SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
-------------------------
INTACTA TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)
Nevada 7371 58-2488071
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
235 Peachtree Street, N.E. CT Corporation System
2215 North Tower 1633 Broadway
Atlanta, Georgia 30303 New York, New York 10019
(404) 880-9919 (212) 664-1666
(Address, including zip code, and (Name, address, including zip
telephone number, code, and telephone number,
including area code, of registrant's including area code, of agent
principal executive offices) for service)
-------------------------
Copies to:
Altaf S. Nazerali Randal R. Jones
235 Peachtree Street, N.E. Dorsey & Whitney LLP
2215 North Tower 1420 Fifth Avenue, Suite 3400
Atlanta Georgia 30303 Seattle, Washington 98101
(404) 880-9919 (206) 903-8800
-------------------------
Approximate date of proposed sale to the public: As soon as practicable after
this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act, check
the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
-------------------------
The registrant hereby amends this Registrant Statement on such date or dates as
may be necessary to delay its effective date until the registrant shall file a
futher amendment which specifically states that this Registrant Statement shall
become effective in accordance with Section 8(a) of the Securities Act of 1933
or until this Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
<PAGE>
PROSPECTUS
Subject To Completion
April 26, 2000
8,874,000
INTACTA TECHNOLOGIES INC.
Common Stock
-------------------------
This is a public offering of 8,874,000 shares of the common stock of Intacta
Technologies Inc. All of the shares being offered, when sold, will be sold by
selling shareholders as listed in this prospectus on page 15. We will not
receive any of the proceeds from the sale of the shares.
Our common stock is currently traded on the Nasdaq Over-the-Counter Bulletin
Board under the symbol "ITAC." The last price of our common stock on the Nasdaq
Over-the-Counter Bulletin Board on April 18, 2000 was $4 1/8 per share (high)
and $3 per share (low).
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Investing in the shares involves risks. See "Risk Factors" beginning on page 6.
-------------------------
The date of this prospectus is , 2000.
The information contained in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities, and we are not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . 3
RISK FACTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
FORWARD-LOOKING STATEMENTS. . . . . . . . . . . . . . . . . . . . .12
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . .13
DIVIDEND POLICY . . . . . . . . . . . . . . . . . . . . . . . . . .13
CAPITALIZATION. . . . . . . . . . . . . . . . . . . . . . . . . . .14
DILUTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
SELLING SHAREHOLDERS. . . . . . . . . . . . . . . . . . . . . . . .15
SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . .17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATION. . . . . . . . . . . . . . . . . . . 18
BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
MANAGEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
RELATED PARTY TRANSACTIONS. . . . . . . . . . . . . . . . . . . . .41
PRINCIPAL SHAREHOLDERS. . . . . . . . . . . . . . . . . . . . . . .42
DESCRIPTION OF CAPITAL STOCK. . . . . . . . . . . . . . . . . . . .44
SHARES ELIGIBLE FOR FUTURE SALE . . . . . . . . . . . . . . . . . .47
PLAN OF DISTRIBUTION. . . . . . . . . . . . . . . . . . . . . . . .48
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . .50
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50
WHERE YOU CAN FIND MORE INFORMATION . . . . . . . . . . . . . . . .50
INDEX TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . .51
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information and financial statements and notes thereto appearing elsewhere in
this prospectus.
Intacta
We provide software and hardware products for the secure electronic transmission
of documents and electronic document management and archiving using our patented
compression, error correction and encoding and decoding technology.
Intacta Technologies Inc. was incorporated in Nevada in 1997 under the name
InfoImaging Technologies Inc. In August 1999, we changed our name to Intacta
Technologies Inc. The terms "Intacta," "our company," and "we" in this
prospectus refer to Intacta Technologies Inc., a Nevada corporation, Intacta
Delaware Inc., our wholly owned subsidiary incorporated in Delaware, and Intacta
Labs Ltd., our wholly owned subsidiary incorporated in Israel, collectively.
On May 28, 1998, NASD Regulation, Inc. cleared West America Securities Corp.'s
request to submit a quote for our common stock on the Nasdaq Over-the-Counter
Bulletin Board. Our common stock has been quoted on the Nasdaq Over-the-Counter
Bulletin Board since that time.
The registration statement of which this prospectus forms a part is our first
public filing with the Securities and Exchange Commission.
Our head office address is 235 Peachtree Street, N.E., 2215 North Tower,
Atlanta, Georgia, 30303, and our telephone number is (404) 880-9919. We
maintain a World Wide Web site address at www.Intacta.com. Information on our
Web site is not part of this prospectus.
We have applied for registration of the trademarks "INTACTA TECHNOLOGIES,"
"INTACTA.MOBILECE," "INTACTA.COURIER," "INTACTA.BRIDGEWAY", "INTACTA.SMARTFORM,"
"INTACTA.DOCMANAGER," "INTACTA.SMARTBAR," "INTACTA.CODE," and
"INTACTA.COMPACTOR" in the United States. We have also applied for registration
of the "INTACTA.CODE" trademark in Japan. All other trademarks or service marks
appearing in this prospectus are trademarks or service marks of the companies
that use them.
- -3-
<PAGE>
The Offering
Common stock offered by selling shareholders . . . . . . . 8,874,000 shares
Common stock owned by the selling shareholders
after the offering. . . . . . . . . . . . . . . . . . . . .zero shares (1)
Use of proceeds. . . . . . . . . . . . . . . . . . . . . . We will not receive
any proceeds from
the sale of the
shares. See "Use of
Proceeds."
- -------------------------
(1) This number assumes that each shareholder will sell all of its shares
available for sale during the effectiveness of the registration statement that
includes this prospectus. Shareholders are not required to sell their shares.
See "Plan of Distribution."
Unless otherwise specifically stated, information throughout this prospectus
excludes 1,375,000 shares issuable upon the exercise of outstanding options and
1,667,100 shares reserved for future issuance under our stock option plan.
- -4-
<PAGE>
Summary Financial Data
Years Ended
Dec 31, Dec 31, Dec 31, Dec 31,
1996 1997 1998 1999
Statement of Operations Data:
Net Sales $1,019,600 $ 894,900 $ 137,800 $ 137,400
Loss from operations (1,958,400) (1,455,900) (2,914,500) (3,733,500)
Net loss (2,259,800) (2,199,700) (3,145,800) (3,617,600)
Basic and diluted loss per
common share $ (0.22) $ (0.19) $ (0.19) $ (0.20)
Book and diluted weighted
average common shares
outstanding 11,486,000 11,486,000 16,701,583 17,790,000
As of
December 31, 1999
Balance Sheet Data:
Cash and cash equivalents $ 917,400
Working capital 574,100
Total assets 1,570,900
Long-term obligations 0
Total shareholders' equity 841,500
- -5-
<PAGE>
RISK FACTORS
This offering involves a high degree of risk. You should carefully consider the
risks described below and the other information in this prospectus before
deciding to invest in shares of our common stock.
Our limited operating history makes it difficult to predict how our business
will develop and our future operating results.
We commenced operations in October 1997. We discontinued production and sales
of all of our retail products in late 1997 and focused on the research and
development of new products based on our existing technology. Of our current
products, only one, Intacta.MobileCE, is commercially available. We have a
limited operating history, and we face many of the risks and uncertainties
encountered by early-stage companies in rapidly evolving markets.
These risks and uncertainties include:
- - no history of profitable operations;
- - uncertain market acceptance of our products;
- - our reliance on a limited number of products;
- - the risks that competition, technological change or evolving customer
preferences could adversely affect sales of our products;
- - the need to expand our sales and support capabilities;
- - our dependence on a limited number of key personnel, including our Vice
President of Research and Development; and
- - the risk that our management will not be able to effectively manage growth or
any acquisition we may undertake.
Our limited operating history makes it difficult to predict how our business
will develop and our future operating results.
Our independent auditors have expressed substantial doubt about our ability
to continue as a going concern.
Primarily as a reuslt of our recurring losses, our independent auditors modified
their opinion on our 1999 financial statements to include an explanatory
paragraph expressing substantial doubt about our ability to continue as a
going concern.
We have incurred net losses in each fiscal year since inception, we may incur
losses in the future and our losses may increase because of our plan to increase
operating expenses.
We have incurred net losses in each fiscal year since inception. In the year
ended December 31, 1998, we had a net loss of approximately $3.2 million and in
the year ended December 31, 1999, we had a net loss of approximately $3.6
million. We have increased our operating expenses in recent periods and plan
further increases in the future. Our planned increases in operating expenses
may result in larger losses in future periods. As a result, we will need to
generate significantly greater revenues than we have to date to achieve and
maintain profitability. We cannot assure you that our revenues will increase.
Our business strategies may not be successful, and we may not be profitable in
any future period.
Our total revenues have declined each year since 1996 and our revenues may
continue to decline in the future.
Our total revenues have declined from $1,019,600 to $894,900 to $137,800 to
$137,400 in the years ended December 31, 1996, 1997, 1998 and 1999,
respectively. We expect revenues to increase in fiscal year 2000. We
anticipate that the increased revenues will come from the following sources:
- -6-
<PAGE>
- - New licensing arrangements that we are currently negotiating; and
- - Sales of our Intacta.MobileCE, Intacta.Courier, Intacta.Bridgeway and
Intacta.Compactor products, all of which we anticipate will be commercially
available by the fourth quarter of 2000.
Intense competition in the market for our products may result in price
reductions, lower gross margins or loss of our market share, any of which could
materially adversely affect our business, financial condition and operating
results.
The market for our software is intensely competitive, fragmented and rapidly
changing. We face competition from companies in two distinct markets, the
document management market and the electronic communication market. See
"Business - Competition."
In addition, as we develop new products, particularly applications focused on
electronic communication, we may begin competing with companies with whom we
have not previously competed. It is also possible that new competitors will
enter the market or that our competitors will form alliances that may enable
them to rapidly increase their market share.
Some of our actual and potential competitors are larger, better established
companies and have greater technical, financial and marketing resources.
Increased competition may result in price reductions, lower gross margins or
loss of our market share, any of which could materially adversely affect our
business, financial condition and operating results.
Our future revenue growth could be impaired if we are unable to expand our
direct sales infrastructure.
Our future revenue growth will depend in large part on our ability to
successfully expand our direct sales force. We may not be able to successfully
manage the expansion of this function or to recruit and train additional direct
sales support personnel. There is presently a shortage of qualified personnel
to fill these positions. If we are unable to hire and retain additional highly
skilled direct sales personnel, we may not be able to increase our license
revenue to the extent necessary to achieve profitability. If we are unable to
hire highly trained consulting and customer support personnel we may be unable
to meet customer demands. We are not likely to be able to increase our revenues
as we plan if we fail to expand our direct sales force. Even if we are
successful in expanding our direct sales force capability, the expansion may
not result in revenue growth.
The loss of our Vice President of Research and Development or other key
personnel or our failure to attract and retain additional personnel could
adversely affect our business, results of operations and financial condition.
Our success depends largely upon the continued service of our executive officers
and other key management, sales and marketing and technical personnel. The loss
of the services of one or more of our executive officers or other key employees
could have a material adverse effect on our business, results of operations and
financial condition. In particular, we rely on Dr. Menachem Tassa, our Vice
President, Research and Development and director. Dr. Tassa does not have an
employment agreement with us and, therefore, could terminate his employment with
us at any time without penalty. We have key man insurance on the life of Dr.
Tassa in the amount of $2,000,000. However, this insurance would not
sufficiently compensate us for the loss of services of Dr. Tassa.
- -7-
<PAGE>
Our future success also depends on our ability to attract and retain highly
qualified personnel. The competition for qualified personnel is intense, and we
may be unable to attract or retain highly qualified personnel in the future. In
addition, due to intense competition for qualified employees, it may be
necessary for us to increase the level of compensation paid to existing and new
employees to the degree that our operating expenses could be materially
increased.
We may be unable to adequately protect our proprietary rights and we may not
become aware of or have adequate remedies in the event of breaches or
unauthorized activities regarding our proprietary rights.
Our success depends in part on our ability to protect our proprietary software
and our other proprietary rights from copying, infringement or use by
unauthorized parties. To protect our proprietary rights we rely primarily on a
combination of copyright, trade secret and trademark laws, confidentiality
agreements with employees and third parties, and protective contractual
provisions such as those contained in license agreements with consultants,
vendors and customers, although we have not signed these types of agreements in
every case. Despite our efforts to protect our proprietary rights, unauthorized
parties may copy aspects of our products and obtain and use information that
we regard as proprietary. Other parties may breach confidentiality agreements
and other protective contracts we have entered into. We may not become aware
of, or have adequate remedies in the event of these types of breaches or
unauthorized activities.
Claims by other companies that our products infringe their copyrights or patents
could adversely affect our ability to sell our products and increase our costs.
If any of our products violates third-party proprietary rights, including
copyrights and patents, we may be required to reengineer our products or obtain
licenses from third parties to continue offering our products without
substantial reengineering. If a patent has been issued or is issued in the
future to a third party that prevents us from using technology included in our
products, we would need to obtain a license or reengineer our product to
function without infringing the patent. Any efforts to reengineer our products
or obtain licenses from third parties may not be successful and, in any case,
could substantially increase our costs, or force us to interrupt product sales
or delay product releases.
Our products and products we rely on may suffer from defects or errors and these
defects or errors could result in loss of revenues or delay in market acceptance
of our products, diversion of development resources, damage to our reputation,
increase service and warranty costs and liability claims.
Software products as complex as ours may contain errors or defects, especially
when first introduced or when new versions are released. Our new products and
product enhancements or new applications or features may not be free from errors
after commercial shipments have begun. Any errors that are discovered after
commercial release could result in loss of revenues or delay in market
acceptance, diversion of development resources, damage to our reputation,
increased service and warranty costs and liability claims.
In addition, third-party products we rely on, such as Microsoft platform
products, may contain defects or errors. Our electronic communications products
rely on these products to operate properly. Therefore, any defects in these
products could adversely affect the operation of and market for our products,
reduce our revenues, increase our costs and damage our reputation.
- -8-
<PAGE>
We expect to experience rapid growth which will place a strain on our resources,
and any failure to manage our growth effectively could impair our ability to
efficiently manage our business, to maintain and expand important relationships
with third parties and to attract customers, and could cause us to incur higher
operating costs and delays in the execution of our business plan or in the
reporting or tracing of our financial results.
We expect to experience rapid growth in our number of employees, the scope of
our operating and financial systems and the geographic area of our operations.
Specifically, we plan to hire approximately 29 people by the end of 2000. This
growth will result in an increase in the level of responsibility for both
existing and new management personnel. To manage our growth effectively, we
will be required to continue to implement and improve our operating and
financial systems and to expand, train and manage our employee base. Any
failure by us to properly manage our growth of these systems could impair our
ability to efficiently manage our business, to maintain and expand important
relationships with third parties and to attract customers, and could cause us
to incur higher operating costs and delays in the execution of our business
plan or in the reporting or tracing of our financial results.
If the market for the Windows CE operating system fails to develop fully or
develops more slowly than we expect, our business and operating results will be
materially harmed.
Windows CE is one of many operating systems developed for the intelligent
computing device market, and the extent of its future acceptance is uncertain.
Because all of our revenue to date has been generated by software products and
services dependent on the Windows CE operating system, if the market for Windows
CE fails to develop fully or develops more slowly than we expect, our business
and operating results will be significantly harmed. Market acceptance of
Windows CE will depend on many factors, including:
- - Microsoft's development and support of the Windows CE market. As the
developer and primary promoter of Windows CE, if Microsoft were to decide to
discontinue or lessen its support of the Windows CE operating system, potential
customers could select competing operating systems, which would reduce the
demand for our Windows CE-based software products and services. In addition,
Microsoft has developed a version of its Windows NT operating system for
intelligent computing devices and could decide to shift its support to this
operating system to the detriment of Windows CE;
- - the ability of the Windows CE operating system to compete against existing an
emerging operating systems for the intelligent computing device market
including: VxWorks from WindRiver Systems Inc., pSOS from Integrated Systems,
Inc., VRTX from Mentor Graphics Corporation, JavaOS from Sun Microsystems, Inc.
and LINUX. In particular, in the market for palm-size devices, Windows CE faces
intense competition from PalmOS used on 3Com Corporation's Palm devices and to
date has had limited success in this market. Windows CE may be unsuccessful in
capturing a significant share of these two segments of the intelligent computing
device market, or in maintaining its market share in those other segments of the
intelligent computing device market on which our business currently focuses,
including the markets for Internet-enabled television set-top boxes, handheld
industrial devices, consumer Internet appliances such as kiosk terminals and
vehicle navigational devices, and Windows-based terminals;
- - the acceptance by original equipment manufacturers and consumers of the mix of
features and functions offered by Windows CE; and
- - the willingness of software developers to continue to develop and expand the
applications that run on Windows CE. To the extent that software developers
write applications for competing operating systems that are more attractive to
intelligent computing devise end users than those available on Windows CE,
potential purchasers could select competing operating systems over Windows CE.
- -9-
<PAGE>
If the market for intelligent computing devices fails to develop fully or
develops more slowly than we expect, our revenue will not grow as fast as
anticipated, if at all.
The market for intelligent computing devices is emerging, and the potential size
of this market and the timing of its development are not known. As a result,
our profit potential is uncertain and our revenue may not grow as fast as we
anticipate, if at all. We are dependent upon the broad acceptance by businesses
and consumers of a wide variety of Windows CE-based intelligent computing
devices, which will depend on many factors, including:
- - the development of content and applications for intelligent computing devices;
- - the willingness of large numbers of businesses and consumers to use devices
such as handheld and palm-size personal computers and handheld industrial data
collectors to perform functions currently carried out manually or by traditional
personal computers, including inputting and sharing data, communicating among
users and connecting to the Internet; and
- - the evolution of industry standards that facilitate the distribution of
content over the Internet to these devices via wired and wireless
telecommunications systems, satellite or cable.
If Microsoft adds features to its Windows CE operating systems that directly
compete with software products and services we provide, our revenue could be
reduced and our profit margins could suffer.
As the developer of Windows CE, Microsoft could add features to its operating
system that directly compete with the software products and services we provide
to our customers. Such features could include, for example, faxing, hardware-
support packages and quality assurance tools. The ability of our customers or
potential customers to obtain software products and services directly from
Microsoft that compete with our software products and services could harm our
business. Even if the standard features of future Microsoft operating system
software were more limited than our offerings, a significant number of our
customers and potential customers might elect to accept more limited
functionality in lieu of purchasing additional software. Moreover, the
resulting competitive pressures could lead to price reductions for our products
and reduce our profit margins.
Unanticipated delays, or announcement of delays, by Microsoft of Windows CE
product releases could adversely affect our sales.
Unanticipated delays, or announcement of delays, in Microsoft's delivery
schedule for new versions of its Windows CE operating system could cause us to
delay our product introductions and impede our ability to complete customer
projects on a timely basis. These delays or announcements by Microsoft could
also cause our customers to delay or cancel their project development activities
or product introductions. Any resulting delays in, or cancellations of, our
planned product introductions or in our ability to commence or complete customer
projects may adversely affect our revenue and could cause our quarterly
operating results to fluctuate.
Our stock price may be adversely affected by sales of our common stock by
selling shareholders.
Upon effectiveness of this registration statement, selling shareholders who own
more than 48.5% of our common stock will be eligible to sell their common stock
in the secondary market. Large sales volumes by selling shareholders could
adversely affect the market price of our common stock.
Investors in our common shares may not be able to readily resell their shares,
if at all, due to low liquidity in our stock.
Our common shares trade only on the Nasdaq Over-the-Counter Bulletin Board and
therefore are subject to low liquidity. As a result, investors may not be able
to readily resell their shares, if at all.
- -10-
<PAGE>
We conduct the majority of our research and development in Israel, and
instability in Israel may adversely affect our research and development
activities.
Our principal research and development facility is located in Beer Sheva, Israel
at the headquarters of our wholly owned Israeli subsidiary, Intacta Labs Ltd.
Our research and development activities may be adversely affected by economic,
political and military conditions in Israel and the Middle East.
We will need to raise significant additional capital in the next 6 months to
meet operating expenses.
Our management anticipates that we will need to raise at least $2.5 million
during the next 6 months to meet operating expenses. Our success will depend in
part on our ability to obtain additional financing. We may not be able to
obtain additional financing on terms favorable to us, if at all. We are
currently negotiating the terms of a senior bridge note financing. We intend to
raise $1,500,000. In addition, we are negotiating with a financial advisor to
assist us in a private placement of our common stock to raise up to an aggregate
of $10,000,000. We cannot assure you that we will be successful in completing
the bridge note financing or private placement of our common stock.
- -11-
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements based on our current
expectations, assumptions, estimates and projections about our business and
industry. These forward-looking statements involve risks and uncertainties.
Our actual results could differ materially from those anticipated in such
forward-looking statements as a result of the factors more fully described in
"Risk Factors," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business" and elsewhere in this prospectus.
We undertake no obligation to update publicly any forward-looking statements
for any reason, even if new information becomes available or other events
occur in the future.
- -12-
<PAGE>
USE OF PROCEEDS
This prospectus is part of a registration statement that permits selling
shareholders to sell their shares on a continuous or delayed basis in the
future. Because this prospectus is solely for the purpose of selling
shareholders, Intacta will not receive any proceeds from the sale of stock being
offered.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain any future earnings to fund the development and
growth of our business and we do not anticipate paying any cash dividends in the
foreseeable future.
- -13-
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
December 31, 1999
Cash and cash equivalents $ 917,400
==========
Long-term obligations, less current portion 0
Shareholders' equity:
Preferred stock, undesignated, $0.0001 par value; 50,000,000 shares
authorized; no shares issued and outstanding 0
Common stock, $0.0001 par value, 100,000,000 shares authorized,
17,909,000 issued and outstanding 1,791
Additional paid-in capital 19,710,553
Accumulated deficit (17,671,200)
Unamortized stock compensation (1,199,644)
----------
Total shareholders' equity (deficit) 841,500
----------
Total capitalization $ 841,500
==========
- -14-
<PAGE>
DILUTION
This offering is for sales of stock by existing Intacta shareholders on a
continuous or delayed basis in the future. Sales of common stock by
shareholders will not result in any substantial change to the net tangible book
value per share before and after the distribution of shares by the selling
shareholders. There will be no change in net tangible book value per share
attributable to cash payments made by purchasers of the shares being offered.
Prospectus investors should be aware, however, that the price of Intacta's
shares may not bear any rational relationship to net tangible book value per
share.
SELLING SHAREHOLDERS
The following are the shareholders for whose accounts the shares are being
offered; the amount of securities owned by each selling shareholder prior to
this offering; the amount to be offered for each selling shareholder's account;
and the amount to be owned by each selling shareholder following completion of
the offering:
Percent of Common
Shares Owned
Number of Number Number
Name Shares of Shares of Shares Before the After the
Owned Offered After Sale Offering Offering
(1)
Cybermind AG(2) 1,500,000 1,500,000 - 8.4% -
Gestibroker Consulting &
Financial Management
S.A. 117,000 117,000 - - -
MFC Merchant Bank SA(3) 1,000,000 1,000,000 - 5.6% -
Francis Pizzulli 33,000 33,000 - * -
Zeljka Tepes 200,000 200,000 - 1.1% -
Value Invest Ltd.(4) 830,000 830,000 - 4.6% -
Affaires Financieres S.A. 750,000 750,000 - 4.2% -
Rahn & Bodmer 786,000 786,000 - 4.4% -
Finter Bank 800,000 800,000 - 4.5% -
Euroswiss Securities 810,000 810,000 - 4.5% -
Mandate Management
Ltd.(5) 820,000 820,000 - 4.6% -
PreVision Overseas
Management Ltd.(6) 50,000 50,000 - * -
Valor Invest Limited(7) 538,000 538,000 - 3.0% -
Pensbreigh Holdings
Ltd.(8) 640,000 640,000 - 3.6% -
- -------------------------
*Less than 1%
(1) This table assumes that each shareholder will sell all of its shares
available for sale during the effectiveness of the registration statement that
includes this prospectus. Shareholders are not required to sell their shares.
See "Plan of Distribution." Other than described in footnotes (2) and (3)
below, no other selling shareholder has held any position or office or had any
material relationship with Intacta during the past three years.
