SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2001
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to __________________
Commission file number : 0-30467
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INTACTA TECHNOLOGIES INC.
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(Exact name of registrant as specified in its charter)
Nevada 58-2488071
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
945 East Paces Ferry Road NE Suite 1445 Atlanta, Georgia 30326
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Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 404-880-9919
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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None None
Securities registered pursuant to Section 12 (g) of the Act:
Title of Class
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Common Stock, $.0001 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant as required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days. YES [X] NO [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting and non-voting common stock held
by non-affiliates of the registrant, based upon the closing price for the
registrant's Common Stock on April 10, 2002 was $3,242,984.80.
As of April 10, 2002, the registrant had 20,345,924 shares of Common Stock
outstanding.
Documents incorporated by reference: None
TABLE OF CONTENTS
PART I
PAGE
----
Item 1. Business......................................................... 1
Item 2. Properties....................................................... 12
Item 3. Legal Proceedings................................................ 13
Item 4. Submission of Matters to a Vote of Security Holders.............. 13
PART II
Item 5. Market Price for Our Common Stock and Related Stockholder Matters 17
Item 6. Selected Financial Data.......................................... 18
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 19
Item 7A. Quantitative and Qualitative Disclosures About Market Risk....... 27
Item 8. Financial Statements and Supplementary Data...................... 27
Item 9. Changes in and Disagreements with Accounting and
Financial Disclosures................................... 27
PART III
Item 10. Directors and Executive Officers of the Registrant............... 28
Item 11. Executive Compensation........................................... 30
Item 12. Security Ownership of Certain Beneficial
Owners and Management................................... 35
Item 13. Certain Relationships and Related Transactions................... 37
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K..................................... 38
i
PART I
ITEM 1. BUSINESS
The Private Securities Litigation Reform Act of 1995 provides a
"safe-harbor" for forward-looking statements. Certain statements contained in
this report which are not historical fact, including, but mot limited to, those
concerning our expectations of future sales revenues, gross profits, research
and development, sales and marketing, and administrative expenses, product
introductions and cash requirements are "forward-looking" statements. These
"forward-looking" statements are subject to risks and uncertainties that may
cause our actual results to differ from expectations including variations in the
level of orders, general economic conditions in the markets served by our
customers, international economic and political climates, timing of future
product releases, difficulties or delays in product functionality of
performance, our failure to respond adequately to changes in technology or
customer preferences, or changes in our pricing or that of our competitors and
our inability to manage growth. All of the above factors constitute significant
risks to our operations. There can be no assurance that our results of
operations will not be adversely affected by one or more of these factors. As a
result, our actual results may vary materially from our expectations. The words
"believe", "anticipate", "intend", and "plan" and similar expressions identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements which speak only as of the date the statement
was made.
INTRODUCTION
We are a developer and marketer of software products based on our patented
technology that, through its unique combination of compression, encoding and
error correction processes, transforms any data format ranging from text,
graphic, audio or video from a binary file into INTACTA.CODE, which is language
transparent and platform independent. We believe that our technology provides
solutions and applications that enable enterprises to bridge their
communications and management information systems across digital and non-digital
media, by providing the secure bi-directional transmission and subsequent
recovery and storage of data.
We were organized in October 1997 to acquire two companies that marketed
and developed two related facsimile storage and retrieval products that
incorporated an early version of our technology. Development and production of
the facsimile products were performed in Israel by Intacta Labs Ltd., and
marketing and distribution were performed in the United States by Intacta
Delaware, Inc. We acquired these companies in May 1998 in exchange for
approximately 70% of our outstanding capital stock immediately after the
acquisition. The acquisition was treated, for accounting purposes, as a reverse
acquisition.
During 1997 and part of 1998 we derived substantially all of our revenues
from the sale of facsimile-based products. Beginning in the latter part of 1997
and continuing into 1998 we began to wind down our production and active
marketing of the facsimile-based products due to reduced profit margins and our
anticipation of further deterioration of profit margins from increased
competition and costs of marketing these products to the retail market. At that
time, we initiated research and development of advanced products and software
applications based on our technology. We also began, on a very limited basis,
licensing our technology for integration with applications and solutions to
end-users.
In the middle of 1999, due to competitive pressures and our re-evaluation
of our business model and revenue/cost projections, we determined, except with
respect to certain of the advanced products that were at or near completion of
development, to forego further development of products based upon our technology
and to focus on direct marketing of our technology for licensing to large
enterprises and third
1
party solution providers. Our limited financial and other marketing resources
and the further evolution of our business model toward the licensing of our
technology prevented us from engaging in a full-scale marketing program for the
advanced products that were nearing completion.
OUR PRODUCTS
Software Development Kits
In March 2001, we introduced a suite of INTACTA.CODE software development
kits, or SDK's, making our technology available to software developers to
provide rapid integration of our technology into existing legacy enterprise
systems as well as to application developers to assist them in creating or
extending software and firmware solutions requiring the secure compression of
data for management and transmission across any medium regardless of platform,
device or location.
o INTACTA.CODE SDK Trial Version is currently only available for Windows
platforms and allows application developers to experience the
INTACTA.CODE process by facilitating testing, benchmarking and
prototyping of 10 kilobyte data files for encoding and decoding. This
SDK is used as a promotional tool to educate software application
developers with respect to the benefits of our technology.
o INTACTA.CODE SDK Developer's Edition is supportable on platforms such
as Windows 9x, 2000 and NT, Windows CE, Palm OS and MAC and allows
application developers to integrate the INTACTA.CODE encoding and
compression engines to process data files.
o INTACTA.CODE SDK Enterprise Edition is a custom development services
package, geared directly to the enterprise, designed to provide custom
access to INTACTA.CODE encoding and decoding engines. This software
supports data and image read and write capabilities using comparison,
authentication and encryption in digital or print media. Digital form
includes support for all platforms, unlimited data size and custom
encryption.
Our SDK Trial Version product is a sample product available at no charge.
Our other SDK products are subject to licensing fees to be paid prior to
delivery, at prices ranging from $500 for the Developer's Edition to $25,000 for
the Enterprise Edition. In addition, our SDK products are also subject to a
royalty payment to the extent that the application developer or other end-user
modifies the SDK product for further distribution. These royalty fees will be
negotiated on a per contract basis, based upon transaction usage measurements
such as amount of data processed, number of transactions processed and the
number of installed licenses or sites utilizing our software.
Healthcare Data Communication Solutions
In October 2001, we introduced two data communication software products,
based on our INTACTA.CODE technology, targeted toward the healthcare industry,
that are designed to ensure the privacy of information by providing solutions
for the secure transmission of confidential patient data as required by the new
information security regulations under the Health Insurance Portability and
Accountability Act, HIPAA. These products are:
o INTACTA Express - Healthcare Edition, a Windows application that
integrates with Microsoft OfficeTM software, provides secure faxing
and e-mail and supports scanning of existing paper-based information,
all with detailed audit reporting.
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o INTACTA Bridgeway - Healthcare Edition, a client/server communications
solution that can be used to maintain the privacy and security of
confidential patient information among physician practices, hospitals,
third-party payors and administrative clearing houses. This software
supports existing fax servers and email systems such as Microsoft
OutlookTM and Symantec's WinFax PROTM, automatically converts any
external file type into INTACTA.CODE and supports back-end open
database communication conduits and custom-developed application
program interfaces, or API's, via INTACTA.CODE SDK products. It also
includes built in and configurable archive and auditing tools.
Our INTACTA Express and INTACTA Bridgeway products are marketed to
end-users in the healthcare industry for a one-time licensing fee, with
potential additional fees for subsequent upgrades and enhancements.
All of our software products may be downloaded from our website and certain
other participating websites that have entered into exclusive arrangements with
us to provide for the online purchase and distribution of our products. Support
for these software products is also provided from our website.
In October 2001, we completed development of a prototype of XPRESS.ID 2000,
a software application designed to combine biometric facial recognition
technology with our encoding technology to provide an integrated verification
solution for the security market. XPRESS.ID-2000 works by creating a digital
image of an individual that is then processed as a facial template. The image is
then securely encoded with INTACTA.CODE and the individual's personal data is
then embedded along with the facial image. We believe that with the increase in
the use of false identification obtained through the internet and the need to
implement more secure programs to verify identities, XPRESS.ID-2000 will provide
the biometric identification marketplace with an easy-to-use solution to ensure
that information and imaging cannot be tampered with and will remain secure in
mobile applications. Identified applications for XPRESS.ID-2000 include visas
and passports, drivers licenses, access cards, smartcards, and social security
cards.
INTACTA.CODE TECHNOLOGY
Our core technology is a unique integration of compression, encryption and
form factor. The compression engine compresses binary files comprised of text,
graphics, audio or video. The encoding engine simultaneously embeds a
proprietary error correction algorithm in the INTACTA.CODE to aid in the
accurate recovery of the content and format of the original digital file, as
well as security features to protect against unauthorized access or use of the
INTACTA.CODE. The resulting INTACTA.CODE is a secure, damage resistant graphical
representation of the original digital file, which may be maintained or
transmitted in digital format or transferred to paper format for storage and/or
facsimile transmission. The following is a graphical representation of the
functions of our technology:
3
[GRAPHIC OMITTED]
BINARY DATA
|
INTACTA CODE ENCODER
|
COMPRESSION
|
PASSWORD ---- ENCRYPTION ENGINE TIME STAMP ---- USER ID
| REGISTER EXPIRATION DATE
ENCRYPTION |
2048-BIT | INTACTA CODE
128-BIT ERROR CORRECTION
56-BIT | TIME STAMP
40-BIT |
SIGNATURE _ ENCODER ENGINE EXPIRATION DATE
|
INTACTA CODE ENCRYPTED DATA
Copyright (c) 2001 INTACTA Technologies, Inc.
The key features of our technology are:
o Compression. The compression capability of our technology decreases
the amount of bandwidth required to transmit data, and the amount of
space required to store data. The recipient of a compressed and
encoded file may then restore the data to its original format for
further review and/or editing.
o Security. The security features of our technology enable users to
protect information contained within INTACTA.CODE. The security
features include the ability to restrict access to particular users
only, and the ability to verity the sender and content of an
INTACTA.CODE file containing sensitive information. Protection can
also be layered so that a reader would require a separate and distinct
password to access successive layers of information.
o Error Correction. Our technology offers a robust error correction
process, which maintains the integrity of the content and format of
the original compressed data in the event of degradation to the medium
over which the data is being transmitted. The user can choose the
level of error correction required depending on the reliability of the
medium being used to transmit or store the data.
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o Transmission and Restoration of Data In Any Form. Our technology
enables the encoding and transmission of data from any form, including
paper based or digital forms, and across diverse operating platforms,
such as PDA's and other mobile computing devices, personal computers,
mainframes, servers and databases. With our technology, the recipient
of the transmission can decode the data without further manipulation,
translation or reconfiguration of the content or format.
An additional feature of our technology is the interchangeability of
certain individual functions such as the compression and encryption modules.
These functions may be substituted with the potential customer's legacy
compression and encryption programs required by the customer's existing systems.
INTACTA.CODE's flexibility and adaptability makes it highly compatible with
existing applications and information systems without sacrificing functionality.
We believe that our core technology provides the following benefits:
o protects sensitive data such as patient records and business documents
from unauthorized access or use through security features, including
encoding and authentication;
o enhances hardware products and software applications of an
enterprise's existing communication and information management systems
at a cost that is much less than a conversion to a new system but with
similar functionality;
o reduces bandwidth required for storage and transmission of data
allowing enterprises to transmit the information in a faster, more
cost-effective manner, and requires less space in both digital and
paper-based media for the storage and archiving of documents;
o improves performance of wireless communications and utility of mobile
computing devices such as personal digital assistants, notebook and
palm-size computers and smart cellular phones by enhancing their
ability to receive, store and transmit data; and
o maintains compatibility with existing software toolkits.
INDUSTRY
Today's computer-based business environment has accelerated the transition
of enterprises from the historical paper-based business model to a digital
model, allowing these enterprises to manage, authenticate, archive and transmit
data electronically. This rapid transition, however, has heightened the need for
establishing and maintaining the privacy, security and control of data which is
stored and transmitted across a wide range of evolving and legacy digital
communications and information management systems.
A report by IDC, a leading provider of technology industry analysis and
market data to builders, providers and users of information technology,
forecasts that the worldwide market for encryption software will grow from
approximately $184 million in 2000 to approximately $365 million in 2005. The
report by IDC also indicates the following key market trends that are expected
to provide enhanced revenue opportunities for software developers who deliver
encryption and security related technologies:
o Security. As the reliance upon the digital medium for the storage and
transmission of data continues to grow, businesses, professionals and
individual consumers utilizing this medium
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are becoming increasingly sensitive to unauthorized access and use of
proprietary or personal information. Enterprises are particularly
seeking increased security in the following areas:
- "data at rest" and other stored data protection, for information
such as credit care numbers, addresses, social security
information; and
- copyright protection, from unauthorized access to and subsequent
use of copyrighted materials.
o Privacy and government regulation. Newly introduced government
regulations such as HIPAA and the Gramm-Leach-Bliley Financial
Modernization Act are requiring improved security and privacy
protection for the storage and transmission of certain information.
o Wireless initiatives. The number of mobile computing devices that can
access the Web continues to increase, extending traditional enterprise
tiers for maintaining and communicating data utilizing wireless
technologies. Revenues from developer toolkits in the encryption area
are expected to increase as companies develop applications for the
wireless market. File encryption may provide additional protection for
data stored on mobile devices that are more prone to being lost or
stolen.
Increased sensitivity to security requirements has resulted in a search for
more comprehensive methods of individual identification, particularly with
respect to controlling or monitoring access by persons to secure areas,
databases, and software applications. In an attempt to meet enhanced security
requirements, biometric data such as fingerprint, iris scans, and facial
recognition technologies are receiving greater scrutiny and development efforts
as an added layer of identification to the more recognized forms of security
control such as passwords, personal identification numbers and smartcards.
We believe that the flexibility and scalability of our technology provides
the building blocks for creating a range of solutions addressing the secure
communication and management of data in the digital environment.
STRATEGY
Our strategy is to market our software products and technology directly to
software application developers for large enterprises, as well as through
strategic relationships with third party solution providers and distributors,
independent software vendors and original equipment manufacturers with
established distribution channels and with the ability to market value added
technology such as ours as a module or incorporate or embed our products and
technology into hardware and/or software applications for sale to end users.
Large Enterprises. A number of large enterprises rely upon internal
resources for systems integration and product development with respect to
information management and communications. We intend to market our software
products and technology as an enhancement to an enterprise's legacy hardware and
software products by more efficient means than conversion to a new system.
Third Party Solution Providers. Third party solution providers such as
application service providers and systems integrators as well as independent
software vendors and original equipment manufacturers have the ability to
integrate value-added technology such as ours. Through strategic relationships
with these entities, we intend to directly market and distribute or bundle our
technology as a value added service with other software or hardware products to
be sold or licensed to end-users.
6
Our target markets for marketing and promoting our software products and
technology are primarily in the healthcare and security software industries.
Healthcare
A key component of our marketing plan is to establish key industry
alliances and market our software products and technology as HIPAA-compliant
solutions for healthcare organizations. Among other things, the final privacy
rule under HIPAA is requiring healthcare organizations to provide for the secure
transmission and maintenance of their patient healthcare information. For these
organizations to implement or reinforce and support these security efforts,
solutions for their legacy paper-based and automated digital systems will be
required to integrate paper records, which account for substantially all of
their current healthcare records, with electronic media.
A number of legacy information systems remain in use in the healthcare
industry that are difficult to integrate with newer systems or redesign to work
with new applications. Additionally, the highly fragmented healthcare
information technology market limits the ability to build interfaces between
disparate information systems from different vendors making it more difficult to
implement a seamless cross-enterprise security system. A December 2000 study by
First Consulting Group prepared for the American Hospital Association,
supplemented by a March 2001 report by First Consulting Group subsequent to the
issuance of the final privacy rule under HIPAA, indicates the potential cost to
hospitals attempting to meet the provisions of the privacy rule under HIPAA.
These costs, which depend in part on the compliance efforts to be taken by these
organizations and the complexity of their information systems, are estimated to
be approximately $4 billion over five years for hospitals generally seeking to
comply by modifying current information systems and approximately $22.5 billion
over the same five-year period for hospitals required to invest in new
information systems. We believe that the pervasive security protocol of our core
technology provides the capabilities necessary to implement internal integration
automation solutions enabling healthcare organizations to utilize their existing
communications infrastructure to perform, among other things, secure
HIPAA-complaint transmissions via paper-based facsimile as well as e-mail.
Security Software
The security software industry is highly fragmented and rapidly evolving,
marked by a substantial number of companies developing core competencies in
their chosen security segments and start-up and small niche companies seeking to
introduce advanced security products. We believe that the compression,
encryption and form factor features of our core technology make it attractive
for enhancing existing security products or for integrating with advanced
products in development, particularly in the biometric identification market,
and we have established relationships with security technology providers,
analysts, and consultants. A September 2001 report by International Biometric
Group projects that the market for biometric technologies is expected to grow
from approximately $399 million of revenues in 2000 to approximately $1.9
billion of revenues by 2005, primarily attributable to network access and
e-commerce in the private sector and large-scale public sector investment such
as by law enforcement agencies. We believe that our core technology can be
integrated as an add-on application to existing as well as evolving facial
recognition systems or other biometric client-server solutions enabling the
integrity of compressed data as well as the secure transmission of biometric
information over standard communication systems.
