##### 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 JUNE 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 100
NORCROSS, 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 July 22, 2001, there were 7,956,400 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
BACKGROUND
|PART II: OTHER INFORMATION   
|                              | ITEM 2 - CHANGES IN SECURITIES                                              
|                              | ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K                                   
|SIGNATURES                   
|EX-11.1                      



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##### Table of Contents



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

INDEX

|                                                                  |                                                                                                                       |    |  
|----------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------- | -- | -
|PART I: FINANCIAL INFORMATION                                     |                                                                                                                       |   
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Item 1. Financial Statements                                      |                                                                                                                       |   
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Consolidated Condensed Balance Sheets at June 30, 2001
(Unaudited) and December 31, 2000(Audited)                     |    | 3
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Consolidated Condensed Statements of Operations (Unaudited)
for the Three and Six Months ended June 30, 2001 and 2000 |    | 4
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Consolidated Condensed Statements of Cash Flows (Unaudited)
for the Six Months ended June 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 |                                                                                                                       | 7 
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|PART II: OTHER INFORMATION                                        |                                                                                                                       |   
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Item 2. Changes in Securities                                     |                                                                                                                       | 15
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Item 6. Exhibits and Reports on Form 8-K                          |                                                                                                                       | 15
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Signatures                                                        |                                                                                                                       | 16