- -15-
<PAGE>
(2) Includes 238,000 shares issued by us to Valor Invest in repayment of a loan
of U.S.$952,000 pursuant to a loan conversion at the rate of $4.00 per share on
June 30, 1999. Includes 300,000 shares purchased directly from Corsa S.A.
Holdings.
(3) MFC Merchant Bank is a wholly owned subsidiary of MFC Bancorp Ltd., a
public company traded on the Nasdaq National Market.
(4) Giovanni Trivella has sole voting and investment power over Value Invest
Ltd.
(5) Yechiel Sharabi, a director of Intacta, has sole voting and investment
power over Mandate Management Ltd.
(6) Janete Elisa Steinberg has sole voting and investment power over PreVision
Overseas Management Ltd.
(7) Steve Popovics has sole voting and investment power over Valor Invest
Limited.
(8) Pensbreigh Holdings Ltd. and Intacta are parties to a contract dated
March 1, 1999 under which the services of our President, Chief Executive Officer
and a Director, Mr. Altaf S. Nazerali, provides his services to us. See
"Management - Employment Contracts - Altaf S. Nazerali." Mr. Nazerali is a
shareholder and officer of Pensbreigh Holdings Ltd.
- -------------------------
On May 31, 1998, we entered into an exchange agreement with Corsa S.A.
Holdings. Under the exchange agreement, Corsa S.A. Holdings transferred 100% of
the outstanding shares of Intacta Delaware Inc. and 99% of the outstanding
shares of Intacta Labs Ltd. to us. In exchange, we issued 11,486,000 shares of
our common stock to Corsa S.A. Holdings. See "Related Party Transactions."
Corsa S.A. Holdings subsequently sold 7,486,000 of the 11,486,000 shares to some
of the selling shareholders above. Corsa S.A. Holdings is not a selling
shareholder under this registration statement.
- -16-
<PAGE>
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" and
the audited financial statements and notes to such financial statements included
in this prospectus. We have derived the statements of operations data from
our audited financial statements that appear in this prospectus, and these data
are qualified by reference to the financial statements.
Year ended December 31,
Statement of Operations Data: 1996 1997 1998 1999
Net Sales $ 1,019,600 $ 894,900 $ 137,800 $ 137,400
Operating Expenses:
Cost of products and components 514,100 357,500 336,300 90,500
Research and development 331,900 343,200 773,800 825,000
Sales and marketing 526,800 297,000 113,100 113,200
General and administrative 1,605,200 1,353,100 1,829,100 2,842,200
---------- ---------- ---------- ----------
Total operating expenses 2,978,000 2,350,800 3,052,300 3,870,900
---------- ---------- ---------- ----------
Loss from operations (1,958,400) (1,455,900) (2,914,500) (3,733,500)
Interest expense (578,700) (755,300) (210,000) (95,300)
Other 7,300 13,100 (19,600) 21,400
Taxes -- (1,600) (1,700) (800)
---------- ---------- ---------- ----------
Net loss $(2,529,800)$(2,199,700) $(3,145,800) $(3,617,600)
========== ========== ========== ==========
Basic and diluted net loss per
common share $ (0.22)$ (0.19) $ (0.19) $ (0.20)
========== ========== ========== ==========
Basic and diluted weighted average
common shares outstanding 11,486,000 11,486,000 16,701,583 17,790,000
========== ========== ========== ==========
As of December 31,
Balance Sheet Data: 1996 1997 1998 1999
Cash and cash equivalents $ 58,000 $ 169,100 $ 3,047,100 $ 917,400
Working capital (deficiency) (5,773,200) (9,693,400) 1,924,200 574,100
Total asset 545,500 1,151,800 3,760,700 1,570,900
Long-term obligations 2,015,900 -- -- --
Total shareholders' equity
(deficiency) (5,677,800) (9,407,800) 2,268,600 841,500
- -17-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATION
Forward Looking Statements
Statements in this Form S-1, including those concerning our expectations of
future sales revenues, gross profits, research and development, sales and
marketing, and administrative expenses, product introductions and cash
requirements include forward-looking statements. As such, our actual results may
vary materially from our expectations. Factors which could cause our actual
results to differ from expectations include variations in the level of orders,
which can be affected by general economic conditions and in the markets served
by our customers, and international economic and political climates. Additional
factors would be the timing of future product releases, difficulties or delays
in product functionality or performance, our failure to respond adequately to
either changes in technology or customer preferences, or to changes in our
pricing or that of our competitors, our inability to manage growth, from non-
payment of accounts receivable and changes in budgeted costs. All of the above
factors constitute significant risks to our company. There can be no assurance
that our results of operations will not be adversely affected by one or more of
these factors.
Overview.
Our company was incorporated in December, 1997 in the State of Nevada with the
intent that it would apply for listing on an exchange and by means of an
acquisition become a fully operational public company. Initially we raised
approximately $1 million to fund our activities, primarily to complete our due
diligence review of two target companies which have become our wholly-owned
subsidiaries, and to prepare all of the necessary documentation associated with
their acquisition.
We acquired both subsidiaries after successful negotiation with Corsa S. A.
Holdings, which we refer to as Corsa, which owned both subsidiaries. While an
agreement had been signed in October 1997, we did not complete the acquisition
until May 31, 1998. The parties agreed to an exchange of shares so that we would
acquire all of the common shares of Intacta Delaware Inc., a Delaware
corporation, which we refer to as Intacta Delaware and all of the common shares
of Intacta Labs Ltd., an Israeli corporation, which we refer to as Intacta Labs,
from Corsa for total consideration of $11,486,000, to be paid through the
issuance of 11,486,000 common shares of our capital stock from treasury to
Corsa, each share valued at $1.00. This valuation of the subsidiaries equated
to the approximate aggregate accumulated deficits of the two companies to that
date which we accepted and in turn Corsa agreed to accept the per common share
value of $1.00 which approximated the market trading value at the time of our
initial discussions and signing of the letter of intent . We acquired both
companies to acquire their core technology developed by Intacta Labs and
marketed through Intacta Delaware worldwide. While Intacta Labs holds all of
the patents and proprietary rights to the technology, Intacta Delaware holds all
of the marketing rights worldwide, necessitating the acquisition of both
companies.
In late 1997, with our concurrence, the previous management of our two wholly-
owned subsidiaries, decided to cease production of their current products,
primarily two versions of a fax storage and retrieval unit termed the FaxPal,
each version having different amounts of onboard memory. They also decided to
wind down all marketing efforts related to the FaxPal products, and to begin
development of new products based on our patented core technology. In the past,
Intacta Delaware had been successful in negotiating a licensing arrangement for
use of this proprietary technology. The terms of this agreement provides for
licensing royalties to be paid quarterly to us based on the volume of the
licensee's sales where our technology is imbedded. This license provided
royalty revenues in 1998 and 1999.
Our management currently is negotiating additional licensing arrangements to
build on this utilization of our core technology. At the same time, we are
intending shortly to launch our first two new products, Intacta.MobileCE and
Intacta.Courier developed by our Intacta Labs team and anticipate launching
other new products later in the current year. We plan to market both new
products directly to consumers as downloadable files from the internet as well
as to license their use by manufacturers in the future. We also plan on selling
some of our
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<PAGE>
other new products directly to consumers, again as downloadable products via the
Internet, and to license the software to manufacturers for inclusion in their
software products.
Our financial condition reported as at December 31, 1999 includes all amounts
for the parent company, Intacta Technologies Inc., and our two wholly-owned
subsidiary companies, Intacta Delaware, and Intacta Labs. Our reported earnings
from operations include the combined earnings of Intacta Technologies Inc. and
our two subsidiaries for the full 1999 year.
Because we had only approximately five million shares issued, the 11,486,000
new shares issued to Corsa represented a majority holding of our stock and
consequently Corsa obtained control of the parent and both subsidiaries. In
instances like this, accounting principles require that the transaction be
reflected in financial statements as a "reverse acquisition" where the
subsidiaries essentially acquire the parent. In this form of accounting, the
statements are created by aggregating the accounts of the two subsidiaries, as
would have been the case if Corsa had retained ownership, and then adding the
accounts of the parent for the relevant period when all three companies came
under common control. In this case, common control started immediately after
the completion of the acquisition, effectively June 1, 1998. Consequently, as
noted above the 1999 earnings include the accounts of all three companies for
the full year but for 1998, the earnings include the full year for the
two subsidiaries but only the earnings for our parent, Intacta Technologies Inc.
for the seven months following the date of acquisition. Also, according to
proper accounting practice to portray all three companies as if they were
operating as a single entity, transactions between the three companies have
been eliminated.
Results of Operations for the years ended December 31, 1999 and December 31,
1998
Revenues.
Our total revenues in 1999 were $137,400, virtually the same as those in 1998 of
$137,800. The 1999 revenues include a small contribution for sales of our
discontinued Fax Pal product group of only $9,500 and the one-time sale of
computer chips held in inventory in Israel amounting to $54,500, these two sales
aggregating $64,000, and royalty revenues of $73,400. In 1999, FaxPal product
sales revenues for the year fell to only $9,500, a decline of approximately 90
per cent from those in 1998 when sales for the year were $89,300. We had
experienced sales volume and gross margin declines throughout 1997 and this led
to our decision to wind-down our marketing efforts for these existing products
late in that year. The wind-down was effectively completed in the first quarter
of 1998 and as a result, our 1998 sales revenues were essentially earned all
in the first quarter and fell off significantly after that time. Our sales in
1999, without the benefit of any marketing support therefore reflect only the
small volume of units sold and shipped either directly by us or through a
reseller to end customers in accordance with our policy to reflect sales
revenues only upon ultimate shipment to the end user. We do not anticipate
initiating any further promotional activity for the FaxPal unit and expect no
future revenues to be earned from sales of these products.
As noted above however, we earned other 1999 revenues through the sale of
computer chips we had on hand in conjunction with the development of one of our
new products, which will be a hardware unit. Revenues from this sale were
$54,500. No comparable revenue was generated in 1998. Finally, our 1999
revenues were enhanced significantly by royalties from an existing licensing
arrangement for use of our source code by another software company and yielded
$73,400, a 51 per cent gain over the 1998 level of $48,500. Revenues from this
licensing arrangement are recognized in our accounts at the time the licensee
reports the quarterly usage and remits payment. As previously stated, one of
our near-term objectives is to add new licensees to increase our royalty
revenues.
Operating Expenses.
Our Operating expenses overall for 1999 were $3,870,900. This level is 27 per
cent higher than that incurred in the prior year, of $3,052,300. Operating
costs include costs of products and components, Research and development, Sales
and marketing, and General and administrative for all three
- -19-
<PAGE>
companies including depreciation. Our costs of products and components amounted
to $90,500 in 1999. This amount includes both costs related to computer chips
our Intacta Labs group had previously purchased for production and were able to
sell to upgrade our inventory with more state of the art chip technology, and
the write off of materials used in the production of FaxPal products also held
in Israel and determined to no longer be useful. The original cost of the chips
amounted to $44,400 with the remainder of $46,100 representing the costs of the
obsolete materials. By contrast, our 1998 costs, all related to the discontinued
FaxPal product group, aggregated $336,300. This 1998 amount included actual
costs of FaxPal products sold of $96,200, and a write down of all of the
remaining inventoried costs for the finished products on hand amounting to
$240,100. This write off reflects the decision made in 1998, following the
decline in FaxPal gross margins essentially to zero in the latter part of 1997,
to no longer manufacture and market the FaxPal product group. Since all product
costs had thereby been expensed in 1998, no costs of product were recorded
for the 1999 sales.
Research and Development.
Our 1999 Research and development expenditures, at $825,000, were seven per cent
higher than those for 1998 of $773,800. In 1998, several research staff were
added early in the year and additional set-up expenditures on equipment and
staff costs were incurred as a result of our ramping up of development efforts
for new product applications. The cost level in the current year represents the
costs for the full year of our continuous development activity, salaries for our
staff and for office and other support facilities. The salary costs represented
71 per cent of our total costs of our Israeli operations this year, down from 84
per cent in 1998. The current staffing level is expected to be maintained and
the costs of operating this factility to are to remain approximately constant
also over the next year.
Sales and Marketing.
Our Sales and marketing costs were $113,200 in 1999, virtually the same as those
in the prior year of $113,100. As noted above, we conducted no sales efforts in
1999 but engaged design and marketing groups to assist with our development of
the new business strategy and to advise us regarding the launch of our new
software products. In contrast, our 1998 costs related only to media and co-
operative advertising programs promoting the FaxPal products and were incurred
essentially all in the first quarter. At this time, we have a number of new
product applications developed with two ready for release shortly. We anticipate
that new marketing staff will be engaged in the near future to initiate product
launching and manage our sales and marketing functions and consequently salary
and travel as well as promotional costs will increase significantly in the
future.
General and Administrative.
General and administrative costs increased 55 per cent over the prior year's
amount of $1,829,100 to $2,842,200 in 1999, the increase brought about primarily
by our stock option compensation charge for the year, the addition of several
new executive staff and related office and travel expenses, and for consulting
and professional fees to support various corporate projects. This group is
providing overall management of the public company as well as the subsidiaries,
and is also managing several key projects:
- - directing the development of our Company's new business strategy,
- - developing a new corporate identity with supporting documentation,
- - restructuring the corporate entities in line with the new business strategy,
- - generating interim financing and also additional financing options, and
- - identifying new technical and strategic partners.
Our General and administrative costs include salaries and fees for full-time and
contract staff, professional and other consulting fees incurred in support of
the design and research for our new strategy and corporate identity development,
costs for shareholder information and regulatory requirements as well as the
preparation of our Form S-1 filing with the Securities and Exchange Commission,
our stock option compensation annual charge and office support and travel costs
for the staff.
- -20-
<PAGE>
The 55 per cent increase over the 1998 level reflects primarly the impact of our
stock option compensation. Other factors which caused the year over year
increase were associated with the increased activity related to the above
corporate redirections and includes increases primarily in consulting and
professional fees of 64 per cent to $449,000, coupled with higher salary costs
of $497,000, up 27 per cent over those of 1998 and higher travel of $230,000,
also up 27 per cent from last year's level.
We had granted stock options to a number of management and research staff as
part of our incentive compensation program. As a consequence, and in accordance
with the requirements of Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees and with the requirements of SFAS No.
123, Accounting for Stock Based Compensation, we incurred an expense of
$1,238,400 which reflects the difference in fair market value of our common
stock at the grant date, as compared to the exercise price for those accounted
for in accordance with APB No. 25, and the fair value of the options issued at
the grant date using the Black-Scholes Option Pricing Model for those
accounted for in accordance with SFAS No. 123.) By comparison, the expense
recorded in 1998 amounted to $668,800.
Other Income (Expense).
In 1999, we earned $95,300 in interest income from funds on deposit from a
financing completed in December 1998. No comparable interest revenues were
earned in 1998.
Also, in 1998, we incurred interest costs of $210,000. This interest expense was
incurred by Intacta Delaware and Intacta Labs for advances from their previous
parent company, Corsa which had been made in prior years to sustain their
operations. These advances were extinguished prior to the closing of our
acquisition and consequently we incurred no interest expense in 1998 after that
date.
Net Losses.
The 1999 Net Loss of $3,617,600 was 15 per cent higher than the 1998 figure of
$3,145,800.
Year Ended December 31, 1998 Compared To Year Ended December 31, 1997
Revenues.
Consolidated revenues for the full year 1998 were only $137,800, down
significantly from the 1997 level of $894,900 when we were actively marketing
our FaxPal products. In the fourth quarter of 1997, management of both Intacta
Delaware and Intacta Labs recognized that the market potential for its primary
product, FaxPal, and other related products was proving less than forecast and
they decided to reduce marketing efforts and initiate significant design
revisions to its core applications. Consequently, during all of 1998, the
marketing and sales effort was reduced and without this support, revenues
declined significantly.
Operating Expenses.
Costs of Products and Components.
Because of this change in direction, management realised mid-year that inventory
levels conceived to support a high sales forecast early in the year, were too
high and recorded a write-down equal to the total value of the current inventory
of these products, amounting to approximately $240,100. As a consequence of
this write-down, cost of products for 1998 totalled $336,300, reflecting product
costs of units sold in the year of $96,200, plus the above reserve amount. By
contrast, the 1997 cost of sales was $357,500, all related to units sold.
Research and Development.
The 1998 Research and development costs of $773,800 were more than double the
$343,200 incurred in 1997, the increase due to the additional developmental work
performed to carry out the product revisions. Costs in both years include
salaries and office support as well as some development software and other
equipment. Several
- -21-
<PAGE>
additions to staff were made during 1998 and together with costs of computer
equipment and software for these new staff members as well as materials for
hardware development work related to the new products, caused overall costs to
rise 125 per cent.
Sales and Marketing.
Sales and marketing expenses are all incurred by Intacta Delaware. Sales and
marketing costs were only $113,100 in 1998, approximately 38 per cent of the
total incurred for 1997 of $297,000. The lower 1998 expenditures reflects our
decision to revise and reposition our products and to reduce marketing efforts.
Early in 1998, the sales staff was reduced and all were released by year-end.
General and Administrative.
General and administrative costs for 1998 were $1,829,100 representing an
increase of $476,000 or 35 per cent above the 1997 costs of $1,353,100. General
and administrative costs include primarily salaries and other office costs,
stock option compensation, professional and other consulting service fees and
travel. The higher overall costs in the current year reflect the impact of our
stock option compensation and the corporate costs of our parent company,
salaries and office costs, and professional fees, consulting support and travel
costs related to the restructuring and acquisition of the two subsidiary
companies mid-year. These increases were offset to some degree by savings from
reduced staffing of Intacta Delaware, and general restraint during the corporate
restructuring.
In 1998, we granted 1,005,000 common stock options to key management and staff
pursuant to our adopting an incentive stock option plan. The options have an
exercise price of $1.50 per share. As the market value on December 31, 1998 was
higher than the exercise price, in accordance with Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees and in accordance with
the requirements of SFAS No. 123, Accounting for Stock-Based Compensation, we
incurred a stock option compensation cost amounting to $668,800 in 1998. As the
plan was adopted in 1998, no costs were incurred in 1997.
Net Losses.
The 1998 net loss was $3,145,800 after provision for interest costs of $210,000
incurred as a result of loans from Corsa prior to the acquisition, other costs
of $19,600 and state taxes of $1,700 for the year. The 1997 net loss of
$2,199,700 was $946,100 or 43 per cent lower than that for 1998 primarily due
to the large swing in the loss from operations which amounted to $1,458,600
between the two years, offset by an interest charge of approximately $755,300.
Liquidity and Capital Resources
At December 31, 1999, we had completed our restructuring and business planning,
and were negotiating additional licensing arrangements which we expect will
provide revenues in year 2000. We have successfully completed development of two
of our new software products, Intacta.MobileCE and Intacta.Courier and our
Intacta Labs staff have provided considerable design customization for potential
licensees of our core technology. We anticipate further additions to staff to
support several of these potential licensing commitments and to expand our
marketing force in
the near future.
As a result of the above activities during 1999, our cash position at the
beginning of the year of $3,047,100 was reduced by our net loss of $3,617,600
and by capital expenditures of $18,600. The impact of these cash expenditures
was reduced to a considerable degree by the net change in our working capital
and other items, both cash and non-cash, principally the stock compensation
charge of $1,238,400, from year to year so that we closed the year with cash of
$917,400, a reduction of $2,129,700.
While the losses in prior years have approximated the current year level of
$3,617,600, due to the change in ownership and associated reverse merger
accounting, and the refocus of our business away from its predecessor FaxPal
products and to the development of new software applications, we don't consider
that comparisons between years would be meaningful as an indication of future
trends for both sources of funds and their use in operations.
In addition to the use of funds described above, on June 30, 1999, we issued
238,000 common shares at a price of $4.00 per share to raise $952,100, but
applied all of these funds to repay advances from a shareholder.
No other new funds were raised. Because our cash position has fallen
significantly, we anticipate that our current cash on hand will not be adequate
to meet all of our near term requirements associated with the planned additions
to staff
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<PAGE>
and introduction of new products and are planning to raise additional funds
through the issue of equity sufficient to sustain our product development
activities and the ramping up of the Sales and marketing function for the
remainder of the year as a minimum. Our management anticipates that we will need
to raise at least $2.5 million during the next six months to meet our operating
expenses. We are currently negotiating the terms of a senior bridge note
financing. We intend to raise $1,500,000. In addition, we are negotiating with
a financial advisor to assist us in a private placement of our common stock
to raise up to an aggregate of $10,000,000. We cannot be assured that we will
be successful in completing the bridge note financing or private placement of
the common stock.
Our independend 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 modified their opinion on our 1999 financial statements to
include an explanatory paragraph expressing substantial doubt about our ability
to continue as a going concern.
Year 2000 Issues
Even though the date is now past January 1, 2000 and we have not experienced any
immediate adverse impact from the transition to the Year 2000, we cannot provide
assurance that our suppliers and customers have not been affected in a manner
that is not yet apparent. In addition, computer programs that were date
sensitive to the Year 2000 may not process the Year 2000 as a leap year and any
negative consequential effects remain unknown. As a result, we will continue to
monitor our Year 2000 compliance and the Year 2000 compliance of our suppliers
and customers.
Recent Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained For Internal Use," which is effective for fiscal
years beginning after December 15, 1998. SOP No. 98-1 provides guidance on
accounting for the costs of computer software developed or obtained for internal
use and defines specific criteria that determine when such costs are required to
be expensed, and when such costs may be capitalized. The adoption of this
standard has not had a material effect on our capitalization policy, results of
operations, financial position or cash flows.
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
require companies to recognize all derivatives contracts as either assets or
liabilities in the balance sheet and to measure them at fair value. If
conditions under SFAS No. 133 are met, a derivative may be specifically
designated as a hedge, the objective of which is to match the timing of gain or
loss recognition on the hedging derivative with the recognition of
- - the changes in the fair value of the hedged assets or liability that are
attributable to the hedged risk, or
- - the earnings effect of the hedged forecasted transaction.
For a derivative not designated as a hedging instrument, the gain or loss is
recognized in income in the period of change. SFAS No. 133 is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. Historically, we
have not entered into derivatives contracts either to hedge existing risks or
for speculative purposes. Accordingly, we do not expect adoption of the new
standard on January 1, 2001 to affect its financial statements.
In February 1998, the FASB issued SFAS No. 132, Employer's Disclosures about
Pensions and Other Postretirement Benefits, which standardizes the disclosure
requirements for pension and other postretirement benefits. The adoption of
SFAS No. 132 did not have a material impact on our current disclosures.
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. This statement established standards for
the way companies report information about operating segments in its financial
statements. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. The disclosures
prescribed by SFAS No. 131 did not have a material impact on our financial
statements as we operate as one business segment.
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<PAGE>
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income.
SFAS No. 130 establishes standards for reporting comprehensive income and its
components in a financial statement that is displayed with the same prominence
as other financial statements. Comprehensive income, as defined, includes all
changes in equity during the period from non-owner sources. Examples of items
to be included in comprehensive income, which are excluded from net income,
include foreign currency translation adjustments and unrealized gain/loss on
available-for-sale securities. The disclosure prescribed by SFAS No. 130 did
not have a material impact on us.
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<PAGE>
BUSINESS
Overview
We develop and market products to
- - enable businesses to manage the production, distribution and storage of
content over Internet and paper-based media. Our technology also permits the
seamless exchange of data between electronic and paper media.
- - reduce bandwidth and archiving requirements for content. Transmission time
and storage requirements of some types of large files and formats are
significantly reduced using our compression and error correction techniques that
offer advantages over other widely used methods such as TIFF and ZIP
compression.
- - secure the management, authentication and archiving of sensitive business
information. Our technology and products apply equally to electronic and paper-
based formats. We have developed specific products that have applications in
registration forms that can then be sent electronically or via fax.
- - improve the performance and convenience of mobile wired and wireless
telecommunications and applications. These include the emerging category of
information and Internet devices such as palm/handheld computers, smart cell
phones, etc. Our compression technology lowers bandwidth requirements; our
security technology protects transmission and our error-correction technology
improves the integrity of content transmission under less than desirable
environments.
- - enhance hardware and software server products that integrate our proprietary
compression and error correction techniques.
