<PAGE>
 
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                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
 
                               ----------------
 
                                   FORM 10-Q
 
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
    ACT OF 1934
 
                 FOR THE QUARTERLY PERIOD ENDED JUNE 28, 1998
 
                                      OR
 
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
    EXCHANGE ACT OF 1934
 
                    FOR THE TRANSITION PERIOD FROM    TO
 
                        COMMISSION FILE NUMBER 0-16071
 
                               ----------------
 
                           CALCOMP TECHNOLOGY, INC.
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
                  DELAWARE                                       06-0888312
       (STATE OR OTHER JURISDICTION OF                       (I.R.S. EMPLOYER
       INCORPORATION OR ORGANIZATION)                       IDENTIFICATION NO.)

          2411 W. LA PALMA AVENUE,                                 92801
             ANAHEIM, CALIFORNIA                                 (ZIP CODE)
  (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
 
                                (714) 821-2000
             (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
 
                               ----------------
 
  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, and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
 
  Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
 
<TABLE>
<CAPTION>
            CLASS OF COMMON STOCK                       OUTSTANDING AT JULY 24, 1998
            ---------------------                       ----------------------------
            <S>                                         <C>
               $.01 par value                                    47,120,650
</TABLE>
 
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<PAGE>
 
                            CALCOMP TECHNOLOGY, INC.
 
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
                                                                          PAGE
                                                                          ----
 <C>        <S>                                                           <C>
 PART I. FINANCIAL INFORMATION
    Item 1. Financial Statements
            Condensed Consolidated Balance Sheets as of June 28, 1998
             (Unaudited) and December 28, 1997..........................    3
            Unaudited Condensed Consolidated Statements of Operations
             for the three and six months ended June 28, 1998 and June
             29, 1997...................................................    4
            Unaudited Condensed Consolidated Statements of Cash Flows
             for the six months ended June 28, 1998 and June 29, 1997...    5
            Notes to Unaudited Condensed Consolidated Financial
             Statements.................................................    6
    Item 2. Management's Discussion and Analysis of Financial Condition
             and Results of Operations..................................   12
 PART II. OTHER INFORMATION
    Item 1. Legal Proceedings...........................................   17
    Item 2. Changes in Securities and Use of Proceeds...................   17
    Item 4. Submission of Matters to a Vote of Security Holders.........   17
    Item 6. Exhibits and Reports on Form 8-K............................   18
    Signatures..........................................................   19
</TABLE>
 
                                       2
<PAGE>
 
                            CALCOMP TECHNOLOGY, INC.
 
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                                        JUNE 28,   DECEMBER 28,
                                                          1998         1997
                                                       ----------- ------------
                                                       (UNAUDITED)
<S>                                                    <C>         <C>
ASSETS:
Current assets:
  Cash................................................  $   4,913   $   6,494
  Accounts receivable, net............................     18,711      26,208
  Accounts receivable from affiliates.................      2,117       4,428
  Inventories (Note 4)................................     36,087      43,069
  Prepaids and other current assets...................      4,854       4,783
                                                        ---------   ---------
    Total current assets..............................     66,682      84,982
Property, plant and equipment, net....................     30,404      29,048
Goodwill, net.........................................     76,977      79,994
Other assets..........................................     15,647      15,433
                                                        ---------   ---------
Total assets..........................................  $ 189,710   $ 209,457
                                                        =========   =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
  Accounts payable....................................  $  15,680   $  14,395
  Accounts payable to affiliates......................      2,810       5,591
  Deferred revenue (Note 7)...........................     15,349       6,828
  Accrued restructuring costs (Note 3)................      3,418       5,049
  Accrued reorganization costs........................      6,262       6,878
  Accrued salaries and related expenditures...........      5,645       4,487
  Line of credit with Majority Shareholder (Note 5)...      2,430         --
  Other current liabilities...........................     21,574      22,600
                                                        ---------   ---------
    Total current liabilities.........................     73,168      65,828
Other long-term liabilities...........................      7,876       8,371
Line of credit with Majority Shareholder (Note 5).....     60,000      59,525
Contingencies (Notes 2 and 8).........................        --          --

STOCKHOLDERS' EQUITY:
  Preferred stock, $.01 par value, 5,000,000 shares
   authorized, none issued............................        --          --
  Common stock, $.01 par value, 60,000,000 shares
   authorized, 47,120,650 and 47,070,950 shares issued
   and outstanding on June 28, 1998 and
   December 28, 1997, respectively....................        471         471
  Additional paid-in capital..........................    292,805     287,322
  Accumulated deficit.................................   (249,497)   (217,145)
  Accumulated other comprehensive income (loss):
   Cumulative translation adjustment..................      5,352       5,550
  Less: Treasury stock, at cost, 49,000 shares........       (465)       (465)
                                                        ---------   ---------
  Total stockholders' equity..........................     48,666      75,733
                                                        ---------   ---------
    Total liabilities and stockholders' equity........  $ 189,710   $ 209,457
                                                        =========   =========
</TABLE>
 
      See accompanying notes to unaudited condensed consolidated financial
                                  statements.
 
 
                                       3
<PAGE>
 
                            CALCOMP TECHNOLOGY, INC.
 
           UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                 THREE MONTHS ENDED       SIX MONTHS ENDED
                                ----------------------  ----------------------
                                 JUNE 28,    JUNE 29,    JUNE 28,    JUNE 29,
                                   1998        1997        1998        1997
                                ----------  ----------  ----------  ----------
<S>                             <C>         <C>         <C>         <C>
Revenue........................ $   41,532  $   52,060  $   79,366  $  112,583
Cost of revenue................     33,669      41,824      69,806      90,420
                                ----------  ----------  ----------  ----------
  Gross profit.................      7,863      10,236       9,560      22,163
Operating expenses:
  Research and development.....      3,482       5,628       6,205       9,266
  Selling, general and
   administrative..............     16,438      15,853      31,133      31,448
  Corporate expenses from
   Majority Shareholder........      1,000         725       2,000       1,450
  Gain on disposal of
   facilities (Note 6).........        --       (5,873)        --       (5,873)
                                ----------  ----------  ----------  ----------
Loss from operations...........    (13,057)     (6,097)    (29,778)    (14,128)
Interest expense...............     (1,180)     (1,130)     (2,437)     (2,011)
Other income (expense), net....        401         136         (72)       (148)
                                ----------  ----------  ----------  ----------
Loss before income taxes.......    (13,836)     (7,091)    (32,287)    (16,287)
Provision for income taxes.....        237         234          65         527
                                ----------  ----------  ----------  ----------
Net loss....................... $  (14,073) $   (7,325) $  (32,352) $  (16,814)
                                ==========  ==========  ==========  ==========
Basic and diluted loss per
 share (Note 1)................ $    (0.30) $    (0.16) $    (0.69) $    (0.36)
                                ==========  ==========  ==========  ==========
Weighted-average shares
 outstanding................... 47,105,080  46,898,650  47,090,584  46,898,650
                                ==========  ==========  ==========  ==========
</TABLE>
 
 
 
 
      See accompanying notes to unaudited condensed consolidated financial
                                  statements.
 
                                       4
<PAGE>
 
                            CALCOMP TECHNOLOGY, INC.
 
           UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                           SIX MONTHS ENDED
                                                           ------------------
                                                           JUNE 28,  JUNE 29,
                                                             1998      1997
                                                           --------  --------
<S>                                                        <C>       <C>
Operating activities:
Net loss.................................................. $(32,352) $(16,814)
Adjustments to reconcile net loss to net cash used in
 operating activities:
  Depreciation and amortization...........................    7,643     5,939
  Restructuring payments..................................   (1,631)   (5,355)
  Gain on disposal of facilities..........................      --     (5,873)
  Investee income.........................................     (361)     (523)
  Net changes in operating assets and liabilities.........   22,212    (5,529)
                                                           --------  --------
    Net cash used in operating activities.................   (4,489)  (28,155)
Investing activities:
Purchase of property, plant and equipment.................   (5,690)   (4,678)
Proceeds from disposition of property, plant and
 equipment................................................      --        635
Dividends received........................................      121       168
Proceeds from disposal of facilities......................      --     21,121
                                                           --------  --------
    Net cash (used in) provided by investing activities...   (5,569)   17,246
Financing activities:
Net proceeds from line of credit with Majority
 Shareholder..............................................    2,905     7,731
Reduction in revolving line of credit.....................      --     (2,948)
Exercise of stock options.................................      123       --
Issuance of warrant to purchase common stock..............    5,360       --
                                                           --------  --------
    Net cash provided by financing activities.............    8,388     4,783
Effect of exchange rate changes on cash...................       89      (596)
                                                           --------  --------
Change in cash............................................   (1,581)   (6,722)
Cash at beginning of period...............................    6,494    15,290
                                                           --------  --------
Cash at end of period..................................... $  4,913  $  8,568
                                                           ========  ========
Supplementary disclosures of cash flow information:
  Net income taxes received............................... $      2  $    361
  Interest paid........................................... $  2,381  $  2,116
</TABLE>
 
 
 
      See accompanying notes to unaudited condensed consolidated financial
                                  statements.
 
                                       5
<PAGE>
 
                           CALCOMP TECHNOLOGY, INC.
 
        NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
1. BASIS OF PRESENTATION
 
  The accompanying unaudited condensed 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 Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and notes 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. Operating results for the three and six month
periods ended June 28, 1998, are not necessarily indicative of the results
that may be expected for the Company's fiscal year or any other interim
period. Certain reclassifications of prior year amounts have been made to
conform to the current period presentation.
 
  It is suggested that the financial statements be read in conjunction with
the information contained in the Company's Annual Report for the year ended
December 28, 1997, on Form 10-K/A, filed with the Securities and Exchange
Commission.
 
  The Company has adopted SFAS 128, "Earnings Per Share," and applied this
pronouncement to all periods presented. This statement requires the
presentation of both basic and diluted net income (loss) per share for
financial statement purposes. Basic net income (loss) per share is computed by
dividing income (loss) available to common stockholders by the weighted
average number of common shares outstanding. Diluted net income (loss) per
share includes the effect of the potential shares outstanding, including
dilutive stock options and warrants, using the treasury stock method. Because
the impact of options and warrants are antidilutive, there is no difference
between the loss per share amounts computed for basic and diluted purposes.
 
  As of December 29, 1997, the Company adopted SFAS 130, "Reporting
Comprehensive Income". SFAS 130 establishes new rules for the reporting and
display of comprehensive income and its components; however, the adoption of
this Statement had no impact on the Company's net loss or stockholders'
equity. SFAS 130 requires foreign currency translation adjustments, which
prior to adoption were reported separately in stockholder's equity, to be
included in other comprehensive income.
 
  The components of comprehensive loss for the six months ended June 28, 1998,
and June 29, 1997, are as follows:
 
<TABLE>
<CAPTION>
                                                              1998      1997
                                                            --------  --------
     <S>                                                    <C>       <C>
     Net loss.............................................. $(32,352) $(16,814)
     Foreign currency translation adjustment...............     (198)   (1,924)
                                                            --------  --------
     Comprehensive loss.................................... $(32,550) $(18,738)
                                                            ========  ========
</TABLE>
 
2. OPERATIONS AND FINANCING
 
  The Company's recent operations have resulted in net losses of $32.4
million, $75.2 million and $56.6 million for the six months ended June 28,
1998 and the years ended December 28, 1997 and December 29, 1996,
respectively. The Company's main sources of financing have been a $75 million
line of credit with Lockheed Martin Corporation (the "Majority Shareholder")
which is made up of the Revolving Credit Agreement of $73 million and the Cash
Management Agreement of $2 million, collectively referred to as the "Credit
Agreements", and the proceeds from the sale of the Company's headquarters
facility. In March 1998, the Credit Agreements were amended to extend the
maturity dates to January 31, 1999. Additionally, the Revolving Credit
Agreement was amended to eliminate the requirement for compliance with certain
financial ratio covenants, to eliminate the right of the Majority Shareholder
to cancel the Credit Agreements upon 120 days prior written notice, and to
remove the security interest of the Majority Shareholder in the assets of the
Company. At June 28, 1998, the Company had drawn $62.4 million against that
line.
 
