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 June 30, 2005

                                       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 July 21, 2005, there were 12,697,805 shares outstanding of Common Stock.



<PAGE>


                               COLOR IMAGING, INC.
                          QUARTERLY REPORT ON FORM 10-Q
                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2005



                                      INDEX



PART I:   FINANCIAL INFORMATION

Item 1.   Financial Statements

          Condensed Balance Sheets at June 30, 2005
          (Unaudited) and December 31, 2004(Audited)...........................3
          Condensed Statements of Operations (Unaudited)
          for the Three and Six Months ended June 30, 2005 and 2004............4
          Condensed Statements of Cash Flows (Unaudited)
          for the Six Months ended June 30, 2005 and 2004......................5
          Notes to Interim Unaudited Condensed Financial
          Statements ..........................................................6

Item 2.   Management's Discussion and Analysis of Financial
          Condition and Results of Operations.................................11
Item 3.   Quantitative and Qualitative Disclosures about Market Risks.........29
Item 4.   Controls and Procedures.............................................30



PART II:  OTHER INFORMATION

Item 1.   Legal Proceedings ..................................................31
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds.........31
Item 3.   Defaults Upon Senior Securities.....................................33
Item 4.   Submission of Matters to a Vote of Security Holders.................33
Item 5.   Other information ..................................................33
Item 6.   Exhibits ...........................................................34
Signatures....................................................................36
Exhibits



                                        2


<PAGE>


                          PART I: FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

                               COLOR IMAGING, INC.
                            CONDENSED BALANCE SHEETS


<TABLE>
<CAPTION>
<S>                                                                        <C>                       <C>
                                                                              30-Jun-05                31-Dec-04
                                                                             (Unaudited)               (Audited)
                                                                           ---------------           ---------------
                                 - ASSETS -
CURRENT ASSETS:
        Cash                                                                $  2,233,108              $  2,044,989
        Accounts receivable - net of allowance for doubtful accounts
          of $94,201 and $93,201 for 2005 and 2004, respectively               2,887,146                 2,412,354
        Inventories                                                            5,783,598                 4,854,939
        Related party portion of IDR bond - current                                   --                    92,664
        Other current assets                                                     181,092                   106,618
                                                                           ---------------           ---------------
                            TOTAL CURRENT ASSETS                              11,084,944                 9,511,564
                                                                           ---------------           ---------------

PROPERTY, PLANT AND EQUIPMENT - NET                                            6,650,562                 6,601,832
                                                                           ---------------           ---------------
OTHER ASSETS:
       Related party portion of IDR bond                                              --                   554,764
       Deferred charges                                                           90,967                       --
       Other assets                                                               19,877                    27,864
                                                                           ---------------           ---------------
                                                                                 110,844                   582,628
                                                                           ---------------           ---------------
                                                                            $ 17,846,350              $ 16,696,024
                                                                           ===============           ===============
                     - LIABILITIES & STOCKHOLDERS' EQUITY -

CURRENT LIABILITIES:
       Revolving credit lines                                               $         --              $         --
       Accounts payable                                                        2,403,329                 1,625,282
       Current portion of notes payable                                            6,315                     6,071
       Current portion of notes payable - related parties                             --                    67,816
       Current portion of bonds payable                                               --                   390,000
       Other current liabilities                                                  82,152                     7,500
                                                                           ---------------           ---------------
                            TOTAL CURRENT LIABILITIES                          2,491,796                 2,096,669
                                                                           ---------------           ---------------
LONG TERM LIABILITIES:
       Notes payable                                                               2,218                     5,438
       Bonds payable                                                           2,075,000                 2,335,000
       Deferred tax liability                                                    955,250                   602,450
                                                                           ---------------           ---------------

                           TOTAL LONG TERM LIABILITIES                         3,032,468                 2,942,888
                                                                           ---------------           ---------------

TOTAL LIABILITIES                                                              5,524,264                 5,039,557
                                                                           ---------------           ---------------
COMMITMENTS & CONTINGENCIES

STOCKHOLDERS' EQUITY:
       Common stock, $.01 par value,  authorized  20,000,000 shares;
         12,697,805 and 12,690,305 shares issued and outstanding
         at 2005 and 2004                                                        126,978                   126,903
       Additional paid-in capital                                             12,685,447                12,681,472
       Accumulated deficit                                                      (490,339)               (1,151,908)
                                                                           ---------------           ---------------
                                                                              12,322,086                11,656,467
                                                                           ---------------           ---------------
                                                                            $ 17,846,350              $ 16,696,024
                                                                           ===============           ===============
</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          SIX MONTH PERIODS ENDED
                                 ------------------------------  ------------------------------
                                    30-JUN-05       30-JUN-04      30-JUN-05       30-JUN-04
                                 --------------  --------------  --------------  --------------
SALES                             $ 5,967,357     $ 5,669,139     $11,596,344     $11,270,356

COST OF SALES                       3,933,635       4,142,981       7,765,702       8,338,165
                                 --------------  --------------  --------------  --------------
GROSS PROFIT                        2,033,722       1,526,158       3,830,642       2,932,191
                                 --------------  --------------  --------------  --------------
OPERATING EXPENSES

    Administrative                    321,626         342,365         708,231         739,033
    Deferred charge write-off          30,364              --          80,364              --
    Research & development            290,962         290,927         584,859         601,103
    Sales & marketing                 668,286         606,018       1,429,534       1,204,102
                                 --------------  --------------  --------------  --------------
                                    1,311,238       1,239,310       2,802,988       2,544,238
                                 --------------  --------------  --------------  --------------
INCOME FROM OPERATIONS                722,484         286,848       1,027,654         387,953
                                 --------------  --------------  --------------  --------------

OTHER INCOME  (EXPENSE)
    Other income (expense)            ( 3,753)         65,850          38,095         159,430
    Financing expenses                (27,203)        (23,132)        (51,380)        (47,087)
                                 --------------  --------------  --------------  --------------
                                      (30,956)         42,718         (13,285)        112,343
                                 --------------  --------------  --------------  --------------

INCOME BEFORE TAXES                   691,528         329,566       1,014,369         500,296
PROVISION FOR INCOME TAXES            251,000         131,900         352,800         200,100
                                 --------------  --------------  --------------  --------------
NET INCOME                        $   440,528     $   197,666     $   661,569     $   300,196
                                 ==============  ==============  ==============  ==============

     INCOME PER COMMON SHARE
        Basic                     $       .03     $       .02     $       .05     $       .02
        Diluted                           .03             .02             .05             .02
                                 --------------  --------------  --------------  --------------
                                  $       .03     $       .02     $       .05     $       .02
                                 ==============  ==============  ==============  ==============

      WEIGHTED AVERAGE
      SHARES OUTSTANDING
        Basic                      12,692,305      12,701,338      12,691,305      12,710,236
        Assumed conversion            113,000              --         111,514              --
                                 --------------  --------------  --------------  --------------
                                   12,805,305      12,701,338      12,802,819      12,710,236
                                 ==============  ==============  ==============  ==============
</TABLE>

                             See accompanying notes



                                        4


<PAGE>


                              COLOR IMAGING, INC.
                       CONDENSED STATEMENTS OF CASH FLOWS
                     FOR THE SIX MONTH PERIODS ENDED JUNE 30
                                   (UNAUDITED)

<TABLE>
<CAPTION>
<S>                                                      <C>                  <C>
                                                              2005                2004
                                                         -------------        -------------
Cash flows from operating activities:
  Net income from continuing operations                   $   661,569          $   300,196
  Adjustments to reconcile net income to net cash
    provided by operating activities:
      Depreciation and amortization                           308,002              292,648
      Deferred income taxes                                   352,800              198,850
  Decrease (increase) in:
        Accounts receivable and other receivables            (474,792)          (1,191,476)
        Inventories                                          (928,659)            (549,380)
        Prepaid expenses and other assets                     580,941               81,543
  Increase (decrease) in:
        Accounts payable and accrued liabilities              852,699              605,811
                                                         -------------        -------------
        Net cash provided by (used in)
               operating activities                         1,352,560             (261,808)
                                                         -------------        -------------

Cash flows (used) in investing activities:
     Capital expenditures                                    (356,732)            (152,878)
                                                         -------------        -------------
        Net cash (used) in
             investing activities                            (356,732)            (152,878)
                                                         -------------        -------------
Cash flows from financing activities:
  Net proceeds from exercise of common stock options            4,050                   --
  Repurchase of common shares and warrants                         --              (23,395)
  Going private transaction expense                           (90,967)                  --
  Principal payments on related party borrowings              (67,816)            (195,754)
  Principal payments of long-term debt                       (652,976)              (2,751)
                                                         -------------        -------------
         Net cash (used in)
             financing activities                            (807,709)            (221,900)
                                                         -------------        -------------
Net increase (decrease) in cash                               188,119             (636,586)

Cash at beginning of year                                   2,044,989            2,213,830
                                                         -------------        -------------
Cash at end of period                                     $ 2,233,108          $ 1,577,244
                                                         =============        =============
</TABLE>

                             See accompanying notes

                                        5


<PAGE>


                               COLOR IMAGING, INC.
                 NOTES TO INTERIM CONDENSED FINANCIAL STATEMENTS
                                  June 30, 2005
                                   (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 six months ended June 30, 2005 are
not  necessarily  indicative  of the results  that may be expected  for the year
ending December 31, 2005.

NOTE 2. COMMON STOCK AND EQUIVALENTS

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.

During the six months  ended June 30, 2005 and 2004,  the Company  granted 0 and
465,000 options,  respectively, to directors, officers and employees. On June 6,
2005  options  granted to an employee on May 18, 2004,  at an exercise  price of
$0.54 per share to purchase  7,500  shares of the  Company's  common  stock were
exercised, while options granted June 28, 2000 to purchase 225,000 shares of the
Company's common stock at an exercise price of $2.00 per share lapsed, and 2,500
unvested  options granted May 18, 2004, at an exercise price of $.54 lapsed upon
the retirement of an employee. The fair value of options granted is estimated on
the date of the grant using the Black-Scholes option-pricing model. For purposes
of pro forma  disclosures,  the estimated fair value of the options is amortized
over the average vesting period of the options.

