<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 SEPTEMBER 27, 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)
 
<TABLE>
<S>                                       <C>
           DELAWARE                           06-0888312
  (STATE OR OTHER JURISDICTION OF          (I.R.S. EMPLOYER
  INCORPORATION OR ORGANIZATION)          IDENTIFICATION NO.)

      2411 W. LA PALMA AVENUE,
        ANAHEIM, CALIFORNIA                     92801
  (ADDRESS OF PRINCIPAL EXECUTIVE             (ZIP CODE) 
              OFFICES)                        
</TABLE>
 
                                (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 OCTOBER 23, 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 September 27, 1998
             (Unaudited) and December 28, 1997............................     3
            Unaudited Condensed Consolidated Statements of Operations for
             the three and nine months ended September 27, 1998 and
             September 28, 1997...........................................     4
            Unaudited Condensed Consolidated Statements of Cash Flows for
             the nine months ended September 27, 1998 and September 28,
             1997.........................................................     5
            Notes to Unaudited Condensed Consolidated Financial
             Statements...................................................     6
    Item 2. Management's Discussion and Analysis of Financial Condition
            and Results of Operations.....................................    13
 PART II. OTHER INFORMATION
    Item 1. Legal Proceedings.............................................    19
    Item 2. Changes in Securities and Use of Proceeds.....................    19
    Item 6. Exhibits and Reports on Form 8-K..............................    19
    Signatures.............................................................   20
</TABLE>
 
                                       2
<PAGE>
 
                            CALCOMP TECHNOLOGY, INC.
 
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                                     SEPTEMBER 27, DECEMBER 28,
                                                         1998          1997
                                                     ------------- ------------
                                                      (UNAUDITED)
                       ASSETS
                       ------
<S>                                                  <C>           <C>
Current assets:
  Cash..............................................   $   4,296    $   6,494
  Accounts receivable, net..........................      18,738       26,208
  Accounts receivable from affiliates...............         835        4,428
  Inventories (Note 4)..............................      34,968       43,069
  Prepaids and other current assets.................       4,209        4,783
                                                       ---------    ---------
    Total current assets............................      63,046       84,982
Property, plant and equipment, net..................      29,323       29,048
Goodwill, net.......................................      75,468       79,994
Other assets........................................      15,230       15,433
                                                       ---------    ---------
    Total assets....................................   $ 183,067    $ 209,457
                                                       =========    =========

        LIABILITIES AND STOCKHOLDERS' EQUITY
        ------------------------------------
Current liabilities:
  Accounts payable..................................   $  18,145    $  14,395
  Accounts payable to affiliates....................       3,006        5,591
  Deferred revenue (Note 7).........................       7,672        6,828
  Accrued restructuring costs (Note 3)..............       2,667        5,049
  Accrued reorganization costs......................       6,035        6,878
  Accrued salaries and related expenditures.........       5,803        4,487
  Line of credit with Majority Shareholder (Note
   5)...............................................      16,322          --
  Other current liabilities.........................      22,683       22,600
                                                       ---------    ---------
    Total current liabilities.......................      82,333       65,828

Other long-term liabilities.........................       7,859        8,371
Line of credit with Majority Shareholder (Note 5)...         --        59,525
Contingencies (Notes 2, 8 and 9)

