UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

          [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                for the quarterly period ended September 30, 2004

                                       or

          [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
       for the transition period from _______________ to _________________

                         Commission file number 0-18450

                       SECURITIES AND EXCHANGE COMMISSION

                               COLOR IMAGING, INC.

             (Exact name of registrant as specified in its charter)





          Delaware                                        13-3453420
-----------------------------------------    -----------------------------------
(State or other  jurisdiction of              (IRS Employer Identification No.)
incorporation  or  organization)

4350 Peachtree Industrial Blvd, Suite 100
           Norcross, GA                                      30071
-----------------------------------------                -------------
(Address of principal executive offices)                   (Zip Code)


                                 (770) 840-1090
               Registrant's telephone number, including area code

                                 Not Applicable
Former name, former address and former fiscal year, if changed since last report

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

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Exchange Act Rule 12b-2). Yes ___ No x

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practical date.

As of October 26 2004, there were 12,699,005 shares outstanding of Common Stock.



<PAGE>


                               COLOR IMAGING, INC.
                          QUARTERLY REPORT ON FORM 10-Q
                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004

                                      INDEX


PART I:   FINANCIAL INFORMATION

Item 1.   Financial Statements

          Condensed Balance Sheets at September 30, 2004
          (Unaudited) and December 31, 2003(Audited)...........................3
          Condensed Statements of Operations (Unaudited)
          for the Three and Nine Months ended
          September 30, 2004 and 2003..........................................4
          Condensed Statements of Cash Flows (Unaudited)
          for the Nine Months ended
          September 30, 2004 and 2003..........................................5
          Notes to Interim Unaudited Condensed Financial
          Statements ..........................................................6

Item 2.   Management's Discussion and Analysis of Financial
          Condition and Results of Operations.................................10
Item 3.   Quantitative and Qualitative Disclosures about Market Risks.........25
Item 4.   Controls and Procedures.............................................25


PART II:  OTHER INFORMATION

Item 1.   Legal Proceedings ..................................................27
Item 2.   Changes in Securities and Use of Proceeds...........................27
Item 3.   Defaults Upon Senior Securities.....................................29
Item 4.   Submission of Matters to a Vote of Security Holders.................29
Item 5.   Other information ..................................................29
Item 6.   Exhibits and Reports on Form 8-K....................................29
Signatures....................................................................31
Exhibits



                                        2



<PAGE>


                          PART I: FINANCIAL INFORMATION

ITEM 1 -FINANCIAL STATEMENTS

                               COLOR IMAGING, INC.
                            CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
   <S>                                                                      <C>                <C>


                                                                               30-Sep-04           31-Dec-03
                              - ASSETS -                                      (Unaudited)           (Audited)
                                                                            ---------------    ---------------
   CURRENT ASSETS:
          Cash                                                               $  1,929,272       $  2,213,830
          Accounts receivable - net of allowance for doubtful accounts
            of $100,361 and $67,839 for 2004 and 2003, respectively             2,794,657          1,941,404
          Inventories                                                           5,242,745          5,624,328
          Related party portion of IDR bond - current                              92,664             87,912
          Other current assets                                                    190,990            114,721
                                                                            ---------------    ---------------
                            TOTAL CURRENT ASSETS                               10,250,328          9,982,195
                                                                            ---------------    ---------------
   PROPERTY, PLANT AND EQUIPMENT - NET                                          6,696,597          6,973,834
                                                                            ---------------    ---------------
   OTHER ASSETS:
          Related party portion of IDR bond                                       554,764            647,428
          Other assets                                                             31,858            291,978
                                                                            ---------------    ---------------
                                                                                  586,622            939,406
                                                                            ---------------    ---------------
                                                                             $ 17,533,547       $ 17,895,435
                                                                            ===============    ===============
               - LIABILITIES & STOCKHOLDERS' EQUITY -

   CURRENT LIABILITIES:
          Revolving credit line                                              $         --       $         --
          Accounts payable                                                      2,231,082          2,413,695
          Current portion of notes payable                                          5,953              5,612
          Current portion of notes payable - related parties                      168,538            343,736
          Current portion of bonds payable                                        390,000            370,000
          Other current liabilities                                               231,527            393,579
                                                                            ---------------    ---------------
                          TOTAL CURRENT LIABILITIES                             3,027,100          3,526,622
                                                                            ---------------    ---------------
   LONG TERM LIABILITIES:
          Notes payable                                                             7,000             11,509
          Notes payable - related parties                                              --            120,102
          Bonds payable                                                         2,335,000          2,725,000
          Deferred tax liability                                                  563,450            292,700
                                                                            ---------------    ---------------
                            LONG TERM LIABILITIES                               2,905,450          3,149,311
                                                                            ---------------    ---------------
   TOTAL LIABILITIES                                                            5,932,550          6,675,933
                                                                            ---------------    ---------------
   COMMITMENTS & CONTINGENCIES

   STOCKHOLDERS' EQUITY:
          Common stock, $.01 par value, authorized 20,000,000 shares;
            12,699,005 and 12,730,505 shares issued and outstanding
            on September 30, 2004 and December 31, 2003, respectively.            126,990            127,305
          Additional paid-in capital                                           12,685,288         12,708,368
          Treasury stock, at cost, 5,800 shares                                (    2,656)                --
          Accumulated deficit                                                  (1,208,625)        (1,616,171)
                                                                            ---------------    ---------------
                                                                               11,600,997         11,219,502
                                                                            ---------------    ---------------
                                                                             $ 17,533,547       $ 17,895,435
                                                                            ===============    ===============
</TABLE>



                             See accompanying notes.

                                        3


<PAGE>



                               COLOR IMAGING, INC.
                       CONDENSED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)
<TABLE>
<CAPTION>
<S>                               <C>           <C>           <C>           <C>
                                  THREE MONTH PERIODS ENDED    NINE MONTH PERIODS ENDED
                                  -------------------------   --------------------------
                                    30-SEP-04    30-SEP-03      30-SEP-04     30-SEP-03
                                  ------------  ------------  ------------  ------------

SALES                             $ 5,678,893   $ 5,360,703   $16,949,248   $16,048,697
C0ST OF SALES                       4,356,515     3,993,199    12,694,680    11,822,528
                                  ------------  ------------  ------------  ------------
GROSS PROFIT                        1,322,378     1,367,504     4,254,568     4,226,169
                                  ------------  ------------  ------------  ------------

OPERATING EXPENSES
    Administrative                    300,363       418,924     1,039,396     1,311,715
    Research & development            287,258       286,407       888,360       883,888
    Sales & marketing                 583,487       439,441     1,787,589     1,195,061
                                  ------------  ------------  ------------  ------------
                                    1,171,108     1,144,772     3,715,345     3,390,664
                                  ------------  ------------  ------------  ------------
INCOME FROM OPERATIONS                151,270       222,732       539,223       835,505
                                  ------------  ------------  ------------  ------------

OTHER INCOME  (EXPENSE)
    Other income                       49,215        57,216       208,645       165,740
    Financing expenses                (21,235)      (28,146)      (68,322)     (138,409)
                                  ------------  ------------  ------------  ------------
                                       27,980        29,070       140,323        27,331
                                  ------------  ------------  ------------  ------------

INCOME BEFORE TAXES                   179,250       251,802       679,546       862,836
PROVISION FOR INCOME TAXES             71,900       100,000       272,000       345,000
                                  ------------  ------------  ------------  ------------
NET INCOME                        $   107,350   $   151,802    $  407,546   $   517,836
                                  ============  ============  ============  ============

     INCOME
     PER COMMON SHARE - BASIC
        Basic                     $       .01   $       .01   $       .03   $       .04
        Diluted                   $       .01   $       .01   $       .03   $       .04
                                  ------------  ------------  ------------  ------------
                                  $       .01   $       .01   $       .03   $       .04
                                  ============  ============  ============  ============
      WEIGHTED AVERAGE
      SHARES OUTSTANDING
        Basic                      12,700,308    12,838,170    12,707,484    11,710,487
        Assumed conversion                 --         9,091            --         5,515
                                  ------------  ------------  ------------  ------------
                                   12,700,308    12,847,261    12,707,484    11,716,002
                                  ============  ============  ============  ============

                                       See accompanying notes
</TABLE>


                                        4


<PAGE>


                               COLOR IMAGING, INC.
                       CONDENSED STATEMENTS OF CASH FLOWS
                  FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30
                                   (UNAUDITED)
<TABLE>
<CAPTION>
<S>                                                   <C>            <C>
                                                           2004           2003
                                                       -------------  ------------
Cash flows from operating activities:
  Net income from continuing operations                $    407,546   $   517,836
  Adjustments to reconcile net income to net cash
    provided (used) by operating activities:
      Depreciation and amortization                         443,892       433,778
      Deferred income taxes                                 270,750       349,000
      Allowance for doubtful accounts                        32,522         1,334
  (Increase) decrease in:
        Accounts receivable and other receivables          (885,775)         (857)
        Inventories                                         381,583    (1,249,194)
        Prepaid expenses and other assets                   183,851       267,968
        Due from related party - IDR bond                    87,912        83,160
  (Decrease) in:
        Accounts payable and accrued liabilities           (344,665)     (588,333)
                                                       -------------  ------------
        Net cash provided by (used in)
               operations                                   577,616      (185,308)
                                                       -------------  ------------

Cash flows (used in) investing activities:
     Capital expenditures                                  (166,655)     (387,606)
                                                       -------------  ------------
        Net cash (used in)
             investing activities                          (166,655)     (387,606)
                                                       -------------  ------------
Cash flows from financing activities:
  Net (payments) under line of credit                            --    (1,022,470)
  Net proceeds from sale of common stock                         --     5,900,140
  Repurchase of common shares and warrants                  (26,051)     (279,202)
  Principal payments on related party borrowings           (295,300)     (440,022)
  Principal payments of long-term debt                     (374,168)   (1,685,000)
                                                       -------------  ------------
         Net cash (used in) provided by
             financing activities                          (695,519)    2,473,446
                                                       -------------  ------------
         Net (decrease) increase in cash                   (284,558)    1,900,532

Cash at beginning of year                                 2,213,830       128,501
                                                       -------------  ------------
Cash at end of period                                  $  1,929,272   $ 2,029,033
                                                       =============  ============
</TABLE>



                             See accompanying notes




                                        5


<PAGE>


                               COLOR IMAGING, INC.
                 NOTES TO INTERIM CONDENSED FINANCIAL STATEMENTS
                               September 30, 2004
                                   (Unaudited)

NOTE 1. BASIS OF PRESENTATION

The accompanying  unaudited  interim  condensed  financial  statements have been
prepared in accordance  with  accounting  principles  generally  accepted in the
United  States  of  America  for  interim  financial  information  and  with the
instructions  to  Form  10-Q.  Accordingly,  they  do  not  include  all  of the
information and footnotes required by accounting  principles  generally accepted
in the United  States of  America  for  complete  financial  statements.  In the
opinion of management,  all adjustments (consisting of normal recurring accruals
and  adjustments)  considered  necessary  for  a  fair  presentation  have  been
included.  Operating  results for the three and nine months ended  September 30,
2004 are not necessarily  indicative of the results that may be expected for the
year ended December 31, 2004.

NOTE 2. COMMON STOCK AND EQUIVALENTS

During the third quarter ended  September 30, 2004,  the Company  repurchased in
the open market 5,800 shares of the  Company's  common stock at an average price
of $0.46 per share.  For the nine months ended  September 30, 2004,  the Company
repurchased in the open market 37,300 shares of the Company's common stock at an
average  price of $0.70 per share.  As of October  17,  2004,  all of the shares
repurchased by the Company  through June 30, 2004, were cancelled and retired by
the Company's  transfer agent, while the 5,800 shares repurchased by the Company
during  the  third  quarter  have  not yet been  cancelled  and  retired  by the
Company's transfer agent.

On April 1, 2004 the Company granted  options to an officer to purchase  100,000
shares of the  Company's  common  stock at an exercise  price of $.73 per share.
Options  to  purchase  20,000  shares  of  the  Company's  common  stock  vested
immediately  and the remainder  vest at the rate of 20,000 per year beginning on
the first anniversary date of the grant and continuing  annually  thereafter and
expire five years from their  respective  date of vesting.  On May 18, 2004, the
Company  granted  335,000  options to officers,  50,000 options to  non-employee
directors  and  80,000  options  to  employees  at an  exercise  price of $0.54.
One-half  of the options  granted  vested  immediately  and the  remainder  vest
equally upon the next two  anniversary  dates of the grant and expire five years
from their respective date of vesting.

In  accordance  with the  provisions of SFAS No. 148, the Company has elected to
continue  applying the intrinsic  value  approach under APB No. 25 in accounting
for its  stock-based  compensation  plans.  Accordingly,  the  Company  does not
recognize  compensation expense for stock options when the exercise price at the
grant date is equal to or  greater  than the fair  market  value of the stock at
that date. The Company generally  recognizes  compensation  expense only when it
grants  options with a discounted  exercise  price,  at which time any resulting
compensation  expense is recognized  ratably over the associated service period,
which is generally the option vesting term.

The  following  table  illustrates  the  effect on net income and net income per
share as if the fair value based method had been applied to all  outstanding and
vested awards in each period:
                                                  NINE MONTHS SEPTEMBER 30,
                                                    2004            2003
                                                ------------    -------------
Net income, as reported                         $  407,546       $  517,836
Less: Pro forma stock based
      compensation expense - net of tax             80,758           56,635
                                                ------------    -------------
Pro forma net income                            $  326,788       $  461,201
                                                ============    =============
Basic Earnings per share:
    As reported                                     $ 0.03           $ 0.04
    Pro forma                                       $ 0.03           $ 0.04

Diluted Earnings per share:
    As reported                                     $ 0.03           $ 0.04
    Pro forma                                       $ 0.03           $ 0.04

The fair value of each option was  estimated  on the date of the grant using the
Black-Scholes   option-pricing   model  with  the  following   weighted  average
assumptions  for the periods ended  September  30, 2004 and 2003,  respectively:
expected volatility of 2.4 and .9, respectively; risk free interest rate of 2.5%
and 2.7%, respectively; and expected lives of 2 to 7 years.

For purposes of pro forma  disclosures,  the estimated fair value of the options
is amortized over the average vesting period of the options.