                                       6
<PAGE>
 
                           CALCOMP TECHNOLOGY, INC.
 
                   NOTES TO UNAUDITED CONDENSED CONSOLIDATED
                       FINANCIAL STATEMENTS--(CONTINUED)
 
 
  In March 1998, the Company entered into the Joint Development Agreement with
Eastman Kodak Company ("Kodak") that provided $20 million which was due on
signing and was paid to the Company in April 1998 and an additional $16
million in cash over the term to be funded incrementally upon the achievement
of certain milestones and the occurrence of certain events. For further
discussion of the Joint Development Agreement, see Note 7.
 
  In July 1998, the Company entered into an Exchange Agreement with the
Majority Shareholder, pursuant to which, the Company exchanged $60 million of
outstanding debt owed to the Majority Shareholder under the Revolving Credit
Agreement for 1,000,000 shares of Series A Preferred Stock (the "Preferred
Stock") of the Company (the "Exchange"). In connection with the Exchange
Agreement, the Revolving Credit Agreement was amended to reduce the amount of
borrowing available to the Company under the Revolving Credit Agreement from
$73 million to $13 million. The Company and the Majority Shareholder effected
the Exchange for the purpose of strengthening the Company's balance sheet and
ensuring that the Company continues to meet the requirements for its common
shares to trade on NASDAQ's National Market System. The Company received a
fairness opinion from an outside financial advisor that the Exchange was fair
and reasonable to all of the Company's common stockholders. For further
discussion of the Exchange, see Note 5.
 
  The Company had previously entered into a letter of intent with a bank which
contemplated an additional $25 million senior line of credit; however, the
Company was not able to reach an agreement with the bank and negotiations were
recently terminated. The Company anticipates that it will fully draw down the
full $13 million of credit line available under the Revolving Credit Agreement
to meet operating requirements during the fiscal quarter ending September 27,
1998.
 
  In an effort to address this issue, the Company has approached the Majority
Shareholder, which has stated that it will loan additional funds to the
Company in an amount sufficient to fund the day-to-day operations of the
Company pending a review of the Company's business strategy. In addition, the
Majority Shareholder has agreed to consider loaning the Company additional
funds thereafter depending upon the results of this review. The Company
conducted a review with its Board of Directors on July 28, 1998, but to-date,
has not concluded discussions with the Majority Shareholder regarding
additional funding. The Company anticipates that these discussions will be
concluded in September 1998. The Company has engaged Solomon Smith Barney as
an investment advisor to assist it in the consideration of strategic
alternatives. Management notes that, even if the Majority Shareholder does
agree to extend funds, the terms under which it would do so and the period of
operations that such funds would permit are not now determined. Failure to
obtain additional funding will result in material liquidity problems for the
Company.
 
  The Company has implemented plans to improve the Company's competitive
position by introducing a new line of CrystalJet(TM) piezo inkjet printers and
improving operating efficiencies through the restructuring of its worldwide
operations. The Company is currently in the process of making enhancements to
the CrystalJet manufacturing process to allow for increased production of the
CrystalJet product. The Company anticipates that these efforts will result in
improved gross margins and operating results during the second half of fiscal
1998. However, no assurances can be given that the Company will be successful
in realizing these goals. Failure to achieve market acceptance of these
products or the inability to timely achieve required production volumes at
acceptable costs could have a further material adverse impact on the Company's
consolidated financial position, results of operations and cash flows.
 
3. RESTRUCTURING
 
  During the fourth quarter of 1997, the Company expanded its plan to
restructure its operations worldwide and provided a charge of approximately
$4,788,000 consisting primarily of $2,900,000 for the elimination of
 
                                       7
<PAGE>
 
                           CALCOMP TECHNOLOGY, INC.
 
                   NOTES TO UNAUDITED CONDENSED CONSOLIDATED
                       FINANCIAL STATEMENTS--(CONTINUED)
 
91 positions, relating to further realignment of the Company's international
operations, and $1,888,000 for lease termination and fixed asset disposition
costs for certain international facilities. During the first six months of
1998, the Company incurred cash expenditures aggregating $1,388,000 and non-
cash charges aggregating $243,000 that were applied against the reserve. At
June 28, 1998, the restructuring accrual approximates $3,418,000, consisting
of $2,620,000 from the 1997 restructuring plan and $798,000 remaining from the
1996 restructuring plan. The remaining amount of the 1996 plan principally
relates to lease termination obligations. Although subject to future
adjustment, the Company believes that the amounts accrued at June 28, 1998 are
adequate to complete the various restructuring plans.
 
4. INVENTORIES
 
  Inventories consist of the following:
 
<TABLE>
<CAPTION>
                                                             JUNE
                                                              28,   DECEMBER 28,
                                                             1998       1997
                                                            ------- ------------
                                                               (IN THOUSANDS)
     <S>                                                    <C>     <C>
     Raw materials and purchased components...............  $10,738   $11,042
     Work in process......................................      460       434
     Finished goods.......................................   24,889    31,593
                                                            -------   -------
                                                            $36,087   $43,069
                                                            =======   =======
</TABLE>
 
5. INDEBTEDNESS
 
 Credit Agreements with Majority Shareholder
 
  In July 1996, the Company and the Majority Shareholder entered into two
separate agreements, the Revolving Credit Agreement and the Cash Management
Agreement. The Revolving Credit Agreement was subsequently amended and
restated, pursuant to which the Majority Shareholder was to provide, from time
to time, financing of up to $73 million for repayment of specified
indebtedness and general corporate purposes, including financing the working
capital needs of the Company and its subsidiaries. The Revolving Credit
Agreement contained negative and affirmative covenants. As of December 28,
1997, the Company was in breach of certain of these financial covenants. On
January 22, 1998, the Majority Shareholder waived compliance with these
covenants. In March 1998, the Revolving Credit Agreement was further amended
to extend the maturity date from July 22, 1998, to January 31, 1999, to
eliminate the requirement for compliance with certain financial ratio
covenants, to eliminate the right of the Majority Shareholder to cancel the
Revolving Credit Agreement upon 120 days prior written notice, and to remove
the security interest of the Majority Shareholder in the assets of the
Company.
 