STOCKHOLDERS' EQUITY:
  Preferred stock, $.01 par value, 5,000,000 shares
   authorized, 1,000,000 issued and outstanding on
   September 27, 1998...............................      60,000          --
  Common stock, $.01 par value, 60,000,000 shares
   authorized, 47,120,650 and 47,070,950 shares
   issued and outstanding on September 27, 1998 and
   December 28, 1997, respectively..................         471          471
  Additional paid-in capital........................     292,804      287,322
  Accumulated deficit...............................    (265,345)    (217,145)
  Accumulated other comprehensive income:
   Cumulative translation adjustment................       5,410        5,550
  Less: Treasury stock, at cost, 49,000 shares......        (465)        (465)
                                                       ---------    ---------
  Total stockholders' equity........................      92,875       75,733
                                                       ---------    ---------
    Total liabilities and stockholders' equity......   $ 183,067    $ 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           NINE MONTHS ENDED
                         --------------------------- ---------------------------
                         SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 27, SEPTEMBER 28,
                             1998          1997          1998          1997
                         ------------- ------------- ------------- -------------
<S>                      <C>           <C>           <C>           <C>
Revenue.................  $   35,547    $   47,336    $  114,913    $  159,919
Cost of revenue.........      32,289        45,360       102,095       135,780
                          ----------    ----------    ----------    ----------
  Gross profit..........       3,258         1,976        12,818        24,139
Operating expenses:
  Research and develop-
   ment.................       3,766         7,592         9,971        16,858
  Selling, general and
   administrative.......      13,472        15,419        44,605        46,867
  Corporate expenses
   from Majority
   Shareholder..........       1,273           725         3,273         2,175
  Gain on disposal of
   facilities (Note 6)..         --            --            --         (5,873)
                          ----------    ----------    ----------    ----------
Loss from operations....     (15,253)      (21,760)      (45,031)      (35,888)
Interest expense........        (431)         (845)       (2,868)       (2,920)
Other expense, net......         (69)         (909)         (141)         (993)
                          ----------    ----------    ----------    ----------
Loss before income
 taxes..................     (15,753)      (23,514)      (48,040)      (39,801)
Provision for income
 taxes..................          95           225           160           752
                          ----------    ----------    ----------    ----------
Net loss................  $  (15,848)   $   23,739)   $  (48,200)   $  (40,553)
                          ==========    ==========    ==========    ==========
Basic and diluted loss
 per share (Note 1).....  $    (0.34)   $    (0.51)   $    (1.02)   $    (0.86)
                          ==========    ==========    ==========    ==========
Weighted-average shares
 outstanding............  47,120,650    46,943,435    47,100,606    46,913,578
                          ==========    ==========    ==========    ==========
</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>
                                                          NINE MONTHS ENDED
                                                     ---------------------------
                                                     SEPTEMBER 27, SEPTEMBER 28,
                                                         1998          1997
                                                     ------------- -------------
<S>                                                  <C>           <C>
Operating activities:
  Net loss.........................................    $(48,200)     $(40,553)
  Adjustments to reconcile net loss to net cash
   used in operating activities:
    Depreciation and amortization..................      11,836         9,100
    Restructuring payments.........................      (2,382)       (6,683)
    Investee income................................        (219)         (913)
    Gain on disposal of facilities.................         --         (5,873)
    Net changes in operating assets and
     liabilities...................................      21,406         5,244
                                                       --------      --------
      Net cash used in operating activities........     (17,559)      (39,678)
Investing activities:
  Purchase of property, plant and equipment........      (6,888)       (6,071)
  Dividends received...............................         121           168
  Proceeds from disposition of property, plant and
   equipment.......................................         --            867
  Proceeds from disposal of facilities.............         --         21,121
                                                       --------      --------
      Net cash (used in) provided by investing
       activities..................................      (6,767)       16,085
Financing activities:
  Net proceeds from line of credit with Majority
   Shareholder.....................................      16,797        16,394
  Issuance of warrant to purchase common stock.....       5,360           --
  Exercise of stock options........................         122           306
  Reduction in revolving line of credit............         --         (2,948)
                                                       --------      --------
      Net cash provided by financing activities....      22,279        13,752
Effect of exchange rate changes on cash............        (151)         (536)
                                                       --------      --------
Change in cash.....................................      (2,198)      (10,377)
Cash at beginning of period........................       6,494        15,290
                                                       --------      --------
Cash at end of period..............................    $  4,296      $  4,913
                                                       ========      ========
Supplementary disclosures of cash flow information:
  Net income taxes received........................    $   (869)     $   (263)
  Interest paid....................................    $  3,020      $  2,948
</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 nine
month periods ended September 27, 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 nine months ended September 27,
1998, and September 28, 1997, are as follows:
 
<TABLE>
<CAPTION>
                                                              1998      1997
                                                            --------  --------
   <S>                                                      <C>       <C>
   Net loss................................................ $(48,200) $(40,553)
   Foreign currency translation adjustment.................     (140)   (1,798)
                                                            --------  --------
   Comprehensive loss...................................... $(48,340) $(42,351)
                                                            ========  ========
</TABLE>
 
2. OPERATIONS AND FINANCING
 
  The Company's operations have resulted in net losses of $48.2 million, $75.2
million and $56.6 million for the nine months ended September 27, 1998 and the
years ended December 28, 1997 and December 29, 1996, respectively. The
Company's main source of financing has been a line of credit with Lockheed
Martin Corporation (the "Majority Shareholder") which is made up of the
Revolving Credit Agreement and the Cash Management Agreement, collectively
referred to as the "Credit Agreements". Additional sources of financing have
included cash received pursuant to the signing of a Joint Development
Agreement with Eastman Kodak Company ("Kodak"), and the proceeds from the sale
of the Company's headquarters facility.
 