                                        6

<PAGE>

NOTE 2. COMMON STOCK AND EQUIVALENTS (CONTINUED)

In computing the number of options  exercisable,  shares of common stock subject
to options or warrants that are currently exercisable or will become exercisable
within 60 days of the date of this report are deemed outstanding.  The following
is a summary of total outstanding and exercisable  options and stock warrants at
September 30, 2004:

<TABLE>
<CAPTION>
  <S>                        <C>             <C>               <C>                  <C>           <C>

                                              Options and Warrants Outstanding      Options and Warrants Exercisable
                                                                Weighted-Average
   Range of Exercise                         Weighted-Average        Remaining                      Weighted-Average
       Prices                   Number       Exercise Price     Contractual Life       Number       Exercise Price
   -------------------       -----------    ------------------ ------------------   -----------    ------------------
   Options $0.45-$2.75        1,420,000           $1.58             3.08 years        1,042,500           $1.88
   Warrants $2.00               100,000           $2.00             0.78 years          100,000           $2.00
                                            ------------------ ------------------   -----------    ------------------
   Options and warrants       1,520,000           $1.61             3.60 years        1,142,500           $1.89
                                            ==================                                     ==================
</TABLE>

NOTE 3. INVENTORIES

Inventories  consisted of the following  components as of September 30, 2004 and
December 31, 2003:

                                     September 30, 2004       December 31, 2003
                                     ------------------       -----------------
    Raw materials                      $  1,255,898              $   631,960
    Work-in-process                       1,739,290                1,715,684
    Finished goods                        2,323,801                3,374,773
    Obsolescence allowance                  (76,244)                 (98,089)
                                     ------------------       -----------------
                 Total                 $  5,242,745              $ 5,624,328
                                     ==================       =================

NOTE 4. CHANGES TO BORROWING ARRANGEMENTS

The Company has a $1.5 million  revolving  line of credit,  as amended,  with an
outstanding  balance as of  September  30, 2004 of $0,  bearing  interest at the
one-month  Libor  interest rate in effect two business days before the first day
of the month plus 2.50%.  As of September  30, 2004,  the interest  rate was the
one-month Libor rate of 1.84% plus 2.50% (4.34%).  This revolving line of credit
has a June 30, 2005 expiration date.

Under  the line of  credit,  the  Company  is  permitted  to borrow up to 75% of
eligible accounts receivable and 50% of eligible inventories (up to a maximum of
$750,000 and not to exceed 50% of the total  outstanding).  On February 6, 2004,
the Bank issued an  irrevocable  standby  letter of credit in the amount of $1.5
million  for the benefit of a  non-affiliated  foreign  supplier.  The letter of
credit has an expiration date of June 30, 2005. The Company has granted the Bank
a security interest in all of the Company's assets as security for the repayment
of the line of credit and the obligations  under the letter of credit.  The Bank
agreement  also  contains  various  covenants  that the  Company is  required to
maintain, and as of September 30, 2004, the Company was in compliance with these
covenants.

NOTE 5. EMPLOYMENT AGREEMENTS:

On April 1, 2004,  the  Company  hired and  entered  into a two year  employment
agreement with the Senior Vice  President of Marketing and Sales,  providing the
employee with an annual salary of $150,000, the lesser of three months severance
or the  remainder  of the term of the  agreement  if  terminated  by the Company
without cause and granting the employee  options to purchase  100,000  shares of
the  Company's  common stock.  On April 19, 2004,  upon the hiring of the Senior
Vice  President of Marketing and Sales,  the Executive  Vice President and Chief
Financial Officer's  responsibilities and duties were changed and the employment
agreement  between  the  Company  and the  Executive  Vice  President  and Chief
Financial Officer was amended,  reducing annual salary from $151,190 to $120,000
and  providing for a one-half of one percent  (0.5%)  commission on only the net
sales of 100% new  all-in-one  products of the  Company.  On May 28,  2004,  the
duties and  responsibilities of the Vice President of Technology were changed to
encompass certain research and development projects and technical sales, and his
title was changed to Vice President of Technical  Sales and his $100,000  annual
salary is to be reduced in equal amounts over four months until reaching $80,000
per annum.

NOTE 6. SIGNIFICANT CUSTOMERS

In the three and nine month  periods  ended  September  30,  2004,  one customer
accounted  for 23% and 27% of net sales.  The Company does not have a written or
oral contract with this customer.  All sales are made through  purchase  orders.
Accounts receivable from this customer at September 30, 2004, was $302,649.

                                        7


<PAGE>


NOTE 7. SIGNIFICANT SUPPLIERS

In the three  and nine  month  periods  ended  September  30,  2004 the  Company
purchased  22% and 37% of its raw  materials,  components  and supplies from one
supplier in  connection  with sales to its largest  customers.  At September 30,
2004, the accounts payable to this supplier was $614,846.

On February 6, 2004, the Company caused its Bank to issue an irrevocable standby
letter  of  credit  in the  amount  of  $1.5  million  for the  benefit  of this
non-affiliated  foreign supplier. The letter of credit has an expiration date of
June 30, 2005.

NOTE 8. FINANCIAL REPORTING FOR BUSINESS SEGMENTS:

The  Company  believes  that its  operations  are in a single  industry  segment
involving  the  development  and  manufacture  of  products  used in  electronic
printing.  All of the Company's  assets are domestic.  The sales to unaffiliated
customers by geographic  region from  continuing  operations  for the nine-month
periods ended September 30 are as follows:

                                            2004            2003
                                       -------------   -------------
Sales to Unaffiliated Customers:
United States                           $ 9,162,553     $ 9,534,055
Europe/Eastern Europe                     4,226,258       3,436,261
Mexico                                    2,186,368       1,896,999
Asia/Southeast Asia                         879,303         618,688
South America                               165,305         346,022
Others                                      329,461         216,672
                                       -------------   -------------
Total                                   $16,949,248     $16,048,697
                                       =============   =============

NOTE 9. RELATED PARTY TRANSACTIONS:

(A)  LEASE:

Directors,  Jui-Hung  Wang,  Jui-Kung  Wang,  Sueling Wang and Jui-Chi Wang, own
Kings  Brothers,  LLC, the landlord from which the Company  leases its Norcross,
Georgia,  plant. The real property lease agreement between the Company and Kings
Brothers, LLC, was entered into on April 1, 1999, and was amended on February 5,
2003,  extending the expiration  date from March 31, 2009 to March 31, 2013. The
rental  payments  for the nine  months  ended  September  30, 2004 and 2003 were
$408,546 and $398,583, respectively.

(B)  INDUSTRIAL DEVELOPMENT REVENUE BOND

On June 1, 1999, the Development  Authority of Gwinnett County (the  Authority),
issued  $4,100,000  of  industrial  development  revenue  bonds on behalf of the
Company and Kings Brothers, LLC. The 1.76% revenue bonds, 2.76% inclusive of the
1% letter of credit fee, as of September 30, 2004, are payable in varying annual
principal and monthly interest  payments through July 2019. The bond is secured,
as amended on April 7, 2003, by specific  equipment assets of the Company and by
real property owned by Kings Brothers,  LLC. Two related financial  institutions
hold the bonds, along with the line of credit and term loan.

A loan agreement  between the Authority and the Company and Kings Brothers,  LLC
allows  funds to  effectively  pass through the  Authority  to the Company.  The
majority of the  proceeds,  $3,125,872,  were used by the  Company to  relocate,
purchase and install certain manufacturing equipment, while $974,128 was used by
Kings Brothers,  LLC to pay down the mortgage on the real property leased to the
Company.  The Company and the Related  Party are jointly  obligated to repay any
outstanding debt. Under the Joint Debtor Agreement of June 28, 2000, between the
Company and the Kings  Brothers,  LLC, each has agreed to be  responsible to the
other for their share of the bond  obligations and that any party causing an act
of default shall be responsible for 100% of the bond obligations. The amount for
which Kings Brothers,  LLC is responsible to the Company is reflected in current
and  other  assets of the  Company.  Kings  Brothers,  LLC  amounts  owed to the
Authority are secured by a lien on the real  property  leased by the Company and
by a personal guarantee,  as amended,  executed by Director and President of the
Company,  Sueling  Wang.  At this  time,  the  Company  believes  that the Kings
Brothers,  LLC portion of the bond is fully  collectible.  As of  September  30,
2004,  the bond  principal  outstanding  was $2,725,000 and the portion due from
Kings Brothers, LLC was $647,428.


                                       8
<PAGE>


(C)  PURCHASES:

The Company  purchased  from an  affiliate  for the three and nine months  ended
September 30, 2004, $1,302,457 and $2,896,248 of all in one cartridges and empty
injection  molded  cartridges  for use in copiers and laser  printers.  Accounts
payable to the affiliate at September 30, 2004, was $1,310,229.

NOTE 9. RELATED PARTY TRANSACTIONS (C0NTINUED):

(D)  MARKETING AND LICENSE AGREEMENT:

On June 1, 2003,  the Company  entered into a Marketing and Licensing  Agreement
with its foreign  affiliate.  Per the  Marketing  and  Licensing  Agreement  the
affiliate  agrees to indemnify  and hold  harmless the Company for any costs and
expenses  arising  from any  defective  licensed  product,  and/or any  recalled
licensed product including  litigation arising therefrom.  Further the affiliate
agrees to credit the Company for product  cost,  shipping  and related  expenses
arising  from any  defective  licensed  product,  and/or any  recalled  licensed
product.  Effective April 1, 2004, the parties agreed to amend the Marketing and
Licensing  Agreement  to reduce the costs of the  product to the  Company and to
include a royalty  payment  by the  Company  to the  affiliate  based on the net
profit realized upon the sale of the products,  after certain marketing expenses
of the Company.

(E)  NOTES PAYABLE:

On March 14, 2002, the Company borrowed $500,000 from director, Sueling Wang, on
an unsecured basis. The interest rate on the loan was 12% per annum,  matured on
March 14, 2003 and was evidenced in writing.  On September 2, 2002, the note was
modified to extend the term to March 1, 2005,  provide for a $100,000  principal
payment,  decrease the interest rate to 6% per annum,  provide for interest only
payments  through  February 28, 2003, and 24 monthly  payments of principal with
interest extra beginning on April 1, 2003, in the amount of $7,500.  The Company
borrowed the $500,000 to meet a supplier  commitment for product.  Principal and
interest  paid  Sueling Wang on the note from  January 1 through  September  30,
2004, was $67,500 and $906, respectively. As of September 30, 2004 the principal
outstanding was $37,500.

On August 21, 2002, the Company borrowed  $100,000 from director,  Jui-Chi Wang,
on an  unsecured  basis.  The loan bears  interest  at the rate of 6% per annum,
matures on March 1, 2005 and is evidenced in writing.  The Company borrowed this
amount in order to repay $100,000  borrowed from director  Sueling Wang on March
14, 2002. The note is interest only through February 28, 2003, and then is fully
amortizing over 24 months with principal and interest  payments  payable monthly
beginning  April 1, 2003 in the amount of $4,434.  Principal  and interest  paid
Jui-Chi Wang on the note from January 1 through  September  30, 2004 was $37,967
and $1,939, respectively. As of September 30, 2004 the principal outstanding was
$21,840.

On August 21 and September 2, 2002, the Company borrowed  $200,000 and $300,000,
respectively,  from  director,  Jui-Hung Wang, on an unsecured  basis.  The loan
bears  interest  at the rate of 6% per  annum,  matures  on March 1, 2005 and is
evidenced  in  writing.  The  Company  borrowed  this  amount in order to make a
principal  payment due on its  industrial  development  bond in the  approximate
amount of $255,000,  for the acquisition of capital equipment in the approximate
amount of $125,000 and for general corporate purposes. The note is interest only
through  February 28,  2003,  and then is fully  amortizing  over 24 months with
principal and interest  payments payable monthly  beginning April 1, 2003 in the
amount of $22,170.  Principal  and interest  paid Jui-Hung Wang on the note from
January 1 through September 30, 2004 was $189,834 and $9,693,  respectively.  As
of September 30, 2004 the principal outstanding was $109,198.

(F)  COMMON STOCK

On March 6, 2003, the Company  received from Chi Fu Investment Co Ltd $6,075,000
of  subscription  proceeds for the public sale of 4,500,000 of its common shares
at a price of $1.35  per  share in its  offering  on Form  SB-2  filed  with the
Securities and Exchange  Commission.  Chi Fu Investment Co Ltd is a wholly owned
subsidiary of the Company's affiliate,  General Plastic Industrial Co., Ltd, and
as of  September  30, 2004,  Company  directors  Jui-Hung  Wang,  Jui-Chi  Wang,
Jui-Kung Wang,  Sueling Wang and Yi Jen Wang each owned 8.0%,  8.4%,  1.8%, 0.4%
and 2.4%, respectively, of General Plastic Industrial Co., Ltd.



                                       9
<PAGE>



ITEM 2.

MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS

The  following  discussions  should be read in  conjunction  with our  condensed
financial statements and the related notes thereto.

BACKGROUND

On June 28, 2000,  Color  Imaging,  formerly known as Advatex  Associates,  Inc.
merged with Logical Imaging  Solutions,  Inc. and Color Image,  Inc. and Logical
Imaging Solutions and Color Image became  wholly-owned  subsidiaries of Advatex.
On December 31,  2000,  Color Image was merged with and into Color  Imaging.  On
September 30, 2002, we divested  Logical  Imaging  Solutions in exchange for 1.7
million  shares of our common  stock and  warrants  to purchase up to 15% of the
common stock of Digital Color Print or Logical Imaging Solutions.  As the result
of our disposing of Logical Imaging Solutions,  Inc. we no longer offer printing
systems to commercial  printers nor the support services and consumables related
thereto.  As a further result of Color Imaging's  divestiture of Logical Imaging
Solutions,  our  investments  in the  furthering of Logical  Imaging  Solutions'
technologies and carrying its operations have ceased.  Significantly,  since the
merger on June 28, 2000, Color Imaging had invested  approximately $2.35 million
in the  operations  of Logical  Imaging  Solutions  and the  development  of its
technologies.

COLOR IMAGING, INC.

Since 1989, Color Imaging has developed, manufactured and marketed products used
in electronic printing. Color Imaging formulates and manufactures black text and
specialty toners,  including color and magnetic character recognition toners for
numerous laser printers, facsimile machines and analog and digital photocopiers.
Color  Imaging's  toners  permit the  printing of a wide range of  user-selected
colors and also the full process  color  printing of cyan,  yellow,  magenta and
black.  Magnetic  character  recognition  toners enable the printing of magnetic
characters  that are required for the high-speed  processing of checks and other
financial documents.  Color Imaging also supplies other consumable products used
in electronic printing and photocopying,  including toner cartridges,  cartridge
components, photoreceptors and imaging drums.

Color  Imaging  has  continually  expanded  its product  line and  manufacturing
capabilities.   This  expansion,   including  expansion  through  sourcing  from
strategic  partners,  has led to the  creation  over the  years of  hundreds  of
different black text, color,  magnetic character recognition and specialty toner
formulations, including aftermarket toners and imaging products for printers and
facsimile machines manufactured by Brother(TM),  Canon(TM), Delphax(TM), Hewlett
Packard(TM), IBM(TM), Lexmark(TM),  Sharp(TM), Xerox(TM), Minolta(TM), Mita(TM),
Panafax(TM),    Pentax(TM),   Pitney   Bowes(TM),   Epson(TM),   Fuji-Xerox(TM),
Toshiba(TM),  Kyocera(TM),  Okidata(TM),  and Panasonic(TM).  Color Imaging also
manufactures   and/or   markets   toners  for  use  in  Ricoh(TM),   Lanier(TM),
Gestetner(TM),   Savin(TM),  Sharp(TM),   Xerox(TM),   Canon(TM),   Minolta(TM),
Konica(TM),  and Toshiba(TM)  copiers.  Color Imaging  markets branded  products
directly to OEMs and its  aftermarket  products  worldwide to  distributors  and
re-manufacturers of laser printer toner cartridges and to OEM,  distributors and
dealers of copier products.