  The Revolving Credit Agreement bears interest, at the Company's option, at
either (1) a rate per annum equal to the higher of the federal funds rate as
published in the Federal Reserve System plus 0.5% or the rate publicly
announced from time to time by Morgan Guaranty Trust Company of New York as
its "prime" rate or (2) LIBOR plus 2.0%. There is no required prepayment or
scheduled reduction of availability of loans under the Agreement.
 
  The Cash Management Agreement provides cash advances of up to $2 million to
the Company by the Majority Shareholder for cash shortfalls. In March 1998,
the Cash Management Agreement was amended to extend the maturity date from
June 1, 1998, to January 31, 1999. The agreement bears interest equal to the
Federal Funds Rate.
 
  As of June 28, 1998, the Company had an aggregate outstanding balance of
$62,430,000 on the Revolving Credit Agreement, with interest rates ranging
from 5.0% to 7.7%.
 
                                       8
<PAGE>
 
                           CALCOMP TECHNOLOGY, INC.
 
                   NOTES TO UNAUDITED CONDENSED CONSOLIDATED
                       FINANCIAL STATEMENTS--(CONTINUED)
 
 
 Conversion of Debt to Preferred Stock
 
  On July 15, 1998, at the request of the Company, the Company and the
Majority Shareholder effected an exchange of debt for equity whereby $60
million of outstanding indebtedness owing by the Company to the Majority
Shareholder under the Revolving Credit Agreement was exchanged for
1,000,000 shares of Preferred Stock. As a result, this amount is classified as
a long-term item as of June 28, 1998 because it will not require the use of
working capital to satisfy the indebtedness. In connection with the Exchange,
the Revolving Credit Agreement was amended to reduce the amount of borrowing
available to the Company from $73 million to $13 million.
 
  The Majority Shareholder, as holder of the Preferred Stock, is entitled to
receive, when and if declared by the Board of Directors, and in preference to
the holders of Common Stock, a cumulative annual dividend of $4.80 per share.
The Preferred Stock has no conversion rights and is non-voting with certain
exceptions. The Preferred Stock may be redeemed at the Company's option at $60
per share plus any accumulated, but unpaid dividends. Upon liquidation, the
holders of the Preferred Stock are entitled to receive $60 per share plus any
accumulated but unpaid dividends, prior to any distribution being made to the
holders of Common Stock. After the occurrence of a change of control, as
defined, the dividend rate on the Preferred Stock would be increased to $9.00
per share per annum plus 15% per annum on any accumulated but unpaid dividends
(the "Adjusted Dividend Rate"). The Adjusted Dividend Rate would apply until
the earlier of (1) the redemption by the Company of the Preferred Stock or (2)
the acquisition of the combined voting power of the then outstanding voting
stock of the Company.
 
6. DISPOSAL OF HEADQUARTERS FACILITY
 
  During the fourth quarter of 1996, the Company decided to sell its 27.9 acre
headquarters facility in Anaheim, California and wrote the facility down to
its then appraised value, less costs to sell, of $15.1 million. On June 24,
1997, the Company completed the sale of the facility to Lincoln Property
Company, Inc. of Dallas, Texas, and D.L.J. Real Estate Capital partners for
$21.5 million, less associated costs to sell. The headquarters facility sale
resulted in a gain on disposal of $5.9 million. Proceeds from the sale of the
property were used to reduce outstanding borrowings under the Revolving Credit
Agreement. The Company has leased back approximately 138,500 square feet of
space, or two of the ten buildings located on the property, under a one year
lease with an option to continue the lease for an additional year. In
accordance with the lease agreement, the Company has exercised this option to
extend the lease through June 23, 1999.
 
7. PATENT LICENSE AND JOINT DEVELOPMENT AGREEMENT
 
  On March 29, 1998, the Company entered into a five-year Patent License and
Joint Development Agreement with Kodak covering the joint development of the
Company's CrystalJet technology into a range of products, printers and
consumables for commercial applications. Under the terms of the agreement,
Kodak will contribute up to $36 million, $20 million of which was due at
signing and was paid to the Company in April 1998. The additional $16 million
in contributions will be funded incrementally upon the achievement of certain
milestones and the occurrence of certain events. The agreement also calls for
Kodak to pay royalties in respect of licenses granted thereunder which allow
Kodak under certain circumstances to exploit the inkjet technology developed
under the terms of the agreement.
 
  In addition to the license, the Company granted to Kodak a warrant for 8
million shares of its Common Stock with an exercise price of $3.88, vesting 50
percent on the first anniversary of the agreement and 50 percent on the second
anniversary of the agreement. The warrant expires on the seventh anniversary
of the agreement. At the date of grant, the fair market value of the stock
warrant was $5.4 million, based on an independent
 
                                       9
<PAGE>
 
                           CALCOMP TECHNOLOGY, INC.
 
                   NOTES TO UNAUDITED CONDENSED CONSOLIDATED
                       FINANCIAL STATEMENTS--(CONTINUED)
 
appraisal, and has been reflected as an increase to additional paid-in capital
in the accompanying condensed consolidated balance sheet. The remaining $14.6
million was recorded as deferred revenue and will be amortized into income as
certain expenditures related to the Joint Development Agreement are incurred.
As of June 28, 1998, the amount of deferred revenue amortized to income was
$6.0 million.
 
