SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

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

                  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
                                       or
                   TRANSITION REPORT UNDER SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                           Commission file No. 0-12641

                                [GRAPHIC OMITTED]

                        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.)
                             15175 INNOVATION DRIVE
                           SAN DIEGO, CALIFORNIA 92128
                    (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 May 7,
1999, was 19,821,955.

<PAGE>
                                                                          PAGE
PART I - FINANCIAL INFORMATION                                            
         ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS
         Consolidated Balance Sheets
              March 31, 1999 (unaudited) and June 30, 1998 (audited)         2
         Consolidated Statements of Operations
              Three months ended March 31, 1999 and 1998 (unaudited)         3
         Consolidated Statements of Cash Flows
              Three months ended March 31, 1999 and 1998 (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                                        17

PART II - OTHER INFORMATION

         ITEM 1.  LEGAL PROCEEDINGS                                         18
         ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS                 18
         ITEM 3.  DEFAULTS UPON SENIOR SECURITIES                           19
         ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS       19
         ITEM 5.  OTHER INFORMATION                                         19
         ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K                          20

SIGNATURES                                                                  22

<PAGE>
<TABLE>
<CAPTION>

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

                                                      ASSETS
                                                                                MARCH 31,        JUNE 30,
                                                                                  1999             1998

<S>                                                                           <C>                <C>      
Current assets
    Cash                                                                      $      368         $   3,023
    Accounts receivable, net                                                       3,848             4,133
    Inventories                                                                    2,896             6,287
    Prepaid expenses and other                                                     1,256             1,401
                                                                              ----------        ----------
        Total current assets                                                       8,368            14,844
Property and equipment, net                                                        1,217             1,525
Capitalized software, net                                                          6,356             3,655
Other                                                                              1,669               937
                                                                              ----------        ----------
          Total Assets                                                          $ 17,610          $ 20,961
                                                                              ==========        ==========

                 LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities
    Borrowings under bank lines of credit                                      $   4,602         $   5,203
    Short-term debt                                                                2,581             1,998
    Current portion of long-term debt                                              1,342               903
    Accounts payable                                                               2,518             5,027
    Accrued expenses                                                               1,747             1,398
                                                                              ----------        ----------
        Total current liabilities                                                 12,790            14,529
Long-term debt, less current portion                                               2,152             1,828
                                                                              ----------        ----------
        Total liabilities                                                         14,942            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
    Series D preferred stock, $1,000 par value, 1,200 shares
        authorized, 875 issued and outstanding                                       875
    Series E preferred stock, $1,000 par value, 1,250 shares
        authorized, 881 issued and outstanding                                       881
    Common stock, $0.005 par value, 100,000,000 shares authorized;
        19,800,815 shares issued and outstanding                                      99                62
    Paid-in capital                                                               41,355            35,859
    Shareholder loans                                                               (110)             (110)
    Accumulated deficit                                                          (40,852)          (33,987)
                                                                              ----------        ----------
    Total shareholders' equity (deficit)                                           2,668             4,604
                                                                              ----------        ----------
                                                                                $ 17,610          $ 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                   NINE MONTHS ENDED
                                                         MARCH            MARCH            MARCH             MARCH
                                                       31, 1999         31, 1998         31, 1999           31,1998

<S>  
Revenues                                                   <C>               <C>             <C>               <C>    
    Sales of products                                   $3,230            $9,275          $14,146           $23,776
    Engineering fees                                       110             1,497              505             4,544
    Licenses and royalties                                 320                 -              483                 -
                                                     ---------         ---------         --------          --------
                                                         3,660            10,772           15,134            28,320
                                                     ---------         ---------         --------          --------
Costs and expenses
    Costs of products sold                               2,504             6,864            9,860            17,053
    Selling, general, and administrative                 2,868             2,500           10,184             6,807
    Cost of engineering fees                               215               566            1,030             1,720
                                                     ---------         ---------        ---------          --------
                                                         5,587             9,930           21,074            25,580
                                                     ---------         ---------        ---------          --------
Income (loss) from operations                           (1,927)              842           (5,940)            2,740
Other expense
    Interest, net                                         (368)              (71)            (911)             (115)
                                                     ----------        ---------        ---------          --------
Income (loss) before income taxes                       (2,295)              771           (6,851)            2,625
Income tax expense                                           -               350              (14)              346
                                                     ----------        ---------        ---------          --------
Net income (loss)                                      $(2,295)           $1,121         $ (6,865)         $  2,971
                                                     ==========        =========        =========          ========