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

|                                    |                                                                                                                                                                        |                                           |                            |                                    |           |             |            |            |           |           |            | 
|----------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------- | -------------------------- | ---------------------------------- | --------- | ----------- | ---------- | ---------- | --------- | --------- | ---------- | 
|ASSETS                              |                                                                                                                                                                        | 30-Jun-01                                 |                            | 31-Dec-00                         
|                                    |                                                                                                                                                                        |                                           |                            |                                    |           | (Unaudited) |            | (Audited) 
|                                    |                                                                                                                                                                        |                                           |                            |                                    |           |             |            |           
|CURRENT ASSETS                      |                                                                                                                                                                        |                                           |                            |                                    |           |             |            |           
|                                   
|                                   
|                                   
|                                   
|                                    |                                                                                                                                                                        | Cash                                      |                            | $                                  | 237,597   |             |            | $          | 339,348   |          
|                                   
|                                   
|                                   
|                                   
|                                    |                                                                                                                                                                        | Accounts receivable, net                  |                            |                                    | 3,896,550 |             |            |            | 3,562,121 |          
|                                   
|                                   
|                                   
|                                   
|                                    |                                                                                                                                                                        | Inventory                                 |                            |                                    | 5,172,212 |             |            |            | 5,181,248 |          
|                                   
|                                   
|                                   
|                                   
|                                    |                                                                                                                                                                        | Refundable income taxes                   |                            |                                    | 19,995    |             |            |            | 19,995    |          
|                                   
|                                   
|                                   
|                                   
|                                    |                                                                                                                                                                        | Deferred income taxes                     |                            |                                    | 102,600   |             |            |            | 159,426   |          
|                                   
|                                   
|                                   
|                                   
|                                    |                                                                                                                                                                        | Due from related party                    |                            |                                    | 76,032    |             |            |            | 100,832   |          
|                                   
|                                   
|                                   
|                                   
|                                    |                                                                                                                                                                        | Prepaid expenses and other current assets |                            |                                    | 439,303   |             |            |            | 381,146   |          
|                                    |                                                                                                                                                                        |                                           |                            |                                    |           |             |            |           
|                                    |                                                                                                                                                                        |                                           | TOTAL CURRENT ASSETS       |                                    |           | 9,944,289   |            |            |           | 9,744,116 |           
|                                    |                                                                                                                                                                        |                                           |                            |                                    |           |             |            |           
|PROPERTY, PLANT AND EQUIPMENT  NET |                                                                                                                                                                        |                                           | 7,282,588                  |                                    |           |             | 7,384,679  |           
|                                    |                                                                                                                                                                        |                                           |                            |                                    |           |             |            |           
|OTHER ASSETS                        |                                                                                                                                                                        |                                           |                            |                                    |           |             |            |           
|                                   
|                                   
|                                   
|                                   
|                                    |                                                                                                                                                                        | Patent/intellectual property              |                            |                                    | 1,140,900 |             |            |            | 876,751   |          
|                                   
|                                   
|                                   
|                                   
|                                    |                                                                                                                                                                        | Deferred income taxes                     |                            |                                    | 503,611   |             |            |            | 464,085   |          
|                                   
|                                   
|                                   
|                                   
|                                    |                                                                                                                                                                        | Related party portion of IDR bond         |                            |                                    | 898,096   |             |            |            | 873,296   |          
|                                   
|                                   
|                                   
|                                   
|                                    |                                                                                                                                                                        | Other assets                              |                            |                                    | 464,202   |             |            |            | 269,626   |          
|                                    |                                                                                                                                                                        |                                           |                            |                                    |           |             |            |           
|                                    |                                                                                                                                                                        |                                           | TOTAL OTHER ASSETS         |                                    |           | 3,006,809   |            |            |           | 2,483,758 |           
|                                    |                                                                                                                                                                        |                                           |                            |                                    |           |             |            |           
|                                    |                                                                                                                                                                        | $                                         | 20,233,686                 |                                    |           | $           | 19,612,553 |           
|                                    |                                                                                                                                                                        |                                           |                            |                                    |           |             |            |           
