##### Table of Contents



FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

|                               |  |                  
|------------------------------ |  | -----------------
|For the quarterly period ended |  | December 31, 2000
|                               |  |                  
|Commission file number         |  | 0-10691          
|                               |  |                  

CHECK TECHNOLOGY CORPORATION

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

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

(952) 939-9000

---

Not Applicable

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| |  |  | 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       No
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Indicate the number of shares outstanding of each of the issuers classes
of common stock, as of the latest practical date.                                                                                                                                                                                                                                           
|
| |  |  | Common Stock, $.10 Par Value Shares 6,188,388 as of February 10, 2001.                                                                                                                                                                                                                                                                                                

1



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TABLE OF CONTENTS



|                                                                                              |                                                                                                 |  |  |  |  |  |  | 
|--------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|Part I. Financial Information                                                                
|Item 1. Financial Statements (Unaudited)                                                     
|                                                                                              | Condensed consolidated balance sheets--December 31, 2000 and September 30, 2000.               
|                                                                                              | Condensed consolidated statements of operations--Three months ended December 31, 2000 and 1999.
|                                                                                              | Condensed consolidated statements of cash flows--Three months ended December 31, 2000 and 1999 
|                                                                                              | Condensed notes to consolidated financial statements--December 31, 2000                        
|Item 2. Managements Discussion and Analysis of Results of Operations and Financial Condition
|Item 3. Quantitative and Qualitative Disclosures about Market Risks                          
|                                                                                              | See Market Risk in Management's Discussion and Analysis                                        
|Part II. Other Information                                                                   
|Item 6. Exhibits and Reports on Form 8-K                                                     
|Signatures                                                                                   



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INDEX

CHECK TECHNOLOGY CORPORATION AND SUBSIDIARIES

|                              |  |                                                                                                 
|----------------------------- |  | ------------------------------------------------------------------------------------------------
|Part I. FINANCIAL INFORMATION |  |                                                                                                 
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|Item 1.                       |  | Financial Statements (Unaudited)                                                                
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|                              |  | Condensed consolidated balance sheets  December 31, 2000 and
September 30, 2000.               
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|                              |  | Condensed consolidated statements of operations  Three
months ended December 31, 2000 and 1999.
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|                              |  | Condensed consolidated statements of cash flows  Three
months ended December 31, 2000 and 1999.
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|                              |  | Condensed notes to consolidated financial statements 
December 31, 2000.                       
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|Item 2.                       |  | Managements Discussion and Analysis of Results of Operations and Financial Condition           
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|Item 3.                       |  | Quantitative and Qualitative Disclosures about Market Risk                                      
|                             
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|                              |  | See Market Risk in Managements Discussion and Analysis.                                        
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|PART II. OTHER INFORMATION    |  |                                                                                                 
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|Item 6.                       |  | Exhibits and Reports on Form 8-K                                                                
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|SIGNATURES                   

