SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

                  X QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                For The Quarterly Period Ended December 31, 1998
                                       or

                 |_| TRANSITION REPORT UNDER SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                           Commission file No. 0-12641



                        IMAGING TECHNOLOGIES CORPORATION
             (Exact name of registrant as specified in its charter)




            DELAWARE                                    33-0021693
(State or other  jurisdiction of
 incorporation or organization)                   (IRS Employer ID No.)

                               11031 Via Frontera
                           San Diego, California 92127
                    (Address of principal executive offices)


       Registrant's Telephone Number, Including Area Code: (619) 613-1300


Check 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 past 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 past 90
days.
                                  Yes X No  |_|

The number of shares outstanding of the registrant's common stock as of February
18, 1999, was 16,320,151.

<PAGE>
                                                                            PAGE

PART I - FINANCIAL INFORMATION

         ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS

         Consolidated Balance Sheets
              December 31, 1998 (unaudited) and June 30, 1998 (audited)      2

         Consolidated Statements of Operations
              Three months ended December 31, 1998 and 1997 (unaudited)      3

         Consolidated Statements of Cash Flows
              Three months ended December 31, 1998 and 1997 (unaudited)      4

         Notes to Consolidated Financial Statements.                         5



         ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                         CONDITION AND RESULTS OF OPERATIONS                 8

         ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
                         MARKET RISK                                        18



PART II - OTHER INFORMATION



         ITEM 1.  LEGAL PROCEEDINGS                                         19

         ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS                 19

         ITEM 3.  DEFAULTS UPON SENIOR SECURITIES                           21

         ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS       21

         ITEM 5.  OTHER INFORMATION                                         21

         ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K                          22



SIGNATURES                                                                  23
                             2

<PAGE>

<TABLE>
<CAPTION>

                IMAGING TECHNOLOGIES CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                        (in thousands, except share data)
                                   (unaudited)

                                     ASSETS

                                                                            December 31,         June 30,
                                                                                  1998             1998

<S>                                                                        <C>                <C>      
Current assets
    Cash                                                                      $      203         $   3,023
    Accounts receivable, net                                                       4,430             4,133
    Inventories                                                                    5,131             6,287
    Prepaid expenses and other                                                     1,378             1,401
                                                                                --------          --------
        Total current assets                                                      11,142            14,844
Property and equipment, net                                                        1,286             1,525
Capitalized software, net                                                          5,567             3,655
Other                                                                              1,024               937
                                                                                --------          --------
                                                                                $ 19,019          $ 20,961
                                                                                ========          ========

                 LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities
    Borrowings under bank lines of credit                                      $   5,141         $   5,203
    Short-term debt                                                                4,450             1,998
    Current portion of long-term debt                                              1,575               903
    Accounts payable                                                               5,687             5,027
    Accrued expenses                                                               1,384             1,398
                                                                                --------          --------
        Total current liabilities                                                 18,237            14,529
Long-term debt, less current portion                                               2,456             1,828
                                                                                --------          --------
        Total liabilities                                                         20,693            16,357
                                                                                --------          --------

Shareholders' equity (deficit)
    Series A preferred stock, $1,000 par value, 7,500 shares
        authorized, 420.5 shares issued and outstanding                              420               420
    Series C preferred stock, $1,000 par value, 1,200 shares
        authorized, 236 shares issued and outstanding                                  -             2,360
    Common stock, $0.005 par value, 100,000,000 shares authorized;
        13,301,078 shares issued and outstanding                                      67                62
    Paid-in capital                                                               36,506            35,859
    Shareholder loans                                                               (110)             (110)
    Accumulated deficit                                                          (38,557)          (33,987)
                                                                                --------          --------
        Total shareholders' equity (deficit)                                      (1,674)            4,604
                                                                                --------          --------
                                                                                $ 19,019          $ 20,961
                                                                                ========          ========

</TABLE>

                 See notes to consolidated financial statements.

                                        2

<PAGE>
<TABLE>
<CAPTION>


                IMAGING TECHNOLOGIES CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                        (in thousands, except share data)
                                   (unaudited)

                                                          Three Months Ended                   Six Months Ended
                                                           December     December         December          December
                                                           31, 1998     31, 1997         31, 1998          31, 1997

<S>                                             <C>               <C>             <C>               <C>    
Revenues
    Sales of products                                   $4,195            $8,219          $10,916           $14,497
    Engineering fees                                         -             1,531              395             3,047
    Licenses and royalties                                   -                 -              163                 -
                                                      --------           -------         --------          --------
                                                         4,195             9,750           11,474            17,544
                                                      --------           -------         --------          --------
Costs and expenses
    Costs of products sold                               3,309             5,913            7,356            10,186
    Selling, general, and administrative                 3,676             2,169            7,316             4,293
    Cost of engineering fees                               230               572              815             1,169
                                                      --------           -------         --------          --------
                                                         7,215             8,654           15,487            15,649
                                                      --------           -------         --------          --------
Income (loss) from operations                           (3,020)            1,096           (4,013)            1,896
Other expense
    Interest, net                                         (335)              (16)            (543)              (44)
                                                      --------           -------         --------          --------
Income (loss) before income taxes                       (3,355)            1,080           (4,556)            1,852
Income tax expense                                         (10)                -              (14)               (4)
                                                      --------           -------         --------          --------
Net income (loss)                                      $(3,365)           $1,080         $ (4,570)         $  1,848
                                                      ========           =======         ========          ========

Earnings (loss) per common share
    Basic                                               $(0.26)           $ 0.10           $(0.36)           $ 0.18
    Diluted                                             $(0.26)           $ 0.08           $(0.36)           $ 0.14
Weighted average common shares                          12,852            10,430           12,852            10,111
Weighted average common shares -
    assuming dilution                                   12,852            13,651           12,852            13,412
</TABLE>



                 See notes to consolidated financial statements.


                                        3

<PAGE>

<TABLE>
<CAPTION>

                IMAGING TECHNOLOGIES CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                   SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997
                        (in thousands, except share data)
                                   (unaudited)

                                                                                  1998             1997

<S>                                                                           <C>               <C>    
Cash flows from operating activities
   Net income (loss)                                                             $(4,570)          $ 1,848
   Adjustments to reconcile net income (loss)
     to net cash from operating activities
     Depreciation and amortization                                                   310               298
     Changes in operating assets and liabilities
       Accounts receivable                                                          (297)           (3,028)
       Inventories                                                                 1,156              (497)
       Prepaid expenses and other                                                    (65)             (982)
       Accounts payable and accrued expenses                                         646               149
       Deferred revenue                                                                -              (258)
                                                                                 -------           -------
         Net cash from operating activities                                       (2,820)           (2,470)
                                                                                 -------           -------

Cash flows from investing activities
   Capitalized software                                                           (1,912)           (1,079)
   Capital expenditures                                                              (71)             (104)
                                                                                 -------           -------
         Net cash from investing activities                                       (1,983)           (1,183)
                                                                                 -------           -------

Cash flows from financing activities
   Net borrowings under bank lines of credit                                         (62)            1,234
   Net borrowings under short-term notes payable                                   2,642                12
   Net proceeds from issuance of common stock                                      1,250               581
   Net proceeds from issuance of preferred stock                                       -             5,000
   Redemption of preferred stock                                                  (2,228)                -
   Issuance of long term debt                                                        675                 -
   Repayment of long-term debt                                                      (294)             (326)
                                                                                 -------           -------
         Net cash from financing activities                                        1,983             6,501
                                                                                 -------           -------
Net increase (decrease) in cash                                                   (2,820)            2,848
Cash, beginning of period                                                          3,023               255
                                                                                 -------           -------
Cash, end of period                                                              $   203            $3,103
                                                                                 =======           =======

</TABLE>


                 See notes to consolidated financial statements.


                                        4

<PAGE>





                IMAGING TECHNOLOGIES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        (in thousands, except share data)
                                   (unaudited)

Note 1.  Basis Of Presentation

The  accompanying  unaudited  consolidated  condensed  financial  statements  of
Imaging Technologies Corporation and Subsidiaries (the "Company" or "ITEC") have
been prepared  pursuant to the rules of the Securities  and Exchange  Commission
(the  "SEC") for  quarterly  reports on Form 10-Q and do not  include all of the
information  and note  disclosures  required by  generally  accepted  accounting
principles.  These financial  statements and notes herein are unaudited,  but in
the opinion of  management,  include  all the  adjustments  (consisting  only of
normal recurring adjustments) necessary for a fair presentation of the Company's
financial  position,  results  of  operations,  and cash  flows for the  periods
presented.  These financial  statements  should be read in conjunction  with the
Company's  audited  financial  statements  and notes thereto for the years ended
June 30, 1998,  1997,  and 1996 included in the Company's  annual report on Form
10-K  filed  with  the  SEC.  Interim  operating  results  are  not  necessarily
indicative of operating  results for any future  interim  period or for the full
year.

