Edgar Filing: IMAGING TECHNOLOGIES CORP/CA

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

FORM 10-QSB

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003

TRANSITION REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file No. 0-12641

[GRAPHIC OMITED]

IMAGING TECHNOLOGIES CORPORATION
(Exact name of registrant as specified in its charter)

DELAWARE . . . . . . . . . . . . . . . . . . . . . . . . . . . 33-0021693
(State or other jurisdiction of incorporation or organization) (IRS Employer ID No.)

17075 VIA DEL CAMPO
SAN DIEGO, CA 92127
(Address of principal executive offices)

Registrant's Telephone Number, Including Area Code: (858) 451-6120

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 past 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

The number of shares outstanding of the registrant's common stock as of November
14 2003 was 289,293,819

Transitional Small Business Disclosure Format (check one): Yes [ ] No [ X]

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

ITEM 1. Consolidated Financial Statements
Consolidated Balance Sheet - September 30, 2003 (unaudited). . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations-3 months ended September 30, 2003 and 2002 (unaudited). 4
Consolidated Statements of Cash Flows - 3 months ended September 30, 2003 and 2002 (unaudited) 6
Notes to Consolidated Financial Statements (unaudited) . . . . . . . . . . . . . . . . . . . . 8

ITEM 2. Management's Discussion and Analysis or Plan of Operations . . . . . . . . . . . . . . . . 17

ITEM 3. Controls and Procedures

PART II - OTHER INFORMATION

ITEM 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ITEM 2. Changes In Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ITEM 3. Defaults Upon Senior Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ITEM 4. Submission of Matters To A Vote of Security Holders. . . . . . . . . . . . . . . . . . . . 30
ITEM 5. Other Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ITEM 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
CERTIFICATIONS

PART I. - FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

IMAGING TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in thousands, except share data)
(unaudited)

ASSETS
SEPT. 30, 2003
----------------
Current assets
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 485
Accounts receivable, net of allowance of $86 . . . . . . . . . . . . . . . . . . . . 403
Inventories, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . 176
----------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,081
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,822
Patent, net of accumulated amortization of $90 . . . . . . . . . . . . . . . . . . . . . . 1,528
PEO contracts, net of accumulated amortization of $108 . . . . . . . . . . . . . . . . . . 1,067
Property and equipment, net of accumulated depreciation. . . . . . . . . . . . . . . . . . 249
Workers' compensation deposit and other assets . . . . . . . . . . . . . . . . . . . . . . 194
----------------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,941
================

LIABILITIES AND SHAREHOLDERS' DEFICIENCY

Current liabilities
Borrowings under bank notes payable . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,145
Notes payable, current portion (including related party note of $1,500) . . . . . . . 2,711
Convertible debentures, net of discounts of $342. . . . . . . . . . . . . . . . . . . 1,394
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,696
Obligations under capital lease . . . . . . . . . . . . . . . . . . . . . . . . . . . 349
PEO payroll taxes and other payroll deductions. . . . . . . . . . . . . . . . . . . . 8,809
PEO accrued worksite employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,213
Advances from related party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Other accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,873
----------------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,220
----------------
Long-term liabilities:
Long-term capital lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Long-term convertible debentures, less discounts of $139. . . . . . . . . . . . . . . 354
Long-term notes payable (including related party note of $250). . . . . . . . . . . . 490
----------------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,147
----------------

Preferred stock - minority interest in subsidiary. . . . . . . . . . . . . . . . . . . . . 921

Shareholders' deficiency
Series A convertible, redeemable preferred stock, $1,000 par value, 7,500 shares
authorized, 20.5 shares issued and outstanding. . . . . . . . . . . . . . . . . . . . 420
Common stock, $0.005 par value, 500,000,000 shares authorized; 265,384,510
shares issued and outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,327
Common stock warrants and options . . . . . . . . . . . . . . . . . . . . . . . . . . 475
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81,783
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (110,132)
----------------
Total shareholders' deficiency . . . . . . . . . . . . . . . . . . . . . . . . . (26,127)
----------------
Total liabilities and shareholders' deficiency. . . . . . . . . . . . . . . . . . . . . . $ 6,941
================

The accompanying notes are an integrated part of these consolidated financial statements.

IMAGING TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(in thousands, except share data)
(unaudited)

(In thousands, except per share amounts)
2003 2002
--------------- ---------------
Revenues
Sales of products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 131 $ 486
Software sales, licenses and royalties. . . . . . . . . . . . . . . . . . . . . . . 36 138
Temporary staffing services . . . . . . . . . . . . . . . . . . . . . . . . . . . . 767 -
PEO services (gross billings of $13,060 and $2,822
respectively; less worksite employee payroll costs of $13,060
and $2,430, respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,952 392
--------------- ---------------
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,886 1,016
--------------- ---------------

Costs of revenues
Cost of products sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 235
Cost of software sales, licenses and royalties. . . . . . . . . . . . . . . . . . . 3 21
Cost of temporary staffing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 693 -
Cost of PEO services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,151 142
--------------- ---------------
Total cost of revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,930 398
--------------- ---------------

Operating expenses
Selling, general, and administrative. . . . . . . . . . . . . . . . . . . . . . . . 3005 2,053
Research and development. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - -
--------------- ---------------
3,005 2,053
--------------- ---------------

Loss from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,049) (1,435)
--------------- ---------------

Other income (expense):
Interest and finance costs, net . . . . . . . . . . . . . . . . . . . . . . . . . . (235) (621)
Gain on extinguishment of debt. . . . . . . . . . . . . . . . . . . . . . . . . . . - -
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (69) 4
--------------- ---------------
(304) (617)
--------------- ---------------

Loss before provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . (2,353) (2,052)

Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - -
--------------- ---------------

Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,353) (2,052)
Preferred stock dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5) (5)
--------------- ---------------
Net loss attributed to common shareholders . . . . . . . . . . . . . . . . . . . . . . . $ (2,358) $ (2,057)
=============== ===============

Loss per common shares
Basic and diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.01) $ (0.08)
=============== ===============

Weighted average common shares - basic and diluted . . . . . . . . . . . . . . . . . . . 240,556 24,662
=============== ===============

The accompanying notes are an integral part of these consolidated financial statements.

IMAGING TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTH ENDED SEPTEMBER 30, 2003 AND 2002
(in thousands, except share data)
(unaudited)

2003 2002
--------------- --------------
Cash flows from operating activities
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (2,358) $ (2,052)
Adjustments to reconcile net loss to net
cash from operating activities
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . . . 115 29
Stock issued for services. . . . . . . . . . . . . . . . . . . . . . . . . . . . 269 295
Amortization of debt discount. . . . . . . . . . . . . . . . . . . . . . . . . . 237 200
Value of service for exercise of warrants. . . . . . . . . . . . . . . . . . . . - 166
Value of warrants issued for services. . . . . . . . . . . . . . . . . . . . . . - 70
Changes in operating assets and liabilities:
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102 374
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1) 10
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . (154) (13)
Accounts payable and accrued expenses. . . . . . . . . . . . . . . . . . . . . . . (1,416) 571
PEO liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,761 229
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (20) -
--------------- --------------
Net cash used in operating activities. . . . . . . . . . . . . . . . . . (465) (121)
--------------- --------------

Cash flows from investing activities
Cash expenditures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (124) -
--------------- --------------
Net cash used in investing activities. . . . . . . . . . . . . . . . . . (124) -
--------------- --------------

Cash flows from financing activities
Change in cash overdraft, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . (87) -

Net borrowings under bank notes payable. . . . . . . . . . . . . . . . . . . . . . . (25) -
Issuance of notes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 75
Repayment of notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (36) -
Repayment of capital lease obligation. . . . . . . . . . . . . . . . . . . . . . . . (1) -
Net proceeds from issuance of common stock . . . . . . . . . . . . . . . . . . . . . - 25
--------------- --------------
Net cash provided by (used in) financing activities. . . . . . . . . . . (149) 100
--------------- --------------

Net decrease in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . (738) (21)
Cash and cash equivalents, beginning of period. . . . . . . . . . . . . . . . . . . . . 1,223 42
--------------- --------------
Cash and cash equivalents, end of period. . . . . . . . . . . . . . . . . . . . . . . . $ 485 $ 22
=============== ==============

The accompanying notes are an integral part of these consolidated financial statements.

IMAGING TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINTUED)
THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(in thousands, except share data)
(unaudited)

NON-CASH INVESTING AND FINANCING ACTIVITIES

During the three months ended September 30, 2003, the Company issued: 1)
5,220,000 shares of its common stock for services valued at $129,400; 2)
10,272,110 shares of its common stock for compensation valued at $140,332; 3)
20,260,000 shares of its common stock for debt of $405,200; and 4) 48,400,337
shares of its common stock for the conversion of convertible debentures in the
amount of $345,562.

During the three months ended September 30, 2002, the Company rescinded the
$70,000 conversion of convertible notes payable into common stock.