2



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##### Table of Contents









Part I. FINANCIAL INFORMATION

CHECK TECHNOLOGY CORPORATION AND SUBSIDIARIES




CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

|                                                          |                                                                                  |                                                              |            |              |           |               |            |           |           | 
|--------------------------------------------------------- | -------------------------------------------------------------------------------- | ------------------------------------------------------------ | ---------- | ------------ | --------- | ------------- | ---------- | --------- | --------- | 
|                                                          |                                                                                  |                                                              |            | December 31, |           | September 30,
|                                                          |                                                                                  |                                                              |            | 2000         |           | 2000         
|                                                          |                                                                                  |                                                              |            |              |           |              
|ASSETS                                                   
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|CURRENT ASSETS                                           
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Cash and cash equivalents                                                        |                                                              | $          | 1,027,448    |           |               | $          | 3,043,754 |          
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Short-term investments                                                           |                                                              |            | 187,890      |           |               |            | 108,760   |          
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Accounts receivable, less allowance for doubtful accounts of $53,236 and $51,697
|                                                          |                                                                                  | as of December 31, 2000 and September 30, 2000, respectively |            |              | 7,566,465 |               |            |           | 5,398,986 | 
|                                                         
|                                                          | Inventory:                                                                      
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                  | Raw materials and component parts                            |            |              | 7,991,129 |               |            |           | 6,318,199 | 
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                  | Work-in-progress                                             |            |              | 1,347,460 |               |            |           | 1,217,165 | 
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                  | Finished goods                                               |            |              | 3,986,731 |               |            |           | 4,269,391 | 
|                                                          |                                                                                  |                                                              |            |              |           |               |            |          
|                                                          |                                                                                  |                                                              | 13,325,320 |              |           |               | 11,804,755 |          
|                                                          |                                                                                  |                                                              |            |              |           |               |            |          
|                                                         
|                                                          | Deferred income taxes                                                            |                                                              |            | 1,573,370    |           |               |            | 1,743,519 |          
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Other current assets                                                             |                                                              |            | 1,529,242    |           |               |            | 1,379,702 |          
|                                                          |                                                                                  |                                                              |            |              |           |               |            |          
|TOTAL CURRENT ASSETS                                      |                                                                                  |                                                              | 25,209,735 |              |           |               | 23,479,476 |          
|                                                          |                                                                                  |                                                              |            |              |           |               |            |          
|                                                         
|EQUIPMENT AND FIXTURES                                   
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Machinery and equipment                                                          |                                                              |            | 2,005,749    |           |               |            | 1,983,899 |          
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Furniture and fixtures                                                           |                                                              |            | 2,249,096    |           |               |            | 2,169,434 |          
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Leasehold improvements                                                           |                                                              |            | 330,365      |           |               |            | 315,995   |          
|                                                          |                                                                                  |                                                              |            |              |           |               |            |          
|                                                          |                                                                                  |                                                              | 4,585,210  |              |           |               | 4,469,328  |          
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Less accumulated depreciation and amortization                                   |                                                              |            | 3,679,386    |           |               |            | 3,582,931 |          
|                                                          |                                                                                  |                                                              |            |              |           |               |            |          
|                                                          |                                                                                  |                                                              | 905,824    |              |           |               | 886,397    |          
|                                                          |                                                                                  |                                                              |            |              |           |               |            |          
|                                                         
|TOTAL ASSETS                                              |                                                                                  | $                                                            | 26,115,559 |              |           | $             | 24,365,873 |          
|                                                          |                                                                                  |                                                              |            |              |           |               |            |          
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|See condensed notes to
consolidated financial statements.