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:

                                                Six Months June 30,
                                              2005                 2004
                                         ------------          ------------
Net income, as reported                    $661,569              $300,196
Less: Pro forma stock based
   compensation expense - net of tax         50,791                47,777
                                         ------------          ------------
Pro forma net income                       $610,778              $252,419
                                         ============          ============
Basic Earnings per share:
    As reported                              $ 0.05                $ 0.02
    Pro forma                                $ 0.05                $ 0.02

Diluted Earnings per share:
    As reported                              $ 0.05                $ 0.02
    Pro forma                                $ 0.05                $ 0.02




                                        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
June 30, 2005:

<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        1,175,000           $1.52             3.63 years          958,750           $1.69
Warrants $2.00               100,000           $2.00             0.03 years          100,000           $2.00
                                         ----------------   -------------------   -----------    ----------------
Options and warrants       1,275,000           $1.56             3.35 years        1,058,750           $1.72
                                         ================                                        ================
</TABLE>

On July 10, 2005, the above listed warrants expired without being exercised.


NOTE 3. INVENTORIES

Inventories  consisted  of the  following  components  as of June  30,  2005 and
December 31, 2004:


                                    June 30, 2005       December 31, 2004
                                  -----------------     -----------------
Raw materials                       $  1,565,845          $    945,311
Work-in-process                        1,827,525             1,464,875
Finished goods                         2,484,086             2,526,370
Obsolescence allowance                   (93,858)              (81,617)
                                  -----------------     -----------------
     Total                          $  5,783,598          $  4,854,939
                                  =================     =================


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 June 30, 2005 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 June 30, 2005, the interest rate was the one-month Libor
rate of 3.34 plus 2.50%  (5.84%).  This revolving line of credit expired on June
30, 2005, and the Company's bank has proposed to renew the line of credit in the
increased  amount of $2 million to expire June 30, 2007,  at a reduced  interest
rate of Libor plus 1.85%.  Under the proposed renewal of 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 $1,000,000 and not to exceed 50% of
the total  outstanding).  The line of credit  includes a $500,000  sublimit  for
import letters of credit.

The Company has a $1.5 million standby letter of credit facility,  which expired
on June 30, 2005.  The bank has proposed to extend this  facility in the reduced
amount of $1 million to June 30, 2007.  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
automatically  renewed and now expires on June 30, 2006. On January 5, 2005, the
irrevocable  standby  letter of credit was amended and reduced by $500,000 to $1
million.  On June 29, 2005, the irrevocable standby letter of credit was amended
and reduced by $300,000 to $700,000.

The Company has  requested  that the Bank  provide the Company with a $1 million
guidance line,  $500,000 for each of the next two years,  for the refinancing of
either existing equipment,  including the principal amounts due in 2006 and 2007
on the industrial  development  bond (see also Note 9(B)), or the acquisition of
eligible  capital  equipment.  Under the  guidance  line  approved  by the Bank,
amounts  advanced would be payable interest only during the fiscal year in which
advanced at the one-month  Libor rate plus 1.85% and then be converted to a term
loan with level principal payments over five years.

The Company has  granted  the Bank a security  interest in all of the  Company's
assets  as  security  for the  repayment  of the  obligations  under the line of
credit,  supplier  standby letter of credit and industrial  revenue bond standby
letter of credit.  The Bank agreement also contains  various  covenants that the
Company is required to  maintain,  and as of June 30,  2005,  the Company was in
compliance with these covenants.


                                       7
<PAGE>


NOTE 5. SIGNIFICANT CUSTOMERS

In the six month period ended June 30, 2005,  one customer  accounted for 12% 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 June 30, 2005,  was  $162,719.  A new foreign  customer of the
Company  accounted  for 3% of net sales for the six months  ended June 30, 2005,
while accounts  receivable  from this foreign  customer was $332,667,  or 12% of
accounts  receivable,  at June 30,  2005.  The  Company  has  $250,000 of credit
insurance on the receivables due from this foreign customer.

NOTE 6. SIGNIFICANT SUPPLIERS

In the six months ended June 30, 2005, the Company  purchased 34% and 16% of its
raw  materials,  components  and supplies  from two foreign  suppliers  with the
former being an affiliate.  On February 6, 2004,  the  Company's  Bank issued on
behalf of the Company an  irrevocable  standby letter of credit in the amount of
$1.5 million for the benefit of its largest  non-affiliated foreign supplier. On
January 5, 2005,  the  irrevocable  standby  letter of credit  was  amended  and
reduced by $500,000 to $1 million.  On June 29, 2005,  the  irrevocable  standby
letter of credit was amended and  reduced by $300,000 to  $700,000.  At June 30,
2005,   accounts   payable  to  these  suppliers  were  $876,703  and  $325,669,
respectively (see also Note 9(C)).

NOTE 7. DEFERRED CHARGES:

The  Company,  in  connection  with  investigating  strategic  alternatives  has
incurred  certain  costs  which  have been  deferred  and which  will be charged
against  the costs of the  transaction  or  charged  to expense in the event the
transaction is not completed.

The Company defers  certain  expenditures  related to the activities  associated
with the acquisition of business assets, which the Company has determined have a
future economic benefit.  These  expenditures are then capitalized into the cost
of the assets upon  acquisition.  Management  reviews these assets  whenever the
circumstances  and situations  change such that there is an indication  that the
carrying  amount is not  recoverable.  When  management's  best  estimate of the
future economic  benefit of these assets is less than the carrying  amount,  the
carrying  amount is  reduced to the fair value and a  write-off  is  recognized.
Deferred charges written off are not restored.

During  the six  months  ended  June 30,  2005,  the  Company  incurred  charges
aggregating  $80,364 in  connection  with fees and costs  related to exploring a
possible merger  transaction.  The Company did not consummate this merger and as
of June 30, 2005,  wrote off such deferred  costs.  The deferred  charges in the
amount of $90,967  shown on the  Company's  balance  sheet as of June 30,  2005,
represent  costs  incurred in  connection  with the  Company's  proposed  "going
private"  transaction in the form of a reverse stock split. If that  transaction
is approved by the stockholders and consummated,  these costs will be treated as
a portion of the acquisition  cost of the shares cashed out in the reverse stock
split.

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 six-month
periods ended June 30 are as follows:


                                        2005                2004
                                    -----------         -----------
Sales to Unaffiliated Customers:
United States                       $ 5,245,688   45%   $ 5,985,626   53%
Europe/Eastern Europe                 4,531,172   39%     2,730,799   24%
Mexico                                  669,412    6%     1,663,119   15%
Asia/Southeast Asia                     575,353    5%       556,494    5%
South America                            68,252    1%        92,337    1%
Others                                  506,467    4%       241,981    2%
                                    -----------         -----------
Total                               $11,596,344  100%   $11,270,356  100%
                                    ===========         ===========



                                       8
<PAGE>


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 six months  ended June 30, 2005 and 2004 were  $279,174
and $272,364, 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 2.74% revenue bonds, 3.74% inclusive of the
1% letter of credit fee,  as of June 30,  2005,  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. The bonds,  along with the line of
credit and term loan, are held by two related financial institutions.

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 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.  On March 8, 2005, Kings Brothers,  LLC prepaid
the then  outstanding  principal  balance  attributable  to it in the  amount of
$647,460,  and per the  amendment to the Joint Debtor  Agreement as of that date
between the Company and Kings  Brothers the  prepayment was first applied to the
principal  due under the bond in the amount of $390,000  on July 1, 2005.  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. As of June 30, 2005, the
bond  principal  outstanding  was  $2,075,000  and the  portion  due from  Kings
Brothers, LLC was $0.

(C)  PURCHASES:

The Company  purchased from an affiliate for the three and six months ended June
30,  2005,   $1,346,841  and  $2,370,101  of  all-in-one  and  injection  molded
cartridges and accessories for copiers and laser printers.  Accounts  payable to
the affiliate at June 30, 2005, was $876,703.

(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.  The royalty expense under the Marketing and Licensing Agreement
for the three and six months  ended June 30,  2005,  was  $15,003  and  $17,060,
respectively,  for all-in-one  imaging,  drum and toner  cartridges  sold by the
Company.

(E)  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 June 30, 2004,  Company directors Jui-Hung Wang, Jui-Chi Wang and Jui-Kung
Wang each owned 8.0%, 8.4% and 1.8%, respectively, of General Plastic Industrial
Co., Ltd.


                                       9
<PAGE>


NOTE 10. SUBSEQUENT EVENT

On April 14, 2005,  Company's Board of Directors approved a reverse split of the
Company's  common  stock,  with cash  payments  for  fractional  shares  held by
stockholders  with less than one whole share,  to be followed  immediately  by a
forward  split at the same  ratio to  effect a going  private  transaction.  The
Company has had less than 300 stockholders of record since last year, and if the
transaction is approved by the Company's stockholders at its next annual meeting
and  implemented,  it would  enable the  Company to  voluntarily  terminate  the
registration  of its Common Stock under the Securities  Exchange Act of 1934 and
go  private.  The  going  private  transaction  is  subject  to  conditions  and
uncertainties,  including  stockholder  approval,  the Board's  determination to
proceed  with the reverse  stock  split,  the  conditions  of the consent of the
Company's  lender and the Company's  ability to fund the payment for  fractional
shares.



                                       10
<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

Color Imaging,  formerly known as Advatex Associates,  Inc., was incorporated in
Delaware in 1987. On May 16, 2000,  Advatex,  Logical  Acquisition  Corp., Color
Acquisition Corp., Logical Imaging Solutions, Inc. and Color Image, Inc. entered
into a Merger Agreement and Plan of Reorganization pursuant to which on June 28,
2000,  Logical  Acquisition Corp. merged with and into Logical Imaging Solutions
and Color Acquisition  Corp.  merged with and into Color Image.  Pursuant to the
Merger  Agreement,  stockholders  of Logical  Imaging  Solutions and Color Image
exchanged  their shares for shares of common stock of Advatex.  Logical  Imaging
Solutions  stockholders  converted  their  shares into shares of common stock of
Advatex at the ratio of 1.84843  shares of common  stock of Advatex for each one
share of Logical Imaging  Solutions.  Color Image  stockholders  converted their
shares  into  shares of  common  stock of  Advatex  at the ratio of 15 shares of
common  stock of  Advatex  for each one  share  of Color  Image.  Following  the
conversion of shares by Logical Imaging Solutions and Color Image  stockholders,
stockholders  of Logical Imaging  Solutions and Color Image owned  approximately
85% of the  outstanding  shares of common stock of Advatex and  stockholders  of
Advatex before the merger owned  approximately 15% and Logical Imaging Solutions
and Color Image became wholly-owned  subsidiaries of Advatex. The purpose of the
merger  was  to  combine  Color  Image's  toner  and  consumable  expertise  and
manufacturing  plant with Logical Imaging  Solutions'  advanced  printing system
capabilities  to offer a wider  product  range and  ensure  product  supply  for
Logical Imaging  Solutions'  Solution Series printing  systems.  Management also
anticipated  that the merger with a company  that was subject to the  Securities
Exchange Act of 1934 would also permit the reorganized  business to offer shares
to other acquisition candidates, in lieu of cash.