IMAGING TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
(unaudited)

NOTE 1. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of Imaging
Technologies Corporation and Subsidiaries (the "Company" or "ITEC") have been
prepared pursuant to the rules of the Securities and Exchange Commission (the
"SEC") for quarterly reports on Form 10-QSB and do not include all of the
information and note disclosures required by accounting principles generally
accepted in the United States of America. These financial statements and notes
herein are unaudited, but in the opinion of management, include all the
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the Company's financial position, results of operations,
and cash flows for the periods presented. These financial statements should be
read in conjunction with the Company's audited financial statements and notes
thereto for the years ended June 30, 2003, 2002, and 2001 included in the
Company's annual report on Form 10-K filed with the SEC. Interim operating
results are not necessarily indicative of operating results for any future
interim period or for the full year.

Jackson Staffing
-----------------

Effective September 1, 2003, the Company acquired, through hiring two key
persons, the operations and results thereof of the temporary staffing service
then owned by Jackson Staffing, LLC.

There is no specific acquisition agreement, except for the hiring of the two
owners as employees of SourceOne Group, Inc., a wholly-owned subsidiary of the
Company. The Company did not acquire Jackson Staffing, but only assumed its
business and employees. Accordingly, only the results of Jackson Staffing for
the month ended September 30, 2003 are included in the Company's financial
statements.

NOTE 2. GOING CONCERN CONSIDERATIONS

The accompanying unaudited consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. For the three months
ended September 30, 2003, the Company had a net loss of $2,353,000. As of
September 30, 2003, the Company had a negative working capital deficiency of
$30,139,000 and had a shareholders' deficiency of $110,132,000. In addition, the
Company is in default on certain note payable obligations and is being sued by
numerous trade creditors for nonpayment of amounts due. The Company is also
deficient in its payments relating to payroll tax liabilities. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern.

On August 20, 1999, at the request of Imperial Bank, the Company's primary
lender, the Superior Court of San Diego appointed an operational receiver who
took control of the Company's day-to-day operations on August 23, 1999. On June
21, 2000, in connection with a settlement agreement reached with Imperial Bank,
the Superior Court of San Diego issued an order dismissing the operational
receiver.

On October 21, 1999, Nasdaq notified the Company that it no longer complied with
the bid price and net tangible assets/market capitalization/net income
requirements for continued listing on The Nasdaq SmallCap Market. At a hearing
on December 2, 1999, a Nasdaq Listing Qualifications Panel also raised public
interest concerns relating to the Company's financial viability. The Company's
common stock was delisted from The Nasdaq Stock Market effective with the close
of business on March 1, 2000. As a result of being delisted from The Nasdaq
SmallCap Market, shareholders may find it more difficult to sell common stock.
This lack of liquidity also may make it more difficult to raise capital in the
future. Trading of the Company's common stock is now being conducted
over-the-counter through the NASD Electronic Bulletin Board and covered by Rule
15g-9 under the Securities Exchange Act of 1934. Under this rule, broker/dealers
who recommend these securities to persons other than established customers and
accredited investors must make a special written suitability determination for
the purchaser and receive the purchaser's written agreement to a transaction
prior to sale. Securities are exempt from this rule if the market price is at
least $5.00 per share.

The Securities and Exchange Commission adopted regulations that generally define
a "penny stock" as any equity security that has a market price of less than
$5.00 per share. Additionally, if the equity security is not registered or
authorized on a national securities exchange or the Nasdaq and the issuer has
net tangible assets under $2,000,000, the equity security also would constitute
a "penny stock." Our common stock does constitute a penny stock because our
common stock has a market price less than $5.00 per share, our common stock is
no longer quoted on Nasdaq and our net tangible assets do not exceed $2,000,000.
As our common stock falls within the definition of penny stock, these
regulations require the delivery, prior to any transaction involving our common
stock, of a disclosure schedule explaining the penny stock market and the risks
associated with it. Furthermore, the ability of broker/dealers to sell our
common stock and the ability of shareholders to sell our common stock in the
secondary market would be limited. As a result, the market liquidity for our
common stock would be severely and adversely affected. We can provide no
assurance that trading in our common stock will not be subject to these or other
regulations in the future, which would negatively affect the market for our
common stock.

The Company must obtain additional funds to provide adequate working capital and
finance operations. However, there can be no assurance that the Company will be
able to complete any additional debt or equity financings on favorable terms or
at all, or that any such financings, if completed, will be adequate to meet the
Company's capital requirements including compliance with the Imperial Bank
settlement agreement. Any additional equity or convertible debt financings could
result in substantial dilution to the Company's shareholders. If adequate funds
are not available, the Company may be required to delay, reduce or eliminate
some or all of its planned activities, including any potential mergers or
acquisitions. The Company's inability to fund its capital requirements would
have a material adverse effect on the Company. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.

NOTE 3. STOCK BASED COMPENSATION

The Company accounts for employee stock options in accordance with Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees". Under APB 25, the Company does not recognize compensation expense
related to options issued under the Company's employee stock option plans,
unless the option is granted at a price below market price on the date of grant.
In 1996, SFAS No. 123 "Accounting for Stock-Based Compensation", became
effective for the Company. SFAS No. 123, which prescribes the recognition of
compensation expense based on the fair value of options on the grant date,
allows companies to continue applying APB 25 if certain pro forma disclosures
are made assuming hypothetical fair value method, for which the Company uses the
Black-Scholes option-pricing model.

For non-employee stock based compensation, the Company recognizes an expense in
accordance with SFAS No. 123 and values the equity securities based on the fair
value of the security on the date of grant. For stock-based awards, the value
is based on the market value for the stock on the date of grant and if the stock
has restrictions as to transferability, a discount is provided for lack of
tradability. Stock option awards are valued using the Black-Scholes
option-pricing model.

The Company applies Accounting Principles Board Opinion No. 25 and related
Interpretations in accounting for its stock option plans. The Company has opted
under SFAS No. 123 to disclose its stock-based compensation with no financial
effect. The pro forma effects of applying SFAS No. 123 in this initial phase-in
period are not necessarily representative of the effects on reported net income
or loss for future years. Had compensation expense for the Company's stock
option plans been determined based upon the fair value at the grant date for
awards under these plans consistent with the methodology prescribed under SFAS
No. 123, the Company's pro forma net loss and net loss per share would have been
as follows for the three months ended September 30:

(In thousands, except share amounts). . . . 2003 2002
------------- -------------
Net loss
As reported . . . . . . . . . . . . . . . . $ (2,446) $ (2,052)
Compensation recognized under APB No. 25. . - -
Compensation recognized under SFAS No. 123. - -
------------- -------------
Pro forma . . . . . . . . . . . . . . . . . $ (2,446) $ (2,052)
============= =============

Basic earnings (loss) per share
As reported . . . . . . . . . . . . . . . . $ (0.01) $ (0.08)
============= =============
Pro forma . . . . . . . . . . . . . . . . . $ (0.01) $ (0.08)

This option valuation model requires input of highly subjective assumptions.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing model does not necessarily provide a reliable single
measure of fair value of its employee stock options.

The weighted average fair value of the options granted during fiscal years 2003
and 2002 is estimated on the date of grant using the Black-Scholes
option-pricing model. All options granted in fiscal years 2003 and 2002 vested
immediately. The weighted average fair values and weighted average assumptions
used in calculating the fair values were as follows for the years ended June 30:

2003 2002
------- ------
Fair Value of options granted. $0.015 $0.56
Risk free interest rate. . . . 3.5% 3.5%
Expected life (years). . . . . 3 1
Expected volatility. . . . . . 421% 179%
Expected dividends . . . . . . - -

NOTE 4. LOSS PER COMMON SHARE

The Company reports earnings (loss) per share in accordance with SFAS No. 128,
"Earnings per Share." Basic earnings (loss) per share are computed by dividing
income (loss) available to common shareholders by the weighted average number of
common shares available. Diluted earnings (loss) per share is computed similar
to basic earnings (loss) per share except that the denominator is increased to
include the number of additional common shares that would have been outstanding
if the potential common shares had been issued and if the additional common
shares were dilutive. Diluted earnings (loss) per share have not been presented
since the effect of the assumed conversion of options and warrants to purchase
common shares would have an anti-dilutive effect. The following potential
common shares have been excluded from the computation of diluted net loss per
share for the three months ended September 30, 2003: warrants - 6,002,356 and
stock options - 34,158,100.

NOTE 5. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

During April 2003, the FASB issued SFAS 149 - "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities", effective for contracts entered
into or modified after June 30, 2003, except as stated below and for hedging
relationships designated after June 30, 2003. In addition, except as stated
below, all provisions of this Statement should be applied prospectively. The
provisions of this Statement that relate to Statement 133 Implementation Issues
that have been effective for fiscal quarters that began prior to June 15, 2003,
should continue to be applied in accordance with their respective effective
dates. In addition, paragraphs 7(a) and 23(a), which relate to forward purchases
or sales of when-issued securities or other securities that do not yet exist,
should be applied to both existing contracts and new contracts entered into
after June 30, 2003. The Company does not participate in such transactions,
however, is evaluating the effect of this new pronouncement, if any, and will
adopt FASB 149 within the prescribed time.