3



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##### Table of Contents



CHECK TECHNOLOGY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

|                                                          |                                                                                                                                                                                                     |   |            |              |         |               |            |            |         | 
|--------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ---------- | ------------ | ------- | ------------- | ---------- | ---------- | ------- | 
|                                                          |                                                                                                                                                                                                     |   |            | December 31, |         | September 30,
|                                                          |                                                                                                                                                                                                     |   |            | 2000         |         | 2000         
|                                                          |                                                                                                                                                                                                     |   |            |              |         |              
|LIABILITIES AND STOCKHOLDERS EQUITY                     
|                                                         
|CURRENT LIABILITIES                                      
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Accounts payable                                                                                                                                                                                    |   | $          | 5,340,401    |         |               | $          | 4,242,943  |        
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Employee compensation and related taxes                                                                                                                                                             |   |            | 855,819      |         |               |            | 868,362    |        
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Income taxes payable                                                                                                                                                                                |   |            | 32,385       |         |               |            | 15,247     |        
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Deferred revenue                                                                                                                                                                                    |   |            | 3,237,899    |         |               |            | 3,316,085  |        
|                                                          |                                                                                                                                                                                                     |   |            |              |         |               |            |           
|TOTAL CURRENT LIABILITIES                                 |                                                                                                                                                                                                     |   | 9,466,504  |              |         |               | 8,442,637  |           
|                                                          |                                                                                                                                                                                                     |   |            |              |         |               |            |           
|                                                         
|TOTAL LIABILITIES                                         |                                                                                                                                                                                                     |   | 9,466,504  |              |         |               | 8,442,637  |           
|                                                          |                                                                                                                                                                                                     |   |            |              |         |               |            |           
|                                                         
|STOCKHOLDERS EQUITY                                     
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Common stock  par value $.10 per share  authorized
     25,000,000 shares; issued and outstanding:
     6,188,388 and 6,190,978 as of December 31,
     2000 and September 30, 2000, respectively
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                                                                                                                                     |   |            |              | 618,839 |               |            |            | 619,098 | 
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Additional paid-in capital                                                                                                                                                                          |   |            | 17,090,746   |         |               |            | 17,063,384 |        
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Accumulated other comprehensive loss                                                                                                                                                                |   |            | (1,802,236   | )       |               |            | (1,968,736 | )      
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Retained earnings                                                                                                                                                                                   |   |            | 741,706      |         |               |            | 209,490    |        
|                                                          |                                                                                                                                                                                                     |   |            |              |         |               |            |           
|TOTAL STOCKHOLDERS EQUITY                                |                                                                                                                                                                                                     |   | 16,649,055 |              |         |               | 15,923,236 |           
|                                                          |                                                                                                                                                                                                     |   |            |              |         |               |            |           
|                                                         
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                |                                                                                                                                                                                                     | $ | 26,115,559 |              |         | $             | 24,365,873 |           
|                                                          |                                                                                                                                                                                                     |   |            |              |         |               |            |           
|                                                         
|                                                         
|                                                         
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|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|See condensed notes to
consolidated financial statements.

4



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##### Table of Contents



CHECK TECHNOLOGY CORPORATION AND SUBSIDIARIES




CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

|                                                                                                   |                                     |   |                            |           |      |   |           |           | 
|-------------------------------------------------------------------------------------------------- | ----------------------------------- | - | -------------------------- | --------- | ---- | - | --------- | --------- | 
|                                                                                                   |                                     |   | For the Three Months Ended
|                                                                                                   |                                     |   | December 31,              
|                                                                                                   |                                     |   |                           
|                                                                                                   |                                     |   | 2000                       |           | 1999
|                                                                                                   |                                     |   |                            |           |     
|Sales:                                                                                            
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Printing equipment                  |   | $                          | 7,503,611 |      |   | $         | 2,876,360 | 
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Maintenance, spares and supplies    |   |                            | 3,402,050 |      |   |           | 3,469,077 | 
|                                                                                                   |                                     |   |                            |           |      |   |           |          
|NET SALES                                                                                          |                                     |   | 10,905,661                 |           |      |   | 6,345,437 |          
|                                                                                                  
|Costs and Expenses:                                                                               
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Cost of sales                       |   |                            | 5,854,069 |      |   |           | 2,853,618 | 
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Selling, general and administrative |   |                            | 3,737,082 |      |   |           | 2,883,795 | 
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Research and development            |   |                            | 655,870   |      |   |           | 660,010   | 
|                                                                                                   |                                     |   |                            |           |      |   |           |          
|                                                                                                   |                                     |   | 10,247,021                 |           |      |   | 6,397,423 |          
|                                                                                                   |                                     |   |                            |           |      |   |           |          
|                                                                                                  
|INCOME (LOSS) FROM SYSTEM SALES AND SERVICE                                                        |                                     |   | 658,640                    |           |      |   | (51,986   | )        
|                                                                                                  
|Net interest (income)                                                                              |                                     |   | (14,162                    | )         |      |   | (19,370   | )        
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Unrealized exchange (gain) loss                                                                    |                                     |   | (49,705                    | )         |      |   | 19,668    |          
|                                                                                                   |                                     |   |                            |           |      |   |           |          
|INCOME (LOSS) BEFORE TAXES                                                                         |                                     |   | 722,507                    |           |      |   | (52,284   | )        
|                                                                                                  
|Income taxes                                                                                       |                                     |   | 211,948                    |           |      |   | 67,571    |          
|                                                                                                   |                                     |   |                            |           |      |   |           |          
|                                                                                                  
|NET INCOME (LOSS)                                                                                  |                                     | $ | 510,559                    |           |      | $ | (119,855  | )        
|                                                                                                   |                                     |   |                            |           |      |   |           |          
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Basic and diluted earnings (loss) per common share                                                 |                                     | $ | 0.08                       |           |      | $ | (0.02     | )        
|                                                                                                  
|Weighted average number of shares and equivalents outstanding during the period                    |                                     |   | 6,179,388                  |           |      |   | 6,127,157 |          
|                                                                                                  
|Weighted average number of shares and equivalents outstanding during the period, assuming dilution |                                     |   | 6,241,524                  |           |      |   | 6,127,157 |          
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|See condensed notes to
consolidated financial statements.                                         