On July 7, 2000, pursuant to a vote of our stockholders,  we changed our name to
Color Imaging,  Inc. On December 31, 2000, Color Image, Inc. was merged with and
into Color  Imaging.  On September  11, 2002,  we entered into a share  exchange
agreement with Digital Color Print, Inc. and four of our directors to divest our
wholly owned subsidiary,  Logical Imaging Solutions, Inc. On September 30, 2002,
the share exchange  transaction was completed and Color Imaging  disposed of its
wholly-owned  subsidiary,  Logical  Imaging  Solutions,  Inc., in a common stock
share  exchange  with Digital Color Print,  Inc.,  which is owned by four former
directors 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.
Since its  founding  in 1993,  Logical  Imaging  Solutions,  Inc.'s  development
efforts have focused on creating a high-speed  digital  variable  data  printing
system for commercial printing applications that combines software, hardware and
consumable  products  not only for  black  text for image  printing  but also in
color. 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 digital and analog photocopiers, laser printers and facsimile machines.
Color Imaging's  toners permit the  photocopying and 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 and imaging drums.

Color  Imaging  has  continually  expanded  its product  line and  manufacturing
capabilities.  This  expansion  has led to the creation  and  marketing of 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),   Fuji-Xerox(TM),   Hewlett
Packard(TM),   Lexmark(TM),  Kyocera(TM),  Minolta(TM)  and  Okidata(TM).  Color
Imaging  also   manufactures   and/or  markets  toners  for  use  in  Canon(TM),
Gestetner(TM), Kyocera/Mita(TM), Konica(TM), Lanier(TM), Minolta(TM), Ricoh(TM),
Savin(TM),  Sharp(TM),  Toshiba(TM)  and Xerox(TM)  copiers.  Color Imaging also
offers product  enhancements,  including  imaging  supplies that enable standard
laser  printers to print  magnetic  character  recognition  data.  Color Imaging
markets branded products directly to original equipment  manufacturers  ("OEMs")
and its aftermarket  products worldwide to distributors and  re-manufacturers of
laser  printer  toner  cartridges  and to  distributors  and  dealers  of copier
products.

RECENT DEVELOPMENTS

On April 14, 2005, the Company's Board of Directors  approved a reverse split of
Color Imaging's common stock,  with cash payments for fractional  shares held by
stockholders  with less than one whole share,  to be followed  immediately  by a
forward  split at the same ratio to effect a going  private  transaction.  Color
Imaging has had less than 300 stockholders of record since last year, and if the
transaction  is  approved  by Color  Imaging's  stockholders  at its next annual
meeting  and  implemented,   Color  Imaging  would  voluntarily   terminate  the
registration  of its Common Stock under the Securities  Exchange Act of 1934, go
private and reasonably assure its remaining private for the foreseeable  future.
The Board intends to submit the matter to the stockholders with the request that
the  stockholders  give the Board the  authority to implement  the reverse split


                                       11
<PAGE>

using one of three potential ratios:  1-for-1500,  1-for-2500 or 1-for-5000. The
forward  stock split would be made at the inverse of the ratio  selected for the
reverse  split.  This  flexibility  would allow the Board to achieve the desired
benefits  for the  Company,  in light of any  intervening  changes in the mix of
record  holders,  without  having to incur the expense of calling an  additional
stockholder  meeting,  and to not go forward with the reverse stock split should
conditions  change  and the Board  then  determines  it is no longer in the best
interest  of the  Company  and its  stockholders  to do so. On May 2, 2005,  the
Special  Committee of the Board of Directors of the Company  obtained a fairness
opinion, confirming the approved $1.10 price per pre-split share as the price to
be paid for the fractional  shares cashed out in the going private  transaction.
The Company has received a  conditional  consent from its lender that will allow
the Company to complete  the reverse  stock  split  without  violating  its debt
covenants.  In December  2004,  the Company  ceased making  purchases  under its
previously  announced stock repurchase plan. The Board has determined to refrain
from any purchases under that plan until after the  stockholder  meeting and the
conclusion of the going private transaction.

The matters discussed in this Form 10-Q related to the going private transaction
will be  described  more fully in a proxy  statement  to be  distributed  to the
stockholders. Stockholders should refer to that proxy statement. This discussion
does not constitute a solicitation for any stockholder's vote. The going private
transaction is subject to conditions and  uncertainties,  including  stockholder
approval, the Board's determination to proceed with the reverse stock split, the
conditions of the consent of the Company's  lender and the Company's  ability to
fund the payment for fractional shares. In addition, the proxy statement for the
stockholder meeting is subject to SEC review, and there may be unforeseen delays
in implementing  the reverse stock split. The Company can give no assurance that
it will be able to complete the going private reverse stock split transaction.

BUSINESS COLOR PRODUCTS

Business  color  (meaning  copiers or printers with a separate  "black" color as
well as the three primary colors of red, blue and yellow) continues to grow with
more  and more OEM  machine  introductions,  especially  in the  higher  copy or
printing speeds where full finishing is needed. We have grown our business color
finished  product net sales from  approximately  9% and 18% of our sales in 2003
and 2004 to  approximately  45% and 37% for the three and six months  ended June
30, 2005,  and we expect our sales from color  finished  products to continue to
increase.  The effect of these sales already  reflect in our improving gross and
operating  profit margins,  and we expect these margins for year 2005 to surpass
those of 2004.

A large  portion of the business  color copier market has been captured by Ricoh
with their "B to C" machine  placements.  B to C means  black to color  enabled.
Ricoh is also  expanding  its color  printer  only  market with many new machine
introductions.  New introductions will be the Ricoh 3000 and 4000 printers which
will be added to their current 5000, 7000 and 7100 printer line. Ricoh's intent,
we believe, is to upgrade their entire machine population to these new versions.

We believe cost per color copy is the key to higher volumes of full color copies
in the workplace, and now:

o    we plan to continue to introduce color toner cartridges for selected,  new,
     high volume business color machines,
o    we have a full line of business  color  toners for the Ricoh family of copy
     machines, and
o    we are prepared to support the entire Ricoh color offering, including their
     new printers.

In the  quarter  ended  June  30,  2005,  we  introduced  color  toners  for the
Konica/Minolta family of business color copiers. Similar copier engines are used
in Konica,  Minolta,  Kyocera/Mita and Imagistics machines.  We have a cartridge
that  is   universal,   meaning  it  fits  across  this  entire   product  line.
Additionally, we introduced separate color cartridges for the new C-350 "bizhub"
machine  which has been received very well in the  marketplace.  Also,  Print On
Demand.COM  announced on July 11, 2005, that the Konica/Minolta  multifunctional
product  line  was  Buyers   Laboratories   choice  for  the  "Most  Outstanding
Multifunctional Product Line of the Year," with the BizHub C350 being picked for
color.  New  products  coming for this family are the Konica 8050 engine and the
new C-500  "bizhub." Here,  again,  we intend to provide a complete  offering of
color cartridges for these product lines.

During the third  quarter of 2005, we plan to introduce  color toner  cartridges
for the OKI printer line of  5100/7200/9300  printers.  OKI has been  successful
placing this desktop  printer and our new universal  cartridges will fit many of
these new  printers.  Also during the third  quarter we plan to introduce  color
products for the Sharp 160/270/330 business color machines.

We next intend to expand our  business  color toner  cartridge  product  line by
offering the Canon line of "Business  Color"  cartridges with the first products
to be introduced planned to be Canon C3100 and C3200 color products.

With the rapid introduction of new color  multifunctional  printers ("MFP's") by
the OEMs and the users' and dealers'  concern about cost per copy and keeping it
down,  we are  positioning  ourselves  to be the leading  provider of lower cost
aftermarket supplies for these successful business color OEM offerings.


                                       12
<PAGE>


ALL IN ONE IMAGING, TONER AND DRUM CARTRIDGES

We introduced  during 2003 the  all-in-one  imaging,  toner and drum  cartridges
manufactured by our foreign affiliate.  Through June 30, 2005, the Company's net
sales for 100% new all-in-one products were:

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

   Year         1st Quarter      2nd Quarter     3rd Quarter      4th Quarter          TOTAL
-----------     -----------      -----------     -----------      -----------       -----------
   2005          $ 621,817        $ 771,160           N/A             N/A           $ 1,392,977

   2004          $ 158,311        $ 657,771       $ 919,197        $ 772,064        $ 2,507,343

   2003          $      --        $     --        $  64,414        $  64,457        $   128,871
</TABLE>

As of June 30, 3005, the backlog of the Company for these products was $158,391.


MARKET OVERVIEW AND INDUSTRY

Color Imaging's  market for imaging products is the installed base of electronic
printing devices:  laser printers and facsimile  machines and analog and digital
copiers. Color Imaging competes within this market with products supplied by the
OEM  manufacturers  and with other  suppliers of aftermarket  imaging  products.
Additional  products in this category include  enhancement  products that extend
the capabilities of the OEM's product,  such as magnetic  character  recognition
toners that  enable the  printing  of  magnetic  characters  on checks and other
financial  documents.  We market our products worldwide and regionally primarily
to distributors of imaging products who sell to dealers and large end-users.  To
a lesser extent, we sell to OEMs, re-manufacturers and a few dealers directly.