Note 2.  Going Concern Considerations

The  accompanying  financial  statements  have been  prepared  assuming that the
Company will continue as a going concern.  At December 31, 1998, and for the six
months then ended, the Company had a net loss,  negative working capital,  and a
decline in net worth which raise substantial doubt about its ability to continue
as a going  concern.  The losses have  resulted  primarily  from an inability to
achieve  product  sales targets due to  insufficient  working  capital,  a sharp
decline  in  contract  revenue  because  many  OEM  customers  are  experiencing
financial  difficulties  relating  to the  Asian  crisis,  and  relatively  high
operating costs in relation to current sales levels. The Company is taking a new
strategic  direction whereby it will manufacture  imaging products under its own
name. To this end the Company has acquired increased manufacturing, selling, and
distribution  capabilities through key mergers and acquisitions.  The Company is
in the process of consolidating and restructuring these operations to conform to
the new strategic plan. While  management  believes that these new products will
be well  received by the market,  the Company  must obtain  additional  funds to
provide adequate working capital and finance  operations.  Management expects to
raise these funds  through a  combination  of debt and equity  financing  and is
actively  pursuing  such  matters.  However,  no assurance can be given that the
financing  will be  obtained  and  that  the  Company  will  achieve  profitable
operations.  The financial  statements do not include any adjustments that might
result from the outcome of this uncertainty.

Note 3.  Earnings (Loss) Per Common Share
Basic earnings  (loss) per common share ("Basic EPS")  excludes  dilution and is
computed by dividing net income  (loss)  available to common  shareholders  (the
"numerator") by the weighted  average number of common shares  outstanding  (the
"denominator")  during the  period.  Diluted  earnings  (loss) per common  share
("Diluted  EPS") is similar  to the  computation  of Basic EPS  except  that the
denominator is increased to include the number of additional  common shares that
would have been  outstanding  if the dilutive  potential  common shares had been
issued. In addition, in computing the dilutive effect of convertible securities,
the  numerator  is  adjusted  to add  back  the  after-tax  amount  of  interest
recognized in the period


                                        5

<PAGE>





associated  with any  convertible  debt. The computation of Diluted EPS does not
assume  exercise or  conversion of  securities  that would have an  antidilutive
effect on net earnings (loss) per share.  The following is a  reconciliation  of
Basic EPS to Diluted EPS:
<TABLE>
<CAPTION>

                                                           Earnings (loss)        Shares           Per-Share
                                                             (Numerator)       (Denominator)        Amount

<S>                                                        <C>               <C>              <C>
December 31, 1997
   Net income                                                 $   1,848
     Preferred dividends                                            (10)
                                                              ---------
   Basic EPS                                                      1,838           10,111            $ 0.18
     Effect of options and warrants                                   -            1,970
     Effective of convertible notes payable                           4               64
     Effect of convertible preferred stock                           10            1,267
                                                              ---------          -------
   Diluted EPS                                                $   1,852           13,412            $ 0.14
                                                              =========          =======


                                                           Earnings (loss)        Shares           Per-Share
                                                             (Numerator)       (Denominator)        Amount
December 31, 1998
   Net loss                                                   $  (4,570)
     Preferred dividends                                            (12)
                                                              ---------
   Basic and diluted EPS                                      $  (4,582)          12,852            $(0.36)
                                                              =========         ========

Note 4.  Inventories
                                                                              December 31,        June 30,
                                                                                  1998             1998
     Inventories
         Materials and supplies                                                  $   319            $2,081
         Finished goods                                                            4,812             4,206
                                                                                 -------           -------
                                                                                  $5,131            $6,287
                                                                                  ======            ======
</TABLE>

Note 5.  Bank Lines of Credit

In September  1998,  Imperial Bank ceased  funding under the lines of credit and
notified the Company that it intended to terminate its banking relationship with
the  Company.  After  further  discussions,  on November 4, 1998 the Company and
Imperial Bank executed a Forbearance  Agreement  pursuant to which Imperial Bank
has resumed funding to the Company under the lines of credit and the Company has
agreed to repay all outstanding indebtedness owed to Imperial Bank. Although the
Company is in discussions  with several lenders  regarding new financing for the
Company,  there can be no assurance  that the Company will secure new financing.
The failure of Imperial Bank to continue to provide funding to the Company under
the lines of credit or the  failure  of the  Company  to secure  sufficient  new
financing to repay all indebtedness owed to Imperial Bank, would have a material
adverse effect on the Company.

Note 6.  Series C Redeemable Convertible Preferred Stock

In September 1998, the Company  redeemed all outstanding  shares of the Series C
Convertible  Preferred  Stock  (Series C Shares).  Owners of the Series C Shares
received $2.23 million in cash and $1 million in subordinated notes. The Company
financed  the  redemption  through a $4.38  million  private  placement of newly
issued shares of common stock and subordinated notes.

The $4.38 million in funding came from several private investors, one of whom is
a director of the Company.  In exchange,  the Company  issued a total of 500,000
shares  of the  Company's  common  stock  at a price  of  $2.50  per  share  and
subordinated


                                        6

<PAGE>





promissory  notes in the amount of $3.13 million.  All of the  promissory  notes
bear interest at 16% per year. A portion of the notes,  $675,000,  mature in two
years and are  convertible,  at the  option of each  investor,  at any time into
shares of Company common stock at $2.025 per share (subject to adjustment  under
certain  circumstances).  The remaining notes, $2.45 million, mature in one year
and are not  convertible.  The Company also issued  warrants to the investors as
part of the financing.  The warrants authorize the purchase of 490,000 shares of
common  stock at an exercise  price of $2.025 per share.  This price is based on
the  average of the  closing  bid prices  for ITEC's  common  stock for the five
trading days ended September 14, 1998.

Note 7. Subsequent Events

As of January 13, 1999, the Company entered into a Securities Purchase Agreement
(the "Series D  Agreement")  with certain  investors  contemplating  a potential
funding of up to $2.4 million  (the  "Series D  Funding").  The Series D Funding
provides  for the  private  placement  by the  Company of up to 1,200 units (the
"Units"),  each  Unit  consisting  of (i) one  share  of  Series  D  Convertible
Preferred  Stock (the "Series D Stock") and (ii) 2,000  warrants  (the "Series D
Warrants" and, collectively, with the Series D Stock, the "Series D Securities")
exercisable for shares of Common Stock. Pursuant to the Series D Agreement,  the
Company  shall issue and sell to the investors the Series D Stock and the Series
D Warrants  in three  tranches in the  following  amounts:  (i)  $600,000 of the
stated value of the Series D Stock in the first  tranche;  (ii)  $600,000 of the
stated value of the Series D Stock in the second tranche;  and (iii)  $1,200,000
of the  stated  value of the  Series D Stock in the  third  tranche.  The  first
tranche was funded at the signing of the Series D Agreement;  the second tranche
was funded on February 5, 1999;  and the third  tranche will be funded on a date
after the Company,  among other  things,  (i)  provides a written  notice to the
investors  requiring  such  investors to purchase up to $1,200,000 of the stated
value of the  Series  D Stock  and (ii)  has,  and has had for 30 days  prior to
receiving any funding pursuant to the third tranche,  an effective  registration
statement (the "Registration  Statement") filed with the Securities and Exchange
Commission  (the "SEC").  The Series D Stock is  convertible  into shares of the
Company's  Common  Stock at the lesser of (A) $.50 and (B) an amount equal to 70
percent  of the  closing  bid  price per  share of  Common  Stock on the  Nasdaq
SmallCap Market (the "Series D Closing Price") for the three trading days having
the lowest  closing  price during the 30 trading days prior to the date on which
the  investor  gives to the  Company a notice of  conversion  of Series D Stock;
except that all Series D Stock  converted  prior to  February  26, 1999 would be
converted at $.50.  However,  each of the  investors has agreed that in no event
shall it be  permitted  to convert any shares of Series D Stock in excess of the
number of such shares upon the conversion of which, the sum of (i) the number of
shares of Common Stock owned by such investor (other than shares of Common Stock
issuable  upon  conversion  of  Series  D Stock  or upon  exercise  of  Series D
Warrants)  plus  (ii) the  number  of  shares  of  Common  Stock  issuable  upon
conversion  of such shares of Series D  Preferred  Stock or exercise of Series D
Warrants,  would be equal to or exceed 9.999  percent of the number of shares of
Common  Stock then issued and  outstanding,  including  the shares that would be
issuable upon  conversion of the Series D Stock or exercise of Series D Warrants
held by such  investor.  Each investor in Series D Stock shall have the right to
vote,  except as  otherwise  required by  Delaware  law, on all matters on which
holders of Common Stock have the right to vote on with each such investor having
the right to cast one vote for each whole share of Common  Stock into which each
share of the Series D  Preferred  Stock  held by such  investor  is  convertible
immediately  prior to the  record  date for the  determination  of  stockholders
entitled to vote; provided, however, that in no event shall a holder be entitled
to vote more than 9.999 percent of the number of shares  entitled to be voted on
any matter. Upon the completion of each tranche of Series D Funding, each of the
investors will receive the number of Series D Warrants that directly corresponds
with the dollar  amount such  investor  invested in such  tranche;  the Series D
Warrants are immediately exercisable upon issuance at an exercise price of $.875
per share and expire five years after the date of their issuance.