5



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##### Table of Contents



CHECK TECHNOLOGY CORPORATION AND SUBSIDIARIES




CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

|                                                                                       |                                       |   |                            |            |      |   |           |          |  
|-------------------------------------------------------------------------------------- | ------------------------------------- | - | -------------------------- | ---------- | ---- | - | --------- | -------- | -
|                                                                                       |                                       |   | For the Three Months Ended
|                                                                                       |                                       |   | December 31,              
|                                                                                       |                                       |   |                           
|                                                                                       |                                       |   | 2000                       |            | 1999
|                                                                                       |                                       |   |                            |            |     
|OPERATING ACTIVITIES                                                                  
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Net income (loss)                                                                      |                                       | $ | 510,559                    |            |      | $ | (119,855  | )       
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Adjustments to reconcile net income (loss) to net cash (used in) operating activities:
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Depreciation and amortization         |   |                            | 88,445     |      |   |           | 93,233   |  
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Provision for bad debts               |   |                            | (1,342     | )    |   |           |         |  
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Forgiveness of executive officer note |   |                            | 56,250     |      |   |           |         |  
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Other                                 |   |                            | 22,847     |      |   |           | 17,872   |  
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Changes in operating assets and liabilities:                                          
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Accounts receivable                   |   |                            | (2,042,881 | )    |   |           | (726,317 | )
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Inventory                             |   |                            | (1,458,498 | )    |   |           | 58,379   |  
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Other current assets                  |   |                            | 60,532     |      |   |           | (223,324 | )
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Accounts payable                      |   |                            | 1,018,654  |      |   |           | 299,267  |  
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Deferred revenue                      |   |                            | (86,645    | )    |   |           | (70,607  | )
|                                                                                       |                                       |   |                            |            |      |   |           |         
|NET CASH (USED IN) OPERATING ACTIVITIES                                                |                                       |   | (1,832,079                 | )          |      |   | (671,352  | )       
|                                                                                      
|INVESTING ACTIVITIES                                                                  
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Purchase of equipment and fixtures                                                     |                                       |   | (105,057                   | )          |      |   | (74,000   | )       
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Proceeds from sale of equipment                                                        |                                       |   |                           |            |      |   | 23,462    |         
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Purchase of short-term investments                                                     |                                       |   | (66,382                    | )          |      |   | (195,137  | )       
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Proceeds from sale of short-term investments                                           |                                       |   |                           |            |      |   | 20,726    |         
|                                                                                       |                                       |   |                            |            |      |   |           |         
|NET CASH (USED IN) INVESTING ACTIVITIES                                                |                                       |   | (171,439                   | )          |      |   | (224,949  | )       
|                                                                                      
|FINANCING ACTIVITIES                                                                  
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Issuance of common stock                                                               |                                       |   | 18,191                     |            |      |   |          |         
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Repurchase of common stock                                                             |                                       |   | (47,338                    | )          |      |   |          |         
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Borrowing on line of credit                                                            |                                       |   | 300,000                    |            |      |   |          |         
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Repayment of borrowing on line of credit                                               |                                       |   | (300,000                   | )          |      |   |          |         
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Payment on capital leases                                                              |                                       |   |                           |            |      |   | (26,490   | )       
|                                                                                       |                                       |   |                            |            |      |   |           |         
|NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                                    |                                       |   | (29,147                    | )          |      |   | (26,490   | )       
|                                                                                      
|EFFECT OF EXCHANGE RATE CHANGES ON CASH                                                |                                       |   | 16,359                     |            |      |   | (31,826   | )       
|                                                                                       |                                       |   |                            |            |      |   |           |         
|                                                                                      
|(DECREASE) IN CASH AND EQUIVALENTS                                                     |                                       |   | (2,016,306                 | )          |      |   | (954,617  | )       
|                                                                                      
|CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD                                         |                                       |   | 3,043,754                  |            |      |   | 2,882,618 |         
|                                                                                       |                                       |   |                            |            |      |   |           |         
|                                                                                      
|CASH AND CASH EQUIVALENTS,
END OF PERIOD                                               |                                       | $ | 1,027,448                  |            |      | $ | 1,928,001 |         
|                                                                                       |                                       |   |                            |            |      |   |           |         
|                                                                                      
|Supplemental Schedule                                                                  |                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Forgiveness of executive
officer note                                                  |                                       | $ | 56,250                     |            |      | $ |          |         
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|See condensed notes to
consolidated financial statements.                             

