##### Table of Contents



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



---



FORM 10-QSB



|[X]   |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 
|----- |  | ----------------------------------------------------------------------------------------
|     
|      |  | For the quarterly period ended SEPTEMBER 30, 2001                                       
|     
|[   ] |  | 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



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COLOR IMAGING, INC.

---

(Exact name of registrant as specified in its charter)


|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|DELAWARE                                                       |  | 13-3453420                          
|                                                               |  |                                     
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer Identification No.)

|                                                                |  |  |            | 
|--------------------------------------------------------------- |  |  | ---------- | 
|4350 PEACHTREE INDUSTRIAL BOULEVARD, SUITE 100NORCROSS, GEORGIA |  |  | 30071      | 
|                                                                |  | 
|(Address of principal executive offices)                        |  |  | (Zip code) | 

(770) 840-1090

---

(Registrants telephone number, including area code)


Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the 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   [   ]

As of October 26, 2001, there were 8,106,400 shares of Common Stock
outstanding.

1



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TABLE OF CONTENTS



|                              |                                                                   |                                                              |  |  |  |  |  | 
|----------------------------- | ----------------------------------------------------------------- | ------------------------------------------------------------ |  |  |  |  |  | 
|PART I: FINANCIAL INFORMATION
|                              | ITEM 1 -FINANCIAL STATEMENTS                                     
|                              |                                                                   | CONSOLIDATED CONDENSED BALANCE SHEETS                       
|                              |                                                                   | CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS             
|                              |                                                                   | CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS             
|                              |                                                                   | NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
|                              | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
|PART II: OTHER INFORMATION   
|                              | ITEM 2 -CHANGES IN SECURITIES                                    
|                              | ITEM 6 -EXHIBITS AND REPORTS ON FORM 8-K                         
|SIGNATURES                   
|EXHIBIT 11                   



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##### Table of Contents



COLOR IMAGING, INC.
QUARTERLY REPORT ON FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001

INDEX

|                                                                  |                                                                                                                             |  |    |   | 
|----------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------- |  | -- | - | 
|PART I: FINANCIAL INFORMATION                                     |                                                                                                                             |  |    |  
|Item 1. Financial Statements                                      |                                                                                                                             |  |    |  
|                                                                  | Consolidated Condensed Balance Sheets at September 30, 2001
(Unaudited) and December 31, 2000 (Audited)                     |  |    | 3 | 
|                                                                  | Consolidated Condensed Statements of Operations (Unaudited)
for the Three and Nine Months ended September 30, 2001 and 2000 |  |    | 4 | 
|                                                                  | Consolidated Condensed Statements of Cash Flows (Unaudited)
for the Nine Months ended September 30, 2001 and 2000           |  |    | 5 | 
|                                                                  | Notes to Interim Unaudited Consolidated Condensed Financial
Statements                                                      |  |    | 6 | 
|Item 2. Managements Discussion and Analysis or Plan of Operation |                                                                                                                             |  | 8  |  
|PART II: OTHER INFORMATION                                        |                                                                                                                             |  |    |  
|Item 2. Changes in Securities                                     |                                                                                                                             |  | 16 |  
|Item 6. Exhibits and Reports on Form 8-K                          |                                                                                                                             |  | 16 |  
|Signatures                                                        |                                                                                                                             |  | 17 |  

