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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

|                               |  |               
|------------------------------ |  | --------------
|For the quarterly period ended |  | March 31, 2002
|                               |  |               

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

DELPHAX TECHNOLOGIES INC.

---

|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|Minnesota                                                      |  | 41-1392000                       
|                                                               |  |                                  
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification No.)
|                                                               |  |                                  
|12500 Whitewater Drive                                         |  |                                  
|Minnetonka, Minnesota                                          |  | 55343-9420                       
|                                                               |  |                                  
|(Address of principal executive offices)                       |  | (Zip Code)                       

(952) 939-9000

---

CHECK TECHNOLOGY CORPORATION

---



| |                                                                                                                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter periods that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes
X No
|
| | Indicate the number of shares outstanding of each of the issuers
classes of common stock, as of the latest practical date.                                                                                                                                                                                                                                       
|
| | As of May 8, 2002, there were 6,175,898 shares outstanding of Common
Stock.                                                                                                                                                                                                                                                                                       

1



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TABLE OF CONTENTS



|                                                                                              |                                                                                                      |  |  |  |  |  |  | 
|--------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|Part I. Financial Information                                                                
|Item 1. Financial Statements (Unaudited)                                                     
|                                                                                              | Condensed consolidated balance sheets  March 31, 2002 and September 30, 2001                       
|                                                                                              | Condensed consolidated statements of operations  Three and six months ended March 31, 2002 and 2001
|                                                                                              | Condensed consolidated statements of cash flows  Six months ended March 31, 2002 and 2001          
|                                                                                              | Condensed notes to consolidated financial statements  March 31, 2002                               
|Item 2. Managements Discussion and Analysis of Results of Operations and Financial Condition
|Item 3. Quantitative and Qualitative Disclosure of Market Risk                               
|Part II. Other Information                                                                   
|Item 4. Submission of Matters to a Vote of Security Holders                                  
|Item 6. Exhibits and Reports on Form 8-K                                                     
|Signatures                                                                                   



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INDEX

DELPHAX TECHNOLOGIES INC. AND SUBSIDIARIES

|                              |  |                                                                                                     
|----------------------------- |  | ----------------------------------------------------------------------------------------------------
|PART I.
FINANCIAL INFORMATION
|                             
|Item 1.                       |  | Financial Statements (Unaudited)                                                                    
|                              |  |                                                                                                     
|                              |  | Condensed consolidated balance sheets  March 31, 2002 and September 30, 2001                       
|                              |  |                                                                                                     
|                              |  | Condensed consolidated statements of operations  Three and six months ended March 31, 2002 and 2001
|                              |  |                                                                                                     
|                              |  | Condensed consolidated statements of cash flows  Six months ended March 31, 2002 and 2001          
|                              |  |                                                                                                     
|                              |  | Condensed notes to consolidated financial statements  March 31, 2002                               
|                              |  |                                                                                                     
|Item 2.                       |  | Managements Discussion and Analysis of Results of Operations and Financial Condition               
|                              |  |                                                                                                     
|Item 3.                       |  | Quantitative and Qualitative Disclosure of Market Risk                                              
|                              |  |                                                                                                     
|PART II.
OTHER INFORMATION   
|                             
|                              |  |                                                                                                     
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                                 
|                              |  |                                                                                                     
|Item 6.                       |  | Exhibits and Reports on Form 8-K                                                                    
|                              |  |                                                                                                     
|SIGNATURES                    |  |                                                                                                     

2



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PART I. FINANCIAL INFORMATION

DELPHAX TECHNOLOGIES INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

|                       |                                                                                                                                             |                                   |            |            |            |   |               |            |           | 
|---------------------- | ------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------- | ---------- | ---------- | ---------- | - | ------------- | ---------- | --------- | 
|                       |                                                                                                                                             |                                   |            | March 31,  |            |   | September 30, |           
|                       |                                                                                                                                             |                                   |            | 2002       |            |   | 2001          |           
|                       |                                                                                                                                             |                                   |            |            |            |   |               |           
|ASSETS                 |                                                                                                                                             |                                   |            |            |            |   |               |           
|CURRENT ASSETS         |                                                                                                                                             |                                   |            |            |            |   |               |           
|                       | Cash and cash equivalents                                                                                                                   |                                   | $          | 1,471,201  |            |   | $             | 591,536    |          
|                       | Short-term investments                                                                                                                      |                                   |            | 136,656    |            |   |               |           |          
|                       | Accounts receivable, less allowance for doubtful
accounts of $106,697 and $51,749 as of March 31,
2002 and September 30, 2001, respectively |                                   |            | 12,777,648 |            |   |               | 10,129,470 |          
|                       | Inventory:                                                                                                                                  |                                   |            |            |            |   |               |            |          
|                       |                                                                                                                                             | Raw materials and component parts |            |            | 13,503,763 |   |               |            | 7,519,015 | 
|                       |                                                                                                                                             | Work-in-progress                  |            |            | 779,148    |   |               |            | 317,800   | 
|                       |                                                                                                                                             | Finished goods                    |            |            | 8,682,936  |   |               |            | 3,998,855 | 
|                       |                                                                                                                                             |                                   |            |            |            |  
|                       |                                                                                                                                             |                                   | 22,965,847 |            |            |   | 11,835,670    |           
|                       |                                                                                                                                             |                                   |            |            |            |  
|                       | Deferred income taxes                                                                                                                       |                                   |            | 1,384,123  |            |   |               | 842,851    |          
|                       | Other current assets                                                                                                                        |                                   |            | 1,631,356  |            |   |               | 1,349,280  |          
|                       |                                                                                                                                             |                                   |            |            |            |  
|TOTAL CURRENT ASSETS   |                                                                                                                                             |                                   | 40,366,831 |            |            |   | 24,748,807    |           
|                       |                                                                                                                                             |                                   |            |            |            |  
|EQUIPMENT AND FIXTURES |                                                                                                                                             |                                   |            |            |            |   |               |           
|                       | Machinery and equipment                                                                                                                     |                                   |            | 19,764,183 |            |   |               | 2,192,448  |          
|                       | Furniture and fixtures                                                                                                                      |                                   |            | 12,183,216 |            |   |               | 2,440,243  |          
|                       | Leasehold improvements                                                                                                                      |                                   |            | 7,752,372  |            |   |               | 309,932    |          
|                       |                                                                                                                                             |                                   |            |            |            |  
|                       |                                                                                                                                             |                                   | 39,699,771 |            |            |   | 4,942,623     |           
|                       | Less accumulated depreciation and amortization                                                                                              |                                   |            | 34,679,813 |            |   |               | 3,904,814  |          
|                       |                                                                                                                                             |                                   |            |            |            |  
|                       |                                                                                                                                             |                                   | 5,019,958  |            |            |   | 1,037,809     |           
|                       |                                                                                                                                             |                                   |            |            |            |  
|TOTAL ASSETS           |                                                                                                                                             | $                                 | 45,386,789 |            |            | $ | 25,786,616    |           
|                       |                                                                                                                                             |                                   |            |            |            |  

See condensed notes to consolidated financial statements.

