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, 2004

                                       or

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

                         Commission file number 0-18450

                       SECURITIES AND EXCHANGE COMMISSION

                               COLOR IMAGING, INC.

             (Exact name of registrant as specified in its charter)




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


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


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

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

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

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

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

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



<PAGE>

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


                                      INDEX



PART I:   FINANCIAL INFORMATION

Item 1.   Financial Statements

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

Item 2.   Management's Discussion and Analysis of Financial
          Condition and Results of Operations.................................10
Item 3.   Quantitative and Qualitative Disclosures about Market Risks.........23
Item 4.   Controls and Procedures.............................................23



PART II:  OTHER INFORMATION

Item 1.   Legal Proceedings ..................................................24
Item 2.   Changes in Securities and Use of Proceeds...........................24
Item 3.   Defaults Upon Senior Securities.....................................26
Item 4.   Submission of Matters to a Vote of Security Holders.................26
Item 5.   Other information ..................................................26
Item 6.   Exhibits and Reports on Form 8-K....................................26
Signatures....................................................................29
Exhibits

                                       2
<PAGE>

                         PART I: FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                               COLOR IMAGING, INC.
                            CONDENSED BALANCE SHEETS
   <S>                                                                     <C>                        <C>
                                                                               30-Jun-04                 31-Dec-03
                              - ASSETS -                                      (Unaudited)                (Audited)
                                                                            ---------------            ---------------
   CURRENT ASSETS:
          Cash                                                               $  1,577,244               $  2,213,830
          Accounts receivable - net of allowance for doubtful accounts
            of $79,250 and $67,839 for 2004 and 2003, respectively              3,132,880                  1,941,404
          Inventories                                                           6,173,708                  5,624,328
          Related party portion of IDR bond - current                              87,912                     87,912
          Other current assets                                                    289,304                    114,721
                                                                            ---------------            --------------
                            TOTAL CURRENT ASSETS                               11,261,048                  9,982,195
                                                                            ---------------            --------------
   PROPERTY, PLANT AND EQUIPMENT - NET                                          6,834,064                  6,973,834
                                                                            ---------------            --------------
   OTHER ASSETS:
          Related party portion of IDR bond                                       647,428                    647,428
          Other assets                                                             35,852                    291,978
                                                                            ---------------           ---------------
                                                                                  683,280                    939,406
                                                                            ---------------           ---------------
                                                                             $ 18,778,392               $ 17,895,435
                                                                            ===============           ===============
               - LIABILITIES & STOCKHOLDERS' EQUITY -

   CURRENT LIABILITIES:
          Revolving credit line                                              $         --               $         --
          Accounts payable                                                      3,250,780                  2,413,695
          Current portion of notes payable                                          5,837                      5,612
          Current portion of notes payable - related parties                      268,084                    343,736
          Current portion of bonds payable                                        370,000                    370,000
          Other current liabilities                                               162,305                    393,579
                                                                            ---------------           ---------------
                          TOTAL CURRENT LIABILITIES                             4,057,006                  3,526,622
                                                                            ---------------           ---------------
   LONG TERM LIABILITIES:
          Notes payable                                                             8,533                     11,509
          Notes payable - related parties                                              --                    120,102
          Bonds payable                                                         2,725,000                  2,725,000
          Deferred tax liability                                                  491,550                    292,700
                                                                            ---------------           ---------------
                          LONG TERM LIABILITIES                                 3,225,083                  3,149,311
                                                                            ---------------           ---------------
   TOTAL LIABILITIES                                                            7,282,089                  6,675,933
                                                                            ---------------           ---------------
   COMMITMENTS & CONTINGENCIES

   STOCKHOLDERS' EQUITY:
          Common stock, $.01 par value, authorized 20,000,000 shares;
            12,713,005 and 12,730,505 shares issued and outstanding
            on June 30, 2004 and December 31, 2003, respectively.                 127,130                    127,305
          Additional paid-in capital                                           12,695,438                 12,708,368
          Treasury stock, at cost, 14,000 shares                                  (10,290)                        --
          Accumulated deficit                                                  (1,315,975)                (1,616,171)
                                                                            ---------------           ---------------
                                                                               11,496,303                 11,219,502
                                                                            ---------------           ---------------
                                                                             $ 18,778,392               $ 17,895,435
                                                                            ===============           ===============



                                                        See accompanying notes.
</TABLE>
                                       3

<PAGE>


<TABLE>
<CAPTION>
                                           COLOR IMAGING, INC.
                                  CONDENSED STATEMENTS OF OPERATIONS
                                                (UNAUDITED)
<S>                              <C>            <C>          <C>           <C>

                                  THREE MONTH PERIODS ENDED     SIX MONTH PERIODS ENDED
                                  -------------------------   --------------------------
                                    30-JUN-04     30-JUN-03     30-JUN-04     30-JUN-03
                                  ------------  -----------   ------------  ------------
SALES                             $ 5,669,139   $ 5,058,589   $11,270,356   $10,687,994

COST OF SALES                       4,142,981     3,519,174     8,338,165     7,829,329
                                  ------------  ------------  ------------  ------------
GROSS PROFIT                        1,526,158     1,539,415     2,932,191     2,858,665
                                  ------------  ------------  ------------  ------------
OPERATING EXPENSES

    Administrative                    342,365       426,144       739,033       892,791
    Research & development            290,927       325,514       601,103       597,481
    Sales & marketing                 606,018       388,346     1,204,102       755,620
                                  ------------  ------------   ------------  -----------
                                    1,239,310     1,140,004     2,544,238     2,245,892
                                  ------------  ------------   ------------  -----------
INCOME FROM OPERATIONS                286,848       399,411       387,953       612,773
                                  ------------  ------------   ------------  -----------

OTHER INCOME  (EXPENSE)
    Other income                       65,850        60,379        159,430      108,525
    Financing expenses                (23,132)      (34,298)      ( 47,087)    (110,264)
                                  ------------  ------------   ------------  -----------
                                       42,718        26,081        112,343     (  1,739)
                                  ------------  ------------   ------------  -----------

INCOME BEFORE TAXES                   329,566       425,492        500,296      611,034
PROVISION FOR INCOME TAXES            131,900       171,000        200,100      245,000
                                  ------------  ------------   ------------  -----------
NET INCOME                        $   197,666   $   254,492    $   300,196   $  366,034
                                  ============  ============   ============  ===========

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

      WEIGHTED AVERAGE
      SHARES OUTSTANDING
        Basic                      12,701,338    12,887,408     12,710,236   11,134,003
        Assumed conversion                 --            --             --           --
                                  ------------  ------------   ------------  -----------
                                   12,701,338    12,887,408     12,710,235   11,134,003
                                  ============  ============   ============  ===========

                             See accompanying notes

</TABLE>


                                       4
<PAGE>


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

<S>                                                   <C>             <C>
                                                             2004          2003
                                                        -----------    -----------

Cash flows from operating activities:
  Net income from continuing operations                $   300,196    $    366,034
  Adjustments to reconcile net income to net cash
    provided by operating activities:
      Depreciation and amortization                        292,648         289,500
      Deferred income taxes                                198,850         248,534
  Decrease (increase) in:
        Accounts receivable and other receivables       (1,191,476)        421,144
        Inventories                                     (  549,380)     (1,245,550)
        Prepaid expenses and other assets                   81,543          74,583
  Increase (decrease) in:
        Accounts payable and accrued liabilities           605,811        (624,945)
                                                       -------------  -------------
        Net cash (used) in
               operating activities                       (261,808)       (470,700)
                                                       -------------  -------------