2



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##### Table of Contents









PART I: FINANCIAL INFORMATION
ITEM 1 -FINANCIAL STATEMENTS




COLOR IMAGING, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS

|                                    |                                                                                                                                                                             |                                           |                            |                           |           |             |            |            |           |           |            | 
|----------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------- | -------------------------- | ------------------------- | --------- | ----------- | ---------- | ---------- | --------- | --------- | ---------- | 
|                                    |                                                                                                                                                                             |                                           |                            |                           |           | 30-Sep-01   |            | 31-Dec-00 
|                                    |                                                                                                                                                                             |                                           |                            |                           |           | (Unaudited) |            | (Audited) 
|                                    |                                                                                                                                                                             |                                           |                            |                           |           |             |            |           
|                                    |                                                                                                                                                                             |                                           |                            | ASSETS                    |           |             |            |           
|CURRENT ASSETS                      |                                                                                                                                                                             |                                           |                            |                           |           |             |            |           
|                                    |                                                                                                                                                                             | Cash                                      |                            | $                         | 645,746   |             |            | $          | 339,348   |          
|                                    |                                                                                                                                                                             | Accounts receivable, net                  |                            |                           | 3,928,136 |             |            |            | 3,562,121 |          
|                                    |                                                                                                                                                                             | Inventory                                 |                            |                           | 6,663,141 |             |            |            | 5,181,248 |          
|                                    |                                                                                                                                                                             | Refundable income taxes                   |                            |                           | 19,995    |             |            |            | 19,995    |          
|                                    |                                                                                                                                                                             | Deferred income taxes                     |                            |                           | 68,664    |             |            |            | 159,426   |          
|                                    |                                                                                                                                                                             | Due from related party                    |                            |                           | 79,596    |             |            |            | 100,832   |          
|                                    |                                                                                                                                                                             | Prepaid expenses and other current assets |                            |                           | 354,825   |             |            |            | 381,146   |          
|                                    |                                                                                                                                                                             |                                           |                            |                           |           |             |            |           
|                                    |                                                                                                                                                                             |                                           | TOTAL CURRENT ASSETS       |                           |           | 11,760,103  |            |            |           | 9,744,116 |           
|                                    |                                                                                                                                                                             |                                           |                            |                           |           |             |            |           
|PROPERTY, PLANT AND EQUIPMENT  NET |                                                                                                                                                                             |                                           | 7,194,027                  |                           |           |             | 7,384,679  |           
|                                    |                                                                                                                                                                             |                                           |                            |                           |           |             |            |           
|OTHER ASSETS                        |                                                                                                                                                                             |                                           |                            |                           |           |             |            |           
|                                    |                                                                                                                                                                             | Patent/intellectual property              |                            |                           | 1,272,389 |             |            |            | 876,751   |          
|                                    |                                                                                                                                                                             | Deferred income taxes                     |                            |                           | 458,111   |             |            |            | 464,085   |          
|                                    |                                                                                                                                                                             | Related party portion of IDR bond         |                            |                           | 818,500   |             |            |            | 873,296   |          
|                                    |                                                                                                                                                                             | Other assets                              |                            |                           | 442,734   |             |            |            | 269,626   |          
|                                    |                                                                                                                                                                             |                                           |                            |                           |           |             |            |           
|                                    |                                                                                                                                                                             |                                           | TOTAL OTHER ASSETS         |                           |           | 2,991,734   |            |            |           | 2,483,758 |           
|                                    |                                                                                                                                                                             |                                           |                            |                           |           |             |            |           
|                                    |                                                                                                                                                                             | $                                         | 21,945,864                 |                           |           | $           | 19,612,553 |           
|                                    |                                                                                                                                                                             |                                           |                            |                           |           |             |            |           
|LIABILITIES & STOCKHOLDERS EQUITY 
|CURRENT LIABILITIES                 |                                                                                                                                                                             |                                           |                            |                           |           |             |            |           
|                                    |                                                                                                                                                                             | Revolving credit lines                    |                            | $                         | 1,232,194 |             |            | $          | 1,399,000 |          
|                                    |                                                                                                                                                                             | Accounts payable                          |                            |                           | 8,380,653 |             |            |            | 6,640,402 |          
|                                    |                                                                                                                                                                             | Current portion of notes payable          |                            |                           | 400,405   |             |            |            | 351,150   |          
|                                    |                                                                                                                                                                             | Current portion of bonds payable          |                            |                           | 335,000   |             |            |            | 320,000   |          
|                                    |                                                                                                                                                                             | Other current liabilities                 |                            |                           | 354,774   |             |            |            | 400,276   |          
|                                    |                                                                                                                                                                             |                                           |                            |                           |           |             |            |           
|                                    |                                                                                                                                                                             |                                           |                            | TOTAL CURRENT LIABILITIES |           |             | 10,703,026 |            |           |           | 9,110,828  | 
|                                    |                                                                                                                                                                             |                                           |                            |                           |           |             |            |           
|LONG TERM LIABILITIES               |                                                                                                                                                                             |                                           |                            |                           |           |             |            |           
|                                    |                                                                                                                                                                             | Notes payable                             |                            |                           | 1,419,623 |             |            |            | 1,685,725 |          
|                                    |                                                                                                                                                                             | Bonds payable                             |                            |                           | 3,445,000 |             |            |            | 3,780,000 |          
|                                    |                                                                                                                                                                             |                                           |                            |                           |           |             |            |           
|                                    |                                                                                                                                                                             |                                           | LONG TERM LIABILITIES      |                           |           | 4,864,623   |            |            |           | 5,465,725 |           
|                                    |                                                                                                                                                                             |                                           |                            |                           |           |             |            |           
|                                    |                                                                                                                                                                             |                                           |                            | TOTAL LIABILITIES         |           |             | 15,567,649 |            |           |           | 14,576,553 | 
|                                    |                                                                                                                                                                             |                                           |                            |                           |           |             |            |           
|COMMITMENTS & CONTINGENCIES         |                                                                                                                                                                             |                                           |                            |                           |           |             |            |           
|STOCKHOLDERS EQUITY                |                                                                                                                                                                             |                                           |                            |                           |           |             |            |           
|                                    | Common stock, $.01 par value, authorized 20,000,000
shares; 8,106,400 and 7,490,948 shares issued and
outstanding on September 30, 2001 and
December 31, 2000, respectively |                                           |                            | 81,064                    |           |             |            | 74,909     |          
|                                    | Additional paid-in capital                                                                                                                                                  |                                           |                            | 8,136,724                 |           |             |            | 6,986,003  |          
|                                    | Accumulated deficit                                                                                                                                                         |                                           |                            | (1,839,573                | )         |             |            | (2,024,912 | )        
|                                    |                                                                                                                                                                             |                                           |                            |                           |           |             |            |           
|                                    |                                                                                                                                                                             |                                           | TOTAL STOCKHOLDERS EQUITY |                           |           | 6,378,215   |            |            |           | 5,036,000 |           
|                                    |                                                                                                                                                                             |                                           |                            |                           |           |             |            |           
|                                    |                                                                                                                                                                             | $                                         | 21,945,864                 |                           |           | $           | 19,612,553 |           
|                                    |                                                                                                                                                                             |                                           |                            |                           |           |             |            |           

See Accompanying Notes

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COLOR IMAGING, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30
(UNAUDITED)

|                                                   |                                     |   |           |         |                           |           |                          |          |           |           |            |           |   |           |            |           |   |           | 
|-------------------------------------------------- | ----------------------------------- | - | --------- | ------- | ------------------------- | --------- | ------------------------ | -------- | --------- | --------- | ---------- | --------- | - | --------- | ---------- | --------- | - | --------- | 
|                                                   |                                     |   |           |         | THREE MONTH PERIODS ENDED |           | NINE MONTH PERIODS ENDED
|                                                   |                                     |   |           |         |                           |           |                         
|                                                   |                                     |   |           |         | 30-Sep-01                 |           | 30-Sep-00                |          | 30-Sep-01 |           | 30-Sep-00 
|                                                   |                                     |   |           |         |                           |           |                          |          |           |           |           
|SALES                                              |                                     | $ | 9,867,704 |         |                           | $         | 6,006,335                |          |           | $         | 23,494,174 |           |   | $         | 15,542,691 |          
|COST OF SALES                                      |                                     |   | 8,550,785 |         |                           |           | 5,115,834                |          |           |           | 20,133,737 |           |   |           | 13,002,584 |          
|                                                   |                                     |   |           |         |                           |           |                          |          |           |           |            |           |   |           |            |          
|GROSS PROFIT                                       |                                     |   | 1,316,919 |         |                           |           | 890,501                  |          |           |           | 3,360,437  |           |   |           | 2,540,107  |          
|                                                   |                                     |   |           |         |                           |           |                          |          |           |           |            |           |   |           |            |          
|OPERATING EXPENSES:                                |                                     |   |           |         |                           |           |                          |          |           |           |            |           |   |           |            |          
|                                                   | Administrative                      |   |           | 418,940 |                           |           |                          | 382,553  |           |           |            | 1,262,897 |   |           |            | 1,121,296 |  
|                                                   | Research & development              |   |           | 219,627 |                           |           |                          | 230,724  |           |           |            | 621,467   |   |           |            | 584,643   |  
|                                                   | Sales & marketing                   |   |           | 375,485 |                           |           |                          | 197,630  |           |           |            | 882,878   |   |           |            | 608,182   |  
|                                                   |                                     |   |           |         |                           |           |                          |          |           |           |            |           |   |           |            |          
|                                                   |                                     |   | 1,014,052 |         |                           |           | 810,907                  |          |           |           | 2,767,242  |           |   |           | 2,314,121  |          
|                                                   |                                     |   |           |         |                           |           |                          |          |           |           |            |           |   |           |            |          
|OPERATING PROFIT                                   |                                     |   | 302,867   |         |                           |           | 79,594                   |          |           |           | 593,195    |           |   |           | 225,986    |          
|                                                   |                                     |   |           |         |                           |           |                          |          |           |           |            |           |   |           |            |          
|OTHER INCOME (EXPENSE):                            |                                     |   |           |         |                           |           |                          |          |           |           |            |           |   |           |            |          
|                                                   | Interest and other income
(expense) |   |           | 15,230  |                           |           |                          | (  2,006 | )         |           |            | 26,216    |   |           |            | 270,368   |  
|                                                   | Interest & financing expense        |   |           | (92,532 | )                         |           |                          | (123,486 | )         |           |            | (326,466  | ) |           |            | (380,762  | )
|                                                   | Disposal of assets                  |   |           |        |                           |           |                          | ( 66,000 | )         |           |            |          |   |           |            | 161,481   |  
|                                                   | Non-recurring moving expense        |   |           |        |                           |           |                          | ( 10,360 | )         |           |            | (9,570    | ) |           |            | (243,002  | )
|                                                   |                                     |   |           |         |                           |           |                          |          |           |           |            |           |   |           |            |          
|                                                   |                                     |   | (77,302   | )       |                           |           | (201,852                 | )        |           |           | (309,820   | )         |   |           | (191,915   | )        
|                                                   |                                     |   |           |         |                           |           |                          |          |           |           |            |           |   |           |            |          
|INCOME (LOSS) BEFORE TAXES                         |                                     |   | 225,565   |         |                           |           | (122,258                 | )        |           |           | 283,375    |           |   |           | 34,071     |          
|PROVISION (BENEFIT) FOR TAXES                      |                                     |   | 79,726    |         |                           |           | ( 67,000                 | )        |           |           | 98,036     |           |   |           | 11,000     |          
|                                                   |                                     |   |           |         |                           |           |                          |          |           |           |            |           |   |           |            |          
|NET INCOME (LOSS)                                  |                                     | $ | 145,839   |         |                           | $         | ( 55,258                 | )        |           | $         | 185,339    |           |   | $         | 23,071     |          
|                                                   |                                     |   |           |         |                           |           |                          |          |           |           |            |           |   |           |            |          
|INCOME (LOSS) PER COMMON SHARE                     |                                     |   |           |         |                           |           |                          |          |           |           |            |           |   |           |            |          
|                                                   |                                     |   | Basic     |         | $                         | .02       |                          |          | $         | (.01      | )          |           | $ | .02       |            |           | $ | .00       | 
|                                                   |                                     |   | Diluted   |         | $                         | .02       |                          |          | $         | (.01      | )          |           | $ | .02       |            |           | $ | .00       | 
|COMMON SHARES OUTSTANDING
WEIGHTED AVERAGE SHARES: |                                     |   |           |         |                           |           |                          |          |           |           |            |           |   |           |            |          
|                                                   |                                     |   | Basic     |         |                           | 8,070,136 |                          |          |           | 7,007,604 |            |           |   | 7,774,391 |            |           |   | 7,002,517 | 
|                                                   |                                     |   |           |         |                           |           |                          |          |           |           |            |           |   |           |            |          
|                                                   |                                     |   | Diluted   |         |                           | 8,273,417 |                          |          |           | 7,007,604 |            |           |   | 7,940,595 |            |           |   | 7,002,517 | 
|                                                   |                                     |   |           |         |                           |           |                          |          |           |           |            |           |   |           |            |          