STRATEGY

Our strategy for growing  revenue and operating  profit is to expand,  including
through strategic acquisition(s),  our printer and copier products business. The
key  elements  of our  strategy  are  (1)  increasing  vertical  integration  by
supplying complete toner and cartridge devices, (2) capitalizing on our research
and development  expertise of producing specialty,  color and digital copier and
or  multifunctional  device toners,  (3) exploiting the efficiencies  associated
with the investment made in manufacturing facilities,  (4) expanding our sources
for products  from  strategic  suppliers  that we can add value to or resell and
that  complement our product  lines,  (5) adding  offices/warehouses  to improve
distribution to customers in the United States and Europe and (6) broadening our
sales channels.

GOALS AND FOCUS FOR THE NEXT FIVE YEARS

We are of the belief that to remain a public company and offer our  stockholders
both  attractive  value and  liquidity  we should  have  sales of at least  $100
million to $150  million  per year,  earnings  before  interest,  income  taxes,
depreciation  and  amortization of $15 million to $20 million and move our stock
to a major exchange. We are prepared to grow our Company both internally through
the introduction of uniquely competitive products as well as through mergers and
or acquisitions, even though such an event could mean a change in our management
or control.  We have met with a specialist  of the American  Stock  Exchange and
explored the possibility of listing with American Stock Exchange when our sales,
profitability  and outlook are such that we would benefit from a major  exchange
listing.  In the  alternative,  we have not ruled out the  possibility  of going
private  or  being  taken  private  in a  merger  or  acquisition,  should  that
eventuality be deemed to be in the best interest of our stakeholders.


                                       10
<PAGE>


LAST FIVE YEARS

We expanded manufacturing capacity four-fold and improved production efficiency,
raised capital in a private placement and public offering, divested ourselves of
an  unprofitable  subsidiary  in which we had  invested  $2.3  million  and have
substantially moved away from low margin  (commodity-like)  bulk laser toner and
parts products to finished copier and laser printing products,  increasing sales
and margins.  While margins may decrease in the near terms from the introduction
and success of lower margin all in one products,  we expect  margins  overall to
continue to improve as more of our color copier  products are sold. For the year
ended December 31, 2001,  our sales reached $30 million,  with our three largest
customers  accounting for 70% (some $21 million) of those sales,  and by the end
of 2004 we expect these  customers to account for only about $6.5 million of our
net sales,  down some $14.5 million or 70% from 2001. The products sold to these
customers were primarily  analog copier toners and developers,  and our sales to
these  customers of these  products have rapidly  declined for several  reasons,
including  as the products are  discontinued  in the market.  As a result of the
decreasing sales to our largest customers,  our total sales declined during 2002
and 2003, and our sales to these  customers for the nine months ended  September
30,  2004  have  declined  to  approximately  32% of our $17  million  of sales.
Challenged to replace the sales lost from our largest  customers,  we introduced
new  products  and  expanded  our sales  channels.  In 2003 we were the first to
introduce  aftermarket,  full-color,  Segment 3-4, networked  copier/printer/MFP
toner products and will expand it from one product (4 toners) in 2003 to as many
as 10-12 (40 or more toners) during 2004. To our knowledge we are still the only
source  for these  full-color  toner  products  worldwide,  other than the OEMs.
During 2003 we also introduced 100% new complicated toner cartridges,  generally
referred to as all-in-one  ("AIO") imaging,  toner or drum cartridges with their
becoming  10% of sales  so far in  2004,  and  will be  introducing  other  such
products and selected  color AIO products  during 2004. As a result,  we stemmed
the pattern of declining sales in 2004.

PRODUCTS

Our  primary  product  focus is  full-color,  100% new,  finished  products  for
multifunctional  printers/devices ("MFPs"), copiers and printers. In particular,
we are concentrating on work group/networked solutions segments, complicated all
in one cartridges and selected  specialty toner products for certain  industrial
applications  and for the  printing  of  magnetic  characters  on checks  and or
financial  documents.  In 1999  approximately  10% of the  Company's  sales were
derived from finished products, while, at this time, nearly 80% of the Company's
sales are derived from finished products.

Both the 100% new AIO and  full-color  products  are  important  for  increasing
sales, while the largest  contribution to improved  profitability will come from
our full-color  ("business color") finished toner products,  without competition
from others except the OEMs, for the  "sweet-spot"  of digital  multi-functional
copiers/printers.  In  addition,  we  continue  to develop and offer other niche
specialty products like MICR and toners for industrial applications.

WHY 100% NEW PRODUCTS AND PRODUCT TRENDS

While remanufactured or refurbished  ("remanufactured") toner cartridges for use
in printers  generally  have 30% of the market in units and 25% in dollar  value
and are just now being introduced for use in copiers,  remanufactured cartridges
have a  perception  with the users  from past  experience  of being of  inferior
quality  even  though they offer a cost  savings.  The quality of the some 2,500
remanufacturers  in  the  U.S.  is,  by its  nature,  inconsistent  and  certain
cartridges cannot be readily  remanufactured  due to the technology  utilized by
the OEMs. Contributing to the perception of poorer quality for these products is
the fact that remanufacturers will not always replace all of the worn parts in a
particular  cartridge.  The  dilemma  is that if too few parts are  changed  the
cartridge  could fail  prematurely  or not deliver the required  print  quality,
while  changing all of the parts subject to wear not only  increases the cost of
the product but also can result in more  variation in print  performance to that
of the  OEM.  While  users  may  save  25% or  more by  using  a  remanufactured
cartridge,  as a  result  of past and  existing  quality  issues  remanufactured
product have consistently enjoyed only a 30% share of the market, leaving 70% of
the users buying 100% new product from the OEM. Other factors  contributing  the
users  opting for the OEM, or new  product,  over  remanufactured  includes  the
inconsistent availability of remanufactured cartridges and market confusion from
the  marketing  of  remanufactured  cartridges  as  compatible,  remanufactured,
refurbished,  new drum, 100% new parts, other descriptions,  and a wide range of
prices, all of which leave the user wondering what is being purchased.

Increasingly,  the  OEMs  have  moved  to  prevent  aftermarket  companies  from
supplying  alternatives to their product. The OEMs accomplish this by increasing
the technological barriers with patents, chemical toners and computer chips, and
a few have used  licensing  arrangements  (prebate  programs)  for their product
(Lexmark  and  recently  Dell  Computers)  to make  the  remanufacture  of their
cartridges  illegal.  In addition,  recycle  programs  designed to get the OEM's
cartridge back from the user,  effectively keeping it away from remanufacturers,
are growing worldwide.  While recycle programs are touted as being protective of
the environment,  their effect is to reduce competition from  remanufacturers by
taking  cartridges off the market.  On the other hand, a 100% new product priced
lower than the OEM and competitively with remanufactured cartridges,  redesigned
so as not to infringe on the OEM's intellectual property, is not subject to many
of the above mentioned problems.  Further, with our improved financial strength,
significant  trade  support from our  affiliated  foreign  supplier and expected
profitability  of our color  products,  we believe  we will not need  additional
financial resources to realize our goals, excepting, perhaps, the needs that may
arise  should  we be  successful  in  identifying  and  completing  a merger  or
acquisition.


                                       11
<PAGE>


MARKETING AND SALES

While we have changed our product mix from almost entirely bulk toners and parts
to now primarily  finished  products,  we have also expanded our sales  channels
over the last five years from almost solely unfinished  printer products sold to
domestic  remanufacturers,  and a few distributors serving them, to distributors
and  dealers  worldwide  of  finished  copier and  printer  products,  including
acquiring large private label  arrangements (OEM and  distributor).  As a result
our international  sales have increased from  approximately 10% to more than 50%
of our total  sales.  We  accomplished  this by not only  acquiring  significant
corporate   account   relationships,   but  by  also  implementing  a  worldwide
manufacturer's  representative  program,  recruiting  industry  experienced  and
successful executives for technical sales and marketing. To improve distribution
in the western United States, we opened a sales office/warehouse in Los Angeles,
California  late in 2003.  Now that our  California  office  has  surpassed  its
breakeven point in sales, we are actively recruiting  experienced sales managers
with whom we can open additional  sales offices with warehouses in the northeast
and Texas,  and we have begun  exploring  arrangements  to have  distribution in
Europe to better support our customers  there.  Also during 2003 we obtained our
first retail  customers  who are reselling our products in not only retail store
locations  but  also on the  internet.  During  2005  we  plan to  substantially
increase sales by adding as customers one or more large national  office product
retailers.

STOCKHOLDER VALUE, LIQUIDITY AND MERGERS OR ACQUISITIONS

Many of our stockholders  invested in our private  placement that closed in 2001
at prices up to $2.00 per share and in 2003 our  public  offering  of  4,500,000
shares of our  common  stock at $1.35 per share.  We believe  that these and our
other  stockholders are expecting a return on their investment and a more liquid
market for our stock.  In 2002 we divested  ourselves of a  subsidiary  that was
losing money and had required  investments by us of some $2.35 million.  Its new
owner  acquired  several  hundred  thousand  shares  of our  common  stock in an
exchange  thereafter and it and its  management  sold these shares in the market
during  2003 and 2004,  contributing  to the  decline in our stock price of from
over  $2.00  per  share  to the low of  $0.35.  Though  the  divestiture  of the
subsidiary,  the completion of our public  offering and our improved  operations
significantly  improved the financial condition of the Company, and with cash on
hand at September 30, 2004 of $1.9 million ($0.15 per common  share),  our stock
price  languishes  and on October 14 closed at $0.48.  With the belief  that our
common  shares  were  undervalued  and  represented  a good  use of  some of the
Company's  working  capital,  in 2002 our Board of  Directors  approved  through
September  30,  2004,  the  repurchase  of up to the  lesser of $1  million or 1
million  shares of our common stock.  This year our Board of Directors  approved
the extension of our stock  repurchase  program to September 30, 2005,  and from
inception through September 30, 2004, the Company has repurchased  81,800 of the
Company's  common  shares at a cost of  approximately  $55,000 and at an average
price of $0.67.

We  continue  to be  interested  in making our  Company  more  successful,  more
quickly, through a successful acquisition or merger. In that regard our criteria
generally acceptable merger/acquisition candidates include:

          -    An experienced and capable management team that would remain.
          -    A sound and improving  financial condition with sales of from $25
               million to $75  million  and  earnings  before  interest,  income
               taxes,  depreciation  and  amortization of from $4 million to $15
               million.
          -    Products that would complement ours and offer unique  competitive
               advantages.
          -    Sales channels to include office  product  superstores,  contract
               stationers,  corporate  accounts,  copy product  distributers  or
               dealers.
          -    Distribution  not only in the  United  States but  preferably  in
               Europe as well.
          -    A core value and excellent reputation for high quality.

Our  management  realizes that an acquisition or merger with a company like that
described  above  could mean  changes  to both the  existing  management  of our
Company,  control over the Company's operations and, among other things, whether
or not the Company is the  surviving  entity or remains a public  company.  With
approximately  75% of our  common  shares  controlled  by  directors,  officers,
affiliates  and  or  their  family  members,   management  believes  that  these
stockholders  and others  could be  persuaded  to vote for the  completion  of a
merger  or  acquisition  that  was  expected  to  increase  in the  future  both
stockholder value and liquidity.

At this time there are no  definitive  proposals  for a  transaction,  though we
continue  to seek out and  engage  in  discussions  with  prospective  merger or
acquisition  candidates.  There can be no assurance that any transaction will be
completed.

RECENT DEVELOPMENTS

Last year the Company  successfully  introduced 100% new color toner  cartridges
for use in Ricoh's AP3800c  copier,  a 28 page per minute  networked  full-color
copier.  During the quarter  ended  September 30, 2004,  the Company  introduced
color toner  cartridges  for Ricoh's  CL5000 and CL7000  printers as well as its
1224/1232 and 2232/2238 color copiers.  These Ricoh  cartridges are also used by
Lanier,  Gestetner,  Savin and by InfoTech in Europe.  During the fourth quarter
2004 the Company  plans to  introduce  100% new color toner  cartridges  for the
Ricoh  CL3000  printer  and the  Minolta  2002/3102  copiers.  The same  Minolta
cartridges are also used by Konica,  Kyocera Mita and  Imagistics.  Additionally
during the fourth  quarter  2004 the  Company  plans to  introduce  color  toner
cartridges for the Okidata C5100/C5300 and toners for use by remanufacturers for
use in the Okidata  C5000,  C7000 and C9000 series of printers and Canon's C3200
copier and HP's 9500 color printer.


                                       12
<PAGE>



Through  September 30, 2004,  the  Company's  net sales for 100% new  all-in-one
products were:
<TABLE>
<CAPTION>
        <S>                 <C>                <C>             <C>           <C>

            Year            1st Quarter        2nd Quarter     3rd Quarter   4th Quarter
        -----------         -----------        -----------     -----------   -----------
            2004             $ 158,311          $ 657,771       $ 919,197           N/A

            2003             $      --          $      --       $  64,414     $  64,457
</TABLE>


As of  September  30,  2004,  the backlog of the Company for these  products was
$227,854.

OVERVIEW

The following  discussion and analysis  should be read in  conjunction  with our
financial  data and our Financial  Statements and notes  appearing  elsewhere in
this report.

Net  sales  for  the  three  months  ended  September  30,  2004,  increased  by
approximately  $318,000,  or 6%, to $5.7 million compared to 2003. Net sales for
nine months ended September 30, 2004 increased by approximately $901,000, or 6%,
to $17.0 million compared to 2003. Net sales in 2004 increased  primarily due to
increased  sales from the Company's  copier and all-in-one  products,  more than
offsetting  the decline in sales from the sales of our two largest  customers to
approximately  $5,392,000 for the nine months ended September 30, 2004, compared
to  approximately  $7,431,000  for the same  periods  in  2003,  a  decrease  of
approximately  27%. Sales to these customers  consist primarily of analog copier
products,  and as a result are expected to decline  over time.  In the three and
nine month  periods  ended  September  30,  2004,  our net sales were  primarily
generated  from  the  sale of  finished  consumable  products  for  photocopying
machines and electronic printers and comprised  approximately 80% and 79% of net
sales,  respectively.  For the three and nine month periods ended  September 30,
2003, our net sales from the sale of finished products  comprised  approximately
78% and 73% of net sales, respectively.

Net sales made outside of the United States for the three and nine month periods
ended   September  30,  2004,   were   approximately   $2.5  and  $7.8  million,
respectively, or 44% and 46% of total sales, and increased by approximately $0.3
million,  or 14%, and $1.3 million,  or 19%, over the same periods in 2003. This
increase in international sales resulted primarily from the increase in sales of
our color copier and all in one products to customers other than our two largest
customers.

The following table reflects the consolidated new orders,  net of cancellations,
revenues  and backlog as of the  beginning  and end of the three and nine months
ended  September  30, 2004, as well as for Color  Imaging's two general  product
lines.