3



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DELPHAX TECHNOLOGIES INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

|                                           |                                                                                                                                                                                  |                                        |            |            |            |   |               |            |           | 
|------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------- | ---------- | ---------- | ---------- | - | ------------- | ---------- | --------- | 
|                                           |                                                                                                                                                                                  |                                        |            | March 31,  |            |   | September 30, |           
|                                           |                                                                                                                                                                                  |                                        |            | 2002       |            |   | 2001          |           
|                                           |                                                                                                                                                                                  |                                        |            |            |            |   |               |           
|LIABILITIES AND SHAREHOLDERS EQUITY       |                                                                                                                                                                                  |                                        |            |            |            |   |               |           
|CURRENT LIABILITIES                        |                                                                                                                                                                                  |                                        |            |            |            |   |               |           
|                                           |                                                                                                                                                                                  | Accounts payable                       |            | $          | 8,825,842  |   |               | $          | 4,143,228 | 
|                                           |                                                                                                                                                                                  | Accrued expenses                       |            |            | 2,444,679  |   |               |            | 1,763,739 | 
|                                           |                                                                                                                                                                                  | Income taxes payable                   |            |            | 787,830    |   |               |            | 248,132   | 
|                                           |                                                                                                                                                                                  | Current portion of bank note payable   |            |            | 2,068,157  |   |               |            | 595,000   | 
|                                           |                                                                                                                                                                                  | Deferred revenue                       |            |            | 304,436    |   |               |            | 1,053,893 | 
|                                           |                                                                                                                                                                                  | Warranty reserves                      |            |            | 702,401    |   |               |            |          | 
|                                           |                                                                                                                                                                                  |                                        |            |            |            |  
|TOTAL CURRENT LIABILITIES                  |                                                                                                                                                                                  |                                        | 15,133,345 |            |            |   | 7,803,992     |           
|                                           |                                                                                                                                                                                  | Long-term portion of bank note payable |            |            | 12,500,000 |   |               |            |          | 
|                                           |                                                                                                                                                                                  |                                        |            |            |            |  
|TOTAL LIABILITIES                          |                                                                                                                                                                                  |                                        | 27,633,345 |            |            |   | 7,803,992     |           
|                                           |                                                                                                                                                                                  |                                        |            |            |            |  
|SHAREHOLDERS EQUITY                       |                                                                                                                                                                                  |                                        |            |            |            |   |               |           
|                                           | Common stock  par value $.10 per share  authorized
50,000,000 shares; issued and outstanding:6,163,398 and 6,161,138 as of March 31,
2002 and September 30, 2001, respectively |                                        |            | 616,340    |            |   |               | 616,114    |          
|                                           | Additional paid-in capital                                                                                                                                                       |                                        |            | 17,016,807 |            |   |               | 17,010,008 |          
|                                           | Accumulated other comprehensive loss                                                                                                                                             |                                        |            | (2,156,377 | )          |   |               | (2,089,483 | )        
|                                           | Retained earnings                                                                                                                                                                |                                        |            | 2,276,674  |            |   |               | 2,445,985  |          
|                                           |                                                                                                                                                                                  |                                        |            |            |            |  
|TOTAL SHAREHOLDERS EQUITY                 |                                                                                                                                                                                  |                                        | 17,753,444 |            |            |   | 17,982,624    |           
|                                           |                                                                                                                                                                                  |                                        |            |            |            |  
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |                                                                                                                                                                                  | $                                      | 45,386,789 |            |            | $ | 25,786,616    |           
|                                           |                                                                                                                                                                                  |                                        |            |            |            |  