See Accompanying Notes

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COLOR IMAGING, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30
(UNAUDITED)

|                                      |                                                                                   |                                     |                               |                                           |          |         |            |          |            |          |            |  
|------------------------------------- | --------------------------------------------------------------------------------- | ----------------------------------- | ----------------------------- | ----------------------------------------- | -------- | ------- | ---------- | -------- | ---------- | -------- | ---------- | -
|                                      |                                                                                   |                                     |                               |                                           |          | 2001    |            | 2000    
|                                      |                                                                                   |                                     |                               |                                           |          |         |            |         
|Cash flows from operating activities: |                                                                                   |                                     |                               |                                           |          |         |            |         
|                                      | Net income                                                                        |                                     | $                             | 185,339                                   |          |         | $          | 23,071   |           
|                                      | Adjustments to reconcile net income to net cash
provided by operating activities: |                                     |                               |                                           |          |         |            |          |           
|                                      |                                                                                   |                                     | Depreciation and amortization |                                           |          | 446,483 |            |          |            | 600,667  |           
|                                      |                                                                                   |                                     | Deferred income taxes         |                                           |          | 96,736  |            |          |            | (161,119 | )         
|                                      | Decrease (increase) in:                                                           |                                     |                               |                                           |          |         |            |          |           
|                                      |                                                                                   |                                     |                               | Accounts receivable                       |          |         | (366,015   | )        |            |          | (3,594,859 | )
|                                      |                                                                                   |                                     |                               | Inventories                               |          |         | (1,481,893 | )        |            |          | (1,629,668 | )
|                                      |                                                                                   |                                     |                               | Prepaid expenses and other assets         |          |         | 47,557     |          |            |          | 495,954    |  
|                                      | Increase (decrease) in:                                                           |                                     |                               |                                           |          |         |            |          |           
|                                      |                                                                                   |                                     |                               | Accounts payable and accrued liabilities  |          |         | 1,694,749  |          |            |          | 4,419,635  |  
|                                      |                                                                                   |                                     |                               |                                           |          |         |            |         
|                                      |                                                                                   |                                     |                               | Net cash provided by operating activities |          |         | 622,956    |          |            |          | 153,681    |  
|                                      |                                                                                   |                                     |                               |                                           |          |         |            |         
|Cash flows from investing activities: |                                                                                   |                                     |                               |                                           |          |         |            |         
|                                      |                                                                                   | Capital expenditures                |                               |                                           | (255,831 | )       |            |          | (1,691,526 | )       
|                                      |                                                                                   | Other assets                        |                               |                                           | (118,312 | )       |            |          | (16,847    | )       
|                                      |                                                                                   | Patents and intellectual properties |                               |                                           | (395,638 | )       |            |          | (583,596   | )       
|                                      |                                                                                   |                                     |                               |                                           |          |         |            |         
|                                      |                                                                                   |                                     |                               | Net cash (used in)
investing activities   |          |         | (769,781   | )        |            |          | (2,291,969 | )
|                                      |                                                                                   |                                     |                               |                                           |          |         |            |         
|Cash flows from financing activities: |                                                                                   |                                     |                               |                                           |          |         |            |         
|                                      | Net (payments) borrowings under line of credit                                    |                                     |                               | (166,806                                  | )        |         |            | 882,662  |           
|                                      | Net proceeds from sale of common stock                                            |                                     |                               | 1,156,876                                 |          |         |            | 346,021  |           
|                                      | Principal payments of long-term debt                                              |                                     |                               | (536,847                                  | )        |         |            | (106,667 | )         
|                                      |                                                                                   |                                     |                               |                                           |          |         |            |         
|                                      |                                                                                   |                                     |                               | Net cash provided by
financing activities |          |         | 453,223    |          |            |          | 1,122,016  |  
|                                      |                                                                                   |                                     |                               |                                           |          |         |            |         
|                                      |                                                                                   |                                     |                               | Net increase (decrease) in cash           |          |         | 306,398    |          |            |          | (1,016,272 | )
|Cash at beginning of year             |                                                                                   |                                     | 339,348                       |                                           |          |         | 1,096,512  |         
|                                      |                                                                                   |                                     |                               |                                           |          |         |            |         
|Cash at end of period                 |                                                                                   | $                                   | 645,746                       |                                           |          | $       | 80,240     |         
|                                      |                                                                                   |                                     |                               |                                           |          |         |            |         

SUPPLEMENTAL DISCLOSURES, NON-CASH FINANCING ACTIVITIES

During the period ending September 30 2001, the Company issued 10,000
shares of common stock to an investor relations firm for services rendered in
the amount $25,000.