We believe  the trends in the  electronic  printing  and  photocopying  industry
affecting original equipment manufacturers ("OEMs") of these devices, include:

(1)  The  introduction  of  products   utilizing   digital  and  color  printing
     technologies as opposed to analog and black text printing.

(2)  Offering  business  color  printing  solutions  at a cost per page  that is
     increasingly competitive.

(3)  Reduced  selling  prices of their devices while  increasing  their printing
     speed, functionality and networkability.

(4)  Increasing the technological barriers through the use of specialized toners
     (chemical toners  incorporating  polyesters and proprietary raw materials),
     patents and  microprocessors  (machine  readable  microchips  with internet
     connectivity for supplies management).

(5)  Endeavoring to control the market for consumable  supplies  through the use
     of  technological  barriers to market entry for  re-manufacturers  of these
     products or manufacturers of like, new, aftermarket products.

(6)  The utilization of prebate (license arrangements) and recycling programs to
     reduce the number of OEM  cartridges  available  for  remanufacture  in the
     aftermarket.

(7)  Digital  printers and photocopy  machines that print at speeds of up to 100
     pages per minute  will merge into one  device,  delivering  multifunctional
     capability  and color printing that are  net-workable  at both lower prices
     and operating costs to the end user.

(8)  Consumables  for  these  devices  will  become  increasingly  difficult  to
     remanufacture and, for full-color machines, take longer to bring to market,
     thereby  reducing the market share of  re-manufacturers  and increasing the
     opportunity  of  increased  market  share for newly  manufactured  finished
     product and for color toner aftermarket suppliers, such as Color Imaging.

(9)  Increased  machine  reliability,   reducing  the  need  for  dealer  sales,
     maintenance and support.

In our experience, new aftermarket consumable products are typically 25% cheaper
than OEM's  consumables  with like  functionality  - a savings to the  consumer.
Seeing  that the  aftermarket  has  increasingly  gained  acceptance  as product
quality has  steadily  improved,  we believe that Color  Imaging is  positioning
itself to take advantage of these trends, producing 100% new alternatives to the
OEM and not  subject  to the  availability  of the  used  core of the OEM  toner
cartridge.

Color Imaging's  solution is, through its own technological  capability and that
of strategic suppliers, to develop and introduce compatible, newly manufactured,
aftermarket  products,  ahead  of  other  aftermarket  competitors,  at a  price
significantly  below  that of the  OEM  and  make  these  products  increasingly
available through distribution channels closer to the end-user.

GROWTH 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)  Increase  vertical   integration  by  supplying   complete  toner  and
          cartridge devices.

                                       13
<PAGE>

     (2)  Capitalizing  on our research and  development  expertise of producing
          specialty,  color and  digital  copier and or  multifunctional  device
          toners.

     (3)  Exploit the  efficiencies  associated  with the investment made in our
          manufacturing facilities.

     (4)  Expanding our sources for products from  strategic  suppliers  that we
          can add value to, or resell, that complement our product lines.

     (5)  Expanding  into new  geographic  markets,  including  the  opening  of
          additional  offices,  when appropriate,  to support sales and increase
          distribution outlets.

     (6)  Through   the  use,   primarily,   of  an  expanded   direct   selling
          organization,  increase our  customer  base of both  distributors  and
          dealers.

Color  Imaging's  development  of new toner  products is focused on providing an
aftermarket  product for electronic  printing devices that achieves a high level
of market acceptance. Color Imaging endeavors to offer equivalent toner products
with equal or better quality at lower prices than the OEM's toner product.

Color Imaging is committed to increasing  the value added of its toner  products
to the end user by providing not only the toners but also the toner cartridge or
canister that is compatible  with the OEM's  equipment.  Color Imaging  believes
that by developing toner cartridge and canister devices for specific  electronic
printing or copying  machines,  and  integrating  those devices with  compatible
toners, the market for Color Imaging's toner products will expand. Color Imaging
believes that this approach will also result in increased gross margins.

Color  Imaging  will  continue  to  emphasize  its high margin  specialty  toner
capability,  primarily color toners, while providing lower margin MICR and black
text toners in  commodity  bulk to a few  customers.  The bulk  quantity of MICR
black text toners is currently  being  offered to maximize the  efficiencies  of
Color Imaging's  manufacturing plant. The availability of this complete research
and development and manufacturing facility allows for the continued expansion of
specialty, particularly color, toner products.

During  2005,  Color  Imaging  expects to  increase  its sales of higher  margin
digital,  color toners for certain popular  business color copiers and printers.
The  introduction  of a few color  products  in 2003 and 2004 to be  followed by
several during 2005 and the expansion of our sales  organization  is expected to
help Color Imaging  increase  revenues in 2005,  offsetting  the further loss of
revenues from our historically two largest customers of the last several years.

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 $10 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.  Some time ago members of our  management had  conversations  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.  We also made
casual  inquiries of other companies  regarding the desirability of merging with
us.  To  date,  though  one such  contact  led to a number  of  discussions  and
explorations,  a  confidentiality  agreement  and the exchange of financial  and
business information, no definitive understanding or agreement was reached. As a
result,  we  have  not  been  able to  grow  our  business  through  mergers  or
acquisitions  or  significantly  from  operations,  and  we  have  not  realized
increased value befitting a public company for our stockholders. In January 2005
our board of  directors  appointed a special  committee  to  consider  strategic
alternatives.  Based on the committee's recommendations,  the board of directors
of our  Company  approved a going  private  transaction  on April 14,  2005 (see
Recent  Developments  and our Form 8-K filed  with the SEC on April  19,  2005),
subject to  stockholder  approval.  However,  there can be no assurance that the
Company can complete the going  private  transaction  and achieve the savings or
benefits envisioned by management.

LAST FIVE YEARS

The purpose of the merger in 2000 (see  Background) was to combine Color Image's
toner and  consumable  expertise and  manufacturing  plant with Logical  Imaging
Solutions'  advanced printing system capabilities to offer a wider product range
and ensure product supply for Logical Imaging  Solutions' print system,  thereby
becoming an OEM with our own high speed color printer and toner supplies and the
expectation of significantly higher sales and profitability in the future. Being
a public company, we believed,  would afford us the opportunity to raise capital
in the  equity  markets  to finance  significant  planned  growth and to use our
public stock for acquisitions of others, while increasing stockholder value.

We expanded manufacturing capacity four-fold and improved production efficiency,
raised  capital  in a  private  placement  and  pursued a  acquisition  that was
unsuccessful,  necessitating  the  writing  off of  over  $200,000  of  deferred
expenses.  In 2002, upon  determining  that much of Logical  Imaging  Solutions'
technology was not fully developed, proven in beta-testing or commercialized for
sale or accepted in the  marketplace  and  required  an  undetermined  amount of
capital to complete  its  development,  while at the same time  Logical  Imaging
Solutions  continued to incur operational  losses, we divested ourselves of this
unprofitable  subsidiary in which we had invested $2.3 million without realizing
our  initial  goal and  purpose of  becoming a public  company,  namely  being a
successful OEM and substantially increasing stockholder value.

                                       14
<PAGE>

In addition,  we refocused  our strategy as a toner  manufacturer  away from low
margin  (commodity-like)  bulk laser toner and parts products to finished copier
and  printing  products,  to  increase  sales and  margins.  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 during 2004
these customers  account for only about $6.3 million of our net sales, down some
$14.7  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 have declined.  Challenged to replace the
sales lost from our largest  customers,  we introduced new products and expanded
our sales channels.

In 2003 we  completed  a public  offering  of 4.5  million  shares of our common
stock,  raising over $6 million from our foreign  affiliate and introduced  100%
new complicated toner cartridges,  generally  referred to as all-in-one  ("AIO")
imaging,  toner or drum cartridges with their becoming 11% of sales during 2004.
And,  also,  during  2003 we were  also  the  first  to  introduce  aftermarket,
full-color,  Segment  3 and  4,  networked  copier/printer/MFP  toner  products,
continued  research and  development  on other such products in 2004 and plan to
introduce  several  such new  products  in 2005  (refer to  Recent  Developments
herein).

To our  knowledge  we are the only source for these  full-color  toner  products
worldwide, other than the OEMs. As a result, we stemmed the pattern of declining
sales in 2004.  During the six months  ended June 30, 2005  compared to the same
period in 2004,  sales from our  historically  two  largest  customers  declined
approximately  $2,230,000,  or 56%,  while  net  sales  to our  other  customers
increased by approximately $3,100,000, or 46%.

Over the past five years,  we have  transformed our business by moving from bulk
to  finished  products  and from laser  printer to copier  products,  building a
larger and more effective sales and customer support organization,  while adding
copier  dealers  and   distributors   to  our  customer   list,   expanding  our
international  sales from  approximately 10% of sales to now over 50% of our net
sales.  In addition we have  developed  and  successfully  marketed our business
color toner products,  growing this product line from  approximately 2% of total
sales in 2002,  to 9%, 18% and 37% in 2003,  2004 and for the six  months  ended
June  30,  2005,   respectively.   We  believe   these   products  will  provide
approximately 40% of our total revenues during the full 2005 year.

PRODUCTS

Our primary  product focus is full-color,  100% new,  finished  toner  cartridge
products for  multifunctional  printers/devices  ("MFPs"),  copiers and printers
(see  Recent  Developments).   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, some 80% of the Company's sales are derived from
finished products.

While 100% new  all-in-one  ("AIO")  products are important  incremental  sales,
full-color  ("business color") finished toner products without  competition from
others  except  the  OEMs  for  the  "sweet-spot"  of  digital  multi-functional
copiers/printers,  will make the largest  contribution  to increasing  sales and
profitability.

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  compared
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 than the OEM's  better
branding,  having  substantially  greater  distribution  for their  products and
recycling  programs  taking  empty  cores  out  of  the  market,  other  factors
contributing   to  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, or 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,  and they are,  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


                                       15
<PAGE>

will not need  additional  financial  resources  to realize  our  goals,  except
perhaps the needs that may arise  should we be  successful  in  identifying  and
completing a merger or acquisition.

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 over 50% of our
total sales. We accomplished  this by acquiring  significant  corporate  account
relationships and implementing a worldwide manufacturer's representative program
and recruiting industry experienced and successful technical sales and marketing
executives. During 2005 we plan to substantially increase the sales of our color
copier  products  by  obtaining  additional  large  dealer  customers  for these
products in the United States and distributors in Europe.