As of February 2, 1999, the Company entered into a Securities Purchase Agreement
(the "Series E Agreement")  with certain  investors  (including one of whom is a
director  of the  Company)  contemplating  a potential  funding and  exchange of
indebtedness  of up to  $3,000,000  and as of  February  18,  1999,  the Company
contemplates entering into an Exchange Agreement (the "Exchange Agreement") with
certain  investors   contemplating  a  potential  exchange  of  indebtedness  of
approximately  $1,150,000  (the Series E Agreement  and the  Exchange  Agreement
being  together the "Series E Funding").  The Series E Funding  provides for the
private  placement by the Company of up to 1,250 units (the "Units"),  each Unit
consisting of (i) one share of Series E Convertible Preferred Stock (the "Series
E Stock") and (ii) 5,000 warrants (the "Series

                                        7

<PAGE>





E  Warrants"  and,  collectively,  with  the  Series  E  Stock,  the  "Series  E
Securities")  exercisable  for shares of Common Stock.  Pursuant to the Series E
Agreement,  the Company issued and sold to the investors the Series E Securities
in the following  amounts:  $1,735,000 in cash and $1,265,000 in exchange and/or
cancellation  of  indebtedness,  and  pursuant to the  Exchange  Agreement,  the
Company  contemplates  issuing to the investors  Series E Securities in exchange
and/or  cancellation  of indebtedness of  approximately  $1,150,000.  All of the
investors  of the  Series E  Agreement  funded at the time of  execution  of the
Series E Agreement  except  that two of the  investors  agreed to  purchase  the
Series E Securities  in three  tranches (the "Series E Tranche  Investors").  To
date,  $300,000 has been funded and the balance of $450,000  will be funded on a
date after the Company, among other things, (i) provides a written notice to the
investors  requiring  such  investors  to  purchase up to $450,000 of the stated
value of the  Series  E Stock  and (ii)  has,  and has had for 30 days  prior to
receiving any funding pursuant to the third tranche,  an effective  Registration
Statement  filed with the SEC. All of the  investors  of the Exchange  Agreement
would exchange their  indebtedness  for Series E Securities  within five days of
the Company obtaining  Shareholder  Approval.  The Series E Stock is convertible
into shares of the  Company's  Common Stock at the lesser of (A) $.50 and (B) an
amount equal to 70 percent of the closing bid price per share of Common Stock on
the Nasdaq  SmallCap Market (the "Series E Closing Price") for the three trading
days having the lowest  closing  price  during the 30 trading  days prior to the
date on which the applicable  investor gives to the Company notice of conversion
of Series E Stock;  except that all Series E Stock  converted  prior to February
26, 1999 would be converted at $.50.  Each investor in Series E Stock shall have
the right to vote, except as otherwise  required by Delaware law, on all matters
on which  holders  of  Common  Stock  have the  right to vote on with  each such
investor  having the right to cast one vote for each whole share of Common Stock
into which each share of the Series E Preferred  Stock held by such  investor is
convertible  immediately  prior  to the  record  date for the  determination  of
stockholders  entitled to vote. Upon the Series E Funding, each of the investors
will receive the number of Series E Warrants that directly  corresponds with the
dollar  amount  such  investor  invested  in the Series E Funding,  except  that
Tranche  Investors  will receive the number of Series E Warrants  that  directly
corresponds  with the dollar  amount such  investor  invested in each  completed
tranche;  the Series E Warrants are immediately  exercisable upon issuance at an
exercise  price of $.875 per share and  expire  five years  after  their date of
issuance.

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
           AND RESULTS OF OPERATIONS

         The following  discussion  and analysis  should be read in  conjunction
with the consolidated financial statements and notes thereto appearing elsewhere
in this Quarterly Report on Form 10-Q. The discussion of the Company's  business
contained in this Quarterly Report on Form 10-Q may contain certain projections,
estimates and other  forward-looking  statements  that involve a number of risks
and uncertainties, including those discussed below at "Risks and Uncertainties."
While  this  outlook  represents  management's  current  judgment  on the future
direction  of the  business,  such risks and  uncertainties  could cause  actual
results to differ  materially from any future  performance  suggested below. The
Company  undertakes  no  obligation  to  release  publicly  the  results  of any
revisions to these forward-looking statements to reflect events or circumstances
arising after the date hereof.

OVERVIEW

         Imaging   Technologies   Corporation   develops,    manufactures,   and
distributes  high-quality digital imaging solutions. The Company produces a wide
range of printer  and  imaging  products  for use in  graphics  and  publishing,
digital  photography and other niche business and technical  markets.  Beginning
with  a core  technology  in the  design  and  development  of  controllers  for
non-impact printers and multifunction peripherals,  the Company has expanded its
product  offerings to include  monochrome  and color  printers,  and software to
improve the accuracy of color reproduction.

         In recent months, ITEC has undertaken a number of actions as part of an
ongoing  realignment  of  the  Company's  operations  around  its  core  imaging
businesses.  The  Company  continues  to shift its  focus  away from some of its
traditional  revenue  sources  and has been  required  to make  expenditures  to
support these changes.  The Company's  business is in a  transitional  phase and
there are important short-term operational and liquidity


                                        8

<PAGE>





challenges.  Accordingly,  quarter-to-quarter  financial  comparisons  may be of
limited  usefulness now and for the next several quarters due to these important
changes in the Company's business.


         Historically,  a portion  of the  Company's  income  was  derived  from
non-recurring engineering fees and royalty income from a relatively small number
of OEM  customers.  Over the past  three  years,  the  Company  has  experienced
shortfalls in income as a result of engineering contracts with OEM manufacturers
for products that were never  completed by the OEM, were never  introduced  into
the market and shipped or were  cancelled by the customer  before ITEC completed
the deliverables  portion of the contract.  The timing and amount of income from
these customers  ultimately  depended on sales levels and shipping schedules for
the OEM  products  into which the  Company's  products  were  incorporated.  The
Company had no control over the shipping date or volumes of products  shipped by
its OEM  customers,  and there was no assurance  that any OEM would  continue to
ship products that incorporate the Company's  technology.  Failure of these OEMs
to achieve significant sales of products  incorporating the Company's technology
and fluctuations in the timing and volume of such sales had a materially adverse
effect on the Company.

         The Company's  current strategy is to develop and commercialize its own
technology.  The Company  intends to increase  penetration of its current target
markets and to continue pursuing clearly defined commercial market opportunities
that enable it to leverage its core technologies.  The Company has established a
number of strategic  partnerships with industry  leaders,  such as Adobe Systems
and NEC Electronics for product development,  marketing and sales. Through these
strategic  partnerships,  ITEC seeks to obtain  specific  market  knowledge  and
enhanced  understanding  of market  demands  and needs,  access to  funding  for
continued product development, product and customer validation and a channel for
market penetration.

         To execute successfully its current strategy,  the Company will need to
improve its working capital  position.  The report of the Company's  independent
auditors  accompanying the Company's June 30, 1998 financial statements includes
an  explanatory  paragraph  indicating  there is a  substantial  doubt about the
Company's  ability to continue as a going concern due primarily to the decreases
in the Company's  working  capital and net worth.  At December 31, 1998, and for
the three  months then  ended,  the  Company  had a net loss,  negative  working
capital,  and a decline in net worth which continue to raise  substantial  doubt
about its  ability to  continue as a going  concern.  To address  the  Company's
working capital needs, on September 17, 1998, the Company raised an aggregate of
$4.38  million   through  the  issuance  of  shares  of  its  Common  Stock  and
subordinated  notes to several  private  investors.  The Company  needs to raise
additional funds to operate its business  effectively.  The Company has recently
engaged a financial  advisor to assist with  additional fund raising efforts and
the Company  intends to attempt to raise  additional  funds in the near  future.
There can be no  assurance,  however,  that the Company will be able to complete
any additional  debt or equity  financing on favorable  terms or at all, or that
any such  financings,  if  completed,  will be  adequate  to meet the  Company's
capital requirements. Any additional equity or convertible debt financings could
result in substantial dilution to the Company's stockholders.  If adequate funds
are not  available,  the Company may be required to delay,  reduce or  eliminate
some or all of its  planned  activities.  The  Company's  inability  to fund its
capital  requirements  would have a material adverse effect on the Company.  See
"--Liquidity  and  Capital  Resources"  and  "Risks  and  Uncertainties"--Future
Capital Needs."

CORPORATE RESTRUCTURING

         Beginning in April 1998, the Company  implemented a plan to realign the
management  and create a  divisional  structure  within the  organization.  ITEC
consolidated  all of its  independent  operating  subsidiaries  under  a  single
financial and operational  structure.  The Company undertook this  restructuring
based in part upon its belief that by  breaking  down the  barriers  between the
subsidiaries  and organizing  the Company around  functions the Company would be
able to improve the  effectiveness  of its  established  sales  channels  and to
enhance  cross-selling  opportunities.  The  Company  also  believes  that  this
structure  will  improve the  management  and  commercialization  of its diverse
technology  base.  In addition to the  structural  realignment,  ITEC closed the
27,000 square-foot printer  manufacturing and distribution  facility it operated
in Costa Mesa, California, at lease end, and relocated those operations to a new
12,000-square-foot facility adjacent to the Corporate Headquarters in San Diego.
The Company also relocated most of its marketing and sales activities from Costa
Mesa to
                                        9

<PAGE>





ITEC's  existing  operation  in the San Jose region of Northern  California.  By
streamlining  operations  and locating  manufacturing  and  distribution  in one
centralized  plant, the Company expects to eventually realize annualized savings
of  approximately  $1.5  to $2  million,  primarily  as a  result  of  workforce
reductions,   decreased  factory  space  requirements  and  the  elimination  of
redundant operations.

