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SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

Commission File Number: 0-10691

Delphax Technologies Inc.

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 (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the last 90 days.     Yes þ          No o

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     o

      Indicate by check mark whether the Registrant is an accelerated filer (as defined by Exchange Act Rule 12b-2).     Yes o          No þ

      The aggregate market value of the voting stock held by nonaffiliates of the Registrant was approximately $23,579,137 at December 20, 2004 when the closing price of such stock, as reported by NASDAQ, was $3.76.

      There were 6,271,047 shares outstanding of Registrant’s $.10 par value Common Stock as of December 20, 2004.

DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the definitive proxy statement to be filed with the Commission in January 2005 for the Company’s Annual Meeting of Shareholders scheduled for March 17, 2005 are incorporated by reference into Part III.

INDEX

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PART I

      This Form 10-K contains certain forward-looking statements. For this purpose, any statements contained in this Form 10-K that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “estimate” or “continue” or comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, and actual results may differ materially depending on a variety of factors, including those set forth in the section below entitled “Risk Factors.”

Company Background

      Delphax Technologies Inc. (the Company) designs, manufactures, sells and services advanced digital print-production equipment based on its patented electron beam imaging (EBI) technology. The Company derives the majority of its revenues from the sale of maintenance contracts, spare parts and supplies that are used with this equipment. The Company’s printing equipment provides customers with the capability to personalize, encode, print and collate documents for publishing, direct mail, legal, financial, security, forms and other commercial printing applications. The Company was formed in 1981 and shipped its first digital printing system for the production of checks and other financial documents, the Model 2000 Checktronic®, in 1983.

      The Company has had a significant presence in the international check production marketplace since 1983. The integration of the check production functions provided by the Checktronic allowed lower cost production of small check orders (25 to 100 checks) that are typical in most markets outside the United States. This, and an improvement in printing quality, created a demand for the Company’s equipment in many international markets. The Company opened its first subsidiary in England in 1983 and a subsidiary in France in 1987.

      During 1998, the Company launched the Imaggia® MG20 digital press in response to the changing demands of security printers and on-demand printing applications worldwide. The Imaggia MG20 system utilizes state-of-the-art digital, non-impact technology, offering print quality that is visually indistinguishable from offset print. The Company markets the Imaggia system to customers with high-volume folio production and print-on-demand (POD) applications.

      In April 1999, the Company entered into an agreement with Océ Printing Systems GmbH for rights to sell (on a private label basis) and service the PS75 MICR and other high-performance sheet-fed MICR printing systems (PS MICR systems) and non-MICR printing systems manufactured by Océ. This agreement terminated effective October 13, 2003, with delivery of spare parts and consumable items continuing, as per the agreement, through October 13, 2008.

      In July 2001, the Company announced the introduction of the Imaggia II digital press. Faster, easier to use and supporting a larger media size than the Imaggia MG20 system, the Imaggia II features a flat-screen operator interface with the front-end data processing capacity to support production of truly variable data from sheet to sheet. The Company began shipping the Imaggia II system in the second quarter of fiscal 2002.

      In December 2001, the Company, through a newly organized Canadian subsidiary, acquired substantially all of the North American business assets of Delphax Systems and Delphax Systems, Inc. (collectively, the “Delphax Business”). The Delphax Business developed, manufactured and distributed print engines, print management software and a range of digital printing systems incorporating the Delphax Business’s proprietary EBI technology. It was the supplier of the print engines used in a number of the Company’s products and also supplied print engines to a number of non-competing original equipment manufacturers (OEM). The acquisition was significant in that it provided the Company with the patented EBI technology for the print engines used in the Company’s products. Shortly after the acquisition, the Company changed its name to Delphax Technologies Inc.

      The Company has maintained supply and license arrangements with the OEM customers of the Delphax Business. These OEM customers provide an important non-competing channel for distributing EBI technology-based products to additional commercial printing markets.