- - increase user's satisfaction by improving convenience and time-savings. Our
technology allows users to compress/decompress and encode/decode multiple-files
containing different file formats with a single mouse click.
Our products include:
- - Intacta.Courier, a software application that is installed in a personal
computer, or network server, to enable a personal computer or network server to
send and receive standard and color faxes, send faxes via email and send faxes
with file attachments. Intacta.Courier incorporates our compression and
encoding technology. It also provides the capability of automatic file
conversion between Windows CE-based mobile communications and Windows 95/98/NT-
based enterprises.
- - Our Intacta.Bridgeway product is a hardware version of Intacta.Courier. It
can either stand alone or be integrated into an existing server environment.
Additionally Intacta.Bridgeway integrates several functions that allow it to
operate as an independent remote server.
- - Intacta.MobileCE is a software application that operates with Windows CE-
powered intelligent computing devices to enable the devices to send and receive
faxes, send faxes via email and send faxes with file attachments.
Each of these products provides our unique compression, encoding, decoding and
security features to local area network, wide area network and Internet faxes
and electronic messaging. Intacta.MobileCE and our document management
solutions are the only products we are currently marketing. When these products
are used together, they provide end-to-end solutions between the mobile workers
and a business. We intend to begin marketing Intacta.Courier and
Intacta.Bridgeway in the third and fourth quarters of this year.
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Industry Background
Document Management
Historically businesses relied solely on paper-based document management
systems. Today's computer-based business environment has altered the historical
business model, allowing businesses to manage, authenticate, archive and
transmit documents electronically. Many businesses have recognized the cost
savings of implementing an electronic document management system. Electronic
document management involves the application of imaging and related
technologies, to effectively convert unstructured paper-based information into
structured electronic data. Eliminating or reducing reliance on paper in
document management, authentication and archiving allows information to be
controlled, distributed, and utilized in an efficient, cost-effective manner.
Our document management solution benefits businesses by providing a
comprehensive, cost-effective document management system.
Electronic Communications
The increasingly widespread use of electronic communications, including the
Internet, is enabling networks of businesses and consumers to collaborate,
access information and conduct business and personal interactions more
effectively. To be successful in the electronic communications market, we
believe that a solution provider must adequately address the issues of data
integrity, security, authentication, bandwidth, storage and archiving, unified
messaging and multicast requirements for both electronic and paper-based data.
Our technology provides the building blocks for creating a range of solutions in
the electronic communications market from streamlined applications for small
businesses to highly complex systems for large businesses. Our technology is
highly adaptable and customizable for incorporation into most electronic
software or hardware applications and into most non-electronic printable media.
With this inherent flexibility and scalability, our products solve a variety of
content management problems for businesses.
Solution
We provide a solution by providing products that enable electronic conversion of
documents. Our technology permits 100% of content and format to be easily and
efficiently exchanged between paper and electronic forms. This unique
technology provides the "missing link" between paper-based document management,
electronic document management and electronic communication of both paper-based
and electronic documents. We believe our solution delivers the following
benefits:
- - Savings in storage space since our compression techniques have the ability to
compress, for example, a 50-page document as one or two equivalent pages
depending on the graphic content of the original document.
- - We can transmit the original data in binary form either through fax or e-mail,
permitting the recipient to edit and view the original document with its
original formatting.
- - The transmitted documents can be encoded such that only the authorized or
intended recipient will be able to view the data.
- - Reduction in bandwidth usage, and transmission time resulting in significant
savings in telecommunications time for users. For example, a fifty-page document
can be sent as a single page via fax protocol, or significantly compressed if
sent by other electronic means, including e-mail.
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Technology and Products
Technology
Our solution is based on our technology which compresses digital files
comprising text, video, graphics (including color) or sound into a two-
dimensional graphical grid, which we call an Intacta.Code. Our patented
technology applies encoding and error correction applications to the digital
file creating a secure, damage resistant graphical representation of the
original digital file. The key features of our patented technology are:
- - Compression. The compression capability of our patented technology decreases
the amount of bandwidth required to transmit information (in the form of an
Intacta.Code) via a network, facsimile or the Internet. Our compression rates
exceed the current capabilities of standard tagged information file format, or
TIFF, and ZIP methods, enabling faster and more effective management of large
databases and complex files. The compression not only increases the data density
of the Intacta.Code image, but also improves the performance of the error
correction algorithm. For fax-based communications, our technology reduces
transmission costs by enabling documents of up to 110 kilobytes of digital data
(approximately 100 pages) to be sent as a single page fax transmission.
- - Encoding and Decoding. The encoding and decoding capabilities of our patented
technology enable users to create an encoded Intacta.Code. Users can decode an
Intacta.Code by viewing it with our special viewer or by printing it using a
standard printer equipped with our special viewer.
- - Security. The security capability of our technology enables users to protect
information contained within an Intacta.Code. The security features include the
ability to restrict access to an Intacta.Code to particular users only and the
ability to verify the sender and contents of an Intacta.Code containing
sensitive information. Protection can also be layered such that a reader would
require a separate and distinct password to access successive layers of
information.
Products
Our solution, which is based on our patented technology, includes the following
products:
Intelligent computing devices. We intend to market a broad range of software
products that provide a variety of faxing functions to devices we call
intelligent computing devices, or intelligent computing devices, to enhance the
functionality of those devices. Intelligent computing devices are an emerging
class of products with sophisticated processing power that are designed for
specific computing and communications applications. These devices are described
as "intelligent" to distinguish them from rudimentary single-purpose computing
devices with only limited functionality. Examples of intelligent computing
devices include
- - television "set-top boxes," which sit on top of television sets and provide
users with advanced cable TV access services, sophisticated video gaming
features and Internet access;
- - handheld and palm-size personal computers;
- - gaming systems;
- - handheld industrial data collectors;
- - consumer "Internet appliances" such as kiosk terminals and navigational
devices in cars and trucks; and
- - terminals.
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Compared to traditional computers intelligent computing devices are often less
expensive and more adaptable in terms of their size, weight and shape, while
still providing sophisticated computing and communications capabilities,
including Internet connectivity.
Intacta.MobileCE. Intacta.MobileCE is a communications software suite developed
to respond to the Enterprise need for robust communications software that is
bundled with intelligent computing devices to enable intelligent computing
devices to send and receive faxes, send faxes via email and send faxes with file
attachments. It is designed for use on any Windows CE-powered system, with
sufficient error correction capabilities for wireless and satellite
transmission. Intacta's unique compression process saves bandwidth and
transmission time, reduces communication costs and enhances the value of mobile
systems. Files, faxes and e-mail can be received, viewed, and printed. A
complementary product conversely allows desktop systems to open and read files
sent from a palm-top computer. Intacta.MobileCE provides our unique compression,
encoding, decoding and security features to intelligent computing devices.
Intacta.MobileCE is the only product we currently market for use with
intelligent computing devices.
Intacta.MobileCE is currently being evaluated by several U.S. and Japanese
manufacturers of Windows CE devices for integration into future products. We
cannot assure you that these evaluations will result in these manufacturers
integrating Intacta.MobileCE into any of their Windows CE devices. We also
intend to launch a version of Intacta.MobileCE for retail customers in the third
or fourth quarter of 2000. We are currently evaluating conversion of
Intacta.MoblileCE to Palm OS and EPOC OS-based systems.
Intacta.Courier. Intacta.Courier is a software application that is installed in
a personal computer, or network server, to enable the personal computer to send
and receive faxes, send faxes via email and send faxes with file attachments.
Intacta.Courier provides our unique compression, encoding, decoding and security
features to local area network, wide area network and Internet faxes. We are
currently Beta-testing Intacta.Courier and anticipate that it will be
commercially available in the fourth quarter of 2000. We are developing a
module to Intacta.Courier, called Intacta.Smartbar Fax Delivery Solution, which
we anticipate will be commercially available concurrently with Intacta.Courier.
Intacta.Smartbar Fax Delivery Solution allows users to embed digital information
containing the identity and addressing information of the sender and recipient
of a fax into the cover sheet of the fax. If a user employs Intacta.Smartbar
when sending a fax, the recipient can utilize the information in the
Intacta.SmartBar to:
- - automatically add the sender's contact information to his address book,
- - reply to the sender by fax without creating a fax cover sheet,
- - reply to the sender by email without addressing the email,
- - incorporate automatic sender determined encryption and automatic recipient
determined decryption, and add additional macros for custom applications.
Intacta.Bridgeway. Intacta.Bridgeway is a hardware platform that supports all
common protocols in commercial and residential networks. It embeds all the
functionality of Intacta.Courier and our patented compression and encryption
technology. Intacta.Bridgeway incorporates our softmodem module that permits
fax communication between two Intacta.Bridgeway units at 33.6kps.
Intacta.Bridgeway provides a wide degree of customization for both vertical and
horizontal markets. Once installed and configured, the sending and receiving
processes are totally transparent to the user's operation. Examples of
applications include:
- - creates a unique and efficient network that allows any of the 100 million
legacy fax devices to connect to local and wide-area networks;
- - provides color faxing capability and the ability to produce original
quality documents by connecting to a color printer either directly or on a
server;
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- - functions as a mini document server which compresses and routes outgoing
documents using Intacta's proprietary technology, for cost efficiencies of up to
90 percent;
- - enables legacy fax and multi-functional peripherals to send and receive faxes
via email and sends faxes with file attachments;
- - creates low-cost, secure closed-communications network with a unique
encoding/decoding dynamic link library for a specific customer's network;
- - enables remote polling for various applications where each unit has its own
unique Internet protocol address.
We are currently developing Intacta.Bridgeway and anticipate that it will be
commercially available in the fourth quarter of 2000.
Both Intacta.Courier and Intacta.Bridgeway allow seamless file conversion
between Windows CE-based intelligent computing devices and Windows 95/98/NT-
based businesses. The combination of our Intacta.MobileCE and Intacta.Courier
products form an end-to-end solution for businesses with mobile workforces.
Custom Designed Products. We are currently developing the following products
which we intend to market to large enterprises: Intacta.Compactor;
Intacta.Docmanager; Intacta.Smartform; and Intacta.Smartbar. Each of these
products will be custom designed for each business purchaser.
Intacta.Compactor. Intacta.Compactor is a software application that decreases
the need for data storage space and data transmission time by providing
compression capabilities for document management systems. Our Intacta.Compactor
compression technology provides the user with a choice of lossy and lossless
compression. Generally, lossy compression applies to image and audio files
where it is not imperative that 100% of the original content is retrievable.
Users can choose what level of picture or sound quality is acceptable. Lossless
compression dictates that 100% of the original content is retrievable.
Intacta.Compactor provides the following features to document management
systems:
- - unique compression and security features of our patented technology,
- - lossless compression efficiency that can be up to 40% more effective than
standard TIFF 4-file compression,
- - adjustable lossy compression up to 300%
- - easily customizable, and
- - can be used with any language.
We anticipate that we will begin marketing Intacta.Compactor by the fourth
quarter of 2000.
Intacta.Docmanager. Intacta.Docmanager is a software application that decreases
the need for data storage space by converting paper documents to digital
documents for document management systems. Intacta.Docmanager converts paper
documents to digital documents without optical character recognition, and
reconverts the digital documents to paper documents without optical character
recognition on an as-needed basis. Intacta.Compactor provides the following
features to document management systems:
- - document authentication,
- - safeguards against falsification,
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- - compression efficiency that can be up to 40% more effective than standard TIFF
4-file compression,
- - 100% accurate file recovery, and
- - can be used with any language.
We are currently seeking strategic industry partners to commercialize
Intacta.Docmanager.
Intacta.Smartform. Intacta.Smartform is a software application that simplifies
and improves product registration between a business and its customers by
automating the generation, processing and storing of product registration
information. Intacta.Smartform is easily customizable and can be used with any
language. We have signed an initial licensing agreement with DataLode Inc., a
provider of registration services to Hewlett-Packard.
Intacta.Smartbar. Intacta.Smartbar virtually creates a document within a
document, or sub-document. The software application compresses and encodes
information contained in financial, legal and personal identification documents
and provides digital authentication and verification of that information at a
later time. Intacta.Smartbar creates a encrypted printed code of the
information that can be read with full accuracy by most standard scanners.
Intacta.Smartbar can create documents within documents of various sizes and
densities to best fit a user's needs. Further benefits include multi-level
security in which a level can be read only by those with appropriate clearance.
All Intacta.Smartbar technology can be transmitted via any media. In addition,
Intacta.Smartbar can be used with any language. We are integrating
Intacta.Smartbar into our Intacta.Courier and Intacta.Bridgeway applications
and discussing with other developers the use of this module in third party
applications for embedding digital information in various forms and security
applications, e.g., insurance, health, secured documents such as checks and
bonds. Versions of Intacta.Smartbar have been licensed for use in Japan's
Ministry of Health and other applications.
Customers and Markets
Our large regional and international business customers are described below:
DataLode Inc. In July 1999, we signed a license agreement for our
Intacta.Smartform module with DataLode Inc. DataLode has a contract with
Hewlett-Packard and others to provide warranty registration services for
products in Europe and North America. DataLode has agreed to utilize our
Intacta.Smartform to eliminate manual data entry and the need for optical
character recognition. This is anticipated to lower their cost, assure 100%
data accuracy and increase the overall efficiency of their operations.
Nippon Telegraph and Telephone Corporation. Our communications software has
been selected by NTT Electronics Corporation, a subsidiary of Nippon Telegraph
and Telephone Corporation of Japan, for NTT Electronics Corporation's new mobile
communications technology, RZ SSB, a digitally enhanced narrow band radio
communications system. NTT Electronics Corporation has developed a new mobile
radio technology that delivers transmission of data, telephone, fax, and video
under mobile conditions.
Systems Nakashima Co., Ltd. In April 2000, we entered into an agreement to
license our Intacta.Code technology to Systems Nakashima Co., Ltd. Under the
agreement, Systems Nakashima has agreed to pay us a royalty fee in exchange for
the right to license the technology to newspaper publishers in Japan. Systems
Nakashima has licensed the technology to Fujitsu, who has announced that the
Yomiuri Shimbun will be the first Japanese newspaper to adopt the program.
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Sales and Marketing
We plan to market and sell our products through a direct sales force and through
our Web site. We plan to locate our direct sales force in the United States,
Canada, Europe, the Middle East and Asia Pacific.
One of our key objectives is to create sales teams with a regional presence to
establish and build strong relationships with original equipment manufacturers
and systems integrators and to increase our responsiveness to customers and
local market opportunities.
Our marketing efforts are directed at promoting our products, creating market
awareness and generating leads. Our marketing activities include online
demonstrations, print and online advertising campaigns and attendance at
industry trade show events and trade conferences. We plan to use the Internet
extensively to increase awareness of Intacta and communicate with potential
customers, existing customers and others. Through our Web site, we plan to
provide online access to our customer messages and information regarding
products, respond to customer inquiries, conduct direct online sales of our
products and generate sales leads for our direct sales force.
As of March 31, 2000, we employed a total of 3 people on our sales and marketing
team.
Strategic Relationships
We plan to implement arrangements with third parties through which we will grant
the third parties the right to sell and implement our products. Specifically,
we seek to reach agreements with the following types of third parties:
- - Solution Providers. We plan to grant solution providers the right to market
and resell our products and to provide education, implementation and
customization for the solutions they sell as well as for sales made through our
direct sales team.
- - Systems Integrators. We plan to grant systems integrators the right to
provide implementation, customization and training services to customers who
have purchased solutions through our direct sales team.
To date, we have not entered into any arrangements with third party solution
providers or systems integrators.
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Research and Development
Our research and development team is responsible for the design, development and
release of our products. Our Vice President of Research and Development works
closely with our sales and marketing department as well as with our customers
and potential customers to better understand customer and market needs.
During 1999, a substantial majority of our research and development scientists
and engineers were involved in the development of Windows CE-based products and
providing custom solutions for our customers. These members of our research and
development team have accumulated detailed knowledge of the Windows CE
environment.
As of March 31, 2000, we employed a total of 12 scientists and engineers on our
research and development team. Our research and development team is located at
our facilities in Beer Sheva, Israel.
Competition
We believe that no one competitor of our technology dominates the marketplace.
Two dimensional bar coding technology, a technology that evolved from
conventional barcodes, is a competitive technology to our technology which
embeds digital information on paper or other printable surfaces. Historically,
the primary markets of two dimensional bar coding were applications such as
shipment tracking and inventory control. However, two dimensional bar coding
technology requires that end-users must purchase specific scanner devices from a
manufacturer. A manufacturers' primary objective is to sell its hardware
scanners, not its technology. There are approximately 20, 2-dimensional
barcode technology companies of which we believe only one, DataGlyph by Xerox,
directly competes with our technology. We believe the other 19 products do not
compete with ours because none of them offers a full range of functions and
capabilities within its technology as we provide in ours. DataGlyph by Xerox
has a significant market advantage due to its large distribution systems, its
mature operations, partner relationships and substantial financial resources.
Our competitor in the Windows CE mobile market is bsquare Corp.'s product,
bFAX-PRO 5.0. Our product, Intacta.MobileCE, and bFAX-PRO 5.0 offer the mobile
user the ability to send and receive faxes. The products differ in that
bFAX-PRO 5.0 offers internet faxing and our product offers fax by e-mail.
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<PAGE>
Intellectual Property
Our success is dependent upon our ability to protect our intellectual property
rights. We rely principally on a combination of copyright, trademarks, trade
secret and patent laws, non-disclosure agreements and other contractual
provisions to establish and maintain our proprietary rights. We hold patents in
Israel, the United States, Canada, Europe, Australia and South Africa, related
to our technology we use in our products in the areas of producing,
authenticating, transmitting, receiving, reading, and storing compressed
information.
As part of our confidentiality and operating procedures, we generally enter into
nondisclosure and confidentiality agreements with each of our key employees and
consultants and limit access to and distribution of our core technology,
documentation and other proprietary information. To protect ourselves against
any loss of essential information held by key personnel, we have entered into
provisions with our research and development employees with regard to ownership
of technological developments. We have implemented a secure document control
system with appropriate safeguards and backups. Our source code for software
and hardware products is maintained in a lock-box at the offices of our Israeli
law firm and is accessible only by members of our board of directors. Through
our committee of the board of directors and our Intellectual Property Policy, we
will continue to pursue the development of strong patent portfolio and trade
marking of our products.
Policing the unauthorized use of our technology is difficult. We will use all
viable and cost-permissive methods for defending and prosecuting any suspected
violators of our technology.
Employees
As of March 31, 2000, we employ a total of 24 employees, including 12 in
research and development and 12 in general, administrative and marketing
functions on a part and full-time basis. We plan to hire 29 additional
employees in sales, marketing, and administration over the next fiscal year and
plan to hire additional research and development employees on an as-needed
basis. 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.
Facilities
Our principal administrative and marketing facilities are located in Atlanta,
Georgia and consist of approximately 2,200 square feet of office space held
under a lease that expires November 8, 2000. Our principal research and
development facility is located in Beer Sheva, Israel and consists of
approximately 3,000 square feet of office space held under a lease that expires
September 1, 2000.
Legal Proceedings
We are not currently party to any pending legal proceedings.
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<PAGE>
MANAGEMENT
Executive Officers and Directors
The following table sets forth information, as of March 31, 2000, regarding the
executive officers and directors of the Corporation:
Name Age Position
Yehoshua Sagi(1)(2)(4) 61 Chairman of the Board; Director
Altaf S. Nazerali(1)(2)(4) 46 President; Chief Executive Officer;
Director
Noel Bambrough(3)(4) 61 Executive Vice President; Chief
Operating Officer; Director
Menachem Tassa(3)(4) 57 Executive Vice President, Research
and Development; Director
Ross Wilmot 55 Vice President, Finance; Director
Marco Genoni 52 Vice President, Marketing
Yechiel Y. Sharabi(1)(2)(4) 66 Director
Amnon Shai 65 Director
- -------------------------
(1)Member of Audit Committee.
(2)Member of Compensation Committee.
(3)Member of Intellectual Property Committee.
(4)Member of Executive Committee.
Yehoshua Sagi has served as Chairman of the Board and Director of Intacta since
May 29, 1998. He was elected as a member of the Israeli Knesset in 1988 and as
the Mayor of Bat-Yam, Israel in 1993. He continues to serve in those capacities
through to present. He previously headed Israeli Military Intelligence, and was
President of Tadiran Systems.
Altaf S. Nazerali has served as President, Chief Executive Officer and Director
of Intacta since its incorporation in December 1997. In addition, Mr. Nazerali
serves in the following capacities of other companies:
- - Chief Executive Officer (from November 1995 to present), President and
Director (each from October 1995 to present) of Multivision Communications Corp,
the operator of MMDS TV systems in Bolivia.;
- - Director of CTF Technologies, Inc. (from April 1998 to present), a company
engaged in the servicing of electronic refueling technology in Brazil;
- - Chief Executive Officer and President of Canbras Communications Corp. (from
November 1994 to October 1995), an operator of pay television and telephone
systems in Brazil; and
- - Director of Imagis Technologies (from July 7, 1998 to present), a technology
company that develops and markets biometric and imaging software to law
enforcement, gaming and security sectors.
Noel Bambrough has served as Executive Vice President, Chief Operating Officer
and Director of Intacta since April 1, 1999. From November 1998 through April
1999, Mr. Bambrough served as Consultant to Hunt Power Corporation, a Texas-
based utility company. Mr. Bambrough 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-
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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 TV 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 in January 1993, Mr. Bambrough served as
President and CEO of Cablecasting Ltd.
Menachem Tassa has served as Vice President, Research and Development and
Director of Intacta since May 29, 1998. He is General Manager of Intacta Labs
Ltd., our research and development subsidiary based in Beer Sheva, Israel. Dr.
Tassa has three PhDs in applied mathematics, physics and chemistry. He has been
with us and our predecessors since 1994. Between 1990 and 1992, he was a telecom
consultant. Prior to 1990, he occupied various senior scientific positions with
the Israeli government.
Ross Wilmot is a chartered accountant providing financial management services
since August 1991 to public companies. He has special expertise in international
operations and high tech start-ups, and has completed numerous business
valuations and acquisitions in this sector. He is also experienced in public
company reporting practices in both the United States and Canada. He has served
as Vice President, Finance and Director of Intacta since its incorporation in
December, 1997.
Marco Genoni has served as Vice President, Marketing of Intacta since September
30, 1998. Since 1997, he has served as President and Managing Partner of
Premier Stratatech Inc., a private marketing and consulting company specializing
in high technology products. From 1994 to 1997, he served as President and
Chief Executive Officer of Memotec Communications Inc., a public company that
produces and sells telecommunications and network products for medium and large
enterprises. Dr. Genoni received his Masters of Science in Physics from the
Swiss Institute of Technology in 1971 and his Ph.D. in Chemistry from the
University of Basle (Switzerland) in 1974.
Amnon Shai has served as a Director of Intacta since May 29, 1998. Mr. Amnon
Shai was Minister-Counselor for Commercial Affairs in the Israeli Embassy in
Paris from 1995 to 1998. From 1993 to 1995 he was Director of the European
Division, Foreign Trade Administration at the Ministry of Industry and Trade.
He completed his Masters in Business Administration at Columbia University in
New York in 1969. He graduated from the Hebrew University in Jerusalem, majored
in Political Science and Economics.
Yechiel Y. Sharabi has served as a Director of Intacta from May 29, 1998 to
December 9, 1998. He rejoined the Board effective September 1, 1999. He was
managing director of Mandate Management Ltd. from 1991 to 1998. Mr. Sharabi
earned his Masters in Public Administration in New Haven University of
Connecticut in 1996. He graduated with a Bachelor of Arts in General History
from the University of Tel Aviv.
Each director is elected for a period of one year at our annual meeting of
shareholders and serves until the next annual meeting 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 the directors and
executive officers of the Corporation.
Board Committees
On September 9, 1998, our board of directors established an audit committee,
compensation committee, and executive committee. Our board created the
intellectual property committee on September 21, 1999.
Audit Committee. The audit committee of the board of directors reviews our
internal accounting procedures and consults with and reviews the services
provided by our independent auditors. Messrs. Nazerali, Sagi and Sharabi are
members of this committee.