RESULTS OF OPERATIONS NET REVENUES

         Revenues  were $4.2  million and $9.8  million for the  quarters  ended
December 31, 1998 and 1997, respectively. Sales of product were $4.2 million and
$8.2 million for the quarters  ended  December 31, 1998 and 1997,  respectively.
For the six months ended  December 31, 1998 sales of product were $ 10.9 million
compared to $ 14.5  million for the six months  ended  December  31,  1997.  The
decrease in product  sales from 1997 to 1998 was due  primarily to a decrease in
sales of printer  products.  Engineering fees were $0.0 million and $1.5 million
for the quarters  ended  December 31, 1998 and 1997,  respectively.  For the six
months ended December 31, 1998 engineering fees were $ 0.4 million compared to $
3.0 million for the six months ended  December  31,  1997.  The decrease in 1998
compared to 1997 was primarily  the result of the Company's  change in strategic
direction,  focusing more on internal product  development and sales and less on
engineering  for third  parties.  License fees were $0.0 million for the quarter
ended  December  31,  1998 and the Company did not  recognize  any license  fees
during the quarter ended  December 31, 1997.  For the six months ended  December
31,  1998  license  fees were $ 163,000  compared  to $ 0.0  million for the six
months ended  December 31,  1997.  The amount for 1998 was due  primarily to the
sales of a license to a Korean customer.

COST OF PRODUCTS SOLD

         Cost of  products  sold were $3.3  million or 79% of product  sales and
$5.9 million or 72% of product  sales for the quarters  ended  December 31, 1998
and 1997,  respectively.  For the six months  ended  December  31,  1998 cost of
products  sold were $ 7.4 million  compared to $ 10.2 million for the six months
ended December 31, 1997. The percentage increase in 1998 as compared to 1997 was
primarily due to end of life product sales.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

         Selling,  general and administrative  expenses were $3.7 million or 87%
of total  revenue and $2.2  million or 26% of total  revenues  for the  quarters
ended  December  31,  1998 and  1997,  respectively.  For the six  months  ended
December  31, 1998  selling,  general  and  administrative  expenses  were $ 7.3
million  compared to $ 4.3 million for the six months  ended  December 31, 1997.
Selling, general and administrative expenses consisted primarily of salaries and
commissions  of sales and  marketing  personnel,  salaries and related costs for
general  corporate  functions,  including  finance,  accounting,  facilities and
legal,   advertising  and  other  marketing  related  expenses,   and  fees  for
professional services. The increase both in absolute dollars and as a percentage
of net revenues in selling,  general and administrative  expenses in the quarter
ended  December 31, 1998 as compared to the quarter ended  December 31, 1997 was
due primarily to an increase in  administrative  personnel and overhead expenses
incurred as part of the acquisition of three subsidiaries and the formation of a
European sales office in Fiscal year 1998.

COST OF ENGINEERING

         Engineering  costs were $0.2  million and $0.6 million for the quarters
ended December 31, 1998 and December 31, 1997. For the six months ended December
31, 1998 engineering  costs were $ 0.8 million compared to $ 1.2 million for the
six months ended  December 31,  1997.  The increase in costs as a percentage  of
engineering  revenues  from 1998 compared to 1997  resulted  primarily  from the
reduction of billable engineering contracts.



LIQUIDITY AND CAPITAL RESOURCES


                                       10

<PAGE>





         Historically, the Company has financed its operations primarily through
cash  generated from  operations,  debt  financing,  and from the sale of equity
securities.  In August 1997,  the Company  completed a private  placement of 500
shares of Series C Convertible  Preferred Stock providing  aggregate proceeds of
$5.0  million.  A portion of the shares  were  converted  by the  holders and on
September  18,  1998,  the Company  redeemed all 237  outstanding  shares of the
Series C Convertible  Preferred  Stock.  The Company paid $2.23 million in cash,
issued $1.0 million in  subordinated  promissory  notes and warrants to purchase
300,000  shares of  Common  Stock to the  holders  of the  Series C  Convertible
Preferred Stock in connection with the redemption.

         The Company  has  received  and  anticipates  that it will  continue to
receive the majority of its cash from  collections of accounts  receivable  from
its  customers,   distributors  and  OEMs.  However,  an  increasing  amount  of
international  sales is likely to increase accounts  receivable  balances due to
traditionally  slower  payments by  international  customers.  In addition,  the
economies of certain  foreign  countries,  particularly  in Asia,  have weakened
recently  creating  greater risk of nonpayment for the Company from these areas.
Any  failure of the  Company's  customers,  distributors  or OEMs to pay, or any
significant  delay in the payment of, a material portion of the amounts owing to
the Company would have a material adverse effect on the Company.

         As of December 31, 1998, the Company had a deficit  working  capital of
$7.1  million,  a decrease of $4.3  million as compared  to June 30,  1998.  The
decrease is primarily  the result of the  operating  loss and the  conversion of
preferred  stock to short term debt.  The Company's  other  principal  source of
liquidity  at  December  31,  1998,  were  lines of credit  with  Imperial  Bank
aggregating  $7 million.  Borrowing  under these lines of credit at December 31,
1998 totaled $4.6 million.  The Company also has a term loan with Imperial Bank,
the principal balance of which at December 31, 1998, was $2.2 million. The lines
of credit and the term loan bear  interest  at Imperial  Bank's  prime rate plus
0.75% per annum.  The applicable  interest rate at December 31, 1998, was 9.25%.
The  Company's  obligations  under  the  lines of  credit  and the term loan are
secured by all of the  Company's  accounts  receivable,  inventories,  and other
assets.  In September  1998,  Imperial  Bank ceased  funding  under the lines of
credit and  notified  the  Company  that it intended  to  terminate  its banking
relationship with the Company.  After further  discussions,  on November 4, 1998
the Company and Imperial Bank executed a Forbearance Agreement pursuant to which
Imperial  Bank has resumed  funding to the Company under the lines of credit and
the Company has agreed to repay all  outstanding  indebtedness  owed to Imperial
Bank.  Although the Company is in discussions with several lenders regarding new
financing  for the  Company,  there can be no  assurance  that the Company  will
secure new  financing.  The  failure of  Imperial  Bank to  continue  to provide
funding to the  Company  under the lines of credit or the failure of the Company
to secure  sufficient  new  financing to timely repay all  indebtedness  owed to
Imperial Bank would have a material adverse effect on the Company.


         Net cash used in operating  activities increased to $2.8 million during
the quarter ended December 31, 1998,  from $2.5 million during the quarter ended
December 31, 1997.

         Net cash used in investing  activities increased to $2.0 million during
the quarter ended December 31, 1998,  from $1.2 million during the quarter ended
December 31, 1997.

         The Company has no material commitments for capital  expenditures.  The
Company's 5%  convertible  preferred  stock (which ranks prior to the  Company's
common  stock),  carries  cumulative  dividends,  when  and as  declared  by the
Company's Board of Directors (but such dividends may only be paid out of surplus
or net profits legally available for the payment thereof),  at an annual rate of
$50.00 per share.  The aggregate amount of such dividends in arrears at December
31, 1998, was approximately $0.5 million,  which amount has not been declared by
the Company's Board of Directors.

         The  Company's  capital   requirements   depend  on  numerous  factors,
including market acceptance of the Company's products,  the scope and success of
the Company's product development  efforts, the resources the Company devotes to
marketing and selling its products,  and other factors.  The Company anticipates
that its capital requirements will increase in future periods as it continues to
develop new products and increases its sales and marketing  efforts.  The report
of the

                                       11

<PAGE>





Company's   independent  auditors  accompanying  the  Company's  June  30,  1998
financial  statements  includes an explanatory  paragraph  indicating there is a
substantial  doubt about the Company's  ability to continue as a going  concern,
due primarily to the decreases in the Company's  working  capital and net worth.
To address the Company's  working  capital  needs,  on September  17, 1998,  the
Company  raised an aggregate of $4.38 million  through the issuance of shares of
its Common Stock and subordinated notes to several private investors. While this
financing  improved the Company working capital  position,  the Company needs to
raise  additional  funds to operate its  business  effectively.  The Company has
recently  engaged a financial  advisor to assist with  additional  fund  raising
efforts and the Company intends to attempt to raise additional funds in the near
future.  There can be no  assurance,  however,  that the Company will be able to
complete any additional debt or equity  financings on favorable terms or at all,
or that  any  such  financings,  if  completed,  will be  adequate  to meet  the
Company's  capital  requirements.  Any  additional  equity or  convertible  debt
financings could result in substantial  dilution to the Company's  stockholders.
If  adequate  funds are not  available,  the  Company  may be required to delay,
reduce  or  eliminate  some  or all of its  planned  activities.  The  Company's
inability to fund its capital  requirements would have a material adverse effect
on the Company. See "Risks and Uncertainties--Future Capital Needs."

