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SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For
the quarterly period ended June 30, 2005
 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
 
   
  þ o
 o þ




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DELPHAX TECHNOLOGIES INC.
 INDEX
 PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed consolidated balance sheets  June 30, 2005 and September 30, 2004Condensed consolidated statements of operations  Three and nine months ended June 30, 2005 and 2004Condensed consolidated statements of cash flows  Three and nine months ended June 30, 2005 and 2004Notes to condensed consolidated financial statementsItem 2. Managements Discussion and Analysis of Results of Operations and Financial ConditionItem 3. Quantitative and Qualitative Disclosure of Market RiskItem 4. Controls and ProceduresPART II. OTHER INFORMATIONItem 2. Recent Sales of Unregistered SecuritiesItem 4. Submission of Matters to a Vote of Security HoldersItem 6. Exhibits and Reports on Form 8-KSIGNATURESCERTIFICATIONSCertification Pursuant to Section 302Certification Pursuant to Section 302Certification Pursuant to Section 906Certification Pursuant to Section 906
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PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 DELPHAX TECHNOLOGIES INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 June 30,
    
    September 30,2005
    
    2004(In thousands)(Unaudited)ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    871
    
    
    $
    1,314Accounts receivable, less allowance for doubtful accounts of
$186 and
$247 as of June 30, 2005 and September 30, 2004,
respectively
    
    
    7,914
    
    
    
    7,897Inventory
    
    
    19,347
    
    
    
    21,710Other current assets
    
    
    1,873
    
    
    
    2,203TOTAL CURRENT ASSETS
    
    
    30,005
    
    
    
    33,124Equipment and fixtures, net
    
    
    1,692
    
    
    
    2,368TOTAL ASSETS
    
    $
    31,697
    
    
    $
    35,492LIABILITIES AND
SHAREHOLDERS
EQUITYCURRENT LIABILITIESAccounts payable
    
    $
    2,685
    
    
    $
    5,609Accrued compensation
    
    
    1,840
    
    
    
    2,025Other accrued expenses
    
    
    790
    
    
    
    813Income taxes payable
    
    
    36
    
    
    
    78Current portion of bank credit facilities
    
    
    1,504
    
    
    
    1,266Current portion of capital leases
    
    
    107
    
    
    
    99Customer deposits
    
    
    1,273
    
    
    
    696Deferred revenue
    
    
    446
    
    
    
    468TOTAL CURRENT LIABILITIES
    
    
    8,681
    
    
    
    11,054Long-term portion of bank credit facilities and 7% convertible
subordinated notes
    
    
    6,066
    
    
    
    7,738Long-term portion of capital leases
    
    
    98
    
    
    
    179TOTAL LIABILITIES
    
    
    14,845
    
    
    
    18,971SHAREHOLDERS EQUITYCommon stock  par value $0.10 per share  authorized 50,000
shares;
issued and outstanding: 6,323 and 6,271 as of June 30, 2005
and September 30, 2004, respectively
    
    
    632
    
    
    
    627Additional paid-in capital
    
    
    18,962
    
    
    
    18,774Accumulated other comprehensive loss
    
    
    (604
    )
    
    
    (711
    )Accumulated deficit
    
    
    (2,138
    )
    
    
    (2,169
    )TOTAL SHAREHOLDERS EQUITY
    
    
    16,852
    
    
    
    16,521TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    31,697
    
    
    $
    35,492
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DELPHAX TECHNOLOGIES INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Months Ended
    
    Nine Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004(In thousands, except per share data)(Unaudited)Sales:Maintenance, spares and supplies
    
    $
    12,210
    
    
    $
    11,981
    
    
    $
    35,058
    
    
    $
    36,401Printing equipment
    
    
    942
    
    
    
    600
    
    
    
    3,911
    
    
    
    5,096NET SALES
    
    
    13,152
    
    
    
    12,581
    
    
    
    38,969
    
    
    
    41,497Cost of sales
    
    
    5,746
    
    
    
    5,275
    
    
    
    17,702
    
    
    
    18,106GROSS PROFIT
    
    
    7,406
    
    
    