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CUSTOMERS
As a result, primarily of the recent transition of our business from
facsimile-based products to licensing of technology and software based upon
INACTA.CODE, we have entered into a limited number of licensing agreements with
third parties. The following is a list of our customers who have licensed our
technology or software applications based on our technology:
o DataLode, Inc. In July 1999, we entered into a non-exclusive license
agreement with DataLode, Inc. to license a software product based upon
INTACTA.CODE. DataLode provides warranty registration services to
Hewlett Packard and others for products in Europe and North America
and utilizes our product to eliminate manual data entry and the need
for optical character recognition.
o Systems Nakashima Co., Ltd. In April 2000, we entered into an
agreement with Systems Nakashima Co., Ltd. pursuant to which we
granted Fujitsu Limited, a developer of advanced technologies for
electronics and telecommunications and one of the largest providers of
electronic equipment to the print industry in Japan, a non-exclusive
right to license our technology to a certain number of newspapers in
Japan. Fujitsu has licensed applications incorporating INTACTA.CODE to
Yomiuri Shimbun, a daily newspaper published in Japan with one of the
largest daily circulations in the world, allowing its readers to
receive multimedia content as part of their paper.
o Intertek Testing International Ltd. In September 2000 we entered into
an agreement to license INTACTA.CODE to Intertek Testing International
Ltd., a worldwide products testing inspection and certification
company, in connection with a pilot program engaged in by Intertek to
evaluate the utility of our products and technology in creating secure
electronic certificates, which may be e-mailed or downloaded to a
paper based format and subsequently scanned back into electronic
format. We believe that these solutions are particularly useful in the
import/export industry on account of the fact that results of
inspections or assessments of shipments may be encoded, filed
electronically and added to the certificates.
Other than consulting related revenues from our agreement with Systems
Nakashima, which accounted for 42% of our revenues for fiscal 2000, we have not
generated significant revenues from our third-party licensing agreements.
For our fiscal year 2001 Cybro Medical, Ltd., DataLode, Inc., and Orsense,
Ltd accounted for approximately 59%, 13% and 10%, respectively, of our revenues.
For our fiscal year 2000 Systems Nakashima Co. Ltd., Cybro Medical, Ltd. and
InterLearn, Ltd accounted for approximately 46%, 30% and 13%, respectively, of
our revenues. For our fiscal year 1999, Brother Industries, Ltd. and Cybro
Medical, Ltd. accounted for approximately 53% and 40%, respectively, of our
revenues. Other than Cybro Medical, Ltd. and Systems Nakashima Co. Ltd., all of
the sales to the customers listed above were from products and components
related to our discontinued facsimile-based business.
While substantially all of our marketing efforts are currently to U.S.
customers, primarily in the healthcare industry for our HIPPA-based products, we
have, in the past, had sales to customers in the Mid-East and Far East. To the
extent that marketing and sales of our core technology and related products to
customers in foreign countries increases, we may be subject to a number of risk
and uncertainties which could reduce our margins and, consequently, our
operating results, including:
o collection of accounts receivable;
8
o trade restrictions;
o fluctuations in currency exchange rates;
o export duties and tariffs; and
o uncertain political, economic or military developments.
STRATEGIC RELATIONSHIPS
We have established relationships with a number of solution providers,
software developers and advanced product manufacturers ranging from reselling
agreements to partnering arrangements for the further research, development, and
marketing of viable products or applications integrating our technology. We did
not receive any payments for entering into these arrangements and we have not
generated revenues at this time from these relationships. Although we do not
rely on these third parties for the sale of our technology or products,
management believes that they assist in increasing market recognition and
interest in our technology. These relationships include:
o ComponentSource. We have a reseller arrangement with ComponentSource,
a global eBusiness and the world's largest marketplace and community
for software components and tools for download via its website of our
INTACTA.CODE SDK Developer's Edition and related products.
ComponentSource's customer base spans over 100 countries.
o Fujitsu Limited. Beginning in December 2000, Fujitsu made our
technology available on their website to provide encoding and decoding
services to their users, as part of a test program through the end of
March 2001. In February 2001, Fujitsu pre-installed a version of our
INTACTA.CODE capable of decoding color images, text and hyperlinks in
HTML format, in approximately 1,000,000 newly manufactured personal
computers.
o Imagis Technologies, Inc. In October 2001, we entered into a business
alliance with Imagis Technologies, Inc., an affiliated company
involved in biometric and facial recognition technology, for the
development of an application for the secure encoding, storage and
access of images and data for identification purposes. Imagis has
installed versions of its biometric facial recognition technology at
Pearson International Airport in Toronto, in several Royal Canadian
Mounted Police facilities in Canada and in several cities in
California, and Mexico.
o EMSi, Inc. We have a co-marketing relationship with EMSi, Inc., for
the delivery of INTACTA.CODE embedded solutions to the healthcare
marketplace. EMSi provides development tools to enable data
translation and interchange among disparate systems. Their client base
includes SafeCo, Xcare, Blue Cross/Blue Shield of Massachusetts, and
HealthPlus PHSP of Brooklyn.
In addition, we are a member of certain partnering or enablement programs
established by each of IBM Corporation, Compaq Computer Corporation and
Microsoft Corporation for the development of advanced technologies and
applications for their respective hardware and software products. We have not
generated revenues at this time from our membership in these programs.
9
RESEARCH AND DEVELOPMENT
Our research and development efforts are conducted at our Israel subsidiary
and at our headquarters in Atlanta, Georgia. At our Israel facility we engage in
demonstrations and feasibility tests of our software products and technology for
prospective customers and in customizing or configuring our technology to a
customer's specific application or product. At our Atlanta headquarters we
perform certain feasibility testing of potential applications and non-complex
adaptation of our technology, as well as provide a liaison between our existing
and prospective clients and our research and development team in Israel.
For our fiscal years 1999, 2000 and 2001, our research and development
expenses were $1,047,400, $1,133,000 and $1,206,400, respectively representing
27.1%, 22.5% and 32.3%, respectively, of our aggregate operating expenses for
each of those periods. We intend to engage in further research efforts to refine
and enhance our technology and develop additional software products based on our
technology for commercial marketing and distribution.
INVENTORY AND DISTRIBUTION
Our software products and technology are securely maintained on our
computer servers and may be distributed through our website and certain
participating websites in an electronic format. We do not engage in any
manufacturing or product packaging nor do we maintain physical inventory of our
software products. Licensees receive our software product or technology and
related documentation through a download sequence directly to their computer
from our website.
COMPETITION
The market for digital communication and data management applications and
solutions is characterized by intense competition and rapidly changing business
conditions, customer requirements and technologies. We believe that the primary
competitive factors for technologies and software products addressing secure
compression, storage and transmission of data are price, functionality and
compatibility, adaptability to evolving products, performance, timelines of
enhancements and customer support.
Our core technology and related products integrate several features
including encryption, compression and error-correction which extend the value of
such technology and products beyond traditional bar codes and provide
value-added communication applications not necessarily available from encryption
software providers. Consequently, while we may compete in the data encryption
sector with companies such as RSA Security Inc., Certicom Corp. and Checkpoint
Systems Inc. and companies in the digital communications sector such as Symantec
Corp. and Bsquare Corporation, as well as smaller development companies,
management believes that there is no direct competitor that currently offers
products with the unique characteristics and capabilities provided by our
technology and software products. However, as a result of our business
transition from facsimile based products, our recent commercial development of
products and our limited marketing resources, we have not established a
meaningful market share for our products and technology. Moreover, to the extent
that other companies develop functionally equivalent or superior products or
technologies to INTACTA.CODE, our technology could become obsolete or less
marketable.
The majority of our competitors are well established companies with
reputations for success in the development, licensing and sale of their products
and technology that have substantially greater financial, technical, personnel
and other resources than we do. Our ability to compete, therefore, will
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depend on our ability to successfully market and continually enhance our
software products and technology.
INTELLECTUAL PROPERTY
Our success is dependent upon our ability to protect our intellectual
property rights. We rely principally on a combination of patent, copyright and
trademark registrations and trade secrets and non-disclosure agreements to
establish and maintain our intellectual property rights. We hold the following
five Israel patents and two United States patents, with corresponding foreign
patents in Canada, Europe, Australia and South Africa, as well as the following
patent applications pending registration:
<TABLE>
<CAPTION>
Description of Registered Patents Patent No. Expiration Date
--------------------------------- ---------- ---------------
<S> <C> <C>
Process for making printed matter and matter obtained by said Israel #96118 October 25, 2010
process
Process and device for authenticating documents Israel #96969 January 11, 2011
Process and apparatus for transmitting messages Israel #96973 January 16, 2011
Process for transmitting and/or storing information Israel #103755 November 15, 2012
Process and apparatus for transmitting and/or storing Israel #105493 April 22, 2013
compressed information
Graphic matter and process and apparatus for producing, U.S. #5,313,564 July 10, 2011
transmitting and reading the same
Apparatus and method for storing and transmitting data between a U.S. #5,790,640 July 21, 2016
computer, a facsimile machine and a telephone network
Country Filed/ Corresponding
Description of Pending Patents Application No. Applications
------------------------------ --------------- ------------
Process for transmitting and/or storing information Japan / 5-285375
Process for transmitting, receiving and/or storing information Israel / 124152 Japan, Canada, France,
Germany and United
Kingdom
</TABLE>
As part of our operating procedures, we generally enter into intellectual
property rights, confidentiality and nondisclosure agreements with each of our
key employees and consultants and limit access to and distribution of our
technology and related documentation and information. Our confidentiality and
non-disclosure agreements include provisions with regard to our maintaining
ownership of technological developments.
Notwithstanding the precautions we take, third parties may copy or obtain
and use information that we regard as proprietary without our authorization or
independently develop technologies similar or superior to our technology. Other
parties may breach confidentiality agreements and other protective
11
contracts we have entered into. We may not become aware of, or have adequate
remedies, in the event a breach or unauthorized use occurs. Policing
unauthorized use of our technology is difficult, particularly because the global
nature of the electronic communications market makes it difficult to control the
final destination or security of software or other data transmissions.
Furthermore, the laws of other jurisdictions may afford little or no protection
of our intellectual property rights. Our business, financial condition and
operating results could be adversely affected if we are unable to protect our
intellectual property rights.
There is a risk that our technology may infringe upon the proprietary
rights of third parties. In addition, whether or not our technology infringes on
proprietary rights of third parties, infringement or invalidity claims may be
asserted or prosecuted against us and we could incur significant expense in
defending them. If any claims or actions are asserted against us, we may be
required to modify our technology or seek licenses for these intellectual
property rights. We may not be able to modify our technology or obtain licenses
on commercially reasonable terms, in a timely manner or at all. Our failure to
do so could adversely affect our business.
PRODUCT LIABILITY
Technology as complex as ours may contain undetected errors or defects when
first introduced or when new versions are released. Despite our testing efforts
and testing by current and potential customers, our technology and any future
enhancements may not be free from errors after commercial shipments have begun.
The occurrence of errors or defects could result in adverse publicity, delay in
technology introduction, diversion of development resources, loss or delay in
market acceptance, increased service and warranty costs and customer claims.
We do not maintain any product liability insurance. Consequently, a
successful claim against us for product liability could have a material adverse
effect.
SEGMENT INFORMATION
See Note 12 of Notes to Consolidated Financial Statements included in this
report after Part IV
EMPLOYEES
As of March 31, 2002, we employed a total of 15 employees. Of such
employees, 10 are full time and 5 are part-time, including 8 in research and
development, 2 in marketing and sales and 5 in administration. If the need
arises for additional research and development employees and we are unable to
hire qualified employees in a timely manner, we may outsource non-critical
research and development projects to third parties. None of our employees are
represented by a union or covered by collective bargaining agreements. We
believe that our relations with our employees are good.
ITEM 2. PROPERTIES
Our principal administrative and marketing facility is located in Atlanta,
Georgia and consists of approximately 4,000 square feet of office space pursuant
to a lease that expires in February 2006. We also conduct a limited amount of
research and development activities at this facility.
Our principal research and development facility is located in Beer Sheva,
Israel and consists of approximately 2,300 square feet pursuant to a lease that
expires in July 2005. We believe that our current administrative, marketing and
research facilities are adequate for our planned future operations.
12
ITEM 3. LEGAL PROCEEDINGS
In November 2001, Datastrip International Limited, an Ireland company,
filed a complaint in the United States District Court for the Northern District
of Georgia against Intacta alleging patent infringement by Intacta. Datastrip
claims that our INTACTA.CODE technology and its production, use, marketing and
sales infringes upon certain bar-code technology claimed by a patent purported
to be owned by Datastrip. In addition to preliminary and permanent injunctions
sought by Datastrip against Intacta from further alleged infringement of its
patent, Datastrip seeks an unstated amount of monetary damages equal to three
times the amount the court would deem sufficient to compensate Datastrip for the
alleged infringement.
Intacta believes that Datastrip's claims are without merit and intends to
vigorously defend this lawsuit. We have filed a counterclaim against Datastrip
seeking, among other things, preliminary and permanent injunctive relief,
declaratory judgments as to the invalidity and unenforceability of Datastrip's
purported patent and its claim of infringement against Intacta, as well as
monetary damages, reasonable attorney's fees and litigation expenses.
Since this lawsuit is in an early stage, however, we cannot predict the
outcome and cannot assure you that it will be resolved in our favor or that an
outcome of any further litigation or settlement would not have a material
adverse effect on our operations or financial condition.
Other than the proceeding noted above we are not aware of any other pending
or threatened litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of 2001.
RISK FACTORS
Risks Related to Our Financial Condition
WE HAVE INCURRED LOSSES SINCE INCEPTION AND WE EXPECT TO INCUR LOSSES IN THE
FUTURE.
We have incurred significant net losses in each fiscal year since our
inception and expect losses to continue. During the year ended December 31,
2000, we had a net loss of approximately $4.5 million and for the year ended
December 31, 2001, we had a net loss of approximately $3.5 million. We cannot
assure you that our future operations will ever become profitable.
OUR INDEPENDENT AUDITORS HAVE EXPRESSED SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO
CONTINUE AS A GOING CONCERN.
Primarily as a result of our recurring losses, our independent auditors
qualified their opinion on our 2001 financial statements and in the two
preceding years to include an explanatory paragraph expressing substantial doubt
about our ability to continue as a going concern.
BECAUSE OUR OPERATIONS DO NOT GENERATE CASH FLOW, IF WE ARE UNABLE TO OBTAIN
FINANCING WHEN NEEDED, WE MAY BE REQUIRED TO CURTAIL OR CEASE OPERATIONS.
Our operating requirements have been and will continue to be significant.
Our operations do not currently generate positive cash flow. Based upon current
estimates, we believe that we will be able to
13
fund our operating activities and capital requirements only through the middle
of the second fiscal quarter of 2002. Unanticipated changes in economic
conditions or other unforeseen circumstances may cause us to expend our cash and
cash equivalents in a shorter period of time, in which case we may be required
to seek additional financing sooner in order to fund our capital and operating
activities. We do not have any current arrangements with respect to other
potential sources of additional financing. We cannot assure you that additional
financing will be available to us on commercially reasonable terms or at all. If
we are unable to obtain financing when needed, we may be required to curtail or
cease operations.
Risks Related to Our Operations
WE MAY NOT BE ABLE TO ACHIEVE MARKET ACCEPTANCE FOR SOFTWARE PRODUCTS
INCORPORATING OUR TECHNOLOGY.
Because our technology and related software products have only recently
been introduced and are marketed in a rapidly evolving industry, market
acceptance of our technology is uncertain. Despite the expanding market for
secure data transmission and storage solutions, we have not been able to
increase our market acceptance and our revenues from software licensing has
declined. We will be required to expend a substantial amount of funds on
marketing efforts to inform end-users of the perceived benefits and advantages
of our technology and to update and enhance our existing products and technology
on a timely basis. We cannot assure you that we will have the funds or other
resources necessary to achieve our marketing and product-enhancement objectives
and successfully compete in our markets or that these increased efforts, if
engaged in, will result in successful commercialization and market acceptance of
our software products and technology. Moreover, potential customers may elect to
utilize competitive products and services embodying new technologies that they
believe to be more efficient and have other advantages over our technology.
OUR FUTURE REVENUE GROWTH DEPENDS SUBSTANTIALLY ON OUR ABILITY TO SUCCESSFULLY
IDENTIFY APPLICATIONS OR PRODUCTS FOR WHICH OUR TECHNOLOGY MAY BE DEVELOPED AND
MARKETED.
If we are unable to identify applications or products that will achieve
widespread commercial acceptance or adapt or enhance our technology for these
applications or products we will be unable to expand the market for our
technology. Adapting and enhancing technology as complex as ours will be subject
to risks of unanticipated technical or other problems and possible insufficiency
of funds which could result in a delay of introduction or abandonment of the
proposed application or product. We cannot assure you that we will be able to
identify applications or products, adapt our technology for specific
applications or products on a timely basis or be able to achieve significant
market acceptance of our technology.