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##### Table of Contents



CHECK TECHNOLOGY CORPORATION AND SUBSIDIARIES




CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

December 31, 2000

NOTE A  Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Companys annual report on Form
10-K for the year ended September 30, 2000.

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 earnings per
share:

|             |                                                                                                                |  |                            |           |      |  |   |           |  
|------------ | -------------------------------------------------------------------------------------------------------------- |  | -------------------------- | --------- | ---- |  | - | --------- | -
|             |                                                                                                                |  | For the Three Months Ended
|             |                                                                                                                |  | December 31,              
|             |                                                                                                                |  |                           
|             |                                                                                                                |  | 2000                       |           | 1999
|             |                                                                                                                |  |                            |           |     
|Numerator:  
|            
|            
|            
|            
|             | Net income (loss)                                                                                              |  | $                          | 510,559   |      |  | $ | (119,855  | )
|             |                                                                                                                |  |                            |           |      |  |   |          
|            
|             | Numerator for basic and diluted earnings
     per share  income (loss) applicable to
     common stockholders |  | $                          | 510,559   |      |  | $ | (119,855  | )
|            
|Denominator:
|            
|            
|            
|            
|             | Denominator for basic earnings per share,
     weighted average shares                                         |  |                            | 6,179,388 |      |  |   | 6,127,157 |  
|            
|            
|            
|            
|            
|             | Dilutive potential common shares, employee
     stock options                                                  |  |                            | 62,136    |      |  |   |          | a
|             |                                                                                                                |  |                            |           |      |  |   |          
|            
|             | Denominator for diluted earnings per share,
     adjusted weighted average shares                              |  |                            | 6,241,524 |      |  |   | 6,127,157 |  
|            
|            
|            
|            
|            
|             | Earnings (loss) per common share                                                                               |  | $                          | 0.08      |      |  | $ | (0.02     | )
|            
|            
|            
|            
|            
|             | Earnings (loss) per common share,
assuming dilution                                                            |  |                            | 0.08      |      |  |   | (0.02     | )

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

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CHECK TECHNOLOGY CORPORATION AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

December 31, 2000

NOTE C  Comprehensive Income/(Loss)

The components of comprehensive income/(loss), net of related tax, for the
three-month periods ended December 31, 2000 and 1999 are as follows:

|                                        |  |                            |         |      |  |   |          |  
|--------------------------------------- |  | -------------------------- | ------- | ---- |  | - | -------- | -
|                                        |  | For the Three Months Ended
|                                        |  | December 31,              
|                                        |  |                           
|                                        |  | 2000                       |         | 1999
|                                        |  |                            |         |     
|Net income (loss)                       |  | $                          | 510,559 |      |  | $ | (119,855 | )
|                                       
|                                       
|                                       
|                                       
|                                       
|Foreign currency translation adjustment |  |                            | 166,500 |      |  |   | (263,082 | )
|                                        |  |                            |         |      |  |   |          |  
|Comprehensive income (loss)             |  | $                          | 677,059 |      |  | $ | (382,937 | )
|                                        |  |                            |         |      |  |   |          |  