    7,306
    
    
    
    21,267
    
    
    
    23,391Operating Expenses:Selling, general and
administrative
    
    
    5,537
    
    
    
    6,324
    
    
    
    16,980
    
    
    
    18,595Research and development
    
    
    1,195
    
    
    
    1,228
    
    
    
    3,277
    
    
    
    3,6896,732
    
    
    
    7,552
    
    
    
    20,257
    
    
    
    22,284INCOME (LOSS) FROM OPERATIONS
    
    
    674
    
    
    
    (246
    )
    
    
    1,010
    
    
    
    1,107Net interest expense
    
    
    241
    
    
    
    236
    
    
    
    769
    
    
    
    623Net realized exchange loss (gain)
    
    
    59
    
    
    
    (70
    )
    
    
    176
    
    
    
    (57
    )Net unrealized exchange loss (gain)
    
    
    74
    
    
    
    20
    
    
    
    (2
    )
    
    
    82INCOME (LOSS) BEFORE INCOME TAXES
    
    
    300
    
    
    
    (432
    )
    
    
    67
    
    
    
    459Income tax expense
    
    
    12
    
    
    
    19
    
    
    
    36
    
    
    
    170NET INCOME (LOSS)
    
    $
    288
    
    
    $
    (451
    )
    
    $
    31
    
    
    $
    289Basic and diluted earnings (loss) per common share
    
    $
    0.05
    
    
    $
    (0.07
    )
    
    $
    0.00
    
    
    $
    0.05Weighted average number of shares outstanding
during the period:Basic
    
    
    6,323
    
    
    
    6,250
    
    
    
    6,305
    
    
    
    6,227Diluted
    
    
    6,349
    
    
    
    6,250
    
    
    
    6,361
    
    
    
    6,361
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DELPHAX TECHNOLOGIES INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Nine Months EndedJune 30,2005
    
    2004(In thousands)(Unaudited)OPERATING ACTIVITIESNet income
    
    $
    31
    
    
    $
    289Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    838
    
    
    
    1,022Non-cash interest on 7% convertible
subordinated notes
    
    
    423
    
    
    
    137Loss on disposal of equipment and fixtures
    
    
    
    
    
    
    259Other
    
    
    57
    
    
    
    56Changes in operating assets and liabilities:Accounts receivable, net
    
    
    45
    
    
    
    1,505Inventory
    
    
    2,347
    
    
    
    (2,797
    )Other current assets
    
    
    493
    
    
    
    (862
    )Notes receivable from customers
    
    
    
    
    
    
    670Accounts payable, accrued expenses and deposits
    
    
    (2,762
    )
    
    
    1,895Deferred revenue
    
    
    (19
    )
    
    
    (538
    )NET CASH PROVIDED BY OPERATING ACTIVITIES
    
    
    1,453
    
    
    
    1,636INVESTING ACTIVITIESPurchase of equipment and fixtures
    
    
    (162
    )
    
    
    (406
    )Proceeds from sale of short-term investments
    
    
    
    
    
    
    44NET CASH USED IN INVESTING ACTIVITIES
    
    
    (162
    )
    
    
    (362
    )FINANCING ACTIVITIESIssuance of 7% convertible subordinated notes
    
    
    
    
    
    
    3,000Issuance of common stock:For interest paid on 7% convertible
subordinated notes
    
    
    186
    
    
    
    124On exercise of stock options
    
    
    7
    
    
    
    79Repayment on bank credit facilities, net
    
    

    (1,870
    )
    
    
    (5,740
    )Principal payments on capital lease obligations
    
    
    (73
    )
    
    
    (41
    )NET CASH USED IN FINANCING ACTIVITIES
    
    
    (1,750
    )
    
    
    (2,578
    )EFFECT OF EXCHANGE RATE CHANGES ON CASH
    
    
    16
    
    
    
    75DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (443
    )
    
    
    (1,229
    )CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    1,314
    
    
    
    2,670CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    871
    
    
    $
    1,441
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DELPHAX TECHNOLOGIES INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 1. Interim Financial Statements
     2. Inventory
  June 30,
    