                                       6
<PAGE>
 
                           CALCOMP TECHNOLOGY, INC.
 
  NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  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 "Debt Exchange"). In connection with the Debt
Exchange, the Revolving Credit Agreement was amended to reduce the amount of
borrowing available to the Company from $73 million to $13 million. In August
and September 1998, the Cash Management Agreement was twice amended to
increase the amount of borrowing available to the Company from $2 million to
$14 million. At September 27, 1998, the Company had drawn a total of $16.3
million against the Credit Agreements. In November 1998, the Cash Management
Agreement was further amended to increase the amount of borrowing available to
the Company from $14 million to $30 million. The Company, based on currently
projected operating requirements, anticipates that it will have fully drawn
down the $43 million of credit line available under the Credit Agreements
during January 1999, and will have a need for additional funding thereafter.
Pending the outcome of its on-going review of the Company's operations, the
Majority Shareholder has agreed to consider loaning the Company additional
funds to satisfy the Company's near term operating requirements.
 
  The Company is aware the Majority Shareholder, in its Quarterly Report on
Form 10-Q for the period ended September 30, 1998, which was filed with the
Securities and Exchange Commission on November 2, 1998, disclosed the
following:
 
    "The Corporation [Majority Shareholder] has been reviewing its
  relationship with CalComp [the Company]. This review, which has not
  been completed, has included assessments of CalComp's [the Company's]
  business strategy and proposed operating plans, CalComp's [the
  Company's] role in the Corporation's [Majority Shareholder's] overall
  business strategy, and the Corporation's [Majority Shareholder's] role
  as the primary source of financing for CalComp's [the Company's]
  operations. If, upon completion of this review, the Corporation
  [Majority Shareholder] should adopt a plan to terminate its role as a
  funding source or otherwise reduce its involvement with CalComp [the
  Company], significant charges in addition to those described in the
  preceding paragraph [see Note 9 for clarification of aforementioned
  charges] would likely be recognized by the Corporation [Majority
  Shareholder] in its consolidated financial statements at the time of
  plan adoption. These charges, which could range from $60 million to
  $100 million based on the preliminary data available, would be
  associated with the value of the Corporation's [Majority Shareholder's]
  investment and estimated costs related to the specific actions required
  by the plan."
 
  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.
 
  In March 1998, the Company entered into the Joint Development Agreement with
Kodak that provided an initial payment of $20 million in April 1998 and
contemplates 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 September 1998, the first milestone was achieved and a
receivable of $2 million was recorded. For further discussion of the Joint
Development Agreement, see Note 7.
 
  In July 1998, the Company engaged Solomon Smith Barney as an investment
advisor to assist the Company in the consideration of strategic alternatives.
In October 1998, the Company made the decision to focus its efforts and
resources on the CrystalJet(TM) product line and to divest its Input
Technologies, Cutter, and non-CrystalJet Service and Support businesses as
these businesses were considered non-strategic. In connection with this
decision, the Company will record a one-time non-cash impairment charge in the
fourth quarter of approximately $60 million to write-down the carrying value
of the net assets of these businesses to their estimated fair value. In
 
                                       7
<PAGE>
 
                           CALCOMP TECHNOLOGY, INC.
 
  NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
addition, the Company is currently evaluating the business model and strategy
of its continuing operations. As a result, in the fourth quarter, the Company
expects to record non-cash charges of approximately $30 to $35 million related
to the impairment of certain long-lived assets, including goodwill. These non-
cash charges will have no effect on the Company's current or future cash
flows. Subject to obtaining sufficient financing to continue its operations,
the Company is also evaluating the need to realign and restructure its
continuing operations. The Company plans to complete this evaluation in the
fourth quarter of 1998 and, if required, record the appropriate realignment
and restructuring charges during that quarter.
 
  The Company has continued its focus on improving the Company's competitive
position by resuming shipments of the new line of CrystalJet piezo inkjet
printers. In addition, the Company has instituted additional improvements in
the CrystalJet manufacturing process to allow for increased production and
better operating performance of the CrystalJet product. However, no assurances
can be given that the Company will be successful in realizing its goals for
manufacturing and marketing the CrystalJet products. Further, even if the
Company was to meet these goals, the Company anticipates that it would
continue to incur operating losses at least through the first two quarters of
1999. 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 worldwide operations and provided a charge of approximately
$4.8 million consisting primarily of $2.9 million for the elimination of 91
positions, relating to further realignment of the Company's international
operations, and $1.9 million for lease termination and fixed asset disposition
costs for certain international facilities. During the first nine months of
1998, the Company incurred cash expenditures aggregating $2.4 million that
were applied against the reserve. At September 27, 1998, the restructuring
accrual approximates $2.7 million, consisting of $1.9 million from the 1997
restructuring plan and $0.8 million remaining from the 1996 restructuring
plan. The remaining amount of the 1997 plan principally relates to severance
and lease termination obligations and that of the 1996 plan to lease
termination obligations. Although subject to future adjustment, the Company
believes that the amounts accrued at September 27, 1998 are adequate to
complete these restructuring plans.
 