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 Six Months Ended |           
|                                                                                                   |                                     |   | March 31,                  |           |  | March 31,                |           
|                                                                                                   |                                     |   |                            |           |  |                          |           
|                                                                                                   |                                     |   | 2002                       |           |  | 2001                     |            |           | 2002 |   |            | 2001       | 
|                                                                                                   |                                     |   |                            |           |  |                          |            |           |      |   |            |            | 
|Sales:                                                                                             |                                     |   |                            |           |  |                          |            |           |      |   |            |            |  |   |            |           
|                                                                                                   | Printing equipment                  |   | $                          | 3,252,710 |  |                          | $          | 6,985,985 |      |   | $          | 9,690,633  |  |   | $          | 14,489,596 | 
|                                                                                                   | Maintenance, spares and supplies    |   |                            | 9,814,329 |  |                          |            | 3,875,566 |      |   |            | 15,153,948 |  |   |            | 7,317,808  | 
|                                                                                                   |                                     |   |                            |           |  |                          |            |           |      |   |            |           
|NET SALES                                                                                          |                                     |   | 13,067,039                 |           |  |                          | 10,861,551 |           |      |   | 24,844,581 |            |  |   | 21,807,404 |           
|Costs and Expenses:                                                                                |                                     |   |                            |           |  |                          |            |           |      |   |            |            |  |   |            |           
|                                                                                                   | Cost of sales                       |   |                            | 6,285,659 |  |                          |            | 5,435,732 |      |   |            | 12,434,920 |  |   |            | 11,329,993 | 
|                                                                                                   | Selling, general and administrative |   |                            | 5,746,679 |  |                          |            | 4,116,890 |      |   |            | 9,559,714  |  |   |            | 7,853,972  | 
|                                                                                                   | Research and development            |   |                            | 1,743,896 |  |                          |            | 695,714   |      |   |            | 2,486,315  |  |   |            | 1,351,584  | 
|                                                                                                   |                                     |   |                            |           |  |                          |            |           |      |   |            |           
|                                                                                                   |                                     |   | 13,776,234                 |           |  |                          | 10,248,336 |           |      |   | 24,480,949 |            |  |   | 20,535,549 |           
|                                                                                                   |                                     |   |                            |           |  |                          |            |           |      |   |            |           
|(LOSS) INCOME FROM SYSTEM SALES AND
SERVICE                                                        |                                     |   | (709,195                   | )         |  |                          | 613,215    |           |      |   | 363,632    |            |  |   | 1,271,855  |           
|Interest expense                                                                                   |                                     |   | 265,006                    |           |  |                          | 14,422     |           |      |   | 305,899    |            |  |   | 16,047     |           
|Interest income                                                                                    |                                     |   | (9,573                     | )         |  |                          | (12,296    | )         |      |   | (13,664    | )          |  |   | (28,083    | )         
|Net realized exchange (gain) loss                                                                  |                                     |   | (69,813                    | )         |  |                          | 29,428     |           |      |   | 9,571      |            |  |   | 109,596    |           
|Net unrealized exchange (gain) loss                                                                |                                     |   | (5,157                     | )         |  |                          | 193,230    |           |      |   | (30,277    | )          |  |   | 63,357     |           
|                                                                                                   |                                     |   |                            |           |  |                          |            |           |      |   |            |           
|(LOSS)
INCOME BEFORE INCOME TAXES                                                                  |                                     |   | (889,658                   | )         |  |                          | 388,431    |           |      |   | 92,103     |            |  |   | 1,110,938  |           
|Income tax (benefit) expense                                                                       |                                     |   | (310,700                   | )         |  |                          | 210,209    |           |      |   | 32,300     |            |  |   | 422,157    |           
|                                                                                                   |                                     |   |                            |           |  |                          |            |           |      |   |            |           
|NET (LOSS) INCOME                                                                                  |                                     | $ | (578,958                   | )         |  | $                        | 178,222    |           |      | $ | 59,803     |            |  | $ | 688,781    |           
|                                                                                                   |                                     |   |                            |           |  |                          |            |           |      |   |            |           
|Basic and diluted (loss) earnings per common share                                                 |                                     | $ | (0.09                      | )         |  | $                        | 0.03       |           |      | $ | 0.01       |            |  | $ | 0.11       |           
|Weighted average number of shares and equivalents
outstanding during the period                    |                                     |   | 6,161,841                  |           |  |                          | 6,179,388  |           |      |   | 6,160,718  |            |  |   | 6,179,388  |           
|Weighted average number of shares and equivalents
outstanding during the period, assuming dilution |                                     |   | 6,161,841                  |           |  |                          | 6,239,537  |           |      |   | 6,353,722  |            |  |   | 6,247,560  |           

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 Six Months Ended |            
|                                                                              |                                       |   | March 31,                |            
|                                                                              |                                       |   |                          |            
|                                                                              |                                       |   | 2002                     |             |   | 2001 |           
|                                                                              |                                       |   |                          |             |   |      |           
|OPERATING ACTIVITIES                                                          |                                       |   |                          |             |   |      |            |           
|Net income                                                                    |                                       | $ | 59,803                   |             |   | $    | 688,781    |           
|Adjustments to reconcile net income to net cash used in
operating activities: |                                       |   |                          |             |   |      |            |           
|                                                                              | Depreciation and amortization         |   |                          | 27,022      |   |      |            | 180,700    |  
|                                                                              | Forgiveness of executive officer note |   |                          |            |   |      |            | 112,500    |  
|                                                                              | Other                                 |   |                          | 3,677       |   |      |            | 42,744     |  
|Changes in operating assets and liabilities:                                  |                                       |   |                          |             |   |      |            |           
|                                                                              | Accounts receivable                   |   |                          | (2,719,047  | ) |      |            | (2,457,398 | )
|                                                                              | Inventory                             |   |                          | (11,332,920 | ) |      |            | (822,511   | )
|                                                                              | Other current assets                  |   |                          | (799,699    | ) |      |            | 565,660    |  
|                                                                              | Accounts payable and accrued expenses |   |                          | 5,931,641   |   |      |            | 406,026    |  
|                                                                              | Deferred revenue                      |   |                          | (746,434    | ) |      |            | (1,074,127 | )
|                                                                              | Warranty reserves                     |   |                          | 702,401     |   |      |            |           |  
|                                                                              |                                       |   |                          |             |   |     
|NET CASH USED IN OPERATING ACTIVITIES                                         |                                       |   | (8,873,556               | )           |   |      | (2,357,625 | )         
|INVESTING ACTIVITIES                                                          |                                       |   |                          |             |   |      |            |           
|Purchase of equipment and fixtures                                            |                                       |   | (4,038,067               | )           |   |      | (345,955   | )         
|Proceeds from sale of equipment                                               |                                       |   | 28,103                   |             |   |      | 25,512     |           
|Purchase of short-term investments                                            |                                       |   | (133,368                 | )           |   |      | (137,640   | )         
|Proceeds from sale of short-term investments                                  |                                       |   |                         |             |   |      | 179,221    |           
|                                                                              |                                       |   |                          |             |   |     
|NET CASH USED IN INVESTING ACTIVITIES                                         |                                       |   | (4,143,332               | )           |   |      | (278,862   | )         
|FINANCING ACTIVITIES                                                          |                                       |   |                          |             |   |      |            |           
|Issuance of common stock                                                      |                                       |   | 29,075                   |             |   |      | 18,191     |           
|Repurchase of common stock                                                    |                                       |   | (22,050                  | )           |   |      | (47,338    | )         
|Borrowing on bank line of credit, net                                         |                                       |   | 13,973,157               |             |   |      | 650,000    |           
|                                                                              |                                       |   |                          |             |   |     
|NET CASH PROVIDED BY FINANCING ACTIVITIES                                     |                                       |   | 13,980,182               |             |   |      | 620,853    |           
|EFFECT OF EXCHANGE RATE CHANGES ON CASH                                       |                                       |   | (83,632                  | )           |   |      | (34,085    | )         
|                                                                              |                                       |   |                          |             |   |     
|INCREASE (DECREASE) IN CASH AND EQUIVALENTS                                   |                                       |   | 879,662                  |             |   |      | (2,049,719 | )         
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                |                                       |   | 591,539                  |             |   |      | 3,043,754  |           
|                                                                              |                                       |   |                          |             |   |     
|CASH AND CASH EQUIVALENTS, END OF PERIOD                                      |                                       | $ | 1,471,201                |             |   | $    | 994,035    |           
|                                                                              |                                       |   |                          |             |   |     
|Supplemental Schedule                                                         |                                       |   |                          |             |   |      |            |           
|Forgiveness of executive officer note                                         |                                       |   |                         |             |   |      | 112,500    |           

See condensed notes to consolidated financial statements.