<TABLE>
<CAPTION>
         <S>                                  <C>         <C>         <C>         <C>

                                               Backlog                            Backlog
                                              at start                             at end
                                                 of         New         Net          of
                                               Period      Orders     Revenue      Period
                                              --------    --------    --------    --------
                                                          (IN THOUSANDS OF DOLLARS)
         Three Months September 30, 2004:
           Copier Products                    $  1,813    $  4,673    $  5,285    $  1,201
           Printer Products                        377         485         394         468
                                              --------    --------    --------    --------
              Total                           $  2,190    $  5,158    $  5,679    $  1,669
                                              ========    ========    ========    ========

                                                          (IN THOUSANDS OF DOLLARS)
         Nine Months September 30, 2004:
             Copier Products                  $  1,896    $ 12,945    $ 13,640    $  1,201
             Printer Products                      575       3,202       3,309         468
                                              --------    --------    --------    --------
              Total                           $  2,471    $ 16,147    $ 16,949    $  1,669
                                              ========    ========    ========    ========
</TABLE>

                                       13
<PAGE>

CRITICAL ACCOUNTING ESTIMATES

"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations"  discusses  our  financial  statements  that have been  prepared  in
accordance with accounting principles generally accepted in the United States of
America.  The  preparation  of these  financial  statements  requires us to make
estimates  and  assumptions  that  affect  the  reported  amount of  assets  and
liabilities  at  the  date  of  the  financial  statements,  the  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the reported amounts of revenues and expenses during the reporting period.

On an on-going basis,  we evaluate our estimates and judgments,  including those
related to revenue recognition,  valuation allowances for inventory and accounts
receivable,  warranty and impairment of long-lived assets. We base our estimates
and  judgments on  historical  experience  and on various  other factors that we
believe to be reasonable under the circumstances.  The result of these estimates
and judgments form the basis for making  conclusions about the carrying value of
assets and liabilities that are not readily apparent from other sources.  Actual
results  may  differ  from  these  estimates  under  different   assumptions  or
conditions.  Our  significant  estimates  and  assumptions  are reviewed and any
required adjustments are recorded on a quarterly basis.

A critical  accounting  policy is one that is both important to the portrayal of
Color Imaging's financial  condition and results and requires  management's most
difficult,  subjective  or complex  judgments,  often as a result of the need to
make  estimates  about the  effect of  matters  that are  inherently  uncertain.
Management  believes the following critical  accounting policies affect its more
significant  judgments  and  estimates  in  the  preparation  of  its  financial
statements.

VALUATION ALLOWANCE FOR ACCOUNTS RECEIVABLE. We maintain allowances for doubtful
accounts for estimated  losses  resulting from the inability of our customers to
make required  payments.  These  allowances are based on historical  experience,
credit  evaluations and specific customer  collection issues we have identified.
Since our accounts  receivable are often concentrated in a relatively few number
of customers, a significant change in the liquidity or financial position of any
one  of  these   customers   could  have  a  material   adverse  impact  on  the
collectibility of our accounts receivable and our future operating results.

INVENTORY VALUATION.  Our inventories are recorded at the lower of standard cost
or the current  estimated  market value. As with any manufacturer or wholesaler,
economic conditions,  cyclical customer demand, product introductions or pricing
changes of our competitors and changes in purchasing or distribution  can affect
the  carrying  value  of  inventory.  Demand  for our  products  has  fluctuated
significantly and may do so in the future,  which could result in an increase in
the cost of inventory or an increase in excess inventory  quantities on hand. As
circumstances  warrant, we record lower of cost or market inventory adjustments.
In some instances these  adjustments can have a material effect on the financial
results of an annual or interim period.  In order to determine such adjustments,
we evaluate the age,  inventory turns,  estimated fair value and, in the case of
toner products,  whether or not they can be reformulated and  manufactured  into
other products, and record any adjustment if estimated fair value is below cost.
Through  periodic  review of each of our  inventory  categories  and by offering
markdown or closeout pricing,  we regularly take steps to sell off slower moving
inventory  to  eliminate  or  lessen  the  effect of any lower of cost or market
adjustment.  If assumptions  about future demand or actual market conditions are
less  favorable  than those  projected by  management,  write-downs of inventory
could be required,  and there can be no assurance that future  developments will
not necessitate further write-downs.

VALUATION OF LONG-LIVED  ASSETS.  We  periodically  evaluate  whether events and
circumstances  have occurred  which may affect the estimated  useful life or the
recoverability  of the remaining balance of our long-lived  assets,  such as our
investment in our toner  manufacturing  equipment.  We have  approximately  $8.1
million invested in such equipment and plant improvements, with a carrying value
of $6.2  million,  that  have  estimated  lives of up to  twenty  years.  Should
competing   technologies  or  offshore   competitors   cause  our  manufacturing
technology  to be  non-competitive,  or should  other  events  or  circumstances
indicate that the carrying amount of these assets would not be recoverable,  the
estimated life of these assets may need to be shortened and their carrying value
could be materially affected. If the sum of the undiscounted expected cash flows
from an asset to be held and used in operations is less than the carrying  value
of the asset, an impairment loss is recognized.

WARRANTY.  We provide a limited  warranty,  generally  ninety (90) days,  to all
purchasers  of our  products.  Accordingly,  we do not make a provision  for the
estimated  cost of providing  warranty  coverage,  and instead we expense  these
costs as they are  incurred.  On  occasion,  we have  been  required  and may be
required in the future to provide  additional  warranty  coverage to ensure that
our products are ultimately accepted or to maintain customer goodwill. While our
warranty costs have historically not been significant,  we cannot guarantee that
we will continue to experience a similar level of predictability  with regard to
warranty  costs as we have in the past. In addition,  the  introduction  of more
expensive finished products, technological changes or previously unknown defects
in raw  materials  or  components  may  result in more  extensive  and  frequent
warranty claims than anticipated,  which could have a material adverse impact on
our  operating   results  for  the  periods  in  which  such  additional   costs
materialize.

                                       14
<PAGE>


RESULTS OF OPERATIONS

Color  Imaging's net sales were $5.7 million and $16.9 million for the three and
nine months ended September 30, 2004, an increase of  approximately 6% from both
the three and nine months ended  September  30,  2003.  The net sales by product
category were as follows:

<TABLE>
<CAPTION>
    <S>                                <C>           <C>           <C>           <C>           <C>
                                                                   % Increase
    (Dollars in thousands)                 2004            %        (Decrease)       2003            %
                                       ------------  ------------  ------------  ------------  ------------
    Three Months
    ------------
    Product Category:
     Cartridges and bottles
      Copier finished products          $   4,146         73%           31%       $   3,166         59%
      Printer finished products               394          7%          (49)             773         14%
                                       ------------                ------------  ------------
                                            4,540         80%           15            3,939         73%

    Bulk toner and parts                    1,139         20%          (20)           1,422         27%
                                       ------------                ------------  ------------
          Total net revenue             $   5,679        100%            5        $   5,361        100%
                                       ============                ============  ============

    Nine Months
    ----------
    Product Category:
     Cartridges and bottles
      Copier finished products          $  11,913         70%           31        $   9,059         56%
      Printer finished products             1,486          9           (43)           2,596         16%
                                       ------------                ------------  ------------
                                           13,399         79            15           11,655         73%

    Bulk toner and parts                    3,550         21           (19)           4,394         27%
                                       ------------                ------------  ------------
          Total net revenue             $  16,949        100%            6        $  16,049        100%
                                       ============                ============  ============
</TABLE>


The following  table sets forth certain  information  derived from the Company's
unaudited interim statements of operations:

<TABLE>
<CAPTION>
<S>                                    <C>              <C>            <C>             <C>
                                         THREE MONTHS ENDED               NINE MONTHS ENDED
                                            SEPTEMBER 30,                   SEPTEMBER 30,
                                         2004            2003           2004            2003
                                        ------          ------         ------          ------
                                                        (PERCENTAGE OF NET SALES)

Net sales                                100             100             100            100
Cost of sales                             77              74              75             74
Gross profit                              23              26              25             26
Administrative expenses                    5               8               6              8
Research and development                   5               5               5              6
Sales and marketing                       10               8              11              7
Operating income                           3               4               3              5
Interest expense                           -               1               -              1
Depreciation and amortization              3               8               3              5
Income before taxes                        3               5               4              5
Provision for income taxes                 1               2               2              2
Net income                                 2               3               2              3

</TABLE>


                                       15
<PAGE>



THREE MONTHS ENDED  SEPTEMBER 30, 2004 COMPARED TO THREE MONTHS ENDED  SEPTEMBER
30, 2003

NET SALES.  Our net sales increased by $0.3 million,  or 6%, to $5.7 million for
the three  months  ended  September  30,  2004,  from $5.4 million for the three
months ended  September 30, 2003.  Net sales made in the United States were $3.2
million for the three months  ended  September  30, 2004 and for the  comparable
period in 2003.  Net sales made outside of the United  States  increased by $0.3
million, or 14%, for the quarter compared to the same quarter of 2003. While net
sales for the  quarter  compared to that of a year ago made inside of the United
States  was  approximately  the same,  sales of copier  and all in one  products
increased  while sales from laser and MICR products to customers  other than our
two  largest  customers  decreased.  The  increase  in net sales for the quarter
compared to that of year ago made outside of the United States was primarily the
result of increased sales from copier and all in one products to customers other
than our two largest customers.  Of the $5.6 million in net sales, $4.5 million,
or  80%,  were  attributable  to our  copier,  all in one and  printer  finished
products, compared to 71% for the comparable period in 2003, while the net sales
of bulk  toner and  parts  declined  from 27% of net sales for the three  months
ended September 30, 2003 compared to 20% for the comparable  period in 2004. Net
sales to our two largest customers  decreased as a percentage of our total sales
to 32%  for  the  three  months  ended  September  30,  2004,  from  41% for the
comparable period in 2003.

COST OF GOODS SOLD. Cost of goods sold increased by $0.4 million, or 9%, to $4.4
million from $4.0 million for the three months ended  September 30, 2004 for the
comparable period in 2003,  primarily as the result of the increase in net sales
and secondarily from selling all in one products at lower margins. Cost of goods
sold as a percentage of net sales increased by 3 percentage  points from 74% for
the three  months  ended  September  30, 2003 to 77% for the three  months ended
September 30, 2004,  primarily as the result more of our net sales being derived
from lower margin all-in-one and analog copier products.

GROSS PROFIT. As a result of the above factors, gross profit was $1.3 million in
both the three months ended September 30, 2004 and 2003, while net sales for the
same period  increased by $0.3  million,  or 6%. Gross profit as a percentage of
net sales decreased by 3 percentage  points from 26% to 23% for the three months
ended September 30, 2004, as compared to the  corresponding  period of the prior
year.  The decrease in the  percentage of gross profit  resulted  primarily from
more of our sales being derived from lower margin  all-in-one  and analog copier
products.

OPERATING  EXPENSES.  Operating expenses increased $26,000, or 2%, to $1,171,000
in the three months ended September 30, 2004 from $1,145,000 in the three months
ended September 30, 2003. General and  administrative,  selling and R&D expenses
decreased,  as a  percentage  of net  sales,  to 20% in the three  months  ended
September  30, 2004 from 21% in the three months ended  September  30, 2003 as a
result of the  increase in net sales for the quarter and lower  expenditures  in
general  and  administrative  expenses.   General  and  administrative  expenses
decreased  approximately 28%, or $119,000 to $300,000 for the three months ended
September 30, 2004 from the comparable  period in 2003,  largely  resulting from
decreased  professional fees in connection with complying with the change in SEC
reporting  requirements  from  Regulation SB to S-K and bonus and salary related
expenses.  Selling expenses  increased by $144,000,  or 33%, in the three months
ended  September 30, 2004 compared to the three months ended September 30, 2003.
Selling  expenses  increased  primarily as a result of increased  sales costs in
connection  with the opening of our  California  office,  the hiring of a senior
vice  president for  marketing  and sales  earlier this year,  appointing a vice
president  for  technical  sales  and  increased  manufacturer's  representative
expenses.  Research and development  expenses  decreased by $1,000, or less than
1%,  to  $287,000  in the  three  months  ended  September  30,  2004,  from the
comparable period in 2003.

OPERATING INCOME. As a result of the above factors, primarily the 3% decrease in
gross  profit  and the 2%  increase  in  operating  expenses,  operating  income
decreased  by $72,000,  or 32%, to income of $151,000 in the three  months ended
September 30, 2004 from $223,000 in the three months ended September 30, 2003.

INTEREST AND FINANCE EXPENSE.  Interest expense decreased by $7,000 in the three
months ended  September 30, 2004 from the three months ended September 30, 2003.
The decrease was primarily the result of reduced interest bearing debt levels.

OTHER INCOME.  Other income decreased by $8,000,  or 14%, from income of $57,000
to income of $49,000 in the three months ended September 30, 2004 from the three
months  ended  September  30, 2003,  primarily  as the result of decreased  Euro
exchange gains.

INCOME  TAXES.  As the result of our income from  continuing  operations  in the
three months ended  September  30, 2004,  we recorded an income tax provision of
$71,900 for the period,  while the income tax  provisions  were $100,000 for the
three months ended September 30, 2003.


                                       16
<PAGE>


NINE MONTHS ENDED SEPTEMBER 30, 2004 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2003

NET SALES.  Our net sales  increased by $0.9 million,  or 6%, to $17 million for
the nine months ended  September 30, 2004,  from $16 million for the nine months
ended September 30, 2003. Net sales made in the United States were $9.2 million,
a decrease of $0.4  million,  or 4%, from $9.5  million  made in the  comparable
period in 2003.  Net sales made outside of the United  States  increased by $1.3
million,  or 20%, to $7.8 million for the nine months ended  September  30, 2004
compared to the same nine months of 2003. The increase in net sales for the nine
months  ended  September  30,  2004,  compared  to that of a year  ago  resulted
primarily from the sale of our color copier and all-in-one products.  Of the $17
million  in net  sales for the nine  months  ended  September  30,  2004,  $13.4
million,  or 79%, were  attributable to our finished products for use in copiers
and  printers,  while $3.6  million,  or 21%, were derived from the sale of bulk
toners and parts.  Of the $16  million  in net sales for the nine  months  ended
September 30, 2003,  $11.7 million,  or 73%, were  attributable  to our finished
products  for use in copiers and  printers,  while $4.3  million,  or 27%,  were
derived from the sale of bulk toners and parts.

COST OF GOODS SOLD.  Cost of goods sold  increased  by $0.9  million,  or 7%, to
$12.7  million from $11.8  million for the nine months ended  September 30, 2004
from the  comparable  period in 2003.  Cost of goods sold as a percentage of net
sales  increased  by 1  percentage  point  from  74% for the nine  months  ended
September  30,  2003  to 75% for the  nine  months  ended  September  30,  2004,
primarily  as the  result of the sales  derived  from  lower  margin  all-in-one
products.

GROSS  PROFIT.  As a result of the above  factors,  gross  profit  increased  by
$29,000,  or 1%, to $4,255,000 in the nine months ended  September 30, 2004 from
$4,226,000  for the comparable  period in 2003.  Gross profit as a percentage of
net sales  decreased by 1  percentage  point from 26% to 25% for the nine months
ended September 30, 2004, as compared to the  corresponding  period of the prior
year.  The decrease in the  percentage of gross profit  resulted  primarily from
increased sales derived from lower margin all-in-one products.