Compensation Committee. The compensation committee of the board of directors
reviews and recommends to the board of directors the compensation and benefits
of all our executive officers and establishes and
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reviews general policies relating to compensation and benefits of our employees.
Messrs. Nazerali, Sagi and Sharabi are members of this committee. Except as
described in "Related Party Transactions," no interlocking relationships exist
between our board of directors or compensation committee and the board of
directors or compensation committee of any other company, nor has any
interlocking relationship existed in the past.
Intellectual Property Committee. The intellectual property committee of the
board of directors establishes, amends and maintains guidelines of Intacta
regarding the handling of intellectual property matters. Messrs. Bambrough and
Tassa are members of this committee. In addition, the secretary of Intacta, Ms.
Sandra Buschau, serves on this committee.
Executive Committee. The executive committee of the board of directors manages
our day-to-day affairs and decides strategic direction. Messrs. Bambrough,
Nazerali, Sagi, Sharabi and Tassa are members of this committee.
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 for attending
board and committee meetings. We do not provide additional compensation for
committee participation or special assignments of the board of directors. Of
our directors, only Messrs. Sagi, Shai and Sharabi received stock options for
their participation on our board. Messrs. Sagi, Shai and Sharabi each received
options to purchase 50,000 shares at a price of $1.50 per share.
Executive Compensation
The following table sets forth the compensation paid to our chief executive
officer and one other most highly compensated executive officer for the years
indicated. No other executive officer of Intacta earned a salary and bonus for
such fiscal year in excess of $100,000.
Summary Compensation Table
Annual Long Term
Compensation Compensation
Securities All Other
Name and Principal Position Salary Underlying Option/ Compensation
Altaf S. Nazerali $ 25,000(1) 150,000 --
President and CEO $100,000(2)
Menachem Tassa $120,000(1) 150,000 --
Vice President, Research and $120,000(2)
Development
- -------------------------
(1)Compensation in 1998
(2)Compensation in 1999. This compensation is paid directly to Mr. Nazerali
from Pensbreigh Holdings Ltd. from the monthly consulting fee we pay to
Pensbreigh. See "Employment Contracts Altaf S. Nazerali."
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Employment Contacts
Altaf S. Nazerali
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 shareholder
and officer ("Pensbreigh"), dated as of March 1, 1999. Under the agreement,
Pensbreigh provides the services of Mr. Nazerali and others to us. During the
initial term of the agreement, we agreed to pay Pensbreigh a monthly fee of
US$16,666.00. Beginning in October 1999, this fee has been accrued and not
paid. Mr. Nazerali is not an employee of Intacta and is therefore not entitled
to any benefit plans to which regular employees are entitled.
Marco Genoni
We entered into a letter agreement with Dr. Genoni, dated as of September 30,
1998, governing Dr. Genoni's services to us as Vice-President of Marketing, on a
contracting basis. Under the letter agreement, Dr. Genoni is paid a monthly fee
of US$5,000. In addition to the monthly fee, we granted Dr. Genoni options to
purchase 30,000 shares of common stock of Intacta at U.S.$1.50 per share. Under
the letter agreement, we and Dr. Genoni also agreed to a bonus structure as
follows:
- - 20% of any sales made by first reseller, including value added resellers
("VARs") and original equipment manufacturers ("OEMs"), during first year of
employment;
- - 15% of any sales made by any reseller during first year of employment;
- - 10% of any sales made by any reseller during second year of employment;
- - 5% of any sales made by any reseller during third, fourth and fifth years year
of employment;
Noel Bambrough
On March 31, 1999, we entered into an employment agreement with Noel Bambrough,
governing Mr. Bambrough's services to Intacta as Executive Vice President and
Chief Operating Officer. Commencing April 1, 1999 through the closing of our
next round of financing, we will pay Mr. Bambrough U.S. $12,500 per month.
Commencing on the first full month of employment after the closing of our next
round of financing, we will pay Mr. Bambrough U.S. $20,833 per month in base
salary. After the closing of our next round of financing, Mr. Bambrough will
also be eligible for a bonus not to exceed $U.S. 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 to purchase 200,000 shares of
common stock at a price of U.S. $4.00. In addition, subject to board of
directors' approval, we must issue a minimum of 10% of any future option pools
to Mr. Bambrough.
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<PAGE>
Option Grants in Last Fiscal Year
We did not grant any stock options to our chief executive officer or other most
highly compensated executive officer during the fiscal year ended December 31,
1999.
Option Exercises and Fiscal Year-End Values
The following table sets forth for our chief executive officer and one other
most highly compensated executive officer, the number of shares acquired upon
exercise of stock options during the fiscal year ended December 31, 1999 and the
number of shares subject to exercisable and unexercisable stock options held at
December 31, 1999.
Aggregated Option Exercises in Last Fiscal Year
And Fiscal Year-End Option Values
Number of Securities Value of Unexercised In-
Shares Underlying Unexercised the-money Options as
Acquired Options at December 31, December 31, 1999
on Value 1999
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
Altaf
Nazerali - - - 150,000 - $423,000
Menachem
Tassa - - - 150,000 - $423,000
Stock Option Plan
On June 1, 1998, our board of directors approved the creation of the 1998 Stock
Option Plan. Under the plan, the board of directors may grant incentive and
non-qualified options to acquire up to a total of 1,667,100 common shares to our
directors, officers, employees and consultants. To date, our board has granted
options to acquire 1,375,000 common shares.
The plan is intended to retain the services of our valued key employees and
consultants and others that the plan administrator may select to:
- - encourage our employees and consultants to acquire a greater proprietary
interest in Intacta;
- - serve as an aid and inducement in the hiring of new employees; and
- provide an equity incentive to consultants and others selected by the plan
administrator.
The primary difference between "incentive stock options" and non-qualified
options is the tax treatment of the option holder. If a holder complies with
Internal Revenue Service rules regarding incentive stock options, a holder of an
incentive stock can defer recognition of income for tax purposes until the
shares underlying the options are sold. A holder of a non-qualified option
generally recognizes income on the date of exercise. Incentive stock options
may be granted to any individual who, at the time the option is granted, is an
employee of Intacta or any related corporation. Non-qualified stock options may
be granted to employees and to others at the discretion of the plan
administrator. The plan administrator fixes the exercise price for options in
the exercise of its sole discretion, except that the exercise price for an
incentive stock option must be at least the fair market value per share of the
common stock at the date of grant (as determined by the plan administrator in
good faith), or in the case of greater-
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<PAGE>
than ten percent shareholders, at least one hundred ten percent of the fair
market value per share. The exercise price may be paid in cash or, with the
approval of the plan administrator, by other means, including withholding of
option shares or delivery of previously held shares. Options granted
under the plan vest over a three-year period, with one-third becoming
exercisable at the end of each of the three years following the date of grant.
The plan administrator may accelerate the vesting of options in its sole
discretion.
Options are non-transferable except by will or the laws of descent and
distribution or subject to a qualified domestic relations order. With some
exceptions, vested but unexercised options terminate upon the earlier of:
- - the expiration of the option term specified by the plan administrator at the
date of grant (generally 10 years; or, with respect to incentive stock options
granted to greater-than ten percent shareholders, a maximum of five years);
- - the expiration of 30 days from the date of an employee optionee's termination
of employment with us or any related corporation "for cause" as defined in the
plan;
- - the expiration of 90 days from the date of an employee optionee's termination
of employment with us or any related corporation for any reason whatsoever other
than for cause, death or disability (unless, in the case of non-qualified stock
options, extended by the plan administrator); or
- - the expiration of one year from the date of death or disability (as defined in
the plan) of the optionee.
If an employee optionee's employment is terminated by death, any option held by
the optionee is exercisable only by the person or persons to whom such
optionee's rights under the option pass by the optionee's will or by the laws of
descent and distribution of the state or county of the employee optionee's
domicile at the time of death. Unless accelerated in accordance with the plan,
unvested options terminate immediately upon termination of employment of the
optionee by us for any reason, including death or disability, and upon a change
of relationship between the optionee and us, such as from employee to
consultant. The plan administrator may amend or modify the plan, except that
no amendment with respect to an outstanding option may be made over the
objection of the holder of the option (other than those provisions triggering
acceleration of vesting of outstanding options).
Indemnification of Directors, Officers and Others
Our articles of incorporation provide that we shall have the right to indemnify
any person for any liability or expenses incurred by that person by reason of
the fact that he was a director, officer, employee or agent and has the right to
advance or pay the expenses of directors and officers in defending civil or
criminal suit or proceeding to the full extent provided by the Private
Corporation Law of Nevada.
Our bylaws provide that to the fullest extent permitted by law we may indemnify
our directors, officers and others who were or are a party or are threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding.
We do not maintain directors' and officers' liability insurance as of the date
of this prospectus.
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<PAGE>
RELATED PARTY TRANSACTIONS
On May 31, 1998, we entered into an exchange agreement with Corsa S.A. Holdings,
an entity organized under the laws of Luxembourg. Corsa owned 69% of our common
stock upon closing of the exchange agreement. Corsa is 90% controlled by Mr.
Arie Halpern and 10% controlled by Shira Advising, Communication and Investment
Ltd., an Israeli corporation controlled by Yechiel Y. Sharabi, one of our
directors, and Hadassa Y. Sharabi, Mr. Sharabi's wife. Under the exchange
agreement, Corsa transferred 100% of the outstanding shares of Intacta Delaware
Inc. and 99% of the outstanding shares of Intacta Labs Ltd. to us. In exchange,
we issued 11,486,00 shares of common stock to Corsa. Corsa subsequently sold
7,486,000 shares of its common stock to some of the selling shareholders whose
shares we are registering for resale under this prospectus, resulting in a
decrease of Corsa's ownership to 22.3%. Under the exchange agreement, we
agreed with Corsa that our board of directors would be increased from three to
seven persons, of which Corsa had the right to appoint five directors
(consisting of Yechiel Y. Sharabi, Amnon Shai, Joshua Sagui, Marc Nehamkin and
Menachem Tassa) and we maintained the right to appoint two directors (consisting
of Altaf Nazerali and Ross Wilmot).
Under the exchange agreement, we agreed to do the following:
- - enter into a Shareholders' Agreement governing the election of directors;
- - implement an equity incentive plan; and
- - raise an additional $5,000,000 gross through the sale of common stock
following the closing date of the exchange agreement.
We raised an additional $5,000,000 gross through the sale of one million shares
of common stock to MFC Merchant Bank SA in December of 1998 for a total of
$4,000,000 and the conversion into shares of common stock of advances made to us
by Valor Invest Limited for approximately $1,000,000. We are registering for
resale shares of our common stock by MFC Merchant Bank and Valor Invest Limited
under this prospectus.
Through a series of loans, Valor Invest Limited loaned Intacta a total of
$952,100 On June 30, 1999, Intacta issued 238,000 shares of common stock on a
private placement basis to Valor Invest Limited in repayment of the $952,100,
pursuant to a loan conversion at the rate of $4.00 per share.
During 1999 and 1998, 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 $346,300 and $294,200 for the years ended December 31, 1999 and
1998, respectively of which $226,300 and $229,500 have been included in research
and development expenses and $120,000 and $64,700 have been included in general
and administrative expenses. There were no similar related party transactions
for the year ended December 31, 1997.
Included in the above amounts, Intacta paid approximately $94,000 to
International Portfolio Management in connection with administrative services
provided to Intacta. Altaf S. Nazerali, President, Chief Executive Officer and
a director of Intacta, is the sole shareholder of International Portfolio
Management. Ross Wilmot, Vice President, Finance and a director of Intacta, is
the Vice President, Finance of International Portfolio Management. Sandra E.
Buschau, the Secretary of Intacta, is a Vice President of International
Portfolio Management.
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<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth information concerning the beneficial ownership
of our outstanding common stock as of March 31, 2000 for:
- - each person or group that we know owns beneficially more than 5% of our common
stock;
- - each of our directors and executive officers individually; and
- - all directors and executive officers as a group.
Rule 13d-3 under the Securities Exchange Act defines the term, "beneficial
ownership." Under this rule, the term includes shares over which the indicated
beneficial owner exercises voting and/or investment power. The rules also deem
common stock subject to options currently exercisable, or exercisable within 60
days, to be outstanding for purposes of computing the percentage ownership of
the person holding the options but do not deem such stock to be outstanding for
purposes of computing the percentage ownership of any other person. The
applicable percentage of ownership for each shareholder is based on 17,909,000
shares of common stock outstanding as of March 31, 2000, together with
applicable options for that shareholder. Except as otherwise indicated, we
believe the beneficial owners of the common stock listed below, based on
information furnished by them, have sole voting and investment power over the
number of shares listed opposite their names. The information provided in the
table below assumes no exercise of the underwriters' over-allotment option.
Percent of
Shares Outstanding
Name and Address Number of Shares Before After
of Beneficial Owner Beneficially Owned Offering Offering
Yehoshua Sagi -- -- --
65 Ben-Gurion Street
Bat-Yam 59372, Israel
Altaf S. Nazerali(1) 192,000 -- --
555 Palisade Drive
North Vancouver, B.C. V7R 2H9
Canada
Noel Bambrough -- -- --
670 Tuxedo Place N.W.
Atlanta, GA 30342
USA
Menachem Tassa -- -- --
26 Habani St., #16
Jerusalem 96264, Israel
Ross Wilmot -- -- --
13548 19th Avenue
South Surrey, B.C.
V4A 6B4
Canada
Marco Genoni -- -- --
4346 Westmount Avenue
Montreal, QC H3Y 1W5
Canada
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<PAGE>
Percent of
Shares Outstanding
Name and Address Number of Shares Before After
of Beneficial Owner Beneficially Owned Offering Offering
Yechiel Y. Sharabi 400,000 2.3% 2.3%
Ha'techiya 12
Holon 58401, Israel
Amon Shai -- -- --
20 Amzallag St.
Tel Aviv 65148,
Israel
Corsa S.A. Holdings(2) 4,000,000 22.3% 22.3%
Rue Notre Dame
Luxembourg
Grand Duchy of Luxembourg
Cybermind AG(3) 1,500,000 8.4% --
MFC Merchant Bank SA 1,000,000 5.6% --
All Officers and Directors 592,000 3.3% 3.3%
as a Group (7 Persons)
- -------------------------
(1)All of these shares are held indirectly by Mr. Nazerali through his partial
ownership of Pensbreigh Holdings Ltd.
(2)Corsa S.A. Holdings is a Luxembourg holding company 90% controlled by Mr.
Arie Halpern and 10% controlled by Shira Advising, Communication and Investments
Ltd., a company controlled by Mr. Yechiel Y. Sharabi. Mr. Halpern and Shira
Advising, Communication and Investments Ltd. (a company controlled by Mr.
Sharabi) have shared voting and investment power over Corsa S.A. Holdings.
(3)Cybermind AG is a selling shareholder whose shares are being registered for
resale on the registration statement of which this prospectus forms a part. We
are registering all 1,500,000 shares held by Cybermind AG; however, Cybermind AG
may sell any, all or none of its shares. Carsten Dujesiefken has sole voting
and investment power over Cybermind AG.
- -43-
<PAGE>
DESCRIPTION OF CAPITAL STOCK
We are authorized to issue 100,000,000 shares of common stock, $0.0001 par value
per share, and 50,000,000 shares of preferred stock, $0.0001 par value per
share. The following is only a summary of provisions of the common stock and
the preferred stock. It is not complete and may not contain all the information
you should consider before investing in the common stock. You should carefully
read our articles of incorporation and bylaws, which are included as an exhibit
to the registration statement containing this prospectus.
Common Stock
As of March 31, 2000, we were authorized to issue 100,000,000 shares of common
stock, of which 17,909,000 shares were issued and outstanding held of record by
45 shareholders. This public offering consists solely of shares of common stock
being resold by selling shareholders. Therefore, this offering will not affect
the total number of shares of common stock issued and outstanding.
Holders of shares of common stock are entitled to one vote per share on all
matters to be voted on by the shareholders. Subject to preferences of any
outstanding preferred stock, the holders of shares of common stock are entitled
to receive any dividends the board of directors declares out of funds legally
available for the payment of dividends. Upon the liquidation, dissolution or
winding up of Intacta, the holders of shares of common stock are entitled to
share all of our assets remaining after payment of liabilities and after giving
effect to the liquidation preferences of any outstanding preferred stock. All
outstanding shares of common stock are fully paid and nonassessable.
Preferred Stock
Our articles of incorporation grant our board of directors the authority to
issue up to 50,000,000 shares of preferred stock. Nevada law provides our board
of directors the authority to determine the price, rights, preferences,
privileges and restrictions, including voting rights of those shares without any
further vote or action by the shareholders.
Market Price of and Dividends on our Common Stock and Related Stockholder
Matters
High Bid Low Bid
1999
4th Quarter 3 7/16 1 3/4
3rd Quarter 3.8 1 7/8
2nd Quarter 4 3/16 3
1st Quarter 4 15/32 3 13/16
1998
4th Quarter 4 3/4 3 7/8
3rd Quarter 5 1/2 4
2nd Quarter(2) 5 3/4 4
1. Source of trading information: Bloomberg.
2. Quotations commenced on the Nasdaq Over-the-Counter Bulletin Board on May
28, 1998.
These over-the-counter market quotations reflect inter-dealer prices, without r
etail mark-up, mark-down or commission and may not necessarily represent actual
transactions.
The price of our common stock on the Nasdaq OTCBB on April 18, 2000 was $4 1/8
(high) and $3 (low).
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<PAGE>
We have never paid dividends on our common shares. We do not anticipate paying
any dividends in the foreseeable future.
Anti-takeover Effects of Charter and Bylaws Provisions and the Nevada Business
Corporation Act
Nevada law provides that any agreement providing for the merger, consolidation
or sale of all or substantially all of the assets of a corporation be approved
by the owners of at least the majority of the outstanding shares of that
corporation, unless a different vote is provided for in our articles of
incorporation. Our articles of incorporation do not provide for a super-
majority voting requirement in order to approve any such transactions. Nevada
law also gives appraisal rights for some mergers, plans of reorganization, or
exchanges or sales of all or substantially all of the assets of a corporation.
Under Nevada law, a shareholder does not have the right to dissent with respect
to:
- - a sale of assets or reorganization, or
- - any plan of merger or any plan of exchange, if the shares held by the
shareholder are part of a class of shares which are listed on a national
securities exchange or the Nasdaq National Market Systems, or are held of record
by not less than 2,000 shareholders, and the shareholder is not required to
accept for his shares any consideration other than shares of a corporation that,
immediately after the effective time of the merger or exchange, will be part of
a class of shares which are listed on a national securities exchange or the
Nasdaq National Market System, or are held of record by not less than 2,000
holders.
The Nevada Private Corporation Law also has three provisions designed to deter
take-over attempts:
Control Share Acquisition Program. Under Nevada law, when a person has acquired
or offers to acquire one-fifth, one-third or a majority of the stock of a
corporation, a shareholders meeting must be held after delivery of an "offerors"
statement, at the offerors expense, so that the shareholders of the corporation
can vote on whether the shares proposed to be acquired can exercise voting
rights. Except as otherwise provided in a corporation's article of
incorporation, the approval of the majority of the outstanding stock not held by
the offerors is required so that the stock held by the offerors will have voting
rights. The control share acquisition provisions are applicable to any
acquisition of a controlling interest, unless the articles of incorporation
or by-laws of a corporation in effect on the tenth day following the acquisition
of a controlling interest by an acquiring person provides that the
control share acquisition provisions do not apply. We have not elected out of
the control share acquisition provisions of Nevada law.
Combination Moratorium Provision. Nevada law provides that a corporation may
not engage in any "combinations," which is broadly defined to include mergers,
sales and leases of assets, issuances of securities and similar transactions
with an "interested stockholder," which is defined as the beneficial owner of
10% or more of the voting power of the corporation, and affiliates of their
associates for three years after an interested shareholder's date of acquiring
the shares, unless the combination or the purchase of the shares by the
interested shareholder is first approved by the board of directors. After the
initial three-year period, any combination must still be approved by a majority
of the voting power not beneficially owned by the interested shareholder or the
interested shareholders affiliates or associates, unless the aggregate amount
of cash and the market value of the consideration other than cash that could be
received by shareholders as a result of the combination is at least equal to
the highest of the highest bid per share of each class or series of shares,
including the common shares, on the date of the announcement of the combination
or on the date the interested shareholder acquired the shares, or for holders
of preferred stock, the highest liquidation value of the preferred stock.
Other Provisions. Under Nevada law, the selection of a period for achieving
corporate goals is the responsibility of the directors. In addition, the
directors and officers, in exercising their respective powers with a view to the
interest of the corporation may consider the interest of the corporation's
employees, suppliers, credits and customers, the economy of the state and the
nation, the interest of the economy and of society and the long-term, as well as
short-term, interests of the corporation and its shareholders, including the
possibility that those interests
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<PAGE>
may be best served by the continued independence of the corporation. The
directors may also resist any change or potential change of control of the
corporation if the directors, by majority vote of a quorum, determine that a
change or potential change is opposed to or not in the best interest of the
corporation "upon consideration of the interest of the corporation's
shareholders," or for one of the other reasons described above. The directors
may also take action to protect the interests of the corporation's
shareholders.
Transfer Agent and Registrar
The registrant and transfer agent for our shares of common stock is Corporate
Stock Transfer, Republic Plaza, 370 17th Street, Suite 2350, Denver, Colorado,
80202-4614.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
There are 17,909,000 shares of common stock outstanding, 5,185,000 of which are
freely tradable and 8,874,000 of which are restricted securities that may be
offered by the selling shareholders under this prospectus as described below.
Subject to the registration statement being declared and remaining effective,
all of the selling shareholder shares that may be offered under the registration
statement will be immediately tradable without restriction or further
registration under the Securities Act.
No prediction can be made as to the effect, if any, that sales of shares of
common stock by the selling shareholders, or even the availability of such
shares for sale will have on the market prices prevailing from time to time.
The possibility that substantial amounts of common stock may be sold in the
public market may adversely affect prevailing market prices for the common stock
and could impair our ability to raise capital through the sale of its equity
securities.
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<PAGE>
PLAN OF DISTRIBUTION
We are registering the shares on behalf of the selling shareholders. When we
refer to selling shareholders, we intend to include donees and pledgees selling
shares received from a named selling shareholder after the date of this
prospectus. All costs, expenses and fees in connection with the registration of
the shares offered under this registration statement will be borne by us.
Brokerage commissions and similar selling expenses, if any, attributable to the
sale of shares will be borne by the selling shareholders. Sales of shares may
be effected by selling shareholders from time to time in one or more types of
transactions (which may include block transactions) in the over-the-counter
market, in negotiated transactions, through put or call option transactions
relating to the shares, through short sales of shares, or a combination of
such methods of sale, at market prices prevailing at the time of sale, or at
negotiated prices. Such transactions may or may not involve brokers or dealers.
The selling shareholders have advised us that they have not entered into any
agreements, understandings or arrangements with any underwriters or broker-
dealers regarding the sale of their securities, nor is there an underwriter or
coordinating broker acting in connection with the proposed sale of shares by the
selling shareholders.
The selling shareholders may effect such transactions by selling shares directly
to purchasers or through broker-dealers, which may act as agents or principals.
Such broker-dealers may receive compensation in the form of discounts,
concessions, or commissions from the selling shareholders and/or purchasers of
shares for whom such broker-dealers may act as agents or to whom they sell as
principal, or both (which compensation as to a particular broker-dealer might be
in excess of customary commissions).
The selling shareholders and any broker-dealers that act in connection with the
sale of shares might be deemed to be "underwriters" within the meaning of
Section 2(11) of the Securities Act, and any commissions received by such
broker-dealers and any profit on the resale of shares sold by them while acting
as principals might be deemed to be underwriting discounts or commissions under
the Securities Act. We have agreed to indemnify each selling shareholder
against some liabilities arising under the Securities Act. The selling
shareholders may agree to indemnify any agent, dealer or broker-dealer that
participates in transactions involving sales of the shares against some
liabilities arising under the Securities Act.
Because selling shareholders may be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act, the selling shareholders will be
subject to the prospectus delivery requirements of the Securities Act. We have
informed the selling shareholders that the anti-manipulative provisions of
Regulation M promulgated under the Exchange Act may apply to their sales in the
market.