|                                    |                                                                                                                                                                        |                                           |                            | LIABILITIES & STOCKHOLDERS EQUITY |           |             |            |            |           |           |            | 
|                                   
|CURRENT LIABILITIES                 |                                                                                                                                                                        |                                           |                            |                                    |           |             |            |           
|                                   
|                                   
|                                   
|                                   
|                                    |                                                                                                                                                                        | Revolving credit lines                    |                            | $                                  | 1,005,965 |             |            | $          | 1,399,000 |          
|                                   
|                                   
|                                   
|                                   
|                                    |                                                                                                                                                                        | Accounts payable                          |                            |                                    | 6,580,797 |             |            |            | 6,640,402 |          
|                                   
|                                   
|                                   
|                                   
|                                    |                                                                                                                                                                        | Current portion of notes payable          |                            |                                    | 409,347   |             |            |            | 351,150   |          
|                                   
|                                   
|                                   
|                                   
|                                    |                                                                                                                                                                        | Current portion of bonds payable          |                            |                                    | 320,000   |             |            |            | 320,000   |          
|                                   
|                                   
|                                   
|                                   
|                                    |                                                                                                                                                                        | Other current liabilities                 |                            |                                    | 616,741   |             |            |            | 400,276   |          
|                                    |                                                                                                                                                                        |                                           |                            |                                    |           |             |            |           
|                                    |                                                                                                                                                                        |                                           |                            | TOTAL CURRENT LIABILITIES          |           |             | 8,932,850  |            |           |           | 9,110,828  | 
|                                    |                                                                                                                                                                        |                                           |                            |                                    |           |             |            |           
|LONG TERM LIABILITIES               |                                                                                                                                                                        |                                           |                            |                                    |           |             |            |           
|                                   
|                                   
|                                   
|                                   
|                                    |                                                                                                                                                                        | Notes payable                             |                            |                                    | 1,509,430 |             |            |            | 1,685,725 |          
|                                   
|                                   
|                                   
|                                   
|                                    |                                                                                                                                                                        | Bonds payable                             |                            |                                    | 3,780,000 |             |            |            | 3,780,000 |          
|                                    |                                                                                                                                                                        |                                           |                            |                                    |           |             |            |           
|                                    |                                                                                                                                                                        |                                           | LONG TERM LIABILITIES      |                                    |           | 5,289,430   |            |            |           | 5,465,725 |           
|                                    |                                                                                                                                                                        |                                           |                            |                                    |           |             |            |           
|                                    |                                                                                                                                                                        |                                           |                            | TOTAL LIABILITIES                  |           |             | 14,222,280 |            |           |           | 14,576,553 | 
|                                    |                                                                                                                                                                        |                                           |                            |                                    |           |             |            |           
|COMMITMENTS & CONTINGENCIES         |                                                                                                                                                                        |                                           |                            |                                    |           |             |            |           
|                                   
|STOCKHOLDERS EQUITY                |                                                                                                                                                                        |                                           |                            |                                    |           |             |            |           
|                                   
|                                   
|                                   
|                                   
|                                    | Common stock, $.01 par value, authorized 20,000,000
shares; 7,956,400 and 7,490,948 shares issued and
outstanding on June 30, 2001 and
December 31, 2000, respectively |                                           |                            | 79,564                             |           |             |            | 74,909     |          
|                                   
|                                   
|                                   
|                                   
|                                    | Additional paid-in capital                                                                                                                                             |                                           |                            | 7,917,254                          |           |             |            | 6,986,003  |          
|                                   
|                                   
|                                   
|                                   
|                                    | Accumulated deficit                                                                                                                                                    |                                           |                            | (1,985,412                         | )         |             |            | (2,024,912 | )        
|                                    |                                                                                                                                                                        |                                           |                            |                                    |           |             |            |           
|                                    |                                                                                                                                                                        |                                           | TOTAL STOCKHOLDERS EQUITY |                                    |           | 6,011,406   |            |            |           | 5,036,000 |           
|                                    |                                                                                                                                                                        |                                           |                            |                                    |           |             |            |           
|                                    |                                                                                                                                                                        | $                                         | 20,233,686                 |                                    |           | $           | 19,612,553 |           
|                                    |                                                                                                                                                                        |                                           |                            |                                    |           |             |            |           