NOTE D  Executive Loan

During fiscal 1995, the President and Chief Executive Officer exercised stock options for a $148,966
interest-bearing note, collateralized by the underlying stock. In May of fiscal
2000, the Company converted the note to a stock award valued at $225,000 to be
earned and recognized as compensation expense over a twelve-month period. For
the three-month period ended December 31, 2000, $56,250 was recognized as
selling, general and administrative expenses.

NOTE E  Accounting for Derivative Instruments and Hedging Activities

Effective October 1, 2000, The Company adopted Statement of Financial Accounting
Standards Number 133, Accounting for Derivative Instruments and Hedging
Activities (SFAS 133). SFAS 133 establishes standards for recognition and
measurement of derivatives and hedging activities. The Statement requires all
derivatives to be recorded on the balance sheet at fair value. As a result of
the adoption, the Company did not incur any transition adjustment to earnings.
The adoption of this Statement is not expected to have a significant impact on
the Company.

NOTE F  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 will be effective for the Company in the fourth quarter of 2001. The
Company is in the process of determining the impact of this Bulletin.

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

Results of Operations

The Companys revenue consists of (i) sales of document production systems and
related equipment, and (ii) maintenance contracts, spare parts, supplies and
consumable items. For the three-month period ended December 31, 2000 (first
quarter of fiscal 2001), net revenue was $10.9 million, up 72% from $6.3 million
for the same period a year ago. Revenue from the sale of document production
equipment was $7.5 million, up 161% from $2.9 million for the same period in
fiscal 2000. The Companys document production systems primarily consist of the
 Imaggia product line, the PS MICR systems product line
(manufactured by Océ
Printing Systems GmbH and sold on a private label basis as the PS75
MICR and PS155 MICR) and the Checktronic product line. The increased revenue from
document production equipment was primarily due to increased North American
sales of the Imaggia product line and increased European sales
of the PS MICR systems product line. Document production equipment revenue for the current
fiscal quarter included (i) $5.5 million from the sale of the
Companys Imaggia product line, an increase of 219% over the $1.7 million for the same period a
year ago, and (ii) $773,000 from the sale of the Companys PS
MICR systems
product line, an increase of 392% over the $157,000 for the same period a year
ago.

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

For the first quarter of fiscal 2001, revenue from maintenance contracts, spare
parts, supplies and consumable items decreased 2% from the same period a year
ago. The decline was due to the continued reduction in maintenance contracts and
consumables revenue from Pacific Rim customers, partially offset by an increase
in domestic revenue from maintenance contracts, spare parts, supplies and
consumable items. The Company expects domestic revenue from maintenance
contracts, spare parts, supplies and consumable items to increase further in
fiscal 2001 with the projected growth of the Imaggia product line.

The Companys gross margin percentage for the first quarter of fiscal 2001 was
46%, compared with 55% for the same period a year ago. The decrease in gross
margin percentage was primarily due to the shift in the product mix from the
 Checktronic product line to the Imaggia and PS
MICR systems product lines, which
have lower gross margins. The Company anticipates that its gross margin
percentage for fiscal 2001 will be somewhat lower than for fiscal 2000 as
revenue from the Imaggia and PS MICR systems product lines constitutes a larger
portion of the Companys total revenue.

Selling, general and administrative expense increased 30%, from $2.9 million for
first quarter of fiscal 2000, to $3.7 million for first quarter of fiscal 2001,
but decreased as a percentage of net sales, from 45% to 34% for the current
fiscal quarter. The increased expense was primarily due to the increase in
personnel and associated expenses required to support the increase in total
revenue. The Company anticipates that its selling, general and administrative
expenses in fiscal 2001 will continue to increase to support the projected
growth in total revenue, but at a rate less than the projected total revenue
rate of growth. Research and development expense for the first quarter of fiscal
2001 was $0.7 million, flat compared to the first quarter of fiscal 2000.