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      In April 2002, the Company announced the introduction of the CR Series of high-volume, roll-fed digital printing presses. The CR900 and CR1300 digital presses deliver 200 and 300 feet per minute throughput, respectively. Both digital presses feature wide-format, duplex production at full 600 X 600 DPI (dots per inch) print quality for publishers, direct mailers, bill and statement printers, in-house data and document centers and service bureaus. The Company sold its first CR Series digital press in June 2002.

      In April 2002, the Company also introduced the RS Series of roll-fed, sheet-output digital print production systems. The RS Series digital printers feature fast throughput and duplex production, with a variety of built-in finishing options for data and document centers, education, public utilities and the financial industry. The Company sold its first RS Series digital printer in June 2002.

      During fiscal 2003, the Company consolidated its manufacturing and engineering operations with those of the Delphax Business in suburban Toronto, Canada.

      In May 2004, the CR2000 was successfully introduced at the Drupa 2004 tradeshow in Germany. This product features a throughput of 450 feet per minute and includes substantial print quality improvements and the same paper processing capabilities as the CR Series digital presses.

      As of September 30, 2004, the Company had approximately 4,000 installations using its EBI technology in more than 60 countries.

Products

      Digital printing equipment is classified as either “sheet-fed” or “roll-fed” printers or presses, depending on their paper-handling characteristics. Sheet-fed printing equipment requires the input of individual pre-cut sheets of paper, or base stock, and may also be called “cut-sheet” printing equipment. Roll-fed printing equipment uses rolls of paper, or fan-folded stacks of paper, and may also be called “web” printing equipment.

      Roll-fed printing equipment is ideal for high-volume printing applications. It is not uncommon for a single roll of base stock to exceed 40,000 feet. Roll-fed printing equipment is limited to a single base stock per print job and often requires more extensive pre-press and post-print finishing processes.

      Sheet-fed printing equipment is generally not as fast as roll-fed printing equipment as it is limited by the process of moving individual sheets of paper through the print engine at high speeds. Sheet-fed printing equipment is designed to handle applications that require multiple paper stocks in a single job, variable overprint on pre-printed stocks, or where volume per print job is comparatively small.

      The Company sells both sheet-fed and roll-fed printing equipment that is currently used in a number of commercial printing applications: folio production, insurance claims, fulfillments, disbursements, publishing, direct mail and transaction processing. Folio production applications include the printing of checkbooks and financial payment coupon books. Insurance claims applications consist of explanation of benefit forms and insurance claim checks. Fulfillment applications include coupons and rebate checks. Disbursement applications include accounts payable checks and payroll checks. Publishing applications include the printing of books, legal and financial documents and manuals. Direct mail applications include the printing of personalized and mass-market mailings. Transaction processing applications include the printing of invoices and statements. The Company’s advanced digital print-production equipment enables its customers to cost-effectively produce applications of these types. The Company also licenses and manufactures EBI technology for OEM partners that create differentiated product solutions for additional markets.

      The Company’s digital presses employ its patented EBI technology. Its flagship products, the CR Series and the Imaggia II system, deliver industry-leading throughput for high-volume roll-fed and sheet-fed printing environments. The systems are durable and reliable for 24 hours a day, 7 days a week, operation, and are able to handle a wide range of substrates, from ultra lightweight paper to heavy stock.

      Sheet-fed Printing Equipment. Currently, the Company’s premier sheet-fed digital presses are in the Imaggia II Series, which offer best-in-class throughput of up to 300 pages (8 1/2” X 11”) per minute at 600 X 600 DPI print quality. The Imaggia II system utilizes state-of-the-art digital, non-impact technology, offering print quality that is visually indistinguishable from offset print. The Imaggia II print quality also meets

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      The Company’s other notable brand of sheet-fed printers is the Checktronic. The Checktronic print system uses a combination of EBI and impact printing technology. The Company markets the Checktronic print system to customers with medium to high-volume folio production, insurance claim, fulfillment and disbursement applications. The Checktronic operates at rated speeds of up to 120 pages per minute and can be purchased with advanced security and audit capability. It is now sold principally as a system upgrade or refurbished product in Latin America, Asia and Africa.