STOCKHOLDER VALUE, LIQUIDITY AND MERGERS OR ACQUISITIONS

Many of our stockholders  invested in our private  placement that closed in 2001
at a price  per share of $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 have been selling these shares in
the market since 2003, including through the first quarter of 2005, contributing
to the  decline in our stock  price of from over $2.00 per share  during 2002 to
the low of $0.30 in March 2003.  Though the divestiture of the  subsidiary,  the
completion  of our public  offering  and our improved  operations  significantly
improved the financial condition of the Company,  our stock price languished and
on April 18, 2005,  prior to our announcing our intent to go private,  closed at
$0.55. 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.  During 2004 our
Board of Directors  approved the  extension of our stock  repurchase  program to
September 30, 2005, and from inception,  until repurchases were suspended by the
Company in  December  2004 when it was  believed  that  either a merger or going
private  transaction  was  likely,  the Company  has  repurchased  84,700 of the
Company's  common  shares at a cost of  approximately  $56,100 and at an average
price of $0.66.  The Company  will not  purchase  any  additional  shares on the
market until the going  private  transaction  approved by the board on April 14,
2005, is concluded or abandoned.

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

     o    An experienced and capable management team that would remain.

     o    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.

     o    Products  that  would  complement  ours and offer  unique  competitive
          advantages.

     o    Sales  channels  to  include  office  product  superstores,   contract
          stationers, corporate accounts, copy product distributors or dealers.

     o    Distribution not only in the United States but preferably in Europe as
          well.

     o    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 other 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. However, management has had preliminary discussions with a number
of potential  merger  candidates  over the last few years without  coming to any
conclusion on a transaction.

At this time there are no definitive proposals for a merger transaction,  though
we continue to seek out and engage in  discussions  with  prospective  merger or
acquisition candidates and previously formed a special committee of the board of
directors to investigate  strategic  alternatives,  including going private.  We
have  found that as a result of our being  public,  it is more  difficult  for a
private  company  to  be  merged  with  us,  due  to  the  requirements  of  the
Sarbanes-Oxley Act of 2002 and other securities laws and regulations.  There can
be no assurance that any merger or going private transaction will be completed.

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.

                                       16
<PAGE>

Net sales for the three months ended June 30, 2005,  increased by  approximately
$298,000,  or 5%, to $6.0  million  compared  to 2004.  Net sales for six months
ended June 30, 2005 increased by approximately $326,000, or 3%, to $11.6 million
compared to 2004. Net sales in 2005 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 historically  two largest  customers from
approximately   $3,989,000   for  the  six  months  ended  June  30,  2004,   to
approximately   $1,760,000   for  the  same  period  in  2005,   a  decrease  of
approximately  56%. Sales to these customers  consist primarily of analog copier
products,  and as a result are expected to decline  over time.  In the three and
six month periods ended June 30, 2005,  our net sales were  primarily  generated
from the sale of  finished  consumable  products  for  electronic  printers  and
photocopying  machines  and  comprised  approximately  81% and 79% of net sales,
respectively.  For the three and six month periods ended June 30, 2004,  our net
sales from the sale of finished products comprised  approximately 73% and 69% of
net sales, respectively.

Net sales made outside of the United  States for the three and six month periods
ended June 30, 2005, were approximately $3,354,000 and $6,350,000, respectively,
or 56% and 55% of total sales, and increased by approximately  $0.5 million,  or
17%, and $1.1 million,  or 20%, over the same periods in 2004.  This increase in
international  sales resulted  primarily from the increase in sales to customers
other than our historically 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 six months
ended June 30, 2005, as well as for Color Imaging's two general product lines.

                             Backlog                              Backlog
                             at start                             at end
                               of          New         Net          of
                             Period       Orders     Revenue      Period
                             --------    --------    --------    --------
                                         (IN THOUSANDS OF DOLLARS)
Three Months June 30, 2005:
  Copier Products            $  1,173    $  5,129    $  5,125    $  1,177
  Printer Products                385         890         842         433
                             --------    --------    --------    --------
     Total                   $  1,558    $  6,019    $  5,967    $  1,610
                             ========    ========    ========    ========

                                         (IN THOUSANDS OF DOLLARS)
Six Months June 30, 2005:
    Copier Products          $  1,404    $  9,566    $  9,792    $  1,178
    Printer Products              547       1,689       1,804         432
                             --------    --------    --------    --------
     Total                   $  1,951    $ 11,255    $ 11,596    $  1,610
                             ========    ========    ========    ========

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  consolidated
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

                                       17
<PAGE>

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.  For
the  years  ended  December  31,  2004,   2003  and  2002  our  write-offs  were
approximately  $19,638,  $41,339 and $8,733,  or averaged  less than $20,000 per
year. As of June 30, 2005, we had  $2,887,146  of accounts  receivable  net of a
$94,201 allowance.

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
markdowns 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. For the years ended December 31, 2004, 2003
and 2002 we made  inventory  obsolescence  reserves of  $280,000,  $275,000  and
$240,000,  totaling  $795,000,  or an average of $265,000 per year,  and we have
written-down or disposed of  approximately  $296,000,  $212,000 and $279,000 for
the same period for a total of $787,000 of inventory,  or an average of $262,000
per year. Our experience  over the last few years has indicated an  obsolescence
rate  of  approximately  $20,000  per  month.  As  of  June  30,  2005,  we  had
approximately $5,780,000 of inventory net of approximately a $93,900 provision.

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. Our manufacturing equipment is
suitable  for, and is used to make,  a large number of products,  and as such we
have  not  experienced  any  impairment  due  to  the   discontinuation  of  any
product(s).  During  the  years  2000  through  2002 we moved and  expanded  our
manufacturing facilities,  upgrading the technologies we employ, and during 2003
we continued to upgrade and take out of service  equipment  that has reached its
useful life or was no longer  competitive,  which usually was fully depreciated.
We have  approximately  $8.3  million  invested  in  such  equipment  and  plant
improvements,  with a carrying value of $6.1 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 of ninety (90) days to all purchasers of
our bulk toner  products and  generally  one year to those  purchasing  finished
products.  We incurred no material  warranty  expenses for 2004,  2003 and 2002.
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,
manufactured  by us and by others  and  distributed  by us  through  more  sales
channels,  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.


                                       18
<PAGE>


RESULTS OF OPERATIONS

Color  Imaging's net sales were $6.0 million and $11.6 million for the three and
six months ended June 30, 2005, an increase of  approximately 5% and 3% from the
three and six months  sales of $5.7  million  and $11.3  million  ended June 30,
2004. The net sales by product category were as follows:
<TABLE>
<CAPTION>
<S>                                <C>          <C>    <C>          <C>           <C>

                                                       % Increase
(Dollars in thousands)                 2005      %     (Decrease)      2004         %
                                   ----------   ----   ----------   ----------    ----
Three Months
Product Category:
 Cartridges and bottles
  Copier finished products          $  4,818      81%   $    652     $  4,166       73%
  Printer finished products              305       5%       (128)         433        8%
                                    ----------          ----------   ----------
                                       5,123      86%        524        4,599       81%

Bulk toner and parts                     844      14%       (226)       1,070       19%
                                    ----------          ----------   ----------
      Total net revenue             $  5,967     100%   $    298     $  5,669      100%
                                    ==========          ==========   ==========

Six Months
----------
Product Category:
 Cartridges and bottles
  Copier finished products          $  9,108      79%   $  1,342     $  7,766       69%
  Printer finished products              672       6%       (402)       1,093       10
                                   ----------          ----------   ---------
                                       9,780      84%        921        8,859       79

Bulk toner and parts                   1,816      16%       (595)       2,411       21
                                   ----------          ----------   ---------
      Total net revenue             $ 11,596     100%   $    326     $ 11,270      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          SIX MONTHS ENDED
                                           JUNE 30,                   JUNE 30,
                                     2005          2004         2005           2004
                                    -----         -----        -----          -----
                                                (PERCENTAGE OF NET SALES)

Net sales                            100           100           100           100
Cost of sales                         66            73            67            74
Gross profit                          34            27            33            26
Administrative expenses                5             6             6             7
Deferred charge write-off              1             0             1             0
Research and development               5             5             5             5
Sales and marketing                   11            11            12            11
Operating income                      12             5             9             3
Interest expense                       1             1             1             1
Depreciation and amortization          3             5             3             4
Income before taxes                   11             6             8             4
Provision for income taxes             4             3             3             2
Net income                             7             3             6             2
</TABLE>


THREE MONTHS ENDED JUNE 30, 2005 COMPARED TO THREE MONTHS ENDED JUNE 30, 2004

                                       19
<PAGE>

NET SALES.  Our net sales increased by $0.3 million,  or 5%, to $6.0 million for
the three  months  ended June 30,  2005,  from $5.7 million for the three months
ended June 30, 2004.  Net sales made in the United States were $2.6  million,  a
decrease of $0.2 million, or 7%, from $2.8 million made in the comparable period
in 2004. Net sales made outside of the United States  increased by $0.5 million,
or 17%, for the quarter  compared to the same  quarter of 2004.  The decrease in
net  sales for the  quarter  compared  to that of a year ago made  inside of the
United States was  primarily  the result of decreased  sales from laser and MICR
products to customers other than our two largest customers.  The increase in net
sales for the quarter  compared to that of a year ago made outside of the United
States was primarily the result of increased sales from color copier products to
customers  other  than our two  largest  customers.  Of the $6.0  million in net
sales,  $5.1  million,  or 86%,  were  attributable  to our copier  and  printer
finished products,  compared to 81% for the comparable period in 2004, while the
net sales of bulk toner and parts  declined  from 19% of net sales for the three
months ended June 30, 2004  compared to 14% for the  comparable  period in 2005.
Net sales to our two largest  customers  decreased as a percentage  of our total
sales  to 10% for the  three  months  ended  June  30,  2005,  from  35% for the
comparable period in 2004.