See Accompanying Notes

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COLOR IMAGING, INC. AND SUBSIDIARY
NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 30, 2001
(Unaudited)

NOTE 1. BASIS OF PRESENTATION

The accompanying unaudited interim consolidated condensed financial statements
have been prepared in accordance with interim accounting principles generally
accepted in the United States of America for interim financial information and
with the instructions to Form 10-QSB. Accordingly, they do not include all of
the information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals and adjustments) considered necessary for a fair presentation have
been included. Operating results for the three and nine months ended September
30, 2001 are not necessarily indicative of the results that may be expected for
the year ended December 31, 2001.

NOTE 2. PROPERTY, PLANT AND EQUIPMENT

Effective January 1, 2001, the Company changed its accounting estimates
relating to depreciation. The estimated service life for certain machinery,
equipment and fixtures was extended by three (3) to thirteen (13) years.

Property, plant and equipment are stated at cost. Depreciation of the
Companys property, plant, and equipment is computed using the straight-line
method. The estimated useful lives are as follows:

|                                   |  |       |         | 
|---------------------------------- |  | ----- | ------- | 
|                                   |  | Years
|                                   |  |      
|Leasehold improvements             |  |       | 10 - 20 | 
|Machinery and equipment            |  |       | 7 - 20  | 
|Research and development equipment |  |       | 5 - 10  | 
|Furniture and fixtures             |  |       | 7 - 10  | 

NOTE 3. STOCK OPTIONS

On September 19, 2001, the Company granted options to acquire 25,000 shares of
the common stock of the Company to a non-employee director effective as of the
date of his becoming a member of the Board of Directors. The options vest in 5
equal annual increments from the effective date and expire, with respect to
that portion that has vested, 3 years from date of vesting. The option price is
$2.75 per share. The Company accounts for stock option grants in accordance
with APB Opinion No. 25, Accounting for Stock Issued to Employees, including
Financial Accounting Standards Board Interpretation No. 44, Accounting for
Certain Transactions Involving Stock Compensation. Interpretation No. 44
clarifies: the application of APB No. 25 for the definition of an employee for
purposes of applying APB No. 25; the criteria for determining whether a plan
qualifies as a non-compensatory plan; the accounting consequence of various
modifications to the terms of previously fixed stock options or awards; and the
accounting for an exchange of stock compensation awards in a business
combination.

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##### Table of Contents



NOTE 4. INVENTORIES

Inventories consisted of the following components as of September 30, 2001 and
December 31, 2000:

|                       |       |   |                    |           |                   |   |           |           | 
|---------------------- | ----- | - | ------------------ | --------- | ----------------- | - | --------- | --------- | 
|                       |       |   | September 30, 2001 |           | December 31, 2000
|                       |       |   |                    |           |                  
|Raw materials          |       | $ | 913,604            |           |                   | $ | 794,128   |          
|Work-in-process        |       |   | 911,360            |           |                   |   | 1,275,545 |          
|Finished goods         |       |   | 4,960,832          |           |                   |   | 3,234,230 |          
|Obsolescence allowance |       |   | (122,655           | )         |                   |   | (122,655  | )        
|                       |       |   |                    |           |                   |   |           |          
|                       | Total |   | $                  | 6,663,141 |                   |   | $         | 5,181,248 | 
|                       |       |   |                    |           |                   |   |           |          

NOTE 5. CHANGES TO BORROWING ARRANGEMENTS

The Company has a $1.5 million revolving line of credit with an outstanding
balance as of September 30, 2001 of $732,000. At the end of each month for the
following month, the Company has the interest rate option of either the one
month Libor interest rate in effect two business days before the first day of
the month plus 2.50% or the Banks prime interest rate minus 0.25%. As of
September 30, 2001, the interest rate was the one month Libor rate plus 2.50%
(6.08%). This revolving line of credit has a December 31, 2001 expiration date.

The Bank has made available an additional line of credit of $500,000. The
outstanding balance as of September 30, 2001 was $500,000. The additional line
of credit has an expiration date of December 31, 2001, and bears an interest
rate of the Banks prime interest rate plus 0.5% (6.50% at September 30, 2001).

Under these lines of credit, the Company is permitted to borrow up to 85% of
eligible accounts receivable and 50 percent of eligible inventories (up to a
maximum of $1.1 million and not to exceed 60 percent of the total
outstandings). The Company has granted the Bank a security interest in all of
the Companys assets as security for the repayment of the lines of credit.

The Bank agreement contains various covenants that the Company is required to
maintain; fixed charge and cash flow leverage ratios of not less than 1.20:1
and not greater than 4.00:1, respectively. As of September 30, 2001, the
Company was not in compliance with these covenants and has received a waiver
from the bank as regards these requirements for the period ended September 30,
2001.

NOTE 6. SIGNIFICANT CUSTOMERS

In the nine month period ended September 30, 2001, three customers accounted
for 25%, 16% and 14% of net sales. The Company does not have a written or oral
contract with these customers. All sales are made through purchase orders.

NOTE 7. SIGNIFICANT SUPPLIERS

In the nine months ended September 30, 2001, the Company purchased 54% of its
raw materials, components and supplies from one supplier in connection with
sales to its largest customers. The Company also has an annually renewable
Original Equipment Manufacturer (OEM) purchase agreement under which it
purchases, adds value and resells its technology to the commercial printing
industry. The Company intends to design and manufacture the products it now
obtains under this OEM purchase agreement. However, should this OEM purchase
agreement not be renewed

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before the Company has completed this product development, the Companys
ability to manufacture and deliver these products could be severely limited.

NOTE 8. STOCKHOLDERS EQUITY:

From January 1, 2001 to September 30, 2001, the Company issued 550,000
Units at a price of $2.00 per unit for an aggregate of $1,100,000. Each Unit
consisted of one share of common stock and one warrant to purchase one share of
common stock at a price of $2.00. For the nine-month period ended September
30, 2001, the Company received gross proceeds aggregating $110,906 as a result
of the exercise of warrants previously issued.

On September 19, 2001, the Board of Directors authorized the sale of
1,000,000 shares of the Corporations common stock, par value $.01, at a price
of $2.00 per share to an unaffiliated entity.




ITEM 2.

MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

BACKGROUND

Color Imaging, Inc. (the Company or Color), OTCBB: CIMG, develops and
manufactures products used in electronic printing, analog and digital copiers
and high-speed digital variable data printing in real-time directly on web
presses. Products include formulations for black text and specialty toners,
including color and magnetic ink characters which are used on checks and other
financial documents, photoreceptors and imaging drums. The Companys
subsidiary, Logical Imaging Solutions, Inc. (Logical) provides the commercial
printer with a complete printing system that, when installed directly on an
offset printing press, expands printing capabilities to include any variable
data together with bar codes, MICR, and unlimited alphanumeric sequencing.
These functions address the needs of commercial printers that require digital
processing and printing of variable data at extremely high speeds.

