<PAGE>

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                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                                   FORM 10-Q

(Mark One)

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

                For the fiscal quarter ended September 30, 1998

                                      OR

--   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

                    For the transition period from __ to __

                        Commission File Number: 0-12641

                             IMAGING TECHNOLOGIES
                                  CORPORATION

            (Exact name of registrant as specified in its charter)


               DELAWARE                              33-0021693
   (State or other jurisdiction of      (I.R.S. Employer Identification No.)
   incorporation or organization)

           11031 VIA FRONTERA
             SAN DIEGO, CA                             92127
(Address of principal executive offices)            (Zip Code)


      Registrant's telephone number, including area code: (619) 613-1300


Indicate by check mark whether the Registrant (1) has filed all reports 
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act 
of 1934 during the preceding 12 months (or for such shorter period that the 
Registrant was required to file such reports), and (2) has been subject to 
such filing requirements for the past 90 days.  Yes  X   No
                                                    ---     ---

The number of shares outstanding of the Registrant's Common Stock as of 
September 30, 1998, was 13,301,078.

<PAGE>

IMAGING TECHNOLOGIES CORPORATION

INDEX

<TABLE>
<CAPTION>

                                                                            PAGE
<S>                                                                         <C>
PART I - FINANCIAL INFORMATION

ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS
         Consolidated Balance Sheets at
         September 30, 1998 (unaudited) and June 30, 1998 (audited)...........1

         Consolidated Statements of Operations for the
         three months ended September 30, 1998 and 1997 (unaudited)...........2

         Consolidated Statements of Cash Flows for the
         three months ended September 30, 1998 and 1997 (unaudited)...........3

         Notes to Consolidated Financial Statements...........................4

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS..................................6

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
         MARKET RISK.........................................................15

PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS...................................................15

ITEM 2.  CHANGES IN SECURITIES...............................................15

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.....................................16

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................16

ITEM 5.  OTHER INFORMATION...................................................16

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K....................................16

SIGNATURES...................................................................18

</TABLE>


                                       i

<PAGE>

PART I. - FINANCIAL INFORMATION

ITEM 1.   CONSOLIDATED FINANCIAL STATEMENTS

               IMAGING TECHNOLOGIES CORPORATION AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                       (IN THOUSANDS, EXCEPT SHARE DATA)


                                    ASSETS

<TABLE>
<CAPTION>

                                                                     SEPTEMBER 30,    JUNE 30,
                                                                         1998           1998
                                                                     (UNAUDITED)      (AUDITED)
<S>                                                                  <C>              <C>
Current assets
  Cash                                                                 $  1,020       $  3,023
  Accounts receivable, net                                                5,798          4,133
  Inventories                                                             5,104          6,287
  Prepaid expenses and other                                              1,866          1,401
                                                                       --------       --------
    Total current assets                                                 13,788         14,844
Property and equipment, net                                               1,436          1,525
Prepaid licenses                                                            635            635
Capitalized software, net                                                 4,536          3,655
Other                                                                       252            302
                                                                       --------       --------
                                                                       $ 20,647       $ 20,961
                                                                       --------       --------
                                                                       --------       --------

                            LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
  Borrowings under bank lines of credit                                $  4,162       $  5,203
  Short-term debt                                                         5,485          1,998
  Current portion of long-term debt                                         903            903
  Accounts payable and accrued expenses                                   6,047          6,425
                                                                       --------       --------
    Total current liabilities                                            16,597         14,529
Long-term debt, less current portion                                      2,359          1,828
                                                                       --------       --------
    Total liabilities                                                    18,956         16,357
                                                                       --------       --------
                                                                       --------       --------

Shareholders' equity
  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
  Preferred stock, $1,000 par value, 2,383 shares authorized,
    no shares issued and outstanding                                          -              -
  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                                                   (35,192)       (33,987)
                                                                       --------       --------
    Total shareholders' equity                                            1,691          4,604
                                                                       --------       --------
                                                                       $ 20,647       $ 20,961
                                                                       --------       --------
                                                                       --------       --------

</TABLE>

                SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                       1

<PAGE>

               IMAGING TECHNOLOGIES CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
                       (IN THOUSANDS, EXCEPT SHARE DATA)
                                  (UNAUDITED)