4. INVENTORIES
 
  Inventories consist of the following:
 
<TABLE>
<CAPTION>
                                                      SEPTEMBER 27, DECEMBER 28,
                                                          1998          1997
                                                      ------------- ------------
                                                            (IN THOUSANDS)
   <S>                                                <C>           <C>
   Raw materials and purchased components...........     $11,050      $11,042
   Work in process..................................         546          434
   Finished goods...................................      23,372       31,593
                                                         -------      -------
                                                         $34,968      $43,069
                                                         =======      =======
</TABLE>
 
5. INDEBTEDNESS
 
 Credit Agreements with Majority Shareholder
 
  In July 1996, the Company and the Majority Shareholder entered into two
separate agreements, a Revolving Credit Agreement and a Cash Management
Agreement. The Revolving Credit Agreement was subsequently
 
                                       8
<PAGE>
 
                           CALCOMP TECHNOLOGY, INC.
 
  NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
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 contains 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. In July 1998, in connection with the Debt Exchange, the Revolving
Credit Agreement was amended to reduce the amount of borrowing available to
the Company from $73 million to $13 million.
 
  The Cash Management Agreement originally provided 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. In August and September 1998, the
Cash Management Agreement was twice amended to increase the amount of
borrowing available to the Company from $2 million to $14 million. On November
10, 1998, the Cash Management Agreement was further amended to increase the
amount of borrowing available to the Company from $14 million to $30 million.
 
  The Revolving Credit Agreement provides for interest on borrowings, 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. Borrowings under the Cash Management Agreement bear interest equal
to the Federal Funds Rate.
 
  As of September 27, 1998, the Company had an aggregate outstanding balance
of $16.3 million under the Credit Agreements, with interest rates ranging from
5.0% to 8.5%.
 
 The Debt Exchange
 
  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 owed by the Company to the Majority
Shareholder under the Revolving Credit Agreement was exchanged for 1,000,000
shares of Preferred Stock. In connection with the Debt Exchange, the Revolving
Credit Agreement was amended to reduce the amount of borrowing available to
the Company from $73 million to $13 million. The Company and the Majority
Shareholder effected the Debt Exchange for the purpose of strengthening the
Company's balance sheet and ensuring that the Company continued 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 Debt Exchange was fair and reasonable to all of the Company's
common stockholders.
 
  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
<PAGE>
 
                           CALCOMP TECHNOLOGY, INC.
 
  NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
$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 paid in
April 1998 and an additional $16 million upon the achievement of certain
milestones and the occurrence of certain events. In September 1998, the first
milestone was achieved and a receivable of $2 million was recorded which was
paid in October 1998. 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 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 September 27,
1998, the amount of deferred revenue amortized to income was $12.2 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. 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
 
                                      10
<PAGE>
 
                           CALCOMP TECHNOLOGY, INC.
 
  NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
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 English High
Court of Justice ("High Court") in London 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 ("'703 Patent"), which covers certain pulsed droplet deposition apparatus
and certain processes for manufacturing pulsed droplet deposition apparatus,
as a result of sales of the Company's CrystalJet printers in the U.K. The
complaint seeks an injunction and 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 sale of CrystalJet printers in the U.K. does not infringe
any valid claims of this patent. The Company has also counterclaimed for an
order revoking the '703 Patent. The Company intends to defend itself against
all claims made and to pursue its counterclaim for the revocation of the '703
Patent.
 
  On September 7, 1998, the Company, CalComp Inc. and CalComp Ltd., filed an
action in the High Court to revoke Xaar's European Patent (UK) number EP 0 278
590 (the "'590 Patent") which also covers certain pulsed droplet deposition
apparatus and certain processes for manufacturing pulsed droplet deposition
apparatus and which involves technology similar to that in the '703 Patent.
 
  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
 
                                      11
<PAGE>
 
                           CALCOMP TECHNOLOGY, INC.
 
  NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
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 September 27, 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.
 