YEAR 2000 COMPLIANCE

         The Company is aware of the issues associated with the programming code
in  existing  computer  systems  as the year 2000  approaches.  The  "year  2000
problem" is pervasive and complex as virtually every computer  operation will be
affected  in some way by the  rollover  of the  two-digit  year value to 00. The
issue is  whether  computer  systems  will  properly  recognize  date  sensitive
information  when  the  year  changes  to  2000.  Systems  that do not  properly
recognize such  information  could generate  erroneous data or cause a system to
fail. The Company has procured a new business system that is year 2000 compliant
and plans are to implement the new system in quarters three and four of the 1999
fiscal year ending June 30, 1999.


         Management does not anticipate that the Company will incur  significant
operating  expenses or be required to invest heavily in other  computer  systems
improvements  to be year  2000  compliant.  The  Company  plans  to  devote  the
necessary  resources to resolve significant year 2000 issues in a timely manner;
however,  if the  Company,  its  customers,  vendors or others with whom it does
significant  business  are unable to  resolve  external  processing  issues in a
timely manner, it could result in material adverse effect on the Company.

         The  Company  has   performed  an  analysis  of  all  of  its  products
manufactured after January 1, 1997 and has determined that all such products are
year 2000  compliant.  This analysis  covered the Company's  printer  controller
technology, laser and dye-sublimation printers, as well as software products and
computer  and digital  camera  memory  modules.  The  Company's  printers do not
currently  contain any internal  clock  devises  that  monitor or recognize  the
change of the date and therefore the change of year from 1999 to 2000 should not
effect their operation.  However, software drivers are used to modify and direct
the  output  and  performance  of these  printers.  While  these  drivers do not
generate  time-specific codes, they mirror time codes resident in the applicable
operating  system.  In the event a modification is required to a software driver
to  accommodate  year  2000  modifications  instituted  by a  manufacturer  of a
software  package,  computer  platform or  operating  system that the Company is
currently  supporting,  the  Company  currently  plans  to  update  that  driver
free-of-charge  and make it  available to customers  for  down-loading  from the
Internet.

RISKS AND UNCERTAINTIES; FUTURE CAPITAL NEEDS

         There  can  be no  assurance  with  respect  to  the  Company's  future
profitability or revenue growth. Losses may occur on a quarterly or annual basis
for  a  number  of  reasons  outside  the  Company's  control.   See  "Potential
Fluctuation in Quarterly Performance." The growth of the Company's business will
require  the  commitment  of  substantial  capital  resources.  If funds are not
available from operations,  the Company will need additional  funds. The Company
may seek such additional funding through public and private financing, including
debt or equity  financing.  Adequate funds for these  purposes,  whether through
financial markets or from other sources, may not be available when needed or, if
available, not on terms acceptable to the


                                       12

<PAGE>





Company.  Insufficient  funds  may  require  the  Company  to  delay,  reduce or
eliminate some or all of its planned  activities.  See  "--Liquidity and Capital
Resources."

POTENTIAL FLUCTUATION IN QUARTERLY PERFORMANCE

         The Company's quarterly  operating results can fluctuate  significantly
depending on factors such as the timing of product  announcements and subsequent
introductions of products by the Company and its  competitors,  availability and
cost of  components,  timing of  shipments  of the  Company's  products,  mix of
product  families  shipped,  market  acceptance  of new  products,  seasonality,
currency fluctuations, changes in prices by the Company and its competitors, and
price protection for selling price reductions  offered to distributors and OEMs.
In addition,  the timing of expenditures for staffing and related support costs,
advertising,   trade  show  attendance,   promotion,  research  and  development
expenditures,  and, of course, changes in general economic conditions can impact
quarterly  performance.  Any one of these factors could have a material  adverse
effect on the  Company's  results of  operations.  The  Company  may  experience
significant  quarterly  fluctuations  in  total  revenues  as well as  operating
expenses  with respect to future new product  introductions.  In  addition,  the
Company's  component  purchases,  production and spending  levels are based upon
forecast  demand for the  Company's  products.  Accordingly,  any  inaccuracy in
forecasting could adversely affect the Company's financial condition and results
of operations.  Demand for the Company's products could be adversely affected by
a slowdown in the  overall  demand for  computer  systems,  printer  products or
digitally printed images.  The Company's failure to complete  shipments during a
quarter  could  have a  material  adverse  effect on the  Company's  results  of
operations for that quarter. Quarterly results are not necessarily indicative of
future performance for any particular period.

HIGHLY COMPETITIVE INDUSTRY

         The markets  for the  Company's  products  are highly  competitive  and
rapidly changing. Some of the Company's current and prospective competitors have
significantly   greater  financial,   technical,   manufacturing  and  marketing
resources  than the  Company.  The  Company's  ability to compete in its markets
depends on a number of factors  within and outside its  control,  including  the
success and timing of product  introductions by the Company and its competitors,
selling prices, product performance, product distribution, marketing ability and
customer  support.  A key  element  of  the  Company's  strategy  is to  provide
competitively  priced  quality  products.  There  can be no  assurance  that the
Company's  products will continue to be  competitively  priced.  The Company has
reduced  prices on certain of its products in the past and will likely  continue
to do so in the future. Price reductions, if not offset by similar reductions in
product costs,  will affect gross margins and may adversely affect the Company's
financial  condition  and results of  operations.  See "Short  Product Lives and
Technological Change."

SHORT PRODUCT LIVES AND TECHNOLOGICAL CHANGE

         The markets for the  Company's  products are  characterized  by rapidly
evolving  technology,  frequent new product  introductions and significant price
competition.  Consequently,  short  product life cycles and  reductions  in unit
selling  prices  due to  competitive  pressures  over the life of a product  are
common.  The Company's  future success will depend on its ability to continue to
develop and manufacture competitive products and achieve cost reductions for its
existing products. In addition, the Company monitors new technology developments
and coordinates  with suppliers,  distributors  and dealers to enhance  existing
products  and  lower  costs.  Advances  in  technology  will  require  increased
investment to maintain the Company's  market position.  The Company's  financial
condition and results of operations  could be adversely  affected if the Company
is unable to develop  and  manufacture  new,  competitive  products  in a timely
manner.

DEVELOPING MARKETS AND APPLICATIONS

         The markets for the Company's products are relatively new and are still
developing.  The Company believes that there has been growing market  acceptance
for color  printers  and  related  technologies  and  supplies.  There can be no
assurance  that such  markets  will  continue to grow.  Other  technologies  are
constantly evolving and improving. There can be


                                       13

<PAGE>





no assurance  that products  based on these other  technologies  will not have a
material adverse effect on the demand for the Company's products.

DEPENDENCE ON ADOBE RELATIONSHIP

         The Company's  relationship with Adobe as an authorized  Co-development
Partner to implement  the  inclusion of Adobe's  PostScript  language on printer
controllers  and in  software  products  is an  integral  part  of its  business
strategy. There can be no assurance that this relationship will be successful or
that  it  will  remain  in  force  for  some  time to  come.  Loss of the  Adobe
relationship could have a substantial negative effect on future revenues.

DEPENDENCE UPON SUPPLIERS

         At present, many of the Company's products use technology licensed from
outside suppliers.  The Company relies heavily on Adobe for upgrades and support
of the  PostScript  language.  In the case of its  font  products,  the  Company
licenses such fonts from outside  suppliers,  including  Adobe, who also own the
intellectual  property  rights  to  such  fonts.  The  reliance  on  third-party
suppliers  involves risk,  including limited control over potential hardware and
software incompatibilities with the Company's products.  Furthermore,  there can
be no assurance  that all of the  suppliers of products  marketed by the Company
will continue to license  their  products to the Company  indefinitely,  or that
these suppliers will not license to other companies simultaneously.

RISKS RELATED TO ACQUISITIONS

         During Fiscal 1998,  ITEC made a number of  acquisitions  to complement
its  technical  position  in the  imaging  market.  CSI,  a  producer  of  color
management software was acquired in a stock transaction. McMican, a two-year-old
manufacturer  of digital memory  products for data storage and exchange  between
digital  cameras and imaging systems was acquired in a stock  transaction.  ITEC
also acquired the assets of AMT, the European sales and distribution  subsidiary
of Singapore-based Lam Soon. AMT had been ITEC's master stocking  distributor of
printers  and supplies in the EC and on the European  Continent.  The  Company's
future  performance  will  depend in part on its ability to  integrate  and grow
these acquired businesses.

         Acquisitions involve a number of risks,  including:  the integration of
acquired  products and  technologies  in a timely  manner;  the  integration  of
businesses  and  employees  with  the  Company's  business;  the  management  of
geographically- dispersed operations;  adverse effects on the Company's reported
operating results from acquisition-related charges and amortization of goodwill;
potential  increases in stock  compensation  expense and increased  compensation
expense  resulting  from  newly-hired  employees;  the  diversion of  management
attention;  the assumption of unknown  liabilities;  potential disputes with the
sellers  of one or more  acquired  entities;  the  inability  of the  Company to
maintain  customers  or  goodwill of an  acquired  business;  the need to divest
unwanted  assets or products;  and the  possible  failure to retain key acquired
personnel. Client satisfaction or performance problems with an acquired business
could also have a material  adverse effect on the reputation of the Company as a
whole, and any acquired business could  significantly  under perform relative to
the  Company's  expectations.  The  Company  is  currently  facing  all of these
challenges  and its  ability  to meet  them  over  the  long  term  has not been
established.  As a result,  there can be no  assurance  that the Company will be
able to integrate acquired businesses,  products or technologies successfully or
in a timely manner in accordance with its strategic objectives, which could have
a material adverse effect on the Company.