OPERATING EXPENSES. Operating expenses increased $324,000 or 10% to $3.7 million
in the nine months ended September 30, 2004 from $3.4 million in the nine months
ended   September   30,  2003.   As  a  percentage  of  net  sales  general  and
administrative, selling and R&D expenses, was 22% and 21%, respectively, for the
nine months  ended  September  30,  2004 and 2003.  The  increase  in  operating
expenses as a  percentage  of net sales was largely the result of the  increased
selling and  marketing  expenses for the nine months ended  September  30, 2004.
General and administrative  expenses decreased approximately 21%, or $273,000 to
$1,039,000  for the nine months  ended  September  30, 2004 from the  comparable
period in 2003,  largely  resulting  from  decreased  professional  expenses for
compliance  with  changing  from  SEC  regulation  SB to S-K  reporting  and the
repurchase of securities issued in our private  placement  completed in 2001 and
having made no provision for a bonus program in 2004. Selling expenses increased
by $593,000, or 50%, in the nine months ended September 30, 2004 compared to the
nine months ended September 30, 2003.  Selling expenses  increased  primarily as
the result of expenses in connection with the California  sales office opened at
the end of 2003 and the increased  salary related  expenses for newly  appointed
sales executives and increased manufacturer's  representative expenses. Research
and development  expenses  increased by $4,000,  or 1%, in the nine months ended
September 30, 2004.

OPERATING INCOME. As a result of the above factors, primarily the 1% decrease in
gross profit and the 50%  increase in sales and  marketing  expenses,  operating
income  decreased  by  $297,000,  to income of $539,000 in the nine months ended
September 30, 2004 from $836,000 in the nine months ended September 30, 2003.

INTEREST AND FINANCE EXPENSE.  Interest expense decreased by $70,000 in the nine
months ended  September 30, 2004 from the nine months ended  September 30, 2003,
or 51%. The decrease was primarily the result of reduced  interest  bearing debt
levels.

OTHER  INCOME.  Other  income  increased  by $43,000  from income of $166,000 to
income of  $209,000 in the nine months  ended  September  30, 2004 from the nine
months ended September 30, 2003, primarily as the result of Euro exchange gains.

INCOME TAXES. As the result of our decreased profit from operations for the nine
months ended September 30, 2004, our provision for taxes decreased from $345,000
in the nine months  ended  September  30, 2003 to $272,000  for the period ended
September 30, 2004.

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2004,  and December 31, 2003,  our working  capital and current
ratio was approximately  $7.2 million and $6.5 million and 3.39 to 1 and 2.83 to
1, respectively.  Our working capital and current ratio have increased primarily
from the net  proceeds  we  received  from the public  sale of our common  stock
during March 2003 and our continuing profitability.

Cash  provided by  operating  activities  was  $578,000 in the nine months ended
September  30, 2004  compared to $185,000  used by operations in the nine months
ended September 30, 2003. The cash provided by operating  activities in the nine
months  ended  September  30, 2004  increased  primarily  due to the decrease in
inventories.

Cash  used in  investing  activities  was  $167,000  in the  nine  months  ended
September 30, 2004,  compared to $388,000 in the nine months ended September 30,
2003. The decrease in cash used in investing activities in the nine months ended
September 30, 2004, was entirely  attributable to decreased capital expenditures
in connection with the acquisition and installation of new factory equipment.



                                       17
<PAGE>


The Company has a $1.5 million  revolving  line of credit,  as amended,  with an
outstanding  balance as of  September  30, 2004 of $0,  bearing  interest at the
one-month  Libor  interest rate in effect two business days before the first day
of the month plus 2.50%.  As of September  30, 2004,  the interest  rate was the
one-month Libor rate of 1.84% plus 2.50% (4.34%).  This revolving line of credit
has a June 30, 2005 expiration  date.  Under the line of credit,  the Company is
permitted  to  borrow  up to 75% of  eligible  accounts  receivable  and  50% of
eligible  inventories  (up to a maximum of $750,000 and not to exceed 50% of the
total outstanding).

The Bank agreement also contains various  covenants that the Company is required
to maintain,  and as of September 30, 2004,  the Company was in compliance  with
these covenants. If the Company fails to meet these covenants in future periods,
the line of credit and letter of credit facilities may become unavailable to the
Company,  and the Bank may have the  right  to  accelerate  the  payment  of any
outstanding amounts.

Cash used in financing activities were $696,000,  primarily for the repayment of
related party debt and the July 1st principal reduction to the IDR bond, for the
nine months  ended  September  30, 2004  compared to cash  provided by financing
activities of $2,473,000 for the same period in 2003, resulting largely from the
$5,900,000  in net proceeds  received for the public sale of our common stock to
an affiliate.

On April 18, 2003,  the Company  established  a stock  repurchase  program under
which Color  Imaging's  common stock,  with an aggregate  market value up to the
lesser of $1 million or 1 million shares,  may be acquired in the open market or
through private or other transactions. Through October 18, 2004, the Company has
repurchased 81,800 shares of our common stock for approximately  $55,000, or for
an average price of $0.67 per share.

We believe  that  existing  cash  balances,  cash  expected to be  generated  by
operating activities,  and funds available under our credit facility will be, in
the aggregate,  sufficient to finance our operating and investing activities for
at least the next 12  months,  which  will  include  expenditures  not to exceed
approximately $500,000 for manufacturing,  $150,000 for research and development
equipment,  $175,000  potentially for computer  software upgrades to accommodate
electronic  data  interchange,  the  repurchase  of our  stock  under  the stock
repurchase  program of up to the lesser of $1,000,000 or 1,000,000 shares of our
common  stock  and  any  advances  made  by our  bank on our  behalf  under  our
off-balance  sheet  arrangement  of $1.5 million for a standby  letter of credit
issued to a non-affiliated foreign supplier.

OFF BALANCE SHEET ARRANGEMENTS

On February 6, 2004, our Bank issued on our behalf an irrevocable standby letter
of credit in the amount of $1.5  million  for the  benefit  of a  non-affiliated
foreign supplier.  The letter of credit has an expiration date of June 30, 2005,
and guarantees  the payment of moneys owed the supplier for materials  purchased
from them by the Company on terms from N30 to N120. At September  30, 2004,  the
Company's  accounts  payable to this  supplier  was  $614,846.  The  Company has
granted the Bank a security  interest in all of the Company's assets as security
for the repayment of the line of credit and the obligations  under the letter of
credit.

FACTORS   THAT  MAY   AFFECT   FUTURE   RESULTS   AND   INFORMATION   CONCERNING
FORWARD-LOOKING STATEMENTS

RISK FACTORS

RISKS RELATED TO OUR BUSINESS:

OUR BUSINESS DEPENDS ON A LIMITED NUMBER OF CUSTOMERS.

For the nine months  ended  September  30, 2004,  two  customers  accounted  for
approximately  32%  of our  net  sales.  We do not  have  contracts  with  these
customers and all of the sales to them are made through purchase  orders.  While
our products typically go through the customer's required qualification process,
which we  believe  gives us an  advantage  over other  suppliers,  this does not
guarantee  that the  customer  will  continue to  purchase  from us. The loss of
either of these  customers,  including  through an  acquisition,  other business
combination  or the loss by them of business from their  customers  could have a
substantial and adverse effect on our business.  We have in the past, and may in
the future,  lose one or more major  customers  or  substantial  portions of our
business with one or more of our major customers.  If we do not sell products or
services to  customers in the  quantities  anticipated,  or if a major  customer
reduces  or  terminates  its  relationship  with us,  market  perception  of our
products and technology,  growth prospects,  and financial condition and results
of operation could be harmed.

OUR  RELIANCE ON SALES TO A FEW MAJOR  CUSTOMERS  AND  GRANTING  CREDIT TO THOSE
CUSTOMERS PLACES US AT FINANCIAL RISK.

As of September  30,  2004,  receivables  from two  customers  comprised  16% of
accounts  receivable.  A concentration of our receivables from a small number of
customers places us at risk should these receivables  become  uncollectible.  If
any one or more of our major  customers  is unable to pay us it could  adversely
affect our results of operations and financial condition. Color Imaging attempts
to manage this credit risk by performing  credit checks,  requiring  significant
partial payments prior to shipment where  appropriate,  and actively  monitoring
collections.


                                       18
<PAGE>


APPROXIMATELY  32% OF OUR BUSINESS DEPENDS ON A FOREIGN SUPPLIER APPROVED BY TWO
OF OUR CUSTOMERS TO WHOM WE HAVE ISSUED A LETTER OF CREDIT.

Some  of  our  products  incorporate  technologies  that  are  available  from a
particular  foreign  supplier  that has been  approved by one of our  customers.
Approximately 32% of our sales for the nine months ended September 30, 2004 were
derived  from  products  limited to a specific  foreign  supplier.  For the nine
months ended September 30, 2004, we purchased 37% of our supplies from that same
foreign  supplier.  We do not have a  written  agreement  with this or any other
supplier.  We rely on purchase orders.  To secure the payment of moneys due this
same  foreign  supplier  we have  caused  our bank to issue a standby  letter of
credit in the  amount of $1.5  million,  expiring  June 30,  2005.  Should we be
unable to obtain the necessary  materials from this foreign supplier,  including
as a result  of our not being  able to  modify,  extend  or renew the  letter of
credit upon expiry, product shipments could be prevented or delayed, which could
result in a loss of sales. If we are unable to fulfill existing orders or accept
new orders  because of a shortage of  materials,  we may lose  revenues and risk
losing customers.

IF OUR CRITICAL SUPPLIERS FAIL TO DELIVER SUFFICIENT  QUANTITIES OF MATERIALS OR
PRODUCTS IN A TIMELY AND  COST-EFFECTIVE  MANNER IT COULD NEGATIVELY  AFFECT OUR
BUSINESS.

We use a wide range of materials in the manufacture of our products,  and we use
numerous  suppliers  to supply  materials  and  certain  finished  products.  We
generally do not have guaranteed supply arrangements with our suppliers. Because
of the  variability and uniqueness of customers'  orders,  we do not maintain an
extensive  inventory of materials  for  manufacturing  or resale.  Key suppliers
include  providers  of  special  resins,  toners  and  toner  related  products,
including those from our largest supplier who is also foreign, and our injection
molder  affiliate  that  provides   plastic  bottles,   cartridges  and  related
components designed to avoid the intellectual property rights of others.

Although we make  reasonable  efforts to ensure that raw  materials,  toners and
certain  finished  products are available from multiple  suppliers,  this is not
always possible;  accordingly, some of these materials are being procured from a
single  supplier or a limited  group of suppliers.  Many of these  suppliers are
outside the United States,  including our largest supplier,  resulting in longer
lead-times  for many  important  materials,  which could cause delays in meeting
shipments  to our  customers.  We have  sought,  and will  continue to seek,  to
minimize the risk of production interruptions and shortages of key materials and
products by:

o selecting and qualifying alternative suppliers for key materials and products;
o  monitoring  the  financial  stability  of key  suppliers;  and o  maintaining
appropriate inventories of key materials and products.

There can be no assurance that results of operations  will not be materially and
adversely  affected  if,  in the  future,  we do not  receive  in a  timely  and
cost-effective manner a sufficient quantity of raw materials, toners or finished
products to meet our production or customer delivery requirements.

OUR  SUCCESS IS  DEPENDENT  ON OUR  ABILITY TO UTILIZE  AVAILABLE  MANUFACTURING
CAPACITY.

From 1999 through 2000, we expanded our manufacturing  capacity by acquiring new
manufacturing  equipment and moving to a larger location.  Thereafter we further
expanded our capacity by placing in service additional  manufacturing  equipment
during 2002 and 2003,  and we continue  to make  investments  in and acquire and
install new factory  equipment.  To fully  utilize  these new  additions  to the
factory,  new  formulations  for toner  have to be  developed  specifically  for
manufacture  on this new  equipment or orders for larger  quantities of existing
toners must be obtained.  While we have been  successful in developing  formulas
for new equipment in the past and increasing sales of many of our existing toner
products,  our  continued  success  will be  dependent on our ability to develop
additional  formulations  or increase our sales from existing  formulations  and
manufacture  the  toners  with the new  equipment  to  achieve  a  reduction  in
production  costs. We cannot assure you that we will be successful in developing
all of the  formulations  needed  in the  future  or  that  we  will  be able to
manufacture  toner at a lower  production  cost on a regular  basis or that such
products will achieve market acceptance.  If we are not successful in increasing
the  sales  of  our  manufactured  products,  or  if  our  existing  sales  from
manufactured  products  declines,  our business will be materially and adversely
affected.

OUR SUCCESS IS DEPENDENT ON OUR ABILITY TO SUCCESSFULLY  DEVELOP, OR USE OR HAVE
ACCESS  TO  THIRD  PARTIES',  INTELLECTUAL  PROPERTY  OR  PRODUCTS  THAT  WE CAN
COMMERCIALIZE AND THAT ACHIEVE MARKET ACCEPTANCE.

Our success depends in part on our ability to develop proprietary toner formulas
and  manufacturing  processes,  maintain  trade  secret  protection  and operate
without  infringing  the  proprietary   rights  of  others.   Future  claims  of
intellectual  property  infringement  could prevent us from  obtaining  products
incorporating the technology of others and could otherwise  adversely affect our
operating results, cash flows, financial position or business, as could expenses
incurred  enforcing  intellectual  property  rights  against others or defending
against  claims that our  products or those  acquired  from others  infringe the
intellectual property rights of another.

Success in the  aftermarket  imaging  industry  depends,  in part, on developing
consumable  products that are  compatible  with the printers,  photocopiers  and
facsimile  machines  made by the OEMs,  and that have a selling  price less than
that of like consumable supplies offered by


                                       19
<PAGE>


the OEM. For example,  if the OEMs introduce chemical toners with better imaging
characteristics and higher yields, microprocessor chips that communicate between
the toner  cartridge and the device,  or introduce  products  using  patented or
other  proprietary  technologies,  then the aftermarket  industry has to respond
with ongoing development  programs to offer compatible products that emulate the
OEMs' without infringing upon the OEM's intellectual property.

Technical innovations are inherently complex and require long development cycles
and appropriate  professional  staffing.  Our future business success depends on
our  ability,  and that of  critical  suppliers,  to develop and  introduce  new
products that successfully  address the changing  technologies of the OEMs, meet
the customer's  needs and win market  acceptance in a timely and  cost-effective
manner.  If we do not develop and introduce  products  compatible with the OEM's
technologies  in a timely  manner in response to changing  market  conditions or
customer requirements, our business could be seriously harmed.

The challenges we face in implementing  our business model include  establishing
market acceptance of existing products and successfully  developing or acquiring
new  products for resale that achieve  market  acceptance,  as well as obtaining
additional channels through which to sell various products. We must successfully
commercialize the products that are currently being developed, such as our color
and magnetic  character  recognition toner for printers and black text and color
toners for new  digital  copiers  and  continue  to acquire  from third  parties
all-in-one  cartridges,  parts,  materials  and  finished  product  that  can be
integrated  into  finished  products  or sold  as our  products.  While  we have
successfully  developed  toners  in the  past  and  are in the  late  stages  of
developing and testing several new toners,  we have not  commercialized  many of
the toners that are under  development.  While we have in the past acquired from
third parties  materials  and products that we have been  successful in selling,
there can be no  assurance  that parts,  materials  or products for new products
will  be  available  or  will  achieve  market  acceptance,  or  that we will be
successful in increasing our sales to large regional,  national or international
retailers.  If we fail to  successfully  commercialize  products  we  develop or
acquire  for resale from third  parties,  or if these  products  fail to achieve
market  acceptance,  our financial  condition and results of operation  would be
seriously harmed.

