EQUITY       |                                                                                                                                                                      |   |            |            |   |               |            |           
|CURRENT LIABILITIES                        |                                                                                                                                                                      |   |            |            |   |               |            |           
|                                           | Accounts payable                                                                                                                                                     |   | $          | 4,970,880  |   |               | $          | 4,284,465  |  
|                                           | Accrued expenses                                                                                                                                                     |   |            | 3,764,229  |   |               |            | 3,269,531  |  
|                                           | Income taxes payable                                                                                                                                                 |   |            | 151,969    |   |               |            | 482,197    |  
|                                           | Current portion of bank credit facility                                                                                                                              |   |            | 13,150,000 |   |               |            | 2,300,000  |  
|                                           | Current portion of capital leases                                                                                                                                    |   |            | 37,241     |   |               |            | 33,361     |  
|                                           | Current portion of deferred revenue                                                                                                                                  |   |            | 441,128    |   |               |            | 489,996    |  
|                                           |                                                                                                                                                                      |   |            |            |   |              
|TOTAL CURRENT LIABILITIES                  |                                                                                                                                                                      |   | 22,515,447 |            |   |               | 10,859,550 |           
|                                           | Long-term portion of bank credit facility                                                                                                                            |   |            |           |   |               |            | 12,980,000 |  
|                                           | Long-term portion of capital leases                                                                                                                                  |   |            |           |   |               |            | 28,217     |  
|                                           | Long-term portion of deferred revenue                                                                                                                                |   |            | 614,408    |   |               |            |           |  
|                                           |                                                                                                                                                                      |   |            |            |   |              
|TOTAL LIABILITIES                          |                                                                                                                                                                      |   | 23,129,855 |            |   |               | 23,867,767 |           
|                                           |                                                                                                                                                                      |   |            |            |   |              
|SHAREHOLDERS EQUITY                       |                                                                                                                                                                      |   |            |            |   |               |            |           
|                                           | Common stock  par value $.10 per share  authorized
50,000,000 shares; issued and outstanding: 6,214,073
as of June 30, 2003 and 6,175,898
as of September 30, 2002 |   |            | 621,407    |   |               |            | 617,590    |  
|                                           | Additional paid-in capital                                                                                                                                           |   |            | 17,149,097 |   |               |            | 17,039,945 |  
|                                           | Accumulated other comprehensive loss                                                                                                                                 |   |            | (1,200,044 | ) |               |            | (1,912,335 | )
|                                           | (Deficit) retained earnings                                                                                                                                          |   |            | (1,196,887 | ) |               |            | 54,423     |  
|                                           |                                                                                                                                                                      |   |            |            |   |              
|TOTAL SHAREHOLDERS EQUITY                 |                                                                                                                                                                      |   | 15,373,573 |            |   |               | 15,799,623 |           
|                                           |                                                                                                                                                                      |   |            |            |   |              
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |                                                                                                                                                                      | $ | 38,503,428 |            |   | $             | 39,667,390 |           
|                                           |                                                                                                                                                                      |   |            |            |   |              

See condensed notes to consolidated financial statements.

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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,                  |           
|                                                                                                   |                                     |   |                            |            |  |                           |           
|                                                                                                   |                                     |   | 2003                       |            |  | 2002                      |            |            | 2003 |   |            | 2002       | 
|                                                                                                   |                                     |   |                            |            |  |                           |            |            |      |   |            |            | 
|Sales:                                                                                             |                                     |   |                            |            |  |                           |            |            |      |   |            |            |  |   |            |           
|                                                                                                   | Maintenance, spares and supplies    |   | $                          | 12,243,799 |  |                           | $          | 11,185,673 |      |   | $          | 36,637,123 |  |   | $          | 26,339,621 | 
|                                                                                                   | Printing equipment                  |   |                            | 2,560,897  |  |                           |            | 2,345,341  |      |   |            | 7,873,071  |  |   |            | 12,035,974 | 
|                                                                                                   |                                     |   |                            |            |  |                           |            |            |      |   |            |           
|NET SALES                                                                                          |                                     |   | 14,804,696                 |            |  |                           | 13,531,014 |            |      |   | 44,510,194 |            |  |   | 38,375,595 |           
|Costs and Expenses:                                                                                |                                     |   |                            |            |  |                           |            |            |      |   |            |            |  |   |            |           
|                                                                                                   | Cost of sales                       |   |                            | 7,106,386  |  |                           |            | 5,945,671  |      |   |            | 21,247,471 |  |   |            | 18,380,591 | 
|                                                                                                   | Selling, general and administrative |   |                            | 6,072,547  |  |                           |            | 5,832,610  |      |   |            | 18,290,267 |  |   |            | 15,392,324 | 
|                                                                                                   | Research and development            |   |                            | 1,424,863  |  |                           |            | 1,708,238  |      |   |            | 4,086,998  |  |   |            | 4,194,553  | 
|                                                                                                   | Restructuring costs                 |   |                            |           |  |                           |            |           |      |   |            | 1,185,000  |  |   |            |           | 
|                                                                                                   |                                     |   |                            |            |  |                           |            |            |      |   |            |           
|                                                                                                   |                                     |   | 14,603,796                 |            |  |                           | 13,486,519 |            |      |   | 44,809,736 |            |  |   | 37,967,468 |           
|                                                                                                   |                                     |   |                            |            |  |                           |            |            |      |   |            |           
|INCOME (LOSS) FROM SYSTEM SALES AND SERVICE                                                        |                                     |   | 200,900                    |            |  |                           | 44,495     |            |      |   | (299,542   | )          |  |   | 408,127    |           
|Net interest expense                                                                               |                                     |   | 145,467                    |            |  |                           | 240,791    |            |      |   | 581,215    |            |  |   | 533,026    |           
|Net realized exchange loss (gain)                                                                  |                                     |   | 154,244                    |            |  |                           | (22,948    | )          |      |   | 163,318    |            |  |   | (13,377    | )         
|Net unrealized exchange loss (gain)                                                                |                                     |   | 5,880                      |            |  |                           | (46,747    | )          |      |   | 207,235    |            |  |   | (77,024    | )         
|                                                                                                   |                                     |   |                            |            |  |                           |            |            |      |   |            |           
|LOSS BEFORE INCOME TAXES                                                                           |                                     |   | (104,691                   | )          |  |                           | (126,601   | )          |      |   | (1,251,310 | )          |  |   | (34,498    | )         
|Income tax benefit                                                                                 |                                     |   |                           |            |  |                           | (116,800   | )          |      |   |           |            |  |   | (84,500    | )         
|                                                                                                   |                                     |   |                            |            |  |                           |            |            |      |   |            |           
|NET (LOSS) INCOME                                                                                  |                                     | $ | (104,691                   | )          |  | $                         | (9,801     | )          |      | $ | (1,251,310 | )          |  | $ | 50,002     |           
|                                                                                                   |                                     |   |                            |            |  |                           |            |            |      |   |            |           
|Basic and diluted (loss) earnings per common share                                                 |                                     | $ | (0.02                      | )          |  | $                         | (0.00      | )          |      | $ | (0.20      | )          |  | $ | 0.01       |           
|Weighted average number of shares outstanding
during the period                                    |                                     |   | 6,190,765                  |            |  |                           | 6,171,365  |            |      |   | 6,180,854  |            |  |   | 6,164,267  |           
|Weighted average number of shares and equivalents
outstanding during the period, assuming dilution |                                     |   | 6,190,765                  |            |  |                           | 6,171,365  |            |      |   | 6,180,854  |            |  |   | 6,349,815  |           