During May 2003, the FASB issued SFAS 150 - "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity", effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period beginning after June
15, 2003. This Statement establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both liabilities
and equity. It requires that an issuer classify a freestanding financial
instrument that is within its scope as a liability (or an asset in some
circumstances). Many of those instruments were previously classified as equity.
Some of the provisions of this Statement are consistent with the current
definition of liabilities in FASB Concepts Statement No. 6, Elements of
Financial Statements. The adoption of this new pronouncement did not have a
material impact to the Company's financial position or results of operations.

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities." Interpretation 46 changes the criteria by which one
company includes another entity in its consolidated financial statements.
Previously, the criteria were based on control through voting interest.
Interpretation 46 requires a variable interest entity to be consolidated by a
company if that company is subject to a majority of the risk of loss from the
variable interest entity's activities or entitled to receive a majority of the
entity's residual returns or both. A company that consolidates a variable
interest entity is called the primary beneficiary of that entity. The
consolidation requirements of Interpretation 46 apply immediately to variable
interest entities created after January 31, 2003. The consolidation requirements
apply to other entities in the first fiscal year or interim period beginning
after December 15, 2003. Certain of the disclosure requirements apply in all
financial statements issued after January 31, 2003, regardless of when the
variable interest entity was established. The Company does not expect the
adoption to have a material impact on the Company's financial position or
results of operations.

NOTE 6. REVENUE RECOGNITION RELATED TO PEO SEGMENT

The Company recognizes its revenues associated with its PEO business pursuant to
EITF 99-19 "Reporting Revenue Gross as a Principal versus Net as an Agent."
Previously, the Company reported its worksite employees as a component of direct
costs, The Company's revenues are now reported net of worksite employee payroll
cost (net method). To conform to the net method, the Company reclassified
worksite employee payroll costs for each of its quarters in the fiscal year
ended June 30, 2003 and its Form 10K for the year ended June 30, 2002. These
reclassifications had no effect on gross profit, operating loss, or net loss.

NOTE 7. CONVERTIBLE NOTES PAYABLE

Listed below is a roll-forward schedule of the convertible debentures:

(In Thousands)

Balance at June 30, 2003 . . . . . . . . . . . . . . . $ 1,857

Issuance of convertible debentures during the quarter. -
Converted into common stock. . . . . . . . . . . . . . (346)
Amortization of value of warrants and preferential
conversion feature . . . . . . . . . . . . . . . . . 237
--------------
Balance at September 30, 2003. . . . . . . . . . . . . $ 1,748
==============

NOTE 8. SHAREHOLDERS' DEFICIENCY

Amendment To The Certificate Of Incorporation.
---------------------------------------------------

On September 28, 2001, the Company's shareholders authorized an amendment to the
Certificate of Incorporation to: (i) effect a stock combination (reverse split)
of the Company's common stock in an exchange ratio to be approved by the Board,
ranging from one (1) newly issued share for each ten (10) outstanding shares of
common stock to one (1) newly issued share for each twenty (20) outstanding
shares of common stock (the "Reverse Split"); and (ii) provide that no
fractional shares or scrip representing fractions of a share shall be issued,
but in lieu thereof, each fraction of a share that any shareholder would
otherwise be entitled to receive shall be rounded up to the nearest whole share.
There will be no change in the number of the Company's authorized shares of
common stock and no change in the par value of a share of Common Stock.

On August 9, 2002, the Company's board of directors approved and effected a 1
for 20 reverse stock split. All share and per share data have been
retroactively restated to reflect this stock split.

Stock Issuances
----------------

During the three months ended September 30, 2003, ITEC issued the following:

- 5,220,000 shares of its common stock for legal and consulting services
valued at $129,400. The value of the services was determined using the market
value of ITEC's common stock on the date of issuance;

- 10,272,110 shares of its common stock for compensation valued at $140,332.
The value of the services was determined using the market value of ITEC's common
stock on the date of issuance;

- 20,260,000 shares of its common stock for debt of $405,200; and

- 48,400,337 shares of its common stock for the conversion of convertible
debentures in the amount of $345,562.

NOTE 9. SEGMENT INFORMATION

The Company managed and internally reported the Company's business as three
reportable segments, principally, (1) products and accessories, (2) software,
(3) temporary staffing, and (4) PEO services.

Segment information for the period ended March 31, 2003 is as follows:

(in thousands)
TEMPORARY
PRODUCTS SOFTWARE STAFFING PEO SERVICES TOTAL
----------- ---------- --------- -------------- --------
3-months ended 9/30/03
---------------------------
Revenues. . . . . . . . $ 131 $ 36 $ 767 $ 3,952 $ 4,886
Operating income (loss) (368) (935) 40 (786) (2,049)

3-months ended 9/30/02
---------------------------
Revenues. . . . . . . . $ 486 $ 138 $ - $ 392 $ 1,016
Operating income (loss) (890) (207) - (338) (1,435)

NOTE 10. SUBSEQUENT EVENTS

From October 1, 2003 to November 14, 2003, the Company issued 23,909,309 shares
of its common stock to consultants, for warrant exercises, for conversion of
convertible debt, and for the reduction of debt.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with
the consolidated financial statements and notes thereto appearing elsewhere in
this Quarterly Report on Form 10-QSB. The statements contained in this Report on
Form 10-QSB that are not purely historical are forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, including
statements regarding our expectations, hopes, intentions or strategies regarding
the future. Forward-looking statements include statements regarding: future
product or product development; future research and development spending and our
product development strategies, and are generally identifiable by the use of
the words "may", "should", "expect", "anticipate", "estimates", "believe",
"intend", or "project" or the negative thereof or other variations thereon or
comparable terminology. Forward-looking statements involve known and unknown
risks, uncertainties and other factors that may cause our actual results,
performance or achievements (or industry results, performance or achievements)
expressed or implied by these forward-looking statements to be materially
different from those predicted. The factors that could affect our actual results
include, but are not limited to, the following: general economic and business
conditions, both nationally and in the regions in which we operate; competition;
changes in business strategy or development plans; our inability to retain key
employees; our inability to obtain sufficient financing to continue to expand
operations; and changes in demand for products by our customers.

OVERVIEW

Imaging Technologies Corporation (ITEC) develops and distributes imaging
software and distributes digital imaging products. ITEC sells a range of imaging
products for use in graphics and publishing, digital photography, and other
niche business and technical markets. Our core technologies are related to the
design and development of software products that improve the accuracy of color
reproduction.

In November 2001, we embarked on an expansion program to provide more
services to help with tasks that have negatively impacted the business
operations of its existing and potential customers. To this end, ITEC, through
strategic acquisitions, became a professional employer organization ("PEO").

ITEC now provides comprehensive personnel management services through its
wholly-owned SourceOne Group and EnStructure subsidiaries. Each of these
subsidiaries provides a broad range of services, including benefits and payroll
administration, health and workers' compensation insurance programs, personnel
records management, and employer liability management to small and medium-sized
businesses.

In May 2002, we entered into an agreement to acquire Dream Canvas, Inc., a
Japanese corporation that has developed machines currently used for the
automated printing of custom stickers, popular in the Japanese consumer market.
We completed the acquisition of Dream Canvas Technology, Inc. (DCT) in October
2002 and paid the sum of $40,000 with the issuance of 100,000 shares of its
common stock. In December 2002, ITEC sold DCT to Baseline Worldwide Limited for
$75,000 in cash.

In July 2002, we entered into an agreement to acquire controlling interest
in Quik Pix, Inc. ("QPI"). QPI shares are traded on the National Quotation
Bureau Pink Sheets under the symbol QPIX. On January 14, 2003, we completed the
acquisition of shares, representing controlling interest, of Quik Pix, Inc.

In August 2002, we entered into an agreement to acquire controlling
interest in Greenland Corporation. Greenland shares are traded on the Electronic
Bulletin Board under the symbol GRLC. On January 14, 2003, we completed the
acquisition of shares, representing controlling interest, of Greenland.

From July 1, 2003 to November 6, 2003, we issued 109,963,339
shares of our common stock to consultants, for warrant exercises, for conversion
of convertible debt, and for the reduction of debt.

Effective September 1, 2003, we acquired, through hiring two key
persons, the operations and results thereof of the temporary staffing service
then owned by Jackson Staffing, LLC.

There is no specific acquisition agreement, except the hiring of
the two owners as employees of SourceOne Group, Inc., a wholly-owned subsidiary
of ITEC. We did not acquire Jackson Staffing, but only assumed its business and
employees. Accordingly, only the results of operations for the month ended
September 30, 2003 are included in our financial statements.

Our business continues to experience operational and liquidity challenges.
Accordingly, year-to-year financial comparisons may be of limited usefulness now
and for the next several periods due to anticipated changes in our business as
these changes relate to potential acquisitions of new businesses, changes in
product lines, and the potential for suspending or discontinuing certain
components of the business.

Our current strategy is: to expand our PEO business and to commercialize
our own technology, which is embodied in our ColorBlind Color Management
software and other products obtained through strategic acquisitions.

To successfully execute our current strategy, we will need to improve our
working capital position. The report of our independent auditors accompanying
our June 30, 2003 financial statements includes an explanatory paragraph
indicating there is a substantial doubt about ITEC's ability to continue as a
going concern, due primarily to the decreases in our working capital and net
worth. We plan to overcome the circumstances that impact our ability to remain a
going concern through a combination of achieving profitability, raising
additional debt and equity financing, and renegotiating existing obligations.