See Accompanying Notes

3



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##### Table of Contents









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

|                                                   |                              |         |           |                           |           |                         |           |           |           |           |            |          |           |   |           |          |           | 
|-------------------------------------------------- | ---------------------------- | ------- | --------- | ------------------------- | --------- | ----------------------- | --------- | --------- | --------- | --------- | ---------- | -------- | --------- | - | --------- | -------- | --------- | 
|                                                   |                              |         |           | THREE MONTH PERIODS ENDED |           | SIX MONTH PERIODS ENDED
|                                                   |                              |         |           |                           |           |                        
|                                                   |                              |         |           | 30-Jun-01                 |           | 30-Jun-00               |           | 30-Jun-01 |           | 30-Jun-00
|                                                   |                              |         |           |                           |           |                         |           |           |           |          
|SALES                                              |                              | $       | 8,098,154 |                           |           | $                       | 5,807,984 |           |           | $         | 13,626,470 |          |           | $ | 9,536,356 |         
|                                                  
|                                                  
|                                                  
|                                                  
|C0ST OF SALES                                      |                              |         | 7,068,627 |                           |           |                         | 5,037,681 |           |           |           | 11,582,952 |          |           |   | 7,886,751 |         
|                                                   |                              |         |           |                           |           |                         |           |           |           |           |            |          |           |   |           |         
|GROSS PROFIT                                       |                              |         | 1,029,527 |                           |           |                         | 770,303   |           |           |           | 2,043,518  |          |           |   | 1,649,605 |         
|                                                   |                              |         |           |                           |           |                         |           |           |           |           |            |          |           |   |           |         
|OPERATING EXPENSES:                                |                              |         |           |                           |           |                         |           |           |           |           |            |          |           |   |           |         
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Administrative               |         |           | 387,776                   |           |                         |           | 427,902   |           |           |            | 843,957  |           |   |           | 738,743  |          
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Research & development       |         |           | 184,931                   |           |                         |           | 184,299   |           |           |            | 401,840  |           |   |           | 353,920  |          
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Sales & marketing            |         |           | 281,712                   |           |                         |           | 191,827   |           |           |            | 507,393  |           |   |           | 410,551  |          
|                                                   |                              |         |           |                           |           |                         |           |           |           |           |            |          |           |   |           |         
|                                                   |                              |         | 854,419   |                           |           |                         | 804,028   |           |           |           | 1,753,190  |          |           |   | 1,503,214 |         
|                                                   |                              |         |           |                           |           |                         |           |           |           |           |            |          |           |   |           |         
|OPERATING PROFIT (LOSS)                            |                              |         | 175,108   |                           |           |                         | (33,725   | )         |           |           | 290,328    |          |           |   | 146,391   |         
|                                                   |                              |         |           |                           |           |                         |           |           |           |           |            |          |           |   |           |         
|OTHER INCOME (EXPENSE):                            |                              |         |           |                           |           |                         |           |           |           |           |            |          |           |   |           |         
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Interest and other income    |         |           | 3,304                     |           |                         |           | 54,238    |           |           |            | 10,986   |           |   |           | 272,375  |          
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Interest & financing expense |         |           | (113,360                  | )         |                         |           | (140,877  | )         |           |            | (233,934 | )         |   |           | (257,277 | )        
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Gain on disposal of assets   |         |           |                          |           |                         |           | 227,481   |           |           |            |         |           |   |           | 227,481  |          
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Non-recurring moving expense |         |           |                          |           |                         |           | (24,230   | )         |           |            | (9,570   | )         |   |           | (232,642 | )        
|                                                   |                              |         |           |                           |           |                         |           |           |           |           |            |          |           |   |           |         
|                                                   |                              |         | (110,056  | )                         |           |                         | 116,612   |           |           |           | (232,518   | )        |           |   | 9,937     |         
|                                                   |                              |         |           |                           |           |                         |           |           |           |           |            |          |           |   |           |         
|INCOME BEFORE TAXES                                |                              |         | 65,052    |                           |           |                         | 82,887    |           |           |           | 57,810     |          |           |   | 156,328   |         
|                                                  
|PROVISION FOR TAXES                                |                              |         | 20,210    |                           |           |                         | 53,000    |           |           |           | 18,310     |          |           |   | 78,000    |         
|                                                   |                              |         |           |                           |           |                         |           |           |           |           |            |          |           |   |           |         
|NET INCOME                                         |                              | $       | 44,842    |                           |           | $                       | 29,887    |           |           | $         | 39,500     |          |           | $ | 78,328    |         
|                                                   |                              |         |           |                           |           |                         |           |           |           |           |            |          |           |   |           |         
|INCOME PER COMMON SHARE                            |                              |         |           |                           |           |                         |           |           |           |           |            |          |           |   |           |         
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                              | Basic   |           | $                         | .01       |                         |           | $         |          |           |            | $        | .01       |   |           | $        | .01       | 
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                              | Diluted |           | $                         | .01       |                         |           | $         |          |           |            | $        | .01       |   |           | $        | .01       | 
|                                                  
|                                                  
|                                                  
|                                                  
|COMMON SHARES OUTSTANDING
WEIGHTED AVERAGE SHARES: |                              |         |           |                           |           |                         |           |           |           |           |            |          |           |   |           |         
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                              | Basic   |           |                           | 7,705,607 |                         |           |           | 6,201,625 |           |            |          | 7,624,695 |   |           |          | 5,802,437 | 
|                                                   |                              |         |           |                           |           |                         |           |           |           |           |            |          |           |   |           |         
|                                                   |                              | Diluted |           |                           | 7,883,553 |                         |           |           | 6,510,804 |           |            |          | 7,794,318 |   |           |          | 5,957,026 | 
|                                                   |                              |         |           |                           |           |                         |           |           |           |           |            |          |           |   |           |         