See condensed notes to consolidated financial statements

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DELPHAX TECHNOLOGIES INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

|                                                                                         |                                            |   |                           |            |   |      |             |            |  
|---------------------------------------------------------------------------------------- | ------------------------------------------ | - | ------------------------- | ---------- | - | ---- | ----------- | ---------- | -
|                                                                                         |                                            |   | For the Nine Months Ended |           
|                                                                                         |                                            |   | June 30,                  |           
|                                                                                         |                                            |   |                           |           
|                                                                                         |                                            |   | 2003                      |            |   | 2002 |            
|                                                                                         |                                            |   |                           |            |   |      |            
|OPERATING ACTIVITIES                                                                     |                                            |   |                           |            |   |      |             |           
|Net (loss) income                                                                        |                                            | $ | (1,251,310                | )          |   | $    | 50,002      |           
|Adjustments to reconcile net (loss) income to net cash
provided by operating activities: |                                            |   |                           |            |   |      |             |           
|                                                                                         | Depreciation and amortization              |   |                           | 1,376,050  |   |      |             | 1,193,793  |  
|                                                                                         | Gain on disposal of equipment and fixtures |   |                           |           |   |      |             | (11,562    | )
|                                                                                         | Other                                      |   |                           | 74,192     |   |      |             | (5,923     | )
|Changes in operating assets and liabilities:                                             |                                            |   |                           |            |   |      |             |           
|                                                                                         | Accounts receivable, net                   |   |                           | (1,567,214 | ) |      |             | 3,668,355  |  
|                                                                                         | Inventory                                  |   |                           | 2,882,636  |   |      |             | (2,493,999 | )
|                                                                                         | Other current assets                       |   |                           | (703,399   | ) |      |             | (1,108,093 | )
|                                                                                         | Notes receivable                           |   |                           | (105,377   | ) |      |             |           |  
|                                                                                         | Accounts payable and accrued expenses      |   |                           | 648,204    |   |      |             | 1,249,592  |  
|                                                                                         | Deferred revenue                           |   |                           | 563,113    |   |      |             | (717,814   | )
|                                                                                         |                                            |   |                           |            |   |     
|NET CASH PROVIDED BY OPERATING ACTIVITIES                                                |                                            |   | 1,916,895                 |            |   |      | 1,824,351   |           
|INVESTING ACTIVITIES                                                                     |                                            |   |                           |            |   |      |             |           
|Business acquisition                                                                     |                                            |   |                          |            |   |      | (16,673,000 | )         
|Purchase of equipment and fixtures                                                       |                                            |   | (472,447                  | )          |   |      | (463,360    | )         
|Purchase of short-term investments                                                       |                                            |   |                          |            |   |      | (125,106    | )         
|Proceeds from sale of short-term investments                                             |                                            |   |                          |            |   |      | 66,687      |           
|                                                                                         |                                            |   |                           |            |   |     
|NET CASH USED IN INVESTING ACTIVITIES                                                    |                                            |   | (472,447                  | )          |   |      | (17,194,779 | )         
|FINANCING ACTIVITIES                                                                     |                                            |   |                           |            |   |      |             |           
|Issuance of common stock                                                                 |                                            |   | 112,968                   |            |   |      | 73,356      |           
|Repurchase of common stock                                                               |                                            |   |                          |            |   |      | (22,050     | )         
|(Repayment) borrowing on bank credit facility, net                                       |                                            |   | (2,130,000                | )          |   |      | 15,679,371  |           
|Principal payments on capital lease obligations                                          |                                            |   | (24,337                   | )          |   |      |            |           
|                                                                                         |                                            |   |                           |            |   |     
|NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES                                      |                                            |   | (2,041,369                | )          |   |      | 15,730,677  |           
|EFFECT OF EXCHANGE RATE CHANGES ON CASH                                                  |                                            |   | 77,410                    |            |   |      | (47,847     | )         
|                                                                                         |                                            |   |                           |            |   |     
|(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                         |                                            |   | (519,511                  | )          |   |      | 312,402     |           
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                           |                                            |   | 1,717,973                 |            |   |      | 591,536     |           
|                                                                                         |                                            |   |                           |            |   |     
|CASH AND CASH EQUIVALENTS, END OF PERIOD                                                 |                                            | $ | 1,198,462                 |            |   | $    | 903,938     |           
|                                                                                         |                                            |   |                           |            |   |     

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, 2003

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
the accounting principles generally accepted in the United States 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, 2002.