      Roll-fed Printing Equipment. The Company’s premier roll-fed digital press is the CR2000 high-volume, web production system, which delivers 450 feet per minute throughput and features wide-format, duplex production at full 600 X 600 DPI print quality. The Company markets three models of the CR Series system to publishers, direct mailers, bill and statement printers, in-house data and document centers and service bureaus. The CR Series accommodates a wide range of substrates, from ultra lightweight paper to heavy stock, and can be purchased with various output paper handling options. The CR Series digital presses provide a high degree of flexibility, reliability and the consistency required to produce high quality printed output while reducing production costs.

      The Company’s other manufactured roll-fed printer is the RS Series. The RS Series utilizes the Company’s EBI print technology to provide roll-fed duplex production at rated speeds of up to 330 pages per minute. The Company markets three models of the RS Series to customers that require quality, short-run, quick-turnaround printing. The system is well suited for the production of statements and transaction documents, coupons and tags, student information, explanation of benefits pamphlets and letter checks.

      Finishing Systems. In addition to document production systems, the Company manufactures a finishing system to complement its sheet-fed printing equipment. The Foliotronic® Plus system consists of a guillotine and stitcher/binder module. Its rated throughput is up to 2,000 books per hour. When used with the Company’s print equipment, the Foliotronic Plus system enables customers with folio production applications to transform various paper stocks into finished books.

      Additional finishing systems are offered in conjunction with the Company’s sheet-fed and roll-fed printing equipment through various external supplier partnerships established by the Company in order to provide complete print production solutions to its customers. These additional finishing systems may provide such post-printing activities as batching, stacking, slitting, cutting, folding and binding, depending upon the type of equipment and the application. Suppliers of finishing systems are required to meet stringent standards for quality, reliability and interoperability with the Company’s print equipment.

      Pre-press Software and Hardware. The Company provides various pre-press software and hardware solutions for use with its printing equipment. When used with the Company’s printing equipment, pre-press software and hardware solutions provide the data integration tools necessary to manage the print production process. The Company has developed some of these pre-press software and hardware solutions while others are provided through various external supplier partnerships established by the Company. Suppliers of pre-press software and hardware solutions are required to meet stringent standards for quality, reliability and interoperability with the Company’s print equipment.

      Maintenance, spare parts and supplies. Maintenance, spare parts and supplies revenues result from the sale of maintenance contracts, spare parts and proprietary items to customers using printing equipment made by the Company. Maintenance contracts were sold for the majority of equipment systems sold by the Company in fiscal 2004. These contracts typically are for one-year renewable terms, beginning after expiration of the warranty

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      Supplies are operating materials that are consumed during normal operation of the Company’s equipment systems, such as EBI print heads that are consumed in creating the electronic image, erase rods that are consumed in removing the electronic image, and toner, which is consumed in the printing process. The Company’s printing equipment is designed to operate with spare parts and supply items provided by the Company, and the Company believes that it supplies the vast majority of the spare parts and supplies used with Delphax equipment.

Sales and Marketing

      Organization. The Company’s sales of printing equipment and of maintenance, spare parts and supplies are made predominantly through direct sales personnel based in the United States and Europe. The Company also utilizes licensed distributors and resellers to supplement its sales coverage of the commercial printing marketplace. Marketing activities for the Company and its subsidiaries are centralized at the Company’s headquarters in Minnetonka, Minnesota, USA. Key marketing activities include market and product direction, product life cycle planning, system pricing, execution of promotional plans (including major industry events), creation and implementation of advertising and public relations strategies, development of collateral materials and sales support. In addition, the Company utilizes market research and market development resources to anticipate changes in its competitive environment.

      United States Market. Historically, the Company’s market for its products has been primarily the production of checks and other financial documents. The market for the Company’s products has increased to include additional segments of the publishing, direct mail and transaction processing markets.

      The publishing market in the United States is comprised of two major segments: (i) long-run printing applications, and (ii) short-run printing applications referred to as POD applications. Long-run printing applications include newspapers, magazines, first edition book printing, consumer catalogs and greeting cards. POD applications include the production of checks and other financial documents, coursework textbooks, forms, newsletters, second edition paperback books, personalized catalogs, policy manuals, product catalogs and product manuals. The Company markets its CR Series digital web presses in both segments of the publishing market.