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DELPHAX TECHNOLOGIES INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2002

NOTE A  Basis of Presentation

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

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

NOTE B  Earnings per Share

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

|             |                                                                                                      |  |                            |           |   |                          |   |           |      |  |   |           |  |  |   |           | 
|------------ | ---------------------------------------------------------------------------------------------------- |  | -------------------------- | --------- | - | ------------------------ | - | --------- | ---- |  | - | --------- |  |  | - | --------- | 
|             |                                                                                                      |  | For the Three Months Ended |           |   | For the Six Months Ended |  
|             |                                                                                                      |  | March 31,                  |           |   | March 31,                |  
|             |                                                                                                      |  |                            |           |   |                          |  
|             |                                                                                                      |  | 2002                       |           |   | 2001                     |   |           | 2002 |  |   | 2001      | 
|             |                                                                                                      |  |                            |           |   |                          |   |           |      |  |   |           | 
|Numerator:   |                                                                                                      |  |                            |           |   |                          |   |           |      |  |   |           |  |  |   |          
|             | Net (loss) income                                                                                    |  | $                          | (578,958  | ) |                          | $ | 178,222   |      |  | $ | 59,803    |  |  | $ | 688,781   | 
|             |                                                                                                      |  |                            |           |   |                          |   |           |      |  |   |          
|             | Numerator for basic and diluted earnings
per share  (loss) income applicable to
common shareholders |  | $                          | (578,958  | ) |                          | $ | 178,222   |      |  | $ | 59,803    |  |  | $ | 688,781   | 
|Denominator: |                                                                                                      |  |                            |           |   |                          |   |           |      |  |   |           |  |  |   |          
|             | Denominator for basic earnings per share,
weighted average shares                                    |  |                            | 6,161,841 |   |                          |   | 6,179,388 |      |  |   | 6,160,718 |  |  |   | 6,179,388 | 
|             | Dilutive potential common shares, employee
stock options                                             |  |                            |          | a |                          |   | 60,149    |      |  |   | 193,004   |  |  |   | 68,172    | 
|             |                                                                                                      |  |                            |           |   |                          |   |           |      |  |   |          
|             | Denominator for earnings per share, assuming
dilution, adjusted weighted average shares              |  |                            | 6,161,841 |   |                          |   | 6,239,537 |      |  |   | 6,353,722 |  |  |   | 6,247,560 | 
|             | (Loss ) earnings per common share                                                                    |  | $                          | (0.09     | ) |                          | $ | 0.03      |      |  | $ | 0.01      |  |  | $ | 0.11      | 
|             | (Loss) earnings per common share,
assuming dilution                                                  |  |                            | (0.09     | ) |                          |   | 0.03      |      |  |   | 0.01      |  |  |   | 0.11      | 

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

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DELPHAX TECHNOLOGIES INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2002

NOTE C  Comprehensive Income

The components of comprehensive loss and income, net of related tax, for the
three- and six-month periods ended March 31, 2002 and 2001 are as follows:

|                                        |  |                            |          |   |                          |   |          |      |  |   |         |   |  |   |          |  
|--------------------------------------- |  | -------------------------- | -------- | - | ------------------------ | - | -------- | ---- |  | - | ------- | - |  | - | -------- | -
|                                        |  | For the Three Months Ended |          |   | For the Six Months Ended |  
|                                        |  | March 31,                  |          |   | March 31,                |  
|                                        |  |                            |          |   |                          |  
|                                        |  | 2002                       |          |   | 2001                     |   |          | 2002 |  |   | 2001    |  
|                                        |  |                            |          |   |                          |   |          |      |  |   |         |  
|Net (loss) income                       |  | $                          | (578,958 | ) |                          | $ | 178,222  |      |  | $ | 59,803  |   |  | $ | 688,781  |  
|Foreign currency translation adjustment |  |                            | (101,349 | ) |                          |   | (335,439 | )    |  |   | (66,894 | ) |  |   | (168,939 | )
|                                        |  |                            |          |   |                          |   |          |      |  |   |         |  
|Comprehensive (loss) income             |  | $                          | (680,307 | ) |                          | $ | (157,217 | )    |  | $ | (7,091  | ) |  | $ | 519,842  |  
|                                        |  |                            |          |   |                          |   |          |      |  |   |         |  

NOTE D  Acquisition of Delphax Systems and Corporate Name Change

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

The purchase price consisted of approximately $15.8 million in cash plus the
assumption of approximately $3.2 million of liabilities. The property acquired
included fixed assets, inventory, accounts receivable, contract rights, various
intellectual property and intangibles, including rights to the name Delphax.
Effective April 1, 2002, following an affirmative shareholder vote at the March
21, 2002 annual meeting of shareholders, the Company changed its name from
Check Technology Corporation to Delphax Technologies Inc. The wholly-owned
subsidiaries of the Company are also being renamed. New and former names are
as follows:

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

The Company intends to continue to use the purchased assets in
substantially the same manner as used by the Acquired Company. As part of the
acquisition, the Company anticipated that efficiencies could be achieved in
integrating the two companies, and, as a result, included in the cost of the
acquisition a liability of $875,000 for restructuring. Subsequent to March 31,
2002 a specific restructuring plan was effected. See Note K.

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DELPHAX TECHNOLOGIES INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2002

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

The following unaudited pro forma combined summary statements of operations
information for the three- and six-month periods ended March 31, 2002 and 2001
were prepared in accordance with Statement of Financial Accounting Standards
No. 141, Business Combinationsand Statement of Financial Accounting Standards
No. 142, Goodwill and Other Intangible Assetsand assumes the acquisition had
occurred at the beginning of the six-month periods presented. The following
pro forma data reflects adjustments for interest expense in both periods, and
the six months ended March 31, 2001 includes an expense of approximately $13.1
million for inventory reserves and an expense of approximately $2.0 million for
write-down of equipment and fixtures in the first quarter of the period. The
unaudited pro forma financial information is provided for informational
purposes only and does not purport to be indicative of future results of the
Company.