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,                  |  
|             |                                                                                                               |  |                            |           |   |                           |  
|             |                                                                                                               |  | 2003                       |           |   | 2002                      |   |           | 2003 |  |   | 2002       |  
|             |                                                                                                               |  |                            |           |   |                           |   |           |      |  |   |            |  
|Numerator:   |                                                                                                               |  |                            |           |   |                           |   |           |      |  |   |            |   |  |   |          
|             | Net (loss) income                                                                                             |  | $                          | (104,691  | ) |                           | $ | (9,801    | )    |  | $ | (1,251,310 | ) |  | $ | 50,002    | 
|             |                                                                                                               |  |                            |           |   |                           |   |           |      |  |   |           
|             | Numerator for basic and diluted loss and
earnings per share  (loss) income
applicable to common shareholders |  | $                          | (104,691  | ) |                           | $ | (9,801    | )    |  | $ | (1,251,310 | ) |  | $ | 50,002    | 
|Denominator: |                                                                                                               |  |                            |           |   |                           |   |           |      |  |   |            |   |  |   |          
|             | Denominator for basic loss and earnings
per share, weighted average shares                                    |  |                            | 6,190,765 |   |                           |   | 6,171,365 |      |  |   | 6,180,854  |   |  |   | 6,164,267 | 
|             | Dilutive potential common shares, employee
stock options                                                      |  |                            |          | a |                           |   |          | a    |  |   |           | a |  |   | 185,548   | 
|             |                                                                                                               |  |                            |           |   |                           |   |           |      |  |   |           
|             | Denominator for diluted loss and earnings
per share, adjusted weighted average shares                         |  |                            | 6,190,765 |   |                           |   | 6,171,365 |      |  |   | 6,180,854  |   |  |   | 6,349,815 | 
|             | (Loss) earnings per common share                                                                              |  | $                          | (0.02     | ) |                           | $ | (0.00     | )    |  | $ | (0.20      | ) |  | $ | 0.01      | 
|             | (Loss) earnings per common share,
assuming dilution                                                           |  |                            | (0.02     | ) |                           |   | (0.00     | )    |  |   | (0.20      | ) |  |   | 0.01      | 

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

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NOTE C  Comprehensive Income

The components of comprehensive income and loss, net of related tax, for the three and nine months ended June 30,
2003 and 2002 were as follows:

|                                        |  |                            |          |   |                           |   |         |      |  |   |            |   |  |   |        | 
|--------------------------------------- |  | -------------------------- | -------- | - | ------------------------- | - | ------- | ---- |  | - | ---------- | - |  | - | ------ | 
|                                        |  | For the Three Months Ended |          |   | For the Nine Months Ended |  
|                                        |  | June 30,                   |          |   | June 30,                  |  
|                                        |  |                            |          |   |                           |  
|                                        |  | 2003                       |          |   | 2002                      |   |         | 2003 |  |   | 2002       |  
|                                        |  |                            |          |   |                           |   |         |      |  |   |            |  
|Net (loss) income                       |  | $                          | (104,691 | ) |                           | $ | (9,801  | )    |  | $ | (1,251,310 | ) |  | $ | 50,002 | 
|Foreign currency translation adjustment |  |                            | 510,189  |   |                           |   | 100,059 |      |  |   | 712,291    |   |  |   | 33,165 | 
|                                        |  |                            |          |   |                           |   |         |      |  |   |            |  
|Comprehensive income (loss)             |  | $                          | 405,498  |   |                           | $ | 90,258  |      |  | $ | (539,019   | ) |  | $ | 83,167 | 
|                                        |  |                            |          |   |                           |   |         |      |  |   |            |  

NOTE D  Accounting for Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25), and related interpretations. The Company has adopted the
disclosure-only provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (SFAS 123) as amended by Statement of Financial Accounting Standards No. 148, Accounting for
Stock-Based Compensation  Transition and Disclosure (SFAS 148). Pro forma net loss and loss per share
determined as if the Company had accounted for its employee stock options under the fair value method of those
Statements, for the three- and nine-month periods ended June 30, 2003 and 2002 were as follows:

|                                                                                 |  |                            |          |   |                           |   |         |      |  |   |            |   |  |   |          |  
|-------------------------------------------------------------------------------- |  | -------------------------- | -------- | - | ------------------------- | - | ------- | ---- |  | - | ---------- | - |  | - | -------- | -
|                                                                                 |  | For the Three Months Ended |          |   | For the Nine Months Ended |  
|                                                                                 |  | June 30,                   |          |   | June 30,                  |  
|                                                                                 |  |                            |          |   |                           |  
|                                                                                 |  | 2003                       |          |   | 2002                      |   |         | 2003 |  |   | 2002       |  
|                                                                                 |  |                            |          |   |                           |   |         |      |  |   |            |  
|Net (loss) income, as reported                                                   |  | $                          | (104,691 | ) |                           | $ | (9,801  | )    |  | $ | (1,251,310 | ) |  | $ | 50,002   |  
|Stock-based compensation determined under
fair value based method for all awards |  |                            | (23,725  | ) |                           |   | (44,037 | )    |  |   | (127,023   | ) |  |   | (146,353 | )
|                                                                                 |  |                            |          |   |                           |   |         |      |  |   |            |  
|Adjusted net loss, assuming fair value
method for all stock-based awards         |  | $                          | (128,416 | ) |                           | $ | (53,838 | )    |  | $ | (1,378,333 | ) |  | $ | (96,351  | )
|                                                                                 |  |                            |          |   |                           |   |         |      |  |   |            |  
|Basic (loss) earnings per share, as reported                                     |  | $                          | (0.02    | ) |                           | $ | (0.00   | )    |  | $ | (0.20      | ) |  | $ | 0.01     |  
|Diluted (loss) earnings per share, as reported                                   |  |                            | (0.02    | ) |                           |   | (0.00   | )    |  |   | (0.20      | ) |  |   | 0.01     |  
|Basic loss per share, SFAS 123 adjusted                                          |  |                            | (0.02    | ) |                           |   | (0.01   | )    |  |   | (0.22      | ) |  |   | (0.02    | )
|Diluted loss per share, SFAS 123 adjusted                                        |  |                            | (0.02    | ) |                           |   | (0.01   | )    |  |   | (0.22      | ) |  |   | (0.02    | )

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

In December 2001, the Company through a 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 the supplier of the print engines used in a number of the Companys products and to a
number of non-competing original equipment manufacturers.

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NOTE E  Acquisition of Delphax Systems, Corporate Name Change and Workforce Reduction (continued)

The property acquired included accounts receivable, inventory, fixed assets, 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.

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 Statement of Financial Accounting
Standards No. 141, Business Combinations (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, 2003, the accrued liability
for benefits payable in the future was $13,000. It is estimated that this balance will be sufficient to cover
the remaining obligation under the workforce reduction plan.