COST OF GOODS SOLD. Cost of goods sold decreased by $0.2 million, or 5%, to $3.9
million  from $4.1  million  for the three  months  ended June 30,  2005 for the
comparable period in 2004,  primarily as the result of the increase in net sales
of color copier  products  and  secondarily  from reduced  sales of lower margin
products  to our two  historically  largest  customers.  Cost of goods sold as a
percentage of net sales decreased by 7 percentage  points from 73% for the three
months  ended June 30,  2004 to 66% for the three  months  ended June 30,  2005,
primarily as the result more of our net sales being  derived from higher  margin
color  copier  products and reduced  sales of lower  margin  products to our two
historically largest customers.

GROSS PROFIT. As a result of the above factors, gross profit was $2.0 million in
the three  months  ended June 30,  2005,  compared to $1.5  million for the same
period in 2004,  an increase of $0.5  million,  or 33%,  while net sales for the
same period  increased by $0.3  million,  or 5%. Gross profit as a percentage of
net sales increased by 7 percentage  points from 27% to 34% for the three months
ended June 30, 2005, as compared to the corresponding  period of the prior year.
The increase in the percentage of gross profit  resulted  primarily from more of
our sales being  derived from higher  margin  color copier  products and reduced
sales of lower margin products to our historically two largest customers.

OPERATING  EXPENSES.  Operating expenses increased $72,000, or 6%, to $1,311,000
in the three  months  ended June 30, 2005 from  $1,239,000  in the three  months
ended June 30,  2004.  Operating  expenses,  exclusive  of the  deferred  charge
write-off,  decreased  as a  percentage  of net sales to 21% in the three months
ended June 30,  2005,  from 22% in the three  months  ended June 30, 2004 as the
result of the increase in net sales for the quarter.  General and administrative
expenses decreased approximately 6%, or $21,000 to $321,000 for the three months
ended June 30, 2005 from the comparable  period in 2004,  largely resulting from
decreased  payroll expenses and  professional  fees in connection with complying
with SEC reporting  requirements.  Deferred charge write-offs were approximately
$30,000, 1% of net sales, in connection with a merger transaction  considered no
longer active and  strategic  alternatives  investigated  by the Company for the
three  months  ended June 30,  2005,  compared to no like  expenses for the same
period in 2004.  Selling  expenses  increased  by $62,000,  or 10%, in the three
months  ended June 30, 2005  compared to the three  months  ended June 30, 2004.
Selling expenses  increased  primarily as a result of increased payroll expenses
in connection  with our expanded sales  organization  and the hiring of regional
sales  representatives  at the  beginning  of  2005.  Research  and  development
expenses were approximately $291,000 in the three months ended June 30, 2005 and
2004, and they were approximately 4.8% and 5.1% of net sales, respectively.

OPERATING  INCOME.  As a result of the above factors,  primarily the 5% increase
net sales and a greater  percentage  of our net sales being  derived  from color
copier products, operating income increased by $435,000, or 152%, to a profit of
$722,000  in the three  months  ended June 30,  2005 from  $287,000 in the three
months ended June 30, 2004.

INTEREST AND FINANCE EXPENSE.  Interest expense increased by $4,000 in the three
months  ended  June 30,  2005 from the three  months  ended June 30,  2004.  The
increase was primarily the result of higher interest rates.

OTHER INCOME.  Other income  decreased by  approximately  $70,000 from income of
$66,000 to expense of $4,000 in the three  months  ended June 30,  2005 from the
three  months  ended June 30,  2004,  primarily  as the result of Euro  currency
exchange losses in 2005 compared to gains for the same period in 2004.

INCOME TAXES. As the result of our increased profit from operations in the three
months ended June 30, 2005,  we recorded an income tax provision of $251,000 for
the period,  while the income tax provisions  were $131,900 for the three months
ended June 30, 2004.

SIX MONTHS ENDED JUNE 30, 2005 COMPARED TO SIX MONTHS ENDED JUNE 30, 2004

NET SALES. Our net sales increased by $0.3 million,  or 3%, to $11.6 million for
the six months ended June 30, 2005,  from $11.3 million for the six months ended
June 30, 2004. Net sales made in the United States were $5.2 million, a decrease
of $0.7  million,  or 12%,  from $5.9 million made in the  comparable  period in
2004. Net sales made outside of the United States increased by $1.1 million,  or
20%, to $6.4 million for the six months ended June 30, 2005 compared to the same
six months of 2004.  The increase in net sales for the six months ended June 30,
2005,  compared to that of a year ago resulted  primarily  the sale of our color
copier and all-in-one products. Of the $11.6 million in net sales, $9.8 million,
or 84%,  were  attributable  to our  finished  products  for use in copiers  and
printers,  while $1.8 million, or 16%, were derived from the sale of bulk toners
and parts.  Of the $11.3  million in net sales for the six months ended June 30,
2004, $8.9 million,  or 79%, were  attributable to our finished products for use
in copiers and printers,  while $2.4 million, or 21%, were derived from the sale
of bulk toners and parts.

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<PAGE>

COST OF GOODS SOLD. Cost of goods sold decreased by $0.6 million, or 7%, to $7.8
million  from $8.3  million  for the six  months  ended  June 30,  2005 from the
comparable  period  in 2004.  Cost of goods  sold as a  percentage  of net sales
decreased by 7 percentage points from 74% for the six months ended June 30, 2004
to 67% for the six months  ended June 30,  2005,  primarily as the result of the
sales derived from lower cost color copier  product and due to fewer sales being
derived from higher cost analog  products sold to our  historically  two largest
customers.

GROSS  PROFIT.  As a  result  of  the  above  factors,  gross  profit  increased
approximately $0.9 million to $3.8 million in the six months ended June 30, 2005
from $2.9 million for the same period in 2004.  Gross profit as a percentage  of
net sales  increased by 7  percentage  points from 26% to 33% for the six months
ended June 30, 2005, as compared to the corresponding  period of the prior year.
The increase in the percentage of gross profit resulted primarily from increased
sales  derived from higher margin color copier  products and decreased  sales of
lower margin analog products to our two, historically, largest customers.

OPERATING EXPENSES. Operating expenses increased $259,000 or 10% to $2.8 million
in the six months ended June 30, 2005,  inclusive  of  approximately  $80,000 of
deferred charge write-offs in connection with discontinued  merger and strategic
alternative  investigations,  from $2.5 million in the six months ended June 30,
2004.  As a  percentage  of net  sales,  operating  expense  was  24%  and  23%,
respectively,  for the six months ended June 30, 2005 and 2004.  The increase in
operating  expenses as a  percentage  of net sales was largely the result of the
increased selling and marketing expenses for the six months ended June 30, 2005,
in connection with the addition of regional sales personnel and secondarily from
the deferred charge write-off.  General and  administrative  expenses  decreased
approximately  4%, or $31,000 to $708,000 for the six months ended June 30, 2005
from the comparable period in 2004, largely resulting from decreased payroll and
professional expenses. Research and development expenses decreased approximately
$16,000,  or 3%, in the six months  ended June 30,  2005,  compared  to the same
period in 2004.  Research and  development  expense as a percentage of net sales
was  approximately  5% for the six months ended June 30, 2005 and 2004.  Selling
expenses  increased by  $225,000,  or 19%, in the six months ended June 30, 2004
compared  to the six months  ended June 30,  2004.  Selling  expenses  increased
primarily as the result of expenses in connection  with the hiring of additional
direct sales employees.

OPERATING INCOME.  As a result of the above factors,  primarily the 30% increase
in gross profit, operating income increased by $639,000, or 165%, to a profit of
$1,028,000 in the six months ended June 30, 2005 from $388,000 in the six months
ended June 30, 2004.

INTEREST AND FINANCE EXPENSE.  Interest expense  increased by $4,000,  or 9%, in
the six months ended June 30, 2005 from the six months ended June 30, 2004.  The
increase was primarily the result of higher interest rates.

OTHER  INCOME.  Other income  decreased  by $121,000  from income of $159,000 to
income of  $38,000 in the six  months  ended  June 30,  2005 from the six months
ended June 30, 2004, primarily as the result of Euro currency exchange losses in
2005 compared to gains for the same period in 2004.

INCOME TAXES. As the result of our increased  profit from operations for the six
months ended June 30, 2005,  our provision for taxes  increased from $200,100 in
the six months  ended June 30,  2004 to $352,800  for the period  ended June 30,
2005.

LIQUIDITY AND CAPITAL RESOURCES

At June 30, 2005, and December 31, 2004,  our working  capital and current ratio
was  approximately  $8.6  million and $7.4  million and 4.45 to 1 and 4.54 to 1,
respectively.  Our working  capital and current ratio have  benefited  primarily
from the net  proceeds  we  received  from the public  sale of our common  stock
during March 2003 and secondarily from our improving profitability.

Cash provided by operating  activities was  approximately  $1,353,000 in the six
months  ended June 30, 2005  compared to cash used of $262,000 in the six months
ended June 30, 2004. The cash provided by operating activities in the six months
ended June 30, 2005 increased primarily due to the increase in accounts payable,
net income from operations and $650,000 of receivables due from our affiliate in
connection  with our bond debt being  repaid,  but was  partially  offset by the
increases in inventory and accounts receivable.

Cash used in investing  activities was $357,000 in the six months ended June 30,
2005,  compared to cash used of $153,000 in the six months  ended June 30, 2004.
The increase in cash used in investing  activities  in the six months ended June
30, 2005,  was  primarily  attributable  to increased  capital  expenditures  in
connection with the acquisition and installation of new factory equipment.

The Company has a $1.5 million  revolving  line of credit,  as amended,  with an
outstanding balance as of June 30, 2005 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 June 30, 2005, the interest rate was the one-month Libor
rate of 3.34% plus 2.50%  (5.84%).  This revolving line of credit has a June 30,
2005  expiration  date.  The  Company's  bank has  proposed to renew the line of
credit in the  increased  amount of $2  million to June 30,  2007,  at a reduced
interest  rate of Libor plus  1.85%.  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 $1,000,000 and not to exceed 50% of the
total outstanding). The Company has a $500,000 sublimit under the revolving line
of credit for import letters of credit.  The Company has a $1.5 million  standby
letter of credit  facility,  expiring June 30, 2005, which the bank has proposed
to extend in the reduced  amount of $1 million to June 30, 2007.  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  automatically  renewed and now expires June 30, 2006, and guarantees
the payment of moneys owed the supplier for materials purchased from them by the
Company.  On January  5,  2005,  the  irrevocable  standby  letter of credit was
amended and reduced by $500,000 to $1 million. On June 29, 2005, the irrevocable
standby  letter of credit was amended and  reduced by $300,000 to  $700,000.  At
June  30,  2005,   the  Company's   accounts   payable  to  this  supplier  were

                                       21
<PAGE>

approximately  $326,000,  while open  purchase  commitments  were  approximately
$256,000.  The Company has requested that the Bank also provide the Company with
a $1 million guidance line expiring June 30, 2007, $500,000 for each of the next
two years,  for the  refinancing  of either  existing  equipment,  including the
principal  amounts due in 2006 and 2007 on the industrial  development  bond, or
the acquisition of eligible capital equipment.  Under the guidance line approved
by the Bank,  amounts  advanced would be interest only during the fiscal year in
which  advanced  at the  one-month  Libor rate plus 1.85% and then be termed out
with level principal payments over five years.