Unaudited Pro Forma
Combined Summary Statements of Operations

|                                                   |  |                              |            |   |                            |   |            |      |  |   |            |  |  |   |             |  
|-------------------------------------------------- |  | ---------------------------- | ---------- | - | -------------------------- | - | ---------- | ---- |  | - | ---------- |  |  | - | ----------- | -
|                                                   |  | Three Months Ended March 31, |            |   | Six Months Ended March 31, |  
|                                                   |  |                              |            |   |                            |  
|                                                   |  | 2002                         |            |   | 2001                       |   |            | 2002 |  |   | 2001       | 
|                                                   |  |                              |            |   |                            |   |            |      |  |   |            | 
|Net sales                                          |  | $                            | 13,067,039 |   |                            | $ | 18,661,706 |      |  | $ | 30,528,837 |  |  | $ | 37,827,559  |  
|Net (loss) income                                  |  |                              | (578,958   | ) |                            |   | 604,501    |      |  |   | 59,803     |  |  |   | (11,013,153 | )
|Basic and diluted (loss) earnings
per common share |  |                              | (0.09      | ) |                            |   | 0.10       |      |  |   | 0.01       |  |  |   | (1.79       | )

NOTE E  Credit Agreement

Effective December 20, 2001, the Company entered into a bank credit agreement,
secured by substantially all the assets of the Company, expiring December 19,
2004. The credit agreement provides two types of loans, term and revolving,
including letters of credit. The term loan portion of the credit facility was
advanced as a single borrowing on December 20, 2001 in the amount of $4.0
million, also outstanding as of March 31, 2002. No amount repaid or prepaid on
any term loan may be borrowed again. The Company may borrow on a revolving
loan basis up to the lesser of: (i) the revolving credit commitment in effect
at such time and (ii) the borrowing base as then determined and computed. The
revolving credit commitment (currently $15.0 million) is subject to a
commitment fee of 0.5% per annum on the unused portion of the commitment. As
of March 31, 2002, revolving loans outstanding were $10.6 million. Term loans
and revolving loans, at the Companys election, may be outstanding as base rate
loans or Eurodollar loans, provided that $3.0 million of the principal amount
of the revolving loans will remain outstanding at a fixed rate of 7.35% per
annum.

Principal payments on the term loan are due in installments of $250,000 on the
last day of each March, June, September and December in each year commencing
with June 30, 2002. Term loan principal and interest balance not paid sooner
by scheduled installment or prepayment is due and payable on December 19, 2004.
Similarly, the revolving credit commitment will be permanently reduced by
$250,000 on the last day of each March, June, September and December in each
year commencing with June 30, 2002.

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DELPHAX TECHNOLOGIES INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2002

NOTE E  Credit Agreement (Continued)

Outstanding base rate loans accrue interest at the banks prime rate plus 0.5%.
Outstanding Eurodollar loans accrue interest at adjusted LIBOR plus 3%. As of
March 31, 2002, $1,068,157 was outstanding as base rate loans and $13,500,000
was outstanding as Eurodollar loans, at a weighted average interest rate of
approximately 5.9%, and the Company was in compliance with all covenants.

NOTE F  Executive Loan

During fiscal 1995, the President and Chief Executive Officer exercised 40,000
options to purchase common stock at $2.00 per share, by executing a $148,996,
five-year, full recourse note, bearing interest at a floating rate, under the
Executive Loan Program. The purpose of the loan was to provide cash for the
exercise of the options and to pay the related income taxes. When exercised,
the Companys stock had a market value of $6.375 per share. In 1998, the loan
terms were amended to change the loan from full recourse to non-recourse, and
the floating rate was fixed at 5.25%. In May of fiscal 2000, the Company
extended the term of the loan to May 2001 and granted forgiveness of the loan
ratably over the extension period. These modifications resulted in the options
being treated as a fixed stock award. The Company recognized the fair market
value of the stock award of $225,000 over the extension period, which concluded
in the third quarter of fiscal 2001. As a result, no expense was incurred in
the first quarter of fiscal 2002, and $56,250 was recognized as
compensation expense related to the stock award in each of the first and second
quarters of fiscal 2001. Over the life of the loan, total principal payments
were $54,671.

NOTE G  Closure of the Companys Australian Subsidiary

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

NOTE H  Accounting for Derivative Instruments and Hedging Activities

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

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DELPHAX TECHNOLOGIES INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2002

NOTE I  Revenue Recognition in Financial Statements

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

NOTE J  Business Combinations and Goodwill and Other Intangible Assets

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

NOTE K  Subsequent Event

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 was approximately $875,000 and has been
included in the cost of the acquisition in accordance with SFAS 141.

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

Results of Operations

The Companys revenues consists of (i) sales of printing systems and related
equipment, and (ii) maintenance contracts, spare parts, supplies and consumable
items. For the three-month period ended March 31, 2002 (second quarter of
fiscal 2002), net revenues were $13.1 million, up 20% from $10.9 million for
the three-month period ended March 31, 2001 (second quarter of fiscal 2001).
Revenues from the sale of printing equipment were $3.3 million for the second
quarter of fiscal 2002, down 53% from $7.0 million for the same period in
fiscal 2001. For the six months ended March 31, 2002, net revenues were $24.8
million, up 14% from $21.8 million for the same period a year ago. Revenues
from the sale of printing equipment for the first six months of fiscal 2002
were $9.7 million, down 33% from $14.5 million for the first half of fiscal
2001.

The Companys printing systems primarily consist of the Imaggiaproduct line,
the Checktronicand Foliotronicproduct lines (our legacy products) and the PS
MICRsystems product line (manufactured by Océ Printing Systems GmbH and sold
on a private label basis as the PS75 MICRand PS155 MICR). In addition, with
the acquisition of the Canadian subsidiary in December of 2001, the Company
expanded its product lines to include the CR Seriesand RS Seriesof
continuous-feed print systems. To date, no continuous-feed print systems have
been sold.