9. SUBSEQUENT EVENT
 
  On October 27, 1998, the Company made the decision to focus its efforts and
resources on the CrystalJet product line and to divest its Input Technologies,
Cutter, and non-CrystalJet Service and Support businesses as these businesses
were considered non-strategic. In connection with this decision, the Company
will record a one-time non-cash impairment charge in the fourth quarter of
approximately $60 million to write-down the carrying value of the net assets
of these businesses to their estimated fair value. The Company will not
depreciate or amortize any of the long-term assets of these businesses while
they are held for disposal. Together, these businesses recorded sales of $53.4
million and $76.9 million for the nine months ended 1998 and 1997,
respectively. The Company anticipates completing these divestiture efforts
during 1999.
 
  In addition, the Company is currently evaluating the business model and
strategy of its continuing operations. As a result, in the fourth quarter, the
Company expects to record non-cash charges of approximately $30 to $35 million
related to the impairment of certain long-lived assets, including goodwill.
Subject to obtaining sufficient financing to continue its operations, the
Company is also evaluating the need to realign and restructure its continuing
operations. The Company plans to complete this evaluation in the fourth
quarter of 1998 and, if required, record the appropriate realignment and
restructuring charges during that quarter.
 
                                      12
<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 is a supplier of both input and output computer graphics
peripheral products consisting of printers (including plotters), cutters,
digitizers, and large format scanners. The Company's products and services
have historically competed in several markets including CAD/CAE/CAM,
presentation graphics, graphic arts, and printing and publishing. In 1997, the
Company introduced its new CrystalJetTM 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. In October 1998, the Company made the decision to divest its
Input Technologies, Cutter and non-CrystalJet Service and Support businesses
in order to focus the Company's efforts and resources on the CrystalJet
product line and the graphic arts market.
 
  The Company's future product offerings will be limited to the 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.
 
  The Company's ability to successfully maintain or increase its share of the
graphic arts market 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 its business. 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 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 September 27, 1998, declined $11.8
million, or 25%, to $35.5 million from the same period in 1997. Product
revenues were down 46% and service revenue was down 28% versus the same period
in 1997. The decline in product and service revenue was offset by $8.2 million
of revenue recognized in the third quarter of 1998 from the Joint Development
Agreement which consists of $6.2 million of royalty revenue and $2.0 million
from milestone achievements for which there was no corresponding amount in the
same period in 1997. 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
 
                                      13
<PAGE>
 
from the Company's discontinuance of certain output products in anticipation
and preparation for the CrystalJet product lines, as well as from delays in
volume shipments of the CrystalJet wide format digital inkjet printers.
Digitizer input product revenue also declined as a result of the impact of
increasing interchangeability of mouse input devices as an 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 current
economic situation in Asia has also contributed to the decrease in revenue.
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. When the Company completes the
divestitures of the Input Technologies, Cutter and non-CrystalJet Service and
Support businesses, the related revenues will no longer be reflected in the
results. For discussion of the Company's plans to divest these businesses, see
Note 9 of the Notes to Unaudited Condensed Consolidated Financial Statements.
 
  Revenue for the nine months ended September 27, 1998 declined $45.0 million,
or 28%, to $114.9 million compared to the same period in 1997. Product
revenues were down 40% and service revenue was down 23%. The decline in
product and service revenue was offset by $14.2 million of revenue recognized
from the Joint Development Agreement consisting of $12.2 million of royalty
and $2.0 million from milestone achievements. The decline in revenue for the
nine-month period compared to the same period in 1997 was due to the factors
that were discussed for the quarter.
 
  Gross Profit. In the third quarter of 1998, amounts recognized from the
Joint Development Agreement made up $14.2 million of the gross profit for
which there was no corresponding amount in the prior year. Excluding the
profit from the Joint Development Agreement, gross profit as a percentage of
revenue was a loss of 18% for the third quarter and a loss of 1% for the first
nine months of 1998 compared to profit of 4% and 15%, respectively, 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 CrystalJet wide format
inkjet printers.
 
  Operating Expenses. Operating expenses for the third quarter of 1998
decreased 22%, or $5.2 million, to $18.5 million compared to the same period
in 1997. Excluding the one time gain of $5.9 million from the sale of the
Company's headquarters facility during the second quarter last year, operating
expenses decreased $8.1 million, or 12%, for the nine-month period. These
decreases resulted primarily from the benefits of cost reductions done to
reduce staffing and facility expenses as well as to narrow the Company's focus
on new technologies.
 