      The direct mail market is comprised of variable data printing applications including postcards, self-mailers, letters, flyers and personalized newsletters. The transaction processing market is comprised of variable data printing applications including bill and statement production, check writing, policy printing and security documents. The Company has an installed base in both these markets where it offers both sheet-fed and roll-fed printing equipment.

      The market in the United States for checks and other financial documents is the largest in the world, notwithstanding the fact that the annual consumption of checks has started to decline over the last several years. The Company believes alternatives to the check document, such as debit and credit cards, will continue to reduce the number of checks used, although the size and rate of reduction are difficult to predict. Company studies have shown that other documents produced by the Company’s printing equipment have exhibited higher growth rates over the same period. These documents include laser checks, payment coupons, tax payment and other installment payment products.

      International Market. Historically, the market for the Company’s products outside of the United States has been primarily in personalized check production. The average personalized check order size in most international markets is between 25 and 100 checks. These small order sizes are produced cost effectively on the Company’s

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Significant Customers

      The Company has been party to a multi-year equipment and service contract with a significant equipment and service customer. Equipment deliveries under the contract concluded in the second quarter of fiscal 2002. The service contract, as renewed effective January 1, 2003, will continue through December 2005. Total equipment and service revenues from this customer have been significant, representing 20%, 19% and 28% of net sales for fiscal 2004, 2003 and 2002, respectively. The Company anticipates but cannot assure that revenues from this customer will also be significant in fiscal 2005.

      The Company also has a significant OEM customer for whom it manufactures equipment that is sold under the customer’s name. Revenues from this customer were 20%, 14% and 13% of net sales for fiscal 2004, 2003 and 2002, respectively. The Company anticipates but cannot assure that revenues from this customer will also be significant in fiscal 2005.

Competition

      The Company’s products are sold into a number of different market segments. Competition will differ depending on the segment and application in which the Company competes. Many of the Company’s competitors are well established and have significantly greater access to technical, marketing, financial and personnel resources. The Company believes sales of the CR Series and Imaggia systems are critical to its ability to remain competitive in the markets it serves, and is continuing to invest in the future success of these products with improved speed and print quality enhancements. See “Research and Development.”

      Folio production involves the manufacture of checkbooks and payment coupon books. In North America, check production is dominated by a small number of companies: Deluxe Corporation (St. Paul, Minnesota); John H. Harland Company (Decatur, Georgia); Liberty Enterprises (St. Paul, Minnesota); Davis + Henderson Intercheques (Toronto, Ontario); and Clarke American (San Antonio, Texas); all are customers of the Company. These major customers establish competitive standards for alphanumeric print quality, MICR print quality and delivery time that must be met or surpassed in order to compete effectively in the United States personal check market. With the Checktronic system product line, the Company was able to establish itself only in the production of new account kits, money market checkbooks and other applications that do not require offset or letterpress quality. The Imaggia system was designed to provide entry into the North American check production market. The Company has successfully penetrated this market with approximately a 60% market share of the consumer checkbooks printed digitally in North America. The Company’s major competitors in the digital printing and manufacture of checkbooks in North America are Xerox (United States) and Océ (Germany).

      International folio production markets, like the North American payment book production market, are also driven more by cost and production efficiency factors than by alphanumeric print quality standards. In addition, enforcement of high MICR standards by the clearing banks in most international markets makes MICR printing quality an extremely important competitive factor.

      The Company’s Checktronic system product line has found a high degree of acceptance in the international market segments because it provides the efficiency, production flexibility and MICR quality sought by the major check producers. The Company competes in the international marketplace with Xerox, Océ and Nipson (France).

      The publishing market, with its varied applications and specialized requirements, is highly competitive. Heidelberg (Germany), Nipson, Océ, IBM, Hitachi (Japan), Kodak (United States) and Xerox are currently the Company’s major competitors in the publishing market. Printing for the direct mail market is focused on high-

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      The Company has not faced extensive direct competition from third parties in providing maintenance, spare parts and supplies for its printing equipment. The cost and availability from the Company of maintenance, spare parts and supplies are typically carefully considered by customers in evaluating a purchase of the Company’s printing equipment, and this has an important competitive effect in the Company’s pricing for maintenance, spare parts and supplies. Some customers elect to provide their own maintenance services.