The decline in revenues from printing equipment for the first six months of
fiscal 2002 compared with the same period a year ago was primarily due to
significantly lower sales of the Imaggiaproduct line and, to a lesser extent,
the PS MICR systems product line, partially offset by stronger sales of the
Foliotronicand other legacy products in the second quarter of fiscal 2002.
Printing equipment revenues for the three and six months ended March 31, 2002
included (i) $1.8 million and $7.0 million, respectively, from the sale of the
Companys Imaggiaproduct line, a decrease of 72% and 41% from the $6.4 million
and $11.9 million for the comparable year-ago periods, (ii) $1.5 million and
$2.3 million, respectively, from sales of legacy products, up from year-ago
sales of $44,000 and $1.3 million, and (iii) $4,000 and $370,000, respectively,
from the sale of the Companys PS MICRsystems product line, down from prior
year sales of $539,000 and $1.3 million. The Company attributes these lower
sales levels to customer postponement of equipment purchases in a period of
economic uncertainty for high-end capital equipment.

For the second quarter of fiscal 2002, revenues from maintenance contracts,
spare parts, supplies and consumable items increased 153%, compared with the
same period a year ago, from $3.9 million to $9.8 million. Revenues from
maintenance contracts, spares parts, supplies and consumable items for the
six-month periods increased 107%, from $7.3 million for the first half of
fiscal 2001, to $15.2 million for the first half of fiscal 2002. The increases
between the quarter and year-to-date periods were due primarily to incremental
revenues due to acquisition of the Canadian subsidiary, which contributed $6.1
million to fiscal year-to-date revenues, $5.2 million in the second quarter.
In addition to the revenue attributable to the acquisition of the Canadian
subsidiary, revenues from maintenance contracts, spare parts, supplies and
consumable items were also higher due to the larger installed base of Imaggia.
For both these reasons, the Company expects domestic revenues from maintenance
contracts, spare parts, supplies and consumable items to continue in fiscal
2002 at levels higher than in fiscal 2001.

The Companys gross margin percentage for the second quarter and first six
months of fiscal 2002 was 52% and 50%, respectively, compared with 50% and 48%
for the same periods in fiscal 2001. The improved margins are primarily due to
the increase in consumables and supplies revenues generated by the Canadian
acquisition. However, in general for fiscal 2002, the Company anticipates that
its gross margin percentage will be about the same as for fiscal 2001.

Selling, general and administrative expenses increased 40%, from $4.1 million
for the second quarter of fiscal 2001, to $5.7 million for the second quarter
of fiscal 2002, and increased as a percentage of net sales, from 38% to 44% for
the most recent fiscal quarter. Similarly, for the six-month periods ended
March 31, 2002 and 2001, selling, general and administrative expense increased
22%, from $7.9 million for the first half of fiscal 2001, to $9.6 million for
the first half of fiscal 2002. Research and development expenses for the
three-month periods ended March 31, 2002 and 2001 were $1.7 million and
$696,000, respectively, higher by 151% year to year, and increased as a
percentage of net sales from 6% to 13% for the most recent fiscal quarter.
Similarly, for the six-month periods ended March 31,

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2002 and 2001, research and development expense increased 84%, from $1.4
million for the first half of fiscal 2001, to $2.5 million for the first half
of fiscal 2002. These significant increases in both selling, general and
administrative expenses and research and development expenses were primarily
due to the acquisition of the Canadian subsidiary, the impact of which is
reflected in full for the second quarter of fiscal 2002. The Company
anticipates that its expense levels through the remainder of fiscal 2002 will
be higher than in fiscal 2001 due to the acquisition.

Interest expense for the three and six months ended March 31, 2002, was
$265,000 and $306,000, respectively, compared with $14,000 and $16,000 for the
same periods in fiscal 2001. Interest income for the three and six months ended
March 31, 2002, was $10,000 and $14,000, respectively, compared with $12,000
and $28,000 for the same periods in fiscal 2001. Due to the Company borrowing
to finance the acquisition of the Canadian subsidiary, and, to a lesser extent,
to fund increases in inventory in the fiscal 2002 periods, the Company incurred
higher interest expense and had less funds available for short-term investments
in the current versus prior fiscal year periods.

For the three and six months ended March 31, 2002, the Company realized net
exchange gains of $70,000 and net exchange losses of $10,000, respectively,
compared with net exchange losses of $29,000 and $110,000, respectively, for
the same periods in the previous fiscal year. In the first quarter of fiscal
2002, a realized exchange loss of $152,000 was incurred due to recognition of
accumulated unrealized exchange losses of the Australian subsidiary upon
closure of the subsidiary during the quarter. The Company incurs realized
foreign exchange gains and losses on currency conversion transactions. The
Company experiences unrealized foreign currency gains and losses, which are
reflected on the Companys statements of operations, with unrealized gains due
to the weakening, and unrealized losses due to the strengthening, of the U.S.
dollar against the currencies of the Companys foreign subsidiaries and the
resulting effect of currency translation on the valuation of the intercompany
accounts and certain assets of the subsidiaries, which are denominated in U.S.
dollars. Net unrealized exchange gains for the three and six months ended
March 31, 2002 were $5,000 and $30,000, respectively, compared with net
unrealized exchange losses of $193,000 and $63,000, respectively, for the same
periods in fiscal 2001. The Company anticipates that it will continue to have
transactional and translational foreign exchange gains or losses in the future,
although strategies to reduce the size of the gains or losses will be reviewed
and implemented whenever economical and practical.

Income tax benefit for the three months ended March 31, 2002 was $311,000,
compared with income tax expense of $210,000 for the second quarter of fiscal
2001. For the fiscal-year-to-date periods ended March 31, 2002 and 2001,
income tax expense was $32,000 and $422,000, respectively, reflecting estimated annual
effective tax rates of 35% and 38%, respectively. Interim effective tax rates
may vary based on sources of income or loss and best estimates of the annual
effective tax rate for the fiscal year.

For the second quarter of fiscal 2002, the Companys basic and diluted loss per
share was $0.09, compared with basic and diluted earnings per share of $0.03
for the comparable prior year period. For the six months ended March 31, 2002
and 2001, basic and diluted earnings per share were $0.01 and $0.11,
respectively. The decline in earnings in both the three- and six-months
periods was primarily attributable to the significant decrease in equipment
revenues as customers postponed equipment purchases in a period of continued
economic uncertainty, significantly higher operating expense levels due to the
acquisition of the Canadian subsidiary and interest on debt financing for the
acquisition, only partially offset by the significantly higher maintenance
spares and supplies revenues generated by the Canadian acquisition and the
lower estimated annual effective tax rate.