See Accompanying Notes

4



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##### Table of Contents









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

|                                      |                                                                                              |                                     |                               |                                                      |          |         |           |           |            |         |            |  
|------------------------------------- | -------------------------------------------------------------------------------------------- | ----------------------------------- | ----------------------------- | ---------------------------------------------------- | -------- | ------- | --------- | --------- | ---------- | ------- | ---------- | -
|                                      |                                                                                              |                                     |                               |                                                      |          | 2001    |           | 2000     
|                                      |                                                                                              |                                     |                               |                                                      |          |         |           |          
|Cash flows from operating activities: |                                                                                              |                                     |                               |                                                      |          |         |           |          
|                                     
|                                     
|                                     
|                                     
|                                      | Net income                                                                                   |                                     | $                             | 39,500                                               |          |         | $         | 78,328    |           
|                                     
|                                     
|                                     
|                                     
|                                      | Adjustments to reconcile net income to net cash
provided (utilized) by operating activities: |                                     |                               |                                                      |          |         |           |           |           
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                              |                                     | Depreciation and amortization |                                                      |          | 300,847 |           |           |            | 470,046 |           
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                              |                                     | Deferred income taxes         |                                                      |          | 17,300  |           |           |            |         |           
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                              |                                     |                               |                                                      |          |         | (41,001   | )        
|                                     
|                                     
|                                     
|                                     
|                                      | Decrease (increase) in:                                                                      |                                     |                               |                                                      |          |         |           |           |           
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                              |                                     |                               | Accounts receivable                                  |          |         | (334,429  | )         |            |         | (2,109,890 | )
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                              |                                     |                               | Inventories                                          |          |         | 9,036     |           |            |         | (2,057,959 | )
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                              |                                     |                               | Prepaid expenses and other assets                    |          |         | (64,577   | )         |            |         | 65,647     |  
|                                     
|                                     
|                                     
|                                     
|                                      | Increase (decrease) in:                                                                      |                                     |                               |                                                      |          |         |           |           |           
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                              |                                     |                               | Accounts payable and accrued liabilities             |          |         | 156,860   |           |            |         | 3,411,122  |  
|                                      |                                                                                              |                                     |                               |                                                      |          |         |           |          
|                                      |                                                                                              |                                     |                               | Net cash provided (utilized) by
operating activities |          |         | 124,537   |           |            |         | (183,707   | )
|                                      |                                                                                              |                                     |                               |                                                      |          |         |           |          
|Cash flows from investing activities: |                                                                                              |                                     |                               |                                                      |          |         |           |          
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                              | Capital expenditures                |                               |                                                      | (198,755 | )       |           |           | (1,261,478 | )      
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                              | Other assets                        |                               |                                                      | (163,158 | )       |           |           |           |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                              | Patents and intellectual properties |                               |                                                      | (264,149 | )       |           |           | (414,108   | )      
|                                      |                                                                                              |                                     |                               |                                                      |          |         |           |          
|                                      |                                                                                              |                                     |                               | Net cash (used in)
investing activities              |          |         | (626,062  | )         |            |         | (1,675,586 | )
|                                      |                                                                                              |                                     |                               |                                                      |          |         |           |          
|Cash flows from financing activities: |                                                                                              |                                     |                               |                                                      |          |         |           |          
|                                     
|                                     
|                                     
|                                     
|                                      | Net (payments) borrowings under line of credit                                               |                                     |                               | (393,035                                             | )        |         |           | 1,482,000 |           
|                                     
|                                     
|                                     
|                                     
|                                      | Proceeds from sale of common stock                                                           |                                     |                               | 910,906                                              |          |         |           | 253,600   |           
|                                     
|                                     
|                                     
|                                     
|                                      | Principal payments of long-term debt                                                         |                                     |                               | (118,097                                             | )        |         |           | (108,535  | )         
|                                      |                                                                                              |                                     |                               |                                                      |          |         |           |          
|                                      |                                                                                              |                                     |                               | Net cash provided by
financing activities            |          |         | 399,774   |           |            |         | 1,627,065  |  
|                                      |                                                                                              |                                     |                               |                                                      |          |         |           |          
|                                      |                                                                                              |                                     |                               | Net (decrease) in cash                               |          |         | (101,751  | )         |            |         | (232,228   | )
|                                     
|                                     
|                                     
|                                     
|Cash at beginning of year             |                                                                                              |                                     | 339,348                       |                                                      |          |         | 1,096,512 |          
|                                      |                                                                                              |                                     |                               |                                                      |          |         |           |          
|Cash at end of period                 |                                                                                              | $                                   | 237,597                       |                                                      |          | $       | 864,284   |          
|                                      |                                                                                              |                                     |                               |                                                      |          |         |           |          

SUPPLEMENTAL DISCLOSURES, NON-CASH FINANCING ACTIVITIES

During the period ending June 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
June 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 six months ended June 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 June 11, 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, and
related interpretations.

NOTE 4. INVENTORIES

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

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|                       |       |   |               |           |                   |   |           |           | 
|---------------------- | ----- | - | ------------- | --------- | ----------------- | - | --------- | --------- | 
|                       |       |   | June 30, 2001 |           | December 31, 2000
|                       |       |   |               |           |                  
|Raw materials          |       | $ | 1,624,938     |           |                   | $ | 794,128   |          
|                      
|                      
|                      
|                      
|Work-in-process        |       |   | 1,637,465     |           |                   |   | 1,275,545 |          
|                      
|                      
|                      
|                      
|Finished goods         |       |   | 2,032,464     |           |                   |   | 3,234,230 |          
|                      
|                      
|                      
|                      
|Obsolescence allowance |       |   | (122,655      | )         |                   |   | (122,655  | )        
|                       |       |   |               |           |                   |   |           |          
|                       | Total |   | $             | 5,172,212 |                   |   | $         | 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 June 30, 2001 of $505,965, which bears interest at the one month
Libor interest rate in effect two business days before the first day of each
month plus 2.50% (6.56% at June 30, 2001). The 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 June 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% (7.25% at June 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 June 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 June 30, 2001.

NOTE 6. SIGNIFICANT CUSTOMERS

In the six month period ended June 30, 2001, two resellers of imaging supplies
each accounted for 27% 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 six months ended June 30, 2001, the Company purchased 56% 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 some of its technology to the web press market. 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 before the Company has completed this product development, the
Companys ability to manufacture and deliver these products to its web press
customers could be severely limited.

ITEM 2.