</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                        3

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<TABLE>
<CAPTION>
                IMAGING TECHNOLOGIES CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                    NINE MONTHS ENDED MARCH 31, 1999 AND 1998
                        (IN THOUSANDS, EXCEPT SHARE DATA)
                                   (UNAUDITED)


                                                                                    1999             1998

<S>                                                                               <C>               <C>   
Cash flows from operating activities
   Net income (loss)                                                              $(6,865)          $2,971
   Adjustments to reconcile net income (loss)
     to net cash from operating activities
     Depreciation and amortization                                                    579              499
     Income tax benefit                                                                 -             (350)
     Changes in operating assets and liabilities
       Accounts receivable                                                            285           (7,329)
       Inventories                                                                  3,391           (1,230)
       Prepaid expenses and other                                                    (587)          (1,776)
       Accounts payable and accrued expenses                                       (2,160)             897
                                                                                  -------         --------
         Net cash from operating activities                                        (5,357)          (6,318)
                                                                                  -------         --------

Cash flows from investing activities
   Cash acquired in merger                                                           -                  38
   Capitalized software                                                            (2,901)          (1,868)
   Capital expenditures                                                               (71)            (285)
                                                                                  -------         --------
         Net cash from investing activities                                        (2,972)          (2,115)
                                                                                  -------         --------

Cash flows from financing activities
   Net borrowings under bank lines of credit                                         (601)           3,741
   Net borrowings under short-term notes payable                                    2,642                -
   Net proceeds from issuance of common stock                                       2,034            1,319
   Net proceeds from issuance of preferred stock                                    3,506            5,000
   Collection of shareholder loan                                                       -                5
   Redemption of preferred stock                                                   (2,228)               -
   Issuance of long term debt                                                         675                -
   Repayment of long-term debt                                                       (354)            (109)
                                                                                  -------          -------
         Net cash from financing activities                                         5,674            9,956
                                                                                  -------          -------
Net increase (decrease) in cash                                                    (2,655)           1,523
Cash, beginning of period                                                           3,023              255
                                                                                  -------          -------
Cash, end of period                                                              $    368           $1,778
                                                                                  =======          ========


</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 March 31, 1999, and for the nine
months then ended, the Company had a net loss and negative working capital 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. 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 continue to obtain additional funds to
provide adequate working capital and finance operations. 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 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:

                                          EARNINGS (LOSS)    SHARES    PER-SHARE
                                            (NUMERATOR)   (DENOMINATOR)  AMOUNT
MARCH 31, 1998
   Net income                                  $ 2,971
     Preferred dividends                           (16)
                                               -------
   Basic EPS                                     2,955       11,048     $ 0.27
     Effect of options and warrants                  -          739
     Effective of convertible notes payable                      64
     Effect of convertible preferred stock          16        1,425
                                               -------       ------
   Diluted EPS                                 $ 2,971       13,276     $ 0.22
                                               =======       ======


                                        5
<PAGE>


                                     EARNINGS (LOSS)      SHARES       PER-SHARE
                                       (NUMERATOR)     (DENOMINATOR)     AMOUNT
MARCH 31, 1999
   Net loss                             $  (6,865)
     Preferred dividends                      (16)
                                            ------
   Basic and diluted EPS                $  (6,881)        13,208      $(0.52)
                                            ======        ======

NOTE 4.  INVENTORIES
                                                        MARCH 31,     JUNE 30,
                                                          1999          1998
     Inventories
         Materials and supplies                          $   300         $2,081
         Finished goods                                    2,596          4,206
                                                          ------         ------
                                                          $2,896         $6,287
                                                          ======         ======