<TABLE>
<CAPTION>

                                                            1998          1997
<S>                                                       <C>           <C>
Revenues
  Sales of products                                       $ 6,721       $ 5,668
  Engineering fees                                            395         1,516
  Licenses and royalties                                      163             -
                                                          -------       -------
                                                            7,279         7,184
                                                          -------       -------
Costs and expenses
  Costs of products sold                                    4,047         3,939
  Selling, general, and administrative                      3,640         1,803
  Cost of engineering fees                                    585           597
                                                          -------       -------
                                                            8,272         6,339
                                                          -------       -------
Income (loss) from operations                                (993)          845
Other expense
  Interest, net                                              (208)          (26)
                                                          -------       -------
Income (loss) before income taxes                          (1,201)          819
Income tax benefit (expense)                                   (4)           (4)
                                                          -------       -------
Net income (loss)                                         $(1,205)      $   815
                                                          -------       -------
                                                          -------       -------
Earnings (loss) per common share
  Basic                                                   $ (0.10)      $  0.08
                                                          -------       -------
                                                          -------       -------
  Diluted                                                 $ (0.10)      $  0.07
                                                          -------       -------
                                                          -------       -------
Weighted average common shares                             12,642         9,791
                                                          -------       -------
                                                          -------       -------
Weighted average common shares - assuming dilution         12,642        12,517
                                                          -------       -------
                                                          -------       -------

</TABLE>

                SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                       2

<PAGE>

               IMAGING TECHNOLOGIES CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
                       (IN THOUSANDS, EXCEPT SHARE DATA)
                                  (UNAUDITED)

<TABLE>
<CAPTION>

                                                            1998          1997
<S>                                                       <C>           <C>
Cash flows from operating activities
  Net income (loss)                                       $(1,205)      $   815
  Adjustments to reconcile net income (loss)
    to net cash from operating activities
      Depreciation and amortization                           160           143
      Changes in operating assets and liabilities
        Accounts receivable                                (1,665)       (1,432)
        Inventories                                         1,181          (365)
        Prepaid expenses and other                           (415)         (276)
        Accounts payable and accrued expenses                (378)         (762)
        Deferred revenue                                        -          (201)
                                                          -------       -------
          Net cash from operating activities               (2,322)       (2,078)
                                                          -------       -------
Cash flows from investing activities
  Prepaid licenses                                              -          (244)
  Capitalized software                                       (881)         (560)
  Capital expenditures                                        (71)          (10)
                                                          -------       -------
          Net cash from investing activities                 (952)         (814)
                                                          -------       -------
Cash flows from financing activities
  Net borrowings under bank lines of credit                (1,041)          633
  Net borrowings under short-term notes payable             2,752             -
  Net proceeds from issuance of common stock                1,250           695
  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                                (137)          (27)
                                                          -------       -------
          Net cash from financing activities                1,271         6,301
                                                          -------       -------
Net increase (decrease) in cash                            (2,003)        3,409
Cash, beginning of period                                   3,023           193
                                                          -------       -------
Cash, end of period                                       $ 1,020       $ 3,602
                                                          -------       -------
                                                          -------       -------
Supplemental disclosure of cash flow information
  Cash paid during the period for interest                $   130       $    26
  Cash paid during the period for income taxes                  4             4

</TABLE>

                SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                       3

<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 September 30, 1998, and for the 
three 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 intends 
to attempt to raise these funds through debt and/or equity financings. However,
no assurance can be given that the Company will be able to complete any of 
these financings or that any financing that is complete will be adequate to 
meet the Company's capital requirements.  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 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>
SEPTEMBER 30, 1997
  Net income                                          $815
    Preferred dividends                                 (5)
                                                      ----
  Basic EPS                                            810              9,791          $0.08
    Effect of options and warrants                       -              1,833
    Effective of convertible notes payable               2                 64
    Effect of convertible preferred stock                5                829
                                                      ----             ------
  Diluted EPS                                         $817             12,517          $0.07
                                                      ----             ------
                                                      ----             ------