The following pro forma data for the nine months ended June 30, 2002, compared with the current
fiscal-year-to-date period, was prepared in accordance with SFAS 141 and Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets, and assumes the acquisition had occurred at the
beginning of fiscal 2001 and reflects an adjustment for interest expense in the period ended December 31, 2001.
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

|                                        |  |                           |            |   |      |   |            |  
|--------------------------------------- |  | ------------------------- | ---------- | - | ---- | - | ---------- | -
|                                        |  | For the Nine Months Ended |           
|                                        |  | June 30,                  |           
|                                        |  |                           |           
|                                        |  | 2003                      |            |   | 2002 |  
|                                        |  |                           |            |   |      |  
|Net sales                               |  | $                         | 44,510,194 |   |      | $ | 44,059,851 |  
|Net loss                                |  |                           | (1,251,310 | ) |      |   | (318,075   | )
|Basic and diluted loss per common share |  |                           | (0.20      | ) |      |   | (0.05      | )

NOTE F  Restructuring

On December 4, 2002, the Company announced plans to consolidate its North American manufacturing and engineering
operations at its Canadian subsidiary. These operations had been divided between the facilities in the United
States and Canada. The Companys worldwide headquarters and marketing functions continue to be based in the
United States. The selling and customer service functions remain unchanged in the United States, as well as in
the subsidiaries in the United Kingdom and France. The Company expects to incur approximately $1.2 million in
restructuring expenses over the course of the consolidation, which is scheduled to be completed by the end of
calendar 2003. These restructuring costs are wholly comprised of employee severance costs unrelated to the
acquisition of the Canadian subsidiary and, therefore, were properly charged to operating expense in the first
quarter of fiscal 2003, in accordance with Emerging Issues Task Force Issue No. 94-3, Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in
Restructuring). As of June 30, 2003, the accrued liability for benefits payable in the future was $607,000. It
is estimated that this balance will be sufficient to cover the remaining obligation under the workforce reduction
plan.

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NOTE G  Credit Agreement

Effective December 20, 2001, the Company entered into a bank credit agreement, secured by substantially all the
assets of the Company. The credit agreement provides for term and revolving loans. 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, $2.8
million of which remained outstanding as of June 30, 2003. 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 the revolving credit
commitment or the then current borrowing base.

On December 18, 2002, the lender and the Company amended the credit agreement. Under the amendment, installment
payments of $250,000 were due and paid on the term loan on December 31, 2002, March 31, 2003 and June 30, 2003,
with another installment of $250,000 due September 30, 2003, and the balance of the term loans due on December
31, 2003. The amendment reduced the revolving credit commitment from $12.5 million as of December 31, 2002, to
$11.5 million effective on January 1, 2003, and $10.5 million effective on July 1, 2003, and the facility
matures and comes due on December 31, 2003. As of June 30, 2003, revolving loans outstanding were $10.4
million. The revolving credit commitment is subject to a commitment fee of 0.5% per annum on the unused portion
of the commitment. Term loans and revolving loans, at the Companys election, may be outstanding at one of two
rates, the banks prime rate plus 1% or the banks adjusted LIBOR rate plus 4%, provided that $3.0 million of the
principal amount of the revolving loans bear interest at the fixed rate of 7.35% per annum. As of June 30, 2003,
$9.3 million was outstanding at the banks adjusted LIBOR rate plus 4%, $3.0 million at 7.35%, $900,000 at the
banks prime rate plus 1% and in total, at a weighted average interest rate of approximately 6.9%.

On August 11,
2003, the lender and the Company entered into a second amendment to the Companys credit agreement. The
amendment increases the lenders revolving credit commitment from $10.5 million to $12.0 million, relaxes certain
financial covenants in the credit agreement and waives financial
covenant defaults that would have existed as of June 30, 2003 absent the amendment. There is no change in the maturity date, interest rates or principal
payment schedule for the loans under the credit agreement.

The Company believes, but cannot assure, that it will be able to fully meet the terms of the amended agreement.
The Companys ability to fund its future working capital requirements is dependent upon its ability to extend or
renegotiate financing before the end of the current term of the facility. If necessary, the Company believes it
has the ability to secure alternative forms of financing to meet its working capital requirements. However, the
pricing of these alternative forms of financing may not be as favorable as the current credit facility.

NOTE H  Business Combinations and Goodwill and Other Intangible Assets

In June 2001, the Financial Accounting Standards Board (FASB) 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 E. The adoption of these Statements had no material effect on
the Companys results of operations or financial position.

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NOTE I  Impairment or Disposal of Long-Lived Assets

As of October 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets (SFAS 144). SFAS 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets and supersedes Statement of Financial Accounting
Standards No. 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 Accounting Principles Board Opinion No. 30, Reporting the
Results of Operations for 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 adoption of this Statement had no
effect on the Companys results of operations or financial position.

NOTE J  Accounting for Costs Associated with Exit or Disposal Activities

In July 2002, the FASB issued Statement of Financial Accounting Standards No. 146, Accounting for Costs
Associated with Exit or Disposal Activities (SFAS 146). SFAS 146 addresses financial accounting and reporting
for costs associated with exit or disposal activities and replaces Emerging Issues Task Force Issue No. 94-3,
Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in Restructuring) (EITF 94-3). SFAS 146 requires that a liability for a cost associated
with an exit or disposal activity be recognized when the liability is incurred. SFAS 146 also establishes that
fair value is the objective for initial measurement of the liability. This Statement is effective for exit or
disposal activities initiated after December 31, 2002. The Companys restructuring initiative, which commenced
prior to the effective date of SFAS 146, was accounted for in accordance with EITF 94-3.




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

Critical Accounting Policies

Managements Discussion and Analysis of Results of Operations and Financial Condition discusses the consolidated
financial statements of the Company, which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. On an on-going basis, management evaluates its estimates and
adjustments, including those related to inventory, income taxes, revenue recognition and restructuring
initiatives. Management bases its estimates and judgments on historical experience and on various other factors
that are believed to be reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or conditions.

Management believes the following critical accounting policies, among others, affect its more significant
judgments and estimates used in the preparation of its consolidated financial statements.

Inventory

The Company reduces the stated value of its inventory for obsolescence or impairment in an amount equal to the
difference between the cost of the inventory and the estimated market value, based upon assumptions about future
demand and market conditions. If actual future demand or market conditions are less favorable than those
projected by management, additional reductions in stated value may be required. Conversely, if actual future
demand or market conditions are more favorable than those projected by management, reserves in excess of those
estimated to be required in the future may be adjusted.