Logical intends to beta test the SOLUTION Series of printing systems with
the ability to print variable data in color at speeds exceeding 250
feet-per-minute, as an alternative product for offset high-speed printing
applications, during the fourth quarter of 2001. Logicals color system,
introduced as the DIGITALCOLORPRESS (DCP) will be offered during 2002 to
production printing sites worldwide and as an upgrade alternative to the
hundreds of current users of EBI printing systems.

COLOR

Color, since 1989, has developed and manufactured products used in
electronic printing and formulates and produces, from raw materials, black text
and specialty toners, including color and MICR (magnetic ink characters which
are used on checks and other financial documents). Color also supplies other
consumable products, including toner cartridges, cartridge components,
photoreceptors and imaging drums.

Color is continually expanding its product line and manufacturing
capabilities. This expansion has led to the creation of more than 130
different toner formulations, including aftermarket toners and imaging products
for printers manufactured by Brother, Canon, Delphax, Hewlett
Packard, IBM, Lexmark, Sharp, Xerox and printing systems
developed by Logical. Product enhancements offered also include imaging
supplies that enable standard laser printers to print MICR characters. Colors
production, product development and support activities are conducted from a
180,000 square foot facility located in a suburb of Atlanta, Georgia. Products
are marketed directly as branded products to Original Equipment Manufacturers
(OEMs) and as aftermarket products to end-users of laser printers supplied
through a worldwide network of distributors.

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LOGICAL

Logical designs, manufactures and delivers a complete printing system that
when installed directly on an offset printing press expands printing
capabilities to include any variable data together with bar codes, MICR and
unlimited alphanumeric sequencing. These functions address the needs of
commercial printers that require digital processing and printing of variable
data at extremely high speeds. Logicals development efforts, since its
founding in 1993, have focused on creating a revolutionary high-speed digital
variable data printing process, including software, hardware and consumable
products for commercial offset printing applications. Logicals expansion plans
include color printing capabilities and the ability to print simultaneously on
multiple print engines. Further ambitions are to offer similar digital,
high-speed color printing solutions for data processing applications.

Logicals product line includes software, hardware and consumable
products. The Companys printers operating software, CREATE!, allows the
commercial printer to create any type of document, tag, ticket or label and
control the printing process on the press. CREATE! accomplishes all imaging
functions in a WindowsNT environment, enabling the user to create, edit,
store, distribute, proof and download documents in any industry-standard
format. Logicals companion hardware product is a proprietary Printer Control
Unit (PCU), incorporating the latest microprocessor technology, providing
digital imaging and the simultaneous control of multiple print engines.
Logicals SOLUTION series of variable data printing systems integrate CREATE!
and the PCU in real-time digital printing technology, featuring a non-impact,
Electron Beam Imaging (EBI) printing process with imaging rates exceeding
1,000 pages-per-minute. Other products include a full line of consumable
products; black text and MICR toners, print cartridges and toner fusing
assemblies. Logicals strategy is to continually build a base of printer
systems that will generate a recurring demand for these high margin consumable
products.

Logical intends to beta test the SOLUTION Series of printing systems with
the ability to print variable data in color at speeds exceeding 250
feet-per-minute, as an alternative product for offset high-speed printing
applications, during the fourth quarter of 2001 and intends to begin selling
them during 2002. In addition, Logicals color system, the DIGITALCOLORPRESS
(DCP) will be offered to production printing sites worldwide and as an
upgrade alternative to the hundreds of current users of Delphax Printing
Systems EBI technology.

OVERVIEW

Sales, for the nine months ended September 30, 2001, were primarily generated
from the sale by Color of black text, color and MICR toners and related
consumable products, including toner cartridges and the re-filling of certain
toner cartridges. In the nine month period ended September 30, 2001, three
customers accounted for 25%, 16% and 14% of net sales.

RECENT DEVELOPMENTS

The Company is a party to negotiations, and has
incurred financial obligations
aggregating $200,000 through September 30, 2001, in connection therewith, to
acquire a manufacturing business. The parties have not reached a final
agreement and the Company cannot make any assurances that a definitive
agreement will be reached or reduced to writing.

During the third quarter the Company completed the final testing of its digital
EBI color toning system and is preparing to beta test at two existing
commercial printing installations during the fourth quarter 2001. The existing
presses will be capable of printing computer driven high-speed digital variable
data color applications directly on an unmodified commercial offset press.

The Company, during the third quarter, successfully finished the engineering
evaluation of a new print head configuration for EBI printing. The EBI print
head

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(patent pending) incorporates a proprietary curved surface and when printing on
an imaging cylinder generates a more uniform dot than prior technology.
Accompanying the development of the print head was the introduction of an
enhanced black text toner designed for duplex EBI printing applications. The
Company intends to have the print cartridge and duplex toner available for
quantity delivery during the first quarter 2002.

The Company entered into an agreement with Wall
Street Consulting Corp dba Wall Street Advisors, Inc., a
nonaffiliate, to issue and sell 1,000,000 shares of its common stock
at $2.00 per share in exchange for $2 million on a promissory note
without prepayment penalty. The agreement provides that a
registration statement covering such shares be filed with the
Securities and Exchange Commission within sixty (60) days, and the
note is payable the earlier of six (6) months after the registration
is declared effective or in twelve (12) months.

RESULTS OF OPERATIONS

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

|                              |  |                           |     |                   |  |      |     |      |  |  |     |  |  |  |     | 
|----------------------------- |  | ------------------------- | --- | ----------------- |  | ---- | --- | ---- |  |  | --- |  |  |  | --- | 
|                              |  | THREE MONTHS ENDED        |     | NINE MONTHS ENDED
|                              |  | SEPTEMBER 30,             |     | SEPTEMBER 30,    
|                              |  |                           |     |                  
|                              |  | 2001                      |     | 2000              |  | 2001 |     | 2000
|                              |  |                           |     |                   |  |      |     |     
|                              |  | (PERCENTAGE OF NET SALES)
|Net sales                     |  |                           | 100 |                   |  |      | 100 |      |  |  | 100 |  |  |  | 100 | 
|Cost of sales                 |  |                           | 87  |                   |  |      | 85  |      |  |  | 86  |  |  |  | 84  | 
|Gross profit                  |  |                           | 13  |                   |  |      | 15  |      |  |  | 14  |  |  |  | 16  | 
|Administrative expenses       |  |                           | 4   |                   |  |      | 6   |      |  |  | 5   |  |  |  | 7   | 
|Research and development      |  |                           | 2   |                   |  |      | 4   |      |  |  | 3   |  |  |  | 4   | 
|Sales and marketing           |  |                           | 4   |                   |  |      | 3   |      |  |  | 4   |  |  |  | 4   | 
|Operating income (loss)       |  |                           | 3   |                   |  |      | 1   |      |  |  | 3   |  |  |  | 1   | 
|Interest expense              |  |                           | 1   |                   |  |      | 2   |      |  |  | 1   |  |  |  | 2   | 
|Depreciation and amortization |  |                           | 1   |                   |  |      | 2   |      |  |  | 2   |  |  |  | 4   | 
|Income before taxes           |  |                           | 2   |                   |  |      | -2  |      |  |  | 1   |  |  |  | 0   | 
|Provision for taxes           |  |                           | 1   |                   |  |      | -1  |      |  |  | 0   |  |  |  | 0   | 
|Net income                    |  |                           | 2   |                   |  |      | -1  |      |  |  | 1   |  |  |  | 0   | 

THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2000

NET SALES. The Companys net sales were over $9.8 million for the three months
ended September 30, 2001, inclusive of $5.4 million of product sold to the
Companys largest customer, or an increase of 63% compared to $6.0 million for
the three month period ended September 30, 2000.

COST OF GOODS SOLD. Cost of goods sold increased by $3.5 million or 67% to $8.6
million in the three months ended September 30, 2001 from $5.1 million in the
three months ended September 30, 2000. These increased costs were primarily due
to increased net sales. Cost of goods sold as a percentage of net sales was 87%
and 85% respectively in the third quarter of 2001 and 2000.

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GROSS PROFIT. As a result of the above factors, gross profit increased 48% to
$1,317,000 in the three months ended September 30, 2001 from $891,000 in the
three months ended September 30, 2000. Gross profit as a percentage of net
sales was 13% and 15% in the third quarter of 2001 and 2000, respectively.

GENERAL AND ADMINISTRATIVE, R&D, AND SELLING EXPENSES. General and
administrative, R&D and selling expenses increased $203,000, or 25% to
$1,014,000 in the three months ended September 30, 2001 from $811,000 in the
three months ended September 30, 2000. General and administrative, selling and
R&D expenses decreased, as a percentage of net sales, to 10% in the third
quarter of 2001 from 14% in the third quarter of 2000 due primarily to the 63%
increase in sales. Administrative expenses increased $36,000 or 10% for the
period. R&D expenses decreased $11,000 for the three months ended September
30, 2001 from the three months ended September 30, 2000, and, as a percentage
of net sales decreased to 2% in the third quarter of 2001 from 4% in the third
quarter of 2000, reflecting the higher sales level. Total R&D, inclusive of
investments in patented technology which were capitalized, totaled $336,000 in
the three months ended September 30, 2001, compared to $400,000 in the period
ended September 30, 2000, or an overall decrease of 16%. Selling expenses
increased by 90% to $375,000 for the three months ending September 30, 2001
from the three months ended September 30, 2000. Net of the reduction in the
provision for doubtful accounts made in the third quarter of 2000, selling
expenses increased by 52% for the third quarter 2001, reflecting the increases
in staff, advertising, promotion, conference and other costs to achieve the 63%
increase in revenues for the third quarter 2001.

OPERATING INCOME. As a result of the above factors the operating income
increased by $223,000, to a profit of $303,000 in the three months ended
September 30, 2001 from a profit of $80,000 in the three months ended September
30, 2000.

INTEREST AND FINANCE EXPENSE. Interest expense decreased $30,000 in the three
months ended September 30, 2001 from $123,000 in the three months ended
September 30, 2000, reflecting lower interest rates and reduced borrowings by
the Company.

OTHER INCOME AND EXPENSE. Interest and other income increased by $17,000 in the
three months ended September 30, 2001 from a loss of $2,000 in the three months
ended September 30, 2000, while the Company experienced no losses from the
disposal of assets or moving during the third quarter 2001, these expenses were
$77,000 during the third quarter of 2000.

INCOME TAXES. As the result of the Companys increased profit in the current
year, the tax provision was $80,000 in the three months ended September 30,
2001 compared to a tax benefit of $67,000 for the comparable period in 2000.

NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 2000.

NET SALES. Net sales were $23.5 million for the nine months ended September 30,
2001, or an increase of 51% compared to $15.5 million for the nine month period
ended September 30, 2000, inclusive of $6.1 million, or 26% of net sales, sold
to the Companys largest customer.

COST OF GOODS SOLD. Cost of goods sold increased by $7.1 million or 55% to
$20.1 million in the nine months ended September 30, 2001 from $13.0 million in
the nine months ended September 30, 2000. This increase in cost was primarily
due to increased net sales. Cost of goods sold as a percentage of net sales
increased to 86% in the nine months ended September 30, 2001 from 84% in the
nine month period of 2000. This increase in cost of sales is attributable to
the Companys higher sales associated with new business at a reduced profit
margin.

GROSS PROFIT. As a result of the above factors, gross profit increased by
$820,000 to $3,360,000 in the nine months ended September 30, 2001 from
$2,540,000 in the nine months ended September 30, 2000. However, gross profit
as a percentage of net sales decreased to 14% for the first nine months of
2001, from 16% for the similar period in 2000. This decrease in gross margin is
primarily due to the sale of a significant amount of product to new customers
at a reduced profit margin.

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GENERAL AND ADMINISTRATIVE, R&D, AND SELLING EXPENSES. General and
administrative, R&D and selling expenses increased $453,000 or 20% to
$2,767,000 in the nine months ended September 30, 2001 from $2,314,000 in the
nine months ended September 30, 2000. General and administrative, selling and
R&D expenses decreased, as a percentage of net sales, to 12% in the first nine
months of 2001 from 15% in the similar nine month period of 2000.
Administrative expenses increased $142,000 or 13% to $1,263,000 for the first
nine months of 2001 or 5% of total revenues compared to 7% for the same period
of 2000. R&D expenses increased by $36,000 or 6% to $621,000 in the nine
months ended September 30, 2001 from $585,000 in the nine months ended
September 30, 2000. However, during the nine month period ended September 30,
2001, the Company invested and capitalized an additional $371,000 in
development, related to patented (U.S. Patent 5,834,150) toners for the
Companys digital high speed printing system. Total R&D inclusive of
investments in patented technology totaled $992,000 in the nine months ended
September 30, 2001, compared to $1,169,000 in the period ended September 30,
2000, or an overall decrease of 15%. Selling expenses increased by $275,000 or
45% to $883,000 for the nine months ending September 30, 2001 from the nine
months ended September 30, 2000, compared to a 51% increase in revenues for the
same period. Notwithstanding the reduction in the provision for doubtful
accounts made in the third quarter 2000, the increase in selling expenses are
primarily due to increased staff, advertising, promotion, and conference
expenses.

OPERATING INCOME. As a result of the above factors, operating income increased
by $367,000, to a profit of $593,000 for the nine months ended September 30,
2001, compared with a profit of $226,000 in the nine months ended September 30,
2000.