</TABLE>


                                       4

<PAGE>

<TABLE>
<CAPTION>

                                                 EARNINGS (LOSS)       SHARES        PER-SHARE
                                                   (NUMERATOR)      (DENOMINATOR)      AMOUNT
<S>                                              <C>                <C>              <C>
SEPTEMBER 30, 1998
  Net loss                                          $(1,205)
    Preferred dividends                                  (6)
                                                    -------
  Basic and diluted EPS                             $(1,211)           12,642         $(0.10)
                                                    -------            ------         ------
                                                    -------            ------         ------

</TABLE>

NOTE 4.  INVENTORIES

<TABLE>
<CAPTION>

                                                                    SEPTEMBER 30,    JUNE 30,
                                                                        1998           1998
     <S>                                                            <C>              <C>
       Inventories
     Materials and supplies                                            $1,978         $2,081
     Finished goods                                                     3,126          4,206
                                                                       ------         ------
                                                                       $5,104         $6,287
                                                                       ------         ------
                                                                       ------         ------

</TABLE>

NOTE 5.  BANK LINES OF CREDIT

     In September 1998, Imperial Bank ceased funding under the lines of 
credit it has provided to the Company 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 by January 15, 
1999.  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 by January 15, 1999, if ever.  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 on or before January 15, 1999, 
would have a material adverse effect on the Company.

     As of September 30, 1998, the Company also had a line of credit with the 
Bank of Yorba Linda with a principal balance of $0.4 million.  The loan bears 
interest at prime plus 3% per annum and matured on August 13, 1998.  The 
Company currently plans to refinance this obligation as part of the new 
financing it is attempting to secure.  There can be no assurance, however, 
that the Company will be able to secure new financing to repay the Bank of 
Yorba Linda loan, and the Company's failure to do so could 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, $1.0 million in subordinated notes and 
warrants to purchase 300,000 shares of common stock (200,000 at an exercise 
price of $2.025 and 100,000 at an exercise price of $4.00).  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 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.

                                       5

<PAGE>

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, external print servers, 
digital image storage devices, and software to improve the accuracy of color 
reproduction.

     ITEC has acquired four separate businesses during the past twenty-one 
months that have expanded the Company's strategic position in the digital 
imaging market. In addition, the Company has altered 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 continues to be in a 
significant transitional phase and there are important short-term operational 
and liquidity 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 September 
30, 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." 

                                       6

<PAGE>

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 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 an 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.

STRATEGIC ACQUISITIONS

     In Fiscal 1998, the Company made several strategic acquisitions to 
reinforce its technology position and expand sales channels. ITEC purchased 
privately held McMican Corporation. The new division operates as the Storage 
Products division of ITEC, producing specialized memory modules. McMican's 
"dfilm-TM-" line of data storage products feature Flash memory modules for 
high-speed transfer of stored images and data. "dfilm-TM-" modules have 
applications in portable digital cameras and many other portable devices such 
as handheld personal computers running the Windows CE-Registered 
Trademark-operating system.

     In fiscal 1998 ITEC merged with Color Solutions, Inc., a three-year-old 
software development firm located in Cardiff, California. Color Solutions' 
ColorBlind-Registered Trademark- software allows users to precisely profile 
peripherals such as scanners, monitors, digital cameras, printers and other 
specialized color digital devices, all based on internationally-accepted ICC 
color standards. Color management is a key element for the printing and 
graphics industry, but also color reproduction in the textile, motion 
picture, and ceramics industries.

     At the close of Fiscal 1998, ITEC acquired the assets of AMT, the 
European sales and distribution subsidiary of Singapore-based Lam Soon. Lam 
Soon is a worldwide manufacturer of dot matrix, inkjet and specialized laser 
printers. AMT had been ITEC's master stocking distributor of printers and 
supplies in the EC and on the European Continent. AMT's European operations 
are being integrated into ITEC's recently established European Headquarters 
operation, ITEC Europe, located near London.

RESULTS OF OPERATIONS
NET REVENUES

     Revenues were $7.3 million and $7.2 million for the quarters ended 
September 30, 1998 and 1997, respectively. Sales of product were $6.7 million 
and $5.7 million for the quarters ended September 30, 1998 and 1997, 
respectively. The increase in product sales from 1997 to 1998 was due 
primarily to an increase in sales of printer products. Engineering fees were 
$0.4 million and $1.5 million for the quarters ended September 30, 1998 and 
1997, respectively. 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 $0.2 million for the quarter ended September 30, 
1998 and the Company did not recognize any license fees during the quarter 
ended September 30, 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 $4.0 million or 60% of product sales and 
$3.9 million or 69% of product sales for the quarters ended September 30, 
1998 and 1997, respectively. The percentage decrease in 1998 as compared to 
1997 was primarily due to improved margins on recently released product.