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Income Taxes

In determining the carrying value of the Companys net deferred tax assets, the Company must assess the
likelihood of sufficient future taxable income in certain tax jurisdictions, based on estimates and assumptions,
to realize the benefit of these assets. For the fiscal year ended September 30, 2002 and the nine-month period
ended June 30, 2003, the Company fully reserved its net deferred tax assets, recognizing that the Company has
incurred losses in three of the last four fiscal years and there is no assurance that future years will be
profitable. If these estimates and assumptions change in the future, the Company may record a reduction in the
valuation allowance, resulting in an income tax benefit in the Companys Consolidated Statements of Operations.
As of June 30, 2003 and September 30, 2002, deferred tax assets of $2.7 million and $2.1 million, respectively,
had been fully reserved. Management evaluates the realizability of the deferred tax assets and assesses the
valuation allowance quarterly.

Revenue Recognition

The Company recognizes revenue when systems are shipped or services are rendered. For spare parts, supplies and
consumable items stored at customer sites, revenue is recognized when the inventory is used by the customer.
Amounts billed to the customers under maintenance contracts are recorded as deferred revenue and recognized in
income over the term of the maintenance agreement. Customer billings in advance of system shipment are recorded
as deferred revenue and recognized upon shipment of the system. Revenue on the Companys PS MICR systems product
line, manufactured by Océ Printing Systems GmbH and private-labeled by the Company, is recorded on a gross
basis. Freight revenue is recorded on a gross basis and recognized upon shipment. The related freight costs are
recorded as a cost of sales.

Restructuring Initiatives

In April 2002, the Company effected a workforce reduction, eliminating approximately 40 positions in the Canadian
subsidiary. See NOTE E to the financial statements. On December 4, 2002, the Company announced plans to
consolidate its North American manufacturing and engineering operations at its Canadian subsidiary. See NOTE F
to the financial statements. At the end of each quarter, management evaluates its estimates of costs to complete
the restructuring initiatives. Differences, if any, between previous and revised cost estimates many result in a
charge or credit to the Companys results of operations. As of June 30, 2003, the accrued liability for benefits
payable in the future was $13,000 and $607,000, respectively, for the April 2002 and December 2002 initiatives.
It is estimated that these balances will be sufficient to cover the remaining obligation under the plans.

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Results of Operations

The Condensed Consolidated Statements of Operations for the three and nine months ended June 30, 2003 and 2002
include the post-acquisition results of the business acquired by the Company on December 20, 2001. See NOTE E 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,                  |      
|                                            |                                     |  |                            |      |   |                           |      
|                                            |                                     |  | 2003                       |      |   | 2002                      |       |      | 2003 |  |       | 2002 |  
|                                            |                                     |  |                            |      |   |                           |       |      |      |  |       |      |  
|Sales:                                      |                                     |  |                            |      |   |                           |       |      |      |  |       |      |   |  |       |     
|                                            | Maintenance, spares and supplies    |  |                            | 82.7 | % |                           |       | 82.7 | %    |  |       | 82.3 | % |  |       | 68.6 | %
|                                            | Printing equipment                  |  |                            | 17.3 |   |                           |       | 17.3 |      |  |       | 17.7 |   |  |       | 31.4 |  
|                                            |                                     |  |                            |      |   |                           |       |      |      |  |       |     
|NET SALES                                   |                                     |  | 100.0                      |      |   |                           | 100.0 |      |      |  | 100.0 |      |   |  | 100.0 |     
|Costs and Expenses:                         |                                     |  |                            |      |   |                           |       |      |      |  |       |      |   |  |       |     
|                                            | Cost of sales                       |  |                            | 48.0 |   |                           |       | 44.0 |      |  |       | 47.7 |   |  |       | 47.9 |  
|                                            | Selling, general and administrative |  |                            | 41.0 |   |                           |       | 43.1 |      |  |       | 41.1 |   |  |       | 40.1 |  
|                                            | Research and development            |  |                            | 9.6  |   |                           |       | 12.6 |      |  |       | 9.2  |   |  |       | 10.9 |  
|                                            | Restructuring costs                 |  |                            | 0.0  |   |                           |       | 0.0  |      |  |       | 2.7  |   |  |       | 0.0  |  
|                                            |                                     |  |                            |      |   |                           |       |      |      |  |       |     
|                                            |                                     |  | 98.6                       |      |   |                           | 99.7  |      |      |  | 100.7 |      |   |  | 98.9  |     
|                                            |                                     |  |                            |      |   |                           |       |      |      |  |       |     
|INCOME (LOSS) FROM SYSTEM SALES AND SERVICE |                                     |  | 1.4                        |      |   |                           | 0.3   |      |      |  | (0.7  | )    |   |  | 1.1   |     
|Net interest expense                        |                                     |  | 1.0                        |      |   |                           | 1.7   |      |      |  | 1.2   |      |   |  | 1.4   |     
|Net realized exchange loss (gain)           |                                     |  | 1.1                        |      |   |                           | (0.2  | )    |      |  | 0.4   |      |   |  | (0.0  | )   
|Net unrealized exchange loss (gain)         |                                     |  | 0.0                        |      |   |                           | (0.3  | )    |      |  | 0.5   |      |   |  | (0.2  | )   
|                                            |                                     |  |                            |      |   |                           |       |      |      |  |       |     
|LOSS BEFORE INCOME TAXES                    |                                     |  | (0.7                       | )    |   |                           | (0.9  | )    |      |  | (2.8  | )    |   |  | (0.1  | )   
|Income tax benefit                          |                                     |  | 0.0                        |      |   |                           | (0.8  | )    |      |  | 0.0   |      |   |  | (0.2  | )   
|                                            |                                     |  |                            |      |   |                           |       |      |      |  |       |     
|NET (LOSS) INCOME                           |                                     |  | (0.7                       | )%   |   |                           | (0.1  | )%   |      |  | (2.8  | )%   |   |  | 0.1   | %   
|                                            |                                     |  |                            |      |   |                           |       |      |      |  |       |     

The Companys net sales consist of revenues from: (i) maintenance contracts, spare parts, supplies and
consumable items, and (ii) sales of printing systems and related equipment. For the three-month period ended
June 30, 2003 (third quarter of fiscal 2003), net sales were $14.8 million, up 9% from $13.5 million for the
three-month period ended June 30, 2002 (third quarter of fiscal 2002). For the nine months ended June 30, 2003,
net sales were $44.5 million, up 16% from $38.4 million for the same period a year ago.