WE HAVE LIMITED MARKETING CAPABILITIES AND WILL BE DEPENDENT UPON ARRANGEMENTS
WITH THIRD-PARTY SOLUTION PROVIDERS TO MARKET AND DISTRIBUTE OUR TECHNOLOGY.
We have limited marketing experience, as well as limited financial,
personnel and other resources, to undertake extensive marketing activities. As a
result, we rely to a large extent on arrangements with third party solution
providers for the marketing and distribution of our technology. We have only
recently entered into marketing arrangements with a limited number of
third-party solution providers and other strategic partners and, accordingly,
have not developed any meaningful sales through any of these marketing
arrangements. Our prospects will depend on our ability to develop and maintain
strategic relationships with additional solution providers and upon the
marketing and distribution efforts of these solution providers. Additionally,
the time and resources devoted to these activities generally will be contributed
to and controlled by these third parties and not by us. A decline in the
financial prospects
14
of a third-party solution provider or other strategic partner with whom we
develop a significant marketing relationship could adversely affect our sales
efforts.
WE FACE INTENSE COMPETITION IN THE MARKETS FOR OUR TECHNOLOGY, WHICH COULD
RESULT IN PRICE REDUCTIONS, LOWER GROSS MARGINS OR LOSS OF OUR MARKET SHARE.
The markets for our technology are characterized by rapidly changing
technological and industry standards. As a result, to compete effectively,
companies must be able to develop new products, technologies and applications to
respond to these changes. Because we have limited resources, we may not be able
to develop new products, technologies and applications or otherwise compete
successfully. Many of our competitors have substantially greater financial,
technical, personnel, and other resources than we do and have established
reputations for success in the development, licensing, and sale of their
products and technology. Additionally, future technologies or products could
render our technology obsolete or less marketable. As a result of our limited
resources, significant competition and the nature of the markets for our
technology, we may not be able to compete successfully.
AS AN EARLY-STAGE COMPANY, OUR LIMITED OPERATING HISTORY IS NOT A RELIABLE
PREDICTOR OF OUR FUTURE OPERATING RESULTS AND WE FACE MANY RISKS INCLUDING
LIQUIDITY PROBLEMS, DELAYS AND UNCERTAINTIES.
We were organized in October 1997 and did not commence active operations
until May 1998. In addition, during 1998, we shifted the focus of our business
from production and sale of facsimile-based products to the development of
advanced products based upon our proprietary technology. More recently we have
determined to focus on the commercial exploitation of our technology for
applications and solutions in the area of data compression and transmission.
Because our business has significantly changed and much of our historical
operating results do not reflect our current operations, we have a limited
relevant operating history upon which you can evaluate our performance and
prospects. Additionally, we face many of the risks, expenses, delays, problems
and uncertainties encountered by early-stage companies in rapidly evolving
markets, including generating and maintaining sufficient liquidity for operating
and capital expenses as well as identifying, developing and marketing
commercially viable products on a timely basis, which could materially adversely
affect our business and results of operations.
THE MAJORITY OF OUR RESEARCH AND DEVELOPMENT ACTIVITIES ARE CONDUCTED IN ISRAEL,
WHICH MAY BE SUBJECT TO ECONOMIC, MILITARY AND POLITICAL INSTABILITY.
Our principal research and development facility is located in Beer Sheva,
Israel. We are, therefore, directly influenced by the economic, political and
military conditions in Israel and the Middle East. Any major hostilities
involving Israel, the interruption or curtailment of trade between Israel and
its trading partners or a significant downturn in the economic or financial
condition of Israel could have a material adverse effect on our operations.
WE ARE THE SUBJECT OF A PATENT INFRINGEMENT CLAIM BY A THIRD PARTY.
In November 2001, Datastrip International Limited, an Ireland company,
filed a complaint in the United States District Court for the Northern District
of Georgia against us alleging patent infringement. In addition to preliminary
and permanent injunctions sought by Datastrip from further alleged infringement
of its patent, Datastrip seeks an unstated amount of monetary damages equal to
three times the amount the court would deem sufficient to compensate Datastrip
for the alleged infringement. Since this lawsuit is in an early stage, we cannot
predict the outcome and cannot assure you that it will be resolved in our favor
or that an outcome of any further litigation or settlement would not have a
material adverse effect on our operations or financial condition.
15
Risks Related to Our Securities
MOST OF OUR SHARES OF COMMON STOCK ARE CURRENTLY ELIGIBLE FOR SALE AND COULD BE
SOLD IN THE MARKET IN THE NEAR FUTURE, WHICH COULD DEPRESS OUR STOCK PRICE.
We currently have 20,345,924 shares of common stock outstanding, 12,358,920
of which are currently freely tradeable without restriction under the Securities
Act of 1933. Of the remaining 7,987,004 shares outstanding, 6,412,004 shares
have been registered for resale. The balance of shares outstanding are
restricted securities, however, substantially all of these restricted securities
have been held for more than two years and are available for resale pursuant to
Rule 144 promulgated under the Securities Act.
The sale of a significant number of shares of common stock could adversely
affect the market price of our common stock. Moreover, as these shares are sold,
the market price could drop significantly if the holders of these restricted
shares sell them or if the market perceives that the holders intend to sell
these shares.
THE SIGNIFICANT NUMBER OF OUTSTANDING OPTIONS AND WARRANTS COULD DEPRESS THE
MARKET PRICE OF OUR COMMON STOCK AND COULD INTERFERE WITH OUR ABILITY TO RAISE
CAPITAL.
We currently have outstanding options and warrants to purchase an aggregate
of 5,599,474 shares of our common stock, at exercise prices ranging from $.75 to
$3.50 per share. To the extent that the outstanding options and warrants are
exercised, dilution to the percentage of ownership of our stockholders will
occur and any sales in the public market of our common stock underlying those
options and warrants may adversely affect prevailing market prices for our
common stock. Moreover, the terms upon which we will be able to obtain
additional equity capital may be adversely affected since the holders of
outstanding options and warrants can be expected to exercise them when we would,
in all likelihood, be able to obtain any needed capital on terms more favorable
to us than those provided in the outstanding options and warrants.
OUR COMMON STOCK IS SUBJECT TO THE SEC'S PENNY STOCK RULES WHICH CAN EFFECT THE
MARKET LIQUIDITY AND THE ABILITY OF PURCHASERS TO SELL OUR COMMON STOCK.
Because our common stock is not listed on the Nasdaq National or SmallCap
markets or a national securities exchange and the trading price of our common
stock is below $5.00 per share, trading in our common stock is subject to the
SEC's penny stock rules, which severely limit the market liquidity of our common
stock and the ability of purchasers to sell their shares. As a result, a
purchaser of our common stock could find it more difficult to dispose of, or
obtain accurate quotations as to the market value of our common stock.
16
PART II
ITEM 5. MARKET PRICE FOR OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Our common stock has been quoted on the OTC Bulletin Board under the symbol
"ITAC.OB" since August 19, 1999. From May 28, 1998 to August 19, 1999, our
common stock was quoted on the OTC Bulletin Board under the symbol "ZFAX.OB."
The following table shows the high and low bid prices of our common stock as
reported by the OTC Bulletin Board for the fiscal years ended December 31, 2000
and 2001 and for the first and second quarters of fiscal 2002 through April 10,
2002:
HIGH LOW
---- ---
2000
First Quarter................................ $6.25 $2.25
Second Quarter .............................. 4.88 2.38
Third Quarter ............................... 4.31 4.00
Fourth Quarter .............................. 3.75 .78
2001
First Quarter................................ 1.38 .30
Second Quarter............................... .58 .13
Third Quarter................................ .28 .14
Fourth Quarter............................... .62 .09
2002
First Quarter................................ .40 .11
Second Quarter (through April 10, 2002)...... .25 .19
The OTC Bulletin Board is a more limited trading market than the Nasdaq
SmallCap or Nasdaq National Markets, and timely, accurate quotations of the
price of our common stock may not always be available. You may expect trading
volume to be low in such a market. Consequently, the activity of only a few
shares may affect the market and may result in wide swings in price and in
volume. Additionally, the foregoing quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not necessarily
represent actual retail transactions.
The trading price of our common stock may be highly volatile as a result of
factors specific to us or applicable to our market and industry in general.
These factors, include:
o variations in our annual or quarterly financial results or those of
our competitors;
o changes by financial research analysts in their recommendations or
estimates of our earnings;
o conditions in the economy in general or in the information technology
service sector in particular; and
o announcements or technological innovations or new products by us or
our competitors.
In addition, the stock market, particularly the Nasdaq SmallCap Market and
the OTC Bulletin Board, has recently been subject to extreme price and volume
fluctuations. This volatility has
17
significantly affected the market prices of securities issued by many companies
for reasons unrelated to the operating performance of these companies. In the
past, following periods of volatility in the market price of a company's
securities, some companies have been sued by their stockholders. If we were
sued, it could result in substantial costs and a diversion of management's
attention and resources, which could adversely affect our business.
On April 10, 2002, the last reported sale price of our common stock on the
OTC Bulletin Board was $.20 per share. As of April 10, 2002, there were
approximately 77 record owners of our common stock. We believe that there are
many beneficial owners of our common stock whose shares are held in "street
name".
We have never declared and do not anticipate declaring or paying any
dividends on our common stock in the near future. We intend to retain future
earnings, if any, that may be generated from our operations to finance our
future operations and any possible expansion. Any decision as to the future
payment of dividends will depend on our results of operations and financial
position and such other factors as our board of directors in its discretion
deems relevant.
RECENT ISSUANCES OF UNREGISTERED SECURITIES
During the year ended December 31, 2001 we granted an aggregate of
1,325,000 options under our 1998 Stock Option Plan to certain of our directors,
officers, employees and consultants at an exercise price of $0.75 per share.
Additionally, during the year ended December 31, 2001, we granted an aggregate
of 1,003,000 options under our 2000 Stock Option Plan to certain of our
directors, officers, employees and consultants at an exercise price of $0.75 per
share. In connection with the foregoing transactions, we relied on the exemption
from registration requirements under the Securities Act provided by Section
2(a)(3) and/or 4(2) of the Securities Act.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data are qualified in their entirety by
reference to, and you should read them in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
section of this report and the audited consolidated financial statements and
notes to those financial statements included in and made part of this
prospectus. We have derived the balance sheet and statement of operations data
at and for the years ended December 31, 1997 and 1998 and the balance sheet data
as of December 31, 1999 from our audited consolidated financial statements which
are not included in this report and we have derived the statement of operations
data for the years ended December 31, 1999, 2000 and 2001 and the balance sheet
data as of December 31, 2000 and 2001 from our audited consolidated financial
statements included in and made part of this report.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------
1997 1998 1999 2000 2001
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues .......................... $ 894,900 $ 137,800 $ 137,400 $ 794,500 $ 140,800
Operating expenses:
Cost of revenues ............... 357,500 336,300 90,500 417,500 78,900
Research and development ....... 343,200 903,500 1,047,400 1,133,000 1,206,400
Sales and marketing ............ 297,000 113,100 113,200 1,182,100 733,100
General and administrative ..... 1,353,100 1,699,400 2,619,800 2,306,500 1,715,400
------------ ------------ ------------ ------------ ------------
18
Total operating expenses .... 2,350,800 3,052,300 3,870,900 5,039,100 3,733,800
------------ ------------ ------------ ------------ ------------
Loss from operations .............. (1,455,900) (2,914,500) (3,733,500) (4,244,600) (3,593,000)
Interest income (expense) ......... (755,300) (210,000) 95,300 (298,900) 82,600
Taxes and other ................... 11,500 (21,300) 20,600 (7,700) (11,000)
------------ ------------ ------------ ------------ ------------
Net loss .......................... $ (2,199,700) $ (3,145,800) $ (3,617,600) $ (4,551,200) $ (3,521,400)
============ ============ ============ ============ ============
Basic and diluted net loss
per common share ................ $ (.19) $ (.19) $ (.20) $ (.25) $ (.17)
============ ============ ============ ============ ============
Basic and diluted weighted
Average Common Stock
Outstanding ..................... 11,486,000 16,701,583 17,790,000 18,483,179 20,345,924
============ ============ ============ ============ ============
BALANCE SHEET DATA:
DECEMBER 31,
--------------------------------------------------------------------------------
1997 1998 1999 2000 2001
------------ ------------ ------------ ------------ ------------
Cash and cash equivalents ......... $ 169,100 $ 3,047,100 $ 917,400 $ 3,904,500 $ 679,000
Working capital (deficit) ......... (9,693,400) 1,924,200 574,100 3,641,500 393,700
Total assets ...................... 1,151,800 3,760,700 1,570,900 4,260,500 981,300
Long-term obligations ............. 0 0 0 0 0
Total stockholders' equity
(deficit) ..................... (9,407,800) 2,268,600 841,500 3,865,200 581,900
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with the audited
consolidated financial statements and notes thereto appearing elsewhere in this
report.
GENERAL
We are engaged in the development and marketing of software products based
on our INTACTA.CODE technology which provides solutions and applications for the
secure storage and bi-directional transmission of data in digital and
non-digital media.
Our revenues were $137,400 for fiscal 1999, $794,500 for fiscal 2000 and
$140,800 for fiscal 2001.
Our revenues in fiscal 1999 reflect the transition of our business from the
production and sale of facsimile storage and retrieval products to development
of software products based upon our core technology. Revenues from the licensing
of our technology for fiscal 1999 were $73,400, representing approximately 53.4%
of our total revenues for fiscal 1999. The remainder of our revenues for fiscal
1999 were derived from the sale from our inventory of products and component
parts relating to our discontinued facsimile-based business.
Through the second quarter of fiscal 2000, primarily as a result of our
limited financial resources and personnel available for marketing activities, we
made limited progress in establishing further licensing arrangements for our
technology. The majority of our revenues during this time were generated
primarily from a consulting arrangement and the sale of discontinued hardware
products. This consulting project was a one-time service performed for one of
our clients and was completed during the second quarter of fiscal 2000.
Consulting fees from this project accounted for approximately 42% of our total
revenues for fiscal 2000. While we may perform certain consulting, maintenance
and other support
19
services for prospective customers that license our technology or software
products, for which we anticipate generating additional fees, we do not
anticipate any meaningful portion of our revenues in the future to be derived
from these consulting and related services. Beginning in the second quarter of
fiscal 2000, as a result of increased resources and a shift of personnel to
marketing activities, we entered into two licensing arrangements for our
technology with third-party enterprises. For fiscal 2000, our licensing revenues
were $94,000. Although this represented an increase of approximately 28% from
fiscal 1999, licensing revenues accounted for only approximately 12% of our
total revenues in fiscal 2000. Sales of certain test platforms constructed
principally from component parts from our discontinued facsimile business, the
production and sale of which has since been discontinued, together with sales of
other products from our inventory of discontinued facsimile business, accounted
in the aggregate for approximately 46% of our total revenues for fiscal 2000.
As a result of our continuing shift in business strategy toward licensing
of our technology and software applications combined with the depletion of the
remaining inventory of hardware and other non-proprietary computer processing
equipment from our discontinued facsimile business, our sales of products and
components decreased to $94,400 for fiscal 2001, representing an approximate 74%
decrease from the prior year. Further, as a consequence of our reduced marketing
resources resulting in our inability to obtain additional customers for our
Developer's Edition and Enterprise Edition SDK products, as well as extended
sales cycles for implementation of our technology and related products to
existing customers, royalties from licensing arrangements decreased to $46,400
for fiscal 2001, representing an approximate 51% decrease in such revenues from
the prior year.
In March 2001, we introduced a suite of INTACTA.CODE software development
kits, or SDK's, for integration by software developers in applications requiring
secure transmission and storage of compressed data, and, in October 2001, we
introduced a suite of data communications software products addressing security
features in connection with new privacy requirements under HIPAA. Although the
release of our SDK products generated increased activity to our web site and
initiated downloads of our INTACTA.CODE Trial Version SDK, we have not yet
received any meaningful revenues from this product line or from our data
communications software products addressing HIPAA regulations.
Our sales cycle for the licensing of our technology and related software
products which commences at the time a prospective customer demonstrates an
interest in licensing the technology or product and ends upon the delivery and
installation of the technology or product will vary depending upon the customer
and the product sought to be licensed. Sales of products such as the
INTACTA.CODE SDK Developer's Edition and the INTACTA Express-Healthcare Edition
may have shorter sales cycles resulting from their specific utilities whereas
sales cycles for products such as INTACTA.CODE SDK Enterprise Edition and
INTACTA Bridgeway-Healthcare Edition could extend for periods of nine months or
more, depending on the time required by the customer to evaluate the utility of
the product to its operations.
Our independent auditors have included an explanatory paragraph in their
report on our financial statements for each of the three years in the period
ended December 31, 2001, stating that recurring losses from operations and an
accumulated deficit at December 31, 2001 of $25,743,800 raise substantial doubt
our ability to continue as a going concern.
20
RESULTS OF OPERATIONS
Year ended December 31, 2001 compared to year ended December 31, 2000
Revenues. Revenues decreased by $653,700 or 82.3% to $140,800 for the year
ended December 31, 2001, from $794,500 for the year ended December 31, 2000.