8.  CONTINGENCIES
 
 Legal
 
  A complaint was filed on January 25, 1997, in California Superior Court in
Santa Clara County by Raster Graphics, Inc. ("Raster Graphics"), against Topaz
Technologies, Inc., the Company's wholly-owned subsidiary ("Topaz"), the
former shareholders of Topaz, and the Company. The complaint alleged, among
other things, misappropriation of trade secrets, breach of fiduciary duty,
unfair competition, breach of contract and conversion arising from the
employment by Raster Graphics of the former Topaz shareholders who founded
Raster Graphics in 1987 while they participated in the development of certain
inkjet technology. On June 17, 1998, the Court entered an order dismissing all
claims in this suit following a settlement agreement which was entered into by
all parties to the suit.
 
  A complaint was filed on October 14, 1997, by Wacom Co., Ltd. and Wacom
Technology Corp., against CalComp Inc., a wholly-owned subsidiary of the
Company, in the U.S. District Court for the Central District of California.
The complaint alleged, among other things, that CalComp Inc.'s sale of
ULTRASLATE digitizer tablets infringes three patents and infringes Wacom's
common law trademark, ULTRAPEN. Wacom's request for a preliminary injunction
concerning infringement of two of the three patents was denied by the Court on
February 12, 1998. Wacom is also seeking damages and permanent injunctive
relief with respect to alleged infringement of the three patents, pre-judgment
interest and, among other things, has requested an award of its attorneys'
fees and costs. The Company does not believe that any of the allegations made
by Wacom in this suit have merit and intends to defend itself against all the
claims.
 
  On July 8, 1998, Xaar Technology Limited ("Xaar") filed suit against the
Company, CalComp Inc. (a wholly-owned subsidiary of the Company) and Topaz,
(collectively the "Defendants") alleging that the Defendants' manufacture and
sale of CrystalJet piezoelectric inkjet printheads infringes Xaar's U.S. Pat.
Nos. 4,879,568 and 5,003,679 which cover certain pulsed droplet deposition
apparatus and certain processes for manufacturing pulsed droplet deposition
apparatus. The complaint also alleges that the Defendants have induced others
to infringe these patents. The complaint seeks preliminary and permanent
injunctive relief against infringement of the Xaar patents, increased damages
for willful infringement of those patents, interest and award of its
attorneys' fees and costs. The Company has reviewed these patents and believes
that the Company will prevail over Xaar's claims, that the Company's
piezoelectric technology is proprietary to the Company and that the Company's
manufacture and sale of CrystalJet piezoelectric printheads does not infringe
any valid claims of either of these patents. Further, the Company intends to
defend itself against all claims in this lawsuit.
 
  In a separate action, on July 6, 1998, Xaar filed suit in the London High
Court of Justice alleging that the Defendants and CalComp Ltd., a U.K.
subsidiary of CalComp Inc., have infringed or caused, enabled, or assisted
others to infringe, European patent (UK) number EP 0 277 703, which covers
certain pulsed droplet deposition apparatus and certain processes for
manufacturing pulsed droplet deposition apparatus in connection with the
manufacture and sale of the Company's CrystalJet printers. The complaint seeks
damages or profits resulting from the alleged infringement and, among other
things, interest on any sums due Xaar and an award of its costs. The Company
has reviewed the patent in suit, believes that the Company will prevail over
Xaar's claims in this suit and that the Company's manufacture and sale of
CrystalJet printheads does not infringe any valid claims of this patent. The
Company intends to defend itself against all claims made.
 
                                      10
<PAGE>
 
                           CALCOMP TECHNOLOGY, INC.
 
                   NOTES TO UNAUDITED CONDENSED CONSOLIDATED
                       FINANCIAL STATEMENTS--(CONTINUED)
 
 
  The Company is also party to other legal actions in the normal course of its
business. The Company does not believe that the disposition of any of these
matters will have a material adverse effect on its consolidated financial
position, results of operations or cash flows.
 
 Environmental Matters
 
  In connection with the June 1997 sale of the Company's headquarters facility
in Anaheim, California, the Company agreed to remain obligated to address
certain environmental conditions which existed at the site prior to the
closing of the sale. In addition, the Majority Shareholder has guaranteed the
performance of the Company under this environmental agreement.
 
  In 1988, the Company submitted a plan to the California Regional Water
Quality Control Board ("the Water Board") relating to its facility in Anaheim,
California. This plan contemplated site assessment and monitoring of soil and
ground water contamination. In 1997, the Company, at the request of the Water
Board, submitted work plans to conduct off-site water investigations and on-
site soil remediation. The initial phase of work commenced in January 1998. As
of June 28, 1998, the Company has established reserves which it considers to
be adequate to cover the cost of investigations and tests required by the
Water Board, any additional remediation that may be requested and potential
costs of continued monitoring of soil and groundwater contamination, if
required.
 
  The Company believes that it has adequately accrued for any future
expenditures in connection with environmental matters and that such
expenditures will not have a materially adverse effect on its consolidated
financial condition, results of operation or cash flows.
 
                                      11
<PAGE>
 
                           CALCOMP TECHNOLOGY, INC.
 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
 
  This report on Form 10-Q contains statements which, to the extent that they
are not recitations of historical facts, constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. All forward-looking statements involve risks and uncertainties. The
forward-looking statements in this report on Form 10-Q have been made subject
to the safe harbor protections provided by Sections 27A and 21E.
 
GENERAL
 
  The Company's products and services compete in several markets including
CAD/CAE/CAM, presentation graphics, graphic arts, and printing and publishing.
The Company's ability to successfully market its products requires adapting
new technologies, such as its proprietary CrystalJet technology, and
leveraging the channels of distribution in order to remain competitive. The
Company encounters extensive competition in all of its lines of business,
depending on the particular product or market environment. The Company's
business involves rapidly changing technologies requiring continued
performance improvements at lower customer prices. The companies that
participate in the industry are highly competitive and reduced unit selling
prices and shortened product life cycles are expected to continue to place
pressure on the Company's margins. Many of the Company's competitors have
larger technical staffs, larger marketing and sales organizations and
significantly greater financial resources than the Company. There can be no
assurance that the products of existing or new competitors will not obtain
greater market acceptance than the Company's products.
 