Backlog

      At December 10, 2004, the Company had a backlog of approximately $10.0 million, compared with a backlog of $9.8 million at December 8, 2003, comprised of maintenance, spare parts and supplies at both dates. The Company defines its backlog as purchase orders which are unfilled. Because of customer changes in delivery schedules and potential cancellation of orders, the Company’s backlog as of any particular date may not be representative of the Company’s actual sales for any succeeding fiscal period.

      The Company’s equipment is manufactured to orders received, and to date, the Company has never been unable to meet a scheduled shipment date because of excessive order backlog. Absent a multi-unit order with varying scheduled ship dates, the Company would only rarely expect to have a significant backlog of equipment orders.

Manufacturing and Sources of Supply

      The Company’s manufacturing process enables it to produce a platform version of its primary printing presses that can be quickly configured to a customer’s specific order without rework. This process has enabled the Company to begin manufacturing without firm final orders. As a result, the Company can better manage parts and material inventories and respond quickly to new orders.

      In fiscal 2003, the Company consolidated its manufacturing and engineering operations at its facility in Mississauga, a suburb of Toronto, Canada. Some of the components of the Company’s printing equipment are manufactured by outside vendors, tested and then incorporated into the systems by Company employees. Most of the components are available from multiple sources; however, many of the critical components of the Company’s print systems would require redesign if new suppliers were used.

Research and Development

      Since its formation, the Company has focused its research and development activities on the development of digital printing equipment capable of producing, on a precision basis, financial documents at required speeds and volumes. The Company is continuing to develop the CR Series of roll-fed equipment, which is targeted at customers with high-volume publishing POD and direct mail applications. Development activities for the CR Series are focused on increasing throughput speed and enhancing print quality. The Company also continues to develop features for the Imaggia print system, which is targeted at customers with high-volume folio production and POD applications, and has achieved its greatest success to date in the high-volume United States check printing market. Software enhancements to improve the pre-press capabilities and front-end data processing and serviceability of both the CR Series and Imaggia systems in the field are also important. In keeping with the Company’s philosophy of providing continuous improvement to the units operating at customer sites, most of the new capabilities of both the CR Series and the Imaggia can also be offered to existing customers in the field as upgrades. The Company expects that product-engineering efforts seeking further improvements and enhancements will be ongoing. The Company has also continued product engineering on its legacy product lines. The Company’s research and development expenditures were $5.0 million in fiscal 2004, $4.7 million in fiscal 2003 and $5.7 million in fiscal 2002.

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Patents

      The Company has patented certain aspects of its printing equipment. With the acquisition of the Delphax Business in December 2001, the Company acquired a number of patents relating to EBI print technology, its printing equipment and components of such equipment. In addition, the Company received certain rights to patents held by others for EBI print technology, its printing equipment and components of such equipment. There is no assurance that such patents and rights to patents will afford the Company any competitive advantage. The Company believes that its future success will depend primarily upon the technical competence and creative skills of its employees rather than on patents. Patents held by others may cover the Company’s printing equipment, or components of such equipment, in whole or part. Although the Company is not presently aware of any such patents, it could be required to obtain patent licenses in order to conduct its business.

Employees

      As of December 8, 2004, the Company had 386 full-time and 3 part-time employees. Many of the Company’s employees are highly skilled, and the Company’s future success will depend, in part, on its ability to attract and retain such employees. The Company is not subject to any collective bargaining agreement and considers its employee relations to be good.

Website

      We maintain a website at www.delphax.com. Our annual reports on Form 10-K, our quarterly reports on Form 10-Q and our periodic reports on Form 8-K (and any amendments to these reports) are available free of charge on our website as soon as reasonably practical after we file these reports with the SEC. To obtain copies of these reports, go to the website, enter the “Investor Relations” section and click on “SEC Filings.”