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 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. On March 30, 1999 the
holder of one of these convertible notes exchanged his note in the principal of
$950,000 and all accrued interest for 2,000,000 shares of the Company's common
stock. 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. SERIES D AND SERIES E CONVERTIBLE PREFERRED STOCK

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
provided 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,

                                        6

<PAGE>


the Company has issued and sold or shall sell and issue to the investors the
Series D Stock and the Series D Warrants in the following amounts: (i)
$1,800,000 of the stated value of the Series D Stock has been issued and sold;
and (ii) $600,000 of the stated value of the Series D Stock will be funded on a
date after the Company, among other things, (a) provides a written notice to the
investors requiring such investors to purchase up to $600,000 of the stated
value of the Series D Stock and (b) has 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 $4,655,000 and as of February 18, 1999, the Company has
entered 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: $3,420,000 in cash and
$1,235,000 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 which have all been funded.
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
                                        7

<PAGE>


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, printing, and publishing and
other niche business and technical markets. Beginning with a core technology in
the design and development of Adobe(R) PostScript(R) controllers for non-impact
printers and multifunction peripherals, the company has expanded its product
offerings to include monochrome and color printers, printer controllers,
external print servers, and software to improve the accuracy of color
reproduction.

During the past 12 months, ITEC has undertaken a significant realignment of the
Company's operations around its core imaging businesses. The Company has shifted
its focus away from some of its traditional revenue sources, consolidated
facilities, and introduced new products, and has been required to make
expenditures to support these changes. The Company's business has been in a
transitional phase and there have been 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 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. These events
culminated in a year-end loss from operations in fiscal 1998 and special
restructuring charges taken against earnings. The Company has reported losses in
the first three fiscal quarters of 1999.

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

                                        8

<PAGE>

channel for market penetration. Independent of the strategic partnerships, the
company is also funding internal development and continues to introduce new
products and product enhancements for its core markets.

To expedite a turnaround in its earnings, during the third quarter the Company
signed an agreement with Pen Interconnect (NASDAQ: PENC) for a manufacturing
outsourcing agreement. Pen Interconnect, through its InCirT Technologies
contract manufacturing division in Irvine, California, has begun providing
high-volume manufacturing, test, and order fulfillment services to ITEC. ITEC's
plan is to contract the manufacturing of the company's color and monochrome
printers and image management printer controller boards to Pen Interconnect. The
goal is to complete the orders in the Company's backlog, expand its product mix,
and focus its efforts on technology development without the overhead of a
manufacturing center.

To execute successfully its current strategy, the Company also has improved its
working capital position. 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. During the third quarter of fiscal 1999, the Company obtained
approximately $5.2 million in cash through private placements of its capital
stock. The placement involved the issuance of Series D and E Securities with
certain accredited and institutional investors. In addition, the company
converted approximately $2.0 million of debt into equity. These offerings and
conversions have resulted in the issuance of additional shares and warrants.
ITEC is using the funds raised for working capital to expand product shipments
to meet worldwide customer demand for the Company's printers, image management
print controllers, color print servers and color management software.

CORPORATE RESTRUCTURING

Beginning in April 1998, the Company has been implementing 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 technology
base.

In addition to the structural realignment, ITEC has been in the process of
consolidating its facilities to increase efficiencies and reduce costs.

During the second fiscal quarter of fiscal 1999, the Company disposed of its
McMican Corporation memory products manufacturing subsidiary, and in the third
quarter sold its Prima International subsidiary, a PC Card and storage products
distributor. These moves were part of the ongoing realignment of the Company's
operations around its core imaging businesses, focusing on markets and products
that produce a higher return on investment.

The consolidation process culminated in April 1999 with the opening of a single
facility in San Diego, California. This facility houses all of ITEC's U.S.
operations previously located in seven separate complexes in Northern and
Southern California. ITEC will initially occupy 45,000 square feet of the
60,000-square-foot building with the option to expand as the Company grows.
Consolidating into one facility reduces the amount of space the Company occupies
by 35%, representing savings of 45% in lease payments over 1998. ITEC has
decreased its staff by 50% worldwide over last year through outsourcing and the
elimination of redundant positions. By streamlining operations and locating
manufacturing and distribution in one centralized plant, the Company expects to
eventually realize annualized savings in excess of $1.5 million, primarily as a
result of workforce reductions, decreased factory space requirements, and the
elimination of duplicate operations and the outsourcing strategy.