MANAGEMENTS DISCUSSION
AND ANALYSIS OR PLAN OF OPERATION

BACKGROUND

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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 for the web press address the needs of commercial printers that
require digital processing and printing of variable data at extremely high
speeds.

COLOR

Color, since 1983, 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.

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

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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 in 2001 and 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 six months ended June 30, 2001, were primarily generated from
the sale of Colors black text, color and MICR toners and related consumable
products, including toner cartridges and the re-filling of certain toner
cartridges. In the six month period ended June 30, 2001, two resellers of
imaging supplies each accounted for 27% of net sales.

RECENT DEVELOPMENTS

The Company is a party to negotiations, and incurring financial obligations 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.

RESULTS OF OPERATIONS

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

|                              |  |                           |     |                  |  |      |     |      |  |  |     |  |  |  |     | 
|----------------------------- |  | ------------------------- | --- | ---------------- |  | ---- | --- | ---- |  |  | --- |  |  |  | --- | 
|                              |  | THREE MONTHS ENDED        |     | SIX MONTHS ENDED
|                              |  | JUNE 30,                  |     | JUNE 30,        
|                              |  |                           |     |                 
|                              |  | 2001                      |     | 2000             |  | 2001 |     | 2000
|                              |  |                           |     |                  |  |      |     |     
|                              |  | (PERCENTAGE OF NET SALES)
|Net sales                     |  |                           | 100 |                  |  |      | 100 |      |  |  | 100 |  |  |  | 100 | 
|                             
|                             
|                             
|                             
|Cost of sales                 |  |                           | 87  |                  |  |      | 87  |      |  |  | 85  |  |  |  | 83  | 
|                             
|                             
|                             
|                             
|Gross profit                  |  |                           | 13  |                  |  |      | 13  |      |  |  | 15  |  |  |  | 17  | 
|                             
|                             
|                             
|                             
|Administrative expenses       |  |                           | 5   |                  |  |      | 7   |      |  |  | 6   |  |  |  | 8   | 
|                             
|                             
|                             
|                             
|Research and development      |  |                           | 2   |                  |  |      | 3   |      |  |  | 3   |  |  |  | 4   | 
|                             
|                             
|                             
|                             
|Sales and marketing           |  |                           | 3   |                  |  |      | 3   |      |  |  | 4   |  |  |  | 4   | 
|                             
|                             
|                             
|                             
|Operating income (loss)       |  |                           | 2   |                  |  |      | -1  |      |  |  | 2   |  |  |  | 2   | 
|                             
|                             
|                             
|                             
|Interest expense              |  |                           | 1   |                  |  |      | 2   |      |  |  | 2   |  |  |  | 3   | 
|                             
|                             
|                             
|                             
|Depreciation and amortization |  |                           | 2   |                  |  |      | 5   |      |  |  | 2   |  |  |  | 5   | 
|                             
|                             
|                             
|                             
|Income before taxes           |  |                           | 1   |                  |  |      | 1   |      |  |  | 0   |  |  |  | 2   | 
|                             
|                             
|                             
|                             
|Provision for taxes           |  |                           | 0   |                  |  |      | 1   |      |  |  | 0   |  |  |  | 1   | 
|                             
|                             
|                             
|                             
|Net income                    |  |                           | 1   |                  |  |      | 1   |      |  |  | 0   |  |  |  | 1   | 

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

NET SALES. The Companys net sales were over $8 million for the three months
ended June 30, 2001, or an increase of 39% compared to $5.8 million for the
three month period ended June 30, 2000, inclusive of $3.6 million of product
sold to Colors largest customer.

COST OF GOODS SOLD. Cost of goods sold increased by
$2.1 million or 40% to $7.1 million in the three months ended June 30, 2001 from $5.0 million in the three
months ended June 30, 2000. This increase was primarily due to increased net
sales. Cost of goods sold as a percentage of net sales was 87% in both the
second quarter of 2001 and 2000.

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GROSS PROFIT. As a result of the above factors, gross profit increased 34% to
$1,030,000 in the three months ended June 30, 2001 from $770,000 in the three
months ended June 30, 2000. Gross profit as a percentage of net sales was 13%
in both the second quarter of 2001 and 2000.