This decrease was primarily attributable to (i) consulting revenue in the year
ended December 31, 2000 of $329,300 from a one-time consulting project completed
in the second quarter of fiscal 2000, (ii) reduced royalty revenues from
existing licensing arrangements from $94,000 to $46,400 and (iii) more limited
sales of products and components from our discontinued facsimile-based business.
Cost of products and components. Cost of products and components was
$78,900 for the year ended December 31, 2001, a decrease of $224,700, or 74.0%,
compared to $303,600 of such costs for the year ended December 31, 2000. The
decrease in such costs was primarily attributable to the corresponding reduction
in sales of discontinued products and components.
Consulting fees expense. We did not incur any consulting fees expense for
the year ended December 31, 2001, compared to $113,900 of such consulting fees
expense for the year ended December 31, 2000 resulting from the consulting
project we performed in the second quarter of fiscal 2000.
Research and development expenses. Research and development expenses
increased by $73,400 or 6.5% to $1,206,400 for the year ended December 31, 2001,
from $1,133,000 for the year ended December 31, 2000. The increase was primarily
attributable to the reclassification of $108,900 of these costs as consulting
fees expense and, to a lesser extent, from personnel, office and other support
facility costs related to research and development at our Atlanta headquarters
and additional research and development support at our Israel facility in
connection with the development of our new SDK and data communications software
products. This increase was partially offset by a decrease in non-cash charges
to $189,200 for year fiscal 2001 from $361,600 for year fiscal 2000, to account
for options previously granted below fair market value as compensation to
employees and consultants.
Sales and marketing expenses. Sales and marketing expenses decreased by
$449,000 or 38.0%, to $733,100 for the year ended December 31, 2001, from
$1,182,100 for the year ended December 31, 2000. The decrease was primarily
attributable to the reduction of expenses related to marketing materials, as
well as consultants and other outside services, and the reduction in non-cash
charges to $7,800 for fiscal 2001 from $69,600 for fiscal 2000, to account for
options previously granted below fair market value as compensation to employees
and consultants.
General and administrative expenses. General and administrative expenses
decreased by $591,100 or 25.6% to $1,715,400 for the year ended December 31,
2001, from $2,306,500 for the year ended December 31, 2000. This decrease was
attributable to the reduction in non-cash charges to $41,100 for fiscal 2001
from $571,500 for fiscal 2000 to account for options previously granted below
fair market value as compensation to employees and consultants. The foregoing
decrease in expenses was partially offset by (i) additional salaries and costs
related to an increase in our administrative staff, and (ii) third-party
consulting and professional fees in connection with business strategy
development and management and operation of our business.
Interest income (expense), net. Net interest income was $82,600 for the
year ended December 31, 2001 compared to ($298,900) of net interest expense for
the year ended December 31, 2000. The net increase was primarily the result of
interest earned during fiscal 2001 on cash balances resulting from funds
received from our October 2000 private placement, as compared to interest
expense related to debt
21
incurred in our May and June 2000 bridge loan financing and accretion of related
warrants recognized during fiscal 2000.
Net loss. As a result, our net loss decreased by $1,029,800 or 22.6 % to
$3,521,400, or $(.17) per share, for the year ended December 31, 2001, as
compared to our net loss of $4,551,200, or $(.25) per share, for the year ended
December 31, 2000.
Year ended December 31, 2000 compared to year ended December 31, 1999
Revenues. Our revenues increased by $657,100 or 478.2% to $794,500 for the
year ended December 31, 2000, from $137,400 for the year ended December 31,
1999. This increase was primarily attributable to (i) consulting fees which we
earned in our second quarter of fiscal 2000 relating to a custom programming
project performed for an existing client, and (ii) sales of products and
components which increased by approximately 468% from the prior comparable
period primarily resulting from the sale of software development test platforms
and surplus memory chip inventory. In addition, revenues from licensing
arrangements increased by 28.1% to $94,000 for the year ended December 31, 2000
from $73,400 for the prior comparable period.
Cost of products and components. Cost of products and components was
$303,600 for the year ended December 31, 2000, representing an increase of
$213,100 or 235.5% compared to $90,500 of such costs for the year ended December
31, 1999. The increase in such costs was attributable to (i) purchase costs of
components consumed in the manufacture of test platforms sold, (ii) sales of
surplus non-proprietary computer processing chips held in inventory and sold in
the first quarter of 2000, and (iii) a write-off of obsolete inventory related
to discontinued hardware products.
Consulting fees expense: We incurred consulting fees expense of $113,900
for the year ended December 31, 2000, resulting from a consulting project we
performed in the second quarter of fiscal 2000. We did not incur any of such
costs for the year ended December 31, 1999.
Research and development expenses. Research and development expenses
increased by $85,600 or 8.2% to $1,133,000 for the year ended December 31, 2000,
from $1,047,400 for the year ended December 31, 1999. The increase was
attributable to (i) an increase in material costs consumed in operations as well
as an increase in personnel and related office and other support facility costs
related to research and development, and (ii), an increase in non-cash charges
to $361,600 for fiscal 2000 from $222,400 for 1999 to account for options
previously granted below fair market value as compensation to employees and
consultants. This increase was partially offset by the reclassification of
$108,900 of such costs as consulting fees expense.
Sales and marketing expenses. Sales and marketing expenses increased by
$1,068,900 or 944.3% to $1,182,100 for the year ended December 31, 2000, from
$113,200 for the year ended December 31, 1999. The increase in sales and
marketing expenses was primarily attributable to (i) increased salaries and
related costs resulting from the hiring of new personnel in connection with our
decision to renew the focus on marketing our Intacta technology, (ii) costs for
the development of marketing materials and related market research, and (iii) a
non-cash charge of $69,600 for fiscal 2000 to account for options previously
granted below fair-market value as compensation to certain employees and
consultants. No similar charge was required for fiscal 1999.
General and administrative expenses. General and administrative expenses
decreased by $313,300 or $12.0% to $2,306,500 for the year ended December 31,
2000, from $2,619,800 for the year ended December 31, 1999. The decrease in
general and administrative expenses was attributable to the reduction of the
non-cash stock option charge to $571,500 for fiscal 2000 from $1,016,000 for
fiscal
22
1999, partially offset by administrative costs associated with our bridge loan
financing and private placement during 2000.
Interest income (expense), net. Net interest expense was $(298,900) for the
year ended December 31, 2000 compared to $95,300 of net interest income for the
year ended December 31, 1999, primarily as a result of the short-term debt
incurred in the second and third quarters of 2000 in connection with our bridge
financing.
Net loss. As a result, our net loss increased by $933,600 or 25.8 % to
$4,551,200, or $(.25) per share, for the year ended December 31, 2000, as
compared to a net loss of $3,617,600, or $(.20) per share, for the year ended
December 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operating costs and capital
requirements primarily through:
o the private sale of our capital stock to various parties;
o non-interest-bearing loans from Valor Invest Limited, an affiliate of
our Chairman of the Board, substantially all of which was subsequently repaid or
converted into equity; and
o cash acquired in connection with the acquisition of our subsidiaries.
In April and May 1998, we sold, in two private placements, an aggregate of
150,000 shares of our common stock at a price of $3.00 per share, for aggregate
gross proceeds of $450,000.
In December 1998, we sold, in a private placement, 1,000,000 shares of our
common stock at a price per share of $4.00 for gross proceeds of $4,000,000.
From December 1997 through December 31, 1998, Valor made several
non-interest-bearing loans to us in the aggregate amount of $2,172,000. During
the first six months of 1999, we repaid $1,131,000 of these loans. In June 1999,
we converted $952,000 of these loans into 238,000 shares of our common stock at
the rate of $4.00 per share. At December 31, 1999, a balance of $89,000 of loans
from Valor remained outstanding.
During the first half of 2000, Valor made an additional $704,500 of
non-interest-bearing loans to us, of which we subsequently repaid $312,000. In
May 2000, Valor converted $250,000 of the unpaid balance of these loans into 2.5
units identical to the units offered by us in our bridge financing described
immediately below. Valor also agreed to subordinate the balance of its loans to
us to our repayment of the bridge notes issued in our bridge financing. As
discussed below, Valor converted the principal amount of the notes included in
the units it acquired in May 2000 as well as a substantial portion of its
subordinated loans into units offered in our October 2000 private placement.
In May and June 2000, we completed a bridge financing, in which we issued
25 units, each unit consisting of a $100,000 principal amount bridge note and
bridge warrants to purchase 25,000 shares of common stock at an exercise price
of $3.50 per share, for aggregate gross proceeds of $2,500,000.
In October 2000, we completed a private placement in which we issued an
aggregate of 2,333,310 units consisting of one share of our common stock and one
warrant to purchase one share of our common stock at an exercise price of $3.50,
for aggregate gross proceeds of $7,000,000. Approximately $2,267,000 of the
gross proceeds received in the private placement represented the conversion of
the
23
principal and accrued interest of a majority of the outstanding bridge notes
into units in the private placement. A portion of the proceeds of the private
placement was used to repay the principal and accrued interest on the balance of
outstanding bridge notes not converted into units in the private placement.
After deduction of cash commissions and related expenses as well as the
conversion of the bridge notes, we received approximately $3,522,000 in net
proceeds from the private placement. In connection with the private placement,
Valor converted the principal amount of its notes into units in the private
placement. Valor also converted a substantial portion of its outstanding
subordinated loans into units in the private placement.
At December 31, 2001 we had $679,000 in cash and cash equivalents, the
majority of which represented the balance of proceeds remaining from our October
2000 private placement. At December 31, 2001, we had working capital of $393,700
as compared to working capital of $3,641,500 at December 31, 2000.
Cash used in operating activities for the year ended December 31, 2001 was
$3,168,600, primarily consisting of our net loss and an increase of $106,800 in
other current assets and partially offset by $238,100 of non-cash compensation
expense, the write-down of obsolete inventory of $53,100, and a decrease in
accounts receivable of $56,300. Cash used in investing activities was $56,900.
As a result, we had a net decrease of $3,225,500 in cash and cash equivalents
during the year ended December 31, 2001.
Cash used in operating activities for the year ended December 31, 2000 was
$3,158,600, primarily consisting of our net loss and a decrease of $411,000 in
accounts payable, partially offset by $1,002,700 of non-cash compensation
expense, and the interest accretion of common stock warrants related to our
bridge financing of $276,200, and the write-off of obsolete inventory related to
facsimile-based products of $222,900. Cash used in investing activities was
$61,300. Cash provided by financing activities was $6,207,000 primarily as a
result of net proceeds received in our bridge financing in May and June 2000 and
our private placement in October 2000. As a result, we had a net increase of
$2,987,100 in cash and cash equivalents during the year ended December 31, 2000.
Cash used in operating activities for the year ended December 31, 1999 was
$1,816,000, primarily consisting of our net loss, which was partially offset by
$1,238,400 of non-cash compensation expense and an increase of approximately
$468,800 in accounts payable. Cash used in investing activities was $33,800 and
cash used in financing activities was $279,900. As a result, we had a net
decrease in cash and cash equivalents of $2,129,700 during the year ended
December 31, 1999.
Other than the leases for our offices and research facilities in Atlanta,
Georgia and Beer Sheva, Israel, and certain computer equipment relating to our
research and development activities, we do not have any material capital
obligations and we do not anticipate making any material capital expenditures in
the immediate future. Our aggregate minimum commitments under our existing
operating leases for fiscal 2002, 2003 and 2004 are $153,000, $153,300 and
$144,500, respectively. Additionally, we do not carry any material short or
long-term debt or other financing commitments. As a result, the majority of our
business costs are the direct result of our operating costs including personnel
expenses, such as payroll, and other facility maintenance and overhead expenses.
We are not currently generating sufficient revenues from our operations to
fund our operating costs and expenses. We have incurred losses to date resulting
in an accumulated deficit as of December 31, 2001 of $25,743,800. We anticipate
losses to continue. Since September 30, 2001 we have reduced our personnel by
approximately 30% and we have recently instituted a firm-wide reduction of
salaries by 20%. As of February 28, 2002, we had cash and cash equivalents of
approximately $385,000. Based
24
upon our recent cost-reduction efforts, management estimates that cash and cash
equivalents will be sufficient to fund our operating activities and capital
requirements into the middle of our second quarter of 2002. Unanticipated
changes in economic conditions or other unforeseen circumstances may cause us to
expend our cash and cash equivalents in a shorter period of time.
In addition to our cost-reduction efforts, we have engaged in, or are
currently engaging in, the following activities in an effort to increase
revenues and obtain financing to supplement our cash and cash equivalents in
order to meet our operating costs over the next 12 months:
o Conducting a marketing program involving several pilot sites in which
we have installed our data communications software products for
application solutions under HIPAA's privacy regulations. We anticipate
that we will begin to generate revenues from one or more of these
sites in the second quarter of fiscal 2002;
o Developing a qualified value-added reseller program for our INTACTA
Bridgeway product;
o Seeking to establish additional business alliances for the integration
of our technology into firmware products in the area of secure data
storage, transmission and retrieval, and obtaining financing from
these business alliances.
We have recently concluded negotiations with Zixsys Inc., a newly formed
joint venture between Sanyo Semiconductor Corporation and Imagis Technologies,
Inc., relating to the licensing of our technology for integration in the
development and manufacturing of advanced security based products and systems.
We anticipate entering into a formal licensing agreement by the end of April
2002, which agreement would provide for the payment of an initial licensing fee
to us of approximately $470,000 as well as subsequent royalty fees based upon
revenues from sales of products incorporating our technology. Although the
parties have orally agreed in principle to the terms of the licensing
arrangement, we cannot assure you that we will enter into a formal written
agreement or otherwise consummate the transaction.
Our ability to continue as a going concern is dependent upon our ability to
obtain additional financing or generate increased revenues to support our
current operating activities as well as research and development and marketing
of our new products. At this time we do not have any current arrangements with
respect to other potential sources of additional financing and cannot assure you
that additional financing will be available to us on commercially reasonable
terms or at all. If we are unable to increase our revenue from existing sources,
develop revenues from those potential sources listed above or obtain additional
financing over the next few months and as subsequently needed, we may be
required to curtail or cease operations.
INFLATION
We do not believe that inflation has had a material impact on revenues or
expenses during our last three fiscal years.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In October 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards, SFAS, No. 144, "Accounting for Impairment of
Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS No. 221,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed of," and addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. This statement is effective for
fiscal years beginning after
25
December 15, 2001. We do not expect the adoption of SFAS No. 144 to have a
material impact on our financial statements.
In June 2001, the Financial Accounting Standards Board finalized issued
SFAS No. 141, Business Combinations and No. 142, Goodwill and Other Intangible
Assets. SFAS 141 requires the use of the purchase method of accounting and
prohibits the use of the pooling-of-interests method of accounting for business
combinations initiated after June 30, 2001. SFAS 141 also requires that
companies recognize acquired intangible assets apart from goodwill if the
acquired intangible assets meet certain criteria. SFAS 141 applies to all
business combinations initiated after June 30, 2001 and for purchase business
combinations completed on or after July 1, 2001. It also requires, upon adoption
of SFAS 142, that companies reclassify the carrying amounts of intangible assets
and goodwill based on the criteria in SFAS 141.
SFAS 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, SFAS 142 requires that companies identify reporting units for the
purpose of assessing potential future impairments of goodwill, reassess the
useful lives of other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life. An intangible
asset with an indefinite useful life should be tested for impairment in
accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in
fiscal years beginning after December 15, 2001 to all goodwill and other
intangible assets recognized at that date, regardless of when those assets were
initially recognized. SFAS 142 requires companies to complete a transitional
goodwill impairment test six months from the date of adoption. Companies are
also required to reassess the useful lives of other intangible assets within the
first interim quarter after adoption of SFAS 142. The adoption of SFAS No. 141
and SFAS No. 142 is not expected to have a material effect on Intacta's
financial position, results of operations and cash flows in 2002 and subsequent
years.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
establishes accounting and reporting standards requiring that every derivative
instrument, including certain derivative instruments imbedded in other
contracts, be recorded in the balance sheet as either an asset or liability
measured at its fair value. The statement also requires that changes in the
derivative's fair value be recognized in earnings unless specific hedge
accounting criteria are met. SFAS No. 137 delayed the effective date of SFAS No.
133 to fiscal years beginning after June 15, 2000. SFAS No. 138, Accounting for
Certain Derivative Instruments and Certain Hedging Activities, Amendment of SFAS
No. 133, liberalized the application of SFAS No. 133 in a number of areas. The
adoption of SFAS No. 133 did not have a material impact on our consolidated
financial position or results of operations.
The Financial Accounting Standards Board issued Interpretation No. 44,
Accounting for Certain Transactions involving Stock Compensation, an
Interpretation of APB Opinion No. 25 which became effective on July 1, 2000.
Interpretation No. 44 clarifies (a) the definition of employee for purposes of
applying Opinion No. 25, (b) the criteria for determining whether a stock
compensation plan qualifies as a noncompensatory plan, (c) the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award, and (d) the accounting for an exchange of stock compensation
awards in a business combination. Adoption of the provisions of Interpretation
No. 44 did not have a significant impact on Intacta's financial statements.
We believe that we are in compliance with Staff Accounting Bulletin No.
101, Revenue Recognition, which outlines the basic criteria that must be met to
recognize revenue and provides guidance for presentation of revenue and for
disclosure related to revenue recognition policies in financial statements filed
with the Securities and Exchange Commission.