For the third quarter of fiscal 2003, revenues from maintenance contracts, spare parts, supplies and consumable
items increased 9%, from $11.2 million for the third quarter of fiscal 2002, to $12.2 million for the most recent
fiscal quarter. For the nine months ended June 30, 2003, revenues from maintenance contracts, spare parts,
supplies and consumable items increased 39%, from $26.3 million for the first nine months of fiscal 2002, to
$36.6 million for the first nine months of fiscal 2003. The increase in revenues between the comparative
nine-month periods was due primarily to incremental revenues from the fiscal 2002 acquisition of the Canadian
subsidiary, which contributed to first nine months of fiscal 2002 results for only the period between the
December 20, 2001 acquisition date and June 30, 2002, and to the first nine months of fiscal 2003 for the entire
period. In addition, revenues from maintenance

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contracts, spare parts, supplies and consumable items were also
higher for the fiscal 2003 quarter and year-to-date period than for the same year-ago periods due to the larger
installed base of Imaggia and the addition of CR Series systems to the installed base. For these reasons, the
Company anticipates fourth quarter revenues from maintenance contracts, spare parts, supplies and consumable
items consistent with the first three quarters.

Revenues from the sale of printing equipment were $2.6 million for the third quarter of fiscal 2003, up 9% from
$2.3 million for third quarter of fiscal 2002. Revenues from the sale of printing equipment for the first nine
months of fiscal 2003 were $7.9 million, down 35% from printing equipment revenues for the same period in fiscal
2002 of $12.0 million.

The Companys printing systems primarily consist of the Imaggia, CR Series, RS Series, Checktronic, Foliotronic,
which are manufactured by the Company, and the PS MICR systems, which are manufactured by Océ and sold on a
private label basis. The Checktronic and Foliotronic are the Companys legacy products. The increase in
revenues from printing equipment for the third quarter of fiscal 2003, compared with the third quarter of fiscal
2002 was primarily due to slightly higher Imaggia sales, offset by sales of PS MICR systems in the third quarter
of fiscal 2002, but not in the most recent fiscal quarter. For the nine months ended June 30, 2003, compared
with the same period a year ago, the decrease in revenues from printing equipment was primarily due to
significantly lower sales of the Imaggia product line, partially offset by higher sales of the CR Series product
line. Imaggia sales were down for the first nine months of fiscal 2003, compared with the first nine months of
fiscal 2002, primarily due to completion of deliveries under a significant multi-unit contract in the second
quarter of fiscal 2002. In general, the Company attributes lower revenues from printing equipment to continuing
uncertain economic conditions, which have led customers to postpone capital equipment purchases.

The Companys gross margin percentage for the third quarter of fiscal 2003 was 52%, compared with 56% for the
third quarter of fiscal 2002. The reduction was due primarily to sales mix and higher manufacturing variances as
a result of lower equipment production levels in the third quarter of fiscal 2003. For the fiscal-year-to-date
periods, the gross margin percentage was 52% in both years. Though the gross margin percentages are equivalent
in the nine-month periods ended June 30, 2003 and 2002, the composition of the margin is different primarily due
to sales mix. In addition the margin for the first nine months of fiscal 2003 was negatively affected, as was
the quarter, by higher manufacturing variances due to lower equipment production levels, and positively affected
by the sale of inventory acquired in the December 2001 Canadian acquisition at values in excess of those
originally assigned in the final purchase accounting for the acquisition. The sale of this acquired inventory
resulted in margins higher than the Company would normally expect to achieve from its on-going business. As
cited above under Critical Accounting Policies   Inventory, actual future demand or market conditions for
inventory may be more or less favorable than projected by management, resulting in more or less favorable margins
than projected. In general, the Company anticipates that its gross margin percentage for the remainder of fiscal
2003 will be slightly higher than the Company would normally expect to achieve due to the expected sale of
acquired inventory. In addition, programs continue in place to improve normal margins on revenues from
maintenance contracts, spare parts, supplies and consumable items.

Selling, general and administrative expenses for the third quarter increased 4%, from $5.8 million in fiscal
2002, to $6.1 million in fiscal 2003, but decreased slightly as a percentage of net sales, from 43% to 41%. For
the first nine months of fiscal 2003, selling, general and administrative expenses were $18.3 million, compared
with $15.4 million for the same period a year ago, a 19% increase. As a percentage of net sales, selling,
general and administrative expenses increased slightly from 40% for the first nine months of fiscal 2002, to 41%
for the first nine months of fiscal 2003. For the first nine months of fiscal 2003, expense levels for selling,
general and administrative expenses were significantly higher, primarily due to the acquisition of the Canadian
subsidiary, which added costs to the first nine months of fiscal 2002 for only the period between the December
20, 2001 acquisition date and June 30, 2002, and to the first nine months of fiscal 2003 for the entire period.
Selling, general and administrative expenses were also higher in the first nine months of fiscal 2003 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.

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Research and development expenses for the three-month periods ended June 30, 2003 and 2002 were $1.4 million and
$1.7 million, respectively, a 17% decrease year to year. As a percentage of net sales, research and development
expenses also decreased, from 13% for the third quarter of fiscal 2002, to 10% for the most recent fiscal
quarter. For the first nine months of fiscal 2003, research and development expenses were $4.1 million, compared
with $4.2 million for the first nine months of fiscal 2002, a 3% decrease. As a percentage of net sales,
research and development expenses also decreased, from 11% for the first nine months of fiscal 2002, to 9% for
the first nine months of fiscal 2003. The modest decrease in research and development expenses for the first
nine months of fiscal 2003 compared with the first nine months of fiscal 2002 is primarily due to cost control
measures, more than offsetting the impact of the acquisition of the Canadian subsidiary, which added costs to the
first nine months of fiscal 2002 for only the period between the December 20, 2001 acquisition date and June 30,
2002, and to the first nine months of fiscal 2003 for the entire period. For the third quarter of fiscal 2003,
compared with the third quarter of fiscal 2002, research and development expenses were more significantly lower
than for the corresponding fiscal-year-to-date periods due to cost savings associated with the restructuring
announced in December 2002. In conjunction with the Companys announced plans to consolidate its North American
manufacturing and engineering operations at its Canadian subsidiary, the Company recognized $1.2 million in
restructuring costs, comprised of severance and related costs, in the first quarter of fiscal 2003.

The Company anticipates that total operating expense levels for fiscal 2003 will be higher than for fiscal 2002
as a result of these factors, and because of the proportion of expenses incurred in foreign currencies that have
strengthened significantly against the US dollar over the course of fiscal 2003. Partially offsetting these
increases will be the effects of the December 2002 restructuring, the benefits from which have first started to
be realized in the third quarter of fiscal 2003.