Cash flows (used) in investing activities:
     Capital expenditures                                 (152,878)       (146,819)
                                                       -------------  -------------
        Net cash (used) in
             investing activities                         (152,878)       (146,819)
                                                       -------------  -------------
Cash flows from financing activities:
  Net (payments) under line of credit                           --      (1,022,470)
  Net proceeds from sale of common stock                        --       5,917,086
  Repurchase of common shares and warrants                ( 23,395)       (176,207)
  Principal payments on related party borrowings          (195,754)       (344,989)
  Principal payments of long-term debt                    (  2,751)     (1,333,224)
                                                       -------------  -------------
         Net cash (used in) provided by
             financing activities                         (221,900)      3,040,196
                                                       -------------  -------------
         Net (decrease) increase in cash                  (636,586)      2,422,677

Cash at beginning of year                                2,213,830         128,501
                                                       -------------  -------------
Cash at end of period                                  $ 1,577,244     $ 2,551,178
                                                       =============  =============

</TABLE>

                             See accompanying notes



                                       5
<PAGE>

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

NOTE 1. BASIS OF PRESENTATION

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

NOTE 2. COMMON STOCK AND EQUIVALENTS

During the second  quarter ended June 30, 2004,  the Company  repurchased in the
open market 14,000  shares of the Company's  common stock at an average price of
$0.74 per share. For the six months ended June 30, 2004, the Company repurchased
in the open market  31,500  shares of the  Company's  common stock at an average
price of $0.74 per share. As of July 15, 2004, all of the shares  repurchased by
the Company  through June 30, 2004,  were cancelled and retired by the Company's
transfer agent.

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

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

The  following  table  illustrates  the  effect on net income and net income per
share as if the fair value based method had been applied to all  outstanding and
vested  awards in each  period:

                                                Six Months June 30,
                                              2004                 2003
                                         ------------          ------------
Net income, as reported                    $300,196               $366,034
Less: Pro forma stock based
   compensation expense - net of tax         47,777                 32,363
                                         ------------          ------------
Pro forma net income                       $252,419               $333,671
                                         ============          ============
Basic Earnings per share:
    As reported                              $ 0.02                $ 0.03
    Pro forma                                $ 0.02                $ 0.03

Diluted Earnings per share:
    As reported                              $ 0.02                $ 0.03
    Pro forma                                $ 0.02                $ 0.03

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

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





                                       6
<PAGE>


NOTE 2. COMMON STOCK AND EQUIVALENTS (CONTINUED)

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

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


                                            Options and Warrants Outstanding      Options and Warrants Exerciable
                                                              Weighted-Average
 Range of Exercise                         Weighted-Average        Remaining                      Weighted-Average
     Prices                   Number       Exercise Price     Contractual Life        Number       Exercise Price
 ---------------------      ---------     ----------------   -------------------   -----------    ----------------
 Options $0.45-$2.75        1,420,000           $1.58             4.05 years          977,500           $1.90
 Warrants $2.00               100,000           $2.00             1.03 years          100,000           $2.00
                                          ----------------   -------------------   -----------    ----------------
 Options and warrants       1,520,000           $1.61             3.85 years        1,077,500           $1.91
                                          ================                                        ================
</TABLE>

NOTE 3. INVENTORIES

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

                                           June 30, 2004     December 31, 2003
                                         -----------------   -----------------
    Raw materials                          $  1,357,499        $   631,960
    Work-in-process                           1,903,875          1,715,684
    Finished goods                            3,022,306          3,374,773
    Obsolescence allowance                   (  109,972)           (98,089)
                                         -----------------   -----------------
                 Total                     $  6,173,708        $ 5,624,328
                                         =================   =================

NOTE 4. CHANGES TO BORROWING ARRANGEMENTS

The Company has a $1.5 million  revolving  line of credit,  as amended,  with an
outstanding balance as of June 30, 2004 of $0, bearing interest at the one-month
Libor  interest  rate in effect two  business  days  before the first day of the
month plus 2.50%. As of June 30, 2004, the interest rate was the one-month Libor
rate of 1.36% plus 2.50%  (3.86%).  This revolving line of credit has a June 30,
2005 expiration date.

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

NOTE 5. EMPLOYMENT AGREEMENTS:

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

NOTE 6. SIGNIFICANT CUSTOMERS

In the three and six month periods ended June 30, 2004, two customers  accounted
for 28% and 8% and 29% and 7%, respectively,  of net sales. The Company does not
have a written or oral contract with these customers. All sales are made through
purchase orders. Accounts receivable from these customers at June 30, 2004, were
$1,013,604 and $155,813, respectively.


                                       7
<PAGE>


NOTE 7. SIGNIFICANT SUPPLIERS

In the three and six month periods ended June 30, 2004 the Company purchased 28%
and 30% of its raw  materials,  components  and  supplies  from one  supplier in
connection with sales to its largest  customers.  At June 30, 2004, the accounts
payable to this supplier was $1,011,918.

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:

                                                 2004            2003
                                             -----------     -----------
     Sales to Unaffiliated Customers:
     United States                           $ 5,985,626     $ 6,347,513
     Europe/Eastern Europe                     2,730,799       2,348,586
     Mexico                                    1,663,119       1,252,150
     Asia/Southeast Asia                         556,494         360,481
     South America                                92,337          53,512
     Others                                      241,981         325,752
                                             -----------     -----------
     Total                                   $11,270,356     $10,687,994
                                             ===========     ===========

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, 2004 and 2003 were  $272,364
and $265,722 respectively.

(B) INDUSTRIAL DEVELOPMENT REVENUE BOND

On June 1, 1999, the Development  Authority of Gwinnett County (the  Authority),
issued  $4,100,000  of  industrial  development  revenue  bonds on behalf of the
Company and Kings Brothers, LLC. The 1.09% 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. Two related financial  institutions
hold the bonds, along with the line of credit and term loan.

A loan agreement  between the Authority and the Company and Kings Brothers,  LLC
allows  funds to  effectively  pass through the  Authority  to the Company.  The
majority of the  proceeds,  $3,125,872,  were used by the  Company to  relocate,
purchase and install certain manufacturing equipment, while $974,128 was used by
Kings Brothers,  LLC to pay down the mortgage on the real property leased to the
Company.  The Company and the Related  Party are jointly  obligated to repay any
outstanding debt. Under the Joint Debtor Agreement of June 28, 2000, between the
Company and the Kings  Brothers,  LLC, each has agreed to be  responsible to the
other for their share of the bond  obligations and that any party causing an act
of default shall be responsible for 100% of the bond obligations. The amount for
which Kings Brothers,  LLC is responsible to the Company is reflected in current
and  other  assets of the  Company.  Kings  Brothers,  LLC  amounts  owed to the
Authority are secured by a lien on the real  property  leased by the Company and
by a personal guarantee,  as amended,  executed by Director and President of the
Company,  Sueling  Wang.  At this  time,  the  Company  believes  that the Kings
Brothers, LLC portion of the bond is fully collectible. As of June 30, 2004, the
bond  principal  outstanding  was  $3,095,000  and the  portion  due from  Kings
Brothers, LLC was $735,340.