Since the removal of the court appointed operational receiver in June 2000,
we have been able to reestablish relationships with some past customers and
distributors and to establish relationships with new customers. Additionally, we
have been working to reduce costs through the reduction in staff, the suspension
of certain research and development programs, such as the design and manufacture
of controller boards and printers, and the suspension of product sales and
marketing programs related to office equipment and services in favor of a
greater concentration on its PEO and imaging software businesses. We began a
program to reduce our debt through debt to equity conversions. We continue to
pursue the acquisition of businesses that will grow our business.

There can be no assurance, however, that we will be able to complete any
additional debt or equity financings on favorable terms or at all, or that any
such financings, if completed, will be adequate to meet our capital
requirements. Any additional equity or convertible debt financings could result
in substantial dilution to our shareholders. If adequate funds are not
available, we may be required to delay, reduce or eliminate some or all of our
planned activities, including any potential mergers or acquisitions. Our
inability to fund our capital requirements would have a material adverse effect
on the Company. Also see "Liquidity and Capital Resources." and "Risks and
Uncertainties - Future Capital Needs."

RESTRUCTURING AND NEW BUSINESS UNITS

From August 20, 1999 until June 21, 2000, we were under the control of an
operational receiver, appointed by the Court pursuant to litigation between ITEC
and Imperial Bank. The litigation has been dismissed and management has
reassumed control. However, management did not have operational control for
nearly all of fiscal 2000.

In July 2001, we suspended our printer controller development and
manufacturing operations in favor of selling products from other companies to
its customers.

In October 2002, we suspended our sales and marketing activities associated
with the distribution of office products, including printers, scanners,
plotters, and computer networking devices.

ACQUISITION AND SALE OF BUSINESS UNITS

In December 2000, we acquired all of the shares of EduAdvantage.com, Inc.,
an internet sales organization that sells computer hardware and software
products to educational institutions and other customers via its websites:
www.eduadvantage.com and www.soft4u.com. During fiscal 2001, we began
integrating EduAdvantage operations. However, these operations have not been
profitable and we are evaluating the future of this business unit.

In October 2001, we acquired certain assets, for stock, related to our
office products and services business activities, representing $250,000 of
inventories, fixed assets, and accounts receivable. We have since suspended
these operations in favor of concentrating on its software and PEO businesses
and the products and services offered by its recent acquisitions.

In November 2001, we acquired SourceOne Group, Inc. (SOG) and operate it as
a wholly-owned subsidiary. SOG provides PEO services, including benefits and
payroll administration, health and workers' compensation insurance programs,
personnel records management, and employer liability management to small and
medium-sized businesses.

In March 2002, we acquired all of the outstanding shares of EnStructure,
Inc. ("EnStructure), a PEO company, for restricted ITEC common stock. The
purchase price may be increased or decreased based upon EnStructure's
representations of projected revenues and profits, which are defined in the
acquisition agreement.

In May 2002, we entered into an agreement to acquire Dream Canvas, Inc., a
Japanese corporation that has developed machines currently used for the
automated printing of custom stickers, popular in the Japanese consumer market.
We completed the acquisition of Dream Canvas Technology, Inc. (DCT) in October
2002 and paid the sum of $40,000 with the issuance of 100,000 shares of our
common stock. In December 2002, we sold DCT to Baseline Worldwide Limited for
$75,000 in cash.

SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these consolidated financial
statements requires us to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. On an on-going basis, we evaluate our estimates and
judgments, including those related to allowance for doubtful accounts, value of
intangible assets and valuation of non-cash compensation. We base our estimates
and judgments on historical experiences and on various other factors that we
believe to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying value of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions. The most significant
accounting estimates inherent in the preparation of our consolidated financial
statements include estimates as to the appropriate carrying value of certain
assets and liabilities which are not readily apparent from other sources,
primarily allowance for doubtful accounts and estimated fair value of equity
instruments used for compensation. These accounting policies are described at
relevant sections in this discussion and analysis and in the notes to the
consolidated financial statements included in our Annual Report on Form l0-K for
the fiscal year ended June 30, 2002.

REVENUE RECOGNITION RELATED TO PEO SEGMENT

We recognizes its revenues associated with its PEO business pursuant to EITF
99-19 "Reporting Revenue Gross as a Principal versus Net as an Agent."
Previously, we reported our worksite employees as a component of direct costs,
our revenues are now reported net of worksite employee payroll cost (net
method). To conform to the net method, we reclassified worksite employee payroll
costs for each of its quarters within the fiscal year ended June 30, 2003 and
the annual report on Form 10K for the year ended June 30, 2002. These
reclassifications had no effect on gross profit, operating loss, or net loss.

RESULTS OF OPERATIONS

Revenues
--------

Revenues were $4,886,000 and $1,016,000 for the three-month period ended
September 30, 2003 and 2002, respectively, an increase of $3,870,000 or 381%.
The increase in revenues was due primarily to the increase in our PEO customer
base and the addition of temporary staffing operations that began on September
1, 2003. Since the acquisition of SOG, we have lost several customers, primarily
due to changes in rates for services, especially workers' compensation
insurance. Additionally, we elected to terminate certain customers due to
profitability concerns. New customers, particularly related to ExpertHR, a
wholly-owned subsidiary of Greenland, have been acquired, and more are
anticipated pursuant to signed agreements, which we expect will contribute to
increased revenues in the current fiscal year.

PEO Services

PEO revenues for the three-month period ended September 30, 2003 and 2002
were $3,952,000 and $392,000, respectively, an increase of $3,560,000 or 908%.
The increase in revenues was due primarily to the increase in our PEO customer
base and the acquisition of Greenland Corporation in January 2003.

Temporary Staffing

On September 1, 2003, we hired certain employees who had previously worked
in the temporary staffing business. As a result, these new employees were able
to bring to us their books of business, which resulted in revenues of $767,000
since the date of their hire.

Imaging Products

Sales of imaging products were $131,000 and $486,000 for the three month
period ended September 30, 2003 and 2002, respectively, a decrease of $355,000
or 73%. The decrease in product sales was due to the suspension of sales and
marketing activities associated with the resale of office products, including
copiers, printers, and network solutions. We plan to further evaluate our
position related to product sales and marketing.

Revenue from software sales, licensing fees and royalties were $36,000 and
$138,000 for the three-month period ended September 30, 2003 and 2002
respectively, a decrease of $102,000 or 74%. The reduction in software revenues
was due to our lack of sufficient working capital to support sales and marketing
activities. Royalties from the licensing of ColorBlind source code are
insignificant and are reported as part of software sales.

Royalties and licensing fees vary from quarter to quarter and are dependent on
the sales of products sold by OEM customers using ITEC technologies. These
revenues, however, continue to decline, and are expected to decline in the
future due to our focus on imaging product sales and our PEO operations as
opposed to technology licensing activities.

COST OF PRODUCTS SOLD

Cost of PEO services were $3,151,000 (80% of PEO revenues) and $142,000
(36% of PEO revenues) for the three-month period ended September 30, 2003 and
2002, respectively. The decrease in gross profit is due primarily to increased
costs of workers' compensation insurance premiums, which could not be passed on
to our clients.

Cost of temporary staffing was $693,000 (90% of temporary staffing
revenue). There were no such revenues in the prior-year period.

Cost of products sold were $83,000 (63% of product sales) and $235,000 (48%
of product sales) for the three-month period ended September 30, 2003 and 2002,
respectively. The decrease in margins is due primarily to the substantial
reduction in product sales for the reported periods as a result of the
suspension of sales and marketing activities associated with the resale of
office products, including copiers, printers, and network solutions.

Cost of software, licenses and royalties were $3,000 (15% of associated
revenues) and $21,000 (15% of associated revenues) for the three-month period
ended September 30, 2003 and 2002, respectively.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses have consisted primarily of
salaries and commissions of sales and marketing personnel, salaries and related
costs for general corporate functions, including finance, accounting, facilities
and legal, advertising and other marketing related expenses, and fees for
professional services.

Selling, general and administrative expenses for the three-month period
ended September 30, 2003 and 2002, respectively, were $3,005,000 and $2,053,000
an increase of $952,000 or 46%. The increase is due to the acquisition of
Greenland and QPI, and the increased overhead associated with operating a larger
company.

COSTS OF RESEARCH AND DEVELOPMENT

There were no costs incurred for research and development in the three
months ended September 30, 2003 and 2002.

We have been reducing our research and development costs during the past
several quarters. We have suspended most of our engineering and licensing
activities associated with OEM printer products and have re-directed our
research and development costs toward the support of our ColorBlind software
products.

OTHER INCOME AND EXPENSE

Interest and financing costs were $235,000 and $621,000 for the three
months ended September 30, 2003 and 2002, respectively. The decrease is a
reduction in beneficial conversions of our convertible debt compared to the
year-earlier period.

LIQUIDITY AND CAPITAL RESOURCES

Historically, the Company has financed its operations primarily through
cash generated from operations, debt financing, and from the sale of equity
securities. Additionally, in order to facilitate its growth and future
liquidity, the Company has made some strategic acquisitions.