  Research and development expenses decreased $3.8 million in the third
quarter of 1998 compared to the same period in 1997 and decreased $6.9 million
in the first nine months of 1998 compared to the same period in 1997. As a
percentage of net revenue research and development expense decreased 2% from
11% for the first nine months of 1997 to 9% for the first nine months of 1998.
These decreases reflect the benefits of cost reductions resulting from the
Company's decision to narrow its focus to its new technologies.
 
  Selling, general and administrative expenses decreased $1.9 million in the
third quarter of 1998 compared to the same period in 1997. As a percentage of
revenue, these expenses increased to 38% in the third quarter of 1998 compared
to 33% for the third quarter of 1997. Spending decreased as a result of the
reduced staffing and facility expenses from the 1997 restructuring actions and
the Company's continuing efforts to reduce spending in relation to revenue.
However, even with these efforts, spending increased as a percentage of
revenue as the reduced spending is being compared to a significantly smaller
revenue base. In the first nine months of 1998, selling, general and
administrative expenses decreased $2.3 million as compared to the same period
in 1997. The decline in spending was due to the same reasons noted for the
quarter. As a percentage of revenue, these expenses increased to 39% compared
to 29% for the same period in the prior year. The expenses did not
commensurately decrease with revenue as legal expenses increased during 1998
resulting from the defense of current lawsuits.
 
                                      14
<PAGE>
 
  Corporate expenses from the Majority Shareholder increased $0.5 million to
$1.3 million and $1.1 million to $3.3 million in the third quarter and first
nine 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 decreased to $0.4 million for the third
quarter of 1998 from $0.9 million in the same period in 1997 as the Company's
outstanding balances under the Credit Agreements were substantially reduced
during the third quarter of 1998 compared to the third quarter of 1997 due to
the conversion of debt to equity effected in July 1998. Interest expense
remained flat at $2.9 million for the first nine months of 1998 and 1997 due
to the fact that while the Company's outstanding balances under the Credit
Agreements fluctuated during the periods, the average balances were
approximately the same for both periods.
 
  Income Tax Provision. Income tax provision of $0.1 million decreased for the
third quarter of 1998 compared to the same period in 1997. For the nine-month
period of 1998, income tax provision decreased to $0.2 million compared to
$0.8 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 operations have resulted in net losses of $48.2 million, $75.2
million and $56.6 million for the nine months ended September 27, 1998 and the
years ended December 28, 1997 and December 29, 1996, respectively. The
Company's main source of financing has been a line of credit with Lockheed
Martin Corporation (the "Majority Shareholder") which is made up of the
Revolving Credit Agreement and the Cash Management Agreement, collectively
referred to as the "Credit Agreements". Additional sources of financing have
included cash received pursuant to a Joint Development Agreement with Eastman
Kodak Company ("Kodak") and the proceeds from the sale of the Company's
headquarters facility.
 
  In August and September 1998, the Cash Management Agreement was twice
amended to increase the amount of borrowing available to the Company from $2
million to $14 million. At September 27, 1998, the Company had drawn a total
of $16.3 million against the Credit Agreements. In November 1998, the Cash
Management Agreement was further amended to increase the amount of borrowing
available to the Company from $14 million to $30 million. The Company, based
on currently projected operating requirements, anticipates that it will have
fully drawn down the $43 million of credit line available under the Credit
Agreements during January 1999, and will have a need for additional funding
thereafter. Pending the outcome of its on going review of the Company's
operations, the Majority Shareholder has agreed to consider loaning the
Company additional funds to satisfy the Company's near term operating
requirements.
 
  The Company is aware the Majority Shareholder, in its Quarterly Report on
Form 10-Q for the period ended September 30, 1998, which was filed with the
Securities and Exchange Commission on November 2, 1998, disclosed the
following:
 
    "The Corporation [Majority Shareholder] has been reviewing its
  relationship with CalComp [the Company]. This review, which has not been
  completed, has included assessments of CalComp's [the Company's] business
  strategy and proposed operating plans, CalComp's [the Company's] role in
  the Corporation's [Majority Shareholder's] overall business strategy, and
  the Corporation's [Majority Shareholder's] role as the primary source of
  financing for CalComp's [the Company's] operations. If, upon completion of
  this review, the Corporation [Majority Shareholder] should adopt a plan to
  terminate its role as a funding source or otherwise reduce its involvement
  with CalComp [the Company], significant charges in addition to those
  described in the preceding paragraph [see Note 9 for clarification of
  aforementioned charges] would likely be recognized by the Corporation
  [Majority Shareholder] in its consolidated financial statements at the time
  of plan adoption. These charges, which could range from $60 million to $100
  million based on the preliminary data available, would be associated with
  the value of the Corporation's [Majority Shareholder's] investment and
  estimated costs related to the specific actions required by the plan."
 