Net interest income for the first quarter of fiscal 2001 was $14,000, a decrease
from $19,000 for the same period a year ago. The decrease was due to lower cash
balances available for investment.

Unrealized exchange gains or losses are related to the Companys foreign
operations. The Company experiences foreign currency gains and losses, which are
reflected on the Companys income statement, due to the strengthening and
weakening of the U.S. dollar against the currencies of the Companys three
foreign subsidiaries and the resulting effect on the valuation of the
intercompany accounts and certain assets of the subsidiaries, which are
denominated in U.S. dollars. The net exchange gain for the first quarter of
fiscal 2001 was $50,000, due to the weakening of the U.S. dollar against the currencies of the Companys three foreign subsidiaries.

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The net exchange loss for the first quarter of fiscal 2000 was $20,000, due to
the strengthening of the U.S. dollar against the currencies of the Companys
three foreign subsidiaries. The Company anticipates that it will continue to
have exchange gains or losses from foreign operations in the future, although
strategies to reduce the size of the gains or losses will be reviewed and
implemented whenever economical and practical.

For the first quarter of fiscal 2001, income before income taxes was $723,000,
compared to a loss before income taxes for the first quarter of fiscal 2000 of
$52,000. Income tax expense for the three-month periods ended December 31, 2000
and 1999 was $212,000 and $68,000, respectively. Income tax expense for the
first quarter of fiscal 2001 was the result of income generated by domestic
operations. Income tax expense for the first quarter of fiscal 2000 was the
result of income generated in one of the Companys foreign subsidiaries.

For the first quarter of fiscal 2001, the Company reported net income of $0.08
per share, compared to a net loss of $0.02 per share in the comparable year-ago
period. The improvement was primarily attributable to the increase in revenue,
offset by the higher cost of sales, and selling, general and administrative
expenses.

Market Risk

The Company presently has three foreign subsidiaries, located in England, France
and Australia, does business in 53 countries and generates approximately 28% of
its revenue from outside North America. The Companys ability to sell its
products in these foreign markets may be affected by changes in economic,
political or market conditions in the foreign markets in which it does business.

The Companys net investment in its foreign subsidiaries was $7,207,000 and
$7,006,000 at December 31, 2000 and September 30, 2000, respectively, translated
into U.S. dollars at the closing exchange rates. The potential loss in value
resulting from a hypothetical 10% change in foreign exchange rates as the result of
strengthening or weakening of the U.S. dollar within the quarter is not
material. The impact of the stronger U.S. dollar on the translation of foreign
currency denominated sales and related gross profit thereon was not material in
the first three months of fiscal 2000 or in the first three months of fiscal
2001.

From time to time, the Company has entered into foreign exchange contracts as a
hedge against specific foreign currency receivables. In fiscal 2000 and the first
quarter of fiscal 2001, the Company did not enter into any foreign exchange
contracts and does not anticipate entering into any such contracts in fiscal
2001.

Factors Affecting Results of Operations

The Company is continuing development of the Imaggia system, including improving
its overall reliability and robustness. The Company is using as the print engine
for the Imaggia system the Gemini digital print technology, which was developed,
and is supplied to the Company, by Delphax Systems. Delphax Systems is wholly
owned by Xerox Corporation, which recently has experienced financial
difficulties. The Company believes, but cannot assure, that these difficulties
will not materially impair Delphax Systems performance as a supplier. Over the
course of the development, the Company has experienced delays due in part to
development delays associated with the Gemini print engine and finalization of
the engines toner formulation, which are outside of the Companys control. No
assurance can be given that further delays will not occur or that product
development or warranty expenses will not be higher than anticipated.