As a result of some of the Company's financing activities, there has been a
significant increase in the number of issued and outstanding shares. During the
three-month period ended September 30, 2003, the Company issued an additional
84,152,447 shares. These shares of common stock were issued primarily for
corporate expenses in lieu of cash, and for the exercise of warrants.

As of September 30, 2003, the Company had negative working capital of
$30,232,000, a decrease in working capital of approximately $1,786,000 as
compared to June 30, 2003, due primarily to our net loss in the quarterly period
ended September 30, 2003.

Net cash used in operating activities was $465,000 for the three month period
ended September 30, 2003 as compared to $121,000 for the three months ended
September 30, 2002, a increase of $344,000 or 284%, due primarily to the
suspension of our business and the additional cash requirements.

Cash used in investing activities was $124,000 for the three month period ended
September 30, 2003, an increase of $124,000 (100%) from the year-earlier period.

We have no material commitments for capital expenditures. Our 5%
convertible preferred stock (which ranks prior to ITEC's common stock), carries
cumulative dividends, when and as declared, at an annual rate of $50.00 per
share. The aggregate amount of such dividends in arrears at September 30, 2003,
was approximately $387,000.

Our capital requirements depend on numerous factors, including market
acceptance of our products and services, the resources we devote to marketing
and selling our products and services, and other factors. The report of our
independent auditors accompanying our June 30, 2003 financial statements
includes an explanatory paragraph indicating there is a substantial doubt about
our ability to continue as a going concern, due primarily to the decreases in
our working capital and net worth. (Also see Note 2 to the Consolidated
Financial Statements.)

RISKS AND UNCERTAINTIES

IF WE ARE UNABLE TO SECURE FUTURE CAPITAL, WE WILL BE UNABLE TO CONTINUE
OUR OPERATIONS.

Our business has not been profitable in the past and it may not be
profitable in the future. We may incur losses on a quarterly or annual basis for
a number of reasons, some within and others outside our control. See "Potential
Fluctuation in Our Quarterly Performance." The growth of our business will
require the commitment of substantial capital resources. If funds are not
available from operations, we will need additional funds. We may seek such
additional funding through public and private financing, including debt or
equity financing. Adequate funds for these purposes, whether through financial
markets or from other sources, may not be available when we need them. Even if
funds are available, the terms under which the funds are available to us may not
be acceptable to us. Insufficient funds may require us to delay, reduce or
eliminate some or all of our planned activities.

To successfully execute our current strategy, we will need to improve our
working capital position. The report of our independent auditors accompanying
the Company's June 30, 2003 financial statements includes an explanatory
paragraph indicating there is a substantial doubt about the Company's ability to
continue as a going concern, due primarily to the decreases in our working
capital and net worth. The Company plans to overcome the circumstances that
impact our ability to remain a going concern through a combination of increased
revenues and decreased costs, with interim cash flow deficiencies being
addressed through additional equity financing.

IF OUR QUARTERLY PERFORMANCE CONTINUES TO FLUCTUATE, IT MAY HAVE A NEGATIVE
IMPACT ON OUR BUSINESS.

Our quarterly operating results can fluctuate significantly depending on a
number of factors, any one of which could have a negative impact on our results
of operations. The factors include: the timing of product announcements and
subsequent introductions of new or enhanced products by us and by our
competitors, the availability and cost of products and/or components, the timing
and mix of shipments of our products, the market acceptance of our new products
and services, seasonality, changes in our prices and in our competitors' prices,
the timing of expenditures for staffing and related support costs, the extent
and success of advertising, research and development expenditures, and changes
in general economic conditions.

We may experience significant quarterly fluctuations in revenues and
operating expenses as we introduce new products and services. Accordingly, any
inaccuracy in our forecasts could adversely affect our financial condition and
results of operations. Demand for our products and services could be adversely
affected by a slowdown in the overall demand for imaging products and/or PEO
services. Our failure to complete shipments during a quarter could have a
material adverse effect on our results of operations for that quarter. Quarterly
results are not necessarily indicative of future performance for any particular
period.

THE MARKET PRICE OF OUR COMMON STOCK HISTORICALLY HAS FLUCTUATED
SIGNIFICANTLY.

Our stock price could fluctuate significantly in the future based upon any
number of factors such as: general stock market trends, announcements of
developments related to our business, fluctuations in our operating results, a
shortfall in our revenues or earnings compared to the estimates of securities
analysts, announcements of technological innovations, new products or
enhancements by us or our competitors, general conditions in the markets we
serve, general conditions in the worldwide economy, developments in patents or
other intellectual property rights, and developments in our relationships with
our customers and suppliers.

In addition, in recent years the stock market in general, and the market
for shares of technology and other stocks have experienced extreme price
fluctuations, which have often been unrelated to the operating performance of
affected companies. Similarly, the market price of our common stock may
fluctuate significantly based upon factors unrelated to our operating
performance.

SINCE OUR COMPETITORS HAVE GREATER FINANCIAL AND MARKETING RESOURCES THAN
WE DO, WE MAY EXPERIENCE A REDUCTION IN MARKET SHARE AND REVENUES.

The markets for our products and services are highly competitive and
rapidly changing. Some of our current and prospective competitors have
significantly greater financial, technical, manufacturing and marketing
resources than we do. Our ability to compete in our markets depends on a number
of factors, some within and others outside our control. These factors include:
the frequency and success of product and services introductions by us and by our
competitors, the selling prices of our products and services and of our
competitors' products and services, the performance of our products and of our
competitors' products, product distribution by us and by our competitors, our
marketing ability and the marketing ability of our competitors, and the quality
of customer support offered by us and by our competitors.

A key element of our strategy is to provide competitively priced, quality
products and services. We cannot be certain that our products and services will
continue to be competitively priced. We have reduced prices on certain of our
products in the past and will likely continue to do so in the future. Price
reductions, if not offset by similar reductions in product costs, will reduce
our gross margins and may adversely affect our financial condition and results
of operations.

The PEO industry is highly fragmented. While many of our competitors have
limited operations, there are several PEO companies equal or substantially
greater in size than ours. We also encounter competition from "fee-for-service"
companies such as payroll processing firms, insurance companies, and human
resources consultants. The large PEO companies have substantially more resources
than us and provide a broader range of resources than we do.

IF WE ACQUIRE COMPLEMENTARY BUSINESSES, WE MAY NOT BE ABLE TO EFFECTIVELY
INTEGRATE THEM INTO OUR CURRENT OPERATIONS, WHICH WOULD ADVERSELY AFFECT OUR
OVERALL FINANCIAL PERFORMANCE.

In order to grow our business, we may acquire businesses that we believe
are complementary. To successfully implement this strategy, we must identify
suitable acquisition candidates, acquire these candidates on acceptable terms,
integrate their operations and technology successfully with ours, retain
existing customers and maintain the goodwill of the acquired business. We may
fail in our efforts to implement one or more of these tasks. Moreover, in
pursuing acquisition opportunities, we may compete for acquisition targets with
other companies with similar growth strategies. Some of these competitors may be
larger and have greater financial and other resources than we do. Competition
for these acquisition targets likely could also result in increased prices of
acquisition targets and a diminished pool of companies available for
acquisition. Our overall financial performance will be materially and adversely
affected if we are unable to manage internal or acquisition-based growth
effectively. Acquisitions involve a number of risks, including: integrating
acquired products and technologies in a timely manner, integrating businesses
and employees with our business, managing geographically-dispersed operations,
reductions in our reported operating results from acquisition-related charges
and amortization of goodwill, potential increases in stock compensation expense
and increased compensation expense resulting from newly-hired employees, the
diversion of management attention, the assumption of unknown liabilities,
potential disputes with the sellers of one or more acquired entities, our
inability to maintain customers or goodwill of an acquired business, the need to
divest unwanted assets or products, and the possible failure to retain key
acquired personnel.

Client satisfaction or performance problems with an acquired business could
also have a material adverse effect on our reputation, and any acquired business
could significantly under perform relative to our expectations. We cannot be
certain that we will be able to integrate acquired businesses, products or
technologies successfully or in a timely manner in accordance with our strategic
objectives, which could have a material adverse effect on our overall financial
performance.

In addition, if we issue equity securities as consideration for any future
acquisitions, existing stockholders will experience ownership dilution and these
equity securities may have rights, preferences or privileges superior to those
of our common stock.

IF WE ARE UNABLE TO DEVELOP AND/OR ACQUIRE NEW PRODUCTS IN A TIMELY MANNER,
WE MAY EXPERIENCE A SIGNIFICANT DECLINE IN SALES AND REVENUES, WHICH MAY HURT
OUR ABILITY TO CONTINUE OPERATIONS.

The markets for our products are characterized by rapidly evolving technology,
frequent new product introductions and significant price competition.
Consequently, short product life cycles and reductions in product selling prices
due to competitive pressures over the life of a product are common. Our future
success will depend on our ability to continue to develop new versions of our
ColorBlind software, and to acquire competitive products from other
manufacturers. We monitor new technology developments and coordinate with
suppliers, distributors and dealers to enhance our products and to lower costs.
If we are unable to develop and acquire new, competitive products in a timely
manner, our financial condition and results of operations will be adversely
affected.