  In 1997, the Company introduced its new CrystalJet product line and
initiated a transition plan to eliminate certain existing output product lines
and accelerate the Company's end-of-life process for those products that will
be discontinued. As a result, the Company's diversity of inkjet product
offerings, by the end of 1998, will be limited to the new CrystalJet line of
wide-format digital printers until subsequent CrystalJet product offerings are
introduced. Failure to achieve market acceptance for these products or the
inability to increase manufacturing volumes to achieve production
efficiencies, could have a material adverse impact on the Company's
consolidated financial position and results of operations.
 
  In addition, the Company's strategy for its new products focuses on
capturing consumable sales through establishing a strong installed base of
CrystalJet products, both through CalComp branded products and through the
various channels provided by the Company's strategic partners. However, there
can be no assurance that the Company will be able to achieve this strategic
goal.
 
  For a further discussion of risk factors related to the Company's
operations, see Item 1. "Business--Risk Factors Affecting the Company"
contained in the Company's Annual Report for the year ended December 28, 1997,
on Form 10-K/A, filed with the Securities and Exchange Commission.
 
RESULTS OF OPERATIONS
 
  Revenues. Revenues for the quarter ended June 28, 1998, declined $10.5
million, or 20%, to $41.5 million from the same period in 1997. Product
revenues were down 34% and service revenue was down 24% versus the same period
in 1997. The decline in product and service revenue was offset by $6.0 million
of royalty revenue recognized from the Kodak Joint Development Agreement for
which there was no corresponding amount in prior year. The decline in product
revenues resulted primarily from decreases in product demand for input and
output products. Output product revenues declined primarily due to the
maturity of the output products compared to competitors' products and lower
customer demand resulting from the Company's discontinuance of certain output
products in anticipation and preparation for the new CrystalJet product lines,
as well as from delays in volume shipments of the new CrystalJet wide format
digital inkjet printers. Digitizer input product revenue also declined
primarily as a result of the impact of increasing interchangeability of mouse
input devices as an
 
                                      12
<PAGE>
 
alternative to digitizer tablet input devices made possible by recent releases
of CAD application software. This trend is expected to continue but may be
somewhat offset by broader use of digitizers in graphic arts applications. The
decrease in service revenue compared to the same period in 1997 is primarily a
result of fewer service contracts being generated due to the lower product
revenue base and a lower rate of service contract renewals as older generation
products are retired from service.
 
  Revenue for the six months ended June 28, 1998 declined $33.2 million, or
30%, to $79.4 million for the same period in 1997. Product revenues were down
38% and service revenue was down 21%, for the same reasons discussed above.
 
  Gross Profit. In 1998, royalty recognized from the Joint Development
Agreement made up $6.0 million of the gross profit for which there was no
corresponding amount in the prior year. Excluding the royalty, gross profit as
a percentage of revenue was 4% for the second quarter and first six months of
1998 compared to 20% for the same periods in 1997. These declines, exclusive
of the royalty recognized from the Joint Development Agreement, were primarily
due to lower revenues, selling price reductions required to transition out of
mature and end-of-life products, the manufacturing inefficiencies resulting
from decreased production volumes on the Company's mature output products,
start up cost inefficiencies on new products, and delays in volume shipments
of the new CrystalJet wide format inkjet printers.
 
  Operating Expenses. Operating expenses for the second quarter of 1998
increased 28%, or $4.6 million, to $20.9 million compared to the same period
in 1997. The increase was primarily due to the recognition of the one time
gain of $5.9 million from the sale of the Company's headquarters facility
during the second quarter last year. Excluding the gain, operating expenses
decreased $1.3 million, or 6%, and $2.8 million, or 7%, for the quarter and
six month period, respectively. These decreases resulted primarily from the
benefits of staffing and facility consolidation as a result of restructuring
actions taken in 1996 and 1997 to streamline the Company's infrastructure.
 
  Research and development expenses decreased $2.1 million in the second
quarter of 1998 compared to the same period in 1997 and decreased $3.1 million
in the first six months of 1998 compared to the same period in 1997 reflecting
the benefits of cost reductions resulting from the Company's decision to
narrow its focus to its new technologies. Research and development expense as
a percentage of net revenue remained relatively flat at 8% for the first six
months of 1998 and 1997 as the reduced spending is being compared to a smaller
revenue base in the first six months of 1998.
 
  Selling, general and administrative expenses increased $0.6 million in the
second quarter of 1998 compared to the same period in 1997. As a percentage of
revenue, these expenses increased to 40% in the second quarter of 1998
compared to 30% for the second quarter of 1997. The slight increase in
spending was due to the Company incurring legal costs to defend itself against
current lawsuits. In the first half of 1998, selling, general and
administrative expenses decreased $0.3 million as compared to the same period
in 1997. As a percentage of revenue, these expenses increased to 39% compared
to 28% for the same period in the prior year. The decline in spending was due
primarily to reduced staffing and facility expenses from the restructuring
actions taken in 1996 and 1997 to streamline the Company's infrastructure. The
expenses did not commensurately decrease with revenue as legal expenses
slightly increased during 1998 resulting from the defense of current lawsuits
and marketing and advertising costs slightly increased during 1998 to support
the introduction of CrystalJet into the marketplace.
 
  Corporate expenses from the Majority Shareholder increased $0.3 million to
$1.0 million and $0.6 million to $2.0 million in the second quarter of 1998
and six months of 1998, respectively, compared to the same periods in 1997 as
a result of allocations received from the Majority Shareholder.
 
  Interest Expense. Interest expense remained flat at $1.2 million and $1.1
million for the second quarter of 1998 and 1997, respectively, as the
Company's outstanding balances under the Revolving Credit Agreement
 
                                      13
<PAGE>
 
were substantially the same during the second quarter of 1998 compared to the
second quarter of 1997. Interest expense increased to $2.4 million for the
first six months of 1998 from $2.0 million for the same period in 1997 due
substantially to increases during the first quarter of 1998 in the Company's
outstanding balances under the Revolving Credit Agreement compared to first
quarter of 1997.
 