OUR BUSINESS MIGHT BE ADVERSELY AFFECTED BY OUR DEPENDENCE ON FOREIGN BUSINESS.

We sell a  significant  amount of  product  to  customers  outside of the United
States.  International  sales accounted for 46% and 41% of net sales in the nine
months ended September 30, 2004 and 2003, respectively. We expect that shipments
to  international  customers will continue to account for a material  portion of
net sales. During the nine month period ended September 30, 2004, our sales were
made to customers outside the United States as follows:

o    Europe (including Eastern Europe) - 25%
o    Mexico - 13%
o    Asia/Southeast Asia - 5%
o    Other - 3%

Most of our products sold  internationally,  including  those sold to our larger
international  customers, are on open account, giving rise to the added costs of
collection in the event of non-payment.  On foreign customer accounts other than
those we feel are  credit  worthy  and  justify  open  credit  terms with us, we
mitigate the risk of non-payment and collection of foreign  accounts  receivable
by obtaining  foreign credit insurance on those customers who qualify.  Further,
should a product  shipped  overseas be defective,  the Company would  experience
higher costs in connection with a product recall or return and replacement.

Most of our sales are  priced in U.S.  dollars,  but  because  we began  selling
products in Europe  denominated in Euros during 2001,  fluctuations  in the Euro
could  also  cause  our  products  there  to  become  less  affordable  or  less
competitive  or we may  sell  some  products  at a loss  to  otherwise  maintain
profitable business from a customer. We recorded gains of approximately $143,000
and $124,000  during the nine month periods  ended  September 30, 2004 and 2003,
respectively, as a result of foreign currency transactions.

While our  business  has not been  materially  affected  in the past by  foreign
business or  currency  fluctuations,  because of our  increasing  dependence  on
international  revenues, our operating results could be negatively affected by a
continued or  additional  decline in the  economies  of any of the  countries or
regions  in which we do  business.  Periodic  local  or  international  economic
downturns,  trade balance issues,  changes to duties,  tariffs or  environmental
regulations,  political  instability  and  fluctuations in interest and currency
exchange rates could negatively affect our business and results of operations.

We cannot assure you that these factors will not have a material  adverse effect
on our international sales and would, as a result,  adversely impact our results
of operation and financial condition.

OUR RESULTS OF OPERATIONS  MAY BE  MATERIALLY  HARMED IF WE ARE UNABLE TO RECOUP
OUR INVESTMENT IN RESEARCH AND DEVELOPMENT.

The rapid change in technology in our industry requires that we continue to make
investments   in  research  and   development  in  order  to  not  only  develop
technologies  that  function  like the  OEMs' and do not  infringe  on the OEMs'
intellectual  property  rights,  but we must also  enhance the  performance  and
functionality  of our  products  and keep pace  with  competitive  products  and
satisfy customer demands for

                                       20
<PAGE>

improved  performance,  features,  functionality  and  costs.  There  can  be no
assurance  that revenues from future  products or product  enhancements  will be
sufficient to recover the  development  costs  associated  with such products or
enhancements or that we will be able to secure the financial resources necessary
to fund  future  development.  Research  and  development  costs  typically  are
incurred before we confirm the technical feasibility and commercial viability of
a product,  and not all development  activities  result in  commercially  viable
products. In addition, we cannot ensure that these products or enhancements will
receive  market  acceptance  or that we will be able to sell these  products  at
prices that are  favorable to us. Our business  could be seriously  harmed if we
are unable to sell our products at favorable prices or if the market in which we
operate does not accept our products.

OUR INTELLECTUAL PROPERTY PROTECTION IS LIMITED.

We do not rely on patents to protect  our  proprietary  rights.  We do rely on a
combination of laws such as trade secrets and contractual  restrictions  such as
confidentiality   agreements  to  protect   proprietary   rights.   Despite  any
precautions we have taken:

o  laws  and  contractual  restrictions  might  not  be  sufficient  to  prevent
misappropriation  of our  technology  or deter  others from  developing  similar
technologies;  and o policing  unauthorized  use of our  products is  difficult,
expensive and time-consuming and we might not be able to determine the extent of
this unauthorized use.

Therefore, there can be no assurance that we can meaningfully protect our rights
in such unpatented  proprietary technology or that others will not independently
develop substantially  equivalent proprietary products or processes or otherwise
gain access to the proprietary  technology.  Reverse  engineering,  unauthorized
copying or other  misappropriation  of our proprietary  technology  could enable
third  parties to benefit  from our  technology  without  paying us, which could
significantly harm our business.

WE DEPEND ON THE EFFORTS AND ABILITIES OF CERTAIN  SENIOR  MANAGEMENT  AND OTHER
KEY PERSONNEL TO CONTINUE OUR OPERATIONS AND GENERATE REVENUES.

Our success depends to a significant  extent on the continued services of senior
management and other key personnel.  While we do have confidentiality agreements
with  executive  officers  and  certain  other  key  individuals,  we  have  few
employment agreements and they may be terminated by either party upon giving the
required  notice.  The loss of the services of any of our executive  officers or
other key  employees  could harm our  business.  Our success also depends on our
ability to attract,  retain and motivate highly skilled  employees.  Competition
for qualified  employees in the industries in which we operate is intense. If we
fail to hire and retain a sufficient number of qualified employees, our business
will be adversely affected.

WE HAVE A SINGLE MANUFACTURING FACILITY AND WE MAY LOSE REVENUE AND BE UNABLE TO
MAINTAIN OUR CLIENT RELATIONSHIPS IF WE LOSE OUR PRODUCTION CAPACITY.

We manufacture all of the products we sell in our existing facility in Norcross,
Georgia.  If our existing production facility becomes incapable of manufacturing
products for any reason,  we may be unable to meet production  requirements,  we
may lose revenue and we may not be able to maintain our  relationships  with our
customers.  Without our  existing  production  facility,  we would have no other
means of manufacturing  products until we were able to restore the manufacturing
capability  at our facility or develop an  alternative  manufacturing  facility.
Although we carry  business  interruption  insurance  to cover lost  revenue and
profits in an amount we consider  adequate,  this  insurance  does not cover all
possible situations.  In addition, our business interruption insurance would not
compensate  us for the loss of  opportunity  and  potential  adverse  impact  on
relations  with our existing  customers  resulting from our inability to produce
products for them.

OUR ACQUISITION STRATEGY MAY PROVE UNSUCCESSFUL.

We intend to pursue  acquisitions of businesses or technologies  that management
believes  complement or expand the existing business.  Acquisitions of this type
involve a number of risks,  including the possibility that the operations of any
businesses that are acquired will be  unprofitable or that management  attention
will be diverted  from the  day-to-day  operation of the existing  business.  An
unsuccessful  acquisition  could reduce  profit  margins or  otherwise  harm our
financial   condition,   by,  for  example,   impairing  liquidity  and  causing
non-compliance with lending institution's  financial covenants. In addition, any
acquisition could result in a dilutive issuance of equity securities,  our going
private,  the incurrence of debt or the loss of key employees.  Certain benefits
of any acquisition may depend on the taking of one-time or recurring  accounting
charges  that  may be  material.  We  cannot  predict  whether  any  acquisition
undertaken by us will be successfully  completed or, if one or more acquisitions
are completed,  whether the acquired assets will generate  sufficient revenue to
offset the  associated  costs or other  adverse  effects.  We are  exploring the
possibility of a strategic  merger.  Any such merger could result in a change in
control of the Company. There can be no assurance that any merger or acquisition
could be successfully  completed.  In addition, the Company could incur expenses
in exploring a merger or acquisition transactions which are not completed.

                                       21
<PAGE>


COMPLIANCE  WITH  GOVERNMENT  REGULATIONS  MAY  CAUSE  US  TO  INCUR  UNFORESEEN
EXPENSES.

Our black text,  color and magnetic  character toner supplies and  manufacturing
operations  are  subject to domestic  and  international  laws and  regulations,
particularly  relating to environmental  matters that impose  limitations on the
discharge of pollutants into the air, water and soil and establish standards for
treatment,  storage and disposal of solid and hazardous wastes. In addition,  we
are subject to regulations  for storm water  discharge,  and as a requirement of
the State of Georgia have  developed  and  implemented  a Storm Water  Pollution
Prevention  Plan.  We are also  required to have a permit issued by the State of
Georgia in order to conduct  various  aspects of our business.  Compliance  with
these laws and regulations has not in the past had a material  adverse affect on
our capital  expenditures,  earnings or  competitive  position.  There can be no
assurance, however, that future changes in environmental laws or regulations, or
in the criteria required to obtain or maintain necessary permits,  will not have
a material adverse affect on our operations.

OUR QUARTERLY OPERATING RESULTS FLUCTUATE AS A RESULT OF MANY FACTORS.

Our quarterly operating results fluctuate due to various factors.  Some of these
factors  include the mix of products sold during the quarter,  the  availability
and costs of raw materials or components,  the costs and benefits of new product
introductions, and customer order and shipment timing. Because of these factors,
our quarterly  operating results are difficult to predict and are likely to vary
in the future.

DUE TO  INHERENT  LIMITATIONS,  THERE  CAN BE NO  ASSURANCE  THAT OUR  SYSTEM OF
DISCLOSURE AND INTERNAL CONTROLS AND PROCEDURES WILL BE SUCCESSFUL IN PREVENTING
ALL ERRORS OR FRAUD,  OR IN MAKING ALL  MATERIAL  INFORMATION  KNOWN IN A TIMELY
MANNER TO THE APPROPRIATE MANAGEMENT.

Though we have concluded with reasonable  assurance that our books,  records and
accounts  are kept in  reasonable  detail,  accurately  and fairly  reflect  the
transactions and dispositions of assets,  transactions are recorded as necessary
to permit  preparation  of financial  statements  in accordance  with  generally
accepted accounting  principles,  receipts and expenditures and access to assets
is permitted in accordance  with  authorizations  of management and directors of
the  Company,  we do not have  internal  auditors and we depend on a small staff
with which it is sometimes  difficult to segregate certain duties or to document
our practices in policies and procedures. Further,  notwithstanding management's
conclusions,  the  effectiveness of a system of disclosure and internal controls
and procedures is subject to certain  inherent  limitations,  including cost and
staffing limitations,  judgments used in decision making,  assumptions regarding
the likelihood of future events,  soundness of internal  controls and fraud. Due
to such  inherent  limitations,  there can be no  assurance  that any  system of
disclosure or internal  controls and procedures will be successful in preventing
all errors or fraud,  or in making all  material  information  known in a timely
manner to the appropriate management.

RISKS RELATING TO OUR INDUSTRY:

WE OPERATE IN A COMPETITIVE AND RAPIDLY CHANGING MARKETPLACE.

There is significant  competition in the toner and consumable  imaging  products
industry in which we operate. In addition, the market for digital color printers
and copiers and related  consumable  products is subject to rapid change and the
OEM technologies are becoming  increasingly  difficult barriers to market entry.
Many competitors,  both OEMs and other after market firms, have longer operating
histories,  larger customer bases,  greater brand  recognition and significantly
greater  financial,  marketing and other resources than we do. These competitors
may be able to devote  substantially more resources to developing their business
than we can. Our ability to compete depends upon a number of factors,  including
the  success and timing of product  introductions,  marketing  and  distribution
capabilities and the quality of our customer support.  Some of these factors are
beyond our control.  In addition,  competitive  pressure to develop new products
and technologies could cause our operating expenses to increase substantially.

THE IMAGING SUPPLIES INDUSTRY IS COMPETITIVE AND WE ARE RELATIVELY SMALL IN SIZE
AND HAVE FEWER RESOURCES IN COMPARISON WITH MANY OF OUR COMPETITORS.

Our industry  includes large original  equipment  manufacturers  of printing and
photocopying  equipment  and the  related  imaging  supplies,  as well as  other
manufacturers and resellers of aftermarket  imaging  supplies,  with substantial
resources to support customers  worldwide.  Our future performance  depends,  in
part, upon our ability to continue to compete successfully worldwide. All of the
original  equipment   manufacturers  and  many  of  our  other  competitors  are
diversified  companies  with  greater  financial  resources  and more  extensive
research, engineering, manufacturing, marketing and customer service and support
capabilities  than we can provide.  We face  competition  from  companies  whose
strategy is to provide a broad array of products, some of which compete with the
products that we offer.  These competitors may bundle their products in a manner
that may discourage customers from purchasing our products. In addition, we face
competition  from smaller emerging imaging supply companies whose strategy is to
provide  a  portion  of the  products  and  services  that  we  offer.  Loss  of
competitive position could impair our prices, customer orders,  revenues,  gross
margins,  and market share, any of which would  negatively  affect our operating
results and financial condition.  Our failure to compete successfully with these
other companies  would  seriously harm our business.  There is risk that larger,
better-financed  competitors will develop and market more advanced products than
those that we currently offer or may be able to offer, or that  competitors with
greater  financial  resources  may  decrease  prices  thereby  putting  us under
financial pressure.  The occurrence of any of these events could have a negative
impact on our revenues.



                                       22
<PAGE>


OUR  PRODUCTS  HAVE  SHORT  LIFE  CYCLES  AND  ARE  SUBJECT  TO  FREQUENT  PRICE
REDUCTIONS.

Rapidly evolving and increasingly difficult  technologies,  frequent new product
introductions  and significant  price  competition  characterize  the markets in
which we operate. Consequently, our products have short life cycles, and we must
frequently  reduce  prices in response  to product  competition.  Our  financial
condition and results of operations could be adversely affected if we are unable
to manufacture  new and  competitive  products in a timely  manner.  Our success
depends on our  ability  to develop  and  manufacture  technologically  advanced
products,  price them  competitively,  and achieve cost  reductions for existing
products.  Technological  advances  require  sustained  research and development
efforts,  which may be costly and could cause our operating expenses to increase
substantially.

OUR  FINANCIAL  PERFORMANCE  DEPENDS  ON  OUR  ABILITY  TO  SUCCESSFULLY  MANAGE
INVENTORY LEVELS, WHICH IS AFFECTED BY FACTORS BEYOND OUR CONTROL.

Our  financial  performance  depends in part on our ability to manage  inventory
levels to  support  the needs of new and  existing  customers.  Our  ability  to
maintain  appropriate  inventory  levels  often  depends on  factors  beyond our
control,  including unforeseen increases or decreases in demand for our products
and production and supply difficulties.  Demand for our products can be affected
by product  introductions  or price  changes by  competitors  or by us, the life
cycle of our products,  or delays in the  development  or  manufacturing  of our
products.  Our operating results and ability to increase the market share of our
products may be adversely  affected if we are unable to address inventory issues
on a timely basis.

RISKS RELATING TO OWNING OUR COMMON STOCK:

OUR OFFICERS AND DIRECTORS BENEFICIALLY OWN APPROXIMATELY 28% OF THE OUTSTANDING
SHARES OF COMMON STOCK, AND AN AFFILIATE OWNS 35% OF OUR COMMON STOCK,  ALLOWING
THESE STOCKHOLDERS TO CONTROL MATTERS REQUIRING APPROVAL OF THE STOCKHOLDERS.