INTEREST EXPENSE. Interest expense decreased by $55,000 to $326,000 in the nine
months ended September 30, 2001 from $381,000 in the nine months ended
September 30, 2000. This decrease was primarily due to the decline in interest
rates and the resultant cost of borrowing.

OTHER INCOME AND EXPENSE. Other income decreased by $244,000 for the nine
months ended September 30, 2001, compared with 2000. The primary components of
other income at September 30, 2000 were income from the sale of toner
production equipment and a toner technology license to an unaffiliated company.
Other expenses, non-recurring moving expenses, decreased from $243,000 to
$10,000 for the periods ending September 30, 2000 to 2001.

INCOME TAXES. Income taxes increased by $87,000 to $98,000 for the nine months
ended September 30, 2001 from a provision of $11,000 for the comparable period
in 2000. This increase resulted from the Companys increased profitability.

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2001, the Companys working capital was approximately
$1,057,000 and its current ratio was 1.1 to 1. At December 31, 2000, working
capital was approximately $633,000 and its current ratio was 1.1 to 1.

Cash flows provided by operating activities were $622,000 in the nine months
ended September 30, 2001, compared to $154,000 in the nine months ended
September 30, 2000. The cash flows provided by operating activities in the nine
months ended September 30, 2001 were higher than in the nine months ended
September 30, 2000 due primarily to improved profitability and less of an
increase in accounts and inventories in 2001 associated with the 51% growth in
revenues in 2001 compared to 98% growth for the same period in 2000.

Cash flows used in investing activities were $770,000 and $2,292,000 in the
nine months ended September 30, 2001 and 2000, respectively. This includes
$396,000 and $584,000, respectively, invested in furthering the Companys
patented toner and digital color printing systems technologies. Included in
investing activities at September 30, 2000 were $1,692,000 expended to acquire
capital assets.

The Company has a $1.5 million revolving line of credit with an outstanding
balance as of September 30, 2001 of $732,000. At the end of each month for the
following month, the Company has the interest rate option of either the one
month Libor

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interest rate in effect two business days before the first day of the month
plus 2.50% or the Banks prime interest rate minus 0.25%. As of September 30,
2001, the interest rate was the one month Libor rate plus 2.50% (6.08%). This
revolving line of credit has a December 31, 2001 expiration date.

The Bank has made available an additional line of credit of $500,000. The
outstanding balance as of September 30, 2001 was $500,000. The additional line
of credit has an expiration date of December 31, 2001, and bears an interest
rate of the Banks prime interest rate plus 0.5% (6.50% at September 30, 2001).

Under the lines of credit, the Company is permitted to borrow up to 85% of
eligible accounts receivable and 50 percent of eligible inventories (up to a
maximum of $1.1 million and not to exceed 60 percent of the total
outstandings). The Company has granted the Bank a security interest in all of
the Companys assets as security for the repayment of the lines of credit.

The Bank agreement contains various covenants which the Company is required to
maintain: fixed charge and cash flow leverage ratios of not less than 1.20:1
and not greater than 4.00:1, respectively. As of September 30, 2001, the
Company was not in compliance with these covenants and has received a waiver
from the bank as regards these requirements for the period ended September 30,
2001.

Cash flows provided by financing activities for the nine months ended September
30, 2001 and 2000 were $453,000 and $1,122,000 respectively, and resulted
primarily from $1,157,000 of proceeds from the sale of the Companys common
stock in 2001 and net borrowings of $883,000 under the Companys various credit
facilities and $346,000 of proceeds from the sale of the Companys common stock
in 2000.

To the extent that the funds generated from operating activities and
availability under credit facilities are insufficient to finance the operating
activities of the Company, the Company would need to raise additional funds
through public or private financing. There can be no assurance that additional
financing will be available on favorable terms, or at all. Through September
30, 2001, the Company has raised $1,157,000 from the sale of its common stock.

FACTORS THAT MAY AFFECT FUTURE RESULTS AND INFORMATION CONCERNING 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.
Forward-looking statements are made based upon managements current
expectations and beliefs concerning future developments and their potential
effects upon the Company. There can be no assurance that future developments
affecting the Company will be those anticipated by management, and there are a
number of factors that could adversely affect the Companys future operating
results or cause the Companys actual results to differ materially from the
estimates or expectations reflected in such forward-looking statements,
including without limitation, the factors set forth below:

Ability to Obtain Additional Financing. The Company does not anticipate
that its revenues in the foreseeable future will be sufficient to fulfill its
business plan without the need for additional capital. Therefore, the Company
needs to raise additional funds to finance its operations, fund expansion and
respond to competitive pressures. There can be no assurance that the Company
will be able to obtain additional financing, if needed, on acceptable terms, or
at all.

Dependence on Suppliers. The Company is responsible for procuring raw
materials for its products. The Companys products incorporate technologies
that are available from limited sources of supply. For the three and nine
months ended September 30, 2001, the Company purchased 54% of its raw
materials, components and supplies from one supplier. To the extent that these
raw materials and components are unique, offered to the Company on terms not
available elsewhere or have been

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specified by Customer(s) of the Company, should the Company be unable to
obtain its raw materials and components from this one supplier, product
shipments could be delayed or prevented, which could result in a loss in sales.
If the Company is unable to meet existing orders or to enter into new orders
because of a shortage of certain unique, or even more commonly available, raw
materials and components, the Company will likely lose revenues and risk losing
customers and harming its reputation in the marketplace.

Dependence on a Limited Number of Customers. In the three and nine months
ended September 30, 2001, three customers accounted for 53%, 0% and 20% and
25%, 16% and 14%, respectively, of the Companys net sales. The Company does
not have written or oral contracts with the customers and all sales are made
through purchase orders. The loss of these customers could have a substantial
and material adverse affect on the Company. The Company has in the past, and
might in the future, lose one or more of its major customers. If the Company
fails to continue to sell to its major customers in the quantities anticipated,
or if any major customer terminates its relationship with the Company, the
Companys reputation, the perception of the Companys products and technology
in the marketplace and the growth of the business might be harmed.

Development or Acquisition from Third Parties, Commercialization and
Market Acceptance of Certain Products. The Companys future success will
depend, in large part, on successful development or acquisition from third
parties, commercialization and market acceptance of MICR, color and black text
toners for digital printers and copiers (toners) and its high-speed digital
electron beam imaging (EBI) color printer, toning system and related
consumable products. While the Company has successfully developed toners in
the past and is in the later stages of developing and testing prototypes of its
color EBI toning and printing system and related consumables, the Company has
not commercialized many toners under development nor has it begun commercial
manufacturing of its EBI color toning or printing system. The Companys failure
to successfully develop or obtain from others commercial versions of the
preceding products or the failure of the products to achieve market acceptance
would have a material adverse affect on the Companys business, financial
condition and results of operation.