26
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not engage in trading market risk sensitive instruments, nor do we
purchase for investment, hedging or for purposes "other than trading,"
instruments that are likely to expose us to market risk, whether it be interest
rate, foreign currency exchange, commodity price or equity price risk.
Consequently, we believe that as of December 31, 2001, we do not have exposure
to foreign currency exchange risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
This information appears in a separate section of this report following
Part IV.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.
Not Applicable.
27
PART III
ITEM 10. EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors are:
NAME AGE POSITION
---- --- --------
Altaf S. Nazerali 48 Chairman of the Board
Charles C. Johnston 66 Vice Chairman of the Board
Noel R. Bambrough 63 President, Chief Executive Officer and Director
Graham E. Argott 38 Chief Financial Officer and Secretary
Ross Wilmot 57 Director
Bernard F. Girma 54 Director
Altaf S. Nazerali has served as an executive officer and director of
Intacta since its inception in October 1997, most recently as Chairman of the
Board of Directors. Mr. Nazerali currently serves in the following capacities of
other publicly held companies:
o Chief Executive Officer (since November 1995), President and Director
(each from October 1995 to present) of Multivision Communications
Corp, the operator of MMDS TV systems in Bolivia; and
o Director of Imagis Technologies Inc., formerly Colloquium Capital
Corp. (since July 1998), a technology company that develops and
markets biometric and imaging software to law enforcement, gaming and
security sectors.
Mr. Nazerali is also an executive officer of Valor Invest Limited, a money
manager and financial advisor to high net worth institutional investors; the
President and director of Pensbreigh Holdings Ltd., an independent contractor
that provides various corporate and consulting services; and President and a
director of International Portfolio Management Inc., a private holding company
that provides corporate finance and other management services to private and
public companies. From November 1994 to October 1995, Mr. Nazerali served as
Chief Executive Officer and President of Canbras Communications Corp., an
operator of pay television and telephone systems in Brazil.
Charles C. Johnston has served as Vice Chairman of the Board of Directors
of Intacta since May 31, 2001. Mr. Johnston served as Chairman of each of AFD
Technologies Inc., a manufacturer of fuel additives, J&C Resources, LLC, a
business management and investment company, and UltraClenz Corporation, a
manufacturer of touch-free soap dispensers and hand-wash monitoring systems,
since 1992. In 1969, Mr. Johnston founded ISI Systems, Inc. ("ISI"), a developer
of software systems and related services. Mr. Johnston was Chief Executive
Officer of ISI when it went public on the American Stock Exchange in 1987. ISI
was subsequently acquired by Teleglobe Corporation of Montreal, Canada in 1989.
Mr. Johnston continued to serve as Chief Executive Officer of ISI until 1992.
Mr. Johnston currently serves as the chairman of the Board of Ventex Technology,
Inc. and as a member of the board of directors of each of the following
companies: Bitwise Designs, Inc., Internet Commerce Corporation,
28
Hydron Technologies, and McData Corporation. He also serves as a Trustee on the
President's Advisory Council for the Worcester Polytechnic Institute, and as a
Trustee for the Institute of Psychiatric Research at the University of
Pennsylvania.
Noel R. Bambrough has served as an executive officer and a director of
Intacta since April 1, 1999. Currently, Mr. Bambrough serves as the President
and Chief Executive Officer of Intacta. From November 1998 through April 1999,
Mr. Bambrough served as a consultant to Hunt Power Corporation, a Texas-based
utility company where he was responsible for developing a business plan for the
launch of telephone, internet and cable television service to a mixed
residential and industrial development owned by Hunt's real estate subsidiary.
From April 1995 through November 1998, Mr. Bambrough was Executive
Vice-President and Chief Operating Officer of Triax Telecommunications Company
L.L.C. From July 1993 to April 1995, he served as Senior Vice-President of Shaw
Communications, Inc., a major cable television corporation. In January 1993, Mr.
Bambrough was appointed Interim CEO of Microcell Telecommunications, Inc., a PCS
service provider, and served until July 1993. Mr. Bambrough continues to serve
as a member of the Board of Directors of Microcell. From 1984 until its
acquisition by Shaw Communications, Inc. in January 1993, Mr. Bambrough served
as President and Chief Executive Officer of Cablecasting Ltd.
Graham E. Argott was appointed Chief Financial Officer of Intacta as of May
31, 2001 and corporate Secretary as of February 8, 2002, and has been with
Intacta since October 2000. From February to September 2000, Mr. Argott served
as a consultant to Rodeer Systems, an e-commerce medical transcription and data
management company. In September 1997 he joined Preferred Networks Inc., a
wireless communications company as Corporate Controller and Director of
Information Technology. In July 1998 Mr. Argott was appointed Vice President -
Finance of Preferred Networks' subsidiary, EPS Wireless Inc., a device
remanufacturing and distribution company, and served in that position until the
acquisition of EPS Wireless by Celestica Corporation in December 1999.
Thereafter, Mr. Argott served as interim General Manager of Celestica. From
April 1994 through September 1997, Mr. Argott served as Corporate Controller of
MRC Group, a medical transcription and records company. Mr. Argott is a
certified public accountant with more than fifteen years of finance and
accounting experience, including twelve years in the technology and
communications industries.
Ross Wilmot served as an executive officer of Intacta from its inception
through May 31, 2001. Mr. Wilmot has also served as a director of Intacta since
its inception in October 1997. Mr. Wilmot is a chartered accountant and has
provided financial management services as an independent consultant to public
companies since August 1991. He has special expertise in international
operations and high tech start-ups, and has completed numerous business
valuations and acquisitions in this sector. Mr. Wilmot is also experienced in
public company reporting practices in both the United States and Canada. Mr.
Wilmot currently serves in the following capacities of other publicly held
operating companies:
o Vice President, Finance and director of Multivision Communications
Corp. (since August 1995);
o Vice President, Finance of CTF Technologies, Inc. (since July 1996);
o Chief Financial Officer of Imagis Technologies, Inc. (since February
1999);
o Vice President, Finance and director of Botex Industries Corp., a
manufacturer of plastic materials (since June 1996); and
o President and director of Plata Minerals Corp. (since April 1999).
29
Mr. Wilmot is also an officer and director of the following non-operating
public companies: Breckenridge Resources, Ltd., Harambee Mining Corp., Orko Gold
Ltd. and Paloma Ventures Ltd.
Bernard F. Girma has served as a director of Intacta since May 31, 2001.
Mr. Girma is a founder and the President of DigiTech Strategy a recent start-up
company to provide digital imaging management consulting. Prior, thereto, from
September 1996 to January 2000, Mr. Girma was Chief Executive Officer of Vivid
Image Technology, Inc., a developer of imaging controllers for color printers.
In November 1995, Mr. Girma, together with several other individuals acquired a
controlling interest in Newgen Systems, a manufacturer of digital imaging
products, at which Mr. Girma served as Chief Executive Officer until the merger
of Newgen Systems with Imaging Technologies, Inc., in August 1996. From 1991 to
1995, Mr. Girma served as Vice President and General Manager of Calcomp
Corporation, a subsidiary of Lockheed-Martin Corporation. Mr. Girma currently
serves on the board of directors of BrightCube Inc., a public company as well as
two privately held companies involved in printing and publishing and digital
photo imaging, respectively. Mr. Girma is the co-founder of the Digital Printing
and Imaging Association and served on its board of directors for nine years
including as Chairman from 1996 to 1997.
Each director serves until the next annual meeting of stockholders or until
his successor is duly elected and qualified. The executive officers serve at the
discretion of the board. There are no family relationships among any of our
directors and executive officers.
BOARD COMMITTEES
We have established a compensation committee and an audit committee each of
which is currently composed of Messrs. Johnston, Girma and Nazerali. The
function of the compensation committee is to evaluate and determine the
compensation of our executive officers and employees. The function of the audit
committee is to review and monitor our corporate financial reporting, external
audits and internal control functions. In addition, the audit committee has the
responsibility to consider and recommend the appointment of, and to review fee
arrangements with, our independent auditors.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our
directors, officers and persons who own more than 10% of a registered class of
our equity securities to file with the Securities and Exchange Commission, SEC,
initial reports of ownership and reports of changes in ownership of our
securities. Officers, directors and greater than 10% stockholders are required
by the SEC to furnish Intacta with copies of all forms they file pursuant to
Section 16(a).
Based solely upon our review of copies of such forms, we believe that
during the year ended December 31, 2001, all filing requirements applicable to
our officers, directors and greater than 10% stockholders were complied with,
except a Form 3 for each of Charles Johnston and Bernard Girma, each a director
of Intacta and Graham Argott and Sandra Bushau, each an officer of Intacta, was
not timely filed and a Form 5 for Arie Halpern and Corsa S.A. Holdings (each a
greater than 10% stockholder of the Company) was not timely filed.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid, during the periods
indicated, to our chief executive officer and all other executive officers whose
compensation exceeded $100,000, our "named executive officers," for our last
completed fiscal year. No other executive officer of Intacta earned a salary and
bonus for the fiscal year ended December 31, 2001 in excess of $100,000. None of
the named
30
executive officers received compensation in the form of a bonus during the years
presented in the table below.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
LONG TERM COMPENSATION ALL
SECURITIES UNDERLYING OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) OPTION/SARS (#) COMPENSATION
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Altaf S. Nazerali, 2001 85,415 350,000 --
Chairman of the Board of 2000 100,000 -- --
Directors (1) 1999 100,000 150,000 (2) --
------------------------------------------------------------------------------------------------------
Noel R. Bambrough 2001 250,000 440,000 --
President and Chief Executive 2000 250,000 -- --
Officer (3) 1999 154,165 200,000 (4) --
------------------------------------------------------------------------------------------------------
Graham E. Argott 2001 150,000 75,000 --
Chief Financial Officer (5) 2000 31,250 -- --
1999 -- -- --
------------------------------------------------------------------------------------------------------
</TABLE>
(1) Mr. Nazerali served as our President and Chief Executive Officer for each
of 1999 and 2000 and through May 31, 2001. Mr. Nazerali currently serves as
our Chairman of the Board of Directors. The compensation to Mr. Nazerali in
each of 2001, 2000 and 1999 was paid directly to Mr. Nazerali from
Pensbreigh Holdings Ltd. and represents a portion of the monthly consulting
fee we pay to Pensbreigh. These amounts exclude $80,000, $88,000, and
$94,000 paid for administrative services provided to Intacta during 2001,
2000 and 1999 by International Portfolio Management Inc., of which Mr.
Nazerali is a stockholder and President and a director. See "Employment and
Consulting Agreements" and "Certain Transactions."
(2) This option terminated by its terms on May 31, 2001.
(3) Mr. Bambrough became an executive officer of Intacta effective as of April
1, 1999 and served as our Executive Vice President and Chief Operating
Officer through May 31, 2001 when he was elected President and Chief
Executive Officer. The compensation to Mr. Bambrough in 1999 and 2000
included an aggregate of $41,665 and $50,000 respectively, which was
accrued and unpaid. We have since repaid such accrued salary from a portion
of the proceeds of our October 2000 private placement. The compensation to
Mr. Bambrough in 2001 included an aggregate of $20,833 of salary which was
accrued and unpaid in accordance with an agreement with Intacta to defer a
portion of his salary until Intacta is capable of generating sufficient
revenue to enable payment of the full salary.
(4) This option was cancelled effective as of December 4, 2001.
(5) Mr. Argott became an executive officer of Intacta effective as of May 31,
2001 and currently serves as our Chief Financial Officer. The compensation
paid to Mr. Argott in 2001 included an aggregate of $3,125 of salary which
was accrued and unpaid in accordance with an agreement with Intacta to
defer a portion of his salary until Intacta is capable of generating
sufficient revenue to enable payment of the full salary.
OPTION GRANTS IN THE LAST FISCAL YEAR
The following table discloses options granted during the fiscal year ended
December 31, 2001 to
31
our named executive officers.
<TABLE>
<CAPTION>
POTENTIAL
NUMBER OF REALIZABLE VALUE AT
SHARES % OF TOTAL ASSUMED RATES OF
UNDERLYING OPTIONS GRANTED EXERCISE STOCK PRICE
OPTIONS TO EMPLOYEES IN PRICE APPRECIATION FOR
NAME GRANTED FISCAL YEAR ($/SHARE) EXPIRATION DATE OPTION TERM (6)
---- ------- ----------- --------- --------------- ---------------
5% 10%
-- ---
<S> <C> <C> <C> <C> <C> <C>
Altaf S. Nazerali 150,000 (1) 6.7% $0.75 May 31, 2006 $0 $0
200,000 (2) 8.9 0.75 May 31, 2006 0 0
Noel R. Bambrough 200,000 (3) 8.9 0.75 May 31, 2006 0 0
240,000 (4) 10.7 0.75 May 31, 2005 0 0
Graham E. Argott 75,000 (5) 3.3 0.75 May 31, 2006 0 0
</TABLE>
(1) This option was fully vested and the underlying shares were exercisable in
full on June 1, 2001, the date of grant.
(2) This option vests annually in equal one-third increments beginning on June
1, 2002.
(3) This option vested as to 144,000 underlying shares of common stock on June
1, 2001, the date of grant, and the balance of 56,000 underlying shares of
common stock became exercisable on March 31, 2002.
(4) This option vests annually in equal one-third increments beginning on June
1, 2002.
(5) This option will vest: (a) as to 30,750 underlying shares of common stock
on June 1, 2002; (b) as to 31,500 underlying shares of common stock on June
1, 2003; and (c) as to the balance of 12,750 underlying shares of common
stock on November 1, 2004.
(6) The exercise price of the options granted to the named executive officers
exceeded the market price of our common stock on the date of grant and no
potential realizable value is attributable to the options assuming the
indicated rates of appreciation compounded over the terms of the options.
OPTION EXERCISES IN FISCAL YEAR ENDED DECEMBER 31, 2001
The named executive officers set forth on the compensation table above did
not exercise any options during the fiscal year ended December 31, 2001. The
following table sets forth information concerning the number of options owned by
each of those executive officers and the value of any in-the-money unexercised
options held at December 31, 2001.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT DECEMBER 31, 2001 DECEMBER 31, 2001
SHARES
ACQUIRED
NAME ON EXERCISE VALUE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Altaf S. Nazerali - - 150,000 -- - -
Noel R. Bambrough - - 144,000 -- - -
Graham E. Argott - - - -- - -
</TABLE>
32
o As of December 31, 2001, none of the unexercised options held by the
executive officers set forth in the table above were in-the-money.
DIRECTOR COMPENSATION
We do not currently pay any cash compensation to directors for serving on
our board, but we do reimburse directors for out-of-pocket expenses incurred for
services rendered as members of the board including, but not limited to,
attending board meetings.
Each of our directors is eligible to be granted options or other
stock-based awards under either of our 1998 stock option plan or our 2000 stock
incentive plan.
SPECIAL ADVISORS
We have entered into an agreement with Martin Singer whereby Mr. Singer
acts, on an independent consultant basis, as an advisor to our board of
directors. Mr. Singer is currently the President and CEO of SAFCO Technologies,
Inc. Prior thereto, from 1990 to 1997, Mr. Singer held executive office
positions with various divisions of Motorola, Inc., ultimately as Vice President
and General Manager of its Wireless Access Business Development division. Mr.
Singer has also held management positions with Tellabs, Inc. and AT&T. We have
granted Mr. Singer options to purchase an aggregate of 50,000 shares of our
common stock, which options vest in one-third increments on each anniversary of
the date of grant and we have agreed to pay Mr. Singer a fee of 2% of revenues
generated from any sales, licensing or royalty arrangements generated or
introduced to Intacta by Mr. Singer.
Yechiel Sharabi, Yehoshua Sagi and Amnon Shai, each a former director of
Intacta, and Menachem Tassa, formerly the Executive Vice President - Research
and Development, continue to serve as advisors to Intacta pursuant to oral
arrangements. Each of Messrs. Sharabi, Sagi and Shai has been granted options,
under our 1998 stock option plan, to purchase 50,000 shares of our common stock
at a price of $.75 per share and Mr. Tassa has been granted options to purchase
150,000 shares of our common stock, also at a price of $.75 per share. All of
the options granted to Messrs. Sharabi, Sagi, Shai and Tassa are fully vested.
EMPLOYMENT AND CONSULTING AGREEMENTS
We entered into a consulting agreement with Pensbreigh Holdings Ltd., an
independent contractor engaged in the business of providing various corporate
and consulting services to businesses, of which Mr. Nazerali is a stockholder
and officer, dated as of March 1, 1999. Under the agreement, Pensbreigh provides
us with the services of Mr. Nazerali and Arie Halpern, an affiliate of Intacta
and the controlling stockholder of Corsa. During the initial term of the
agreement, we agreed to pay Pensbreigh a monthly fee of $16,666. Effective June
1, 2001, the monthly fee we paid to Pensbreigh under the consulting agreement
was reduced to $12,500. This agreement was extended, in accordance with its
terms, for a one-year period through October 1, 2002, with a monthly fee of
$12,500. In January 2002, Pensbreigh agreed to defer approximately $4,167 of its
monthly fee payments until Intacta is capable of generating sufficient revenues
to enable full payment of the monthly fees. Since Mr. Nazerali does not have an
employment contract with us, he is therefore not entitled to participate in any
benefit plans to which regular employees are eligible.