  Income Tax Provision. Income tax provision of $0.2 million remained flat for
the second quarter of 1998 compared to the same period in 1997. For the six
month period of 1998, income tax provision decreased to $0.1 million compared
to $0.5 million for the same period in 1997. In 1998, the income tax provision
resulted primarily from the provision of foreign taxes on profitable
international locations offset by a state tax refund recorded in the first
quarter of 1998.
 
LIQUIDITY AND CAPITAL RESOURCES
 
  The Company's recent operations have resulted in net losses of $32.4
million, $75.2 million and $56.6 million for the six months ended June 28,
1998 and the years ended December 28, 1997 and December 29, 1996,
respectively. The Company's main sources of financing have been a $75 million
line of credit with Lockheed Martin Corporation (the "Majority Shareholder")
which is made up of the Revolving Credit Agreement of $73 million and the Cash
Management Agreement of $2 million, collectively referred to as the "Credit
Agreements", and the proceeds from the sale of the Company's headquarters
facility. In March 1998, the Credit Agreements were amended to extend the
maturity dates to January 31, 1999. Additionally, the Revolving Credit
Agreement was amended to eliminate the requirement for compliance with certain
financial ratio covenants, to eliminate the right of the Majority Shareholder
to cancel the Credit Agreements upon 120 days prior written notice, and to
remove the security interest of the Majority Shareholder in the assets of the
Company. At June 28, 1998, the Company had drawn $62.4 million against that
line.
 
  In March 1998, the Company entered into the Joint Development Agreement with
Eastman Kodak Company ("Kodak") that provided $20 million which was due on
signing and was paid to the Company in April 1998 and an additional $16
million in cash over the term to be funded incrementally upon the achievement
of certain milestones and the occurrence of certain events.
 
  In July 1998, the Company entered into an Exchange Agreement with the
Majority Shareholder, pursuant to which, the Company exchanged $60 million of
outstanding debt owed to the Majority Shareholder under the Revolving Credit
Agreement for 1,000,000 shares of Series A Preferred Stock (the "Preferred
Stock") of the Company (the "Exchange"). In connection with the Exchange
Agreement, the Revolving Credit Agreement was amended to reduce the amount of
borrowing available to the Company under the Revolving Credit Agreement from
$73 million to $13 million. The Company and the Majority Shareholder effected
the Exchange for the purpose of strengthening the Company's balance sheet and
ensuring that the Company continues to meet the requirements for its common
shares to trade on NASDAQ's National Market System. The Company received a
fairness opinion from an outside financial advisor that the Exchange was fair
and reasonable to all of the Company's common stockholders. For further
discussion of the Exchange, see Note 5 of the Notes to Unaudited Condensed
Consolidated Financial Statements.
 
  The Company had previously entered into a letter of intent with a bank which
contemplated an additional $25 million senior line of credit; however, the
Company was not able to reach an agreement with the bank and these
negotiations were recently terminated. The Company anticipates that it will
fully draw down the full $13 million of credit line available under the
Revolving Credit Agreement to meet operating requirements during the fiscal
quarter ending September 27, 1998.
 
  In an effort to address this issue, the Company has approached the Majority
Shareholder, which has stated that it will loan additional funds to the
Company in an amount sufficient to fund the day-to-day operations of the
Company pending a review of the Company's business strategy. In addition, the
Majority Shareholder has agreed to consider loaning the Company additional
funds thereafter depending upon the results of this review. The Company
conducted a review with its Board of Directors on July 28, 1998, but to-date,
has not concluded discussions with the Majority Shareholder regarding
additional funding. The Company anticipates that these
 
                                      14
<PAGE>
 
discussions will be concluded in September 1998. The Company has engaged
Solomon Smith Barney as an investment advisor to assist it in the
consideration of strategic alternatives. Management notes that, even if the
Majority Shareholder does agree to extend additional funds, the terms under
which it would do so and the period of operations that such funds would permit
are not now determined. Failure to obtain additional funding will result in
material liquidity problems for the Company.
 
  The Company has implemented plans to improve the Company's competitive
position by introducing a new line of CrystalJet piezo inkjet printers and
improving operating efficiencies through the restructuring of its worldwide
operations. The Company is currently in the process of making enhancements to
the CrystalJet manufacturing process to allow for increased production of the
CrystalJet product. The Company anticipates that these efforts will result in
improved gross margins and operating results during the second half of fiscal
1998. However, no assurances can be given that the Company will be successful
in realizing these goals. Failure to achieve market acceptance of these
products or the inability to timely achieve required production volumes at
acceptable costs could have a further material adverse impact on the Company's
consolidated financial position, results of operations and cash flows.
 
  During the first six months of 1998, the Company used $4.5 million of cash
in its operations primarily to fund its continuing net losses of $32.4
million, net of depreciation and amortization of $7.6 million, offset by $20.6
million provided primarily from the receipt of $20 million from the Joint
Development Agreement of which $14.6 million was recorded in deferred revenue.
As of June 28, 1998, the balance in deferred revenue from the Kodak Joint
Development Agreement was $7.7 million. In addition, $5.7 million was expended
on plant and equipment, relating primarily to purchases of tooling and
equipment for the development and manufacture of the new CrystalJet product
line. These uses of cash for operating and investing activities were funded
substantially by the issuance of the stock warrant of $5.4 million to Kodak
under the Joint Development Agreement and borrowings from the Majority
Shareholder of $2.9 million, pursuant to the Credit Agreements.
 