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 2.74% revenue bonds, 3.74% inclusive of the
1% letter of credit fee,  as of June 30,  2005,  are  payable in varying  annual
principal  and  monthly  interest  payments  through  July  2019.  The bonds are
secured,  as amended  on April 7,  2003,  by  specific  equipment  assets of the
Company  and by real  property  owned  by Kings  Brothers,  LLC,  and the  Kings
Brothers,  LLC's  obligations  to the Authority are  personally  guaranteed,  as
amended,  by our  Director  and  President,  Sueling  Wang.  The majority of the
proceeds,  $3,125,872,  were used by the Company to 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.  On March 8, 2005,
Kings Brothers,  LLC prepaid the then outstanding principal balance attributable
to it in the  amount of  $647,460,  and per the  amendment  to the Joint  Debtor
Agreement as of that date between the Company and Kings  Brothers the prepayment
was first  applied to the principal due under the bond in the amount of $390,000
on July 1,  2005.  As of June 30,  2005,  the  bond  principal  outstanding  was
$2,075,000 and the portion due from Kings Brothers, LLC was $0.

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,  the  obligations
under the  supplier  standby  letter of credit  and the  industrial  development
bonds.  The Bank agreement also contains  various  covenants that the Company is
required to  maintain,  and as of June 30, 2005,  the Company was in  compliance
with these  covenants.  If the Company  fails to meet these  covenants in future
periods,  the line of credit,  letter of credit facility and industrial  revenue
bonds may become unavailable to the Company,  and the Bank may have the right to
accelerate the payment of any  outstanding  amounts.  The bonds,  along with the
line  of  credit  and  letter  of  credit,  are  held by two  related  financial
institutions.  With current annual  interest and letter of credit payments extra
of approximately  $80,000 and principal  amounts due on July 1, 2006 and 2007 of
$405,000 and $595,000,  respectively,  the Company has asked that proceeds under
the guidance  line of credit  requested of the Bank by the Company be available,
should  the  Company  want to use it for this  purpose,  to make  the  principal
payments due in 2006 and 2007 on the bonds.

Cash used in financing activities was approximately  $808,000 for the six months
ended June 30, 2005  compared to cash used by financing  activities  of $222,000
for the same period in 2004. For the six months ended June 30, 2005, $650,000 of
bond debt was repaid, while no payment was made on the bond debt during the same
period in 2004.

On April 18, 2003, Color Imaging  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 June 30, 2005, Color Imaging has
repurchased 84,700 shares of our common stock for approximately  $56,100, or for
an average price of $0.663 per share.  During  December 2004, the Company halted
the  repurchase  of its  common  shares  in the  market  and does not  intend to
purchase  additional shares in the market until such time as the Company's going
private   transaction  is  completed  or  cancelled.   In  connection  with  the
investigating strategic  alternatives,  including our going private transaction,
we have incurred  approximately  $60,000  exploring  strategic  alternatives and
approximately $88,000 in connection with going private through June 30, 2005. We
expect  to  incur a total  of  approximately  $200,000  for  the  going  private
transaction expenses,  including legal,  accounting and investment banking fees,
and we expect to expend approximately  $300,000 to cash out the fractional share
holdings.  The Company believes it has sufficient  working capital to fund these
expenditures without incurring any additional debt.

Our liquidity is affected by many factors,  some based on the normal  operations
of our  business  and others  related to the  uncertainties  of the industry and
global  economies.  Although our cash  requirements  will fluctuate based on the
timing of these factors, we believe that current cash and cash equivalents, cash
flows from operations and amounts  available under our credit agreement will be,
in the aggregate,  sufficient to finance our operating,  investing and financing
activities for at least the next 12 months,  which will include  expenditures of
approximately  $675,000 for manufacturing  equipment,  $150,000 for research and
development equipment,  $100,000 potentially for computer and software upgrades,
the  estimated  $500,000  to  complete  our going  private  transaction  and any
advances made by our bank on our behalf under our off-balance  sheet arrangement
of $700,000 for a standby  letter of credit issued to a  non-affiliated  foreign
supplier.  Significantly,  while we believe  our working  capital and  improving
profitability will generate sufficient cash such that we will not have to borrow
to meet these  obligations,  or the $1 million of principal  payments coming due
over the next two years on our bond debt, we have asked our bank to approve a $1
million  guidance line for the next two years to be available for the purpose of
acquiring  capital  equipment or making the  principal  payments due on our bond
debt.

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 six months ended June 30, 2005, one customer accounted for approximately
12% of our net sales,  down from 29% for the twelve  months  ended  December 31,


                                       22
<PAGE>

2004.  We do not have a contract with this customer 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 this  customer,  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 June 30, 2005,  receivables  from one customer  comprised  11% 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.

APPROXIMATELY  15% 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 two of our  customers.
Approximately  15% of our  sales for the six  months  ended  June 30,  2005 were
derived from products limited to a specific foreign supplier. For the six months
ended June 30,  2005,  we purchased  16% 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,  amended and reduced to $700,000 on June 29, 2005,  that
renewed on June 30, 2005 and now expires on June 30,  2006.  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.


                                       23
<PAGE>

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 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 those 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 55% of net sales in the six months
ended June 30, 2005. We expect that  shipments to  international  customers will
continue  to account for a material  portion of net sales.  During the six month
period ended June 30, 2005, our sales were made to customers  outside the United
States as follows:

     o    Europe (including Eastern Europe) - 39%
     o    Mexico - 6%
     o    Asia/Southeast Asia - 5%
     o    Other - 5%

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 $154,583, $149,110 and
$2,858 during the twelve month periods ended  December 31, 2004,  2003 and 2002,
respectively,  as a result of  foreign  currency  transactions,  and for the six
months ended June 30, 2005, we reported losses of $11,797.

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.


                                       24
<PAGE>

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 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 either  party upon  giving the  required  notice may
terminate  them.  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


                                       25
<PAGE>

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 transaction that are not completed.

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,  OUR SYSTEM OF DISCLOSURE AND INTERNAL CONTROLS AND
PROCEDURES MAY NOT 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,  the  Company's  system of disclosure or internal
controls and procedures may not be successful in preventing all errors or fraud,
or  in  making  all  material  information  known  in a  timely  manner  to  the
appropriate  management.  In  addition,  we have not  completed  our  policy and
procedure documentation and testing of internal control over financial reporting
as required under Section 404 of the  Sarbanes-Oxley  Act. If we fail to achieve
and  maintain  the  adequacy of our internal  controls,  as such  standards  are
modified,  supplemented  or  amended  from  time to time,  we may not be able to
ensure that we can conclude on an ongoing basis that we have effective  internal
controls  over  financial  reporting in accordance  with Section 404.  Moreover,
effective  internal controls are necessary for us to produce reliable  financial
reports and are  important  to helping  prevent  financial  fraud.  If we cannot
provide reliable  financial reports or prevent fraud, our business and operating
results  could be  harmed,  investors  could  lose  confidence  in our  reported
financial   information,   and  the  trading  price  of  our  stock  could  drop
significantly.

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


                                       26
<PAGE>

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.

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

As of July 21, 2005, we had issued and outstanding  12,697,805  shares of common
stock and options to purchase an  additional  1,175,500  shares of common stock,
respectively.  The existence of the remaining  options may adversely  affect the
market price of our common stock and the terms under which we obtain  additional
equity capital.

THE COMPANY MAY GO PRIVATE,  WHICH MAY RESULT IN STOCKHOLDERS OWNING SHARES IN A
PRIVATE COMPANY WITHOUT THE ABILITY TO SELL THEIR SHARES IN THE PUBLIC MARKET.

The Board on April 14,  2005,  approved a "going  private"  transaction  for the
Company. One result of such a transaction would be to remove the Company's stock
from trading on the OTC Bulletin Board,  and the stock would not be eligible for
trading on any stock  exchange.  The Company has less than 300 holders of record
of its common stock, and is eligible to terminate its SEC reporting requirements
without  stockholder  approval or  additional  financing.  Should the Company go
private,  some stockholders may have shares in the Company for which there would
be no public  market  and their  ability to sell the  shares  would be  impeded.
Furthermore,  the Company would not file current, quarterly or annual reports or
be  subject  to  the  proxy   requirements  of  the  federal   securities  laws.
Stockholders  may therefore find it more difficult to obtain  information  about
the  Company  and its  financial  performance.  The  Company  expects  to  incur
substantial  expenses in connection  with the going private  transaction and may
not be able to realize  sufficient  cost savings to recover those  expenses.  In
addition, should the Company go private, this may adversely affect the Company's
access to capital and its ability to complete any proposed merger transaction.

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


                                       27
<PAGE>

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.

OUR COMMON STOCK IS LISTED ON THE OVER-THE-COUNTER  (OTC) BULLETIN BOARD, AND IF
WE GO PRIVATE MAY ONLY BE TRADEABLE  IN THE PINK SHEETS,  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,  and may, if we go
private, be traded only in the pink sheets, the liquidity of our common stock is
impaired,  not only in the  number of shares  in float and 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


                                       28
<PAGE>

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  effecting a going private  transaction  and realizing any
savings and improved  profitability as a result,  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,  whether or not we will remain public or go private, 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,  particularly  business  color and all in one  products,  and our
increasing  our sales from  business  color and 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
employees,  competition,  capital expenditures,  credit arrangements,  our going
private and the  competitive  advantage  or savings  that might result 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.