We entered into an employment agreement with Noel Bambrough in March 1999,
which provided for a salary of $12,500 per month from April 1, 1999 through July
31, 1999 and a salary of $20,833 per month thereafter. However, we had paid Mr.
Bambrough only $12,500 per month through June 30, 2000. Since July 1, 2000, Mr.
Bambrough has been receiving $20,833 per month. The balance
33
of accrued but unpaid salary of approximately $91,665 was paid to Mr. Bambrough
from a portion of the proceeds of our October 2000 private placement. In October
2001, in connection with our cost-reduction efforts, Mr. Bambrough agreed to
defer payment of approximately 40% of his monthly salary until we are able to
generate sufficient revenue to enable full payment of his salary. Mr. Bambrough
is also eligible for a bonus not to exceed $100,000 per year based on the
achievement of specific agreed upon business goals and targets. Under the
agreement, we granted Mr. Bambrough an option, under our 1998 stock option plan,
to purchase 200,000 shares of common stock at a price of $0.75 per share. In
addition, subject to our board of directors' approval, we agreed to grant Mr.
Bambrough options to purchase a number of shares at least equal to 10% of the
aggregate number of options available for grant under any subsequent option
plan. Accordingly, on June 1, 2001, we granted Mr. Bambrough an option, under
our 2000 stock incentive plan, to purchase 240,000 shares of common stock at a
price of $.75 per share.
STOCK OPTION PLAN
On June 1, 1998, our board of directors approved the creation of our 1998
stock option plan. Under our 1998 stock option plan, our board of directors may
grant incentive and non-qualified options to acquire up to a total of 1,667,100
shares of common stock to our directors, officers, employees and consultants. As
of the date of this report, options to acquire 1,300,000 shares at a price of
$.75 per share were outstanding.
On July 21, 2000, our board of directors adopted our 2000 stock incentive
plan, which was subsequently approved by our stockholders at our annual meeting
in May 2001. Our 2000 stock incentive plan provides for the grant of any or all
of the following types of awards:
o stock options, which may be either incentive stock options or
non-qualified stock options;
o restricted stock;
o deferred stock; and
o other stock based awards.
A total of 2,400,000 shares of common stock have been reserved for
distribution under our 2000 stock incentive plan. As of the date of this
prospectus, options to acquire 941,750 shares at a price of $.75 per share were
outstanding.
Of the options granted under our 1998 stock option plan, options to
purchase an aggregate of 425,000 shares have been granted to the following
executive officers and directors:
o options to purchase 350,000 shares were granted to Altaf Nazerali, our
Chairman of the board of directors; and
o options to purchase 75,000 shares were granted to Ross Wilmot, a
member of our board of directors.
An aggregate of 200,000 options granted to Messrs. Nazerali and Wilmot are
fully vested and the balance of options will vest in one-third increments
annually beginning on June 1, 2002.
Of the options granted under our 2000 stock incentive plan, options to
purchase an aggregate of 690,000 shares have been granted to the following
executive officers and directors:
34
o options to purchase 440,000 shares were granted to Noel Bambrough, our
President and Chief Executive Officer and a member of our board of directors;
o options to purchase 100,000 shares were granted to Charles C.
Johnston, our Vice Chairman of the board of directors;
o options to purchase 75,000 shares were granted to Bernard F. Girma, a
member of our board of directors; and
o options to purchase 75,000 shares were granted to Graham Argott, our
Chief Financial Officer.
An aggregate of 200,000 options granted to Mr. Bambrough are fully vested
and the remaining options to purchase 490,000 shares will vest incrementally
over the next three years.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
Our compensation committee was formed effective May 31, 2001 and is
comprised of Messrs. Altaf Nazerali, Charles Johnston and Bernard Girma. Mr.
Nazerali served as our President and Chief Executive Officer through May 31,
2001, and continues to serve as Chairman of our board of directors. During the
fiscal year ended December 31, 2001, Mr. Nazerali served as a director of each
of Multivision Communications Corp., CTF Technologies, Inc. and Imagis
Technologies, Inc. Ross Wilmot, a member of our board of directors served as an
executive officer of Multivision, CTF Technologies and Imagis. We did not engage
in any material transactions with Multivision, CTF Technologies or Imagis during
the fiscal year ended December 31, 2001.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information concerning the beneficial
ownership of our outstanding common stock as of March 31, 2002:
o each person or group that we know owns beneficially more than 5% of
our common stock;
o each of our directors and named executive officers individually; and
o all directors and executive officers as a group.
We believe that all persons named in the table have sole voting and
investment power with respect to all shares of common stock beneficially owned
by them except as noted.
A person is deemed to be the beneficial owner of securities that can be
acquired by that person within 60 days from March 31, 2002 upon the exercise of
options, warrants or convertible securities. Each beneficial owner's percentage
ownership is determined by assuming that options, warrants or convertible
securities that are held by that person, but not those held by any other person,
and which are exercisable within 60 days of March 31, 2002 have been exercised
and converted. The information presented in the following table assumes
approximately 20,345,924 shares of common stock outstanding before any
consideration is given to outstanding options, warrants or convertible
securities.
Unless otherwise noted below, the address for each named individual or
group is in care of Intacta Technologies Inc., 945 East Paces Ferry Road, N.E.,
Suite 1445, Atlanta, Georgia 30326-1372.
35
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF OUTSTANDING STOCK
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP BENEFICIALLY OWNED
------------------- -------------------- ------------------
<S> <C> <C>
Corsa S.A. Holdings
Arie Halpern........................... 4,000,000 19.7%
Altaf S. Nazerali......................... 278,000 1.4
Noel R. Bambrough......................... 203,000 *
Charles C. Johnston....................... 183,332 *
Ross Wilmot............................... 50,000 *
Bernard F. Girma.......................... --- ---
Graham E. Argott........................ --- ---
All officers and directors as a group
(6 persons)............................... 714,332 3.4
</TABLE>
--------------------
* Indicates a percentage beneficial ownership of less than 1% of the shares
outstanding.
Corsa S.A. Holdings is a Luxembourg holding company with an address at 8
rue Notre Dame, L-2240 Grand Duchy, Luxembourg, of which 90% is controlled by
Mr. Arie Halpern and 10% is controlled by Shira Advising, Communication and
Investments Ltd., a company controlled by Mr. Yechiel Y. Sharabi, a former
director of Intacta, and his wife Hadassa Y. Sharabi. Mr. Halpern is also a
director of Corsa S.A. Holdings and exercises sole voting and dispositive power
over the shares held by Corsa S.A. Holdings. This amount does not include
150,000 shares underlying currently exercisable options held by Mr. Halpern.
Mr. Nazerali's beneficially owned shares include
o 128,000 shares held by Mr. Nazerali; and
o 150,000 shares underlying currently exercisable options.
Mr. Nazerali's beneficially owned shares do not include:
o 200,000 shares underlying options which are not currently exercisable;
and
o an aggregate of 282,090 shares and 244,590 shares underlying currently
exercisable warrants held by Valor Invest Limited.
Mr. Nazerali is a director of Valor but has entered into an agreement with
the principal owner of Valor not to exercise voting or dispositive power with
respect to securities of Intacta held by Valor.
Mr. Bambrough's beneficially owned shares include:
o 3,000 shares held by Mr. Bambrough; and
o 200,000 shares underlying currently exercisable options.
36
Mr. Bambrough's beneficially owned shares do not include an aggregate of
240,000 shares underlying options which are not currently exercisable.
Mr. Johnston's address is c/o Ventex Technologies, 7830 Byron Drive, Suite
10, Riviera Beach, Florida 33404. Mr. Johnson's beneficially owned shares
include:
o 66,666 shares held by J & C Resources, LLC, over which Mr. Johnson
exercises sole voting and dispositive power; and
o 116,666 shares underlying currently exercisable warrants held by J & C
Resources, LLC, over which Mr. Johnston exercises sole voting and dispositive
power.
Mr. Johnston's beneficially owned shares do not include 100,000 shares
underlying options which are not currently exercisable.
Mr. Wilmot's beneficially owned shares include 50,000 shares underlying
currently exercisable options, but exclude 25,000 shares underlying options
which are not currently exercisable.
Mr. Girma's address is c/o Digitech Strategy, 26072 Spur Branch Lane,
Laguna Hills, California 92653. Mr. Girma is the beneficial owner of 75,000
shares underlying options which are not currently exercisable.
The beneficially owned shares of our officers and directors as a group
includes:
o 197,666 shares of our common stock;
o 400,000 shares of our common stock underlying currently exercisable
options; and
o 116,666 shares of our common stock underlying currently exercisable
warrants.
The beneficially owned shares of our officers and directors as a group does
not include:
o an aggregate of 715,000 shares underlying options which are not
currently exercisable; and
o 282,090 shares and 244,590 shares underlying currently exercisable
warrants held by Valor.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In January 2001, we entered into an agreement with Bernard F. Girma
pursuant to which we agreed to pay Mr. Girma a commission equal to ten percent
of all revenues, net of certain taxes, costs and fees, received by us from
clients introduced by Mr. Girma that acquire or license our products and
technology. The agreement also provides for our reimbursing Mr. Girma for
certain expenses he incurs in connection with the promotion of Intacta to
prospective clients. To date, no commissions have been paid to Mr. Girma in
accordance with this agreement.
During 2001 we paid consulting, management and marketing fees to some of
our directors or stockholders and/or their affiliates in the following amounts:
o $170,000 to Pensbreigh Holdings Ltd., of which Mr. Nazerali is
President and a stockholder; and
37
o $70,000 to Menachem Tassa, our former Executive Vice President,
Research and Development. Mr. Tassa subsequently resigned his position of
Executive Vice President, Research and Development, effective July 1, 2001. Mr.
Tassa continued to serve Intacta as a consultant through July 31, 2001. Mr.
Tassa currently serves as an advisor to Intacta pursuant to an oral arrangement.
We paid approximately $80,000 during 2001 to International Portfolio
Management Inc., in connection with administrative services provided to us.
Altaf S. Nazerali, our Chairman of the Board, is the sole stockholder of
International Portfolio Management Inc., Ross Wilmot, our director, is the Vice
President, Finance of International Portfolio Management Inc., and Sandra E.
Buschau, formerly our corporate Secretary, is a Vice President of International
Portfolio Management Inc.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements.
Report of Independent Certified Public Accountants.................F-2
Consolidated Balance Sheets as of December 31, 2001 and 2000.......F-3
Consolidated Statements of Operations for the years ended
December 31, 2001, 2000 and 1999 .........................F-5
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 2001, 2000 and 1999 .....F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 2001, 2000 and 1999 .........................F-7
Notes to Consolidated Financial Statements.........................F-8
2. Financial Statement Schedules.
Schedules have been omitted since the required information is not
present or is not present in amounts sufficient to require submission
of the schedules, or because the information required is included in
the consolidated financial statements, including the notes thereto.
3. Index to Exhibits.
EXHIBIT DESCRIPTION OF EXHIBIT
3.1 Articles of Incorporation of Intacta Technologies Inc. and amendments
thereto (1)
3.2 Bylaws of Intacta Technologies Inc. (1)
4.1 Specimen Stock Certificate (1)
4.2 Form of warrant issued pursuant to the registrant's bridge financing
in May and June 2000 (3)
4.3 Form of warrant issued pursuant to the registrant's private placement
in October 2000 (3)
10.1 Licensing Agreement dated July 19, 1999, between registrant and
DataLode Inc. (1)+
10.2 Form of Lease Agreement dated November 17, 2000, between the
registrant and North Atlanta Realty Acquisition Company, Inc. (3)
10.3 Form of Tenancy Agreement dated August 1, 2000, between Intacta Labs
Ltd. and Hakirya Towers Beer Sheva Ltd. (3)
10.4 1998 Stock Option Plan (1)
10.5 Consulting Agreement dated October 1, 1998, between registrant and
Pensbreigh Holdings Ltd. (1)
10.6 Agreement dated June 30, 1999, between registrant and Noel R.
Bambrough (1)
10.7 Exchange Agreement dated May 31, 1998 between registrant and Corsa
S.A. Holdings (1)
10.8 Consulting Agreement dated March 1, 1999 between registrant and
Pensbreigh Holdings Ltd. (1)
10.9 2000 Stock Incentive Plan, as amended (2)
10.10 License Agreement dated April 17, 2000 between the registrant and
Systems Nakashima Co., Ltd. (3)+
38
10.11 License Agreement dated June 30, 2000 between the registrant and
Intertek Testing Systems International Ltd. (3)+
21.1 List of subsidiaries of registrant (3)
23.1 Consent of BDO Seidman, LLP
(1) Incorporated by reference to the exhibit filed with the registrant's
registration statement on Form S-1 (SEC File No. 333-30400).
(2) Incorporated by reference to Exhibit A to the registrant's Definitive Proxy
Statement on Schedule 14A dated April 27, 2001.
(3) Incorporated by reference to the exhibit filed with the registrant's
registration statement on Form S-1 (SEC File No. 333-51210).
+ Filed in redacted form pursuant to Rule 406 promulgated under the
Securities Act of 1933, as amended (the "Securities Act"). Copies of the
exhibit containing the redacted portions have been filed separately with
the Securities and Exchange Commission subject to a request for
confidential treatment pursuant to Rule 406 under the Securities Act.
(b) Reports on Form 8-K.
On October 24, 2001, the registrant filed a Current Report on Form 8-K
reporting the release of its suite of HIPAA complaint communication products.
On October 24, 2001, the registrant filed a Current Report on Form 8-K
reporting the announcement of a partnership with Transcend Services, Inc. to
evaluate new service to the medical transcription market and the availability of
its new INTACTA.CODE SDK - Developer's Edition v5.1 on the ComponentSource(TM)
Website.
39
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
INTACTA TECHNOLOGIES, INC.
By: /s/ Noel R. Bambrough
---------------------------------
Name: Noel R. Bambrough
Title: President and Chief
Executive Officer
Dated: April 15, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Altaf S. Nazerali Chairman of the Board of Directors April 15, 2002
-----------------------------
Altaf S. Nazerali
/s/ Charles C. Johnston Vice Chairman of the Board of Directors April 15, 2002
-----------------------------
Charles C. Johnston
/s/ Noel R. Bambrough President, Chief Executive Officer and April 15, 2002
-----------------------------
Noel R. Bambrough Director (Principal Executive Officer)
/s/ Graham E. Argott Chief Financial Officer April 15, 2002
-----------------------------
Graham E. Argott (Principal Accounting Officer)
/s/ Ross Wilmot Director April 15, 2002
-----------------------------
Ross Wilmot
/s/ Bernard F. Girma Director April 15, 2002
----------------------
Bernard F. Girma
</TABLE>
40
INDEX TO FINANCIAL STATEMENTS
INTACTA TECHNOLOGIES INC. AND SUBSIDIARIES
PAGE
Audited Consolidated Financial Statements:
Report of Independent Certified Public Accountants.................... F-2
Consolidated Balance Sheets - December 31, 2001 and December 31, 2000 F-3
Consolidated Statements of Operations for the years ended December
31, 2001, December 31, 2000 and December 31, 1999................. F-5
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 2001, December 31, 2000 and December 31, 1999........ F-6
Consolidated Statements of Cash Flows for the years ended December
31, 2001, December 31, 2000 and December 31, 1999................. F-7
Notes to Consolidated Financial Statements............................ F-8
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To The Board of Directors and Shareholders of
Intacta Technologies Inc.