Selling shareholders also may resell all or a portion of the shares in open
market transactions in reliance upon Rule 144 under the Securities Act, provided
they meet the criteria and conform to the requirements of such Rule.
Upon being notified by a selling shareholder that any material arrangement has
been entered into with a broker-dealer for the sale of Shares through a block
trade, special offering, exchange distribution or secondary distribution or a
purchase by a broker or dealer, we will file a supplement to this prospectus, if
required, under Rule 424(b) of the Act, disclosing
- - the name of each selling shareholder and of the participating broker-
dealer(s),
- - the number of shares involved,
- - the price at which the shares were sold,
- - the commissions paid or discounts or concessions allowed to the broker-
dealer(s),
where applicable,
- - that the broker-dealer(s) did not conduct any investigation to verify
information set out or incorporated by reference in this prospectus; and
- -48-
<PAGE>
- - other facts material to the transaction.
In addition, upon being notified by a selling shareholder that a donee or
pledgee intends to sell more than 500 shares, we will file a supplement to this
prospectus.
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<PAGE>
LEGAL MATTERS
McDonald Carano Wilson McCune Bergin Frankovich & Hicks LLP will pass upon the
legality of the shares offered by this prospectus.
EXPERTS
The consolidated financial statements of Intacta Technologies Inc. and
subsidiaries included in this prospectus and in the registration statement have
been audited by BDO Seidman, LLP, independent certified public accountants, to
the extent and for the periods set forth in their report (which contains an
explanatory paragraph regarding the Company's ability to continue as a going
concern), appearing in this prospectus and in the registration statement, and is
included in reliance upon such report given upon the authority of said firm as
experts in accounting and auditing.
The combined financial statements of Intacta Delaware Inc. and Intacta Labs,
Ltd. included in this prospectus and in the registration statement have been
audited by Meredith, Cardozo, Lanz & Chiu, LLP, independent certified public
accountants, to the extent and for the period set forth in their report (which
contains an explanatory paragraph regarding the Company's ability to continue
as a going concern), appearing in this prospectus and registration statement,
and is included in reliance upon such report given upon the authority of said
firm as experts in accounting and auditing.
The financial statements of Intacta Labs, Ltd. have been audited by Penini &
Penini, independent certified public accountants in Israel, to the extent and
for the periods set forth in their report (which contains an explanatory
paragraph regarding the Company's ability to continue as a going concern),
appearing in this prospectus and in the registration statement, and is included
in reliance upon such report given upon the authority of said firm as experts
in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 covering the shares being sold in this offering. We have
not included in this prospectus some information contained in the registration
statement, and you should refer to the registration statement, including
exhibits and schedules filed with the registration statement, for further
information. You may review a copy of the registration statement from the
public reference section of the Securities and Exchange Commission in Room 1024,
Judiciary Plaza, 450 5th Street, N.W., Washington, D.C. 20549; and at the SEC's
Regional Office located at: 7 World Trade Center, Suite 1300, New York, New
York 10048 and 1400 Citicorp Center, 500 West Madison Street, Chicago, IL 60661.
You may also obtain copies of such materials at prescribed rates from the public
reference section at the Commission, Room 1024, Judiciary Plaza, 450 5th Street,
N.W., Washington, D.C. 20549. In addition, the Securities and Exchange
Commission maintains a Web site on the Internet at the address
http://www.sec.gov that contains reports, proxy information statements and other
information regarding registrants that file electronically with the Securities
and Exchange Commission.
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<PAGE>
INDEX TO FINANCIAL STATEMENTS
Intacta Technologies Inc.
Financial Statements
Page
Audited Consolidated Financial Statements F-1
Reports of Independent Accountants F-4
Balance Sheets for the periods ended December 31, 1998 and
December 31, 1999 F-10
Statements of Operations for the periods ended December 31, 1997,
December 31, 1998 and December 31, 1999 F-12
Statements of Shareholders' Equity/Deficiency for the periods
ended December 31, 1997, December 31, 1998 and December 31, 1999 F-13
Statements of Cash Flows for the periods ended December 31, 1997,
December 31, 1998 and December 31, 1999 F-14
Notes to Financial Statements F-15
- -51-
<PAGE>
Intacta Technologies Inc. and Subsidiaries
(fka ITI InfoImaging
Technologies, Inc.)
Financial Statements
Years Ended December 31, 1999, 1998 and 1998
F-1
<PAGE>
Intacta Technologies Inc. and Subsidiaries
(fka ITI InfoImaging
Technologies, Inc.)
Financial Statements
Years Ended December 31, 1999, 1998 and 1997
F-2
<PAGE>
Intacta Technologies Inc. and Subsidiaries
(fka ITI InfoImaging Technologies, Inc.)
Contents
Reports of Independend Certified Public Accountants
Consolidated Financial Statements
Consolidated balance sheets
Consolidated statements of operations
Consolidated statements of stockholders' equity
Consolidated statements of cash flows
Notes to consolidated financial statements
F-3
<PAGE>
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, 1999 and 1998 and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years then ended. 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 did not audit
the financial statements of one foreign subsidiary, whose statements reflect
total assets of $640,600 and $801,500 as of December 31, 1999 and 1998,
respectively and total revenues of $54,400 and $0 for the years then ended.
Those statements were audited by other auditors whose report dated April 12,
2000 has been furnished to us and included explanatory paragraphs that
discussed conditions that raised substantial doubt about the foreign
subsidiary's ability to continue as a going concern. Our opinion, insofar as it
relates to the amounts included for such subsidiary, is based solely on the
report of the other auditors. The combined statements of operations,
stockholders' equity and cash flows of Intacta Delaware Inc. and Intacta Labs,
Ltd., the predecessor entities, for the year ended December 31, 1997 were
audited by Meredith, Cardozo, Lanz & Chiu LLP (MCLC), whose practice has been
combined with our Firm and whose report dated February 20, 1998 included an
explanatory paragraph that discussed conditions that raised substantial doubt
about the Company's ability to continue as a going concern. MCLC did not audit
the financial stqatements of Intacta Labs, Ltd., whose statements reflected
total revenues of $26,100 for the year ended December 31, 1997. Those
statements were audited by other auditors whose report dated February 12, 1998
was furnished to MCLC and included an explanatory paragraph that discussed
conditions that raised substantial doubt about Intacta Labs, Ltd.'s ability to
continue as a going concern, and whose opinion, insofar as it related to the
amounts included for Intacta Labs, Ltd., was based solely on the report of the
other auditors.
We conducted our audit in accordance with generally accepted auditing standards.
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 disclosure 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 presentation of the
financial statements. We believe our audits, and the reports of other auditors,
provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Intacta Technologies Inc. and
subsidiaries as of December 31, 1999 and 1998, and the consolidated results of
their operations and cash flows for the years then ended, in conformity with
generally accepted accounting principles.
F-4
<PAGE>
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to
the financial statements, the Company has sufferred recurring loss from
operations and, at December 31, 1999, 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 1.
The consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
The 1998 financial statements have been restated for the correction on an error
as described in Note 7.
/s/ BDO Seidman, LLP
April 14, 2000
F-5
<PAGE>
Auditors' Report to the Shareholders
of
Fontech Ltd.
We have audited the attached financial statements of Fontech Ltd. (hereafter -
the company) as of December 31, 1999 and 1998 and the statements of income
(loss), changes in the capital and cash flows for each of the two years in
the period ended on those dates. These financial statements are the
responsibility of the company's board of directors and management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generall accepted auditing standards
in Israel, including those prescribed by the Auditor (Mode of performance)
Regulations, 1973 which do not differ in any significant respect from United
States generally accepted auditing standards. These standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement either due to error or
due to intentional misrepresentation. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosure in the financial
statements. The audit also includes assessing the accounting principles used
and significant estimates made by the board of directors and the management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a fair basis for our opinion.
The aforementioned financial statements have been prepared on the basis of the
historical cost convention in nominal values. Information regarding the effect
of the changes in the general purchasing power of Israeli currency on the
financial statements, as prescribed by pronouncements of the Institute of
Certified Public Accounts in Israel, is not included in the above mentioned
statements.
In our opinion, except for the exclusion of the information mentioned in the
preceeding paragraph, the aforementioned financial statements present fairly,
in all material respects, the financial position of the company as of December
31, 1999 and 1998 and the results of its operations, changes in its
shareholders' equity and its cash flows for each of the years ended on those
dates, in conformity with generally accepted accounting principles on the
basis of historical cost in nominal Israeli currency. As applicable to the
Company's financial statements, accounting principles generally accepted in
Israel and in United States are substantially identical in all material
respects.
Pursuant to section 211 of the Companies Ordinance (New Version), 1983, we
hereby state that we have received all the information and explanations which
we have requested and our opinion on the financial statements is given based on
the best of the information and the explanations which we have received and
as reflected in the books of the company.
Without qualifying our opinion, we would like to draw your attention to Note 14
regarding the doubtfulness of the company existing as a "going concern". The
Company's existence is dependent upon its ability to obtain additional financial
support until profitability is achieved. The accompanying financial statements
do not include any adjustments to the financial statements that might be
necessary should the company be unable to continue as a going concern.
/s/ Penini & Penini, CPA (ISR)
April 12, 2000
F-6
<PAGE>
Auditors' Report to the Shareholders
of
Fontech Ltd.
We have audited the attached financial statements of Fontech Ltd. (hereafter -
the company) as of December 31, 1998 and 1997 and the statements of income
(loss), changes in the capital and cash flows for each of the two years in the
period ended on those dates. These financial statements are the responsibility
of the company's board of directors and management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in Israel, including those prescribed by the Auditors (Mode of performance)
Resulations, 1973 which do not differ in any significant respect from United
States generally accepted auditing standards. These standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement either due to error or to
intentional misrepresentation. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
The audit also includes assessing the accounting principles used and significant
estimates made by the board of directors and the management, as well as
evaluating the overall financial statement presentation. We belive that our
audits provide a fair basis for our opinion.
The aforementioned financial statements have been prepared on the basis of the
historical cost convention in nominal values. Information regarding the effect
or the changes in the general purchasing power of Israeli currency on the
financial statements, as prescribed by pronouncements of the Institute of
Certified Public Accounts in Israel, is not included in the above mentioned
statements.
In our opinion, except for the exclusion of the information mentioned in the
preceding paragraph, the aforementioned financial statement present fairly, in
all material respects, the financial position of the company as of December 31,
1998 and 1997 and the results of its operations, changes in its shareholders'
equity and its cash flows for each of the years ended on those dates, in
conformity with generally accepted accounting principles on the basis of
historical cost in nominal Israeli currency. As applicable to the Company's
financial statements, accounting principles generally accepted in Israel and in
United States are substantially identical in all material respects.
Pursuant to section 211 of the Companies Ordinance (New Version), 1983, we
hereby state that we have received all the information and explanations which
we have requested and our opinion on the financial statements is given based on
the best of the information and the explanations which we have received and as
reflected in the books of the company.
Without qualifying our opinion, we would like to draw your attention to Note 15
regarding the doubtfulness of the company existing as a "going concern". The
Company's existence is dependent upon its ability to obtain additional financial
support until profitability is achieved. The accompanying financial statements
do not include any adjustments to the financial statements that might be
necessary should the company be unable to continue as going concern.
/s/ Penini & Penini, CPA (ISR)
March 16, 1999
F-7
<PAGE>
Report of Independent Certified Public Accountants
To The Board of Directors and Shareholders of
ITI InfoImaging Technologies, Inc.
We have audited the combined balance sheets of ITI InfoImaging Technologies,
Inc. and Fontech Ltd. as of December 31, 1997 and the related combined
statements of operations, shareholders' deficiency and cash flows for the
year then ended. These financial statements are the responsibility of the
Companies' management. Our responsibility is to express an opinion on these
financial statements based on our audit. We did not audit the financial
statement of Fontech Ltd. whose statements reflect total assets of $261,000 as
of December 31, 1997 and total revenues of $26,100 for the year then ended.
Those statements were audited by other auditors whose report dated February 12,
1998 has been furnished to us and included an explanatory paragraph that
discussed conditions that raised substantial doubt about Fontech Ltd.'s ability
to continue as a going concern, and our opinion, insofar as it related to the
amounts included for Fontech Ltd., was based solely on the report of other
auditors.
We conducted our audit in accordance with generally accepted auditing standards.
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 presentation
of the financial statements. We believe our audit, and the report of other
auditors, provides a reasonable basis for our opinion.
In our opinion, based in our audit and the report of other auditors, the
combined financial statements referred to above present fairly, in all
material respects, the combined financial position of ITI InfoImaging
Technologies, Inc. and Fontech Ltd. as of December 31, 1997 and the
combined results of their operations and cash flows for the year then ended,
in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
companies will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company's recurring losses from operations and net
capital deficiency raise substantial doubt about its ability to continue as a
going concern. Management's plans regarding those matters are also described
in Note 1. The combined financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ Meredity, Cardozo, Lanz & Chiu, LLP
San Jose, California
February 20, 1998
F-8
<PAGE>
Auditors' Report to the Shareholders
of
Fontech Ltd.
We have audited the attached financial statements of Fontech Ltd. (hereafter -
the company) as of December 31, 1997 and 1996 and the statements of income
(loss), changes in site capital and cash flows for each of the two years in
the period ended on those dates. These financial statements are the
responsibility of the company's board of directors and management. Our
responsibility is to express an opinion on those financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing standards
in Israel, including those prescribed by the Auditors (Mode of performance)
Regulations, 1973 which do not differ in any significant respect from United
States generally accepted auditing standards. These standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement either due to error or to
intentional misrepresentation. 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 the board of directors and the management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a fair basis for our opinion.
The aforementioned financial statements have been prepared on the basis of the
historical cost convention in nominal values. Information regarding the effect
of the changes in the general purchasing power of Israeli currency on the
financial statements, as prescribed by pronouncements of the institute of
Certified Public Accounts in Israel, is not included in the above mentioned
statements.
In our opinion, except for the exclusion of the information mentioned in the
preceding paragraph, the aforementioned financial statements present fairly,
in all material respects, the financial position of the company as of December
31, 1997 and 1996 and the results of its operations, changes in its
shareholders' equity and its cash flows for each of the years ended on those
dates, in conformity with generally accepted accounting principles on the basis
of historical cost in nominal Israeli currency. As applicable to the Company's
financial statements, accounting principles generally accepted in Israel and in
United States are substantially identical in all material respects.
Pursuant to section 211 of the Companies Ordinance (New Version), 1983, we
hereby state that we have received all the Information and explanations which
we have requested and our opinion on the financial statements is given based on
best of the information and the explanations which we have received and as
reflected in the books of the Company.
Without qualifying our opinion, we would like to draw your attention to Note 15
regarding the doubtfulness of the company existing as a "going concern". The
Company's existence is dependent upon its ability to obtain additional financial
support until profitability is achieved, the accompanying financial statements
do not include any adjustments to the financial statements that might be
necessary should the company be unable to continue as a going concern.
/s/ Penini & Penini, CPA (ISR)
February 12, 1998
F-9
<PAGE>
Intacta Technologies Inc.
(fka ITI InfoImaging Technologies, Inc.)
Consolidated Balance Sheets
December 31, 1999 1998
As restated
(Note 7)
Assets
Current Assets:
Cash and cash equivalents $ 917,400 $ 3,047,100
Accounts receivable, less allowance for
doubtful accounts of $18,400 in 1998 31,700 11,400
Inventories 278,600 298,700
Related party and employee receivables 45,000 44,400
Other 30,800 14,700
---------- ----------
Total current assets 1,303,500 3,416,300
Property and equipment, net 156,100 231,700
Other assets, net 111,300 112,700
---------- ----------
$ 1,570,900 $ 3,760,700
========== ==========
F-10
<PAGE>
Intacta Technologies Inc.
(fka ITI InfoImaging Technologies, Inc.)
Consolidated Balance Sheets
December 31, 1999 1998
As restated
(Note 7)
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 472,400 $ 82,900
Accounts payable - related parties 90,200 10,900
Advances from shareholder 89,000 1,321,000
Accrued expenses 77,800 77,300
---------- ----------
Total current liabilities 729,400 1,492,100
---------- ----------
Commitments
Stockholders' equity
Preferred stock, $.0001 par value; 50,000,000 shares
authorized; no shares issued and outstanding -- --
Common stock, $.0001 par value; 100,000,000 shares
authorized; 17,909,000 and 17,671,000 shares issued
and outstanding, respectively 1,791 1,767
Additional paid-in capital 19,710,553 18,492,199
Deficit (17,671,200) (14,053,600)
Unamortized stock compensation (1,199,644) (2,171,766)
---------- ----------
Total stockholders' equity 841,500 2,268,600
---------- ----------
$ 1,570,900 $ 3,760,700
========== ==========
See accompanying notes to consolidated financial statements.
F-11
<PAGE>
Intacta Technologies Inc.
(fka ITI InfoImaging Technologies, Inc.)
Consolidated Statements of Operations
Years ended December 31, 1999 1998 1997
As restated
(Note 7)
Revenues
Products and components $ 64,000 $ 89,300 $ 894,900
Royalties from licensing arrangements 73,400 48,500 --
---------- ---------- ----------
Total Revenues 137,400 137,800 894,900
---------- ---------- ----------
Operating expenses
Cost of products and components 90,500 336,300 357,500
Research and development 825,000 773,800 343,200
Sales and marketing 113,200 113,100 297,000
General and administrative (including)
non-cash compensation expense of
$1,238,400, $668,800 and $0 in
1999, 1998 and 1997 respectively) 2,842,200 1,829,100 1,353,100
---------- ---------- ----------
Total operating expenses 3,870,900 3,052,300 2,350,800
---------- ---------- ----------
Loss from operations (3,733,500) (2,914,500) (1,455,900)
---------- ---------- ----------
Other income (expense)
Interest income (expense) 95,300 (210,000) --
Interest expense - stockholder -- -- (755,300)
Other 21,400 (19,600) 13,100
---------- ---------- ----------
Total other income (expense) 116,700 (229,600) (742,200)
---------- ---------- ----------
Loss before provision for income taxes (3,616,800) (3,144,100) (2,198,100)
Provision for income taxes 800 1,700 1,600
---------- ---------- ----------
Net loss $(3,617,600) $(3,145,800) $(2,199,700)
========== ========== ==========
Basic and diluted loss per
common share $ (0.20) $ (0.19) $ (0.19)
========== ========== ==========
Basic and diluted weighted - average
common shares outstanding 17,790,000 16,701,583 11,486,000
========== ========== ==========
See accompanying notes to consolidated financial statements.
F-12
<PAGE>
Intacta Technologies Inc.
(fka ITI InfoImaging Technologies, Inc.)
<TABLE>
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1999, 1998 and 1997
Additional Unamortized
Common Stock Paid-in Stock
Shares Amount Capital Compensation Deficit Total
<S> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1996 11,486,000 $ 1,149 $ 1,498,851 -- $(8,708,100)$(7,208,100)
Net loss -- -- -- -- (2,199,700) (2,199,700)
-----------------------------------------------------------------------
Balance,
December 31, 1997 11,486,000 1,149 1,498,851 -- (10,907,800) (9,407,800)
Contributed capital -- -- 183,600 -- -- 183,600
Contributed captal from
principal stockholder for
retirement of debt -- -- 8,929,800 -- -- 8,929,800
Common stock issued in
connection with reverse
acquisition 5,185,000 518 1,439,482 -- -- 1,440,000
Issuance of common stock
in Private Placement,
net of issuance costs of
$400,000 1,000,000 100 3,599,900 -- -- 3,600,000
Stock options granted
(Note 7) -- -- 2,840,566 (2,840,566) -- --
Amortization of stock
options as restated
(Note 7) -- -- -- 668,800 -- 668,800
Net loss - As Restated
(Note 7) -- -- -- (3,145,800) (3,145,800)
-----------------------------------------------------------------------
Balance,
December 31, 1998 17,671,000 1,767 18,492,199 (2,171,766) (14,053,600) 2,268,600
As Restated (Note 7)
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
=======================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-13
<PAGE>
Intacta Technologies Inc.
(fka ITI InfoImaging Technologies, Inc.)
Consolidated Statements of Cash Flows
Years ended December 31, 1999 1998 1997
As restated
(Note 7)
Operating activities
Net loss $(3,617,600) $(3,145,800) $(2,199,700)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Non-cash compensation expense 1,238,400 668,800 --
Depreciation and amortization 94,200 92,100 89,200
Provision for bad debts -- -- 54,400
Write-down of inventory 46,100 240,100 --
Write-down of other assets -- 49,000 --
Changes in operating assets and
liabilities:
Accounts receivable (20,300) 184,400 (105,300)
Inventories (26,000) (64,100) 71,600
Related party and employee
receivables (600) (35,100) 58,600
Other current assets (16,100) 2,600 (11,200)
Accounts payable 468,800 (168,000) 17,100
Accrued interest on advances
from shareholder -- -- 568,300
Accrued expenses 500 (112,700) (17,200)
Deferred revenue -- (51,300) (223,900)
---------- ---------- ----------
Cash used in operating activities (1,832,600) (2,340,000) (1,698,100)
Investing activities
Cash acquired in purchase of business -- 1,440,000 --
Capital expenditures (18,600) (191,900) (22,900)
Other assets 1,400 (8,000) (70,400)
---------- ---------- ----------
Cash provided by (used in) investing
activities (17,200) 1,240,100 (93,300)
---------- ---------- ----------
Financing activities
Contributed capital -- 183,600 --
Net proceeds from private placement -- 3,600,000 --
Advances from shareholder -- 3,062,000 2,064,100
Repayment of shareholder advances (279,900) (2,731,000) --
Repayment of notes payable -- (136,700) (161,900)
---------- ---------- ----------
Cash provided by (used in) financing
activities (279,900) 3,977,900 1,902,200
---------- ---------- ----------
Net increase (decrease) in cash and
cash equivalents (2,129,700) 2,878,000 110,800
Cash and cash equivalents, beginning
of year 3,047,100 169,100 58,300
---------- ---------- ----------
Cash and cash equivalents, end of year$ 917,400 $ 3,047,100 $ 169,100
========== ========== ==========
See accompanying notes to consolidated financial statements.
F-14
<PAGE>
Intacta Technologies Inc.
(fka ITI InfoImaging Technologies, Inc.)
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
The Company
Intacta Technologies Inc. (formerly ITI InfoImaging Technologies, Inc.), (the
"Company"), a Nevada corporation, was incorporated in October 1997.
On May 31, 1998, the Company completed the acquisition of 100% of the
outstanding common stock of Intacta Delaware Inc.(formerly ITI InfoImaging
Technologies, Inc.) (Intacta), a Delaware corporation, and Intacta Labs Ltd.
(formerly Fontech Ltd.) (Intacta Labs) in exchange for 11,486,000 shares of the
Company's $.0001 par value common stock valued at $1. The valuation of Intacta
and Intacta Labs equated to the approximate aggregate accumulated deficits of
the two companies to that date. The two companies agreed to accept the per
common stock value which approximated the market trading value at the time of
the initial discussions and signing of the letter of intent. For accounting
purposes, the acquisition has been treated as the acquisition of the Company
by Intacta and Intacta Labs, with the combined entity of Intacta and Intacta
Labs, companies under common control, as the acquirer (reverse acquisition).
Since the Company prior to the reverse acquisition was a public shell
corporation with no significant operations, pro forma information giving effect
to the acquisition is not presented. All shares and per share data prior to the
acquisition have been restated to reflect the stock issuance as a
recapitalization of Intacta. The shares held by the shareholders of the Company
prior to the acquisition (5,185,000 shares) have been recognized as if they were
issued in connection with the acquisition of the Company by Intacta. As the
former shareholder of Intacta and Intacta Labs received approximately 69%
of the shares in the Company immediately after the acquisition, the financial
statements for periods prior to the recapitalization are those of Intacta and
Intacta Labs.
Intacta was incorporated in September 1994. The Company ceased production and
marketing of its advanced compression and imaging technology products used for
transmitting and storing information to begin development of new products based
on the Company's patented core technology. The Company has certain licensing
arrangements in place to third parties for the use of this proprietary
technology.
F-15
<PAGE>
Intacta Technologies Inc.
(fka ITI InfoImaging Technologies, Inc.)