         In order to grow its  business,  the  Company  may  continue to acquire
businesses that it believes are complementary.  The successful implementation of
this strategy depends on the Company's ability to identify suitable  acquisition
candidates,   acquire  such  companies  on  acceptable  terms,  integrate  their
operations  and  technology  successfully  with  those  of the  Company,  retain
existing customers and maintain the goodwill of the acquired business. There can
be no assurance  that the Company will be able to identify  additional  suitable
acquisition  candidates,  acquire  any  such  candidates  on  acceptable  terms,
integrate their  operations or technology  successfully,  or retain customers or
maintain the goodwill of the acquired business.



                                       14

<PAGE>





Moreover,  in pursuing  acquisition  opportunities,  the Company may compete for
acquisition targets with other companies with similar growth strategies. Some of
these  competitors may be larger and have greater  financial and other resources
than the Company.  Competition for these  acquisition  targets likely could also
result in  increased  prices of  acquisition  targets and a  diminished  pool of
companies available for acquisition.  In addition, the Company would likely face
the  same  integration  issues  described  above  with  respect  to  any  future
acquisitions.  If the Company is unable to manage internal or acquisition- based
growth effectively, the Company would be materially and adversely affected.

         Due to all of the foregoing,  the Company's execution on an acquisition
strategy or any individual  completed or future  acquisition may have a material
adverse  effect on the  Company.  In  addition,  if the  Company  issues  equity
securities as consideration for any future acquisitions,  existing  stockholders
will experience further ownership dilution and such equity securities could have
rights, preferences,  privileges or other rights superior to those of the Common
Stock. See "--Future Capital Needs," and  "Management's  Discussion and Analysis
of Financial Condition and Results of Operations."

DEPENDENCE ON KEY PERSONNEL

         The success of the  Company is  dependent,  in part,  on its ability to
attract and retain qualified management and technical personnel. Competition for
such personnel is intense, and the inability to attract additional key employees
or the loss of one or more key  employees  could  adversely  affect the Company.
There can be no assurance that the Company will retain its key personnel.

COMPONENT AVAILABILITY AND COST; DEPENDENCE ON SINGLE SOURCES

         ITEC presently  outsources  the production of most of its  manufactured
products  through a number of  vendors  located  in  California.  These  vendors
assemble  products,  utilizing  components  purchased  by the Company from other
sources or from their own internal inventory.  The terms of supply contracts are
negotiated  separately in each instance.  The Company  believes that its present
vendors  have  sufficient  capacity  to meet  projected  market  demand  for the
Company's  products or that alternate  production  sources are available without
undue disruption.  ITEC has not experienced any difficulty over the past several
years in engaging contractors or in purchasing components.

         ITEC's contract vendors  generally perform  multi-step  quality control
testing prior to shipping their products to the Company. ITEC, in turn, includes
appropriate software,  performs additional tests on the products,  then packages
and ships products into the  distribution  channels.  In addition to buying such
items as printed circuit boards and other components from outside  vendors,  the
Company purchases and/or licenses software programs, including operating systems
and  intellectual  property  modules  (pre-written  software  code to  execute a
specifically defined operation).  ITEC purchases these products from vendors who
have licenses to sell such software to the Company from the  originators of such
software,  and has, from time to time, directly licensed system software that is
either embedded or otherwise incorporated in certain ITEC products.


         While most  components  are available  locally from  multiple  vendors,
certain components used in the Company's products are only available from single
sources.  Although  alternate  suppliers are readily available for many of these
components, for some components the process of qualifying replacement suppliers,
replacing  tooling or ordering and receiving  replacement  components could take
several months and cause substantial disruption to the Company's operations. Any
significant  increase in component prices or decrease in component  availability
could have a material adverse effect on the Company.

POSSIBILITY OF CHALLENGE TO COMPANY'S PRODUCTS OR INTELLECTUAL PROPERTY RIGHTS

         The Company's software products,  hardware designs, and circuit layouts
are copyrighted.  However, copyright protection does not prevent other companies
from  emulating the features and benefits  provided by the  Company's  software,
hardware  designs  or the  integration  of the two.  The  Company  protects  its
software source code as trade secrets and makes

                                       15

<PAGE>





its  Company  proprietary  source code  available  to OEM  customers  only under
limited circumstances and specific security and confidentiality  constraints. In
many product  hardware  designs,  the Company  develops ASICs which  encapsulate
proprietary technology and are installed on the circuit board. This can serve to
significantly  reduce  the risk of  duplication  by  competitors,  but in no way
ensures the complete  lack of potential  for a competitor to replicate a feature
or the benefit in a similar  product.  The Company  currently  holds no patents.
Because  computer  and printer  imaging  technology  is such a rapidly  changing
business environment,  the Company believes the effectiveness of patents,  trade
secrets,  and copyright  protection are less important in influencing  long term
success  than  the  experience  of the  Company's  technical  team,  contractual
relationships, and a continuous focus on technical advancement.

         The Company has  obtained  U.S.  registration  for several of its trade
names  or  trademarks,   including:   PCPI,  NewGen,   ColorBlind,   LaserImage,
ColorImage,  ImageScript, ImageFont, ImagePress, and ImageNet. These trade names
are used to  distinguish  the  Company's  products in the  marketplace.  Pending
trademarks for which  registration  is currently  being sought  include:  dfilm,
Xtinguisher,   ChroMATCH,  ChromaxPro,  ImagerPro,  DuoSetter,  ImagerPlus,  and
DesignXP.


         From time to time,  certain  competitors  have  asserted  patent rights
relevant to the Company's business. The Company expects that this will continue.
The Company carefully evaluates each assertion relating to its products.  If the
Company is not  successful in  establishing  that asserted  rights have not been
violated,  the Company  could be  prohibited  from  marketing  the products that
incorporate such technology.  The Company could also incur  substantial costs to
redesign its  products or to defend any legal action taken  against the Company.
If the  Company's  products  should be found to infringe  upon the  intellectual
property  rights  of  others,   the  Company  could  be  enjoined  from  further
infringement and be liable for any damages.  The Company relies on a combination
of  trade  secret,   copyright  and  trademark   protection  and  non-disclosure
agreements  to  protect  its  proprietary  rights.  There  can be no  assurance,
however,  that the  measures  adopted by the Company for the  protection  of its
intellectual  property  will be adequate to protect its  interests,  or that the
Company's  competitors  will not  independently  develop  technologies  that are
substantially equivalent or superior to the Company's technologies.

INTERNATIONAL OPERATIONS

         The Company  conducts  business  globally.  Accordingly,  the Company's
future results could be adversely  affected by a variety of  uncontrollable  and
changing  factors  including   foreign  currency  exchange  rates;   regulatory,
political  or  economic  conditions  in a  specific  country  or  region;  trade
protection  measures  and other  regulatory  requirements;  government  spending
patterns;  and natural  disasters,  among other  factors.  In Fiscal  1998,  the
Company  experienced  contract  cancellations  and the write-off of  significant
receivables related to continuing  economic  deterioration in foreign countries,
particularly  in Asian  countries.  Any or all of  these  factors  could  have a
material adverse impact on the Company's future international  business in these
or other  countries  and on the  Company's  financial  condition  and results of
operations.

DEPENDENCE ON EXPORT SALES

         The Company intends to pursue international  markets as key avenues for
growth and to  increase  the  percentage  of sales  generated  in  international
markets.  In Fiscal  1998,  1997,  and 1996,  sales  outside  the United  States
represented  approximately  56%,  57%  and  81%  of  the  Company's  net  sales,
respectively.  In 1998,  the  Company  established  a European  Headquarters  to
facilitate its European sales operations. Located in Bracknell,  Berkshire, near
London,  ITEC Europe  provides  both sales and support  functions  to  customers
within the United Kingdom,  EC and Eastern European Block for ITEC's printer and
imaging  products.  In addition,  at the close of Fiscal 1998, ITEC acquired the
European-based  assets and  operations  of AMT. AMT was the  European  sales and
distribution arm of Singapore-based Lam Soon,  manufacturer of dot matrix, laser
and inkjet printers and plotters for specialized applications.

         The Company expects export sales to continue to represent a significant
portion of its sales.  International  sales and  operations are subject to risks
such as the imposition of governmental  controls,  export license  requirements,
restrictions   on  the  export  of  critical   technology,   currency   exchange
fluctuations, political instability, trade restrictions, changes in tariffs,

                                       16

<PAGE>





difficulties  in staffing and managing  international  operations and collecting
accounts receivable.  In addition,  the laws of certain countries do not protect
the Company's  products and  intellectual  property rights to the same extent as
the  laws  of the  United  States.  As  the  Company  continues  to  expand  its
international  business,  there can be no assurance  that these factors will not
have an adverse effect on the Company.