Net interest expense for the three months ended June 30, 2003 and 2002, was $145,000 and $241,000, respectively.
The reduction was due to a lower average amount outstanding in the current fiscal quarter, slightly offset by a
higher effective interest rate in fiscal 2003, compared with fiscal 2002. For the first nine months of fiscal
2003, net interest expense was $581,000, compared with $533,000 for the same period in fiscal 2002. The increase
in net interest expense between periods was primarily due to the Company borrowing to finance the acquisition of
the Canadian subsidiary in late December 2001, incurring significant interest in the first nine months of fiscal
2002 for only the period from the December 20, 2001 acquisition date through June 30, 2002, but for the entire
nine-month period in fiscal 2003. As with the respective quarters, for the comparative nine-month periods,
effective interest rates were also higher in fiscal 2003 than in fiscal 2002.

The Company incurs realized and unrealized transactional foreign exchange gains and losses on currency conversion
transactions that are reflected on the Companys Statements of Operations. Realized and unrealized transactional
exchange gains and losses reflect actual and anticipated, respectively, gains or losses recognized as the result
of transactions between entities with different functional currencies. The net transactional exchange losses for
the three and nine months ended June 30, 2003 were $160,000 and $371,000, respectively. For the three and nine
months ended June 30, 2002, net transactional exchange gains were $70,000 and $90,000, respectively. The Company
experiences translational foreign currency gains and losses, which are reflected in the Companys equity, with
gains due to the weakening, and 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. The
functional currency of the Companys Canadian subsidiary is the U.S. dollar. The Company anticipates that it
will continue to have transactional and translational foreign currency gains and losses from foreign operations
in the future, although strategies to reduce the size of the gains and losses will be reviewed and implemented
whenever economical and practical.

For the first nine months and the third quarter of fiscal 2003, no income tax benefit was recognized on the loss
before income taxes; the Company has fully reserved its net deferred tax assets, totaling $2.7 million as of June
30, 2003, recognizing that the Company has incurred losses in three of the last four fiscal years and there is no
assurance that future years will be profitable. Income tax benefit for the three months and nine months ended
June 30, 2002 was $117,000 and $85,000 respectively, reflecting effective tax rates significantly different than
the statutory rate of 35%. Interim effective tax rates vary based on sources of income or loss, estimates of the
annual effective tax rate for the fiscal year and estimated future taxable income.

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For the third quarter of fiscal 2003, the Companys basic and diluted loss per share was $0.02, compared with
basic and diluted loss per share of $0.00 for the third quarter of fiscal 2002. Basic and diluted loss per share
for the nine months ended June 30, 2003 was $0.20, compared with basic and diluted earnings per share for the
first nine months of fiscal 2002 of $0.01. The decline in earnings between periods was primarily attributable to
the significant decrease in equipment revenues as customers postponed equipment purchases in a period of
continued economic uncertainty, and to the recognition of a $1.2 million restructuring charge in the first
quarter of fiscal 2003.

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, 2003, the accrued liability for benefits payable in the future was $13,000. 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.

On December 4, 2002, the Company announced plans to consolidate its North American manufacturing and engineering
operations at its Canadian subsidiary. These operations had been divided between the facilities in the United
States and Canada. The Companys worldwide headquarters and marketing functions continue to be based in the
United States. The selling and customer service functions remain unchanged in the United States, as well as in
the subsidiaries in the United Kingdom and France. The Company expects to incur approximately $1.2 million in
restructuring expenses over the course of the consolidation, which is scheduled to be completed by the end of
calendar 2003. As of June 30, 2003, the accrued liability for benefits payable in the future was $607,000. It
is estimated that this balance will be sufficient to cover the remaining obligation under the workforce reduction
plan. This action, from which the cost saving benefits have first started to be realized in the third quarter of
fiscal 2003, is expected to eliminate annual operating expenses of approximately $1.6 million while improving the
Companys ability to provide customer service and fulfill current and future orders.

The expense reductions realized and anticipated from these actions, and those realized from the closing of the
Australia subsidiary, which ceased operations as of December 31, 2001, are being applied, in part, to other uses,
such as expansion of customer service functions to support increases in the installed base and enhanced marketing
efforts.

Market Risk

The Company has foreign subsidiaries located in Canada, the United Kingdom and France, does business in more than
60 countries and generates approximately 31% of its revenues from outside North America. The Companys ability
to sell its products in foreign markets may be affected by changes in economic, political or market conditions in
the foreign markets in which it does business.

The Companys net investment in its foreign subsidiaries was $7.0 million and $7.2 million at June 30, 2003 and
September 30, 2002, 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 U.S. dollar against foreign currencies was not material in the quarter or fiscal-year-to-date period ended
June 30, 2003. The functional currency of the Canadian subsidiary is the U.S. dollar.

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 2003, the Company did not enter into any foreign
exchange contracts and does not anticipate entering into any such contracts in the near future.

Interest Rate Risk

Substantially all of the Companys debt and the associated interest expense are sensitive to changes in the level
of interest rates. A hypothetical 100 basis point increase in interest rates would result in incremental
interest expense

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for the three-month periods ended June 30, 2003 and 2002 of approximately $28,000 and $39,000,
respectively, and for the nine-month periods then ended of approximately $95,000 and $94,000, respectively.

Factors Affecting Results of Operations

The Companys revenues are subject to fluctuations, which may be material. The Companys net sales and operating
results may 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 affect 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.

On December 20, 2001, the Company acquired substantially all of the North American business assets of Delphax
Systems, which 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
proprietary electron beam imaging (EBI) technology. It is the supplier of the print engines used in a number of
the Companys products and to a number of non-competing original equipment manufacturers. For fiscal 2002, the
acquisition contributed approximately $17.7 million in incremental revenues. While the Company expects the
acquisition to provide increased revenues and incremental operating income in the future, there is 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 roll-fed print systems. To date, only a limited number of CR Series and
RS Series systems have been sold and there can be no assurance that such systems will be sold in the future.

The Company has been party to a multi-year equipment and service contract with a significant customer. Equipment
deliveries under the contract concluded in the second quarter of fiscal 2002, and the service portion of the
contract concluded December 31, 2002. Effective January 1, 2003, a new three-year service agreement was reached,
which will continue through December 31, 2005. Revenues from this customer have been significant, representing
28% of total revenues for fiscal 2002. The Company anticipates that revenues from this customer will also be
significant in fiscal 2003, but to a lesser extent than in fiscal 2002.