In January 2000, the Company accepted a three-year equipment and service
contract from a U.S. customer, valued at approximately $40.0 million, for its
 Imaggia system. The contract value includes the sales of document production
systems and related equipment for approximately $22.0 million, and maintenance,
spare parts, supplies and consumable items estimated to be worth approximately
$18.0 million over the three-year period. Equipment deliveries under the
contract began in the second quarter of fiscal 2000, with delivery completion
expected during the fourth quarter of fiscal 2001. Under the contract, the
Company records document production systems and related

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##### Table of Contents



equipment revenue with
the delivery of each component piece of equipment. The Company records revenue
for maintenance, spare parts, supplies and consumable items based on the monthly
usage of these components. Revenue under the contract for maintenance, spare
parts, supplies and consumable items may fluctuate with changes in the
customers demand for these items. Achievement of the Companys future revenue
plans depends upon the successful completion of the three-year contract and
continued market acceptance of the Imaggia system.

The Companys PS MICR systems product line is marketed under an agreement with
Océ Printing Systems GmbH for the worldwide exclusive rights to private label,
sell and service the PS75 MICR product and provides for certain non-exclusive
rights to private label, sell and service other Océ high-performance sheet-fed
MICR and non-MICR printing systems. The Company anticipates that
sales of the PS
MICR systems product line will comprise a larger portion of its document
production systems revenue in fiscal 2001 than in fiscal 2000.

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

Euro Conversion

On January 1, 1999, certain member countries of the European Union established
fixed conversion rates between their existing currencies and the European
Unions common currency (Euro). The transition period for the introduction of
the Euro is from January 1, 1999 to January 1, 2002. The Company has prepared
for the introduction of the Euro and has evaluated methods to address the many
issues involved with the introduction of the Euro, including the conversion of
information technology systems, recalculating currency risk, strategies
concerning continuity of contracts, and impacts on the processes for preparing
taxation and accounting records. The Company believes the Euro conversion will
not have a material impact on its financial statements.

Liquidity and Capital Resources

Working capital was $15.7 million at December 31, 2000, compared to $15.0
million at September 30, 2000. The Companys inventory levels increased from
$11.8 million at September 30, 2000, to $13.3 million at December 31, 2000,
primarily due to higher levels of Imaggia finished goods and related stock.
Accounts receivable increased from $5.4 million at September 30, 2000, to $7.6
million at December 31, 2000 due to increased sales. Cash and short-term
investments amounted to $1.2 million at December 31, 2000, compared to $3.2
million at September 30, 2000. The $2.0 million decrease in cash and short-term
investments was primarily due to increases in inventory and accounts receivable.

Stockholders equity was $16.6 million at December 31, 2000, compared to $15.9
million at September 30, 2000. In September 1998, the Company announced a stock
repurchase program of up to 500,000 shares. At December 31, 2000, the Company
had repurchased 170,500 shares at a cost of $434,000.

The Company had no long-term debt as of December 31, 2000 and September 30,
2000. The Company maintains a $2.5 million unsecured bank line of credit. The
line of credit agreement places certain restrictions on the Company, including,
among others, requirements as to maintenance of minimum levels of tangible net
worth. At December 31, 2000, the line was repaid and the Company was granted a
compliance waiver with respect to the total liabilities to tangible net worth
covenant as of that date. The credit agreement expires April 30, 2001, and the
Company presently expects to negotiate a new bank line of credit. The Company
believes that its current financial arrangements and anticipated level of
internally generated funds will be sufficient to fund its working capital
requirements in fiscal 2001.

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At December 31, 2000, the Company had no material commitments for capital
expenditures.

Cautionary Statement

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

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

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##### Table of Contents






PART II. OTHER INFORMATION




Item 6. Exhibits and Reports on Form 8-K

The Company did not file any reports on Form 8-K during the three months ended
December 31, 2000.

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

|                             |  |                                                                                          
|---------------------------- |  | -----------------------------------------------------------------------------------------
|                             |  | CHECK TECHNOLOGY CORPORATION
Registrant                                                  
|                            
|Date      February 13, 2001  |  | /s/   Jay A. Herman
Jay A. Herman
President and Chief Executive Officer                  
|                            
|Date       February 13, 2001 |  | /s/    Robert M. Barniskis
Robert M. Barniskis
Vice President and Chief Financial Officer

14