As a  result  of such  ownership,  and  potential  increased  ownership,  by our
officers and directors,  other  investors will have limited control over matters
requiring  approval by the  stockholders,  including  the election of directors.
Such  concentrated  control may also make it difficult for the  stockholders  to
receive a premium  for their  shares of our  common  stock in the event we enter
into  transactions  that require  stockholder  approval.  In  addition,  certain
provisions of Delaware law could have the effect of making it more  difficult or
more  expensive for a third party to acquire,  or of  discouraging a third party
from attempting to acquire control of us.

EXERCISE OF WARRANTS AND OPTIONS  WILL DILUTE  EXISTING  STOCKHOLDERS  AND COULD
DECREASE THE MARKET PRICE OF OUR COMMON STOCK.

As of October  20,  2004,  we had issued and  outstanding  12,699,005  shares of
common  stock,  100,000  warrants and 1,420,000  options to purchase  additional
shares of common stock. The existence of the remaining  warrants and options may
adversely  affect the market price of our common stock and the terms under which
we obtain additional equity capital.

WE MAY FACE POTENTIAL REGULATORY ACTION OR LIABILITY IN CONNECTION WITH OUR 2001
PRIVATE PLACEMENT.

Our  issuance  of common  stock and  warrants in a private  placement  which was
completed in 2001 could subject us to potential adverse consequences,  including
securities law liability and the voiding of contracts entered into in connection
with the private placement. If our activities or the activities of other parties
in the 2001 private placement are deemed to be inconsistent with securities laws
under Section 29 of the Securities Exchange Act of 1934 or our activities or the
activities or the activities of other parties are deemed to be inconsistent with
the broker dealer registration provisions of Section 15(a) of the Exchange Act:

o    we may be able to void our  obligation to pay  transaction-related  fees in
     connection with the private placement and we may receive  reimbursement for
     fees already paid;
o    persons  with whom we have entered into  securities  transactions  that are
     subject to these  transaction-related fees may have the right to void these
     transactions; and
o    we may be subject to regulatory action.

Due to the inherent uncertainties involved with the interpretation of securities
laws,  we are unable to predict the  following:  the  validity of any  potential
liability  in  connection  with  our  private  placement,  the  outcome  of  any
regulatory action or potential liability or the outcome of voiding  transactions
in connection with the private  placement.  The defense of any regulatory action
or litigation and any adverse  outcome could be costly and could have a material
adverse  effect on our financial  position and results of  operations  and could
divert management attention.


                                       23
<PAGE>


OUR COMMON STOCK IS LISTED ON THE  OVER-THE-COUNTER  (OTC) BULLETIN BOARD, WHICH
MAY MAKE IT MORE DIFFICULT FOR  STOCKHOLDERS  TO SELL THEIR SHARES AND MAY CAUSE
THE MARKET PRICE OF OUR COMMON STOCK TO DECREASE.

Because our common stock is listed on the OTC Bulletin  Board,  the liquidity of
our common stock is  impaired,  not only in the number of shares that are bought
and sold,  but also through  delays in the timing of  transactions,  and limited
coverage by security  analysts  and the news media,  if any, of us. As a result,
prices for shares of our common stock may be lower than might otherwise  prevail
if our common stock was traded on NASDAQ or a national securities exchange, like
the American Stock Exchange.

OUR STOCK  PRICE MAY BE VOLATILE  AND AN  INVESTMENT  IN OUR COMMON  STOCK COULD
SUFFER A DECLINE IN VALUE.

The market price of our common stock may fluctuate  significantly in response to
a number of  factors,  some of which  are  beyond  our  control.  These  factors
include:

o    progress of our products through development and marketing;
o    announcements  of  technological  innovations  or new products by us or our
     competitors;
o    government   regulatory  action  affecting  our  products  or  competitors'
     products in both the United States and foreign countries;
o    developments or disputes  concerning patent or proprietary rights;
o    actual or anticipated  fluctuations in our operating results;
o    the loss of key  management  or  technical  personnel;
o    the loss of major  customers  or  suppliers;
o    the outcome of any future litigation;
o    changes in our financial estimates by securities  analysts;
o    fluctuations in currency  exchange  rates;
o    general market conditions for emerging growth and technology  companies;
o    broad  market  fluctuations;
o    recovery from natural disasters; and
o    economic conditions in the United States or abroad.

OUR CHARTER  DOCUMENTS  AND  DELAWARE  LAW MAY HAVE THE EFFECT OF MAKING IT MORE
EXPENSIVE OR MORE DIFFICULT FOR A THIRD PARTY TO ACQUIRE,  OR TO ACQUIRE CONTROL
OF, US.

Our certificate of incorporation makes it possible for our board of directors to
issue  preferred stock with voting or other rights that could impede the success
of any attempt to change  control of us. Our  certificate of  incorporation  and
bylaws  eliminate  cumulative  voting,  which may make it more  difficult  for a
minority  stockholder  to gain a seat on our board of directors and to influence
board of  directors'  decision  regarding a takeover.  Delaware Law  prohibits a
publicly  held   Delaware   corporation   from  engaging  in  certain   business
combinations with certain persons, who acquire our securities with the intent of
engaging in a business combination,  unless the proposed transaction is approved
in  a  prescribed  manner.   This  provision  has  the  effect  of  discouraging
transactions  not  approved by our board of directors as required by the statute
which may discourage  third parties from  attempting to acquire us or to acquire
control of us even if the attempt  would  result in a premium  over market price
for the shares of common stock held by our stockholders.

The  information  referred  to above  should be  considered  by  investors  when
reviewing any forward-looking statements contained in this report, in any of our
public filings or press releases or in any oral  statements made by us or any of
our officers or other persons acting on our behalf.  The important  factors that
could affect  forward-looking  statements are subject to change, and we disclaim
any obligation or duty to update or modify these forward-looking statements.

FORWARD-LOOKING STATEMENTS

Statements  contained in this report which are not statements of historical fact
are  forward-looking  statements  within  the  meaning  of  Section  27A  of the
Securities Act of 1933 and Section 21E of the  Securities  Exchange Act of 1934.
These forward-looking statements may be identified by the use of forward-looking
terms such as "believes," "expects," "may", "will," "should" or "anticipates" or
by  discussions of strategy that involve risks and  uncertainties.  From time to
time, we have made or may make forward-looking statements, orally or in writing.
These  forward-looking  statements include  statements  regarding our ability to
borrow funds from financial  institutions  or affiliates,  to engage in sales of
our securities,  our intention to repay certain  borrowings from future sales of
our  securities  or cash  flow,  the  ability to expand  capacity  by placing in
service additional  manufacturing equipment and making use of that capacity, our
expected  acquisition of business or technologies,  our plans for broadening our
sales channels and the outlets for our products,  our expectation that shipments
to  international  customers will continue to account for a material  portion of
net sales, anticipated future revenues, our introduction of new products and our
increasing  our sales  from all in one  cartridges,  digital  copier,  color and
magnetic  character  recognition  toner products,  sales,  our  expectations for
operations,  demand, technology,  products,  business ventures, major customers,
major suppliers, retention of key officers, management or



                                       24

employees,  competition,  capital  expenditures,  credit  arrangements and other
statements  regarding matters that are not historical facts, involve predictions
which are based upon a number of future  conditions that ultimately may prove to
be inaccurate.  Our actual  results,  performance or  achievements  could differ
materially from the results  expressed in, or implied by, these  forward-looking
statements.  Forward-looking statements are made based upon management's current
expectations  and beliefs  concerning  future  developments  and their potential
effects  upon our  business.  We  cannot  predict  whether  future  developments
affecting us will be those anticipated by management,  and there are a number of
factors that could adversely  affect our future  operating  results or cause our
actual results to differ materially from the estimates or expectations reflected
in such  forward-looking  statements.  These factors  include the "Risk Factors"
discussed above.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

Market risk is the risk of loss to future earnings,  to fair values or to future
cash flows that may result from changes in the price of a financial  instrument.
The  value of a  financial  instrument  may  change as a result  of  changes  in
interest rates, exchange rates, commodity prices, equity prices and other market
changes.   Market  risk  is  attributed  to  all  market   sensitive   financial
instruments, including long-term debt.

We do not hold any investments or assets outside of the United States.  However,
we are exposed to financial market risks,  including changes in foreign currency
exchange rates and interest rates.

We estimate that about 96% of our transactions are denominated in U.S.  dollars,
excepting  those  sales in Euros to a few  customers  in Europe,  including  our
second largest customer's European operations.  Accordingly,  beginning in 2001,
we are subject to foreign  currency  risk with  respect to future  costs or cash
flows from our sales in Euros.  We have  adjusted our prices  annually  with our
customer  to  reflect  the change in the  exchange  rate and do not expect to be
subject to material  foreign currency risk,  accordingly,  with respect to those
sales.  As a result,  to date,  we have not entered  into any  foreign  currency
forward exchange  contracts or other derivative  financial  instruments to hedge
the effects of adverse fluctuations in foreign currency exchange.  We recognized
a net foreign  currency  transaction  gain of $143,000 in the nine months  ended
September 30, 2004, and we recognized a net foreign currency transaction gain of
$149,000, $2,858 and a loss of $1,877 in the years ended December 31, 2003, 2002
and 2001,  respectively.  Our contract pricing for our products sold in Euros is
currently at the rates of 1.00 and 1.17 Euros relative to the U.S. dollar. A 10%
change in the value of the Euro relative to the United States dollar would cause
approximately  an $8,000 foreign currency  translation  adjustment in an average
month,  a type of other  comprehensive  income  (loss),  which would be a direct
adjustment to stockholders' equity.

Our revolving  line of credit bears interest based on interest rates tied to the
LIBOR rate,  which may fluctuate  over time based on economic  conditions.  As a
result, we are subject to market risk for changes in interest rates and could be
subjected to increased or decreased  interest payments if market rates fluctuate
and we are in a borrowing  mode.  At September  30, 2004,  there were no amounts
outstanding  under the line of credit  agreement and,  accordingly,  a sustained
increase in the reference rate of 1% would not cause our annual interest expense
to change.

Our investment policy requires  investments with high credit quality issuers and
or over night  repurchase  agreements  with our bank.  Investments  we make will
principally  consist of U.S.  government and government  agency  obligations and
investment-grade,   interest-bearing  corporate  debt  securities  with  varying
maturity  dates of five years or less, or the  overnight  purchase of securities
held in our bank's investment  portfolio.  Because of the credit criteria of our
investment  policies,  the primary market risk associated with these investments
is interest rate risk. We do not use derivative financial  instruments to manage
interest rate risk or to speculate on future changes in interest  rates.  We had
approximately  $784,000 in overnight  repurchase  arrangements with our bank and
$440,000  invested in  short-term  securities,  which are available for sale, at
September 30, 2004. We received  dividends of  approximately  $5,300 and $25,300
for the three and nine months ended  September 30, 2004,  while  recording a net
asset value decrease of approximately  $500 and $11,200 for the quarter and nine
months ended September 30, 2004, respectively.

Management believes that a reasonable change in raw material prices could have a
material impact on future  earnings or cash flows,  because we generally are not
able to offset increases to our costs with higher prices for our products.

ITEM 4. CONTROLS AND PROCEDURES

a) On October 22, 2004, our Chief Executive  Officer and Chief Financial Officer
participated in a meeting during which there was an evaluation of our disclosure
controls and procedures as of September 30, 2004. Based on such evaluation, they
believe such controls and procedures are effective.

The  Company's  management,  including  the Chief  Executive  Officer  and Chief
Financial Officer, does not expect that its Disclosure Controls will prevent all
error  and all  fraud.  A  control  system,  no matter  how well  conceived  and
operated,  can  provide  only  reasonable,  not  absolute,  assurance  that  the
objectives  of the  control  system  are met.  Further,  the design of a control
system  must  reflect  the fact that  there are  resource  constraints,  and the
benefits of controls must be considered relative to their costs.  Because of the
inherent  limitations  in all control  systems,  no  evaluation  of controls can
provide  absolute  assurance that all control issues and instances of fraud,  if
any, within the Company have been

                                       25
<PAGE>


detected.  These  inherent  limitations  include the realities that judgments in
decision-making  can be faulty,  and that  breakdown can occur because of simple
error or  mistake.  The design of any system of  controls  also is based in part
upon certain assumptions about the likelihood of future events, and there can be
no assurance  that any design will  succeed in achieving  its stated goals under
all potential future conditions.

Based upon the Company's  Disclosure  Controls  evaluation,  the Chief Executive
Officer  and  Chief  Financial  Officer  have  concluded  that,  subject  to the
limitations noted above, the Company's Disclosure Controls are effective to give
reasonable  assurance  that the  information  required  to be  disclosed  by the
Company in its periodic  reports is accumulated and  communicated to management,
including  the  Chief  Executive  Officer  and  Chief  Financial   Officer,   as
appropriate  to allow timely  decisions  regarding  disclosure  and is recorded,
processed,  summarized  and reported  within the time  periods  specified in the
Securities and Exchange Commission's rules and forms.

b) Our Chief  Executive  Officer and Chief  Financial  Officer  are  involved in
ongoing  evaluations of internal controls.  On October 22, 2004, in anticipation
of the filing of this Form 10-Q,  they  reviewed our internal  controls and have
determined,  based on such review,  that, there have been no significant changes
in our internal controls or in other factors that would significantly affect our
internal controls during the quarter ended September 30, 2004.


                                       26
<PAGE>


                                     PART II

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On  January  23,  2003,  the  Company's  registration  statement  on Form  SB-2,
registering up to 7 million shares of the Company's  common stock,  was declared
effective (Registration Statement No. 333-76090), and the offering was commenced
by the  Company's  officers  and  directors.  On March  13,  2003,  the  Company
completed the public sale of 4,500,000 shares of the Company's common stock at a
price of $1.35 per share,  whereby  the  Company  received  $6,075,000  in gross
proceeds from an affiliate,  and the Company  terminated the offering before the
sale of all 7 million of  registered  shares.  The net proceeds  received by the
Company, after expenses of $174,416, was $5,900,584.  None of the aforementioned
expenses  were  direct  or  indirect  payments  to  directors,  officers,  their
associates or persons owning ten (10) percent or more of the common stock of the
Company.

On April 18, 2003,  the Company  established  a stock  repurchase  program under
which the  Company may  purchase on the open market the lesser of the  aggregate
value of $1,000,000 or 1,000,000  shares in compliance with Rule 10b-18,  and we
have reallocated  proceeds for this program.  Though management is authorized to
repurchase the Company's common stock in the aggregate amount of $1,000,000, due
to the  limitations  imposed  by Rule  10b-18 and the  limited  number of shares
repurchased to date in accordance  therewith,  the use of proceeds per Form SB-2
as reflected  herein is based upon no more than $500,000 being expended for this
purpose.