                                       7

<PAGE>

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

     Selling, general and administrative expenses were $3.6 million or 50% of 
total revenue and $1.8 million or 25% of total revenues for the quarters 
ended September 30, 1998 and 1997, respectively. 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 
September 30, 1998 as compared to the quarter ended September 30, 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 $0.6 million or 148% of engineering revenue and 
$0.6 million or 39% of related engineering revenues for the quarters ended 
September 30, 1998 and September 30, 1997.  The increase in costs as a 
percentage of engineering revenues from 1998 compared to 1997 resulted 
primarily from cost overruns on a contract that was substantially completed 
during the quarter.

LIQUIDITY AND CAPITAL RESOURCES

     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 September 30, 1998, the Company had a deficit working capital of 
$2.8 million, a decrease of $3.1 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 September 30, 1998, were lines of credit with Imperial Bank 
aggregating $7 million. Borrowing under these lines of credit at September 30, 
1998 totaled $3.8 million. The Company also has a term loan with Imperial 
Bank, the principal balance of which at September 30, 1998, was $2.4 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 September 30, 
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 by January 15, 1999.  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 by January 15, 1999, if ever. 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 on or before January 15, 1999, would have 
a material adverse effect on the Company.

     As of September 30, 1998, the Company also had a line of credit with the 
Bank of Yorba Linda with a principal balance of $0.4 million. The loan bears 
interest at prime plus 3% per annum and matured on August 13, 


                                       8

<PAGE>

1998. The Company currently plans to refinance this obligation as part of the 
new financing it is attempting to secure. There can be no assurance, however, 
that the Company will be able to secure new financing to repay the Bank of 
Yorba Linda loan, and the Company's failure to do so could have a material 
adverse effect on the Company.

     Net cash used in operating activities increased to $2.3 million during 
the quarter ended September 30, 1998, from $2.1 million during the quarter 
ended September 30, 1997.

     Net cash used in investing activities increased to $1.0 million during 
the quarter ended September 30, 1998, from $0.8 million during the quarter 
ended September 30, 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, at an 
annual rate of $50.00 per share. The aggregate amount of such dividends in 
arrears at September 30, 1998, was approximately $0.5 million.

     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 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. 


                                       9

<PAGE>

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 
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 


                                       10

<PAGE>

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 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 


                                       11

<PAGE>

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. 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 its Company 
proprietary source code available to OEM customers only under 


                                       12

<PAGE>

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, 
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 


                                       13

<PAGE>

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 September 30, 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.

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.


                                       14

<PAGE>

     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.

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.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     None

PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

     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.

     On September 17, 1998, the Company issued in a private placement (i) 
500,000 newly issued shares of Common Stock at $2.50 per share, (ii) 
$2,450,000 in non-convertible subordinated promissory notes (the 
"Non-Convertible Notes"), (iii) warrants to purchase up to 490,000 shares of 
Common Stock at an exercise price of $2.025 per share (the "Warrants"), and 
(iv) $675,000 in convertible subordinated promissory notes (the "Convertible 
Notes") (collectively, the "Securities").  The aggregate consideration 
received by the Company for the Securities sold in the private placement was 
$4,375,000 in cash.  Net proceeds to the Company from the sale of the 
Securities were approximately $4,000,000. All of the promissory notes bear 
interest at 16% per year.  The Convertible Notes mature in two years and are 
convertible, at the option of each investor, at any time into shares of 
Common Stock at $2.025 per share (subject to adjustment under certain 
circumstances).  The Non-Convertible Notes mature in one year and are not 
convertible.  The Securities were offered and sold to three accredited 
investors (one of whom is a Director of the Company) (the "Purchasers").