Notes to Consolidated Financial Statements
Intacta Labs, an Israeli corporation, began operations in June 1992. The Company
conducts product research, development and manufacturing in the high tech area
of Beer-Sheva, Israel, and is currently conducting research into even greater
time and cost savings techniques for easily transmitting and storing data in
secure formats.
Consolidation and Combination
The accompanying consolidated financial statements for the years ended December
31, 1999 and 1998 include the amounts of the Company and its wholly owned
subsidiaries. The financial statements are combined in accordance with
Accounting Research Bulletin No. 51 for the year ended December 31, 1997 and
include the amounts of Intacta and Intacta Labs, companies under common control.
All intercompany accounts and transactions have been eliminated in the
consolidated and combined financial statements. All references to December 31,
1999 and 1998 reflect consolidated financial statements while references to
December 31, 1997 reflect combined financial statements.
Basis of Presentation
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 deficit of $17,671,200 as of December
31, 1999, and incurred losses of $3,617,600, $3,145,800 and $2,199,700 for the
years ended December 31, 1999, 1998 and 1997, respectively. These losses were
caused by the realization in 1997 that the market potential for the Company's
primary product and other related products was less than forecasted. During 1
998 and 1999 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 cash flow from operations. As a result, the Company has absorbed
significant cash in its day to day operations and expects to continue to absorb
cash in its operations during 2000.
These conditions give rise to substantial doubt about the Company's ability to
continue as a going concern. The Company's continuation as a going concern is
dependent upon its ability to obtain additional financing as may be required and
ultimately to attain profitability. The Company is actively marketing its new
products, which it believes will ultimately lead to profitable operations, and
is seeking
F-16
<PAGE>
to raise additional funds through the issuance of equity sufficient
to sustain product development activities, marketing functions and
ultimately to enable the Company to increase revenues. If this plan materializes
as expected, the Company anticipates viability for the year 2000 and beyond,
though there can be no assurance that the Company will be successful in these
efforts. 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.
Cash and Cash Equivalents
For purposes of the consolidated and combined 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.
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. Leasehold improvements are amortized using the straight-line method over
the lesser of the lease term or the estimated useful lives of the related asset,
generally three to seven years.
Other Assets
Other assets, consisting principally of patents, are amortized on a straight-
line basis over the estimated useful life of the patents, generally ten years.
As of December 31, 1999 and 1998, accumulated amortization aggregated
approximately $66,600 and $55,500, respectively.
Long Lived Assets
Long-lived assets, such as patents and property and equipment, are evaluated for
impairment when events or changes in circumstances
F-17
<PAGE>
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 recoverabilty. To date, the Company has not had
a general release of any of its new products nor has it received overall market
acceptance. 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 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. During 1997
and 1998, a majority of revenues were derived from the shipment of product, a
portion of which was sold through resellers and distributors. Appropriate
reserves were considered to effectively defer revenue recognition when material
amounts of inventory had not been sold through to the end user. Generally, the
right of return of these products was of short duration (90 days). No provision
for estimated product returns was necessary based on historical experience.
Maintenance and support arrangements and other post-delivery obligations are
insignificant to the Company's operations.
License revenues are recognized based on usage of the licensed software by the
customer and therefore are not recognized as revenue until reported by the
licensee. Any support revenue recognized in relation to licensing arrangements
is billed as incurred.
F-18
<PAGE>
Advertising Costs
The cost of advertising is expensed as incurred. Advertising costs for the years
ended December 31, 1998 and 1997 were approximately $48,100 and $261,000,
respectively. There were no advertising costs during the year ended December 31,
1999.
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 earnings per share is computed using the weighted-average number of common
shares outstanding during the period. Diluted earnings per share is computed
using the weighted-average number of common and potentially dilutive common
shares outstanding during the period, if dilutive.
As a result of losses incurred during the years ended December 31, 1999 and
1998, 1,375,000 and 1,005,000 stock options, respectively were antidilutive and
accordingly, were excluded from the computation of loss per share. There were no
common equivalent shares outstanding during the year ended December 31, 1997.
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 and 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
F-19
<PAGE>
from those estimates.
Impact of Recently Issued Accounting Standards
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. The Company expects that
the adoption of SFAS No. 133 will not have a material impact on its financial
position or results of operations.
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 and combined statement of operations.
Fair Values of Financial Instruments
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Cash and cash equivalents
The carrying amount reported in the consolidated and combined balance sheets for
cash and cash equivalents approximate fair values.
Short term debt
The fair value of short term debt approximates cost because of the short period
of time to maturity.
F-20
<PAGE>
As of December 31, 1999 and 1998, the fair values of the Company's financial
instruments approximate their historical carrying amounts.
Reclassifications
Certain 1998 and 1997 amounts have been reclassified to conform to the 1999
presentation.
2. Inventories
As of December 31, 1999 and 1998, inventories were comprised of:
1999 1998
Components $ 233,600 $ 181,000
Work in process 45,000 59,100
Finished products -- 58,600
---------- ----------
$ 278,600 $ 298,700
========== ==========
Inventories at December 31, 1999 and 1998 relate 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. The Company believes this to be
the case in regards to these inventories.
During 1999 and 1998, the Company wrote-off approximately $46,100 and $240,100,
respectively, of its inventory due to reduced sales and obsolescence, which is
included in cost of products and components.
3. Property and Equipment
As of December 31, 1999 and 1998, property and equipment was comprised of:
1999 1998
Equipment $ 459,300 $ 405,800
Furniture and fixtures 48,100 58,900
Vehicles 14,100 38,200
---------- ----------
521,500 502,900
Less accumulated depreciation (365,400) (271,200)
---------- ----------
$ 156,100 $ 231,700
========== ==========
F-21
<PAGE>
4. Advances from Shareholder
Advances from shareholder represent non-interest bearing cash advances for
operating expenses that are due upon demand. During the year ended December 31,
1999, the Company converted $952,100 of such debt into 238,000 shares of common
stock. During the year ended December 31, 1998, the Company received additional
paid-in capital in exchange for the retirement of $8,929,800 of debt. The 1998
debt included accrued interest of approximately $1,200,000.
5. Accrued Expenses As of December 31, 1999 and 1998, accrued expenses were
comprised of:
1999 1998
Salaries and related expenses $ 32,900 $ 45,500
Severance 27,800 23,300
Vacation 16,900 6,800
Other 200 1,700
---------- ----------
$ 77,800 $ 77,300
========== ==========
6. Commitments
Leases
The Company leases its facilities and certain equipment under operating leases,
which expire through August 2000. The facility leases require the Company to pay
certain maintenance and operating expenses, such as utilities, property taxes,
and insurance costs. Rent expense related to these operating leases was $135,709
and $111,400 and $120,500 for the years ended December 31, 1999, 1998 and 1997,
respectively.
7. Stock Option Plan and Restatement of 1998 Financial Statements
In June 1998, the Company adopted its 1998 Incentive Stock Option Plan (ISO) and
Non-qualified Stock Option Plan (NSO) (collectively the "Plan") that provides
for the granting of 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 1,667,100 shares
of its common stock for issuance under the Plan.
The Plan indicates that the options shall be granted at prices of at least 100%
of the fair market value of the common shares on the date of the grant or, in
the case of greater than ten percent shareholders, of at least 110% of the fair
market value. Not withstanding the foregoing, a majority of the options were
actually issued at a discount from fair market value. As options were
originally reported in error to have been granted at fair market value
in 1998, the Company has restated its 1998 financial statements to properly
reflect compensation expense that results from options being granted at a
discount. The fair market value of options granted in 1998 was improperly
reported to be $1.50 per share while the actual fair market values ranged from
$4.00 - $4.28 per share. The effect of the restatement on 1998 operating
results is to increase operating expense, loss from operations, net loss and
deficit by $668,800 and to increase basic and diluted loss per share by
($0.04) as follows:
F-22
<PAGE>
As Reported As Restated
Operating expenses $ 2,383,500 $ 3,052,300
Loss from operations $(2,245,700) $(2,914,500)
Net loss $(2,477,000) $(3,145,800)
Basic and diluted loss
per common share $ (0.15) $ (0.19)
A summary of stock option transactions for the above plan follows:
Weighted
average
Number of exercise
Shares price
Outstanding at
December 31, 1997 -- --
Granted 1,005,000 $ 1.50
---------- ----------
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
========== ==========
Weighted
average
Number of exercise
Options exercisable Shares price
December 31, 1999 410,000 $ 1.50
========== ==========
Required disclosures for options outstanding at December 31, 1999 are as
follows:
Number Weighted
outstanding at average Weighted
December 31, remaining average
Exercise price 1999 contractual life exercise price
F-23
<PAGE>
$1.50 1,080,000 1.01 $1.18
$4.00 295,000 2.05 $0.85
- ------------------------------------------------------------------------------
$1.50 - $4.00 1,375,000 1.33 $2.03
- ------------------------------------------------------------------------------
The weighted average fair value of all options, calculated using the Black-
Scholes Option Pricing Model, granted during 1999 and 1998 is $0.42 and $2.21
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 requres that the Company
provide pro forma informtion regarding the net loss as if the compensation cost
for the Company's
F-24
<PAGE>
Plan had 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 Scholes option pricing model with the following
weighted average assumptions for 1999 and 1998 (years in which options
were granted): Dividend yield of 0 in both years; expected volatility of 40%
in both years; risk-free interest rate of 5.23% in 1999 and 5.47% in 1998; and
an expected life of 2.61 years in 1999 and 2.55 years in 1998.
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, 1999 1998 1997
Net loss, as reported $(3,617,600) $(3,145,800) $(2,199,700)
Pro forma (3,736,400) (3,183,000) (2,199,700)
---------- ---------- ----------
Basic and diluted loss per share,
as reported $ (0.20) $ (0.19) $ (0.19)
Pro forma (0.21) (0.19) (0.19)
---------- ---------- ----------
8. Related Party Transactions
During 1999 and 1998, 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 $346,300 and $294,200 for the years ended December 31, 1999 and
1998, respectively of which $226,300 and $229,500 have been included in research
and development expenses and $120,000 and $64,700 have been included in general
and administrative expenses. There were no similar related party transactions
for the year ended December 31, 1997.
9. Income Taxes
For the years ended December 31, 1999, 1998 and 1997, the provision for income
taxes consists of current minimum state taxes.
F-25
<PAGE>
The following table summarizes the differences between the income tax expense
and the amount computed by applying the Federal income tax rate of 34% in 1999,
1998 and 1997 to loss before income taxes:
Years ended December 31, 1999 1998 1997
As Restated
(Note 7)
Federal income tax benefit $(1,229,700) $(1,069,000) $ (747,300)
at statutory rate
State income tax benefit, (210,900) (183,300) (128,100)
net of federal tax benefit
Foreign operations not 316,700 277,000 179,100
subject to taxes
Tax benefits not currently (4,600) 90,100 122,400
recognizable
Change in valuation
allowance 1,129,300 886,900 575,500
---------- ---------- ----------
$ 800 $ 1,700 $ 1,600
========== ========== ==========
As of December 31, 1999 and 1998, deferred tax assets (liabilities) comprised
the following:
1999 1998
Net operating loss $ 4,602,500 $ 3,965,000
carryforward
Stock option compensation 764,800 268,200
not currently deductible
Accumulated depreciation 13,300 10,300
and amortization and other
---------- ----------
Total deferred tax assets 5,380,600 4,243,500
---------- ----------
Reserves not currently (204,000) (193,500)
deductible
Other, net -- (2,700)
---------- ----------
Total deferred tax liabilities (204,000) (196,200)
---------- ----------
Net deferred tax asset 5,176,600 4,047,300
Valuation allowance (5,176,600) (4,047,300)
---------- ----------
$ -- $ --
========== ==========
F-26
<PAGE>
The Company has net operating loss carryforwards available to reduce future
taxable income, if any, of approximately $12,399,300, $5,892,400 and $3,760,000
for Federal, California state and foreign tax purposes, respectively. The
benefits from these carryforwards expire through 2014. As of December 31, 1999,
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.
10. Employee Profit Sharing Plan
The Company has a profit sharing plan covering all eligible employees
meeting certain age and 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, 1998 and 1997, the Company contributed $2,500 and $9,800,
respectively. The Company made no contributions for the year ended December 31,
1999.
11. Major Customers and Export Sales Major Customers
During 1999, two customers accounted for approximately 53% and 40% of net sales.
During 1998, four customers accounted for approximately 27%, 26%, 15% and 12% of
net sales. The customer with 27% of net sales had an accounts receivable balance
of $7,200 as of December 31, 1998, while the other major customers had no
outstanding balance.
During 1997, two customers accounted for approximately 14% and 11% of net sales,
with accounts receivable of $5,400 and $28,800 as of December 31, 1997,
respectively.
F-27
<PAGE>
Geographic Segments
The following table presents sales and other financial information of Intacta
Labs, located in Israel, for the years ended December 31, 1999, 1998 and 1997:
Years ended December 31, 1999 1998 1997
Sales to unaffiliated customers $ 54,400 $ -- $ 26,100
========== ========== ==========
Inter-area sales to affiliates $ -- $ 49,900 $ 714,100
========== ========== ==========
Operating losses $ (783,000) $ (601,600) $ (272,900)
========== ========== ==========
Long-lived assets (gross) $ 363,700 $ 325,200 $ 185,500
========== ========== ==========
Export Sales
Years ended December 31, 1999 1998 1997
Far East $ -- $ 78,400 $ 92,100
Africa/Middle East -- -- 25,700
Other $ 54,400 $ -- $ 12,900
---------- ---------- ----------
$ 54,400 $ 78,400 $ 130,700
========== ========== ==========
F-28
<PAGE>
12. 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, by policy, limits the amounts of credit exposure to
any one financial institution.
As of December 31, 1999 the Company's accounts receivable are limited.
However, the Company believes any risk of accounting loss is significantly
reduced due to provisions considered at the date of sale for returns and
allowances and ongoing credit evaluations of its customers' financial condition
as deemed necessary. The Company generally does not require cash collateral or
other security to support customer receivables.
13. Statement of Cash Flows
Cash was paid during the years ended December 31, 1999, 1998 and 1997 for:
1999 1998 1997
Income taxes $ 800 $ 1,700 $ 1,600
========== ========== ==========
Interest $ -- $ 68,300 $ 52,100
========== ========== ==========
During the years ended December 31, 1999 and 1998, the Company's non-cash
financing activities included increases of additional paid-in capital in
exchange for the retirement of debt in the amount of approximately $952,100
and $8,929,800, respectively. There were no non-cash activities in the year
ended December 31, 1997.
14. Subsequent Events
In February 2000, the Company filed a registration statement on Form S-1 with
the Securities and Exchange Commission (SEC) under the Securities Act of 1933 to
register 8,874,000 common shares. The related prospectus is solely for the
purpose of selling shareholders and thus the Company will not receive any
proceeds from the sale of stock being offered. The registration is currently
being reviewed by the SEC and there can be no assurances as to if and when the
registration may become effective.
F-29
<PAGE>
8,874,000 Shares To Be Sold
by Current Shareholders
Common Stock
PROSPECTUS
, 2000
Dealer Prospectus Delivery Obligation:
Until , 2000 (25 days after the date of this prospectus), all dealers
that buy, sell or trade these shares of common stock, whether or not
participating in this offering, may be required to deliver a prospectus. This
is in addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
Amount
Securities and Exchange Commission Registration Fee$ 5,646
Legal Fees and Expenses 50,000
Accounting Fees and Expenses 10,000
Printing and Engraving Expenses 3,000
Miscellaneous Expenses 5,000
----------
Total 73,646
==========
Item 14. Indemnification of Directors and Officers.
Under Nevada Revised Statutes Section 78.7502 and 78.751, our articles of
incorporation and bylaws provide for the indemnification of our officers and
directors. Mandatory indemnification is required for present and former
directors. However, the director must have conducted himself in good faith and
reasonably believes that his conduct was in, or not opposed to our best
interests. In a criminal action he must not have had a reasonable cause to
believe his conduct was unlawful. Advances for expenses may be made of the
director affirms in writing that he believes he has met the standards and that
he will personally repay the expense if it is determined he did not meet the
standards. We provide permissive indemnification for officers, employees or
agents. Our Board must approve such indemnification and the standards and
limitations are the same as for a director.
We will not indemnify a director or officer adjudged liable due to his
negligence or willful misconduct toward us, adjudged liable to us, or if he
improperly received personal benefit. Indemnification in a derivative action is
limited to reasonable expenses incurred in connection with the proceeding.
Also, we are authorized to purchase insurance on behalf of an individual for
liabilities incurred whether or not we would have the power or obligation to
indemnify him under our bylaws.
Item 15. Recent Sales of Unregistered Securities.
On November 8, 1997, we issued 4,000,000 common shares on a private placement
basis to seventeen institutional investors for an aggregate offering price of
$600,000 in cash. We issued an additional 60,000 common shares to two agents,
West America and Christopher Dieterich, as payment for commissions and fees in
connection with the offering.
On December 19, 1997, we issued 975,000 common shares on a private placement
basis to eight institutional investors for an aggregate offering price of
$390,000 in cash.
On April 30, 1998, we issued 117,000 common shares on a private placement basis
to Gestibroker Consulting for an aggregate offering price of $351,000 in cash.
On May 12, 1998, we issued 33,000 common shares on a private placement basis to
Francis Pizzulli for an aggregate offering price of $99,000 in cash.
On May 31, 1998, under an Exchange Agreement between us and Corsa S.A. Holdings
("Corsa"), we issued 11,486,000 common shares on a private placement basis to
Corsa in exchange for the transfer of 100% of the outstanding shares of Intacta
Delaware Inc. And 99% of the outstanding shares of Intacta Labs Ltd.
II-1
<PAGE>
On December 31, 1998, we issued 1,000,000 common shares on a private placement
basis to MFC Merchant Bank S.A. for an aggregate offering price of $4,000,000 in
cash. Under an Agency Agreement dated October 23, 1998, we paid $400,000 to
Barons Financial Services (U.K.) Ltd., the agent for the offering.
On June 30, 1999, we issued 238,000 shares of common stock on a private
placement basis to Valor Invest Limited in repayment of a loan of $952,100
pursuant to a loan conversion at the rate of $4.00 per share.
With the exception of the May 12, 1998 offer and sale of securities, we relied
on the exclusion from registration provided by Regulation S under the Securities
Act of 1933, as amended (the "Securities Act") in connection with the offer and
sale of securities in the above transactions. In connection with the May 12,
1998 offer and sale of securities to Francis Pizzulli, we relied on the
exemption from registration provided by Regulation D under the Securities Act.
Item 16. Exhibits and Financial Statement Schedules.
Exhibits
Exhibit No. Description
3.1| Articles of Amendment and Articles of Incorporation of
Intacta Technologies Inc.
3.2| Bylaws of Intacta Technologies Inc.
4.1| Specimen Stock Certificate
5.1* Opinion of McDonald Carano Wilson McCune Bergin Frankovich
& Hicks LLP
10.1+| Licensing Agreement dated July 19, 1999, between registrant
and DataLode Inc.
10.2+| International Distributor Agreement dated September 20, 1997,
between registrant and Orbit Company, Ltd.
10.3+| International Distributor Agreement dated June 28, 1996,
between registrant and Rexton Corporation
10.4+| License Agreement dated May 31, 1997, between registrant
and Brother Industries, Ltd.
10.5+| License Agreement dated April 29, 1997, between registrant
and Brother Industries, Ltd.
10.6+| Authorized OEM Agreement dated August 6, 1996, between
registrant and SmithMicro Software, Inc.
10.7| Sublease Agreement dated September 16, 1999 between Outdoor
West, Inc. and registrant
10.8| Tenancy Agreement dated August 31, 1999 between Mrs. Hana
Kimchi and Fontech Ltd. (English translation of original
Hebrew agreement)
10.9| Shareholders Agreement dated May 31, 1998, among registrant,
Valor Invest, Ltd. And Corsa SA Holdings
10.10| 1998 Stock Option Plan
10.11| Consulting Agreement dated October 1, 1998, between registrant
and Pensbreigh Holdings Ltd.
10.12| Letter Agreement dated September 30, 1998, between registrant and
Marco Genoni.
10.13| Agreement dated March 31, 1999, between registrant and Noel
R. Bambrough.
10.14 Exchange Agreement dated May 31, 1998 between registrant and
Corsa S.A. Holdings.
II-2
<PAGE>
Exhibit No. Decsription
10.15 Consulting Agreement dated March 1, 1999 between registrant and
Pensbreigh Holdings Ltd.
10.16* License Agreement dated April 17, 2000 between registrant and
Systems Nakashima Co., Ltd.
21.1| List of subsidiaries of registrant
23.1 Consent of BDO Siedman, LLP
23.2 Consent of Meredith, Cardozo, Lanz and Chiu, LLP
23.3 Consent of Penini and Penini, CPA
23.4* Consent of McDonald Carano Wilson McCune Bergin Frankovich &
Hicks LLP (included in Exhibit 5.1)
24.1 Power of Attorney (included on signature page)
27.1 Financial Data Schedule
- -------------------------
* To be filed by amendment.
+ Confidential treatment has been requested as to certain portions of this
exhibit. Omitted portions will be filed separately with the Securities and
Exchange Commission.
| Previously filed.
Financial Statement Schedules.
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions, are inapplicable or not material, or the information
called for thereby is otherwise included in the financial statements and
therefore has been omitted.
Item 17. Undertakings.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
The undersigned registrant hereby undertakes to provide to the underwriter at
the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names by the underwriter to permit prompt
delivery to each purchaser.
The undersigned registrant hereby undertakes that:
(3) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be a part of
this Registration Statement as of the time it was declared effective.
(4) For the purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of Vancouver,
province of British Columbia, on April 25, 2000.
Intacta Technologies Inc.
By:/s/ Altaf S. Nazerali
---------------------
Altaf S. Nazerali
President, Chief Executive Officer
and Director
Pursuant to the requirements of the Securities Act of 1933, as amended, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/ Altaf S.Nazerali President, Chief Executive Officer April 25, 2000
- -------------------- and Director
Altaf S. Nazerali
* Vice President, Finance and Director April 25, 2000
- --------------------
Ross Wilmot
* Director April 25, 2000
- --------------------
Yehoshua Sagi
* Executive Vice President, Chief April 25, 2000
- -------------------- Operating Officer and Director
Noel Bambrough
* Executive Vice President, Research and April 25, 2000
- --------------------- Development and Director
Menachem Tassa
* Director April 25, 2000
- ---------------------
Yechiel Y. Sharabi
* Director April 25, 2000
- ---------------------
Amnon Shai
* By: /s/ Altaf S. Nazerali
----------------------
Altaf S. Nazerali
Attorney-in-Fact
<PAGE>
Exhibit No. Description
3.1| Articles of Amendment and Articles of Incorporation of
Intacta Technologies Inc.
3.2| Bylaws of Intacta Technologies Inc.
4.1| Specimen Stock Certificate
5.1* Opinion of McDonald Carano Wilson McCune Bergin Frankovich
& Hicks LLP
10.1+| Licensing Agreement dated July 19, 1999, between registrant
and DataLode Inc.
10.2+| International Distributor Agreement dated September 20, 1997,
between registrant and Orbit Company, Ltd.
10.3+| International Distributor Agreement dated June 28, 1996,
between registrant and Rexton Corporation
10.4+| License Agreement dated May 31, 1997, between registrant
and Brother Industries, Ltd.
10.5+| License Agreement dated April 29, 1997, between registrant
and Brother Industries, Ltd.
10.6+| Authorized OEM Agreement dated August 6, 1996, between
registrant and SmithMicro Software, Inc.
10.7| Sublease Agreement dated September 16, 1999 between Outdoor
West, Inc. and registrant
10.8| Tenancy Agreement dated August 31, 1999 between Mrs. Hana
Kimchi and Fontech Ltd. (English translation of original
Hebrew agreement)
10.9| Shareholders Agreement dated May 31, 1998, among registrant,
Valor Invest, Ltd. and Corsa S.A. Holdings
10.10| 1998 Stock Option Plan
10.11| Consulting Agreement dated October 1, 1998, between registrant
and Pensbreigh Holdings Ltd.
10.12| Letter Agreement dated September 30, 1998, between registrant and
Marco Genoni.