GENERAL AND ADMINISTRATIVE, SELLING, AND R&D EXPENSES. General and
administrative, selling and R&D expenses increased $50,000, or 6% to $854,000
in the three months ended June 30, 2001 from $804,000 in the three months ended
June 30, 2000. General and administrative, selling and R&D expenses decreased,
as a percentage of net sales, to 11% in the second quarter of 2001 from 14% in
the second quarter of 2000 due primarily to the 39% increase in sales. R&D
expenses were essentially unchanged in the three months ended June 30, 2001
from the three months ended June 30, 2000, and, as
a percentage of net sales decreased to 2% in the second quarter of 2001, from
3% in the second quarter of 2000, reflecting the higher sales level.

OPERATING INCOME. As a result of the above factors the operating income
increased by $209,000, to a profit of $175,000 in the three months ended June
30, 2001 from a loss of $34,000 in the three months ended June 30, 2000.

INTEREST AND FINANCE EXPENSE. Interest expense decreased $27,000 in the three
months ended June 30, 2001 from $141,000 in the three months ended June 30,
2000.

OTHER INCOME. Other income decreased by $279,000 in the three months ended June
30, 2001 from $282,000 in the three months ended June 30, 2000. This decrease
was primarily the result of the Companys disposing of assets no longer needed
in its plant in the second quarter of 2000.

INCOME TAXES. As the result of the Companys decreased profit in the current
year, the tax provision was $20,000 in the three months ended June 30, 2001
compared to a tax provision of $53,000 for the comparable period in 2000.

SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO SIX MONTHS ENDED JUNE 30, 2000.

NET SALES. Net sales were $13.6 million for the six months ended June 30, 2001,
or an increase of 43% compared to $9.5 million for the six month period ended
June 30, 2000, inclusive of $3.7 million, or 27% of net sales, sold to each of
the Companys two largest customers.

COST OF GOODS SOLD. Cost of goods sold increased by $3.7 million or 47% to
$11.6 million in the six months ended June 30, 2001 from $7.9 million in the
six months ended June 30, 2000. This increase was primarily due to increased
net sales. Cost of goods sold as a percentage of net sales increased to 85% in
the six months ended June 30, 2001 from 83% in the first six month period of
2000. This increase in cost of sales is attributable to the $7.4 million of new
business at a reduced profit margin.

GROSS PROFIT. As a result of the above factors, gross profit increased by
$394,000 to $2,044,000 in the six months ended June 30, 2001 from $1,650,000 in
the six months ended June 30, 2000. However, gross profit as a percentage of
net sales decreased to 15% for the first six months of 2001, from 17% 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.

GENERAL AND ADMINISTRATIVE, SELLING, AND R&D EXPENSES. General and
administrative, selling and R&D expenses increased $250,000 or 17% to
$1,753,000 in the six months ended June 30, 2001 from $1,503,000 in the six
months ended June 30, 2000. General and administrative, selling and R&D
expenses decreased, as a percentage of net sales, to 13% in the first six
months of 2001 from 16% in the similar six month period of 2000. R&D expenses
increased by $48,000 or 14% to $402,000 in the six months ended June 30, 2001 from $354,000 in the six months ended June 30, 2000.
However, during the six month period ended June 30, 2001, the Company invested
an additional $264,000 in development, related to patented (U.S. Patent
5,834,150) toners for the Companys digital high speed printing system. Total
R&D expense inclusive of investments in patented technology totaled $666,000 in
the period ended June 30, 2001, compared to $768,000 in the period ended June
30, 2000, or an overall decrease of 13%.

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OPERATING INCOME. As a result of the above factors, operating income increased
by $144,000, to a profit of $290,000 for the six months ended June 30, 2001,
compared with a profit of $146,000 in the six months ended June 30, 2000.

INTEREST EXPENSE. Interest expense decreased by $23,000 to $234,000 in the six
months ended June 30, 2001 from $257,000 in the six months ended June 30, 2000.
This decrease was primarily due to the decline in interest rates and the
resultant cost of borrowing.

OTHER INCOME. Other expense decreased by $266,000 to $1,000 in the six months
ended June 30, 2001 from $267,000 in the comparable six months ended June 30,
2000. The primary components of other income at June 30, 2000 were income from
the sale of toner production equipment and a toner technology license to an
unaffiliated company, while also in the six months ended June 30, 2000 the
Company had incurred $233,000 of non-recurring moving expense.

INCOME TAXES. Income taxes decreased to $18,000 for the six months ended June
30, 2001 from a provision of $78,000 for the comparable period in 2000. This
decrease resulted from the Companys reduced profitability.