(C) PURCHASES:

The Company  purchased from an affiliate for the three and six months ended June
30, 2004, $863,726 and $1,593,791 of injection molded cartridges and accessories
for copiers and laser  printers.  Accounts  payable to the affiliate at June 30,
2004, was $791,713.




                                       8
<PAGE>


NOTE 9. RELATED PARTY TRANSACTIONS (C0NTINUED):

(D) MARKETING AND LICENSE AGREEMENT:

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

(E) NOTES PAYABLE:

On March 14, 2002, the Company borrowed $500,000 from director, Sueling Wang, on
an unsecured basis. The interest rate on the loan was 12% per annum,  matured on
March 14, 2003 and is evidenced in writing.  On September 2, 2002,  the note was
modified to extend the term to March 1, 2005,  provide for a $100,000  principal
payment,  decrease the interest rate to 6% per annum,  provide for interest only
payments  through  February 28, 2003, and 24 monthly  payments of principal with
interest extra beginning on April 1, 2003, in the amount of $7,500.  The Company
borrowed the $500,000 to meet a supplier  commitment for product.  Principal and
interest paid Sueling Wang on the note from January 1 through June 30, 2004, was
$45,000 and $2,320, respectively.  As of June 30, 2004 the principal outstanding
was $60,000.

On August 21, 2002, the Company borrowed  $100,000 from director,  Jui-Chi Wang,
on an  unsecured  basis.  The loan bears  interest  at the rate of 6% per annum,
matures on March 1, 2005 and is evidenced in writing.  The Company borrowed this
amount in order to repay $100,000  borrowed from director  Sueling Wang on March
14, 2002. The note is interest only through February 28, 2003, and then is fully
amortizing over 24 months with principal and interest  payments  payable monthly
beginning  April 1, 2003 in the amount of $4,434.  Principal  and interest  paid
Jui-Chi  Wang on the note from  January 1 through  June 30, 2004 was $25,126 and
$1,478, respectively. As of June 30, 2004 the principal outstanding was $34,681.

On August 21 and September 2, 2002, the Company borrowed  $200,000 and $300,000,
respectively,  from  director,  Jui-Hung Wang, on an unsecured  basis.  The loan
bears  interest  at the rate of 6% per  annum,  matures  on March 1, 2005 and is
evidenced  in  writing.  The  Company  borrowed  this  amount in order to make a
principal  payment due on its  industrial  development  bond in the  approximate
amount of $255,000,  for the acquisition of capital equipment in the approximate
amount of $125,000 and for general corporate purposes. The note is interest only
through  February 28,  2003,  and then is fully  amortizing  over 24 months with
principal and interest  payments payable monthly  beginning April 1, 2003 in the
amount of $22,170.  Principal  and interest  paid Jui-Hung Wang on the note from
January 1 through  June 30, 2004 was $125,628  and $7,389,  respectively.  As of
June 30, 2004 the principal outstanding was $173,403.

(F) COMMON STOCK

On March 6, 2003, the Company  received from Chi Fu Investment Co Ltd $6,075,000
of  subscription  proceeds for the public sale of 4,500,000 of its common shares
at a price of $1.35  per  share in its  offering  on Form  SB-2  filed  with the
Securities and Exchange  Commission.  Chi Fu Investment Co Ltd is a wholly owned
subsidiary of the Company's affiliate,  General Plastic Industrial Co., Ltd, and
as of June 30, 2004,  Company directors  Jui-Hung Wang,  Jui-Chi Wang,  Jui-Kung
Wang and Sueling Wang each owned 9.69%, 10.17%,  1.77% and 0%, respectively,  of
General Plastic Industrial Co., Ltd.




                                       9
<PAGE>


ITEM 2.

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

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

BACKGROUND

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

COLOR IMAGING, INC.

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

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

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

RECENT DEVELOPMENTS

The Company's product strategy is focused on the development and introduction of
100% new products, including,  particularly,  all-in-one imaging, toner and drum
cartridges  and color toner  cartridges  used in copiers and  printers.  In 1999
approximately  10% of the Company's  sales were derived from finished  products,
while, at this time, nearly 80% of the Company's sales are derived from finished
products.

Under  the  Marketing  and  Licensing  Agreement  between  the  Company  and its
affiliate,  entered into in 2003 and amended effective April 1, 2004, to include
a profit  sharing and royalty  arrangement,  the Company  began selling 100% new
all-in-one imaging, toner and drum cartridges  manufactured by its affiliate for
use in  printers or  personal  copiers  manufactured  by  Xerox(TM),  Canon(TM),
Hewlett Packard(TM), Brother(TM) and Sharp(TM). The Company expects the sales of
these  products  and  other  all-in-one  products  in  development  to  increase
substantially  by the end of calendar year 2004, if the Company is successful in
expanding  the  sale  of  these   products  to  large   regional,   national  or
international retailers.




                                       10
<PAGE>


Through June 30, 2004,  the  Company's net sales for these  all-in-one  products
were:

     Quarter      3rd Qtr 2003    4th Qtr 2003    1st Qtr 2004    2nd Qtr 2004
                  ------------    ------------    ------------    ------------
     Net Sales      $64,414         $64,457          $158,311        $657,771

As of June 30, 2004, the backlog of the Company for these products was $379,651.

The Company continues to focus  increasingly on the development and introduction
of  100%  new  color  toner  cartridges  for  use in 25 to 45  page  per  minute
networked,   full-color,   copiers  and  printers   manufacturer  by  Ricoh(TM),
Canon(TM),  Konica(TM),  Minolta(TM),  Savin(TM),  Gestetner(TM) and Lanier(TM).
Last year the Company  successfully  introduced 100% new color toner  cartridges
for use in Ricoh's  AP3800c  copier,  a 38 page per minute black and 24 page per
minute full-color  copier,  and the Company has either just recently or is about
to introduce color toners for Ricoh's CL3000, CL5000 and CL7000 printers and its
1224/1232 copier.  The Company expects to introduce during 2004 color toners and
or toner cartridges for Ricoh 2232/2238,  Minolta  2002/3102 and  Konica/Minolta
C350 full color copiers.

OVERVIEW

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

Net sales for the three months ended June 30, 2004,  increased by  approximately
$610,000,  or 12%, to $5.7  million  compared to 2003.  Net sales for six months
ended June 30, 2004 increased by approximately $582,000, or 5%, to $11.3 million
compared to 2003. Net sales in 2004 increased  primarily due to increased  sales
from the Company's  copier and  all-in-one  products,  more than  offsetting the
decline in sales from the sales of our two largest customers from  approximately
$3,989,000  for the six months  ended June 30, 2004,  compared to  approximately
$5,200,000 for the same periods in 2003, a decrease of approximately  23%. 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,  2004,  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,  2003,  our net  sales  from the sale of
finished   products   comprised   approximately   73%  and  72%  of  net  sales,
respectively.

Net sales made outside of the United  States for the three and six month periods
ended June 30, 2004, were approximately $2.9 and $5.3 million,  respectively, or
51% and 47% of total sales, and increased by approximately $0.8 million, or 41%,
and $0.9  million,  or 22%,  over the same  periods in 2003.  This  increase  in
international  sales resulted  primarily from the increase in sales to customers
other than our two largest customers.