Competitive and Rapidly Changing Marketplace. There is significant
competition in the toner and consumable products, and color printing systems
industries in which the Company conducts its business. In addition, the market
for color printers and related supplies is rapidly changing. Many of the
Companys competitors have longer operating histories, larger customer bases,
greater brand recognition and significantly greater financial, marketing and
other resources than the Company. These competitors may be able to devote
substantially more resources to developing their business than the Company. The
Companys ability to compete depends upon a number of factors within and
outside of the Companys control, including the success and timing of product
introductions by the Company and its competitors, production costs, selling
prices, product performance, product distribution, marketing ability and
customer support.

Delays in Customer Purchases, Market Acceptance; Increase in Inventories.
Delays in or reductions to customer purchases of existing products in
anticipation of new product introductions by the Company or its competitors,
market acceptance of new products and pricing programs, the reaction of
competitors to any such new products or programs, the life cycles of the
Companys products, as well as delays in product development and manufacturing;
(1) may cause a buildup in the Companys inventories, (2) may make the
transition from current products to new products difficult and (3) could
adversely affect the Companys future operating results. The competitive
pressure to develop technology and products also could cause significant
changes in the level of the Companys operating expenses.

Short Product Life Cycles and Reductions in Unit Selling Prices. The
markets in which the Company competes are characterized by rapidly evolving
technology, frequent new product introductions and significant price
competition. Consequently, short product life cycles and reductions in unit
selling prices due to competitive

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pressures over the life of a product are common. The Companys financial
condition and results of operations could be adversely affected if the Company
is unable to manufacture new, competitive products in a timely manner. The
Companys future success will depend on its ability to source from others,
develop and manufacture technologically competitive products, price them
competitively, and achieve cost reductions for existing products. Advances in
technology will require increased investment to maintain or advance the
Companys market position.

Dependence on Intellectual Property. The Companys success depends in part
on its ability to obtain patents, copyrights and trademarks, maintain trade
secret protection and operate without infringing the proprietary rights of
others. Current or future claims of intellectual property infringement could
prevent the Company from obtaining technology of others and could otherwise
adversely affect its operating results, cash flows, financial position or
business, as could expenses incurred by the Company in enforcing its
intellectual property rights against others or defending against claims that
the Companys products infringe the intellectual property rights of others.

Limited Combined Operating History. The Company has a limited combined
operating history that makes it difficult to evaluate the Companys future
prospects. Through June 2000, Color Image, Inc., which was merged with and into the
Company, and Logical Imaging Solutions, Inc. were operated as independent
entities. There can be no assurance that the Company will successfully
integrate their operations or institute the necessary controls, systems and
procedures, including accounting and financial reporting systems, to manage on
a profitable basis any of the operations individually or the entire combined
enterprise. While each of the Companys officers or directors has substantial
business experience, they have no experience in managing all of the different
business operations in which the Company is engaged. Accordingly, there can be
no assurance that the Companys management will be able to effectively manage
the combined entity or to effectively implement the Companys internal growth
strategy.

Planned Growth through Acquisition. Management expects to grow the
business of the Company through, among other things, acquisitions. The
acquisition strategy is focused on businesses or technologies that management
believes complement or expand the Companys existing business. Acquisitions of
this type involve a number of risks, including the possibility that the
operations of the acquired company will be unprofitable or that management
attention will be diverted from the day-to-day operation of the Companys
business. An unsuccessful acquisition could reduce the Companys margins or
otherwise harm the Companys financial condition, including impairing its
liquidity and resulting in its being in non-compliance with financial
institution covenants. Any acquisition could result in a dilutive issuance of
equity securities, the incurrence of debt and the loss of key employees. In
addition, certain benefits of these acquisitions may be dependent on the
Company taking certain actions which may result in one-time or recurring
charges or expenses (including goodwill impairment) which, depending on the
action taken, may be material. The Company cannot make any assurances that any
acquisitions will be successfully completed or that, if one or more
acquisitions are completed, the acquired businesses, client lists, products or
technologies will generate sufficient revenue to offset the associated costs of
other acquisitions or other adverse effects.

Key Personnel. The Companys future success depends to a significant
extent on the continued services of senior management and other key personnel.
The loss of the services of any of the Companys executive officers or other
key employees could harm the Companys business. The Companys future success
also depends on the Companys ability to attract, retain and motivate highly
skilled employees. Competition for qualified employees in the industries in
which the Company engages is intense. If the Company fails to hire and retain a
sufficient number of qualified employees, the Companys business can be
adversely affected.

Inventory Levels and Customer Demand. The Companys performance depends in
part upon its ability to manage inventory levels to support the demands of new

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customers as well as its established customer base and to address production
and supply difficulties. The Companys future operating results and its ability
to effectively grow or maintain its market share may be adversely affected if
it is unable to address these issues on a timely basis.

Factors unrelated to the Companys operating performance, including
economic and business conditions; the loss of significant customers or
suppliers; the outcome of future litigation and currency exchange rates could
also adversely affect the Companys operating results. In addition, the
Companys stock price, like that of other technology companies can be volatile.
Trading activity in the Companys common stock, particularly due to low trading
volume and inter-day trading in the Companys common stock, may affect the
Companys common stock price.

While the Company reassesses material trends and uncertainties affecting
the Companys financial condition and results of operations in connection with
the preparation of its quarterly and annual reports, the Company does not
intend to review or revise, in light of future events, any particular
forward-looking statement contained in this report.

The information referred to above should be considered by investors when
reviewing any forward-looking statements contained in this report, in any of
the Companys public filings or press releases or in any oral statements made
by the Company or any of its officers or other persons acting on its behalf.
The important factors that could affect forward-looking statements are subject
to change, and the Company does not intend to update the foregoing list of
certain important factors. By means of this cautionary note, the Company
intends to avail itself of the safe harbor from liability with respect to
forward-looking statements that is provided by Section 27A and Section 21E
referred to above.




PART II: OTHER INFORMATION




ITEM 2 -CHANGES IN SECURITIES

From July 1, 2001 to September 30, 2001, the Company issued 150,000 Units
at a price of $2.00 per unit for an aggregate of $300,000. Each Unit consisted
of one share of common stock and one warrant to purchase one share of common
stock at a price of $2.00. No general forms of advertising were used in
connection with this issuance of the Units. No underwriters were used in
connection with the issuance of the Units and no commissions were paid to any
person. The sale and issuance of Units was exempt from the registration
provisions of the Act pursuant to Section 4(2) thereof.




ITEM 6 -EXHIBITS AND REPORTS ON FORM 8-K

(a) EXHIBITS

11.1 Computation of Earnings Per Common Share

(b) REPORTS ON FORM 8-K

None.

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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/ MICHAEL W. BRENNAN                              
|                 |                                                     
|November 2, 2001 | Michael W. Brennan                                  
|                 | Chairman and Chief Executive Officer                
|                 |                                                     
|                 |                                                     
|                 | /s/ MORRIS E. VAN ASPEREN                           
|                 |                                                     
|                 | Morris E. Van Asperen                               
|                 | Executive Vice President and
Chief Financial Officer

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