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

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Subsequent to March 31, 2002, the Company effected a workforce reduction in the
Canadian subsidiary, eliminating approximately 40 manufacturing and support
positions as an element of a continuing integration plan. The cost of
terminating the employees in these positions was approximately $875,000 and has
been included in the cost of acquisition in accordance with SFAS 141. 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.

Market Risk

The Company has foreign subsidiaries located in Canada, England and France,
does business in 60 countries and generates approximately 25% of its revenues
from outside North America. This percentage is significantly lower than in
recent quarters due to the maintenance, spares and supplies revenues derived
from the acquisition of the Canadian subsidiary as, predominantly, this
business is with U.S. customers. The Companys ability to sell its products in
these foreign markets may be affected by changes in economic, political or
market conditions in these foreign markets.

The Companys net investment in its foreign subsidiaries was $6.7 million and
$5.7 million at March 31, 2002 and September 30, 2001, respectively, translated
into U.S. dollars at the closing exchange rates. The potential loss based on
end-of-period balances and prevailing exchange rates resulting from a
hypothetical 10% strengthening of the dollar against foreign currencies was not
material in the quarter ended March 31, 2002.

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

Factors Affecting Results of Operations

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

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

On December 20, 2001, the Company and its newly organized Canadian subsidiary
acquired substantially all of the North American business assets of Delphax
Systems, a Massachusetts general partnership, and Delphax Systems, Inc., a
Delaware corporation (collectively, the Acquired Company). The Acquired
Company is located in suburban Toronto, Ontario and is engaged in the
development, manufacture and distribution of print engines, print management
software and a range of digital printing systems incorporating the Acquired
Companys proprietary electron-beam imaging technology. The Acquired Company
is the supplier of the print engines used in a number of the Companys
products. For fiscal 2002, the Company anticipates that the acquisition will
contribute incremental maintenance, spares and supplies revenues in each of the
third and fourth quarters approximately equal to the $5.2 million contributed
in the second quarter and have a positive earnings impact. While the Company
expects the acquisition to provide increased revenues and incremental operating
income in the future, there can be no assurance that actual results will be as
anticipated. In addition, with the acquisition, the Company expanded its
product lines to include the CR Seriesand


14Table of ContentsRS Seriesof continuous-feed print systems. To date, no continuous-feed print
systems have been sold and there can be no assurance that such systems will be
sold in the future.The Companys PS MICRsystems product line is marketed under an agreement with
Océ Printing Systems GmbH for the right to private label, sell and service the
PS75 MICRproduct and other high-performance sheet-fed MICR and non-MICR
printing systems manufactured by Océ. The Company agreed to purchase a minimum
number of PS75 MICRunits from Océ to maintain the exclusive right to sell the
PS75 MICRproduct. The Company purchased less than the minimum, and as a
result, the Company incurred a penalty and forfeited certain rights of
exclusivity. The Company plans to continue offering the PS MICRsystems for
sale, but there is no assurance that significant sales will be made.The Companys net sales and operating results may also fluctuate from quarter
to quarter because (i) the Companys sales cycle is relatively long, (ii) the
size of orders may vary significantly, (iii) the availability of financing for
customers in some countries is variable, (iv) customers may postpone or cancel
orders, and (v) economic, political and market conditions in some markets
change with minimal notice and effect the timing and size of orders. Because
the Companys operating expenses are based on anticipated revenues levels and a
high percentage of the Companys operating costs are relatively fixed,
variations in the timing of revenues recognition could result in significant
fluctuations in operating results from period to period.Euro ConversionOn January 1, 1999, certain member countries of the European Union established
fixed conversion rates between their existing currencies and the European
Unions common currency (Euro). The transition period for the introduction of
the Euro was from January 1, 1999 to January 1, 2002. The Company prepared for
the introduction of the Euro and evaluated methods to address the many issues
involved with the introduction of the Euro, including the conversion of
information technology systems, recalculating currency risk, strategies
concerning continuity of contracts, and ramifications on the processes for
preparing taxation and accounting records. The conversion on January 1, 2002
had no material impact on the Companys financial statements.Revenue RecognitionOn December 3, 1999, the Securities and Exchange Commission issued SEC Staff
Accounting Bulletin Number 101 Revenues Recognition in Financial Statements
(SAB 101). SAB 101 summarizes certain of the staffs views on applying
generally accepted accounting principles to revenue recognition in financial
statements. SAB 101 was effective for the Company in the fourth quarter of
fiscal 2001 and had no material impact on the Companys operations or financial
position.Liquidity and Capital ResourcesWorking capital was $25.2 million at March 31, 2002, compared with $16.9
million at September 30, 2001. Of the $8.3 million increase in working
capital, approximately $6.1 million was derived from acquisition of the
Canadian subsidiary. The Companys inventory levels increased to $23.0 million
at March 31, 2002, from $11.8 million at September 30, 2001. Inventory
acquired from acquisition of the Canadian subsidiary comprised approximately
$8.7 million of the increase. Accounts receivable increased to $12.8 million
at March 31, 2002, from $10.1 million at September 30, 2001, with approximately
$4.1 million of the increase due to the Canadian acquisition, offset by
collection of receivables and lower second quarter equipment sales. Cash and
short-term investments amounted to $1.6 million at March 31, 2002, compared
with $592,000 at September 30, 2001. The increase in cash and short-term
investments was primarily due to the timing of borrowing and repaying amounts
against the credit facility. Deferred revenue was $304,000 at March 31, 2002,
compared with $1.1 million at September 30, 2001. This decrease was
principally due to completion of deliveries under the equipment portion of the
equipment contract with15Table of Contentsthe significant customer that is described above and the earning of the related
deferred revenue; as of March 31, 2002, deferred revenue is comprised primarily
of unearned maintenance contract revenues.The Company has undertaken no significant investing activities. No significant
capital investment has been undertaken or is planned, and at March 31, 2002,
the Company had no material commitments for capital expenditures. Short-term
investments are purchased as cash is available and sold as they mature.To finance the acquisition of the Canadian subsidiary on December 20, 2001, the
Company entered into a bank credit agreement, secured by substantially all the
assets of the Company, expiring December 19, 2004. The credit agreement
provides two types of loans, term and revolving, including letters of credit.
The term loan portion of the credit facility was advanced as a single borrowing
on December 20, 2001 in the amount of $4.0 million, also outstanding as of
March 31, 2002. No amount repaid or prepaid on any term loan may be borrowed
again. The Company may borrow on a revolving loan basis up to the lesser of:
(i) the revolving credit commitment in effect at such time and (ii) the
borrowing base as then determined and computed. The revolving credit
commitment (currently $15.0 million) is subject to a commitment fee of 0.5% per
annum on the unused portion of the commitment. As of December 31, 2001,
revolving loans outstanding were $10.6 million. Term loans and revolving
loans, at the Companys election, may be outstanding as base rate loans or
Eurodollar loans, provided that $3.0 million of the principal amount of the
revolving loans will remain outstanding at a fixed rate of 7.35% per annum.Principal payments on the term loan are due in installments of $250,000 on the
last day of each March, June, September and December in each year commencing
with June 30, 2002. Term loan principal and interest balance not paid sooner
by scheduled installment or prepayment is due and payable on December 19, 2004.
Similarly, the revolving credit commitment will be permanently reduced by
$250,000 on the last day of each March, June, September and December in each
year commencing with June 30, 2002.Outstanding base rate loans accrue interest at the banks prime rate plus 0.5%.
Outstanding Eurodollar loans accrue interest at adjusted LIBOR plus 3%. As of
March 31, 2002, $1,068,157 was outstanding as base rate loans and $13,500,000
was outstanding as Eurodollar loans, at a weighted average interest rate of
approximately 5.9%, and the Company was in compliance with all covenants. The
Company believes that its current financial arrangements and anticipated level
of internally generated funds will be sufficient to fund its working capital
requirements through fiscal 2002. However, should the Company experience a
prolonged downturn in equipment sales whereby accounts receivable would be
significantly decreased, the Companys borrowing capacity would be limited by
the terms of the credit facility.Cautionary StatementStatements included in this Managements Discussion and Analysis of Financial
Condition and Results of Operations, the Companys Annual Report, the Companys
Form 10-K, in other filings with the Securities and Exchange Commission, in the
Companys press releases and in oral statements made to securities market
analysts and shareholders, which are not historical or current facts, are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Such statements are subject
to certain risks and uncertainties that could cause the Companys actual
results to differ materially from historical earnings and those presently
anticipated or projected.The factors mentioned under the subheading Factors Affecting Results of
Operations are among those that in some cases have affected, and in the future
could affect, the Companys actual results, and could cause the Companys
actual financial performance to differ materially from that expressed in any
forward-looking statement.
Item 3. Quantitative and Qualitative Disclosure of Market RiskThe information called for by this item is provided under the caption Market
Risk under Item 2.  Managements Discussion and Analysis of Financial
Condition and Results of Operations.16Table of Contents