IF THE MARKET'S ACCEPTANCE OF OUR PRODUCTS CEASES TO GROW, WE MAY NOT GENERATE
SUFFICIENT REVENUES TO CONTINUE OUR OPERATIONS.

The markets for our products are relatively new and are still developing. We
believe that there has been growing market acceptance for color printers, color
management software and supplies. We cannot be certain, however, that these
markets will continue to grow. Other technologies are constantly evolving and
improving. We cannot be certain that products based on these other technologies
will not have a material adverse effect on the demand for our products. If our
products are not accepted by the market, we will not generate sufficient
revenues to continue our operations.

IF WE ARE FOUND TO BE INFRINGING ON A COMPETITOR'S INTELLECTUAL PROPERTY
RIGHTS OR IF WE ARE REQUIRED TO DEFEND AGAINST A CLAIM OF INFRINGEMENT, WE MAY
BE REQUIRED TO REDESIGN OUR PRODUCTS OR DEFEND A LEGAL ACTION AT SUBSTANTIAL
COSTS TO US.

We currently hold no patents. Our software products, hardware designs, and
circuit layouts are copyrighted. However, copyright protection does not prevent
other companies from emulating the features and benefits provided by our
software, hardware designs or the integration of the two. We protect our
software source code as trade secrets and make our proprietary source code
available to OEM customers only under limited circumstances and specific
security and confidentiality constraints.

Competitors may assert that we infringe their patent rights. If we fail to
establish that we have not violated the asserted rights, we could be prohibited
from marketing the products that incorporate the technology and we could be
liable for damages. We could also incur substantial costs to redesign our
products or to defend any legal action taken against us. We have obtained U.S.
registration for several of our trade names or trademarks, including: PCPI,
NewGen, ColorBlind, LaserImage, ColorImage, ImageScript and ImageFont. These
trade names are used to distinguish our products in the marketplace.

IF OUR DISTRIBUTORS REDUCE OR DISCONTINUE SALES OF OUR PRODUCTS, OUR
BUSINESS MAY BE MATERIALLY AND ADVERSELY AFFECTED.

Our products are marketed and sold through a distribution channel of value
added resellers, manufacturers' representatives, retail vendors, and systems
integrators. We have a network of dealers and distributors in the United States
and Canada, in the European Community and on the European Continent, as well as
a growing number of resellers in Africa, Asia, the Middle East, Latin America,
and Australia. We support our worldwide distribution network and end-user
customers through operations headquartered in San Diego. As of February 7, 2002,
we directly employed 6 individuals involved in marketing and sales activities.

A portion of our sales are made through distributors, which may carry
competing product lines. These distributors could reduce or discontinue sales
of our products, which could adversely affect us. These independent distributors
may not devote the resources necessary to provide effective sales and marketing
support of our products. In addition, we are dependent upon the continued
viability and financial stability of these distributors, many of which are small
organizations with limited capital. These distributors, in turn, are
substantially dependent on general economic conditions and other unique factors
affecting our markets.

INCREASES IN HEALTH INSURANCE PREMIUMS, UNEMPLOYMENT TAXES, AND WORKERS'
COMPENSATION RATES WILL HAVE A SIGNIFICANT EFFECT ON OUR FUTURE FINANCIAL
PERFORMANCE.

Health insurance premiums, state unemployment taxes, and workers' compensation
rates are, in part, determined by our SourceOne subsidiary's claims experience,
and comprise a significant portion of SourceOne's direct costs. We employ risk
management procedures in an attempt to control claims incidence and structure
our benefits contracts to provide as much cost stability as possible. However,
should we experience a large increase in claims activity, the unemployment
taxes, health insurance premiums, or workers' compensation insurance rates we
pay could increase. Our ability to incorporate such increases into service fees
to clients is generally constrained by contractual agreements with our clients.
Consequently, we could experience a delay before such increases could be
reflected in the service fees we charge. As a result, such increases could have
a material adverse effect on our financial condition or results of operations.

WE CARRY SUBSTANTIAL LIABILITY FOR WORKSITE EMPLOYEE PAYROLL AND BENEFITS COSTS.

Under our client service agreements, we become a co-employer of worksite
employees and we assume the obligations to pay the salaries, wages, and related
benefits costs and payroll taxes of such worksite employees. We assume such
obligations as a principal, not merely as an agent of the client company. Our
obligations include responsibility for (a) payment of the salaries and wages for
work performed by worksite employees, regardless of whether the client company
makes timely payment to SourceOne of the associated service fee; and (2)
providing benefits to worksite employees even if the costs incurred by the
SourceOne to provide such benefits exceed the fees paid by the client company.
If a client company does not pay us, or if the costs of benefits provided to
worksite employees exceed the fees paid by a client company, our ultimate
liability for worksite employee payroll and benefits costs could have a material
adverse effect on the Company's financial condition or results of operations.

AS A MAJOR EMPLOYER, OUR OPERATIONS ARE AFFECTED BY NUMEROUS FEDERAL, STATE, AND
LOCAL LAWS RELATED TO LABOR, TAX, AND EMPLOYMENT MATTERS.

By entering into a co-employer relationship with employees assigned to work at
client company locations, we assume certain obligations and responsibilities or
an employer under these laws. However, many of these laws (such as the Employee
Retirement Income Security Act ("ERISA") and federal and state employment tax
laws) do not specifically address the obligations and responsibilities of
non-traditional employers such as PEOs; and the definition of "employer" under
these laws is not uniform. Additionally, some of the states in which we operate
have not addressed the PEO relationship for purposes of compliance with
applicable state laws governing the employer/employee relationship. If these
other federal or state laws are ultimately applied to our PEO relationship with
our worksite employees in a manner adverse to the Company, such an application
could have a material adverse effect on the Company's financial condition or
results of operations.

While many states do not explicitly regulate PEOs, 21 states have passed laws
that have licensing or registration requirements for PEOs, and several other
states are considering such regulation. Such laws vary from state to state, but
generally provide for monitoring the fiscal responsibility of PEOs and, in some
cases, codify and clarify the co-employment relationship for unemployment,
workers' compensation, and other purposes under state law. There can be no
assurance that we will be able to satisfy licensing requirements of other
applicable relations for all states. Additionally, there can be no assurance
that we will be able to renew our licenses in all states.

THE MAINTENANCE OF HEALTH AND WORKERS' COMPENSATION INSURANCE PLANS THAT COVER
WORKSITE EMPLOYEES IS A SIGNIFICANT PART OF OUR BUSINESS.

The current health and workers' compensation contracts are provided by vendors
with whom we have an established relationship, and on terms that we believe to
be favorable. While we believe that replacement contracts could be secured on
competitive terms without causing significant disruption to our business, there
can be no assurance in this regard.

OUR STANDARD AGREEMENTS WITH PEO CLIENTS ARE SUBJECT TO CANCELLATION ON 60-DAYS
WRITTEN NOTICE BY EITHER THE COMPANY OR THE CLIENT.

Accordingly, the short-term nature of these agreements make us vulnerable to
potential cancellations by existing clients, which could materially and
adversely affect our financial condition and results of operations.
Additionally, our results of operations are dependent, in part, upon our ability
to retain or replace client companies upon the termination or cancellation of
our agreements.

A NUMBER OF LEGAL ISSUES REMAIN UNRESOLVED WITH RESPECT TO THE CO-EMPLOYMENT
AGREEMENT BETWEEN A PEO AND ITS WORKSITE EMPLOYEES, INCLUDING QUESTIONS
CONCERNING THE ULTIMATE LIABILITY FOR VIOLATIONS OF EMPLOYMENT AND
DISCRIMINATION LAWS.

Our client service agreement establishes a contractual division of
responsibilities between the Company and our clients for various personnel
management matters, including compliance with and liability under various
government regulations. However, because we act as a co-employer, we may be
subject to liability for violations of these or other laws despite these
contractual provisions, even if we do not participate in such violations.
Although our agreement provides that the client is to indemnify the Company for
any liability attributable to the conduct of the client, we may not be able to
collect on such a contractual indemnification claim, and thus may be responsible
for satisfying such liabilities. Additionally, worksite employees may be deemed
to be agents of the Company, subjecting us to liability for the actions of such
worksite employees.

IF ALL OF THE LAWSUITS CURRENTLY FILED WERE DECIDED AGAINST US AND/OR ALL
THE JUDGMENTS CURRENTLY OBTAINED AGAINST US WERE TO BE IMMEDIATELY COLLECTED, WE
WOULD HAVE TO CEASE OUR OPERATIONS.

On or about October 7, 1999, the law firms of Weiss & Yourman and Stull,
Stull & Brody made a public announcement that they had filed a lawsuit against
us and certain current and past officers and/or directors, alleging violation of
federal securities laws during the period of April 21, 1998 through October 9,
1998. On or about November 17, 1999, the lawsuit, filed in the name of Nahid
Nazarian Behfarin, on her own behalf and others purported to be similarly
situated, was served on us. On January 31, 2003, we executed a Stipulation of
Settlement, and the matter was approved by the Superior Court in May 2003. Our
insurance company made the required cash settlement payment and the Company
issued 5,000,000 shares to fulfill its part of the settlement agreement.