RELIANCE ON INDIRECT DISTRIBUTION

         The  Company's  products are  marketed and sold through an  established
distribution channel of VARs,  manufacturer's  representatives,  retail vendors,
and systems  integrators.  ITEC has a network of dealers and distributors in the
United States and Canada, in the EC and on the European Continent,  as well as a
growing number of resellers in Africa, Asia, the Middle East, Latin America, and
Australia.  ITEC  supports  its  worldwide  distribution  network  and  end-user
customers through centralized manufacturing, distribution, and repair operations
headquartered in San Diego, which serve North and South America, the Pacific Rim
and Asia. In addition,  ITEC Europe Ltd., located in a suburb of London, manages
distribution and service for customers in Europe, Africa and the Middle East. As
of December 31, 1998, the Company directly  employed 32 individuals  involved in
marketing  and  sales   activities.   The  sales  and  marketing   operation  is
headquartered in ITEC's Silicon Valley offices in Northern California.

         The Company's sales are principally made through distributors which may
carry competing  product lines.  Such  distributors  could reduce or discontinue
sales of the Company's  products  which could have a material  adverse effect on
the Company's  financial  condition and results of  operations.  There can be no
assurance  that  these  independent   distributors  will  devote  the  resources
necessary to provide  effective  sales and  marketing  support of the  Company's
products. In addition, the Company is dependent upon the continued viability and
financial stability of these distributors, many of which are small organizations
with limited capital. These distributors,  in turn, are substantially  dependent
on general economic  conditions and other unique factors affecting the Company's
markets.  The Company  believes that its future growth and success will continue
to  depend  in  large  part  upon its  distribution  channels.  There  can be no
assurance that actual bad debts from the Company's  distributors will not exceed
recorded  allowances  resulting in a material  adverse  effect on the  Company's
financial  condition  and  results of  operations.  To expand  its  distribution
channels,  the Company has entered into select OEM arrangements that allow it to
address  specific  market  segments  or  geographic  areas.  In order to prevent
inventory write-downs, to the extent that OEM customers do not purchase products
as  anticipated,  the  Company  may need to convert  such  products to make them
salable to other customers.

VOLATILITY OF STOCK PRICE

         The  market  price  of the  Company's  Common  Stock  historically  has
fluctuated  significantly.  The Company  believes  that  factors such as general
stock market  trends,  announcements  of  developments  related to the Company's
business, fluctuations in the Company's operating results, general conditions in
the computer  peripheral  market and the markets served by the Company or in the
worldwide economy, a shortfall in revenue or earnings from securities  analysts'
expectations,  announcements  of  technological  innovations  or new products or
enhancements by the Company or its competitors, developments in patents or other
intellectual  property rights and  developments  in the Company's  relationships
with its customers and suppliers could cause a further  significant  fluctuation
in the price of the  Company's  Common Stock.  In addition,  in recent years the
stock  market in  general,  and the market for  shares of  technology  stocks in
particular,  have experienced extreme price fluctuations,  which have often been
unrelated to the operating  performance of affected  companies.  There can be no
assurance  that  the  market  price  of the  Company's  Common  Stock  will  not
experience  significant   fluctuations  that  are  unrelated  to  the  Company's
operating performance.

ABSENCE OF DIVIDENDS

         No cash dividends have been paid on the Company's  Common Stock to date
and the Company does not  anticipate  paying cash  dividends in the  foreseeable
future.


                                       17

<PAGE>





ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         None.


                                       18

<PAGE>





PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

         On or about February 2, 1999, American  Industries,  Inc., Ellison Carl
Morgan and entities  related to Ellison Carl Morgan (the  "Plaintiffs")  filed a
summons against the Company and certain officers and directors of the Company in
the circuit court of the State of Oregon for the county of  Multnomah,  alleging
that the Company and the other  defendants  violated  certain Oregon  Securities
Laws in connection with the Plaintiffs' investments in the Company, breached the
contracts  with the  Plaintiffs  and  committed  fraud in  connection  with such
contracts.  Plaintiffs  seek to  recover  for all of  their  investments  in the
Company made between  November 14, 1997 and December 10, 1998,  which Plaintiffs
estimate to be in excess of $5  million.  The  Company  believes  the claims are
without  merit and intend to answer  Plaintiffs'  complaint  by  denying  all of
Plaintiffs' allegations.

         On February 16, 1999, the Plaintiffs  filed an ex parte motion for TRO,
Provisional  Process and Show Cause Order  seeking to restrain  the Company from
negotiating,  commingling or spending any proceeds of the collateral  securing a
Letter of Credit Reimbursement Agreement, dated November 13, 1998, and requiring
the Company to notify all  purchasers of the  collateral to pay any  outstanding
sums directly to the  Plaintiffs  and to pay,  endorse or transfer to Plaintiffs
upon receipt all proceeds  received by the Company  directly from  purchasers of
the  collateral.  At the hearing,  the court  required the Plaintiffs to issue a
bond for $100,000 and issued a  restraining  order against the Company as to the
collateral security, the Letter of Credit Agreement.

         Furthermore,  from  time  to  time,  the  Company  may be  involved  in
litigation relating to claims arising out of its operations in the normal course
of business.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

(c) Sales of Unregistered Securities.

         As of January 13, 1999, the Company entered into a Securities  Purchase
Agreement  (the "Series D Agreement")  with certain  investors  contemplating  a
potential  funding of up to $2.4 million (the "Series D Funding").  The Series D
Funding  provides for the private  placement by the Company of up to 1,200 units
(the  "Units"),  each Unit  consisting  of (i) one share of Series D Convertible
Preferred  Stock (the "Series D Stock") and (ii) 2,000  warrants  (the "Series D
Warrants" and, collectively, with the Series D Stock, the "Series D Securities")
exercisable for shares of Common Stock. Pursuant to the Series D Agreement,  the
Company  shall issue and sell to the investors the Series D Stock and the Series
D Warrants  in three  tranches in the  following  amounts:  (i)  $600,000 of the
stated value of the Series D Stock in the first  tranche;  (ii)  $600,000 of the
stated value of the Series D Stock in the second tranche;  and (iii)  $1,200,000
of the  stated  value of the  Series D Stock in the  third  tranche.  The  first
tranche was funded at the signing of the Series D Agreement;  the second tranche
was funded on February 5, 1999;  and the third  tranche will be funded on a date
after the Company,  among other  things,  (i)  provides a written  notice to the
investors  requiring  such  investors to purchase up to $1,200,000 of the stated
value of the  Series  D Stock  and (ii)  has,  and has had for 30 days  prior to
receiving any funding pursuant to the third tranche,  an effective  registration
statement (the "Registration  Statement") filed with the Securities and Exchange
Commission  (the "SEC").  The Series D Stock is  convertible  into shares of the
Company's  Common  Stock at the lesser of (A) $.50 and (B) an amount equal to 70
percent  of the  closing  bid  price per  share of  Common  Stock on the  Nasdaq
SmallCap Market (the "Series D Closing Price") for the three trading days having
the lowest  closing  price during the 30 trading days prior to the date on which
the  investor  gives to the  Company a notice of  conversion  of Series D Stock;
except that all Series D Stock  converted  prior to  February  26, 1999 would be
converted at $.50.  However,  each of the  investors has agreed that in no event
shall it be  permitted  to convert any shares of Series D Stock in excess of the
number of such shares upon the conversion of which, the sum of (i) the number of
shares of Common Stock owned by such investor (other than shares of Common Stock
issuable  upon  conversion  of  Series  D Stock  or upon  exercise  of  Series D
Warrants)  plus  (ii) the  number  of  shares  of  Common  Stock  issuable  upon
conversion  of such shares of Series D  Preferred  Stock or exercise of Series D
Warrants, would be equal to


                                       19

<PAGE>


or exceed 9.999  percent of the number of shares of Common Stock then issued and
outstanding,  including the shares that would be issuable upon conversion of the
Series D Stock or  exercise  of Series D Warrants  held by such  investor.  Each
investor  in Series D Stock  shall have the right to vote,  except as  otherwise
required by Delaware  law, on all matters on which  holders of Common Stock have
the right to vote on with each such  investor  having the right to cast one vote
for each  whole  share of Common  Stock  into  which  each share of the Series D
Preferred  Stock held by such investor is convertible  immediately  prior to the
record date for the  determination of stockholders  entitled to vote;  provided,
however,  that in no event  shall a holder be  entitled  to vote more than 9.999
percent of the number of shares  entitled  to be voted on any  matter.  Upon the
completion  of each  tranche of Series D  Funding,  each of the  investors  will
receive  the  number of Series D Warrants  that  directly  corresponds  with the
dollar amount such investor invested in such tranche;  the Series D Warrants are
immediately  exercisable  upon issuance at an exercise  price of $.875 per share
and expire five years after the date of their issuance.