The following table reflects the consolidated new orders,  net of cancellations,
revenues  and  backlog as of the  beginning  and end of the three and six months
ended June 30, 2004, 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, 2004:
     Copier Products            $  2,079    $  4,161    $  4,428    $  1,812
     Printer Products                684         935       1,241         378
                                --------    --------    --------    --------
        Total                      2,763       5,096       5,669       2,190
                                ========    ========    ========    ========

                                            (IN THOUSANDS OF DOLLARS)
   Six Months June 30, 2004:
       Copier Products          $  1,896    $  8,271    $  8,355    $  1,812
       Printer Products              575       2,718       2,915         378
                                --------    --------    --------    --------
        Total                      2,471      10,989      11,270       2,190
                                ========    ========    ========    ========



                                       11
<PAGE>

CRITICAL ACCOUNTING ESTIMATES

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

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

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

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

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

VALUATION OF LONG-LIVED  ASSETS.  We  periodically  evaluate  whether events and
circumstances  have occurred  which may affect the estimated  useful life or the
recoverability  of the remaining balance of our long-lived  assets,  such as our
investment in our toner  manufacturing  equipment.  We have  approximately  $8.1
million invested in such equipment and plant improvements, with a carrying value
of $6.4  million,  that  have  estimated  lives of up to  twenty  years.  Should
competing   technologies  or  offshore   competitors   cause  our  manufacturing
technology  to be  non-competitive,  or should  other  events  or  circumstances
indicate that the carrying amount of these assets would not be recoverable,  the
estimated life of these assets may need to be shortened and their carrying value
could be materially affected. If the sum of the undiscounted expected cash flows
from an asset to be held and used in operations is less than the carrying  value
of the asset, an impairment loss is recognized.

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



                                       12
<PAGE>



RESULTS OF OPERATIONS

Color  Imaging's net sales were $5.7 million and $11.3 million for the three and
six months ended June 30, 2004, an increase of approximately 12% and 5% from the
three and six months ended June 30, 2003. The net sales by product category were
as follows:

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

                                                           % Increase
    (Dollars in thousands)                 2004       %    (Decrease)      2003       %
                                       ----------    ----  ----------   ---------    ----
    Three Months
    ------------
    Product Category:
     Cartridges and bottles
      Copier finished products          $ 4,166       73%       47%      $ 2,842     56%
      Printer finished products             433        8%      (49)          857     17%
                                       ----------          ----------   ---------
                                          4,599       81%       24         3,699     73%

    Bulk toner and parts                  1,070       19%      (21)        1,360     27%
                                       ----------          ----------   ---------
          Total net revenue             $ 5,669      100%       12       $ 5,059    100%
                                       ==========          ==========   =========

    Six Months
    ----------
    Product Category:
     Cartridges and bottles
      Copier finished products          $ 7,766       69%       32       $ 5,893     55%
      Printer finished products           1,093       10       (40)        1,823     17%
                                       ----------          ----------   ---------
                                          8,859       79        15         7,716     72%

    Bulk toner and parts                  2,411       21       (19)        2,972     28%
                                       ----------          ----------   ---------
          Total net revenue             $11,270      100%        5       $10,688    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,
                                             2004          2003         2004           2003
                                            -----         -----        -----          -----
                                                        (PERCENTAGE OF NET SALES)

        Net sales                            100           100           100           100
        Cost of sales                         73            70            74            73
        Gross profit                          27            30            26            27
        Administrative expenses                6             8             7             8
        Research and development               5             6             5             6
        Sales and marketing                   11             8            11             7
        Operating income                       5             8             3             6
        Interest expense                       1             1             1             0
        Depreciation and amortization          5             6             4             4
        Income before taxes                    6             8             4             6
        Provision for income taxes             3             3             2             2
        Net income                             3             5             2             3

</TABLE>



                                       13
<PAGE>


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

NET SALES. Our net sales increased by $0.6 million,  or 12%, to $5.7 million for
the three  months  ended June 30,  2004,  from $5.1 million for the three months
ended June 30, 2003.  Net sales made in the United States were $2.8  million,  a
decrease of $0.2 million, or 8%, from $3.0 million made in the comparable period
in 2003. Net sales made outside of the United States  increased by $0.8 million,
or 41%, for the quarter  compared to the same  quarter of 2003.  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 year ago made  outside of the United
States was  primarily  the result of  increased  sales from  copier  products to
customers  other  than our two  largest  customers.  Of the $5.7  million in net
sales,  $4.6  million,  or 81%,  were  attributable  to our copier  and  printer
finished products,  compared to 73% for the comparable period in 2003, while the
net sales of bulk toner and parts  declined  from 27% of net sales for the three
months ended June 30, 2003  compared to 19% for the  comparable  period in 2004.
Net sales to our two largest  customers  decreased as a percentage  of our total
sales  to 35% for the  three  months  ended  June  30,  2004,  from  45% for the
comparable period in 2003.

COST OF GOODS SOLD.  Cost of goods sold  increased by $0.6  million,  or 18%, to
$4.1  million from $3.5 million for the three months ended June 30, 2004 for the
comparable period in 2003,  primarily as the result of the increase in net sales
and secondarily  from selling off products being  discontinued at lower margins.
Cost of goods sold as a percentage of net sales increased by 3 percentage points
from 70% for the three  months  ended June 30, 2003 to 73% for the three  months
ended June 30, 2004, primarily as the result more of our net sales being derived
from lower margin all-in-one  products and sales derived from discontinued laser
products.

GROSS PROFIT. As a result of the above factors, gross profit was $1.5 million in
both the three months ended June 30, 2004 and 2003, while net sales for the same
period  increased by $0.6 million,  or 12%.  Gross profit as a percentage of net
sales  decreased  by 3  percentage  points from 30% to 27% for the three  months
ended June 30, 2004, as compared to the corresponding  period of the prior year.
The decrease in the percentage of gross profit  resulted  primarily from more of
our sales being derived from lower margin all-in-one and analog copier products.

OPERATING  EXPENSES.  Operating expenses increased $99,000, or 9%, to $1,239,000
in the three  months  ended June 30, 2004 from  $1,140,000  in the three  months
ended June 30,  2003.  General  and  administrative,  selling  and R&D  expenses
decreased, as a percentage of net sales, to 21.9% in the three months ended June
30, 2004 from 22.5% in the three months ended June 30, 2002 as the result of the
increase  in net sales for the  quarter  and lower  expenditures  in general and
administrative and research and development expenses. General and administrative
expenses  decreased  approximately  20%,  or $84,000 to  $342,000  for the three
months ended June 30, 2004 from the comparable period in 2003, largely resulting
from decreased professional fees in connection with complying with the change in
SEC reporting requirements from Regulation SB to S-K. Selling expenses increased
by $218,000,  or 56%, in the three  months  ended June 30, 2004  compared to the
three months  ended June 30, 2003.  Selling  expenses  increased  primarily as a
result of increased sales costs in connection with the opening of our California
sales office and increased manufacturer's  representative expenses. Research and
development  expenses  decreased  by  $35,000,  or 11%, to $291,000 in the three
months  ended June 30, 2004,  primarily as the result of decreased  expenditures
for testing and qualifying  toner products and the recruitment and relocation of
our vice president of technology during 2003.

OPERATING INCOME. As a result of the above factors, primarily the 9% increase in
operating expenses,  operating income decreased by $112,000, or 28%, to a profit
of $287,000 in the three months  ended June 30, 2004 from  $399,000 in the three
months ended June 30, 2003.