                                        9

<PAGE>

RESULTS OF OPERATIONS

NET REVENUES
Revenues were $3.7 million and $10.8 million for the quarters ended March 31,
1999 and 1998, respectively. Sales of product were $3.2 million and $9.3 million
for the quarters ended March 31, 1999 and 1998, respectively. For the nine
months ended March 31, 1999 sales of product were $ 14.1 million compared to $
23.8 million for the nine months ended March 31, 1998. The decrease in product
sales from 1998 to 1999 was due primarily to a decrease in sales of printer
products. Engineering fees were $0.1 million and $1.5 million for the quarters
ended March 31, 1999 and 1998, respectively. For the nine months ended March 31,
1999 engineering fees were $ 0.5 million compared to $ 4.5 million for the nine
months ended March 31, 1999. The decrease in 1999 compared to 1998 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 $0.3 million for the quarter ended March 31, 1999 and
the Company did not recognize any license fees during the quarter ended March
31, 1998. For the nine months ended March 31, 1999 license fees were $ 0.5
compared to $ 0.0 million for the nine months ended March 31, 1998.

COST OF PRODUCTS SOLD
Cost of products sold were $2.5 million or 78% of product sales and $6.9 million
or 74% of product sales for the quarters ended March 31, 1999 and 1998,
respectively. For the nine months ended March 31, 1999 cost of products sold
were $9.9 million compared to $17.1 million for the nine months ended March 31,
1998. The percentage increase in 1999 as compared to 1998 was primarily due to
end of life product sales.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $2.9 million and $2.5 million
for the quarters ended March 31, 1999 and 1998, respectively. For the nine
months ended March 31, 1999 selling, general and administrative expenses were
$10.2 million compared to $6.8 million for the nine months ended March 31, 1998.
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 in SG&A costs are mainly attributable to in
increase in administrative personnel and overhead expenses incurred as part of
the acquisitions in Fiscal year 1998.

COST OF ENGINEERING
Engineering costs were $0.2 million and $0.6 million for the quarters ended
March 31, 1999 and March 31, 1998. For the nine months ended March 31, 1999
engineering costs were $ 1.0 million compared to $ 1.7 million for the nine
months ended March 31, 1998. The increase in costs as a percentage of
engineering revenues from 1999 compared to 1998 resulted primarily from the
reduction of billable engineering contracts.

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 was 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.

During the third quarter of fiscal 1999, the Company obtained approximately $5.2
million in cash through the issuance of Series D and E Securities in private
placements with certain accredited and institutional investors. The Company is
using these funds to increase its working capital, sustain current operations,
introduce new products, and support the transition to a new strategic model
following the recent completion of a one-year corporate reorganization and
restructuring effort.

                                       10
<PAGE>


To the extent the Company receives cash from collections of accounts receivable
from its customers, distributors and OEMs, any increase in the amount of
international sales is likely to increase accounts receivable balances due to
traditionally slower payments by international customers. 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 an adverse effect on the Company.

As of March 31, 1999, the Company had a deficit working capital of $4.4 million,
a decrease of $4.1 million as compared to June 30, 1998. The decrease is
primarily the result of the operating loss and the decrease in accounts
receivable and inventories.. The Company's other principal source of liquidity
at March 31, 1999, were lines of credit with Imperial Bank aggregating $7
million. Borrowing under these lines of credit at March 31, 1999 totaled $4.6
million. The Company also has a term loan with Imperial Bank, the principal
balance of which at March 31, 1999, 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 March 31, 1999, 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 decreased to $5.4. million during the nine
months ended March 31, 1999, from $6.3 million during the nine months ended
March 31, 1998.

Net cash used in investing activities increased to $3.0 million during the nine
months ended March 31, 1999, from $2.1 million during the nine months ended
March 31, 1998.