Beginning in 2001,  we became  subject to foreign  currency risk with respect to
future costs or cash flows from our sales in Euros.  We estimate  that about 96%
of our  transactions are denominated in U.S.  dollars,  excepting those 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 incurred a net foreign currency
transaction loss of approximately $11,800 in the six months ended June 30, 2005,
and we incurred a net foreign currency  transaction  gain of $154,583,  $149,110
and $2,858 in the years ended  December 31, 2004,  2003 and 2002,  respectively.
Our  pricing for our  products  sold in Euros is  currently  at the rate of 1.15
Euros  relative to the U.S.  dollar.  A 10% change in the value of the Euro from
1.25 Euros relative to the United States  dollar,  based upon the sales in Euros
for the first six months of 2005,  would cause  approximately  a $6,700  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 industrial development bond obligation bears interest at a variable interest
rate that would, in the opinion of the remarketing  agent,  result in the market
value of the bonds  being 100% of the  principal  amount  thereof on the date of
such determination.  As of June 30, 2005, the interest rate on our $2,075,000 of
bond principal outstanding was 2.74%. Our revolving line of credit interest rate
is tied to the 30-day LIBOR rate,  which may also  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 June 30,
2005,  we had  $2,075,000  of  bonds  outstanding  and  there  were  no  amounts
outstanding  under the line of credit  agreement and,  accordingly,  a sustained
increase in either  reference rate of 1% would cause our annual interest expense
to change approximately $21,000.

Color Imaging's  investment policy requires investments with high credit quality
issuers and or over night repurchase agreements with our bank.  Investments made
by Color Imaging 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 Color Imaging's investment policies,  the primary market risk
associated with these  investments is interest rate risk. Color Imaging does not
use  derivative  financial  instruments  to  manage  interest  rate  risk  or to
speculate on future changes in interest rates.  Color Imaging had  approximately
$1 million invested in short-term agency securities  available-for-sale  at June
30, 2005, and we received interest and dividends of approximately $2,400 for the
six months ended June 30, 2005.

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.


                                       29
<PAGE>

ITEM 4. CONTROLS AND PROCEDURES

a) We maintain  disclosure  controls and procedures  that are designed to ensure
that  information  required  to be  disclosed  on our  Exchange  Act  reports is
recorded,  processed,  summarized and reported within the time periods specified
in the  Commission's  rules and forms,  and that such information is accumulated
and  communicated to our management,  including our Chief Executive  Officer and
Chief Financial  Officer,  as appropriate,  to allow timely decisions  regarding
required disclosure.

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,  evaluation  of controls may not
detect all control  issues and instances of fraud,  if any,  within the Company.
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.  The design may
not succeed in achieving its stated goals under all potential future conditions.
The Company has,  however,  designed its  disclosure  controls and procedures to
provide,  and believes that such controls and procedures do provide,  reasonable
assurance  that  information  required to be disclosed by the Company in reports
that it files or submits under the Securities  Exchange Act of 1934 is recorded,
processed,  summarized  and reported  within the time  periods  specified in the
SEC's  rules  and  forms.  The  disclosure  in  this  paragraph  about  inherent
limitations of control  systems does not modify the conclusions set forth in the
next paragraph of the Company's Chief Executive  Officer and its Chief Financial
Officer  concerning the effectiveness of the Company's  disclosure  controls and
procedures.

As of the end of the period  covered by this report,  June 30, 2005,  we carried
out an evaluation,  under the  supervision and with the  participation  of Color
Imaging's management,  including our Chief Executive Officer and Chief Financial
Officer,  of the  effectiveness  of the design and operation of Color  Imaging's
disclosure  controls  and  procedures.  Based  upon this  evaluation,  the Chief
Executive  Officer and Chief  Financial  Officer  concluded  that our disclosure
controls and  procedures  were effective at the  reasonable  assurance  level to
ensure that information  required to be disclosed on our Exchange Act reports is
recorded,  processed,  summarized and reported within the time periods specified
in the  Commission's  rules and forms,  and that such information is accumulated
and  communicated to our management,  including our Chief Executive  Officer and
Chief Financial  Officer,  as appropriate,  to allow timely decisions  regarding
required disclosure.

b) Our Chief  Executive  Officer and Chief  Financial  Officer  are  involved in
ongoing  evaluations of internal  controls.  On July 7, 2005, 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 June 30, 2005.


                                       30
<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 Company's officers and
directors  commenced the offering.  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  and  considering  the  repurchase
program,  as approved  by the board,  expires  September  30,  2005,  the use of
proceeds per Form SB-2 as reflected  herein is based upon no further funds being
expended for this purpose,  since  management  does not intend to repurchase any
additional  shares  of the  Company's  common  stock  in the  market  until  the
Company's going private  transaction is either  completed or abandoned,  and the
funds have been, accordingly, reallocated.

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  June 30, 2005,  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)    $ 1,548,928      $ 1,000,000
To acquire capital assets. . . . . . . . .     $ 1,500,000     $  (318,774)    $         0      $ 1,181,226
To repurchase our stock (5). . . . . . . .     $         0     $   (56,133)    $    56,133      $         0
For other general corporate purposes
 including working capital . . . . . . . .     $ 2,175,000     $(  976,072)    $  (836,287)     $   362,641
                                               -----------     ------------                     -----------
                                       Total:  $ 6,075,000     $(3,531,133)                     $ 2,543,867
Pending application:
-------------------
Short-term investments  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,043,867
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 was  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 was  7.90%  per annum  and the  monthly  principal  and
     interest payments were $27,205.

(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 June 30, 2005,
     the bond  principal  outstanding  was  $2,075,000  and the portion due from
     Kings Brothers,  LLC was $0, having prepaid their portion of the obligation
     in March 2005. The $1,548,928 of principal to 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,  2005,  2006  and  2007,
     respectively, with nothing being payable by the Company in 2005 as a result
     of the prepayment  made during 2005 by Kings  Brothers.


                                       31
<PAGE>

(5)  From July 2003 through  March 31, 2005,  under the  repurchase  program the
     Company  has  repurchased  84,700  shares of our  common  stock on the open
     market  for  $56,133,  or at an average  price of $0.66.  All of the shares
     repurchased under the program have been cancelled and retired.  In December
     2004 the Company  ceased  repurchases  in the market,  when it became clear
     that either a merger or going private transaction was likely during 2005.

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 above table reflects the July 1, 2003 through 2007 payments on the IDR bond.
The Company's  share of the principal  payment due under the IDR Bond on July 1,
2003 and 2004 in the amount of $548,928 has been paid.  The  Company's  share of
the principal payment due under the IDR bond on July 1, 2005, is $0, as a result
of the  prepayment  made by Kings  Brothers in March 2005.  The amendment of the
Joint  Debtor  Agreement  between  the Company and Kings  Brothers,  LLC,  Kings
Brothers'  portion  of the  outstanding  principal  due  under  the IDR bond was
prepaid on March 8, 2005 and was applied to the entire principal installment due
July 1, 2005,  including that of the Company.  As a result, the Company does not
have a  principal  installment  to pay on July 1, 2005  under the IDR bond,  and
instead the Company's next  installments  in the amount of $405,000 and $595,000
will be due July 1, 2006 and 2007, respectively.

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 $0.65.  From January 1 through  December  31, 2004,  under the
repurchase program the Company has repurchased 40,200 shares of our common stock
on the open market at an average price of $0.68. From January 1 through June 30,
2005, the Company has not repurchased any of our common stock,  having suspended
the  repurchases  in  December  2004  when  either  a merger  or  going  private
transaction  appeared likely.  Since the inception of the repurchase program the
Company has repurchased  84,700 shares of our common stock for $56,133 and at an
average price of $0.66. While there remains $943,867 available for future common
stock repurchases, as authorized by the board of directors, these monies are not
likely to be expended since  repurchases have been suspended pending the outcome
of the Company's going private transaction.

<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     Publicly  Announced  Purchased Under the
      Period             Purchased       Share ($)     Plans or Programs    Plans or Programs
-------------------- ---------------- --------------- -------------------- -----------------------
During 2003 (1)               59,500       0.69                  59,500

During 2004                   40,200       0.68                  40,200
                     ---------------- --------------- -------------------- -----------------------
During 2005 (2)
  January                          0         --                       0
  February                         0         --                       0
  March                            0         --                       0
  April                            0         --                       0
  May                              0         --                       0
  June                             0         --                       0
                     ---------------- --------------- -------------------- -----------------------
Total 2005                         0         --                       0             1,000,000
                     ---------------- --------------- -------------------- -----------------------
Total                         99,700       0.66                  99,700             1,000,000

</TABLE>

                                       32
<PAGE>

(1)  Includes  15,000 shares  purchased by Jui-Chi Wang, who may be deemed to be
     an affiliated purchaser under Rule 10b-18. These shares are not included in
     the Company's stock repurchase program.

(2)  In December 2004 the Company suspended  repurchases in the market,  when it
     became  evident  that  either a merger  or going  private  transaction  was
     likely.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

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

None

ITEM 5. OTHER INFORMATION


     (a)   None.

     (b)   None.

     The  following  information  was not  required to be  disclosed on Form 8-K
during the quarter ended June 30, 2005, but rather is included in this Quarterly
Report on Form 10-Q  pursuant to  Exchange  Act Rule  14a-5(f).  The date of the
Company's  Annual Meeting of Shareholders  has been moved to September 19, 2005.
We anticipate  that proxy materials will be mailed on or around August 19, 2005.
As a result,  the  deadlines for  submitting  shareholder  proposals  within and
outside the processes of Rule 14a-8,  as calculated  under the rules of the SEC,
were changed to April 21, 2005 and July 5, 2005, respectively. However, to allow
a reasonable time for shareholders to submit  proposals,  the Company intends to
make  reasonable  efforts  to  include in the proxy  materials  any  appropriate
proposal not subject to exclusion under the applicable SEC rules, received on or
before August 1, 2005.


                                       33
<PAGE>


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.
  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.



                                       34

<PAGE>




Exhibit
   No.         Description
--------       -----------
   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.

(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.



                                       35
<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
                                   --------------------------------------
July 21, 2005                      Jui-Kung Wang
                                   Chief Executive Officer



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






                                       36