INTEREST AND FINANCE EXPENSE. Interest expense decreased by $11,000 in the three
months  ended  June 30,  2004 from the three  months  ended June 30,  2003.  The
decrease was primarily the result of reduced interest bearing debt levels.

OTHER INCOME.  Other income increased by $6,000 from income of $60,000 to income
of $66,000 in the three  months  ended June 30, 2004 from the three months ended
June 30, 2003, primarily as the result of Euro exchange gains.

INCOME  TAXES.  As the result of our profit from  continuing  operations  in the
three  months  ended June 30,  2004,  we  recorded  an income tax  provision  of
$131,900 for the period,  while the income tax provisions  were $171,000 for the
three months ended June 30, 2003.

SIX MONTHS ENDED JUNE 30, 2004 COMPARED TO SIX MONTHS ENDED JUNE 30, 2003

NET SALES. Our net sales increased by $0.6 million,  or 5%, to $11.3 million for
the six months ended June 30, 2004,  from $10.7 million for the six months ended
June 30, 2003. Net sales made in the United States were $6.0 million, a decrease
of $0.3 million, or 5%, from $6.3 million made in the comparable period in 2003.
Net sales made outside of the United States  increased by $1.0 million,  or 23%,
to $5.3 million for the six months ended June 30, 2004  compared to the same six
months of 2003.  The  increase  in net sales for the six  months  ended June 30,
2004,  compared to that of a year ago resulted  primarily  the sale of our color
copier and all-in-one products. Of the $11.3 million in net sales, $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.  Of the $10.7  million in net sales for the six months ended June 30,
2003,  72% were derived from finished  products for use in copiers and printers,
while $3.0 million, or 28%, were derived from the sale of bulk toners and parts.
The  revenue  increase  and  decrease  for the six months  ended  June 30,  2004
compared to the same period in 2003 for  finished  products  and bulk toners and
parts for use in copiers and laser  printers  from 2004 to 2003 was 15% and 19%,
respectively,  reflecting the increased  sales from our copier  products and the
decrease in the sales of printer and non-finished products.


                                       14
<PAGE>

COST OF GOODS SOLD. Cost of goods sold increased by $0.5 million, or 7%, to $8.3
million  from $7.8  million  for the six  months  ended  June 30,  2004 from the
comparable  period  in 2003.  Cost of goods  sold as a  percentage  of net sales
decreased by 1 percentage  point from 73% for the six months ended June 30, 2003
to 74% for the six months  ended June 30,  2004,  primarily as the result of the
sales derived from lower margin all-in-one products.

GROSS  PROFIT.  As  a  result  of  the  above  factors,  gross  profit  remained
approximately the same at $2.9 million in the six months ended June 30, 2004 and
2003.  Gross profit as a percentage of net sales decreased by 1 percentage point
from 27% to 26% for the six  months  ended June 30,  2004,  as  compared  to the
corresponding  period of the prior year. The decrease in the percentage of gross
profit  resulted  primarily  from  increased  sales  derived  from lower  margin
all-in-one   products  and  the  sale  at  lower   margins  of  products   being
discontinued.

OPERATING EXPENSES. Operating expenses increased $298,000 or 13% to $2.5 million
in the six months  ended June 30, 2004 from $2.2 million in the six months ended
June 30, 2003. As a percentage of net sales general and administrative,  selling
and R&D expenses, was 23% and 21%,  respectively,  for the six months ended June
30, 2004 and 2003.  The  increase in operating  expenses as a percentage  of net
sales was largely the result of the increased selling and marketing expenses for
the six  months  ended  June  30,  2004.  General  and  administrative  expenses
decreased  approximately  17%, or $154,000 to $739,000  for the six months ended
June 30,  2004  from the  comparable  period  in 2003,  largely  resulting  from
decreased professional expenses for compliance with changing from SEC regulation
SB to S-K  reporting  and the  repurchase  of  securities  issued in our private
placement  completed  in 2001 and having made no  provision  a bonus  program in
2004.  Selling expenses  increased by $448,000,  or 59%, in the six months ended
June 30, 2004 compared to the six months ended June 30, 2003.  Selling  expenses
increased  primarily as the result of expenses in connection with the California
sales  office  opened  at the end of  2003  and the  increased  expenses  sales,
manufacturer's representative and customer support staff increases. Research and
development  expenses  increased by $4,000,  or 1%, in the six months ended June
30, 2004.

OPERATING INCOME.  As a result of the above factors,  primarily the 59% increase
in sales and marketing  expenses,  operating income decreased by $225,000,  to a
profit of  $388,000 in the six months  ended June 30, 2004 from  $613,000 in the
six months ended June 30, 2003.

INTEREST AND FINANCE EXPENSE.  Interest expense  decreased by $63,000 in the six
months ended June 30, 2004 from the six months ended June 30, 2003,  or 57%. The
decrease was primarily the result of reduced interest bearing debt levels.

OTHER  INCOME.  Other  income  increased  by $50,000  from income of $109,000 to
income of  $159,000  in the six months  ended June 30,  2004 from the six months
ended June 30, 2003, primarily as the result of Euro exchange gains.

INCOME TAXES. As the result of our decreased  profit from continuing  operations
for the six months ended June 30, 2004,  our provision for taxes  increased from
$200,100 in the six months  ended June 30, 2003 to $245,000 for the period ended
June 30, 2003.

LIQUIDITY AND CAPITAL RESOURCES

At June 30, 2004, and December 31, 2003,  our working  capital and current ratio
was  approximately  $7.2  million and $6.5  million and 2.78 to 1 and 2.83 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.

Cash used in operating  activities was $262,000 in the six months ended June 30,
2004  compared to $471,000 in the six months ended June 30, 2003.  The cash used
in  continuing  operating  activities  in the six  months  ended  June 30,  2004
decreased  primarily due to the increase in accounts  receivable  from increased
sales and an increase in inventories.

Cash used in investing  activities was $153,000 in the six months ended June 30,
2004,  compared to $147,000 in the six months ended June 30, 2003.  The increase
in cash used in investing  activities in the six months ended June 30, 2004, was
entirely  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, 2004 of $0, bearing interest at the one-month
Libor  interest  rate in effect two  business  days  before the first day of the
month plus 2.50%. As of June 30, 2004, the interest rate was the one-month Libor
rate of 1.36% plus 2.50%  (3.86%).  This revolving line of credit has a June 30,
2005  expiration  date.  Under the line of credit,  the Company is  permitted to
borrow up to 75% of eligible accounts receivable and 50% of eligible inventories
(up to a maximum of $750,000 and not to exceed 50% of the total outstanding). On
February 6, 2004, the Bank issued an irrevocable standby letter of credit in the
amount of $1.5 million for the benefit of a non-affiliated foreign supplier. The
letter of credit has an expiration  date of June 30, 2005,  and  guarantees  the
payment of moneys owed the supplier  for  materials  purchased  from them by the
Company.  At June 30, 2004, the Company's accounts payable to this supplier were
approximately  $912,086. The Company has granted the Bank a security interest in
all of the Company's  assets as security for the repayment of the line of credit
and the obligations under the letter of credit.

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


                                       15
<PAGE>

Cash used in financing activities were $223,000,  primarily for the repayment of
related  party debt,  for the six months  ended June 30,  2004  compared to cash
provided by  financing  activities  of  $3,040,000  for the same period in 2003,
resulting  largely from the  $5,917,000 in net proceeds  received for the public
sale of our common stock to an affiliate.