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 March 31, 1999,
was approximately $0.6 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
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. This
working capital infusion was followed with private placements in the third
quarter of fiscal 1999 that raised approximately $5.2 million in cash through
the issuance of Series D and E Securities to certain accredited and
institutional investors. During the same period, approximately $2.0 million of
debt was converted to equity. These additions and changes to the Company's
capital structure have improved ITEC's working capital position and support the
company's ability to pursue its current strategy of capitalizing on its
technologies.

                                       11

<PAGE>


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 for the 2000 fiscal year.

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 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.

                                       12                                      

<PAGE>


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 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. 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.

                                       13

<PAGE>


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. 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 vendor located in California. This vendor assembles products,
utilizing components purchased by the Company from other sources or from its own
internal inventory. The terms of supply contracts are negotiated separately in
each instance. The Company believes that its present vendor has 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

                                       14

<PAGE>


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 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


                                       15
<PAGE>



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 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 March 31,
1999, the Company directly employed 17 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.

                                       16
<PAGE>


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.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

None.

                                       17

<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 lawsuit
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 vigorously defend against them.

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
provided 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 has issued and sold or shall sell and issue to the investors the Series
D Stock and the Series D Warrants in the following amounts: (i) $1,800,000 of
the stated value of the Series D Stock has been issued and sold; and (ii)
$600,000 of the stated value of the Series D Stock will be funded on a date
after the Company, among other things, (a) provides a written notice to the
investors requiring such investors to purchase up to $600,000 of the stated
value of the Series D Stock and (b) has 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

                                       18

<PAGE>

indebtedness of up to $4,655,000 and as of February 18, 1999, the Company has
entered 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: $3,420,000 in cash and
$1,235,000 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 which have all been funded.
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 Stock.

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 March 31,
1999, was approximately $0.6 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.


                                       19

<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
           as incorporated by reference to Exhibit 3.1 to the Company's Report
           on Form 10-Q for the period ended December 31, 1998.

    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 as incorporated
           by reference to Exhibit 3.2 to the Company's Report on Form 10-Q for
           the period ended December 31, 1998.

    4.1    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 as incorporated by reference to Exhibit
           3.3 to the Company's Report on Form 10-Q for the period ended
           December 31, 1998.

    4.2    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 as incorporated by reference to Exhibit
           3.4 to the Company's Report on Form 10-Q for the period ended
           December 31, 1998.

    10.1   Securities Purchase Agreement, dated as of January 13, 1999, by and
           among the Company and the applicable parties named therein as
           incorporated by reference to Exhibit 10.3 to the Company's Report on
           Form 10-Q for the period ended December 31, 1998.

    10.2   Registration Rights Agreement, dated as of January 13, 1999, by and
           among the Company and the applicable parties named therein as
           incorporated by reference to Exhibit 10.4 to the Company's Report on
           Form 10-Q for the period ended December 31, 1998.

    10.3   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 as
           incorporated by reference to Exhibit 10.5 to the Company's Report on
           Form 10-Q for the period ended December 31, 1998.

    10.4   Securities Purchase Agreement, dated as of February 2, 1999, by and
           among the Company and the applicable parties named therein as
           incorporated by reference to Exhibit 10.6 to the Company's Report on
           Form 10-Q for the period ended December 31, 1998.

    10.5   Registration Rights Agreement, dated as of February 2, 1999, by and
           among the Company and the applicable parties named therein as
           incorporated by reference to Exhibit 10.7 to the Company's Report on
           Form 10-Q for the period ended December 31, 1998.

    10.6   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 as
           incorporated by reference to Exhibit 10.8 to the Company's Report on
           Form 10-Q for the period ended December 31, 1998.

    10.7   Exchange Agreement, dated as of February 18, 1999, by and among the
           Company and the applicable parties named therein as incorporated by
           reference to Exhibit 10.9 to the Company's Report on Form 10-Q for
           the period ended December 31, 1998.

                                       20

<PAGE>



    10.8   Partial Settlement Agreement, dated March 30, 1999 by and between
           ITEC and the party listed on the signature page thereto as
           incorporated by reference to Exhibit 4.14 to the Company's
           Registration Statement on Form S-3 as filed with the Securities and
           Exchange Commission on May 3, 1999.