      The Company’s corporate offices are located in Minnetonka, a suburb of Minneapolis, Minnesota. The Company leases a 75,000 square foot building under a lease that expires on September 15, 2010. Annual rent under the lease was $420,000, plus operating expenses and real estate taxes incurred by the landlord. With the consolidation of the North American manufacturing and engineering operations at its Canadian subsidiary during fiscal 2003, the Company has excess space available at its Minnetonka location. On August 30, 2004, the Company exercised its right under the lease to terminate the lease by August 31, 2005 and vacate the facility. The Company is currently exploring the lease of other facilities in Minnesota that are more suited to its current and projected needs.

      The Company’s Canadian subsidiary leases two facilities totaling 202,916 square feet of office and manufacturing space in Mississauga, a suburb of Toronto, Canada, a portion of which is subleased to another tenant. The combined gross annual rent under the leases was $667,000 and increased to $713,000 in September 2003. The related lease agreements expire in 2005 and 2006, with various renewal options.

      In addition, the Company leases office space for its European sales and service center in Crawley, England, under a lease which expires in 2013 and provides for annual lease payments of $180,000, subject to adjustment every five years, plus a pro rata portion of the operating expenses incurred by the landlord. The Company leases smaller office premises for its operations in France.

      The Company believes that its current arrangements for facilities are more than adequate to meet its present needs and those for the foreseeable future.

      The Company is involved in legal proceedings, which are routine litigation incident to its business. While it is impossible to estimate with certainty the ultimate legal and financial result of such litigation, management is of the opinion that while such litigation may have an impact on results of a particular reporting period, the ultimate disposition of such litigation will not have a material effect on the Company’s consolidated financial position, results of operations or liquidity.

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      There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal year ended September 30, 2004.

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PART II

      The Company’s Common Stock trades on the over-the-counter market and is quoted on the National Market tier of the National Association of Securities Dealers Automated Quotation System (“NASDAQ”) under the symbol “DLPX.” The following table sets forth, for the periods indicated, the range of high and low closing prices per share as reported by NASDAQ. The NASDAQ bid quotations represent inter-dealer prices, without retail markup, markdown or commissions, and may not necessarily represent actual transactions.

Stock Repurchase Program

      In September 1998, the Company announced a stock repurchase program of up to 500,000 shares of Common Stock. Under the program, 197,750 shares have been repurchased at a cost of approximately $518,000. No shares were repurchased in fiscal 2004, 2003 or 2002.

Holders

      As of December 20, 2004, the Company had 272 holders of Common Stock of record.

Dividends

      The holders of Common Stock are entitled to receive dividends when and as declared by the Company’s Board of Directors. Since its inception, the Company has not paid any dividends and does not anticipate paying any dividends in the foreseeable future. The Company’s agreement with its lender prohibits the payment of dividends.

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Equity Compensation Plan Information

      The following table sets forth certain information regarding outstanding options to purchase Common Stock as of September 30, 2004:

      The following financial data for the fiscal years ended September 30, 2004, 2003 and 2002 reflects the post-acquisition results of acquiring the Delphax Business in December 2001.

(1)	Basic loss or earnings per share of Common Stock is computed by dividing the net loss or income for the period by the weighted average number of shares of Common Stock outstanding during the period.
(2)	Diluted loss or earnings per share of Common Stock is computed by dividing the net loss or income for the period by the weighted average number of shares of Common Stock and equivalents outstanding during the period.

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Item 7.     Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

      The Company’s total revenues declined by 8% in fiscal 2004, after strong growth in each of the four prior fiscal years. The decline in fiscal 2004 was primarily due to lower equipment sales, which have decreased in each of the last three fiscal years due to a continued tight capital equipment market in the printing industry. Revenue from maintenance, spare parts and supplies decreased 2% in fiscal 2004 because the fall-off in maintenance, spare parts and supplies revenues arising from the Company’s legacy equipment (principally the Checktronic) was not replaced by maintenance, spare parts and supplies revenues from new equipment installations.

      The Company increased its research and development expenditures to $5.0 million in fiscal 2004 (9% of net sales), primarily to enhance the speed and print quality of its new CR2000 system. Despite the decline in revenue and increased investment in product development, the Company reduced its net loss in fiscal 2004 to $389,000, compared with losses of $1.8 million in fiscal 2003 and $2.4 million in fiscal 2002.