Throughout fiscal 2000, 2001, 2002 and 2003, and through the date of this
filing, approximately fifty trade creditors have made claims and/or filed
actions alleging the failure of us to pay our obligations to them in a total
amount exceeding $1.8 million. These actions are in various stages of
litigation, with many resulting in judgments being entered against us. Several
of those who have obtained judgments have filed judgment liens on our assets.
These claims range in value from less than one thousand dollars to just over one
million dollars, with the great majority being less than twenty thousand
dollars. Should we be required to pay the full amount demanded in each of these
claims and lawsuits, we may have to cease our operations. However, to date, the
superior security interest held by Imperial Bank has prevented nearly all of
these trade creditors from collecting on their judgments.

IF OUR OPERATIONS CONTINUE TO RESULT IN A NET LOSS, NEGATIVE WORKING
CAPITAL AND A DECLINE IN NET WORTH, AND WE ARE UNABLE TO OBTAIN NEEDED FUNDING,
WE MAY BE FORCED TO DISCONTINUE OPERATIONS.

For several recent periods, up through the present, we had a net loss,
negative working capital and a decline in net worth, which raises substantial
doubt about our ability to continue as a going concern. Our losses have resulted
primarily from an inability to achieve revenue targets due to insufficient
working capital. Our ability to continue operations will depend on positive cash
flow, if any, from future operations and on our ability to raise additional
funds through equity or debt financing. Although we have reduced our work force
and suspended some of our operations, if we are unable to achieve the necessary
product sales or raise or obtain needed funding, we may be forced to discontinue
operations.

IF AN OPERATIONAL RECEIVER IS REINSTATED TO CONTROL OUR OPERATIONS, WE MAY
NOT BE ABLE TO CARRY OUT OUR BUSINESS PLAN.

On August 20, 1999, at the request of Imperial Bank, our primary lender,
the Superior Court, San Diego appointed an operational receiver to us. On August
23, 1999, the operational 65receiver took control of our day-to-day operations.
On June 21, 2000, the Superior Court, San Diego issued an order dismissing the
operational receiver as a part of a settlement of litigation with Imperial Bank
pursuant to the Settlement Agreement effective as of June 20, 2000. The
Settlement Agreement requires that we make monthly payments of $150,000 to
Imperial Bank until the indebtedness is paid in full. However, in the future,
without additional funding sufficient to satisfy Imperial Bank and our other
creditors, as well as providing for our working capital, there can be no
assurances that an operational receiver may not be reinstated. If an operational
receiver is reinstated, we will not be able to expand our products nor will we
have complete control over sales policies or the allocation of funds.

The penalty for noncompliance of the Settlement Agreement is a stipulated
judgment that allows Imperial Bank to immediately reinstate the operational
receiver and begin liquidation proceedings against us. We are currently meeting
the monthly amount of $150,000 as stipulated by the Settlement Agreement with
Imperial Bank. However, the monthly payments have been reduced to $100,000
through January of 2002 and further reduced to $50,000 in 2003.

THE DELISTING OF OUR COMMON STOCK FROM THE NASDAQ SMALLCAP MARKET HAS MADE
IT MORE DIFFICULT TO RAISE FINANCING, AND THERE IS LESS LIQUIDITY FOR OUR COMMON
STOCK AS A RESULT.

The Nasdaq SmallCap Market and Nasdaq Marketplace Rules require an issuer
to evidence a minimum of $2,000,000 in net tangible assets, a $35,000,000 market
capitalization or $500,000 in net income in the latest fiscal year or in two of
the last three fiscal years, and a $1.00 per share bid price, respectively. On
October 21, 1999, Nasdaq notified us that we no longer complied with the bid
price and net tangible assets/market capitalization/net income requirements for
continued listing on The Nasdaq SmallCap Market. At a hearing on December 2,
1999, a Nasdaq Listing Qualifications Panel also raised public interest concerns
relating to our financial viability. While the Panel acknowledged that we were
in technical compliance with the bid price and market capitalization
requirements, the Panel was of the opinion that the continued listing of our
common stock on The Nasdaq Stock Market was no longer appropriate. This
conclusion was based on the Panel's concerns regarding our future viability. Our
common stock was delisted from The Nasdaq Stock Market effective with the close
of business on March 1, 2000. As a result of being delisted from The Nasdaq
SmallCap Market, stockholders may find it more difficult to sell our common
stock. This lack of liquidity also may make it more difficult for us to raise
capital in the future.

Trading of our common stock is now being conducted over-the-counter through
the NASD Electronic Bulletin Board and covered by Rule 15g-9 under the
Securities Exchange Act of 1934. Under this rule, broker/dealers who recommend
these securities to persons other than established customers and accredited
investors must make a special written suitability determination for the
purchaser and receive the purchaser's written agreement to a transaction prior
to sale. Securities are exempt from this rule if the market price is at least
$5.00 per share.

The Securities and Exchange Commission adopted regulations that generally
define a "penny stock" as any equity security that has a market price of less
than $5.00 per share. Additionally, if the equity security is not registered or
authorized on a national securities exchange or the Nasdaq and the issuer has
net tangible assets under $2,000,000, the equity security also would constitute
a "penny stock." Our common stock does constitute a penny stock because our
common stock has a market price less than $5.00 per share, our common stock is
no longer quoted on Nasdaq and our net tangible assets do not exceed $2,000,000.
As our common stock falls within the definition of penny stock, these
regulations require the delivery, prior to any transaction involving our common
stock, of a disclosure schedule explaining the penny stock market and the risks
associated with it. Furthermore, the ability of broker/dealers to sell our
common stock and the ability of stockholders to sell our common stock in the
secondary market would be limited. As a result, the market liquidity for our
common stock would be severely and adversely affected. We can provide no
assurance that trading in our common stock will not be subject to these or other
regulations in the future, which would negatively affect the market for our
common stock.

ITEM 3. CONTROLS AND PROCEDURES

As required by SEC rules, we have evaluated the effectiveness of the design and
operation of our disclosure controls and procedures at the end of the period
covered by this report. This evaluation was carried out under the supervision
and with the participation of our management, including our principal executive
officer and principal financial officer. Based on this evaluation, these
officers have concluded that the design and operation of our disclosure controls
and procedures are effective. There were no changes in our internal control over
financial reporting or in other factors that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.

Disclosure controls and procedures are our controls and other procedures that
are designed to ensure that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the SEC's rules
and forms. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be
disclosed by us in the reports that we file under the Exchange Act is
accumulated and communicated to our management, including principal executive
officer and principal financial officer, as appropriate, to allow timely
decisions regarding required disclosure.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In October 1999, the law firms of Weiss & Yourman and Stull, Stull & Brody
made a public announcement that they had filed a lawsuit against us and certain
current and past officers and/or directors, alleging violation of federal
securities laws and, in November 1999, the lawsuit, filed in the name of Nahid
Nazarian Behfarin, on her own behalf and others purported to be similarly
situated, was served on us. In January 2003, we entered into a Stipulation of
Settlement with the plaintiffs. We agreed to pay the plaintiffs 5,000,000 shares
of common stock and $200,000 in cash. The Parties have accepted the settlement.
We have issued the shares, and our insurance carrier has paid the $200,000 cash
payment. Pursuant to a hearing in May 2003 the Court provided approval to the
settlement.

On August 22, 2002, we were sued by our former landlord, Carmel Mountain #8
Associates, L.P. or past due rent on its former facilities at 15175 Innovation
Drive, San Diego, CA 92127. The amount related to this obligation was included
as an expense in the year ended June 30, 2003.

ITEC was a party to a lawsuit filed by Symphony Partners, L.P. related to
its acquisition of SourceOne Group, LLC. As reported on Form 8-K, dated July 22,
2003, the plaintiffs sought payment of $702 thousand. In June 2003, we entered
into a settlement with the plaintiffs for a cash payment of $274 thousand, which
has been paid.

ITEC is one of dozens of companies sued by The Massachusetts Institute of
Technology, et.al, `related to a patent held by the plaintiffs that may be
related to part of the Company's ColorBlind software. Subsequent to the period
reported in this filing, in June 2003, we entered into a settlement with the
plaintiffs who have agreed to dismiss their claims against us with prejudice in
exchange for a settlement fee payment of $10,000, which has been paid.

We have been sued in Illinois state court along with AIA/Merriman, our
insurance brokers, by the Arena Football League-2 ("AF2"). Damages payable to
AF2, should they win the suit, could exceed $700,000. We expect to defend our
position and rely on representations of our insurance brokers.

Throughout fiscal 2000, 2001, and 2002, and through the date of this
filing, approximately fifty trade creditors have made claims and/or filed
actions alleging the failure of us to pay our obligations to them in a total
amount exceeding $3.0 million, which has been reduced to $1.8 million during the
2003. These actions are in various stages of litigation, with many resulting in
judgments being entered against us. Several of those who have obtained judgments
have filed judgment liens on our assets. These claims range in value from less
than one thousand dollars to just over one million dollars, with the great
majority being less than twenty thousand dollars.