LIQUIDITY AND CAPITAL RESOURCES

At June 30, 2001, the Companys working capital was approximately $1,011,000
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 $125,000 in the six months
ended June 30, 2001, compared to $184,000 utilized by operating activities in
the six months ended June 30, 2000. The cash flows provided by operating
activities in the six months ended June 30, 2001 were higher
than in the six
months ended June 30, 2000 due primarily to decreased inventories in 2001. The
decrease in inventories resulted primarily from the Companys eliminating its
order backlog with its largest customer.

Cash flows used in investing activities were $651,000 and $1,676,000 in the six
months ended June 30, 2001 and 2000, respectively. This includes $264,000 and
$414,000, respectively, invested in furthering the Companys patented toner and
digital color printing systems technologies. Included in investing activities
at June 30, 2000 were $1,261,000 expended to acquire capital assets.

The Company has a $1.5 million revolving line of credit with an outstanding
balance as of June 30, 2001 of $505,965, which bears interest at the one month
Libor interest rate in effect two business days before the first day of each
month plus 2.50%(6.56% at June 30, 2001). The 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 June 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% (7.25% at June 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.

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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 June 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 June 30, 2001.

Cash flows provided by financing activities for the six months ended June 30,
2001 and 2000 were $425,000 and $1,627,000 respectively, and resulted primarily
from payments and/or borrowings under the Companys various credit facilities
and proceeds from the sale of the Companys common stock.

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. On June 11, 2001,
the Board of Directors authorized increasing the amount of a previously
authorized private placement by $1 million.

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:

Limited Operating History. The Company has a limited operating history
that makes it difficult to evaluate the Companys future prospects. The
Companys prospects are subject to risks and uncertainties frequently
encountered by new companies. Many of these risks and uncertainties are
unknown, but they include the uncertainty of the acceptance in the marketplace
of the Companys products or services, including but not limited to its high
speed color printer, if and when available for sale.

Unproven Business Model. The Companys business model involving its
high-speed color printer, is new and its ability to generate profits therefrom
is unproven. The Company cannot assure that its strategy will be successful.
Nevertheless, the success of the Companys high speed color printer is
dependent on market acceptance of the Companys technology.

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.

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,

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including the success and timing of product
introductions by the Company and its competitors, selling prices, product
performance, product distribution, marketing ability and customer support.

Dependence on a Limited Number of Customers. In the three and six months
ended June 30, 2001, two resellers of imaging supplies accounted for 54% and
27% and 6% and 27%, respectively, of the Companys net sales. The Company does
not have a 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.

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 six months
ended June 30, 2001, the Company purchased 54% and 56% of its raw materials,
components and supplies from one supplier. If the Company is unable to obtain
its raw materials and components from this one supplier, product shipments
could be prevented or delayed, 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 raw materials and components, the Company will likely lose
revenues and risk losing customers and harming its reputation in the
marketplace.

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 the acquisitions may be dependent on the Company
taking certain actions which will result in one-time or recurring charges or
expenses (including goodwill amortization) 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.

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 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 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.

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
13Table of Contents


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 will be adversely affected.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.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
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.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.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 INFORMATION14Table of Contents

ITEM 2 - CHANGES IN SECURITIESFrom April 1, 2001 to June 30, 2001, previously issued warrants were
exercised at a price of $2.00 per share for an aggregate of $44,362. The
warrant exercise resulted in the issuance of 22,181 shares of common stock.
The share issuance upon warrant exercise was exempt from the registration
provisions of the Securities Act of 1933, as amended (the Act) pursuant to
Section 4(2) thereof.From April 1, 2001 to June 30, 2001, the Company issued 350,000 Units at a
price of $2.00 per unit for an aggregate of $700,000. 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.On June 11, 2001
the Company issued 10,000 shares of its common stock to one entity
in partial consideration of certain services. Such investor was
prior to the issuances of the shares, fully informed about the
Company, including its business, financial affairs and other matters.
The share issuance 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)  EXHIBITS11.1
        
        Computation of Earnings Per Common Share(b)  REPORTS ON FORM 8-KNone.15Table of Contents


SIGNATURESIn 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.                                                       
|               
|August 10, 2001 |  | /s/ MICHAEL W. BRENNAN                                                    
|                |  |                                                                           
|                |  | Michael W. Brennan
Chairman and Chief Executive Officer                   
|               
|                |  | /s/ MORRIS E. VAN ASPEREN                                                 
|                |  |                                                                           
|                |  | Morris E. Van Asperen
Executive Vice President and
Chief Financial Officer

16