We have audited the accompanying consolidated balance sheets of Intacta
Technologies Inc. and subsidiaries as of December 31, 2001 and 2000 and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 2001. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. These standards require that we plan and perform our audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Intacta
Technologies Inc. and subsidiaries as of December 31, 2001 and 2000, and the
consolidated results of their operations and cash flows for each of the three
years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
and, at December 31, 2001, has an accumulated deficit that raises substantial
doubt about its ability to continue as a going concern. Management's plans in
regards to these matters are also described in Note 2. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ BDO Seidman, LLP
Atlanta, Georgia
March 25, 2002,
except for Note 2,
which is as of April 12, 2002
F-2
INTACTA TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
================================================================================
December 31, 2001 2000
================================================================================
ASSETS
CURRENT
Cash and cash equivalents $ 679,000 $ 3,904,500
Accounts receivable 7,200 63,500
Inventories -- 55,700
Related party and employee receivables -- 13,100
Prepaid insurance and other 106,900 --
--------------------------------------------------------------------------------
Total current assets 793,100 4,036,800
PROPERTY AND EQUIPMENT, net 68,700 104,800
PATENTS, net 119,500 118,900
--------------------------------------------------------------------------------
$ 981,300 $ 4,260,500
================================================================================
F-3
INTACTA TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
================================================================================
<TABLE>
<CAPTION>
December 31, 2001 2000
=========================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable $ 133,500 $ 61,400
Accounts payable - related parties 35,000 127,400
Accrued expenses 230,900 206,500
-----------------------------------------------------------------------------------------
Total current liabilities 399,400 395,300
-----------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.0001 par value; 50,000,000 shares
authorized; no shares issued or outstanding -- --
Common stock, $.0001 par value; 100,000,000 shares
authorized; 20,345,924 and 17,909,000 shares issued
and outstanding, respectively 2,035 2,035
Additional paid-in capital 26,336,865 26,336,865
Deficit (25,743,800) (22,222,400)
Unamortized stock compensation (13,200) (251,300)
-----------------------------------------------------------------------------------------
Total stockholders' equity 581,900 3,865,200
-----------------------------------------------------------------------------------------
$ 981,300 $ 4,260,500
=========================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
F-4
INTACTA TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
================================================================================
<TABLE>
<CAPTION>
Years ended December 31, 2001 2000 1999
===========================================================================================================
REVENUES
<S> <C> <C> <C>
Products and components $ 94,400 $ 363,400 $ 64,000
Royalties from licensing arrangements 46,400 94,000 73,400
Consulting fees -- 337,100 --
-----------------------------------------------------------------------------------------------------------
Total Revenues 140,800 794,500 137,400
-----------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Cost of products and components 78,900 303,600 90,500
Consulting fees expenses -- 113,900 --
Research and development (including non-cash
compensation expense of $189,200, $361,600, $222,400
in 2001, 2000 and 1999 respectively) 1,206,400 1,133,000 1,047,400
Sales and marketing (including non-cash compensation
expense of $7,800 and $69,600 in 2001 and 2000) 733,100 1,182,100 113,200
General and administrative (including non-cash
compensation expense of $41,100, $571,500, and
$1,016,000 in 2001, 2000 and 1999 respectively) 1,715,400 2,306,500 2,619,800
-----------------------------------------------------------------------------------------------------------
Total operating expenses 3,733,800 5,039,100 3,870,900
-----------------------------------------------------------------------------------------------------------
Loss from operations (3,593,000) (4,244,600) (3,733,500)
-----------------------------------------------------------------------------------------------------------
Other income (expense)
Interest income 82,700 90,600 104,000
Interest (expense) (100) (389,500) (8,700)
Other (5,200) -- 21,400
-----------------------------------------------------------------------------------------------------------
Total other income (expense) 77,400 (298,900) 116,700
-----------------------------------------------------------------------------------------------------------
Loss before provision for income taxes (3,515,600) (4,543,500) (3,616,800)
PROVISION FOR INCOME TAXES 5,800 7,700 800
-----------------------------------------------------------------------------------------------------------
Net loss $ (3,521,400) $ (4,551,200) $ (3,617,600)
===========================================================================================================
Basic and diluted loss per common share $ (0.17) $ (0.25) $ (0.20)
===========================================================================================================
BASIC AND DILUTED WEIGHTED - AVERAGE
COMMON SHARES OUTSTANDING 20,345,924 18,483,179 17,791,630
===========================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
F-5
INTACTA TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
================================================================================
<TABLE>
<CAPTION>
Common Stock Additional Unamortized
--------------------------- Paid-in Stock
Shares Amount Capital Compensation Deficit Total
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1998 17,671,000 $ 1,767 $ 18,492,199 $ (2,171,766) $(14,053,600) $ 2,268,600
Conversion of debt to equity -
Stockholder 238,000 24 952,076 -- -- 952,100
Stock options granted -- -- 266,278 (266,278) -- --
Amortization of stock options -- -- -- 1,238,400 -- 1,238,400
Net loss -- -- -- -- (3,617,600) (3,617,600)
-----------------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1999 17,909,000 1,791 19,710,553 (1,199,644) (17,671,200) 841,500
Conversion of debt to equity -
Stockholder 160,483 16 481,484 -- -- 481,500
Conversion of debt to
equity 755,778 76 2,267,224 -- -- 2,267,300
Issuance of common stock in
Private Placement, net of
issuance costs of
$1,054,000 1,503,963 150 3,522,050 -- -- 3,522,200
Stock options exercised 16,700 2 24,998 -- -- 25,000
Amortization of stock options -- -- -- 1,002,700 -- 1,002,700
Stock options granted -- -- 46,800 (46,800) -- --
Other -- -- 7,556 (7,556) -- --
Discount on debt with
convertible warrant feature -- -- 276,200 -- -- 276,200
Net loss -- -- -- -- (4,551,200) (4,551,200)
-----------------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 2000 20,345,924 2,035 26,336,865 (251,300) (22,222,400) 3,865,200
Amortization of stock options -- -- -- 238,100 -- 238,100
Net loss -- -- -- -- (3,521,400) (3,521,400)
-----------------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 2001 20,345,924 $ 2,035 $ 26,336,865 $ (13,200) $(25,743,800) $ 581,900
===================================================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
F-6
INTACTA TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
Years ended December 31, 2001 2000 1999
=====================================================================================================
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net loss $ (3,521,400) $ (4,551,200) $ (3,617,600)
Adjustments to reconcile net loss to cash
used in operating activities:
Amortization of stock options 238,100 1,002,700 1,238,400
Depreciation and amortization 92,300 99,300 110,800
Interest accretion on warrants -- 276,200 --
Write-down of inventory 53,100 222,900 46,100
Loss on equipment disposals -- 5,700 --
Changes in operating assets and liabilities:
Accounts receivable 56,300 (31,800) (20,300)
Inventories 2,600 -- (26,000)
Accounts receivable - related parties 13,100 31,900 (600)
Other current assets (106,800) 30,800 (16,100)
Accounts payable 72,100 (411,000) 468,800
Accounts payable - related parties (92,400) 37,200 --
Accrued expenses 24,400 128,700 500
-----------------------------------------------------------------------------------------------------
Cash used in operating activities (3,168,600) (3,158,600) (1,816,000)
-----------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Capital expenditures (38,000) (34,600) (18,600)
Patents (18,900) (26,700) (15,200)
-----------------------------------------------------------------------------------------------------
Cash provided by (used in) investing activities (56,900) (61,300) (33,800)
-----------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Exercise of stock options -- 25,000 --
Net proceeds from private placement -- 3,522,200 --
Loans from shareholder -- 704,500 --
Bridge loan financing, net -- 2,267,300 --
Repayment of shareholder loans -- (312,000) (279,900)
-----------------------------------------------------------------------------------------------------
Cash provided by (used in) financing activities -- 6,207,000 (279,900)
-----------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH (3,225,500) 2,987,100 (2,129,700)
EQUIVALENTS
CASH AND CASH EQUIVALENTS, beginning of year 3,904,500 917,400 3,047,100
-----------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of year $ 679,000 $ 3,904,500 $ 917,400
=====================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
F-7
INTACTA TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Intacta Technologies Inc. and its wholly-owned subsidiary, Intacta
Delaware, Inc., (collectively the "Company"), is a developer and marketer
of software products based on its patented technology that, through its
unique combination of compression, encoding and error correction processes,
the technology transforms any data format ranging from text, graphic, audio
or video from a binary file into INTACTA.CODE(TM) which is language
transparent and platform independent. The Company believes that its
technology provides solutions and applications that enable enterprises to
bridge their communications and management information systems across
digital and non-digital media by providing the secure bi-directional
transmission and subsequent recovery and storage of data.
Intacta Labs Ltd., an Israeli corporation and wholly owned subsidiary
(Intacta Labs), primarily conducts product research and development in the
high tech area of Beer Sheva, Israel, and is currently conducting new
research projects expected to produce significant time and cost savings
through continued development of a medium for transmitting and storing data
in secure formats.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All intercompany accounts
and transactions have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid investments with original maturities of three
months or less to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market.
F-8
INTACTA TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost, net of accumulated depreciation
and amortization. Depreciation is provided using the straight-line method
over the estimated useful lives of the assets, generally ranging from three
to seven years.
PATENTS
Patents are amortized on a straight-line basis over the estimated useful
life of the patents, generally ten years. As of December 31, 2001 and 2000,
accumulated amortization amounted to approximately $109,500 and $91,200,
respectively.
F-9
INTACTA TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
LONG-LIVED ASSETS
Long-lived assets, such as patents and property and equipment, are
evaluated for impairment when events or changes in circumstances indicate
that the carrying amount of the assets may not be recoverable through the
estimated undiscounted future cash flows resulting from the use of these
assets. When any such impairment exists, the related assets will be written
down to fair value.
SOFTWARE DEVELOPMENT COSTS
In accordance with Statement of Financial Accounting Standards (SFAS) No.
86, Accounting for the Costs of Computer Software to Be Sold, Leased, or
Otherwise Marketed, costs related to the research and development of new
products and enhancements to existing products are expensed as incurred
until technological feasibility of the product has been established, at
which time such costs are capitalized, subject to expected recoverability.
Therefore, the Company has not capitalized any software development costs
related to its products, since the time period between technological
feasibility and the general release of a market accepted product is not
significant.
REVENUE RECOGNITION
The Company's revenue recognition policies are in compliance with generally
accepted accounting principles including Statement of Position (SOP) 97-2,
Software Revenue Recognition. As such, the Company recognizes product
revenue upon shipment if persuasive evidence of an arrangement exists,
delivery has occurred, the fees are fixed and determinable and
collectibility is probable.
Revenues, if any, from arrangements to provide maintenance, bug fixing,
support, upgrades and enhancements are recognized over the period in which
such arrangements exist. While such arrangements were made available to
some customers on a limited basis during the reporting periods presented,
SOP 97-2 allows for full revenue recognition upon delivery if certain
criteria are met. Such criteria include such factors as insignificant costs
of providing such arrangements and minimal and infrequent upgrades and
enhancements, among other things. The Company met the conditions of such
criteria and, as a result, was not required to defer the recognition of
revenue for arrangements described above.
License revenues are recognized based on actual sales of licensed software
by a customer/licensee and are not recognized by the company as revenue
until the final sale is reported by the customer/licensee. This is the time
at which the Company believes that revenue recognition in accordance with
SOP 97-2, as described above, has occurred. Support revenue is not integral
to the functionality of the licensed software and is billed and recognized
as incurred.
F-10
INTACTA TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
The Company recognized consulting fee revenue during 2000 that was derived
from certain software development and programming projects performed on
behalf of customers. Revenue was recorded as the services were performed
and these projects were started and completed within the year.
The Company believes that it is in compliance with Staff Accounting
Bulletin ("SAB") No. 101, Revenue Recognition, which outlines the basic
criteria that must be met to recognize revenue and provides guidance for
presentation of revenue and for disclosure related to revenue recognition
policies in financial statements filed with the SEC.
ADVERTISING COSTS
The cost of advertising is expensed as incurred. Advertising costs for the
years ended December 31, 2001, 2000 and 1999 were approximately $154,100,
$34,900 and $0, respectively.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes,
which requires an asset and liability approach. This approach results in
the recognition of deferred tax assets (future tax benefits) and
liabilities for the expected future tax consequences of temporary
differences between the book carrying amounts and the tax basis of assets
and liabilities. The deferred tax assets and liabilities represent the
future tax return consequences of those differences, which will either be
deductible or taxable when the assets and liabilities are recovered or
settled. Future tax benefits are subject to a valuation allowance when
management believes it is more likely than not that the deferred tax assets
will not be realized.
LOSS PER SHARE
Basic loss per share is computed by dividing net loss by the
weighted-average number of common shares outstanding during the period.
Shares issued during the year are weighted for the portion of the year that
they were outstanding. Diluted loss per share is computed in a manner
consistent with that of basic loss per share while giving effect to all
potentially dilutive common shares outstanding during the period.
As a result of losses, all stock options and warrants outstanding at
December 31, 2001, 2000 and 1999 were antidilutive and accordingly, were
excluded from the computation of loss per share.
F-11
INTACTA TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In October 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards, SFAS, No. 144, "Accounting for
Impairment of Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS
No. 221, "Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed of," and addresses financial accounting and reporting
for the impairment or disposal of long-lived assets. This statement is
effective for fiscal years beginning after December 15, 2001. The Company
does not expect the adoption of SFAS No. 144 to have a material impact on
its financial statements.
In June 2001, the Financial Accounting Standards Board finalized
issued SFAS No. 141, Business Combinations and No. 142, Goodwill and Other
Intangible Assets. SFAS 141 requires the use of the purchase method of
accounting and prohibits the use of the pooling-of-interests method of
accounting for business combinations initiated after June 30, 2001. SFAS
141 also requires that companies recognize acquired intangible assets apart
from goodwill if the acquired intangible assets meet certain criteria. SFAS
141 applies to all business combinations initiated after June 30, 2001 and
for purchase business combinations completed on or after July 1, 2001. It
also requires, upon adoption of SFAS 142, that companies reclassify the
carrying amounts of intangible assets and goodwill based on the criteria in
SFAS 141.
SFAS 142 requires, among other things, that companies no longer
amortize goodwill, but instead test goodwill for impairment at least
annually. In addition, SFAS 142 requires that companies identify reporting
units for the purpose of assessing potential future impairments of
goodwill, reassess the useful lives of other existing recognized intangible
assets, and cease amortization of intangible assets with an indefinite
useful life. An intangible asset with an indefinite useful life should be
tested for impairment in accordance with the guidance in SFAS 142. SFAS 142
is required to be applied in fiscal years beginning after December 15, 2001
to all goodwill and other intangible assets recognized at that date,
regardless of when those assets were initially recognized. SFAS 142
requires companies to complete a transitional goodwill impairment test six
months from the date of adoption. Companies are also required to reassess
the useful lives of other intangible assets within the first interim
quarter after adoption of SFAS 142. The adoption of SFAS No. 141 and SFAS
No. 142 is not expected to have a material effect on Intacta's financial
position, results of operations and cash flows in 2002 and subsequent
years.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. SFAS No.
133 establishes accounting and reporting standards requiring that every
derivative instrument, including certain derivative instruments imbedded in
other contracts, be recorded in the balance sheet as
F-12
INTACTA TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
either an asset or liability measured at its fair value. The statement also
requires that changes in the derivative's fair value be recognized in
earnings unless specific hedge accounting criteria are met. SFAS No. 137
delayed the effective date of SFAS No. 133 to fiscal years beginning after
June 15, 2000. SFAS No. 138, Accounting for Certain Derivative Instruments
and Certain Hedging Activities, Amendment of SFAS No. 133, liberalized the
application of SFAS No. 133 in a number of areas. The adoption of SFAS No.
133 did not have a material impact on the Company's consolidated financial
position or results of operations.
The Financial Accounting Standards Board issued Interpretation No. 44,
Accounting for Certain Transactions involving Stock Compensation, an
Interpretation of APB Opinion No. 25 which became effective on July 1,
2000. Interpretation No. 44 clarifies (a) the definition of employee for
purposes of applying Opinion No. 25, (b) the criteria for determining
whether a stock compensation plan qualifies as a noncompensatory plan, (c)
the accounting consequence of various modifications to the terms of a
previously fixed stock option or award, and (d) the accounting for an
exchange of stock compensation awards in a business combination. Adoption
of the provisions of Interpretation No. 44 did not have a significant
impact on Intacta's financial statements.
The Company believes that it is in compliance with Staff Accounting
Bulletin No. 101, Revenue Recognition, which outlines the basic criteria
that must be met to recognize revenue and provides guidance for
presentation of revenue and for disclosure related to revenue recognition
policies in financial statements filed with the Securities and Exchange
Commission.
FOREIGN CURRENCY
The Company has designated the U.S. dollar as its functional currency for
Intacta Labs, a foreign subsidiary. Financial statements of this subsidiary
are translated into U.S. dollars for consolidation purposes using current
rates of exchange for monetary assets and liabilities and historical rates
of exchange for non-monetary assets and related elements of expense. Sales
and other expenses are translated at rates that approximate the rates in
effect on the translation dates. Immaterial translation gains and losses
are included in the consolidated statement of operations.
F-13
INTACTA TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
FAIR VALUES OF FINANCIAL INSTRUMENTS
Fair values of cash and cash equivalents and short-term debt approximate
cost due to the short period of time to maturity.
RECLASSIFICATIONS
Certain 1999 amounts have been reclassified to conform to the 2001 and 2000
presentation.
2. GOING CONCERN
The accompanying consolidated financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. As shown in
the consolidated financial statements, the Company has a cumulative deficit
of $25,743,800 through December 31, 2001 and has incurred losses of
$3,521,400, $4,551,200 and $3,617,600 for the years ended December 31,
2001, 2000 and 1999, respectively. These losses were primarily the result
of the decision by the Company in late 1997 to curtail further production
and marketing of its facsimile-based products upon realization that the
market potential for such products was diminished, and by the significant
overhead costs required to support research, development and marketing
efforts for the Company's INTACTA.CODE related technology. These conditions
give rise to substantial doubt about the Company's ability to continue as a
going concern. The financial statements do not include any adjustments
relating to the recoverability and classification of assets or the amount
and classification of liabilities that might be necessary should the
Company be unable to continue as a going concern.
Through the first half of 2000, the Company's marketing and sales efforts
were reduced and the Company focused its efforts on design revisions to its
core applications without the benefit of significant cash flow from
operations. In the second half of 2000, primarily as a result of additional
resources, marketing efforts increased and, in addition to marketing its
technology for licensing arrangements, the Company focused on the marketing
of its suite of INTACTA.CODE Software Development Kit (SDK) products, which
were subsequently launched in March 2001. This marketing generated
increased activity to its web site and initiated downloads of the offered
Trial SDK. There is not yet any revenue impact from this product line. In
addition to the above, at the end of third quarter 2001 the Company
launched a suite of data communications products targeted to the
health-care industry addressing new health-care information security
regulations; the Health Insurance Portability and Accountability Act of
1996 (HIPAA).