      In February 2004 the Company refinanced its borrowings, all of which were then short-term, with new long-term loans from new senior and subordinated lenders. This shift in the maturity of most of these loans from short to long term increased the Company’s working capital. During fiscal 2004, the level of outstanding borrowings declined from $13.9 million on September 30, 2003 to $9.0 million on September 30, 2004. This $4.9 million reduction in outstanding borrowings was accomplished primarily through operating cash flows, the reduction of customer receivables and increased vendor payables, partially offset by increased inventories.

      The Company anticipates increased revenue in fiscal 2005 from CR Series and Imaggia equipment sales, and believes that increases in revenues from maintenance, spare parts and supplies for this equipment will more than offset anticipated declines in maintenance, spare parts and supplies revenues from the legacy Checktronic equipment.

Critical Accounting Policies

      This Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses the Company’s Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its estimates and assumptions, including those related to revenue recognition, inventory, allowance for doubtful accounts, income taxes and restructuring initiatives. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

      Management believes the following critical accounting policies, among others, affect its more significant judgments and estimates used in the preparation of its Consolidated Financial Statements.

      The Company’s printing equipment systems are tested at the Company’s facility prior to shipment, and revenue related to orders shipped under standard performance conditions is recognized when systems are shipped. Systems shipped subject to non-standard contractual performance conditions, such as financing approval or special print applications, are recognized as revenue upon completion or attainment of the specified condition. Service revenue is recognized as services are rendered. For spare parts and supplies stored at customer sites, revenue is recognized when the customer uses the inventory. Amounts billed to customers under maintenance contracts are recorded as deferred revenue and recognized in income over the term of the maintenance agreement. Revenue for pre-press or finishing equipment manufactured by others is recorded on a

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      The Company reduces the stated value of its inventory for obsolescence or impairment in an amount equal to the difference between the cost of the inventory and the estimated market value, based upon assumptions about future demand and market conditions. If actual future demand or market conditions are less favorable than those projected by management, additional reductions in stated value may be required.

      The Company records an allowance for doubtful accounts based on identification of specific accounts receivable, supplemented by a general allowance of 20% of accounts aged greater than 90 days. Specific identification of doubtful accounts and determination of the amount of the required allowance involves a degree of judgment based on discussion with our customer support and sales organization, examination of the financial stability of our customers and review of their payment history. There can be no assurance that our estimates will match actual amounts ultimately written off. During periods of downturn in the market for printed materials or economic recession, a greater degree of risk exists concerning the ultimate collectability of accounts receivable due to the impact that these conditions might have on our customer base.

      In determining the carrying value of the Company’s net deferred tax assets, the Company must assess the likelihood of sufficient future taxable income in certain tax jurisdictions, based on estimates and assumptions, to realize the benefit of these assets. The Company fully reserved its net deferred tax assets, totaling $3.0 million as of September 30, 2004 and 2003, recognizing that the Company has incurred losses in four of the last five fiscal years and there is no assurance that future years will be profitable. If these estimates and assumptions change in the future, the Company may record a reduction in the valuation allowance, resulting in an income tax benefit in the Company’s Consolidated Statements of Operations. Management evaluates the realizability of the deferred tax assets and assesses the valuation allowance quarterly.

      No restructuring activities were initiated in fiscal 2004. During the three fiscal years ended September 30, 2004, three initiatives were completed. See Note H to the Consolidated Financial Statements. At the end of each quarter, management evaluates its estimates of costs to complete the restructuring initiatives. Differences, if any, between previous and revised cost estimates many result in a charge or credit to the Company’s results of operations.

Results of Operations

      The Consolidated Statements of Operations for fiscal 2004, 2003 and 2002 include the post-acquisition results of the Delphax Business acquired by the Company in December 2001. See Note E to the Consolidated Financial Statements.

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      The following table sets forth the Company’s Statements of Operations as a percentage of net sales and should be read in connection with the Consolidated Financial Statements and notes thereto presented elsewhere in this report.