On April 18, 2003,  the Company  established  a stock  repurchase  program under
which Color  Imaging's  common stock,  with an aggregate  market value up to the
lesser of $1 million or 1 million shares,  may be acquired in the open market or
through  private or other  transactions.  Through July 16, 2004, the Company has
repurchased 31,500 shares of our common stock for approximately  $52,000, or for
an average price of $0.74 per share.

We believe  that  existing  cash  balances,  cash  expected to be  generated  by
operating activities,  and funds available under our credit facility will be, in
the aggregate,  sufficient to finance our operating and investing activities for
at least the next 12  months,  which  will  include  expenditures  not to exceed
approximately $450,000 for manufacturing,  $150,000 for research and development
equipment,  $175,000  potentially for computer  software upgrades to accommodate
electronic  data  interchange,  the  repurchase  of our  stock  under  the stock
repurchase  program of up to the lesser of $1,000,000 or 1,000,000 shares of our
common  stock  and  any  advances  made  by our  bank on our  behalf  under  our
off-balance  sheet  arrangement  of $1.5 million for a standby  letter of credit
issued to a non-affiliated foreign supplier.

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,  2004,   two  customers   accounted  for
approximately  35%  of our  net  sales.  We do not  have  contracts  with  these
customers and all of the sales to them are made through purchase  orders.  While
our products typically go through the customer's required qualification process,
which we  believe  gives us an  advantage  over other  suppliers,  this does not
guarantee  that the  customer  will  continue to  purchase  from us. The loss of
either of these  customers,  including  through an  acquisition,  other business
combination  or the loss by them of business from their  customers  could have a
substantial and adverse effect on our business.  We have in the past, and may in
the future,  lose one or more major  customers  or  substantial  portions of our
business with one or more of our major customers.  If we do not sell products or
services to  customers in the  quantities  anticipated,  or if a major  customer
reduces  or  terminates  its  relationship  with us,  market  perception  of our
products and technology,  growth prospects,  and financial condition and results
of operation could be harmed.

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

As of June 30, 2004,  receivables  from two customers  comprised 37% 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  35% OF OUR BUSINESS DEPENDS ON A FOREIGN SUPPLIER APPROVED BY TWO
OF OUR CUSTOMERS TO WHOM WE HAVE ISSUED A LETTER OF CREDIT.

Some  of  our  products  incorporate  technologies  that  are  available  from a
particular  foreign  supplier  that has been  approved by one of our  customers.
Approximately  35% of our  sales for the six  months  ended  June 30,  2004 were
derived from products limited to a specific foreign supplier. For the six months
ended June 30,  2004,  we purchased  42% of our supplies  from that same foreign
supplier. We do not have a written agreement with this or any other supplier. We
rely on purchase  orders.  To secure the payment of moneys due this same foreign
supplier  we have  caused  our bank to issue a  standby  letter of credit in the
amount of $1.5 million,  expiring  June 30, 2005.  Should we be unable to obtain
the necessary materials from this foreign supplier, including as a result of our
not being able to  modify,  extend or renew the  letter of credit  upon  expiry,
product shipments could be prevented or delayed, which could result in a loss of
sales. If we are unable to fulfill  existing orders or accept new orders because
of a shortage of materials, we may lose revenues and risk losing customers.

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

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



                                       16
<PAGE>

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

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

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

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

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

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

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

Success in the  aftermarket  imaging  industry  depends,  in part, on developing
consumable  products that are  compatible  with the printers,  photocopiers  and
facsimile  machines  made by the OEMs,  and that have a selling  price less than
that of like consumable  supplies  offered by the OEM. For example,  if the OEMs
introduce chemical toners with better imaging characteristics and higher yields,
microprocessor  chips  that  communicate  between  the toner  cartridge  and the
device, or introduce products using patented or other proprietary  technologies,
then the aftermarket  industry has to respond with ongoing development  programs
to offer compatible  products that emulate the OEMs' without infringing upon the
OEM's intellectual property.

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

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


                                       17
<PAGE>

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 47% and 41% of net sales in the six
months ended June 30, 2004 and 2003,  respectively.  We expect that shipments to
international  customers will continue to account for a material  portion of net
sales.  During the six month period ended June 30, 2004,  our sales were made to
customers outside the United States as follows:

o Europe (including Eastern Europe) - 24%
o Mexico - 15%
o Asia/Southeast Asia - 5%
o Other - 3%

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

Most of our sales are  priced in U.S.  dollars,  but  because  we began  selling
products in Europe  denominated in Euros during 2001,  fluctuations  in the Euro
could  also  cause  our  products  there  to  become  less  affordable  or  less
competitive  or we may  sell  some  products  at a loss  to  otherwise  maintain
profitable business from a customer. We recorded gains of approximately $112,000
and  $76,000  during  the six  month  periods  ended  June 30,  2004  and  2003,
respectively, as a result of foreign currency transactions.

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

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

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

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



                                       18
<PAGE>

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

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

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

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

OUR ACQUISITION STRATEGY MAY PROVE UNSUCCESSFUL.

We intend to pursue  acquisitions of businesses or technologies  that management
believes  complement or expand the existing business.  Acquisitions of this type
involve a number of risks,  including the possibility that the operations of any
businesses that are acquired will be  unprofitable or that management  attention
will be diverted  from the  day-to-day  operation of the existing  business.  An
unsuccessful  acquisition  could reduce  profit  margins or  otherwise  harm our
financial   condition,   by,  for  example,   impairing  liquidity  and  causing
non-compliance with lending institution's  financial covenants. In addition, any
acquisition  could  result in a  dilutive  issuance  of equity  securities,  the
incurrence  of  debt or the  loss  of key  employees.  Certain  benefits  of any
acquisition may depend on the taking of one-time or recurring accounting charges
that may be material. We cannot predict whether any acquisition undertaken by us
will be successfully  completed or, if one or more  acquisitions  are completed,
whether the  acquired  assets  will  generate  sufficient  revenue to offset the
associated costs or other adverse effects.

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.


                                       19
<PAGE>

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

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

RISKS RELATING TO OUR INDUSTRY:

WE OPERATE IN A COMPETITIVE AND RAPIDLY CHANGING MARKETPLACE.

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

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

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

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.



                                       20
<PAGE>

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

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

RISKS RELATING TO OWNING OUR COMMON STOCK:

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

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

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

As of July 23, 2004, we had issued and outstanding  12,699,005  shares of common
stock,  100,000 warrants and 1,420,000 options to purchase  additional shares of
common stock. The existence of the remaining  warrants and options may adversely
affect the market  price of our common stock and the terms under which we obtain
additional equity capital.