The Company's capital requirements continue to be significant and it is not
currently generating revenues from operations to fund its operating
activities. The Company anticipates incurring continuing losses in the
future as it expands the development and marketing of its software products
and technology. Based upon current estimates, management believes that
existing cash and cash equivalents will be sufficient to fund the Company's
operating activities and capital requirements through the middle of its
second quarter of 2002. Unanticipated changes in economic conditions or
other unforeseen circumstances may cause the Company to expend its cash and
cash equivalents in a shorter period of time.
As a result of the above, the Company's continuation as a going concern is
substantially dependent upon its ability to obtain additional financing
that will be required to fund research and development and marketing of its
new products as well as to fund its current operating activities. If
significant revenues materialize and adequate financing is obtained, the
Company anticipates viability for the year 2002 and beyond, though there
can be no assurance that the Company will be successful in these efforts.
At this time the Company does not have any current arrangements with
respect to other potential sources of additional financing and cannot
assure you that additional financing will be available to it on
commercially reasonable terms or at all. The Company has, however,
concluded negotiations with a newly formed joint venture of Imagis
Technologies, Inc., a related party company, and a third party
(collectively "the parties") early in the second quarter of 2002. The joint
venture was formed for purposes of developing and manufacturing of advanced
security based products and systems that would license and integrate the
Company's technology. Management anticipates that a formal licensing
agreement will be executed with the parties by the end of April 2002. Under
the preliminary terms of the agreement, the Company would receive an
initial up front licensing fee of approximately $470,000, and would earn
royalty fees on future product sales generated by the joint venture.
Although the parties have agreed orally on the principal terms of this
agreement, there can be no assurance that the agreement will be formally
executed, that the initial licensing fee will be paid, or that future
royalty fees will be generated under this agreement.
F-14
INTACTA TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
3. INVENTORIES
Inventories consisted of the following:
December 31, 2001 2000
---------------------------------------------------------
Components $ - $ 55,700
=========================================================
Inventories at December 31, 2000 related substantially to computer chips
and boards appropriately capitalized in accordance with SFAS No. 2,
Accounting for Research and Development Costs which allows for the
capitalization of materials if they have alternative future uses.
During 2001, 2000 and 1999, the Company wrote-off approximately $53,100,
$222,900, and $46,100, respectively, of its inventory due to reduced sales
and obsolescence, which is included in cost of products and components.
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
December 31, 2001 2000
----------------------------------------------------------------------
Equipment $ 307,500 $ 287,800
Furniture and fixtures 81,700 63,400
----------------------------------------------------------------------
389,200 351,200
Less accumulated depreciation (320,500) (246,400)
----------------------------------------------------------------------
$ 68,700 $ 104,800
======================================================================
Depreciation expense was $74,100, $80,200, and $94,200 for the years ended
December 31, 2001, 2000 and 1999.
5. ACCRUED EXPENSES
Accrued expenses consisted of the following:
DECEMBER 31, 2001 2000
---------------------------------------------------------------------
Vacation and severance $ 67,200 $ 51,700
Accounting fees 76,500 -
Deferred compensation and salaries 50,800 154,800
Rent and other 36,400 -
---------------------------------------------------------------------
$ 230,900 $ 206,500
=====================================================================
F-15
INTACTA TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
6. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases its facilities and certain equipment under operating
leases, which expire through February 2006. The facility leases require the
Company to pay certain maintenance and operating expenses, such as
utilities, property taxes, and insurance costs.
At December 31, 2001, aggregate minimum rent commitments under operating
leases with initial or remaining terms of one year or more were as follows:
Year Amount
-------------------------------------------------
2002 $ 153,000
2003 153,300
2004 144,500
2005 134,000
2006 17,800
-------------------------------------------------
$ 602,600
=================================================
Rent expense related to these operating leases was $150,500, $127,600, and
$135,709 for the years ended December 31, 2001, 2000 and 1999,
respectively.
Legal Proceedings
In November 2001, a party filed a complaint against the Company in the
United States District Court alleging patent infringement. In addition to
preliminary and permanent injunctions sought from further alleged
infringement of its patent, the party is seeking an unstated amount of
monetary damages. The Company believes that the claims are without merit
and intends to vigorously defend this lawsuit. Since this lawsuit is in an
early stage, however, management cannot predict whether the outcome of
these claims will be resolved favorably.
7. STOCKHOLDERS' EQUITY
During 2000, the Company completed a bridge financing in which 25 bridge
units were issued. Each bridge unit consisted of a $100,000 bridge note and
warrant to purchase 25,000 shares of common stock at an exercise price of
$3.50 per share. Aggregate gross proceeds in connection with this issue
were $2,500,000. Additionally, a related party converted $250,000 of debt
into 2.5 units, similar in all respects to the bridge units. A discount of
$276,200 for the fair value of detachable warrants was recognized
concurrent with this transaction. The fair value was determined using the
Black Schole's option pricing model with the following assumptions:
Dividend yield of 0%;
F-16
INTACTA TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
expected volatility of 40%; risk-free interest rate of 6.17%; and an
expected life of one year. These warrants expire in 2005.
During 2000, the Company issued an aggregate of 250,000 warrants to a third
party and its designees, which are exercisable at a price of $3.50 per
share and were valued and expensed for services rendered in their entirety
during 2000. The fair value ($92,000) was determined using the Black
Schole's option pricing model with the following assumptions: Dividend
yield of 0%; expected volatility of 40%; risk-free interest rate of 6.17%;
and an expected life of one year. These warrants expire in 2005, and are
outstanding as of December 31, 2001.
On October 16, 2000, the Company completed a private placement of 2,333,310
equity units each consisting of one share of common stock and one warrant
to purchase one share of common stock at a price of $3.50 per share
resulting in net proceeds of approximately $3.5 million after the
conversion of the aforementioned bridge units, accrued interest and other
loans into equity units. All warrants issued in connection with the bridge
financing (687,500) remain outstanding at December 31, 2001. The Company
issued 86,914 units, similar in all respects to the equity units, as a
commission in connection with the private placement to certain parties. A
related party received 21,600 of these units and cash commission of
approximately $194,000. All warrants issued in connection with the private
placement expire in 2005, and are outstanding as of December 31, 2001.
8. STOCK OPTION PLANS
The Company has a 1998 Stock Option Plan and a 2000 Incentive Stock Option
Plan (collectively the "Plans") that provide for, among other things, the
granting of non-qualified and incentive stock options to employees,
directors, officers, outside consultants and other third parties. Options
vest over a maximum of five years and expire in a maximum of ten years. The
Company has reserved 1,650,400 and 2,400,000 shares, respectively of its
common stock for issuance under the Plans.
F-17
INTACTA TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
A summary of stock option transactions for the above plans are as follows:
Weighted average
Number of shares exercise price
---------------------------------------------------------------------------
Outstanding at December 31, 1998 1,005,000 $ 1.50
Granted 370,000 3.49
---------------------------------------------------------------------------
Outstanding at December 31, 1999 1,375,000 2.03
Granted 96,800 3.03
Exercised (16,700) 1.50
Forfeited (78,300) 1.50
---------------------------------------------------------------------------
Outstanding at December 31, 2000 1,376,800 2.14
Granted 2,328,000 0.75
Forfeited/Cancelled (1,463,050) 2.06
---------------------------------------------------------------------------
Outstanding at December 31, 2001 2,241,750 $0.75
===========================================================================
Weighted average
Options exercisable Number of shares exercise price
---------------------------------------------------------------------------
December 31, 2000 854,000 $1.82
December 31, 2001 1,151,000 0.75
===========================================================================
Required disclosures for options outstanding at December 31, 2001 are as
follows:
Weighted average
Exercise Number outstanding at remaining Weighted average
price December 31, 2001 contractual life exercise price
---------------------------------------------------------------------------
$ 0.75 2,241,750 4.42 $0.75
---------------------------------------------------------------------------
The weighted average fair value of all options, calculated using the
Black-Scholes Option Pricing Model, granted during 2001, 2000, and 1999 is
$0.01, $1.04, and $1.38 per share, respectively.
The Company applies both Accounting Principles Board Opinion No. 25 (APB
No. 25), Accounting for Stock Issued to Employees and related
interpretations and SFAS No. 123, Accounting for Stock-Based Compensation
in accounting for its stock option plans. Options granted to employees and
directors are accounted for under APB No. 25 and compensation expense is
recognized for the intrinsic value of the options granted. Options granted
to all others are accounted for in accordance with SFAS No. 123 and
compensation expense is recognized for the fair value of the options
granted. SFAS No. 123 also requires that the Company provide pro forma
information regarding the net loss as if the compensation cost for the
Company's Plans had
F-18
INTACTA TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
been determined in accordance with the fair market value method for all
options. The Company estimates the fair value of all stock options at the
grant date using the Black Schole's option pricing model with the following
weighted average assumptions for 2001, 2000 and 1999: Dividend yield of 0
in all years; expected volatility of 65% in 2001, 75% in 2000 and 40% in
1999; risk-free interest rate of 4.22% in 2001, 6.36% in 2000, and 5.23% in
1999; and an expected life of 1.5 years in 2001, 4.00 years in 2000, and
2.61 years in 1999.
Under the accounting provisions of SFAS No. 123, the Company's net loss and
basic and diluted loss per common share would have been adjusted to the pro
forma amounts indicated below:
Years ended December 31, 2001 2000 1999
---------------------------------------------------------------------------
Net loss, as reported $ (3,521,400) $ (4,551,200) $ (3,617,600)
Pro forma (3,522,000) (4,690,900) (3,736,400)
---------------------------------------------------------------------------
Basic and diluted loss per
share, as reported $ (0.17) $ (0.25) $ (0.20)
Pro forma (0.17) (0.25) (0.21)
---------------------------------------------------------------------------
9. RELATED PARTY TRANSACTIONS
During 2001, 2000 and 1999, the Company received administrative,
consulting, management and marketing services from several organizations
that are owned by directors or shareholders of the Company. These services
aggregated approximately $365,800, $592,100, and $346,300 for the years
ended December 31, 2001, 2000 and 1999, respectively of which $295,800,
$472,100, and $226,300 have been included in general and administrative
expenses and $70,000, $120,000, and $120,000 have been included in research
and development expenses.
F-19
INTACTA TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
10. INCOME TAXES
Provisions for federal, foreign and state income taxes (benefits) in the
consolidated statements of operations consist of the following components:
Years Ending December 31, 2001 2000 1999
---------------------------------------------------------------------------
Current:
Federal $ - $ - $ -
State 5,800 7,700 800
---------------------------------------------------------------------------
5,800 7,700 800
---------------------------------------------------------------------------
Deferred
Federal 62,536 (1,256,272) 150,977
State 9,306 (186,944) 22,467
---------------------------------------------------------------------------
71,842 (1,443,216) 173,444
---------------------------------------------------------------------------
Change in valuation
Allowance (71,842) 1,443,216 (173,444)
---------------------------------------------------------------------------
Total income tax provision $ 5,800 $ 7,700 $ 800
===========================================================================
Deferred tax assets were comprised of the following:
December 31, 2001 2000
---------------------------------------------------------------------------
Net operating loss $5,237,125 $4,183,780
Carryforward
Stock option compensation
not currently deductible - 1,123,227
Accumulated depreciation,
amortization and other 8,093 10,053
---------------------------------------------------------------------------
Net deferred tax asset 5,245,218 5,317,060
---------------------------------------------------------------------------
Valuation allowance (5,245,218) (5,317,060)
---------------------------------------------------------------------------
$ - $ -
===========================================================================
The effective tax rate on income before taxes differs from the U.S.
statutory rate. The following summary reconciles taxes at the U.S.
statutory rate with the effective rates:
F-20
INTACTA TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
Year Ended December 31, 2001 2000
---------------------------------------------------------------------------
Taxes on income at U.S. statutory rate (34.0)% (34.0)%
State income taxes, net of federal
benefit (3.3) (2.6)
Foreign and U.S. tax effect attributable
to foreign operations 16.9 14.5
Change in valuation allowance 12.0 21.2
Permanent differences 8.6 1.1
---------------------------------------------------------------------------
0.2% 0.2%
===========================================================================
The permanent differences noted above relate primarily to stock
compensation expense associated with certain of the Company's stock options
which is non-deductible for income tax purposes. The Company has federal
net operating loss carryforwards available to reduce future taxable income,
if any, of approximately $14,500,000. The benefits from these carryforwards
expire through 2021. As of December 31, 2001, management believes it cannot
be determined that it is more likely than not that these carryforwards and
its other deferred tax assets will be realized, and accordingly, fully
reserved for these deferred tax assets.
11. EMPLOYEE BENEFIT PLANS
401(k)
Plan During 2001 the Company implemented a 401(k) plan covering
substantially all of its employees. The Plan allows for the Company to make
discretionary matching contributions to be determined by the Company each
year. There were no matching contributions for the years ended December 31,
2001. Employees are eligible to participate after meeting certain minimum
age and length of service requirements. Employee contributions are vested
immediately and employer contributions vest over a 5 year period.
Profit Sharing Plan
The Company has a profit sharing plan covering all eligible employees
meeting certain age and length of service requirements. Under the profit
sharing plan, the Board of Directors, at their election, can authorize
contributions up to a maximum of 3% of eligible participants' total
compensation. For the years ended December 31, 2001, 2000 and 1999 the
Company made no discretionary contributions
12. SEGMENT INFORMATION
During 1999, the Company adopted SFAS No. 131 "Disclosures about Segments
of an Enterprise and Related Information" which establishes standards for
the way that public business enterprises report information about operating
segments in their financial statements. The standard defines operating
segments as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. Based on these standards the Company has determined that it
operates in a single operating segment: the development, marketing and
licensing of software and sale of ancillary components.
F-21
INTACTA TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
Major Customers
During 2001, three customers accounted for approximately 59%, 13% and 10%
of net sales.
During 2000, three customers accounted for approximately 46%, 30% and 13%
of net sales.
During 1999, two customers accounted for approximately 53% and 40% of net
sales.
Geographic Segments
The following table presents revenues and other financial information for
the years ended December 31, 2001, 2000 and 1999:
Years ended December 31, 2001 2000 1999
---------------------------------------------------------------------------
Long-lived assets (gross)
- United States $ 97,000 $ 69,500 $ 157,800
- Israel 292,200 281,700 363,700
===========================================================================
Revenues
Asia $ 11,600 $ 389,100 $ 68,500
Africa/Mid-East 107,700 376,600 54,400
North America 21,500 28,800 14,500
---------------------------------------------------------------------------
$140,800 $794,500 $137,400
===========================================================================
Revenues attributable to geographic areas are based on the location of the
customer.
13. CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentration of credit risk, consist principally of cash and cash
equivalents and trade receivables. The Company places its cash and cash
equivalents with high quality financial institutions and, as a matter of
policy, limits the amounts of credit exposure to any one financial
institution.
As of December 31, 2001 the Company's accounts receivable are limited.
However, the Company believes any risk of accounting loss is significantly
reduced due to provisions for returns recorded at the date of sale, and
ongoing analysis of its customers' financial condition. The Company
generally does not require cash collateral or other security to support
customer receivables.
F-22
INTACTA TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
14. QUARTERLY DATA (UNAUDITED)
The following table sets forth, for the fiscal periods indicated, selected
consolidated financial data.
Year ended December 31, 2001
===========================================================================
First Second Third Fourth
Quarter Quarter Quarter Quarter
---------------------------------------------------------------------------
Revenues $ 92,000 $ 5,200 $ 28,600 $ 15,000
Operating expenses 1,020,200 1,009,600 886,600 817,400
Net loss (896,400) (976,900) (849,300) (798,800)
---------------------------------------------------------------------------
Loss per share
-Basic and diluted (0.04) (0.05) (0.04) (0.04)
---------------------------------------------------------------------------
Year ended December 31, 2000
===========================================================================
First Second Third Fourth
Quarter Quarter Quarter Quarter
---------------------------------------------------------------------------
Revenues $ 153,600 $ 480,200 $ 60,900 $ 99,800
Operating expenses 937,600 1,182,000 1,334,700 1,584,800
Net loss (766,700) (706,600) (1,533,100) (1,544,800)
---------------------------------------------------------------------------
Loss per share
-Basic and diluted (0.04) (0.04) (0.09) (0.08)
===========================================================================
F-23
INTACTA TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
15. STATEMENT OF CASH FLOWS
Cash paid during the year consists of the following:
Year ended December 31, 2001 2000 1999
===========================================================================
Income taxes $ 5,800 $ 7,700 $ 800
Interest $ 100 $ 113,300 $ -
===========================================================================
F-24
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Intacta Technologies, Inc.
Atlanta, Georgia
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (File No. 333- 44310) of our report dated March 25, 2002,
except for Note 2 which is as of April 12, 2002, relating to the consolidated
financial statements of Intacta Technologies Inc. and subsidiaries, which
appears in the Company's Annual Report on Form 10-K for the year ended December
31, 2001. Our report contains an explanatory paragraph regarding the Company's
ability to continue as a going concern.
/s/ BDO Seidman, LLP
Atlanta, Georgia
April 15, 2002