    10.9   Lease Letter Agreement, dated March 1, 1999, by and among ITEC,
           Carmel Mountain #8 Associates, L.P. and Carmel Mountain Environmental
           L.L.C. as incorporated by reference to Exhibit 4.11 to the Company's
           Registration Statement on Form S-3 as filed with the Securities and
           Exchange Commission on May 3, 1999.

    10.10  Standard Industries/Commercial Single-Tenant Lease-Net, dated
           February 22, 1999 and addendum thereto, dated March 5, 1999, by and
           between Carmel Mountain #8 Associates, L.P. and ITEC.

    27.1   Financial Data Schedule.

(b) Reports on Form 8-K:

         The Company filed a Current Report on Form 8-K with the SEC on February
26, 1999 in connection with unaudited financial statements as of January 31,
1999.

                                       21
<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: May 14, 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)


                                       22
<PAGE>
                                 EXHIBIT INDEX


    3.1    Certificate of Amendment of Certificate of Incorporation, filed with
           the Secretary of State of the State of Delaware on January 12, 1999
           as incorporated by reference to Exhibit 3.1 to the Company's Report
           on Form 10-Q for the period ended December 31, 1998.

    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 as incorporated
           by reference to Exhibit 3.2 to the Company's Report on Form 10-Q for
           the period ended December 31, 1998.

    4.1    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 as incorporated by reference to Exhibit
           3.3 to the Company's Report on Form 10-Q for the period ended
           December 31, 1998.

    4.2    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 as incorporated by reference to Exhibit
           3.4 to the Company's Report on Form 10-Q for the period ended
           December 31, 1998.

    10.1   Securities Purchase Agreement, dated as of January 13, 1999, by and
           among the Company and the applicable parties named therein as
           incorporated by reference to Exhibit 10.3 to the Company's Report on
           Form 10-Q for the period ended December 31, 1998.

    10.2   Registration Rights Agreement, dated as of January 13, 1999, by and
           among the Company and the applicable parties named therein as
           incorporated by reference to Exhibit 10.4 to the Company's Report on
           Form 10-Q for the period ended December 31, 1998.

    10.3   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 as
           incorporated by reference to Exhibit 10.5 to the Company's Report on
           Form 10-Q for the period ended December 31, 1998.

    10.4   Securities Purchase Agreement, dated as of February 2, 1999, by and
           among the Company and the applicable parties named therein as
           incorporated by reference to Exhibit 10.6 to the Company's Report on
           Form 10-Q for the period ended December 31, 1998.

    10.5   Registration Rights Agreement, dated as of February 2, 1999, by and
           among the Company and the applicable parties named therein as
           incorporated by reference to Exhibit 10.7 to the Company's Report on
           Form 10-Q for the period ended December 31, 1998.

    10.6   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 as
           incorporated by reference to Exhibit 10.8 to the Company's Report on
           Form 10-Q for the period ended December 31, 1998.

    10.7   Exchange Agreement, dated as of February 18, 1999, by and among the
           Company and the applicable parties named therein as incorporated by
           reference to Exhibit 10.9 to the Company's Report on Form 10-Q for
           the period ended December 31, 1998.

    10.8   Partial Settlement Agreement, dated March 30, 1999 by and between
           ITEC and the party listed on the signature page thereto as
           incorporated by reference to Exhibit 4.14 to the Company's
           Registration Statement on Form S-3 as filed with the Securities and
           Exchange Commission on May 3, 1999.

    10.9   Lease Letter Agreement, dated March 1, 1999, by and among ITEC,
           Carmel Mountain #8 Associates, L.P. and Carmel Mountain Environmental
           L.L.C. as incorporated by reference to Exhibit 4.11 to the Company's
           Registration Statement on Form S-3 as filed with the Securities and
           Exchange Commission on May 3, 1999.

    10.10  Standard Industries/Commercial Single-Tenant Lease-Net, dated
           February 22, 1999 and addendum thereto, dated March 5, 1999, by and
           between Carmel Mountain #8 Associates, L.P. and ITEC.

    27.1   Financial Data Schedule.