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

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

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

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

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

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


                                       21
<PAGE>

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

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

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

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

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

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

FORWARD-LOOKING STATEMENTS

Statements  contained in this report which are not statements of historical fact
are  forward-looking  statements  within  the  meaning  of  Section  27A  of the
Securities Act of 1933 and Section 21E of the  Securities  Exchange Act of 1934.
These forward-looking statements may be identified by the use of forward-looking
terms such as "believes," "expects," "may", "will," "should" or "anticipates" or
by  discussions of strategy that involve risks and  uncertainties.  From time to
time, we have made or may make forward-looking statements, orally or in writing.
These  forward-looking  statements include  statements  regarding our ability to
borrow funds from financial  institutions  or affiliates,  to engage in sales of
our securities,  our intention to repay certain  borrowings from future sales of
our  securities  or cash  flow,  the  ability to expand  capacity  by placing in
service additional  manufacturing equipment and making use of that capacity, our
expected  acquisition of business or technologies,  our plans for broadening our
sales channels and the outlets for our products,  our expectation that shipments
to  international  customers will continue to account for a material  portion of
net sales, anticipated future revenues, our introduction of new products and our
increasing  our sales  from all in one  cartridges,  digital  copier,  color and
magnetic  character  recognition  toner products,  sales,  our  expectations for
operations,  demand, technology,  products,  business ventures, major customers,
major   suppliers,   retention  of  key   officers,   management  or  employees,
competition,  capital  expenditures,  credit  arrangements  and other statements
regarding matters that are not historical facts,  involve  predictions which are
based  upon a number  of  future  conditions  that  ultimately  may  prove to be
inaccurate.  Our  actual  results,  performance  or  achievements  could  differ
materially from the results  expressed in, or implied by, these  forward-looking
statements.  Forward-looking statements are made based upon management's current
expectations  and beliefs  concerning  future  developments  and their potential
effects  upon our  business.  We  cannot  predict  whether  future  developments
affecting us will be those anticipated by management,  and there are a number of
factors that could adversely  affect our future  operating  results or cause our
actual results to differ materially from the estimates or expectations reflected
in such forward-looking statements.



                                       22
<PAGE>

ITEM 3. Quantitative and Qualitative Disclosures about Market Risks

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

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

We estimate that about 96% of our transactions are denominated in U.S.  dollars,
excepting  those sales in Euros to a few  customer's  in Europe,  including  our
second largest customer's European operations.  Accordingly,  beginning in 2001,
we are subject to foreign  currency  risk with  respect to future  costs or cash
flows from our sales in Euros.  We have  adjusted our prices  annually  with our
customer  to  reflect  the change in the  exchange  rate and do not expect to be
subject to material  foreign currency risk,  accordingly,  with respect to those
sales.  As a result,  to date,  we have not entered  into any  foreign  currency
forward exchange  contracts or other derivative  financial  instruments to hedge
the effects of adverse fluctuations in foreign currency exchange.  We recognized
a net foreign currency  transaction gain of $75,865 in the six months ended June
30, 2003, and we recognized a net foreign  currency  transaction  gain of $2,858
and  a  loss  of  $1,877  in  the  years  ended  December  31,  2002  and  2001,
respectively.  Our contract  pricing for our products sold in Euros is currently
at the rates of 1.00 and 1.17 Euros relative to the U.S. dollar. A 10% change in
the  value  of the  Euro  relative  to the  United  States  dollar  would  cause
approximately  an $8,000 foreign currency  translation  adjustment in an average
month,  a type of other  comprehensive  income  (loss),  which would be a direct
adjustment to stockholders' equity.

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

Our investment policy requires  investments with high credit quality issuers and
or over night  repurchase  agreements  with our bank.  Investments  we make will
principally  consist of U.S.  government and government  agency  obligations and
investment-grade,   interest-bearing  corporate  debt  securities  with  varying
maturity  dates of five years or less, or the  overnight  purchase of securities
held in our bank's investment  portfolio.  Because of the credit criteria of our
investment  policies,  the primary market risk associated with these investments
is interest rate risk. We do not use derivative financial  instruments to manage
interest rate risk or to speculate on future changes in interest  rates.  We had
approximately  $440,000 invested in short-term  securities,  which are available
for sale, at June 30, 2004. We received  dividends of  approximately  $9,000 and
$20,000 for the three and six months ended June 30, 2004,  while recording a net
asset value decrease of approximately $9,000 and $11,000 for the quarter and six
months ended June 30, 2004, respectively.

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

ITEM 4. CONTROLS AND PROCEDURES

a) On July 27, 2004, our Chief  Executive  Officer and Chief  Financial  Officer
participated in a meeting during which there was an evaluation of our disclosure
controls and  procedures  as of June 30, 2004.  Based on such  evaluation,  they
believe such controls and procedures are effective.

The  Company's  management,  including  the Chief  Executive  Officer  and Chief
Financial Officer, does not expect that its Disclosure Controls will prevent all
error  and all  fraud.  A  control  system,  no matter  how well  conceived  and
operated,  can  provide  only  reasonable,  not  absolute,  assurance  that  the
objectives  of the  control  system  are met.  Further,  the design of a control
system  must  reflect  the fact that  there are  resource  constraints,  and the
benefits of controls must be considered relative to their costs.  Because of the
inherent  limitations  in all control  system,  no  evaluation  of controls  can
provide  absolute  assurance that all control issues and instances of fraud,  if
any, within the Company have been detected.  These inherent  limitations include
the  realities  that  judgments  in  decision-making  can be  faulty,  and  that
breakdown can occur because of simple error or mistake. The design of any system
of controls also is based in part upon certain  assumptions about the likelihood
of future events,  and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions.

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

b) Our Chief  Executive  Officer and Chief  Financial  Officer  are  involved in
ongoing  evaluations of internal controls.  On July 27, 2004, in anticipation of
the filing of this Form 10-Q,  they  reviewed  our  internal  controls  and have
determined,  based on such review,  that, there have been no significant changes
in our internal controls or in other factors that would significantly affect our
internal controls during the quarter ended June 30, 2004.


                                       23
<PAGE>


                                     PART II

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 2. CHANGES IN  SECURITIES,  USE OF PROCEEDS AND ISSUERS  PURCHASE OF EQUITY
SECURITIES

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

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

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

<TABLE>
<CAPTION>
  <S>                                               <C>             <C>             <C>              <C>
  Purpose:                                            Amount            Used        Reallocated       Remaining
  ------------------------------------------        -----------     ------------    ------------     -----------
  Accounts payable and other corporate
   and offering expenses . . . . . . . . . .        $ 1,000,000     $  (115,042)    $  (884,958)     $         0
  To retire debt (1) . . . . . . . . . . . .        $   350,000     $  (324,301)    $   (25,699)     $         0
  To retire debt (2) . . . . . . . . . . . .        $ 1,050,000     $  (956,883)    $   (93,117)     $         0
  To retire debt (3) . . . . . . . . . . . .        $         0     $  (235,000)    $   235,000      $         0
  To reduce IDR Bond debt (4). . . . . . . .        $         0     $  (548,928)    $   846,264      $   297,336
  To acquire capital assets. . . . . . . . .        $ 1,500,000     $  (318,774)    $         0      $ 1,181,226
  To repurchase our stock (5). . . . . . . .        $         0     $   (52,230)    $   500,000      $   447,770
  For other general corporate purposes
   including working capital . . . . . . . .        $ 2,175,000     $(1,586,072)    $  (577,490)     $    11,438
                                                    -----------     ------------                     -----------
                                            Total:  $ 6,075,000     $(4,137,230)                     $ 1,937,770

  Pending application:
  -------------------
  Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $   437,770
  Pay down of revolving line of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,500,000
  ----------------