                                      15
<PAGE>
 
  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.
 
  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 "Debt Exchange"). In connection with the Debt
Exchange, 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 Debt Exchange for the purpose of strengthening the Company's balance sheet
and ensuring that the Company continued 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 Debt
Exchange was fair and reasonable to all of the Company's common stockholders.
For further discussion of the Debt Exchange, see Note 5 of the Notes to
Unaudited Condensed Consolidated Financial Statements.
 
  In July 1998, the Company engaged Salomon Smith Barney as an investment
advisor to assist the Company in the consideration of strategic alternatives.
In October 1998, the Company made the decision to focus its efforts and
resources on the CrystalJet product line and to divest its Input Technologies,
Cutter, and non-CrystalJet Service and Support businesses as these businesses
were considered non-strategic. In connection with this decision, the Company
will record a one-time non-cash impairment charge in the fourth quarter of
approximately $60 million to write-down the carrying value of the net assets
of these businesses to their estimated fair value. The Company anticipates
completing these divestiture efforts in 1999. In addition, the Company is
currently evaluating the business model and strategy of its continuing
operations. As a result, in the fourth quarter, the Company expects to record
non-cash charges of approximately $30 to $35 million related to the impairment
of certain long-lived assets, including goodwill. These non-cash charges will
have no effect on the Company's current or future cash flows. Subject to
obtaining sufficient financing to continue its operations, the Company is also
evaluating the need to realign and restructure its continuing operations. The
Company plans to complete this evaluation in the fourth quarter of 1998 and,
if required, record the appropriate realignment and restructuring charges
during that quarter.
 
  The Company has continued its focus on improving the Company's competitive
position by resuming shipments of the new line of CrystalJet piezo inkjet
printers. The Company has instituted additional improvements in the CrystalJet
manufacturing process to allow for increased production and better operating
performance of the CrystalJet product. However, no assurances can be given
that the Company will be successful in realizing its goals for manufacturing
and marketing the CrystalJet products. Further, even if the Company was to
meet these goals, the Company anticipates that it would continue to incur
operating losses at least through the first two quarters of 1999. 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 nine months of 1998, the Company used $17.6 million of cash
in its operations primarily to fund its continuing net losses of $48.2
million, net of depreciation and amortization of $11.8 million, offset by
$21.4 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 September 27, 1998, the balance in deferred revenue from the
Kodak Joint Development Agreement was $2.4 million. In addition, $6.9 million
was expended on plant and equipment, relating primarily to purchases of
tooling and equipment for the development and manufacture of the 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 net borrowings from the
Majority Shareholder of $16.8 million, pursuant to the Credit Agreements.
 
                                      16
<PAGE>
 
  During the fourth quarter of 1997, the Company expanded its plan to
restructure its operations worldwide and provided a charge of approximately
$4.8 million consisting primarily of $2.9 million for the elimination of 91
positions, relating to further realignment of the Company's international
operations, and $1.9 million for lease termination and fixed asset disposition
costs for certain international facilities. During the first nine months of
1998, the Company incurred cash expenditures aggregating $2.4 million that
were applied against the reserve. At September 27, 1998, the restructuring
accrual approximates $2.7 million, consisting of $1.9 million from the 1997
restructuring plan and $0.8 million remaining from the 1996 restructuring
plan. The remaining amount of the 1997 plan principally relates to severance
and lease termination obligations and that of the 1996 plan to lease
termination obligations. Although subject to future adjustment, the Company
believes that the amounts accrued at September 27, 1998 are adequate to
complete these restructuring plans.
 
  Year 2000 Compliance. Many existing computer systems and 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.
Others do not correctly process "leap year" dates. As a result, such systems
and applications could fail or create erroneous results unless corrected to
process data related to the year 2000 and beyond. The problems are expected to
increase in frequency and severity as the year 2000 approaches, and are
commonly referred to as the "Year 2000 Problem." 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 is continuing to assess the impact that the Year 2000 Problem
may have on its operations and has identified the following four key areas of
its business that may be affected:
 
  Products. The Company has completed Year 2000 compliance testing on its
currently supported products. The products were classified into two
categories: category I having no date related processing and category II
having internal date clocks which will properly handle and roll-over calendar
data. Based upon the evaluation and testing completed, the Company believes
that its currently supported products are Year 2000 compliant. The Company's
testing did not assess compliance of products modified by customers or third
parties nor did it assess compliance of products connected to individual
customer work environments. The Company has listed its currently supported
products and test data on its Internet site.
 