    September 30,2005
    
    2004(In thousands)Raw materials and component parts
    
    $
    10,628
    
    
    $
    11,093Work-in-progress
    
    
    1,082
    
    
    
    1,156Finished goods
    
    
    7,637
    
    
    
    9,461$
    19,347
    
    
    $
    21,710
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3. Earnings per Share
  Three Months Ended
    
    Nine Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004(In thousands, except per share data)Numerator:Numerator for basic earnings (loss) per share
    
    $
    288
    
    
    $
    (451
    )
    
    $
    31
    
    
    $
    289Dilutive potential loss, Convertible Notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Numerator for diluted earnings (loss) per
share
    
    $
    288
    
    
    $
    (451
    )
    
    $
    31
    
    
    $
    289Denominator:Denominator for basic earnings and loss per
share, weighted
average shares
    
    
    6,323
    
    
    
    6,250
    
    
    
    6,305
    
    
    
    6,227Dilutive potential common shares:Employee stock options
    
    
    26
    
    
    
    
    
    
    
    46
    
    
    
    89Warrants
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    45Convertible Notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Dilutive potential common shares
    
    
    26
    
    
    
    
    
    
    
    56
    
    
    
    134Denominator for diluted earnings and loss per
share, weighted
average shares
    
    
    6,349
    
    
    
    6,250
    
    
    
    6,361
    
    
    
    6,361Earnings (loss) per common share  basic
    
    $
    0.05
    
    
    $
    (0.07
    )
    
    $
    0.00
    
    
    $
    0.05Earnings (loss) per common share  diluted
    
    $
    0.05
    
    
    $
    (0.07
    )
    
    $
    0.00
    
    
    $
    0.05
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4. Comprehensive Income
  Three Months Ended
    
    Nine Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004(In thousands)Net income (loss)
    
    $
    288
    
    
    $
    (451
    )
    
    $
    31
    
    
    $
    289Foreign currency
translation adjustment
    
    
    (283
    )
    
    
    3
    
    
    
    107
    
    
    
    539Comprehensive income (loss)
    
    $
    5
    
    
    $
    (448
    )
    
    $
    138
    
    
    $
    828
 5. Accounting for Stock-Based Compensation
 Accounting for Stock Issued to Employees Accounting for Stock-Based Compensation Accounting for Stock-Based Compensation
 Transition and Disclosure
 Three Months Ended
    
    Nine Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004(In thousands, except per share data)Net income (loss), as reported
    
    $
    288
    
    
    $
    (451
    )
    
    $
    31
    
    
    $
    289Stock-based compensation determined under
fair value based method for all awards
    
    
    42
    
    
    
    47
    
    
    
    147
    
    
    
    151Pro forma net income (loss), assuming fair
value method for all stock-based awards
    
    $
    246
    
    
    $
    (498
    )
    
    $
    (116
    )
    
    $
    138Basic earnings (loss) per share, as reported
    
    $
    0.05
    
    
    $
    (0.07
    )
    
    $
    0.00
    
    
    $
    0.05Diluted earnings (loss) per share, as reported
    
    
    0.05
    
    
    
    (0.07
    )
    
    
    0.00
    
    
    
    0.05Basic earnings (loss) per share, pro forma
    
    
    0.04
    
    
    
    (0.08
    )
    
    
    (0.02
    )
    
    
    0.02Diluted earnings (loss) per share, pro forma
    
    
    0.04
    
    
    
    (0.08
    )
    
    
    (0.02
    )
    
    
    0.02
 New Pronouncement
 Share-Based Payments
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6. Senior Credit Facilities, Line of Credit and Convertible Subordinated Debt
     7. New
Pronouncement  Inventory Costs
 Inventory
Costs
 9




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Item 2. Managements Discussion and Analysis of Results of Operations and Financial Condition
  Overview
 CR Series RS Series Imaggia Chectronic
   Critical Accounting Policies
   Revenue Recognition
  10




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Revenue Recognition Reporting Revenue Gross as a Principle
verses Net as an Agent
 Product Warranties
  Inventory
  Allowance for Doubtful Accounts
  Income Taxes
  11




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Results of Operations
  Three Months Ended
    