Our intended uses, as reallocated,  of the $6,075,000 of proceeds  received from
the public sale of our common  stock,  and our uses through  September 30, 2004,
are listed below in descending order of priority:
<TABLE>
<CAPTION>
  <S>                                            <C>             <C>             <C>              <C>

  Purpose:                                         Amount            Used        Reallocated       Remaining
  ------------------------------------------     -----------     ------------    ------------     -----------
  Accounts payable and other corporate
   and offering expenses . . . . . . . . . .     $ 1,000,000     $  (115,042)    $  (884,958)     $         0
  To retire debt (1) . . . . . . . . . . . .     $   350,000     $  (324,301)    $   (25,699)     $         0
  To retire debt (2) . . . . . . . . . . . .     $ 1,050,000     $  (956,883)    $   (93,117)     $         0
  To retire debt (3) . . . . . . . . . . . .     $         0     $  (235,000)    $   235,000      $         0
  To reduce IDR Bond debt (4). . . . . . . .     $         0     $  (548,928)    $   846,264      $   297,336
  To acquire capital assets. . . . . . . . .     $ 1,500,000     $  (318,774)    $         0      $ 1,181,226
  To repurchase our stock (5). . . . . . . .     $         0     $   (54,886)    $   500,000      $   445,114
  For other general corporate purposes
   including working capital . . . . . . . .     $ 2,175,000     $  (986,072)    $  (577,490)     $   611,438
                                                 -----------     ------------                     -----------
                                         Total:  $ 6,075,000     $(3,539,886)                     $ 2,535,114

  Pending application:
  -------------------
  Short-term investments  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,035,114
  Pay down of revolving line of credit  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,500,000
  ----------------
</TABLE>

(1) On November  30, 2000,  we entered  into a loan for  $500,000  with a 5-year
term, secured by specific manufacturing  equipment,  maturing November 30, 2004,
with  General   Electric   Capital   Corporation   for  the  purchase  of  toner
manufacturing  equipment. The interest rate is 10.214% and the monthly principal
and interest payments were $10,676.39.

(2) On June 24, 1999, we entered into a loan for $1,752,000  with a 7-year term,
secured by our business assets, maturing June 24, 2006, with SouthTrust Bank for
the  refinancing of obligations  owing the bank for the acquisition of equipment
and that due under a previous working capital line of credit.  The interest rate
is 7.90%  per  annum  and the  monthly  principal  and  interest  payments  were
$27,205.00.

(3) On July 24, 1999, as amended, we entered into a borrowing  arrangement under
a revolving line of credit in the maximum  amount of $2.5 million.  During March
2003 we temporarily  used $1,735,000 of our proceeds from our public offering on
Form  SB-2 to pay down  the  line of  credit  to $0,  which at that  time had an
interest rate of 3.8375%. On June 16, 2003, we renewed and restructured the line
of credit with the bank,  reducing the maximum  availability to $1.5 million and
permanently retiring $235,000.

(4) On  June  1,  1999,  the  Development  Authority  of  Gwinnett  County  (the
Authority),  issued $4,100,000 of industrial development revenue bonds on behalf
of the Company and Kings Brothers, LLC. The 1.09% revenue bonds, 2.09% inclusive
of the 1% letter of credit  fee,  as of June 30,  2004,  are  payable in varying
annual  principal and monthly  interest  payments through July 2019. The bond is
secured,  as amended  on April 7,  2003,  by  specific  equipment  assets of the
Company and by real  property  owned by Kings  Brothers,  LLC. A loan  agreement
between the  Authority and the Company and Kings  Brothers,  LLC allows funds to
effectively  pass  through the  Authority  to the  Company.  The majority of the
proceeds, $3,125,872, were used by the Company to relocate, purchase and install
certain manufacturing equipment,  while $974,128 was used by Kings Brothers, LLC
to pay down the mortgage on the real property leased to the Company. The Company
and the Related Party are jointly obligated to repay any outstanding debt. As of
September  30, 2004,  the bond  principal  outstanding  was  $2,725,000  and the
portion due from Kings Brothers,  LLC was $647,428. The $846,264 of principal to


                                       27
<PAGE>


be repaid under the IDR bond, as reallocated hereinabove, is the Company's share
of the bond  principal  due and payable on the 1st of July 2003,  2004 and 2005,
respectively.

(5) From July 2003 through September 30, 2004, under the repurchase program the
Company has repurchased 81,800 shares of our common stock on the open market for
$54,886,  or at an average price of $0.67.  There remains $945,114 available for
future  common  stock  repurchases  under  the  authorization  of the  board  of
directors and $445,114 as allocated by management hereinabove.

During March 2003,  using  proceeds from the offering on Form SB-2,  the Company
retired debt owed to General Electric  Capital  Corporation and SouthTrust Bank,
and to the extent  proceeds were not required in the amounts  outlined for those
purposes, they have been reallocated to be used for general corporate purposes.

During March 2003, pending application of the proceeds from the offering on Form
SB-2,  the  Company  paid  down  its  line of  credit  with the bank by the then
outstanding principal balance of $1,735,000.  On June 16, 2003, with the renewal
of our line of credit with SouthTrust Bank, we permanently reduced our revolving
line of credit to $1,500,000; and, as a result, we retired $235,000 of that debt
with our bank.

The Company's  share of the principal  payment due under the IDR Bond on July 1,
2003,  in the amount of $266,840 has been paid,  and as of  September  30, 2004,
$282,088  was  paid on the IDR  bond  debt due July 1,  2004.  The  above  table
reflects the July 1, 2003 and 2004 payments on the IDR bond. The Company's share
of the principal payment due under the IDR bond on July 1, 2005, is $297,336.

Pending  application,  we have  retained  the  balance of the net  proceeds in a
deposit  account with the bank and an investment  account with a securities firm
related to the bank.

No direct or indirect  payments to  directors,  officers,  their  associates  or
persons owning ten (10) percent or more of the Company's  common stock were made
with proceeds from the Company's offering on Form SB-2

ISSUER MARKET PURCHASES OF EQUITY SECURITIES

On April 18, 2003,  the Company  established  a stock  repurchase  program under
which the  Company may  purchase on the open market the lesser of the  aggregate
value of  $1,000,000 or 1,000,000  shares in  compliance  with Rule 10b-18 until
September  30,  2005,  as extended by the board of  directors  during the annual
meeting held on May 18, 2004, and we have reallocated proceeds for this program.
From July 2003  through  December  31, 2003,  under the  repurchase  program the
Company  repurchased  44,500 shares of our common stock on the open market at an
average  price of $065.  From January 1 through  September  30, 2004,  under the
repurchase program the Company has repurchased 37,300 shares of our common stock
on the open  market at an average  price of $0.70.  Since the  inception  of the
repurchase program the Company has repurchased 81,800 shares of our common stock
for $54,866 and at an average price of $0.67.  There remains $945,134  available
for future common stock repurchases, as authorized by the board of directors.

<TABLE>
<CAPTION>
     <S>                  <C>                   <C>                   <C>                  <C>
     -----------------------------------------------------------------------------------------------------------
                               ISSUER (MARKET) PURCHASE OF EQUITY SECURITIES
     -----------------------------------------------------------------------------------------------------------
                                                                                            Maximum Number
                                                                      Total Number of       (or Approximate
                                                                      Shares Purchased      Dollar Value) of
                               Total Number        Average Price      as Part of Publicly   Shares that May Be
                                 of Shares           Paid per         Announced Plans       Purchased Under the
         Period                 Purchased            Share ($)        or Programs           Plans or Programs
     -------------------- --------------------  --------------------  --------------------  --------------------
     During 2003                   44,500              0.65                  44,500

     During 2004
     -------------------
     January                        7,000             0.72                   7,000
     February                       3,500             0.76                   3,500
     March                          7,000             0.77                   7,000
     April                          7,000             0.78                   7,000
     May                            7,000             0.70                   7,000
     June                               0               --                       0
     July                               0               --                       0
     August                         2,900             0.45                   2,900
     September                      2,900             0.47                   2,900
                          -------------------- --------------------  --------------------  --------------------
     Total 2004                    37,300             0.70                  37,300             1,000,000
                          -------------------- --------------------  --------------------  --------------------
     Total                         81,800             0.67                  81,800             1,000,000
</TABLE>


                                       28
<PAGE>


ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

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

None.

ITEM 5. OTHER INFORMATION

None

ITEM 6 -EXHIBITS

(a) EXHIBITS


 Exhibit
    No.       Description
 ---------    --------------
 2.1          Merger Agreement and Plan of  Reorganization  dated May 16, 2000,
              by  and  between  Advatex   Associates,   Inc.,  Logical  Imaging
              Solutions  Acquisition  Corp.,  Color Imaging  Acquisition Corp.,
              Logical  Imaging   Solutions,   Inc.,  and  Color  Image,   Inc.,
              incorporated by reference to the  Registrant's  Form 8-K filed on
              July 17, 2000.
 2.2          Amendment   No.   1  to  the   Merger   Agreement   and  Plan  of
              Reorganization dated June 15, 2000,  incorporated by reference to
              the Registrant's Form 8-K filed on July 17, 2000.
 2.3          Amendment   No.   2  to  the   Merger   Agreement   and  Plan  of
              Reorganization dated June 26, 2000,  incorporated by reference to
              the Registrant's Form 8-K filed on July 17, 2000.
 2.4(1)       Share Exchange  Agreement dated as of September 11, 2002 between
              Color Imaging,  Inc., Logical Imaging  Solutions,  Inc., Digital
              Color Print,  Inc., and the shareholders of Digital Color Print,
              Inc.,   incorporated   by   reference  to  Exhibit  2.1  to  the
              Registrant's Form 8-K filed September 26, 2002.
 2.5          Amendment No. 1 to Share Exchange Agreement dated as of September
              20, 2002 between Color Imaging,  Inc., Logical Imaging Solutions,
              Inc.,  Digital Color Print, Inc., and the shareholders of Digital
              Color Print,  Inc.,  incorporated  by reference to Exhibit 2.2 to
              the Registrant's Form 8-K filed September 26, 2002.
 3.1          Certificate  of  Incorporation,   incorporated  by  reference  to
              Exhibit 3.1 to the Registration statement on Form SB-2 filed July
              15, 2002.
 3.2          Bylaws, incorporated by reference to the Registrant's Form 10-QSB
              for  the  quarter  ended  March  31,  2002.  4.1  Stock  Purchase
              Agreement  between the Company and Wall Street  Consulting  Corp.
              dated October 30, 2001,  incorporated by reference to Exhibit 4.1
              to the Registration statement on Form SB-2 filed May 31, 2002.
 4.2          Promissory Note of Wall Street Consulting Corp. dated October 30,
              2001,   incorporated   by   reference   to  Exhibit  4.2  to  the
              Registration statement on Form SB-2 filed May 31, 2002.
 4.3          Form of Warrant issued to Selling  Stockholders,  incorporated by
              reference  to Exhibit 4.3 to the  Registration  statement on Form
              SB-2 filed November 28, 2001.


                                     29
<PAGE>


 Exhibit
    No.       Description
 ---------    --------------
 4.4          Development  Authority  of Gwinnett  County,  Georgia  Industrial
              Development  Trust Indenture dated June 1, 1999,  incorporated by
              reference to Exhibit 4.27 to the  Registration  statement on Form
              SB-2 filed May 31, 2002.
 4.5          Loan  Agreement  between the Company,  Kings Brothers LLC and the
              Development  Authority of Gwinnett County,  Georgia dated June 1,
              1999,   incorporated   by   reference  to  Exhibit  4.28  to  the
              Registration statement on Form SB-2 filed May 31, 2002.
 4.6          Joint  Debtor  Agreement  dated June 28,  2000 by and among Color
              Image, Inc., Kings Brothers, LLC, Dr. Sueling Wang, Jui-Chi Wang,
              Jui-Kung Wang, and Jui-Hung  Wang,  incorporated  by reference to
              Exhibit  4.28 to the  Registration  statement  on Form SB-2 filed
              February 11, 2002.
 4.7          First  Amendment to Joint Debtor  Agreement dated January 1, 2001
              by and among Color  Imaging,  Kings  Brothers,  LLC, Dr.  Sueling
              Wang,   Jui-Chi  Wang,   Jui-Kung   Wang,   and  Jui-Hung   Wang,
              incorporated  by reference  to Exhibit  4.29 to the  Registration
              statement on Form SB-2 filed February 11, 2002.
 4.8          $500,000  Promissory  Note between Color Imaging and Sueling Wang
              dated March 14, 2002,  incorporated  by reference to Exhibit 4.34
              to the Registration statement on Form SB-2 filed April 11, 2002.
 4.9          $500,000  Promissory Note between Color Imaging and Jui Hung Wang
              dated August 21, 2002,  incorporated by reference to Exhibit 4.50
              to the Registration statement on Form SB-2 filed October 2, 2002.
 4.10         $100,000  Promissory  Note between Color Imaging and Jui Chi Wang
              dated August 21, 2002,  incorporated by reference to Exhibit 4.51
              to the Registration statement on Form SB-2 filed October 2, 2002.
 4.11         First Note Modification  Agreement between Sueling Wang and Color
              Imaging  dated  August 27,  2002,  incorporated  by  reference to
              Exhibit  4.52 to the  Registration  statement  on Form SB-2 filed
              October 2, 2002.
 4.12         Amended and restated  $1,500,000  revolving  note  between  Color
              Imaging and SouthTrust Bank dated June 16, 2003,  incorporated by
              reference to Exhibit 4.12 to the  Registrant's  Form 10-Q for the
              quarter ended June 30, 2003.
 4.13         Amended and restated  loan and security  agreement  between Color
              Imaging and SouthTrust Bank dated June 16, 2003,  incorporated by
              reference to Exhibit 4.13 to the  Registrant's  Form 10-Q for the
              quarter ended June 30, 2003.
 4.14         Amendment to Loan Documents  between Color Imaging and SouthTrust
              Bank dated June 29,  2004,  incorporated  by reference to Exhibit
              4.14 to the Registrant's Form 10-Q for the quarter ended June 30,
              2004.
31.1+         Chief executive officer's  certification  pursuant to Section 302
              of the Sarbanes-Oxley Act of 2002
31.2+         Chief financial officer's  certification  pursuant to Section 302
              of the Sarbanes-Oxley Act of 2002
32.1+         Chief executive officer's  certification  pursuant to Section 906
              of  the   Sarbanes-Oxley  Act  of  2002.
32.2+         Chief financial officer's  certification  pursuant to Section 906
              of the  Sarbanes-Oxley  Act of 2002.
------------------------
+ Filed herewith.
* Management contract or compensatory arrangement or plan.
(1) Pursuant to Rule  601(b)(2),  the schedules  and exhibits to this  Agreement
shall not be filed.  A list of the  schedules  and  exhibits is contained on the
last page of the Agreement.  The Registrant  agrees to furnish  supplementally a
copy of any of the omitted schedules and exhibits to the Securities and Exchange
Commission upon request.




                                       30
<PAGE>


                                   SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant has duly
caused this report to be signed on its behalf by the undersigned  thereunto duly
authorized.

                                     COLOR IMAGING, INC.


                                     /S/ JUI-KUNG WANG
                                     --------------------------------------
   October 26, 2004                  Jui-Kung Wang
                                     Chief Executive Officer



                                     /S/ MORRIS E. VAN ASPEREN
                                     --------------------------------------
                                     Morris E. Van Asperen
                                     Executive Vice President and
                                     Chief Financial Officer


                                       31