10.13| Agreement dated March 31, 1999, between registrant and Noel
R. Bambrough.
10.14 Exchange Agreement dated May 31, 1998 between registrant and
Corsa S.A. Holdings.
10.15 Consulting Agreement dated March 1, 1999 between registrant and
Pensbreigh Holdings Ltd.
10.16* License Agreement dated April 17, 2000 between registrant and
and Systems Nakashima Co., Ltd.
21.1| List of subsidiaries of registrant
23.1 Consent of BDO Siedman, LLP
23.2 Consent of Meredith, Cardozo, Lanz and Chiu, LLP
23.3 Consent of Penini and Penini, CPA
23.4* Consent of McDonald Carano Wilson McCune Bergin Frankovich &
Hicks LLP (included in Exhibit 5.1)
24.1 Power of Attorney (included on signature page)
27.1 Financial Data Schedule
- -------------------------
* To be filed by amendment.
+ Confidential treatment has been requested as to certain portions of this
exhibit. Omitted portions will be filed separately with the Securities and
Exchange Commission.
| Previously filed.
EXCHANGE AGREEMENT
THIS EXCHANGE AGREEMENT (this "Agreement") is entered into as of May 31, 1998,
by and among InfoImaging Technologies, Inc. ("ITI-Nev"), a Nevada corporation,
with an office located at 11300 W. Olympic Boulevard, Suite 800, Los Angeles,
California, and Corsa S.A. Holdings, an entity organized under the laws of
Luxembourg ("Corsa") with an office located at 8, rue Notre Dame, L-2240,
Grand Duchy of Luxembourg.
RECITALS
A. The parties intend that, subject to the terms and conditions hereinafter
set forth, ITI-Nev will acquire 100% of the outstanding shares of InfoImaging
Technologies, Inc., a Delaware corporation ("ITI-Del") and Fontech Ltd., an
Israeli corporation ("Fontech") (collectively, the "Subsidiaries") from Corsa
in exchange for ITI-Nev Common Stock (as defined below) (the "Exchange")
pursuant to the terms and conditions set forth herein.
B. It is intended by the parties hereto that the Exchange shall constitute a
reorganization within the meaning of Section 368(a)(1)(B) of the Internal
Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, the parties hereto agree as follows:
1. THE EXCHANGE
1.1 Exchange of Shares. Subject to the terms and conditions of this
Agreement, at the Closing, Corsa shall transfer and assign 1,000 shares of
ITI-Del common stock and 1,319,877 shares of Fontech common stock, all shares
representing 100% of the outstanding shares of the Subsidiaries (except for
the share held by Yechiel Sharabi, Corsa's nominee) (the "Subsidiary Stock")
to ITI-Nev in exchange for 11,486,000 fully paid and nonassessable shares
of ITI-Nev common stock ("ITI-Nev Common Stock"), except as provided in
Section 9.1 of the Agreement.
1.2 Adjustments for Capital Changes. If prior to the Exchange, ITI-Nev
recapitalizes either through a split-up of its outstanding shares into a
greater number, or through a combination of its outstanding shares into a
lesser number, or reorganizes, reclassifies or otherwise changes its
outstanding shares into the same or a different number of shares of other
classes (other than through a split-up or combination of shares provided for
in the previous clause), or declares a dividend on its outstanding shares
payable in shares or securities convertible into shares, the number of shares
of ITI-Nev Common Stock to be issued to Corsa will be adjusted appropriately.
1.3 Effects of the Exchange. At the Closing Date: (a) the Certificate of
Incorporation and Bylaws of ITI-Nev will continue unchanged to be the
Certificate of
<PAGE>
Incorporation and Bylaws of the corporation (as in Exhibit 1.3), (b) each
share of ITI-Nev Common Stock outstanding immediately prior the Closing Date
will continue to be an identical outstanding share of ITI-Nev Common Stock
immediately following the Closing Date, (c) the Board of Directors will be
increased from three (3) to seven (7), of which Corsa will appoint five (5)
(consisting of Yechiel Sharabi, Amnon Shai, Joshua Sagui, Marc Nehamkin, and
Menachem Tassa) or any other person substituted for any of the preceding
persons by Corsa so long as such substituted person meets necessary regulatory
requirements, and ITI-Nev will appoint two (2) (consisting of Altaf Nazerali
and Ross Wilmot), (d) each share of Subsidiary Stock outstanding immediately
prior to the Closing Date will be converted as provided in Section 1.1 and (e)
the Exchange will, from and after the Closing Date, have all of the effects
provided by applicable law.
1.4 Tax-Free Reorganization. It is intended by the parties hereto that the
Exchange shall constitute a reorganization within the meaning of Section
368(a)(1)(B) of the Code. At the Closing (as defined in Section 6.1 hereof),
officers of ITI-Nev and officers of Corsa will execute and deliver officers'
certificates in the forms of Exhibits 1.6A and B. and the representations and
other statements set forth therein are incorporated in this Agreement by this
reference to the same extent as if ITI-Nev or Corsa, respectively, had made
such statements herein.
2. REPRESENTATIONS AND WARRANTIES OF CORSA
Corsa and the Subsidiaries hereby represent and warrant that, except as set
forth in the Corsa disclosure letter (the "Corsa Disclosure Letter") attached
as Exhibit 2 and delivered by Corsa to ITI-Nev herewith, including Exhibits in
the Corsa Disclosure Letter referred to as "Exhibits" below:
2.1 Organization and Good Standing. Corsa and each of its Subsidiaries is a
corporation duly organized, validly existing and in good standing under the
laws of the state and country of its incorporation, has the corporate power
and authority to own, operate and lease its properties and to carry on its
business as now conducted and as proposed to be conducted, and is qualified as
a foreign corporation in each jurisdiction in which a failure to be so
qualified could reasonably be expected to have a material adverse effect on
its present or expected operations or financial condition.
2.2 Power, Authorization and Validity.
2.2.1 Corsa has the corporate right, power, legal capacity and authority
to enter into and perform its obligations under this Agreement and all
agreements to which Corsa is or will be a party that are required to be
executed pursuant to this Agreement (the "Corsa Ancillary Agreements"). This
Agreement and the Corsa Ancillary Agreements have been duly and validly
approved by the Corsa Board of Directors and shareholders, as required by
applicable law. The Corsa Board of Director approval is attached hereto as
Exhibit 2.2.1 (the "Corsa Board Approval").
<PAGE>
2.2.2 No filing, authorization or approval, governmental or otherwise, is
necessary to enable Corsa to enter into, and to perform its obligations under,
this Agreement and the Corsa Ancillary Agreements, except for (a) such filings
as may be required to comply with federal and state securities laws, (b)
consents required under contracts disclosed in Exhibit 2.5 as exceptions to
the representation made in the last sentence of Section 2.5 below and (c) the
approval of the shareholders of Corsa.
2.2.3 This Agreement and the Corsa Ancillary Agreements are, or when
executed and delivered by Corsa and the other parties thereto will be, valid
and binding obligations of Corsa enforceable against Corsa (as applicable) in
accordance with their respective terms, except as to the effect, if any, of
(a) applicable bankruptcy and other similar laws affecting the rights of
creditors generally and (b) rules of law governing specific performance,
injunctive relief and other equitable remedies; provided, however, that the
Corsa Ancillary Agreements will not be effective until the earlier of the
Closing Date or the date provided for therein.
2.3 Subsidiary Stock There are no voting agreements, rights of first
refusal or other restrictions applicable to any of Corsa's holdings in the
Subsidiary Stock. Corsa holds 100% of the outstanding Subsidiary Stock and
holds good and marketable title to such Subsidiary Stock, free and clear of
all liens, agreements, voting trusts, proxies and other arrangements or
restrictions of any kind whatsoever.
2.4 No Violation of Articles or Existing Agreements. Neither the execution
and delivery of this Agreement or any Corsa Ancillary Agreement, nor the
consummation of the transactions provided for herein or therein, will conflict
with, or (with or without notice or lapse of time, or both) result in a
termination, breach, impairment or violation of-. (a) any provision of
the Articles of Incorporation or Bylaws of Corsa or the Subsidiaries, as
currently in effect, (b) any material instrument or contract to which Corsa or
the Subsidiaries are a party or by which Corsa or the Subsidiaries or their
assets are bound or (c) any federal, state, local or foreign judgment, writ,
decree, order, statute, rule or regulation applicable to Corsa or the
Subsidiaries or their assets or properties. The consummation of the Exchange
and succession by ITI-Nev to all rights, licenses, franchises, leases and
agreements of the Subsidiaries will not require the consent of any third party
and will not have any material adverse effect upon any such rights, licenses,
franchises, leases or agreements pursuant to the terms of those agreements.
2.5 Litigation. There is no action, proceeding or investigation pending or,
to Corsa's or the Subsidiaries' actual knowledge, threatened against Corsa or
the Subsidiaries before any court or administrative agency that, if determined
adversely to Corsa or the Subsidiaries, may reasonably be expected to have a
material adverse effect on the present or future operations or financial
condition of Corsa or the Subsidiaries or in which the adverse party or
parties seek to recover in excess of $10,000 against Corsa or the
Subsidiaries. There is no basis for any person, firm, corporation or entity to
assert a claim against Corsa, the Subsidiaries or ITI-Nev as successor in
interest to Corsa based upon: (a) ownership or rights to ownership of any
shares of Subsidiary Stock, (b) any rights as a Corsa securities holder,
including, without limitation, any option or other right to acquire any Corsa
securities, any preemptive rights or any rights to notice or to vote, or (c)
any rights under any agreement between Corsa and any Corsa securities holder
or former Corsa securities holder in such holder's capacity as such.
<PAGE>
2.6 Subsidiary Financial Statements. The Subsidiaries have delivered to ITI-
Nev as Exhibit 2.7 their audited balance sheets as of December 31, 1997, the
Subsidiaries' audited income statement and cash flows for the year then ended
and the Subsidiaries' unaudited balance sheet as of April 30, 1998 (the
"Subsidiary Balance Sheet Date") and the Subsidiaries' unaudited income
statement for the period from January 1, 1998 through April 30, 1998
(collectively, the "Subsidiary Financial Statements"). The Subsidiary
Financial Statements (a) are in accordance with the books and records of the
Subsidiaries and (b) fairly and accurately represent the financial condition
of the Subsidiaries at the respective dates specified therein and the results
of operations for the respective periods specified therein in conformity with
generally accepted accounting principles applied on a consistent basis
(subject to normal year end adjustments). Except as noted in the Disclosure
Letter, since the Subsidiary Balance Sheet Date, the Subsidiaries have not
incurred any debt, liability or obligation of any nature, whether accrued,
absolute, contingent or otherwise, and whether due or to become due, except
for those incurred in the ordinary course of the Subsidiaries' business,
consistent with past practice that are not material in amount either
individually or collectively.
2.7 Taxes. Corsa and the Subsidiaries have filed all federal, state, local
and foreign tax and material information returns required to be filed prior to
the date hereof, have paid all taxes required to be paid with respect to all
periods prior to the date hereof for which returns have been filed, have made
all necessary estimated tax payments, and have no liability for taxes in
excess of the amount so paid, except to the extent adequate reserves have been
established in the Subsidiary Financial Statements. True, correct and complete
copies of all such tax and information returns have been provided or made
available by Corsa and the Subsidiaries to ITI-Nev. Corsa and the Subsidiaries
are not delinquent in the payment of any tax or in the filing of any tax
returns, and no deficiencies for any tax have been threatened, claimed,
proposed or assessed which have not been settled or paid. No tax return of
Corsa or the Subsidiaries has ever been audited by the Internal Revenue
Service or any state taxing agency or authority. For the purposes of this
Section 2.8, the terms "tax" and "taxes" include all federal, state, local and
foreign income, gains, franchise, excise, property, sales, use, employment,
license, payroll, occupation, recording, value added or transfer taxes,
governmental charges, fees, levies or assessments (whether payable directly or
by withholding), and, with respect to such taxes, any estimated tax, interest
and penalties or additions to tax and interest on such penalties and additions
to tax. Corsa and the Subsidiaries have no current or deferred federal income
tax liabilities and will not as a result of the Exchange become liable for any
income tax not adequately reserved against on the Financial Statements. Corsa
and the Subsidiaries have not filed a consent pursuant to Section 341(f) of
the Code. If Corsa or the Subsidiaries were to become subject to an audit by
the Internal Revenue Service or any state taxing agency or authority for tax
years or periods prior to the Closing Date (including, but not limited to, any
short tax year resulting from the Exchange), Corsa or the Subsidiaries will
use all reasonable efforts to resolve all such audits in a manner consistent
with the intentions of Corsa and ITI-Nev as expressed in this Agreement.
2.8 Title to Properties. The Subsidiaries have good and marketable title to
all of its assets as shown on the Balance Sheets, free and clear of all liens,
charges, restrictions or encumbrances (other than for taxes not yet due and
payable). Neither Subsidiary is in violation of
<PAGE>
any zoning, building, safety or environmental ordinance, regulation or
requirement or other law or regulation applicable to the operation of owned or
leased properties (the violation of which would have a material adverse effect
on its business), or has received any notice of violation with which it has
not complied.
2.9 Absence of Certain Changes. Since the date of the Balance Sheet, there
has not been with respect to Corsa or any Subsidiary; any change in the
financial condition, properties, assets, liabilities, business or operations
thereof which change by itself or in conjunction with all other such changes,
whether or not arising in the ordinary course of business, has had or will
have a material adverse effect thereon.
2.10 Agreements and Commitments. Except as set forth on Exhibit 2.11
delivered to ITI-Nev herewith, neither Subsidiary has any contract, obligation
or commitment which is material to the business of the Subsidiaries. Neither
Subsidiary is in default in any material respect under any contract,
obligation or commitment listed on Exhibit 2.11 or that is otherwise material
to the business of the Subsidiaries.
2.11 Intellectual Property. The Subsidiaries own, or have the right to use,
sell or license all material Intellectual Property Rights as specified in
Exhibit 2.12 (as defined below) necessary or required for the conduct of their
respective businesses as presently conducted (such Intellectual Property
Rights being hereinafter collectively referred to as the "Subsidiary IP
Rights") and such rights to use, sell or license for such conduct of their
respective businesses. The Subsidiaries have taken reasonable and practicable
steps designed to safeguard and maintain the secrecy and confidentiality of,
and its proprietary rights in, all material Subsidiary IP Rights. All
officers, employees and consultants of the Subsidiaries have executed and
delivered to the Subsidiaries an agreement regarding the protection of
proprietary information and the assignment to the Subsidiaries of all
Intellectual Property Rights arising from the services performed for the
Subsidiaries by such persons. As used herein, the term "Intellectual Property
Rights" shall mean all worldwide industrial and intellectual property rights,
including, without limitation, patents, patent applications, patent rights,
trademarks, trademark applications, trade names, service marks, service mark
applications, copyright, copyright applications, franchises, licenses,
inventories, know-how, trade secrets, customer lists, pr~oprietary processes
and formulae, all source and object code, algorithms, architecture,
structure, display screens, layouts, inventions, development tools and all
documentation and media constituting, describing or relating to the above,
including, without limitation, manuals, memoranda and records. A list of
patents and trademarks is attached hereto as Exhibit 2.12 (the "Intellectual
Property List"). Corsa will not apply for, hold or maintain any patents in any
country with respect to any Intellectual Property Rights.
2.12 Compliance with Laws. Corsa and each of its Subsidiaries has complied,
or prior to the Closing Date will have complied, and is or will be at the
Closing Date in full compliance, in all material respects with all applicable
laws, ordinances, regulations, and rules, and all orders, writs, injunctions,
awards, judgments, and decrees applicable to it or to the assets, properties,
and business thereof (the violation of which would have a material adverse
effect upon its business), including, without limitation: (a) all applicable
federal and state securities
<PAGE>
laws and regulations, (b) all applicable federal, state, and local laws,
ordinances, regulations, and all orders, writs, injunctions, awards,
judgments, and decrees pertaining to (i) the sale, licensing, leasing,
ownership, or management of its owned, leased or licensed real or personal
property, products and technical data, (ii) employment and employment
practices, terms and conditions of employment, and wages and hours and (iii)
safety, health, fire prevention, envirorunental protection, toxic waste
disposal, building standards, zoning and other similar matters (c) the Export
Administration Act and regulations promulgated thereunder and all other laws,
regulations, rules, orders, writs, injunctions, judgments and decrees
applicable to the export or re-export of controlled commodities or technical
data and (d) the Immigration Reform and Control Act. Each of Corsa and the
Subsidiaries has received all permits and approvals from, and has made all
filings with, third parties, including government agencies and authorities,
that are necessary in connection with its present business. To the best of
Corsa's knowledge, there are no legal or administrative proceedings or
investigations pending or threatened, that, if enacted or determined adversely
to Corsa or any Subsidiary, would result in any material adverse change in
the present or future operations or financial condition thereof.
2.13 Corporate Documents. Corsa and the Subsidiaries have made available to
ITI-Nev for examination all documents and information listed in Exhibits 2.1
through 2.12 or other exhibits called for by this Agreement which have been
requested by ITI-Nev's legal counsel, including, without limitation, the
following: (a) copies of Articles of Incorporation and Bylaws as currently in
effect; (b) minute books containing all records of all proceedings, consents,
actions and meetings of directors, committees of the board of directors and
shareholders; (c) stock ledgers, journals and other records reflecting all
stock issuances and transfers; and (d) all permits, orders and consents issued
by any regulatory agency with respect to all securities, and all applications
for such permits, orders and consents.
2.14 No Brokers. Except for the fees and expenses payable by ITI-Nev to
Valor Invest in accordance with that certain letter agreement dated September
24, 1997, as amended April 3, 1998, neither Corsa nor any of the Corsa
shareholders is obligated for the payment of fees or expenses of any
investment banker, broker or finder in connection with the origin, negotiation
or execution of this Exchange Agreement or in connection with any transaction
contemplated hereby or thereby.
3. REPRESENTATIONS AND WARRANTIES OF ITI-Nev
ITI-Nev hereby represents and warrants, that, except as set forth on the
ITI-Nev disclosure letter (the "Disclosure Letter") attached as Exhibit 3 and
delivered to Corsa herewith:
3.1 Organization and Good Standing. ITI-Nev is a corporation duly organized,
validly existing and in good standing under the laws of the State of Nevada
and has the corporate power and authority to own, operate and lease its
properties and to carry on its business as now conducted and as proposed to be
conducted.
3.2 Capitalization. The authorized capital stock of ITI-Nev consists of
100,000,000 shares of Common Stock, $0.0001 par value, and 50,000,000 shares
of Preferred Stock, $0.0001 par value, of which 5,185,000 shares of Common
Stock are issued and
<PAGE>
outstanding. All issued and outstanding shares of ITI-Nev Common Stock have
been duly authorized and validly issued, are fully paid and nonassessable, are
not subject to any right of rescission, and have been offered, issued, sold
and delivered by ITI-Nev in compliance with all registration or qualification
requirements (or applicable exemptions therefrom) of applicable federal and
state securities laws. A list of all holders of ITI-Nev Common Stock and the
number of shares held by each has been delivered by ITI-Nev to Corsa herewith
as Exhibit 3.2. Except as set forth in this Section, there are no options,
warrants, calls, commitments, conversion privileges or preemptive or other
rights or agreements outstanding to purchase any of ITI-Nev's authorized but
unissued capital stock or any securities convertible into or exchangeable for
shares of ITI-Nev Common Stock or obligating ITI-Nev to grant, extend, or
enter into any such option, warrant, call, right, commitment, conversion
privilege or other right or agreement, and there is no liability for dividends
accrued but unpaid. There are no voting agreements, rights of first refusal
or other restrictions (other than normal restrictions on transfer under
applicable federal and state securities laws) applicable to any of ITI-Nev's
outstanding securities. At the Closing Date, ITI-Nev's capital structure will
reflect the Exchange with Corsa as follows: (a) ITI-Nev's original
stockholders will retain a 31 % ownership interest in ITI-Nev having ownership
of 5,185,000 shares of Common Stock, (b) Corsa will become 69% owner of
ITI-Nev having ownership of 11,486,000 shares of Common Stock, (c) 1,667,100
shares will be reserved for issuance under the 1998 Equity Incentive Plan for
employees and consultants, representing 10% of the total outstanding shares,
and (d) as shares are issued under the 1998 Equity Incentive Plan, each
stockholder shall be diluted proportionately.
3.3 Power, Authorization and Validity.
3.3.1 ITI-Nev has the corporate right, power, legal capacity and authority
to enter into and perform its obligations under this Agreement, and all
agreements to which ITI-Nev is or will be a party that are required to be
executed pursuant to this Agreement (the "ITI-Nev Ancillary Agreements"). The
execution, delivery and performance of this Agreement and the ITI-Nev
Ancillary Agreements have been duly and validly approved and authorized by
ITI- Nev's Board of Directors and shareholders.
3.3.2 No filing, authorization or approval, governmental or otherwise, is
necessary to enable ITI-Nev to enter into, and to perform its obligations
under, this Agreement and the ITI-Nev Ancillary Agreements, except for such
post-closing filings as may be required to comply with federal and state
securities laws.
3.3.3 This Agreement and the ITI-Nev Ancillary Agreements are, or when
executed by ITI-Nev will be, valid and binding obligations of ITI-Nev,
enforceable against ITI-Nev in accordance with their respective terms, except
as to the effect, if any, of (a) applicable bankruptcy and other similar laws
affecting the rights of creditors generally, and (b) rules of law governing
specific performance, injunctive relief and other equitable remedies;
provided, however, that the ITI-Nev Ancillary Agreements will not be
effective until the earlier of the Closing Date or the date provided for
therein.
3.4 No Violation of Certificate, Existing Agreements or Laws. Neither the
execution nor delivery of this Agreement or any ITI-Nev Ancillary Agreement.
nor the
<PAGE>
consummation of the transactions contemplated hereby or thereby, will conflict
with, or (with or without notice or lapse of time, or both) result in a
termination, breach, impairment or violation of (a) any provision of the
Articles of Incorporation or Bylaws of ITI-Nev, as currently in effect, or (b)
in any material respect, any contract that is material to ITI-Nev's business
or (c) any federal, state, local or foreign judgment, writ, decree, order,
statute or regulation applicable to and that would have a material adverse
effect on ITI-Nev or its assets or properties.
3.5 No Brokers. Except for the fees and expenses payable by ITI-Nev to
Valor Invest in accordance with that certain letter agreement dated September
24, 1997, as amended on April 3, 1998, ITI-Nev is not obligated for the
payment of fees or expenses of any investment banker, broker or finder in
connection with the origin, negotiation or execution of this Exchange
Agreement or in connection with any transaction contemplated hereby or
thereby.
3.6 ITI-Nev Financial Statements. ITI-Nev has delivered to Corsa as
Exhibit 3.6 ITI-Nev's audited balance sheet as of January 31, 1998, ITI-Nev's
audited income statement and cash flows since the date of incorporation
through January 31, 1998 and ITI-Nev's unaudited balance sheet as of April 30,
1998 (the "ITI-Nev Balance Sheet Date") and ITI-Nev's unaudited income
statement for the period from January 31, 1998 through April 30, 1998
(collectively, the "ITI-Nev Financial Statements"). The ITI-Nev Financial
Statements (a) are in accordance with the books and records of ITI-Nev and (b)
fairly and accurately represent the financial condition of ITI-Nev at the
respective dates specified therein and the results of operations for the
respective periods specified therein in conformity with generally accepted
accounting principles applied on a consistent basis (subject to normal year
end adjustments). Since the ITI-Nev Balance Sheet Date, ITI-Nev has not
incurred any debt, liability or obligation of any nature, whether accrued,
absolute, contingent or otherwise, and whether due or to become due, except
for those incurred in the ordinary course of ITI-Nev's business, consistent
with past practice that are not material in amount either individually or
collectively.