    Nine Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004(Unaudited)Sales:Maintenance, spares and supplies
    
    
    92.8
    %
    
    
    95.2
    %
    
    
    90.0
    %
    
    
    87.7
    %Printing equipment
    
    
    7.2
    
    
    
    4.8
    
    
    
    10.0
    
    
    
    12.3NET SALES
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Cost of sales
    
    
    43.7
    
    
    
    41.9
    
    
    
    45.4
    
    
    
    43.6GROSS PROFIT
    
    
    56.3
    
    
    
    58.1
    
    
    
    54.6
    
    
    
    56.4Operating Expenses:Selling, general and administrative
    
    
    42.1
    
    
    
    50.3
    
    
    
    43.6
    
    
    
    44.8Research and development
    
    
    9.1
    
    
    
    9.8
    
    
    
    8.4
    
    
    
    8.951.2
    
    
    
    60.1
    
    
    
    52.0
    
    
    
    53.7INCOME (LOSS) FROM OPERATIONS
    
    
    5.1
    
    
    
    (2.0
    )
    
    
    2.6
    
    
    
    2.7Net interest expense
    
    
    1.8
    
    
    
    1.9
    
    
    
    2.0
    
    
    
    1.5Net realized exchange loss (gain)
    
    
    0.4
    
    
    
    (0.6
    )
    
    
    0.4
    
    
    
    (0.1
    )Net unrealized exchange loss (gain)
    
    
    0.6
    
    
    
    0.2
    
    
    
    (0.0
    )
    
    
    0.2INCOME (LOSS) BEFORE INCOME TAXES
    
    
    2.3
    
    
    
    (3.5
    )
    
    
    0.2
    
    
    
    1.1Income tax expense
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.4NET INCOME (LOSS)
    
    
    2.2
    %
    
    
    (3.6
    )%
    
    
    0.1
    %
    
    
    0.7
    %
 Net Sales
 Series CR Series
 CR Series Imaggia Checktronic Foliotronic Checktronic
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Foliotronic .
 Gross Margin.
 Selling, General and Administrative Expenses.
 Research and Development Expenses CR2000 CR Series
 Net Interest Expense
 Foreign Exchange Gains and Losses
 13




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Income Taxes
 Earnings or Loss per Share.
 Market Risk
    Interest Rate Risk
  Factors Affecting Results of Operations
   14




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Liquidity and Capital Resources
  June 30, 2005
    
    September 30, 2004Balance
    
    Available
    
    Balance
    
    AvailableOutstanding
    
    Credit
    
    Outstanding
    
    Credit(In thousands)Senior credit facilities:Term loans
    
    $
    883
    
    
    $
    
    
    
    $
    1,028
    
    
    $
    Revolving loans,
$12.5 million limit
    
    
    4,384
    
    
    
    2,762
    
    
    
    5,631
    
    
    
    1,917Line of credit, France
    
    
    246
    
    
    
    
    
    
    
    541
    
    
    
    Total bank credit facilites
    
    
    5,513
    
    
    
    2,762
    
    
    
    7,200
    
    
    
    1,9177% Convertible Notes, $3.0 million
issued at a discount of $1.4 million
amortized over the the 4-year
term of the loan
    
    
    2,057
    
    
    
    
    
    
    
    1,804
    
    
    
    Total debt, excluding
capital leases
    
    $
    7,570
    
    
    $
    2,762
    
    
    $
    9,004
    
    
    $
    1,917
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Cautionary Statement
   
 Item 3. Quantitative and Qualitative Disclosure of Market Risk
  
 Item 4. Controls and Procedures
     16




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PART II. OTHER INFORMATION
 
 Item 2. Recent Sales of Unregistered Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 6. Exhibits and Reports on Form 8-K
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SIGNATURES
  DELPHAX TECHNOLOGIES INC.RegistrantDate
August 2, 2005
    
    /s/ Jay A. HermanJay A. HermanChairman and Chief Executive OfficerDate
August 2, 2005
    
    /s/ Jeffrey S. MathiesenJeffrey S. MathiesenVice President, Chief Financial Officer
 18