     As part of a separate transaction, on September 18, 1998, the Company 
issued in a private placement $1,000,000 in non-convertible subordinated 
promissory notes (the "Redemption Notes") and warrants to purchase up to 
300,000 shares of Common Stock (together with the Redemption Notes, the 
"Redemption Securities"), 200,000 of which have an exercise price of $2.025 
per share and 100,000 of which have an exercise price of $4.00 per share.  
The Redemption Securities were issued to two accredited investors (the 
"Series C Holders") in 


                                       15

<PAGE>

connection with the Company's redemption of all of its outstanding Series C 
Convertible Preferred Stock.  The Redemption Notes bear interest at 16% per 
year, are not convertible and mature in one year.

     The offers and sales to the Purchasers and to the Series C Holders were 
made pursuant to a claim of exemption under Section 4(2) of the Securities 
Act of 1933, as amended (the "Securities Act").  The Company did not use any 
general advertisement or solicitation in connection with the offer or sale of 
the Securities to the Purchasers, nor did the Company use any general 
advertisement or solicitation in connection with the offer or sale of the 
Redemption Securities to the Series C Holders.  Each of the Purchasers and 
the Series C Holders represented and warranted, among other things, that he 
or it was purchasing the Securities or the Redemption Securities, as 
applicable, for investment only and not with a view to distribution and that 
he or it was an "accredited investor" (as defined in  Regulation D 
promulgated by the Securities and Exchange Commission).  Appropriate legends 
were affixed to the certificates for each of the Securities and the 
Redemption Securities.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

     None

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

     None

ITEM 5.  OTHER INFORMATION

     None

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits:

     10.1    Common Stock Purchase Agreement, dated September 17, 1998, among
     the Company and the parties listed on Schedule A thereto.

     10.2    Form of Subordinated Note Purchase Agreement, dated September 17,
     1998, among the Company and the parties listed on Schedule A thereto.

     10.3    Form of Non-Convertible Subordinated Promissory Note, dated
     September 17, 1998, between the Company and the purchasers thereof.

     *10.4   Form of Convertible Subordinated Promissory Note, dated
     September 17, 1998, between the Company and the purchasers thereof.

     10.5    Form of Common Stock Purchase Warrant to purchase shares of Common
     Stock of the Company at $2.025 per share, dated September 17, 1998, between
     the Company and the purchasers thereof.

     10.6    Registration Rights Agreement, dated September 17, 1998, among the
     Company and the parties listed on Schedule A thereto.

     10.7    Settlement and Mutual Release Agreement, dated September 18, 1998,
     among the Company and the parties listed on the signature pages thereto.

     10.8    Amendment No. 1 to Registration Rights Agreement, dated
     September 18, 1998, among the Company and the parties listed on the
     signature pages thereto.


                                       16

<PAGE>

     10.9    Form of Common Stock Purchase Warrant to purchase 50,000 shares of
     Common Stock of the Company at $4.00 per share, dated September 18, 1998,
     between the Company and each of NP Partners and Olympus Securities, Ltd.

     10.10   Subordinate Note Purchase Agreement, dated September 18, 1998,
     among the Company and NP Partners and Olympus Securities, Ltd.

     10.11   Form of Non-Convertible Subordinated Promissory Note, dated
     September 18, 1998, between the Company and each of NP Partners and Olympus
     Securities, Ltd.

     10.12   Form of Common Stock Purchase Warrant to purchase 100,000 shares of
     Common Stock of the Company at $2.025 per share, dated September 18, 1998,
     between the Company and each of NP Partners and Olympus Securities, Ltd.

(b)  Reports on Form 8-K - No reports on Form 8-K were filed during the quarter
ended September 30, 1998.

*    Certain confidential portions of this Exhibit were omitted by means of
     redacting a portion of the text (the "Mark").  This Exhibit has been filed
     separately with the Secretary of the Commission without the Mark pursuant
     to the Company's Application Requesting Confidential Treatment under
     Rule 24b-2 under the Exchange Act.


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<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: November 16, 1998


                                    IMAGING TECHNOLOGIES CORPORATION
                                    (Registrant)


                                    By: /s/ MICHAEL K. CLEMENS
                                        ----------------------------
                                        Michael K. Clemens
                                        Senior Vice President and
                                        Chief Financial Officer
                                    (Principal Financial and Accounting Officer)


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