In connection with ITEC's acquisition of controlling interest of Greenland
Corporation, the following are the outstanding legal matters for Greenland
Corporation:

Greenland, along with Seren Systems ("Seren"), its then current and primary
software developer and supplier for its own ABM terminals, was in the process of
completing development of the check cashing service interface to the Mosaic
Software host system being implemented to support a large network of V.com
terminals. In September 2000, Seren unilaterally halted testing and effectively
shut-down any further check cashing development for the V.com project. The
parties participating in this project may have been financially damaged, related
to the delay in performance by Greenland and Seren. None of the parties have
brought suit against Greenland and/or Seren at this time. There is no assurance,
however, that such suit(s) will not be brought in the future.

On May 23, 2001 Greenland filed a Complaint in San Diego County naming
Michael Armani as the defendant. The Complaint alleges breach of contract by
Michael Armani in connection with two separate stock purchase agreements.
Greenland seeks damages in the amount of $474,595. On August 7, 2001 Greenland
filed a request for Entry of Default against Mr. Armani in the amount of
$474,595 and the court granted entry of default. Subsequently Mr. Armani filed a
motion to set aside the entry of default and on October 26, 2001 the court
granted said motion and the entry of default was set aside. Greenland and Mr.
Armani participated in mediation and as a result entered into a settlement
agreement whereby Mr. Armani agreed to make certain cash payments to Greenland
and the parties entered into mutual release of all claims. Mr. Armani defaulted
in his obligation to make the first cash payment and consequently, Greenland
obtained a judgment against Mr. Armani for $100,000. Greenland is continuing its
efforts to collect on the judgment.

On May 23, 2001 Arthur Kazarian, Trustee for the General Wood Investment
Trust (the "Landlord") filed a Complaint in San Diego County naming Greenland as
a defendant. The Complaint alleges breach of contract pursuant to the terms of
the lease agreement between the Company and the Landlord for the real property
located at 1935 Avenida Del Oro, Oceanside, California and previously occupied
by Greenland. The Complaint seeks damages in the amount of approximately
$500,000. Although Greenland remains liable for the payments remaining for the
term of the lease, the Landlord has a duty to mitigate said damages. Greenland
recorded a lease termination liability of $275,000 during the year ended
December 31, 2001. Greenland entered into a settlement agreement with Arthur
Kazarian, Trustee for the General Wood Investment Trust (the "Landlord") where
by Greenland agreed to pay the sum of $220,000 to the Landlord in installments
payments of $20,000 in May 2002, $50,000 in October 2002 and the remaining
balance in December 2002. In the event Greenland defaults in any or all
scheduled payments, the Landlord is entitled to a stipulated judgment of
approximately $275,000. Greenland was unable to make the scheduled payments and
as a result, on July 8, 2002, the Landlord has entered a judgment lien against
Greenland in the amount of $279,654.

Greenland entered into an agreement with Intellicorp, Inc. ("Intellicorp")
whereby Intellicorp agreed to invest $3,000,000 in exchange for seats on the
board of directors and restricted shares of common stock of Greenland. After
making the initial payment of $500,000, Intellicorp defaulted on the balance.
Greenland sued for recovery of the unpaid $2,500,000. Greenland had issued
46,153,848 shares of common stock for the investment, which were returned to
Greenland and cancelled. A default judgment was entered against defendant
IntelliCorp, IntelliGroup, and Isaac Chang. In June 2003, a judgment was
entered in the Superior Court of the State of California, County of San Diego,
against the defendants in favor of Greenland. The amount of the judgment was
$3,950,640.02 and was comprised of an award of $2,950,640.02 for compensatory
damages and an award of $1,000,000.00 for punitive damages. The Court found, by
clear and convincing evidence, that the Defendants acted maliciously and with
the intent to defraud Greenland when they entered into a private placement
transaction to fund Greenland. The defendant's ability to pay is unknown. The
appeal period has expired and we are beginning the collection process.

Max Farrow, a formal officer of Greenland, filed a Complaint in San Diego
County naming Greenland, Thomas J. Beener, Intelli-Group, Inc., Intelli-Group
LLC and Intelli-Corp, Inc. as defendants. The Complaint alleges breach of
contract in connection with Mr. Farrow's resignation as an officer and director
of the Company in January 2001. Greenland and Mr. Thomas Beener, entered into a
settlement agreement with Max Farrow whereby Mr. Farrow agreed to release Mr.
Beener from all claims, obligations etc., in exchange for the issuance of 8
million restricted shares of Greenland common stock. The good faith settlement
was approved by the court and the agreed upon consideration was delivered to Mr.
Farrow. Greenland entered into a settlement with Farrow whereby Greenland agreed
to a judgment of $125,000. However, the judgment will not be enforced until such
time as efforts to collect against IntelliCorp et al, have been exhausted. In
the event funds are collected from IntelliCorp. Mr. Farrow will receive the
first $125,000 plus 50% of the next $200,000 collected. Greenland will retain
all amounts collected thereafter.

Fund Recovery, a temporary staffing service filed a complaint against
Greenland alleging breach of contract. A summary judgment motion is pending.
Greenland recorded the liability amount of $14,000 in the consolidated financial
statements.

John Ellis has filed a demand for arbitration in San Diego County against
Greenland seeking damages of approximately $70,000 for an alleged breach of
contract action. Greenland believes it has valid defenses to the allegations.
Mr. Ellis appears to have abandoned this action in arbitration and has elected
to pursue a civil suit. However, arbitration action is proceeding .In addition,
the parties are attempting mediation to avoid the cost and time of an
arbitration proceeding.

John Ellis has filed an action in San Diego County against Greenland seeking
damages of approximately $60,000 for an alleged breach of contract action.
Greenland believes it has valid defenses to the allegations. This amount was
recorded as a liability in the consolidated financial statements. Greenland has
filed a motion to quash service of the civil action and to compel arbitration.
The court has stayed the proceedings pending the progress and/or outcome of
arbitration.

NKS Enterprises, Inc. commenced a legal action against Greenland in San
Diego Superior Court in Vista California seeking damages in connection with the
purchase and operation of a MaxCash ABM. The case was settled in December 2002.
The maximum amount to be paid under the settlement is $100,000. In exchange,
Greenland will receive the MaxCash ABM sold to NKS Enterprises. This amount was
recorded as a liability in the consolidated financial statements.

In connection with the Company's acquisition of controlling interest of
Quik Pix, Inc., we are unaware of any pending litigation.

From time to time, Greenland and QPI may be involved in litigation relating
to claims arising out of their operations in the normal course of business.

ITEM 2. CHANGES IN SECURITIES

Common Stock
-------------

During the three months ended September 30, 2003, ITEC issued the following
unregistered securities:

- 5,220,000 shares of its common stock for legal and consulting services
valued at $129,400;

- 10,272,110 shares of its common stock for compensation valued at $140,332;

- 20,260,000 shares of its common stock for debt of $405,200; and

- 48,400,337 shares of its common stock for the conversion of convertible
debentures in the amount of $345,562.

Stock Split
------------

On August 9, 2002, the Company's board of directors approved and effected a
1 for 20 reverse stock split. All share and per share data have been
retroactively restated to reflect this stock split.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

The Company is currently in default on certain bank loans that have an
aggregate outstanding balance at September 30, 2003 of $3,145,000.

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

None

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

10(a) Agreement and Assignment of Rights, dated October 24, 2003, between
SourceOne Group, Inc. and ePEO Link.

31.1 Rule 13a-14(a) Certification

32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002

(b) Reports on Form 8-K

On September 10, 2003, the Registrant filed a Current Report on Form 8-K
announcing that on September 3, 2003, the Registrant appointed Pohl,
McNabola, Berg & Company, LLP ("PMBC") as the Registrant independent auditors
upon the recommendation of its Audit Committee.

On July 22, 2003, Registrant filed a Current Report on Form 8-K announcing that:

- In October 1999, the law firms of Weiss & Yourman and Stull, Stull & Brody
made a public announcement that they had filed a lawsuit against the
Registrant and certain current and past officers and/or directors,
alleging violation of federal securities laws and, in November 1999, the
lawsuit, filed in the name of Nahid Nazarian Behfarin, on her own behalf
and others purported to be similarly situated, was served on the Registrant.
In January 2003, the Registrant entered into a Stipulation of Settlement with
the plaintiffs. The Registrant agreed to pay the plaintiffs 5,000,000 shares of
common stock and $200,000 in cash. The Parties have accepted the settlement.

- In June 2003, the Registrant entered into a settlement with The
Massachusetts Institute of Technology and Electronics For Imaging, related
to a patent held by the plaintiffs that was alleged to be related to the
Registrant's ColorBlind software products. The plaintiffs have agreed to
dismiss its claims against the Registrant with prejudice in exchange for a
settlement fee payment of $10,000, which is being paid over a three-month
period.

- The Registrant was a party to a lawsuit filed by Symphony Partners, L.P.
related to our acquisition of SourceOne Group, LLC. The plaintiffs sought
payment of $702,000. In June 2003, the Registrant entered into a
settlement with the plaintiffs for a cash payment of $274,000, which has
been paid.

SIGNATURES
----------

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

Dated: November 24, 2003

IMAGING TECHNOLOGIES CORPORATION (Registrant)

By: /S/ Brian Bonar
_____________________________________
Brian Bonar
Chairman and Chief Executive Officer

By: /S/ James R. Downey, Jr.
_____________________________________
James R. Downey, Jr.
Chief Accounting Officer