  During the fourth quarter of 1997, the Company expanded its plan to
restructure its operations worldwide and provided a charge of approximately
$4,788,000, consisting primarily of $2,900,000 for the elimination of
91 positions relating to further realignment of the Company's international
operations, and $1,888,000 for lease termination and fixed asset disposition
costs for certain international facilities. During the first six months of
1998, the Company incurred cash expenditures aggregating $1,388,000 and non-
cash charges aggregating $243,000 that were applied against the reserve. At
June 28, 1998, the restructuring accrual approximated $3,418,000, consisting
of $2,620,000 from the 1997 restructuring plan and $798,000 remaining from the
1996 restructuring plan. The remaining amount of the 1996 plan principally
relates to lease termination obligations.
 
  Although the Company believes that cost savings from the restructuring of
its worldwide operations, which has been substantially completed in the first
half of 1998, with the exception of certain severance and operating lease
payments, combined with the introduction of its proprietary new CrystalJet
product line, will allow the Company to better respond to intense industry
competition, no assurance can be given that such goals will be realized. The
Company anticipates operating losses to continue through 1998.
 
  Year 2000 Compliance. Many existing computer systems, applications, and
other control devices, use only two digits to identify a year in the date
field, without considering the impact of the upcoming change in the century.
Such systems and applications could fail or create erroneous results unless
corrected to process data related to the Year 2000. The Company relies on its
systems, applications and devices in operating and monitoring all major
aspects of its business, including systems (such as general ledger, accounts
payable, and payroll modules), customer services, infrastructure, embedded
computer chips, networks and telecommunications equipment. The Company also
relies, directly and indirectly, on external systems of business enterprises
such as customers, suppliers, creditors, financial organizations and
governmental entities, both domestic and international, for accurate exchange
of data.
 
  The Company has been investigating and continues to assess the impact, if
any, which Year 2000 issues may have on its internal computer systems.
Although the assessment process is not complete, based on
 
                                      15
<PAGE>
 
information and estimates currently available, Year 2000 issues related to
these systems will not have a material adverse effect on the operations,
financial condition, financial results, or cash flows of the Company. The
inability of customers, suppliers, and other external enterprises with which
the Company interacts to make timely changes to their own systems could have
an adverse impact on the Company.
 
  The Company believes all of its current products are Year 2000 compliant.
 
                                      16
<PAGE>
 
                           CALCOMP TECHNOLOGY, INC.
 
                          PART II. OTHER INFORMATION
 
ITEM 1. LEGAL PROCEEDINGS
 
  For a discussion of legal proceedings, see Note 8 Contingencies--Legal of
the Notes to Unaudited Condensed Consolidated Financial Statements in Part I,
which is incorporated herein by reference.
 
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
 
   For a discussion of changes in securities, see Note 2 Operations and
Financing of the Notes to Unaudited Condensed Consolidated Financial
Statements in Part I, which is incorporated herein by reference.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
  The 1998 Annual Meeting of Shareholders of CalComp Technology, Inc. was held
on June 11, 1998.
 
  A total of 45,100,218 of the Company's shares were present or represented by
proxy at the meeting. This represented more than 95.764% of the Company's
shares outstanding.
 
  The individuals named below were elected to serve one year terms as
Directors of the Company.
 
<TABLE>
<CAPTION>
                                              TOTAL VOTE FOR TOTAL VOTE WITHHELD
     NAME                                     EACH DIRECTOR  FROM EACH DIRECTOR
     ----                                     -------------- -------------------
     <S>                                      <C>            <C>
     Arthur E. Johnson.......................   44,668,542         431,676
     John C. Batterton.......................   44,673,442         426,776
     Jeb S. Hurley...........................   44,673,442         426,776
     Gary P. Mann............................   44,661,942         438,276
     Terry F. Powell.........................   44,662,442         437,776
     Kenneth R. Ratcliffe....................   44,668,542         431,676
     Gerald W. Schaefer......................   44,673,942         426,276
     Walter E. Skowronski....................   44,673,242         426,976
</TABLE>
 
  The amendment of the Company's Certificate of Incorporation to increase the
total authorized shares of Common Stock from 60,000,000 to 125,000,000 was
approved, with 44,516,671 shares voting for, 552,642 shares voting against,
and 30,905 shares abstaining.
 
  The amendment of the Company's 1996 Stock Option Plan for Key Employees (the
"Plan") to increase the maximum aggregate number of shares of Common Stock
available for grant under the Plan from 2,000,000 to 4,000,000 shares was
approved, with 44,858,068 shares voting for, 213,706 shares voting against,
and 28,444 shares abstaining.
 
  The election of Ernst & Young L.L.P. as independent accountants was
ratified, with 45,059,753 shares voting for, 23,700 shares voting against, and
16,765 shares abstaining.
 
                                      17
<PAGE>
 
ITEM 6. Exhibits and Reports on Form 8-K
 
(a) Exhibits--The following exhibits are included herein:
 
3.1 Certificate of Amendment of Fourth Amended and Restated Certificate of
    Incorporation of the Company, filed on July 8, 1998.
 
3.2 Certificate of Designation of Series A Cumulative Redeemable Preferred
    Stock of the Company, filed on July 15, 1998.
 
27  Financial data schedule.
 
(b) Reports on Form 8-K:
 
  Reports on Form 8-K filed by the Company during and subsequent to the
Company's second quarter ended June 28, 1998 were as follows:
 
    Form 8-K dated March 29, 1998 filed on March 30, 1998, reporting under
  Item 5 the Company's Patent License and Joint Development Agreement with
  Eastman Kodak Co.
 
    Forms 8-K dated July 17, 1998 filed on July 17, 1998, reporting under
  Item 5 the Company's Exchange Agreement with Lockheed Martin Corporation.
 
                                      18
<PAGE>
 
                            CALCOMP TECHNOLOGY, INC.
 
                                   SIGNATURES
 
  Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
 
                                          Calcomp Technology, Inc
                                           (Registrant)
 
Date: August 7, 1998
 
                                                /s/ John J. Millerick
                                          ------------------------------------
                                                    John J. Millerick
 
                                          Senior Vice President and Chief
                                           Financial Officer
                                           (Principal Financial and Accounting
                                           Officer)
 
 
                                       19