</TABLE>



(1) On November  30, 2000,  we entered  into a loan for  $500,000  with a 5-year
term, secured by specific manufacturing  equipment,  maturing November 30, 2004,
with  General   Electric   Capital   Corporation   for  the  purchase  of  toner
manufacturing  equipment. The interest rate is 10.214% and the monthly principal
and interest payments were $10,676.39.
(2) On June 24, 1999, we entered into a loan for $1,752,000  with a 7-year term,
secured by our business assets, maturing June 24, 2006, with SouthTrust Bank for
the  refinancing of obligations  owing the bank for the acquisition of equipment
and that due under a previous working capital line of credit.  The interest rate
is 7.90%  per  annum  and the  monthly  principal  and  interest  payments  were
$27,205.00.
(3) On July 24, 1999, as amended, we entered into a borrowing  arrangement under
a revolving line of credit in the maximum  amount of $2.5 million.  During March
2003 we temporarily  used $1,735,000 of our proceeds from our public offering on
Form  SB-2 to pay down  the  line of  credit  to $0,  which at that  time had an
interest rate of 3.8375%. On June 16, 2003, we renewed and restructured the line
of credit with the bank,  reducing the maximum  availability to $1.5 million and
permanently retiring $235,000.
(4) On  June  1,  1999,  the  Development  Authority  of  Gwinnett  County  (the
Authority),  issued $4,100,000 of industrial development revenue bonds on behalf
of the Company and Kings Brothers, LLC. The 1.09% revenue bonds, 2.09% inclusive
of the 1% letter of credit  fee,  as of June 30,  2004,  are  payable in varying
annual  principal and monthly  interest  payments through July 2019. The bond is
secured,  as amended  on April 7,  2003,  by  specific  equipment  assets of the
Company and by real  property  owned by Kings  Brothers,  LLC. A loan  agreement
between the  Authority and the Company and Kings  Brothers,  LLC allows funds to
effectively  pass  through the  Authority  to the  Company.  The majority of the
proceeds, $3,125,872, were used by the Company to relocate, purchase and install
certain manufacturing equipment,  while $974,128 was used by Kings Brothers, LLC
to pay down the mortgage on the real property leased to the Company. The Company
and the Related Party are jointly obligated to repay any outstanding debt. As of
June 30, 2004, the bond principal outstanding was $3,095,000 and the portion due
from Kings  Brothers,  LLC was $735,340.  The $846,264 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  and  2005,
respectively.


                                       24
<PAGE>


(5) From July 2003  through  June 30,  2004,  under the  repurchase  program the
Company has repurchased 76,000 shares of our common stock on the open market for
$52,230,  or at an average price of $0.69.  There remains $947,770 available for
future  common  stock  repurchases  under  the  authorization  of the  board  of
directors and $447,770 as allocated by management hereinabove.

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

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

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

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

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

ISSUER MARKET PURCHASES OF EQUITY SECURITIES

On April 18, 2003,  the Company  established  a stock  repurchase  program under
which the  Company may  purchase on the open market the lesser of the  aggregate
value of  $1,000,000 or 1,000,000  shares in  compliance  with Rule 10b-18 until
September  30,  2005,  as extended by the board of  directors  during the annual
meeting held on May 18, 2004, and we have reallocated proceeds for this program.
From July 2003  through  December  31, 2003,  under the  repurchase  program the
Company  repurchased  44,500 shares of our common stock on the open market at an
average  price of  $065.  From  January  1  through  June 30,  2004,  under  the
repurchase program the Company has repurchased 31,500 shares of our common stock
on the open  market at an average  price of $0.74.  Since the  inception  of the
repurchase program the Company has repurchased 76,000 shares of our common stock
for $52,320 and at an average price of $0.69.  There remains $947,770  available
for future common stock repurchases, as authorized by the board of directors.

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

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

     During 2004
     --------------------
     January                        7,000       0.72                   7,000
     February                       3,500       0.76                   3,500
     March                          7,000       0.77                   7,000
     April                          7,000       0.78                   7,000
     May                            7,000       0.70                   7,000
     June                               0         --                       0
                          ---------------- --------------- -------------------- -----------------------
     Total 2004                    31,500       0.74                  31,500             1,000,000
                          ---------------- --------------- -------------------- -----------------------
     Total                         76,000       0.69                  76,000             1,000,000

</TABLE>



                                       25
<PAGE>


ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

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

(a) The Registrant  held its Annual Meeting of Stockholders on May 18, 2004. The
following proposals were adopted by the votes indicated.

(b) Seven directors were elected at the Annual Meeting to serve until the Annual
Meeting of  Stockholders in 2005. The names of these Directors and votes cast in
favor of their election and shares withheld are as follows:

         NAME                 VOTES FOR          % FOR          VOTES WITHHELD
   ----------------------     ----------         ------         --------------
   Jui-Kung Wang              10,192,321           80.1            107,952
   Sueling Wang, Phd          10,192,321           80.1            107,952
   Morris E. Van Asperen      10,192,321           80.1            107,952
   Yi Jen Wang                10,192,321           80.1            107,952
   Jui-Hung Wang              10,192,321           80.1            107,952
   Jui-Chi Wang               10,192,321           80.1            107,952
   Richard S. Eiswirth        10,242,321           80.5             57,952

(c) The selection of Lazar Levine & Felix,  LLP as our  independent  accountants
for the year ending December 31, 2004 was ratified by 10,241,184  votes for with
57,952 votes withheld and 1,137 abstaining.

ITEM 5. OTHER INFORMATION

None

ITEM 6 -EXHIBITS AND REPORTS ON FORM 8-K

(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.

                                       26
<PAGE>


Exhibit
    No.        Description
 ---------     --------------
 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.
 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.
10.1+*         Employment  Agreement between Color Imaging and Patrick J. Wilson
               dated April 1, 2004.
10.2+*         Second  Amendment to Employment  Agreement  between Color Imaging
               and Morris E. Van Asperen dated April 23, 2004.
10.3+*         Amendment  to  Employment  Agreement  between  Color  Imaging and
               Claude R. Aubert dated May 28, 2004.



                                       27
<PAGE>


 Exhibit
    No.        Description
 ---------     --------------
31.1+          Chief executive officer's  certification  pursuant to Section 302
               of the Sarbanes-Oxley Act of 2002
31.2+          Chief financial officer's  certification  pursuant to Section 302
               of the Sarbanes-Oxley Act of 2002
32.1+          Chief executive officer's  certification  pursuant to Section 906
               of the Sarbanes-Oxley Act of 2002.
32.2+          Chief financial officer's  certification  pursuant to Section 906
               of the Sarbanes-Oxley Act of 2002.
------------------------
+ Filed herewith.
* Management contract or compensatory arrangement or plan.
(1) Pursuant to Rule  601(b)(2),  the schedules  and exhibits to this  Agreement
shall not be filed.  A list of the  schedules  and  exhibits is contained on the
last page of the Agreement.  The Registrant  agrees to furnish  supplementally a
copy of any of the omitted schedules and exhibits to the Securities and Exchange
Commission upon request.

(b) REPORTS ON FORM 8-K

A report  on Form 8-K dated May 28,  2004 was filed on May 29,  2004,  reporting
under  Item 5 that on May 18,  2004,  the Board  approved  an  extension  of the
Registrant's  stock repurchase  program from September 30, 2004 to September 30,
2005, and disclosing the number and average  purchase price of the common shares
repurchased  by  Registrant  on the open  market in  accordance  with the terms,
conditions and restrictions in SEC Rule 10(b)-18 through that time.


                                       28
<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 27, 2004                          Jui-Kung Wang
                                          Chief Executive Officer







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




                                       29

1794045