  Internal Business Systems. The Year 2000 Problem could affect the systems,
transaction processing computer applications and devices used by the Company
to operate and monitor all major aspects of its business, including financial
systems (such as general ledger, accounts payable and payroll), customer
services, infrastructure, materials requirement planning, master production
scheduling, networks and telecommunications systems. The Company has completed
its assessment phase and believes that it has identified substantially all of
the major systems, software applications and related equipment used in
connection with its internal operations that must be modified or upgraded in
order to minimize the possibility of a material disruption to its business.
The Company is currently in its remediation phase of modifying and upgrading
identified systems and expects to complete this phase by the beginning of the
fourth quarter of 1999. The Company estimates that it will be Year 2000
compliant by the end of the fourth quarter of 1999. However, any unforeseen
problems which occur during the testing phase may adversely effect the
Company's Year 2000 readiness.
 
  Third-Party Suppliers. The Company relies, directly and indirectly, on
external systems utilized by its suppliers for products used in the
manufacture of its products. The Company will request confirmation from its
suppliers of their Year 2000 compliance; however, there can be no assurance
that these suppliers will resolve any or all Year 2000 Problems with their
systems in a timely manner. Any failure of these third parties to resolve
their Year 2000 Problems in a timely manner could result in the material
disruption of the business of the Company. Any such disruption could have a
material adverse effect on the Company's business, financial condition and
results of operations.
 
                                      17
<PAGE>
 
  Facility Systems. Systems such as heating, sprinklers, elevators, test
equipment and security systems at the Company's facilities may also be
affected by the Year 2000 Problem. The Company has contacted the Anaheim
facility owners seeking assurances of Year 2000 compliance. The Company has
not yet assessed its facilities at other locations.
 
  The Company has incurred $0.3 million as of the nine-month period ended
September 27, 1998 to address its Year 2000 issues. The Company presently
estimates that the total cost of addressing its Year 2000 issues will be
approximately $1.5 million to $2 million. This estimate was derived utilizing
numerous assumptions, including the assumption that the Company has already
identified its most significant Year 2000 issues, its Input Technologies,
Cutter and non-CrystalJet Service and Support businesses would be sold and
that the plans of its third party suppliers will be fulfilled in a timely
manner without cost to the Company. However, there can be no guarantee that
these assumptions are accurate, and actual results could differ materially
from those anticipated.
 
  The Company recognizes the need for developing contingency plans to address
the Year 2000 issues that may pose a significant risk to its on-going
operations. Such plans could include the implementation of manual procedures
to compensate for system deficiencies. During the remediation phase of the
internal business systems, the Company will be evaluating potential failures
and attempt to develop responses in a timely manner. However, there can be no
assurance that any contingency plans evaluated and potentially implemented by
the Company would be adequate to meet the Company's needs without materially
impacting its operations, that any such plan would be successful or that the
Company's results of operations would not be materially and adversely affected
by the delays and inefficiencies inherent in conducting operations in an
alternative manner.
 
                                      18
<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 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.
 
10.12  Employment Offer and Agreement between the Company and John J.
       Millerick dated July 12, 1996, as amended through July 31, 1998.
 
10.43  Amendment Nos. 1-3 dated March 20, 1998, August 24, 1998 and September
       25, 1998, respectively, to Cash Management Agreement by and between the
       Company and Lockheed Martin Corporation dated as of July 23, 1996. (The
       Cash Management Agreement was filed as Exhibit 10.3 to the Company's
       Form 10-Q for the quarterly period ended September 29, 1996, and is
       incorporated herein by reference.)
 
10.44  Exchange Agreement entered into as of July 15, 1998, by and between the
       Company and Lockheed Martin Corporation.
 
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 third quarter ended September 27, 1998 were as follows:
 
    Form 8-K dated July 17, 1998 filed on July 17, 1998, reporting under Item
  5 the Company's Exchange Agreement with Lockheed Martin Corporation.
 
    Form 8-K dated September 25, 1998 filed on October 1, 1998, reporting
  under Item 5 the Company's Amendment to the Cash Management Agreement with
  Lockheed Martin Corporation.
 
                                      19
<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: November 11, 1998
 
                                                 /s/ John J. Millerick
                                          _____________________________________
                                                    John J. Millerick
                                             Senior Vice President and Chief
                                                    Financial Officer
                                           (Principal Financial and Accounting
                                                         Officer)
 
                                       20