PART II. OTHER INFORMATIONItem 4. Submission of Matters to a Vote of Security HoldersThe Company held its annual meeting of shareholders on March 21, 2002. At the
meeting, the shareholders took action to approve a number of matters:(1)
        
        An amendment to the Companys Articles of Incorporation to change the
Companys name to Delphax Technologies Inc, was approved by a vote of
5,756,158 shares in favor, 34,750 shares against, 19,144 shares abstaining
and a broker non-vote of zero shares.(2)
        
        Amendments to the Companys Bylaws and Articles of Incorporation to
provide for a classified Board of Directors serving staggered three-year
terms of office and requiring a shareholder vote of 80% or more for the
shareholders to remove a director, increase or decrease the size of the
Board or amend or repeal the Bylaws relating to the election or removal of
directors, were approved by a vote of 2,249,529 shares in favor, 743,881
shares against, 18,348 shares abstaining and a broker non-vote of
2,798,294 shares.(3)
        
        An amendment to the Companys Articles of Incorporation to increase the
number of authorized shares of capital stock from 28 million shares to 53
million shares, consisting of 50 million shares of Common Stock, and 3
million shares of undesignated Preferred Stock, was approved by a vote of
5,284,403 shares in favor, 499,874 shares against, 25,775 shares
abstaining and a broker non-vote of zero shares.(4)
        
        The selection of Ernst & Young LLP as the Companys independent auditors
for fiscal 2002 was approved by a vote of 5,782,906 shares in favor,
18,898 shares against, 8,248 shares abstaining and a broker non-vote of
zero shares.At the annual meeting, the shareholders also re-elected the current members of
the Board of Directors to terms of office as indicated below by the votes
indicated:

|                      |  |          |      |  |            |  |           |           |             |        |         | 
|--------------------- |  | -------- | ---- |  | ---------- |  | --------- | --------- | ----------- | ------ | ------- | 
|                      |  |          |      |  |            |  |           |           |             | Shares |        
|                      |  | Term     |      |  |            |  |           |           | Withholding |       
|                      |  | Expiring |      |  | Shares For |  |           | Authority |            
|                      |  |          |      |  |            |  |           |           |            
|R. Stephen Armstrong  |  |          | 2004 |  |            |  | 5,396,222 |           |             |        | 413,830 | 
|Thomas H. Garrett III |  |          | 2005 |  |            |  | 5,319,999 |           |             |        | 490,053 | 
|Jay A. Herman         |  |          | 2005 |  |            |  | 5,408,697 |           |             |        | 401,355 | 
|Gary R. Holland       |  |          | 2004 |  |            |  | 5,441,927 |           |             |        | 368,125 | 
|Earl W. Rogers        |  |          | 2003 |  |            |  | 5,441,927 |           |             |        | 368,125 | 

Item 6. Exhibits and Reports on Form 8-K

The Company filed the following reports on Form 8-K during the three months
ended March 31, 2002:

|                |  |   |  |             |  |                                                                            
|--------------- |  | - |  | ----------- |  | ---------------------------------------------------------------------------
|January 3, 2002 |  | - |  | Form 8-K:   |  | Item 2. Acquisition or Disposition of Assets                               
|March 5, 2002   |  | - |  | Form 8-K/A: |  | Amendment to Form 8-K, filed January 3, 2002                               
|March 22, 2002  |  | - |  | Form 8-K:   |  | Item 5. Other Events and Regulation FD Disclosure  Shareholder Rights Plan

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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 |  | May 8, 2002 |  | /s/ Jay A. HermanJay A. Herman
Chairman and Chief Executive Officer                  
|    
|    
|Date |  | May 8, 2002 |  | /s/ Robert M. BarniskisRobert M. Barniskis
Vice President and Chief Financial Officer

18