         As of February 2, 1999, the Company entered into a Securities  Purchase
Agreement (the "Series E Agreement")  with certain  investors  (including one of
whom is a  director  of the  Company)  contemplating  a  potential  funding  and
exchange of  indebtedness  of up to $3,000,000  and as of February 18, 1999, the
Company  contemplates   entering  into  an  Exchange  Agreement  (the  "Exchange
Agreement")  with  certain  investors  contemplating  a  potential  exchange  of
indebtedness  of  approximately  $1,150,000  (the  Series  E  Agreement  and the
Exchange Agreement being together the "Series E Funding").  The Series E Funding
provides  for the  private  placement  by the  Company of up to 1,250 units (the
"Units"),  each  Unit  consisting  of (i) one  share  of  Series  E  Convertible
Preferred  Stock (the "Series E Stock") and (ii) 5,000  warrants  (the "Series E
Warrants" and, collectively, with the Series E Stock, the "Series E Securities")
exercisable for shares of Common Stock. Pursuant to the Series E Agreement,  the
Company  issued  and  sold to the  investors  the  Series  E  Securities  in the
following  amounts:  $1,735,000  in  cash  and  $1,265,000  in  exchange  and/or
cancellation  of  indebtedness,  and  pursuant to the  Exchange  Agreement,  the
Company  contemplates  issuing to the investors  Series E Securities in exchange
and/or  cancellation  of indebtedness of  approximately  $1,150,000.  All of the
investors  of the  Series E  Agreement  funded at the time of  execution  of the
Series E Agreement  except  that two of the  investors  agreed to  purchase  the
Series E Securities  in three  tranches (the "Series E Tranche  Investors").  To
date,  $300,000 has been funded and the balance of $450,000  will be funded on a
date after the Company, among other things, (i) provides a written notice to the
investors  requiring  such  investors  to  purchase up to $450,000 of the stated
value of the  Series  E Stock  and (ii)  has,  and has had for 30 days  prior to
receiving any funding pursuant to the third tranche,  an effective  Registration
Statement  filed with the SEC. All of the  investors  of the Exchange  Agreement
would exchange their  indebtedness  for Series E Securities  within five days of
the Company obtaining  Shareholder  Approval.  The Series E Stock is convertible
into shares of the  Company's  Common Stock at the lesser of (A) $.50 and (B) an
amount equal to 70 percent of the closing bid price per share of Common Stock on
the Nasdaq  SmallCap Market (the "Series E Closing Price") for the three trading
days having the lowest  closing  price  during the 30 trading  days prior to the
date on which the applicable  investor gives to the Company notice of conversion
of Series E Stock;  except that all Series E Stock  converted  prior to February
26, 1999 would be converted at $.50.  Each investor in Series E Stock shall have
the right to vote, except as otherwise  required by Delaware law, on all matters
on which  holders  of  Common  Stock  have the  right to vote on with  each such
investor  having the right to cast one vote for each whole share of Common Stock
into which each share of the Series E Preferred  Stock held by such  investor is
convertible  immediately  prior  to the  record  date for the  determination  of
stockholders  entitled to vote. Upon the Series E Funding, each of the investors
will receive the number of Series E Warrants that directly  corresponds with the
dollar  amount  such  investor  invested  in the Series E Funding,  except  that
Tranche  Investors  will receive the number of Series E Warrants  that  directly
corresponds  with the dollar  amount such  investor  invested in each  completed
tranche;  the Series E Warrants are immediately  exercisable upon issuance at an
exercise  price of $.875 per share and  expire  five years  after  their date of
issuance.

         The offers and sales to the Series D and E investors were made pursuant
to a claim of exemption  under  Section 4(2) of the  Securities  Act, as amended
(the  "Securities  Act").  The Company did not use any general  advertisement or
solicitation  in  connection  with  the  offer  or  sale of the  Series  D and E
Securities to the Series D and E investors. Each of the Series D and E investors
represented and warranted,  among other things, that he or it was purchasing the
Series D and E Securities, as applicable, for investment purposes and not with a
view to distribution and that he or it was an "accredited  investor" (as defined
in Regulation D promulgated by the SEC). Appropriate legends were affixed to the
certificates for each of the Series D and E.

                                   
                                       20

<PAGE>



ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

(b) The Company  has no  material  commitments  for  capital  expenditures.  The
Company's 5%  convertible  preferred  stock (which ranks prior to the  Company's
common  stock),  carries  cumulative  dividends,  when  and as  declared  by the
Company's Board of Directors (but such dividends may only be paid out of surplus
or net profits legally available for the payment thereof),  at an annual rate of
$50.00 per share.  The aggregate amount of such dividends in arrears at December
31, 1998, was approximately $0.5 million,  which amount has not been declared by
the Company's Board of Directors.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         None.

ITEM 5.  OTHER INFORMATION

         None.


                                       21

<PAGE>


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits:

    3.1    Certificate of Amendment of Certificate of Incorporation,  filed with
           the Secretary of State of the State of Delaware on January 12, 1999.

    3.2    Certificate  Eliminating  Reference  to  Certain  Series of Shares of
           Stock from the Certificate of Incorporation, filed with the Secretary
           of State of the State of Delaware on January 12, 1999.

    3.3    Certificate of  Designation,  Powers,  Preferences  and Rights of the
           Series  of  Preferred  Stock to be  Designated  Series D  Convertible
           Preferred  Stock,  filed with the  Secretary of State of the State of
           Delaware on January 13, 1999.

    3.4    Certificate of  Designation,  Powers,  Preferences  and Rights of the
           Series  of  Preferred  Stock to be  Designated  Series E  Convertible
           Preferred  Stock,  filed with the  Secretary of State of the State of
           Delaware on January 28, 1999.

    10.1   Forbearance  Agreement,  entered into as of November 4, 1998,  by and
           among the Company, certain of the Company's subsidiaries and Imperial
           Bank.

    10.2   Letter of Credit  Reimbursement  Agreement,  dated as of November 13,
           1998, by and between the Company and American Industries, Inc.

    10.3   Securities Purchase Agreement,  dated  as of January 13, 1999, by and
           among the Company and the applicable parties named therein.

    10.4   Registration  Rights Agreement, dated  as of January 13, 1999, by and
           among the Company and the applicable parties named therein.

    10.5   Form of Warrant to Purchase  Shares of Common Stock of the Company at
           $.875 per share, dated January 13, 1999, between the Company and each
           of the applicable parties named in Exhibit 10.3 hereto.

    10.6   Securities  Purchase Agreement,  dated as of February 2, 1999, by and
           among the Company and the applicable parties named therein.

    10.7   Registration  Rights  Agreement, dated as of February 2, 1999, by and
           among the Company and the applicable parties named therein.

    10.8   Form of Warrant to Purchase  Shares of Common Stock of the Company at
           $.875 per share, dated February 2, 1999, between the Company and each
           of the applicable parties named in Exhibit 10.6 hereto.

    10.9   Exchange  Agreement,  dated as of February 19, 1999, by and among the
           Company and the applicable parties named therein.

    27.1   Financial Data Schedule.

(b) Reports on Form 8-K:

         No reports on Form 8-K were filed during the quarter ended December 31,
1998.


                                       22

<PAGE>






    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.

Dated: February 22, 1999

IMAGING TECHNOLOGIES CORPORATION (Registrant)

By: /s/ BRIAN BONAR
    ---------------------------------
        Brian Bonar

Chief Executive Officer
(Principal Executive Officer)

By: /s/ CHRISTOPHER W. MCKEE
    ----------------------------------
        Christopher W. McKee

Vice President of Finance and Operations
(Principal Financial and Accounting Officer)


                                       23
<PAGE>

                                 EXHIBIT INDEX

Exhibit
No.                     DESCRIPTION
--------                -----------

    3.1    Certificate of Amendment of Certificate of Incorporation,  filed with
           the Secretary of State of the State of Delaware on January 12, 1999.

    3.2    Certificate  Eliminating  Reference  to  Certain  Series of Shares of
           Stock from the Certificate of Incorporation, filed with the Secretary
           of State of the State of Delaware on January 12, 1999.

    3.3    Certificate of  Designation,  Powers,  Preferences  and Rights of the
           Series  of  Preferred  Stock to be  Designated  Series D  Convertible
           Preferred  Stock,  filed with the  Secretary of State of the State of
           Delaware on January 13, 1999.

    3.4    Certificate of  Designation,  Powers,  Preferences  and Rights of the
           Series  of  Preferred  Stock to be  Designated  Series E  Convertible
           Preferred  Stock,  filed with the  Secretary of State of the State of
           Delaware on January 28, 1999.

    10.1   Forbearance  Agreement,  entered into as of November 4, 1998,  by and
           among the Company, certain of the Company's subsidiaries and Imperial
           Bank.

    10.2   Letter of Credit  Reimbursement  Agreement,  dated as of November 13,
           1998, by and between the Company and American Industries, Inc.

    10.3   Securities Purchase Agreement,  dated  as of January 13, 1999, by and
           among the Company and the applicable parties named therein.

    10.4   Registration  Rights Agreement, dated  as of January 13, 1999, by and
           among the Company and the applicable parties named therein.

    10.5   Form of Warrant to Purchase  Shares of Common Stock of the Company at
           $.875 per share, dated January 13, 1999, between the Company and each
           of the applicable parties named in Exhibit 10.3 hereto.

    10.6   Securities  Purchase Agreement,  dated as of February 2, 1999, by and
           among the Company and the applicable parties named therein.

    10.7   Registration  Rights  Agreement, dated as of February 2, 1999, by and
           among the Company and the applicable parties named therein.

    10.8   Form of Warrant to Purchase  Shares of Common Stock of the Company at
           $.875 per share, dated February 2, 1999, between the Company and each
           of the applicable parties named in Exhibit 10.6 hereto.

    10.9   Exchange  Agreement,  dated as of February 19, 1999, by and among the
           Company and the applicable parties named therein.

    27.1   Financial Data Schedule.