The Companys PS MICR systems product line has been marketed under an agreement with Océ Printing Systems GmbH
for the right to private label, sell and service the PS75 MICR product and other high-performance sheet-fed MICR
and non-MICR printing systems manufactured by Océ. This agreement will terminate effective October 13, 2003,
with delivery of spare parts, supplies and consumable items inventory continuing, as per the agreement, through
October 13, 2008. Though the Company plans to continue offering sale and service of the PS MICR systems during
that period, there is no expectation that significant sales will be made.

As discussed below under the heading Liquidity and Capital Resources, the Company is dependent on its bank
credit facility to fund its operations. That facility currently matures on December 31, 2003. The Companys
ability to maintain working capital depends on its compliance with the amended credit facility and on being able
to extend or replace that facility when it matures. If necessary, the Company believes it has the ability to
secure alternative forms of financing to meet its working capital requirements. However, the pricing of these
alternative forms of financing may not be as favorable as the current credit facility.

Liquidity and Capital Resources

Working capital was $11.5 million at June 30, 2003, compared with $24.0 million at September 30, 2002. Of the
$12.5 million decrease, approximately $11.1 million was the result of classifying the entire indebtedness under
the credit facility as a current liability, because it is due within twelve months. The Companys accounts
receivable increased from $10.7 million as of September 30, 2002, to $12.6 million as of June 30, 2003. The $1.9
million increase was due to timing. The Companys inventory levels decreased to $18.3 million at June 30, 2003,
from $20.9 million at September 30, 2002, primarily due to sale of on-hand finished goods in excess of additions
to finished goods inventory, sale of spare parts, supplies and consumable items, and continuing efforts to manage

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inventory levels. The current portion of deferred revenue was $441,000 at June 30, 2003, compared with $490,000
at September 30, 2002. Current deferred revenue was comprised of unearned revenues from maintenance contracts and
the current portion of a long-term installment sale of printing equipment. The non-current portion of a
long-term installment sale of printing equipment was $614,000 as of June 30, 2003; all deferred revenue as of
September 30, 2002 was current.

The Company has undertaken no significant investing activities. No significant capital investment has been
undertaken or is planned, and at June 30, 2003, the Company had no material commitments for capital
expenditures. Short-term investments are purchased as cash is available and sold as they mature.

Effective December 20, 2001, the Company entered into a bank credit agreement, secured by substantially all the
assets of the Company. The credit agreement provides for term and revolving loans. 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, $2.8
million of which remained outstanding as of June 30, 2003. 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 the revolving credit
commitment or the then current borrowing base.

On December 18, 2002, the lender and the Company amended the credit agreement. Under the amendment, installment
payments of $250,000 were due and paid on the term loan on December 31, 2002, March 31, 2003 and June 30, 2003,
with another installment of $250,000 due September 30, 2003, and the balance of the term loans due on December
31, 2003. The amendment reduced the revolving credit commitment from $12.5 million as of December 31, 2002, to
$11.5 million effective on January 1, 2003, and $10.5 million effective on July 1, 2003, and the facility
matures and comes due on December 31, 2003. As of June 30, 2003, revolving loans outstanding were $10.4
million. The revolving credit commitment is subject to a commitment fee of 0.5% per annum on the unused portion
of the commitment. Term loans and revolving loans, at the Companys election, may be outstanding at one of two
rates, the banks prime rate plus 1% or the banks adjusted LIBOR rate plus 4%, provided that $3.0 million of the
principal amount of the revolving loans bear interest at the fixed rate of 7.35% per annum. As of June 30, 2003,
$9.3 million was outstanding at the banks adjusted LIBOR rate plus 4%, $3.0 million at 7.35%, $900,000 at the
banks prime rate plus 1% and in total, at a weighted average interest rate of approximately 6.9%.

On August 11,
2003, the lender and the Company entered into a second amendment to the Companys credit agreement. The
amendment increases the lenders revolving credit commitment from $10.5 million to $12.0 million, relaxes certain
financial covenants in the credit agreement and waives financial covenant defaults that would have existed
as of June 30, 2003 absent the amendment. There is no change in the maturity date, interest rates or principal
payment schedule for the loans under the credit agreement.

The Company believes, but cannot assure, that it will be able to fully meet the terms of the amended agreement.
The Companys ability to fund its future working capital requirements is dependent upon its ability to extend or
renegotiate financing before the end of the current term of the facility. If necessary, the Company believes it
has the ability to secure alternative forms of financing to meet its working capital requirements. However, the
pricing of these alternative forms of financing may not be as favorable as the current credit facility.

Cautionary Statement

Statements included in this Managements Discussion and Analysis of Results of Operations and Financial
Condition, 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 Disclosures about 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
Results of Operations and Financial Condition.




Item 4.Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures.

The Companys Chairman and Chief Executive Officer, Jay A. Herman, and Vice President and Chief
Financial Officer, Robert M. Barniskis, have evaluated the Companys disclosure controls and procedures as of the
end of the period covered by this report. Based upon that review, they have concluded that these controls and
procedures are effective in ensuring that material information related to the Company is made known to them by
others within the Company.

(b) Changes in Internal Controls.

There have been no significant changes in internal control over financial reporting that occurred during
the fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially
affect, the registrants internal control over financial reporting.




PART II. OTHER INFORMATION




Item 6. Exhibits and Reports
on Form 8-K

(a) The following exhibits are included herein:

31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rules 13a-14 and 15d-14
of the Exchange Act).

31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rules 13a-14 and 15d-14
of the Exchange Act).

32 Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350).

(b) The following report on Form 8-K was filed during the three months ended June 30, 2003:

May 7, 2003  Form 8-K: Item 9. Regulation FD Disclosure (Item 12. Disclosure of Results of Operations
and Financial Condition)  Earnings release issued May 7, 2003, for the quarter ended March 31, 2003.

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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                          
|     |  |                |  |                                     
|Date |  | August 8, 2003 |  | /s/ Jay A. Herman                   
|     |  |                | 
|     |  |                |  | Jay A. Herman                       
|     |  |                |  | Chairman and Chief Executive Officer



|     |  |                 |  |                                           
|---- |  | --------------- |  | ------------------------------------------
|Date |  | August 8 , 2003 |  | /s/ Robert M. Barniskis                   
|     |  |                 | 
|     |  |                 |  | Robert M. Barniskis                       
|     |  |                 |  | Vice President and Chief Financial Officer

20