3.7 Litigation. There is no action, proceeding or investigation pending
or, to ITI-Nev's actual knowledge, threatened against ITI-Nev before any court
or administrative agency that, if determined adversely to ITI-Nev may
reasonably be expected to have a material adverse effect on the present or
future operations or financial condition of ITI-Nev or in which the adverse
party or parties seek to recover in excess of $ 10,000 against ITI-Nev. There
is no basis for any person, firm, corporation or entity to assert a claim
against ITI-Nev or Corsa as successor in interest to shares of ITI-Nev Common
Stock based upon: (a) ownership or rights to ownership of any shares of
ITI-Nev Common Stock, (b) any rights as an ITI-Nev securities holder,
including, without limitation, any option or other right to acquire any
ITI-Nev securities, any preemptive rights or any rights to notice or to vote,
or (c) any rights under any agreement between ITI-Nev and any ITI-Nev
securities holder or former ITI-Nev securities holder in such holder's
capacity as such.
3.8 Compliance with Laws. ITI-Nev has complied, or prior to the Closing
Date will have complied, and is or will be at the Closing Date in full
compliance, in all material respects with all applicable laws, ordinances,
regulations, and rules, and all orders, writs, injunctions, awards, judgments,
and decrees applicable to it or to the assets, properties, and business
thereof (the violation of which would have a material adverse effect upon its
business),
<PAGE>
including, without limitation: (a) all applicable federal and state securities
laws and regulations, (b) all applicable federal, state, and local laws,
ordinances, regulations, and all orders, writs, injunctions, awards,
judgments, and decrees pertaining to (I) the sale, licensing, leasing,
ownership, or management of its owned, leased or licensed real or personal
property, products and technical data, (ii) employment and employment
practices, terms and conditions of employment, and wages and hours and (iii)
safety, health, fire prevention, environmental protection, toxic waste
disposal, building standards, zoning and other similar matters (c) the Export
Administration Act and regulations promulgated thereunder and all other laws,
regulations, rules, orders, writs, injunctions, judgments and decrees
applicable to the export or re-export of controlled commodities or technical
data and (d) the Immigration Reform and Control Act. ITI-Nev has received all
permits and approvals from, and has made all filings with, third parties,
including government agencies and authorities, that are necessary in
connection with its present business. To the best of ITI-Nev's knowledge,
there are no legal or administrative proceedings or investigations pending or
threatened, that, if enacted or determined adversely to ITI-Nev, would result
in any material adverse change in the present or future operations or
financial condition thereof.
4. CORSA PRECLOSING COVENANTS
During the period from the date of this Agreement until the Closing Date,
Corsa covenants to and agrees with ITI-Nev as follows:
4.1 Conduct of Business. Corsa and the Subsidiaries will continue to
conduct their business and maintain their business relationships in the
ordinary and usual course.
4.2 Regulatory Approvals. Corsa will execute and file, join in the
execution and filing, of any application or other document that may be
necessary in order to obtain the authorization, approval or consent of any
governmental body, federal, state, local or foreign, which may be reasonably
required, or which ITI-Nev may reasonably request, in connection with the
consummation of the transactions provided for in this Agreement. Corsa
will use all reasonable efforts to obtain or assist ITI-Nev in obtaining all
such authorizations, approvals and consents.
4.3 Necessary Consents. Corsa will use its best efforts to obtain such
written consents and take such other actions as may be necessary or
appropriate for Corsa, in addition to those set forth in Section 4.5, to
facilitate and allow the consummation of the transactions provided for herein
and to facilitate and allow ITI-Nev to carry on the Subsidiaries business
after the Closing Date.
4.4 Access to Information. Until the Closing Date, and subject to the
terms and conditions hereof relating to the confidentiality and use of
confidential and proprietary information, Corsa and the Subsidiaries will
provide ITI-Nev and its agents with reasonable access to the files, books,
records and offices of Corsa and the Subsidiaries, including, without
limitation, any and all information relating to Corsa and the Subsidiaries
taxes, commitments, contracts, leases, licenses, real, personal and intangible
property, and financial condition, and specifically including, without
limitation, access to the Subsidiaries source code reasonably
<PAGE>
necessary for ITI-Nev to complete its due diligence review of the Corsa and
the Subsidiaries' products and technology. Corsa and the Subsidiaries will
cause its accountants to cooperate with ITI-Nev and its agents in making
available all financial information reasonably requested, including without
limitation the right to examine all working papers pertaining to all financial
statements prepared or audited by such accountants.
4.5 Satisfaction of Conditions Precedent. Corsa will use all reasonable
efforts to satisfy or cause to be satisfied all the conditions precedent which
are set forth in Section 8, and Corsa will use all reasonable efforts to cause
the transactions provided for in this Agreement to be consummated, and,
without limiting the generality of the foregoing, to obtain all consents and
authorizations of third parties and to make all filings with, and give all
notices to, third parties that may be necessary or reasonably required on its
part in order to effect the transactions provided for herein.
4.6 Consultation on Material Contracts. Prior to the Closing, Corsa and
the Subsidiaries agree to consult with ITI-Nev prior to any material
deviations from the business plans of Corsa or its Subsidiaries.
5. ITI-Nev PRECLOSING COVENANTS
During the period from the date of this Agreement until the Closing Date,
ITI-Nev covenants to and agrees with Corsa as follows:
5.1 Regulatory Approvals. ITI-Nev will execute and file, or join in the
execution and filing, of any application or other document that may be
necessary in order to obtain the authorization, approval or consent of any
governmental body, federal, state, local or foreign, which may be reasonably
required, or which Corsa may reasonably request, in connection with the
consummation of the transactions provided for in this Agreement. ITI-Nev
will use all reasonable efforts to obtain all such authorizations, approvals
and consents.
5.2 Satisfaction of Conditions Precedent. ITI-Nev will use all reasonable
efforts to satisfy or cause to be satisfied all the conditions precedent which
are set forth in Section 7, and ITI-Nev will use all reasonable efforts to
cause the transactions provided for in this Agreement to be consummated, and,
without limiting the generality of the foregoing, to obtain all consents and
authorizations of third parties and to make all filings with, and give all
notices to, third parties that may be necessary or reasonably required on its
part in order to effect the transactions provided for herein.
5.') Access to Information. Until the Closing Date, and subject to the
terms and conditions hereof relating to the confidentiality and use of
confidential and proprietary information, ITI-Nev will provide Corsa, the
Subsidiaries, and their agents with reasonable access to the files, books,
records and offices of ITI-Nev, including, without limitation, any and
all information relating to ITI-Nev taxes, commitments, contracts, leases,
licenses, real, personal and intangible property, and financial condition, and
specifically including, without limitation, access to all ITI-Nev information
reasonably necessary for Corsa to complete its due diligence review of the
ITI-Nev products and technology. ITI-Nev will cause its accountants to
cooperate with Corsa, the Subsidiaries, and its agents in making available all
financial information
<PAGE>
reasonably requested, including without limitation the right to examine all
working papers pertaining to all financial statements prepared or audited by
such accountants.
6. CLOSING MATTERS
6.1 The Closing. Subject to termination of this Agreement as provided in
Section 9 below, the closing of the transactions provided for herein (the
"Closing") will take place at the offices of Fenwick & West LLP, Two Palo Alto
Square, Palo Alto, California 94306 at 10:00 a.m., Pacific Time on or before
May 31 1998, or, if all conditions to Closing have not been satisfied or
waived by such date, such other place, time and date as Corsa and ITI-Nev may
mutually select (the "Closing Date").
6.2 Exchange of Certificates and Transfer of Shares
6.2.1 As of the Closing Date, all shares of Subsidiary Stock that are
outstanding immediately prior thereto will, by virtue of the Exchange and
without further action, will be converted into the right to receive from
ITI-Nev the number of shares of ITI-Nev Common Stock as set forth in Section
1. 1.
6.2.2 As soon as practicable after the Closing Date, Corsa will surrender
the certificates of all shares of ITI(Delaware) to ITI Nevada and will
transfer Fontech Ltd. Shares to ITI-Nev. Promptly following the Closing Date
and receipt of the Subsidiary Certificates, ITI-Nev will cause its transfer
agent to issue to Corsa the number of shares of ITI-Nev Common Stock to which
Corsa is entitled as provided in Section 1. 1.
6.2.3 All shares of ITI-Nev Common Stock as provided in Section 1. 1
delivered upon the surrender of Subsidiary Certificates in accordance with the
terms hereof will be delivered to Corsa. After the Closing Date, there will be
no further registration of transfers of the shares of Subsidiary Stock on the
stock transfer books of Corsa.
6.2.4 Until Subsidiary Certificates representing Subsidiary Stock
outstanding prior to the Exchange are surrendered pursuant to Section 6.2.2
above, such certificates will be deemed, for all purposes, to evidence
ownership of the number of shares of ITI-Nev Common Stock into which the
shares of Subsidiary Stock will have been exchanged.
7. CONDITIONS TO OBLIGATIONS OF CORSA
Corsa's obligations hereunder are subject to the fulfillment or satisfaction,
on and as of the Closing, of each of the following conditions (any one or more
of which may be waived by Corsa, but only in a writing signed on behalf of
Corsa by its President or Chief Financial Officer):
7.1 Accuracy of Representations and Warranties. The representations and
warranties of ITI-Nev set forth in Section 3 shall be true and accurate in
every material respect on and as of the Closing Date with the same force and
effect as if they had been made at the Closing.
<PAGE>
7.2 Compliance with Law. There shall be no order, decree, or ruling by any
court or governmental agency or threat thereof, or any other fact or
circumstance, which would prohibit or render illegal the transactions
contemplated by this Agreement.
7.3 Absence of Material Adverse Change. There shall not have been, in the
reasonable judgment of the Board of Directors of Corsa, any material adverse
change in the business or financial condition of ITI-Nev.
7.4 Government Consents. There shall have been obtained at or prior to the
Closing Date such permits or authorizations, and there shall have been taken
such other actions, as may be required to consummate the Exchange by any
regulatory authority having jurisdiction over the parties and the actions
herein proposed to be taken, including but not limited to satisfaction of all
requirements under applicable federal and state securities laws.
7.5 Documents. Corsa shall have received all written consents,
assignments, waivers, authorizations or other certificates reasonably deemed
necessary by Corsa's legal counsel to consummate the transactions provided for
herein.
7.6 Board of Directors. Subsequent to the Closing Date, ITI-Nev shall
approve an amendment to its Bylaws increasing the number of directors from
three (3) to seven (7). Of the initial seven Board seats, five (5) will be
elected by Corsa, and two (2) will be elected by ITI-Nev pursuant to the
Shareholder Agreement substantially in the form of Exhibit 7.6. (the
"Shareholder Agreement").
7.7 ITI-Nev Equity Incentive Plan. As of the Closing Date, ITI-Nev shall
approve and adopt an Equity Incentive Plan in a form reasonably acceptable to
Corsa's Counsel substantially in the form of Exhibit 7.7.
7.8 Employment and Confidentiality Agreements. ITI-Nev agrees to require
all key employees to enter into employment, confidentiality, and
non-competition agreements in a form acceptable to counsel for Corsa.
7.9 Requisite Approvals. The principal terms of this Agreement shall have
been approved and adopted by ITI-Nev shareholders, as required by applicable
law and ITI-Nev's Certificate of Incorporation and Bylaws, and by ITI-Nev's
Board of Directors.
8. CONDITIONS TO OBLIGATIONS OF ITI-Nev
The obligations of ITI-Nev hereunder are subject to the fulfillment or
satisfaction on, and as of the Closing, of each of the following conditions
(any one or more of which may be waived by ITI-Nev, but only in a writing
signed on behalf of ITI-Nev by its President or Chief Financial Officer):
8.1 Accuracy of Representations and Warranties. The representations and
warranties of Corsa and the Subsidiaries set forth in Section 2 shall be true
and complete in all material respects as of the Closing with the same force
and effect as if they had been made at the Closing.
<PAGE>
8.2 Compliance with Law. There shall be no order, decree, or ruling by any
court or governmental agency or threat thereof, or any other fact or
circumstance, which would prohibit or render illegal the transactions provided
for in this Agreement.
8.3 Government Consents. There shall have been obtained at or prior to the
Closing Date such permits or authorizations, and there shall have been taken
such other action, as may be required to consummate the Exchange by any
regulatory authority having jurisdiction over the parties and the actions
herein proposed to be taken, including but not limited to satisfaction of all
requirements under applicable federal and state securities laws.
8.4 Consents. ITI-Nev shall have received duly executed copies of all
material third-party consents, approvals, assignments, waivers, authorizations
or other certificates contemplated by this Agreement or the Corsa Disclosure
Letter or reasonably deemed necessary by ITI-Nev's legal counsel to provide
for the continuation in full force and effect of any and all material
contracts and leases of Corsa and the Subsidiaries and for ITI-Nev to
consummate the transactions contemplated hereby in form and substance
reasonably satisfactory to ITI-Nev, except for such thereof as ITI-Nev and
Corsa shall have agreed shall not be obtained, as contemplated by the Corsa
Disclosure Letter.
8.5 No Litigation. No litigation or proceeding shall be threatened or
pending for the purpose or with the probable effect of enjoining or preventing
the consummation of any of the transactions contemplated by this Agreement, or
which could be reasonably expected to have a material adverse effect on the
present or future operations or financial condition of Corsa or the
Subsidiaries.
8.6 Requisite Approvals. The principal terms of this Agreement shall have
been approved and adopted by Corsa shareholders, as required by applicable law
and Corsa's Certificate of Incorporation and Bylaws, and by Corsa's Board of
Directors.
8.7 Loan Conversion. Prior to the Closing, Corsa shall convert all loans
made to ITI-Del from debt into equity.
8.8 Loan Transfer. Optima Investments Limited, a Bahamian corporation, a
Fontech creditor, shall transfer all such Fontech debt to ITI-Del such that
ITI-Del is the creditor with respect to such debt.
8.9 Employment and Confidentiality Agreements. Corsa and the Subsidiaries
agree to require all key employees to enter into confidentiality and
non-competition agreements in a form acceptable to counsel for ITI-Nev.
8.10 Special Non-Competition and Exclusivity Agreements. Messrs. Arie
Halpern and Dr. Menachem Tassa agree to enter into non-competition agreements
providing that these individuals will not undertake to finance, or in the
future, compete directly or indirectly with the existing or contemplated
businesses of the Subsidiaries and their successor(s). The foregoing
obligations shall terminate with respect to each person three (3) years after
such person leaves ITI-Nev. Corsa, Mr. Yechiel Sharabi and Mr. Halpern agree
to enter into exclusivity agreements providing that both individuals agree not
to deal with any other investment banking
<PAGE>
firm, or financier in connection with ITI-Del and Fontech without prior
written consent from ITI-Nev.
9. Post-Closing Covenants.
9.1 Additional Financing. Following the Closing Date, ITI-Nev agrees to raise
an additional US$5,000,000 (the "Additional Financing") through the sale of
shares of ITI-Nev Common Stock.
9.2 Corsa will have a ninety day period following the Closing Date to perform
all necessary corporate actions to deliver or to cause delivery of all
necessary documents enumerated under sections 6 and 7 above.
10. TERMINATION OF AGREEMENT
10.1 Unless otherwise agreed by the parties hereto, this Agreement will be
terminated if all conditions to the Closing have not been satisfied or waived
on or before September 4, 1998.
11. SURVIVAL OF REPRESENTATIONS, INDEMNIFICATION
AND REMEDIES, CONTINUING COVENANTS
11.1 Survival of Representations. All representations, warranties and
covenants of each party contained in this Agreement will remain operative and
in full force and effect, regardless of any investigation made by or on behalf
of the parties to this Agreement, until the earlier of the termination of this
Agreement or three (3) years for each party after the Closing Date, whereupon
such representations, warranties and covenants will expire (except for
covenants that by their terms survive for a longer period).
11.2 Agreement to Indemnify. Subject to the limitations set forth in this
Section 11, the parties agree to indemnify and hold each other harmless
(hereinafter referred to individually as an "Indemnified Party") from and
against any and all claims, demands, actions, causes of actions, losses,
costs, damages, liabilities and expenses including, without limitation,
reasonable legal fees (reduced by any recovery under policies of insurance and
by any tax benefit accruing to the Indemnified Party as a result thereof
(hereinafter referred to as "Damages"):
(a) Arising out of any misrepresentation or breach of or default in
connection with any of the representations and warranties given or made by the
parties in this Agreement or any certificate, document or instrument delivered
by or on behalf of the parties pursuant hereto (other than with respect to
changes in the truth or accuracy of the representations and warranties of the
parties under this Agreement after the date hereof if either party has advised
the other of such changes in an update to Exhibit 2.0 or Exhibit 3.0 delivered
prior to the Closing and the Indemnified Party has nonetheless proceeded with
the Closing); and
<PAGE>
(b) Each party agrees that this Section I I constitutes the sole and
exclusive remedy available to either party with respect to any breach or
default in connection with any of the representations and warranties given or
made by the parties in this Agreement or any certificate, document or
instrument delivered by or on behalf of the parties pursuant hereto.
12. MISCELLANEOUS
12.1 Governing Law, Dispute Resolution. The internal laws of the State of
Nevada (irrespective of its conflicts of law principles) will govern the
validity of this Agreement, the construction of its terms, and the
interpretation and enforcement of the rights and duties of the parties hereto.
12.2 Assignment, Binding Upon Successors and Assigns. Neither party hereto
may assign any of its rights or obligations hereunder without the prior
written consent of the other party hereto. Any attempted assignment will be
void and of no effect. This Agreement will be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns.
12.3 Severability. If any provision of this Agreement, or the application
thereof, is for any reason held to any extent to be invalid or unenforceable,
the remainder of this Agreement and application of such provision to other
persons or circumstances will be interpreted so as reasonably to effect the
intent of the parties hereto. The parties further agree to replace such
unenforceable provision of this Agreement with a valid and enforceable
provision that will achieve, to the extent possible, the economic, business
and other purposes of the void or unenforceable provision.
12.4 Counterparts. This Agreement may be executed in counterparts, each of
which will be an original as regards any party whose name appears thereon and
all of which together will constitute one and the same instrument. This
Agreement will become binding when one or more counterparts hereof,
individually or taken together, bear the signatures of all parties
reflected hereon as signatories.
12.5 Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative
with and not exclusive of any other remedy conferred hereby or by law on such
party, and the exercise of any one remedy will not preclude the exercise of
any other.
12.6 Amendment and Waivers. Any term or provision of this Agreement may
be amended, and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only by a writing signed by the party to be bound thereby. The
waiver by a party of any breach hereof or default in the performance hereof
will not be deemed to constitute a waiver of any other default or any
succeeding breach or default. This Agreement may be amended by the parties
hereto at any time before or after approval of the Corsa or ITI-Nev
shareholders.
<PAGE>
12.7 No Waiver. The failure of any party to enforce any of the provisions
hereof will not be construed to be a waiver of the right of such party
thereafter to enforce such provisions.
12.8 Expenses. Each party will bear its respective expenses and fees of its
own accountants, attorneys, investment bankers and other professionals
incurred with respect to this Agreement and the transactions contemplated
hereby.
12.9 Attorneys' Fees. Should suit be brought to enforce or interpret any part
of this Agreement, the prevailing party will be entitled to recover, as an
element of the costs of suit and not as damages, reasonable attorneys' fees to
be fixed by the court (including without limitation, costs, expenses and fees
on any appeal). The prevailing party will be entitled to recover its costs of
suit, regardless of whether such suit proceeds to final judgment.
12. 10 Notices. Any notice or other communication required or permitted to be
given under this Agreement will be in writing, will be delivered personally or
by mail or express delivery, postage prepaid, and will be deemed given upon
actual delivery or, if mailed by registered or certified mail, on the third
business day following deposit in the mails, or by fax, addressed as follows:
(I) If to ITI-Nev:
InfoImaging Technologies, Inc.
11300 W. Olympic Boulevard, Suite 800
Los Angeles, California 90062
with a copy to:
Mr. Ross Wilmot
International Portfolio Management
1075 West Georgia Street, Suite 1300
Vancouver, B.C. Canada, V6E 3C9
(ii) If to Corsa:
Corsa S.A. Holdings
8, rue Notre Dame,
L-2240, Grand Duchy of Luxembourg.
with a copy to:
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, CA 94306
Attention: Fred M. Greguras
Phone: (650) 858-7241
Fax: (650) 494-1417
<PAGE>
or to such other address as the party in question may have furnished to the
other party by written notice given in accordance with this Section 11.9.
12. 10 Construction of Agreement. The language hereof will not be construed
for or against either party. A reference to an article, section or exhibit
will mean an article or section in, or an exhibit to, this Agreement, unless
otherwise explicitly set forth. The titles and headings in this Agreement are
for reference purposes only and will not in any manner limit the construction
of this Agreement. For the purposes of such construction, this Agreement will
be considered as a whole.
12.11 No Joint Venture. Nothing contained in this Agreement will be deemed or
construed as creating a joint venture or partnership between the parties
hereto. No party is by virtue of this Agreement authorized as an agent,
employee or legal representative of any other party. No party will have the
power to control the activities and operations of any other, and the parties'
status is, and at all times, will continue to be, that of independent
contractors with respect to each other. No party will have any power or
authority to bind or commit any other. No party will hold itself out as having
any authority or relationship in contravention of this Section.
12.12 Further Assurances. Each party agrees to cooperate fully with the other
party and to execute such further instruments, documents and agreements and to
give such further written assurances as may be reasonably requested by the
other party to evidence and reflect the transactions provided for herein and
to carry into effect the intent of this Agreement.
12.13 Absence of Third Party Beneficiary Rights. No provisions of this
Agreement are intended, nor will be interpreted, to provide or create any
third party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, partner or employee of any party hereto or any other
person or entity, unless specifically provided otherwise herein, and,
except as so provided, all provisions hereof will be personal solely between
the parties to this Agreement.
12.14 Confidentiality. Except as expressly authorized by ITI-Nev in writing,
Corsa will not directly or indirectly divulge to any person or entity or use
any ITI-Nev Confidential Information, except as required for the performance
of its duties under this Agreement. Except as expressly authorized by Corsa in
writing, ITI-Nev will not directly or indirectly divulge to any person or
entity or use any Corsa Confidential Information, except as required for the
performance of its duties under this Agreement. As used herein, "ITI-Nev
Confidential Information" consists of (a) any information designated by
ITI-Nev as confidential whether developed by ITI-Nev or disclosed to ITI-Nev
by a third party, (b) the source code to any ITI-Nev software and any trade
secrets relating to any of the foregoing, and (c) any information relating to
ITI-Nev's product plans, product designs, product costs, product prices,
product names, finances, marketing plans, business opportunities, personnel,
research development or know-how. As used herein, "Corsa Confidential
Information" consists of (x) any information designated by Corsa as
confidential whether developed by Corsa or disclosed to Corsa by a third
party, (y) the source code to any Corsa software, and any trade secrets
related to any of the foregoing, and (z) any information relating to Corsa
product plans, product designs, product costs, product prices, product names,
finances, marketing plan, business opportunities,
<PAGE>
personnel, research, development or know-how. "ITI-Nev Confidential
Information" and "Corsa Confidential Information" also include the terms and
conditions of this Agreement. The foregoing restriction will apply to
information about a party whether or not it was obtained from such party's
employees, acquired or developed by the other party during such other party's
performance under this Agreement, or otherwise learned. The foregoing
restrictions will not apply to information that (I) has become publicly known
through no wrongful act of the receiving party, (ii) has been rightfully
received from a third party authorized by the party which is the owner,
creator or compiler to make such disclosure without restriction, (iii) has
been approved or released by written authorization of the party which is the
owner, creator or compiler, or (iv) is being or has theretofore been disclosed
pursuant to a valid court order after a reasonable attempt has been made to
notify the party which is the owner, creator or compiler.
12.15 Entire Agreement. This Agreement, the exhibits hereto and the
accompanying letter from ITI-Nev regarding Corsa employees constitute the
entire understanding and agreement of the parties hereto with respect to the
subject matter hereof and supersede all prior and contemporaneous agreements
or understandings, inducements or conditions, express or implied, written or
oral, between the parties with respect to the subject matter hereof. The
express terms hereof control and supersede any course of performance or
usage of trade inconsistent with any of the terms hereof.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
INFOIMAGING TECHNOLOGIES, INC. CORSA S.A. Holdings
By:/s/ A. Nazerali By: /s/ Y. Sharabi
Name: Altaf Nazerali Name: Yechiel Sharabi
Title: President Title: Director
[SIGNATURE PAGE TO EXCHANGE AGREEMENT]
<PAGE>
EXHIBITS
Exhibit 1.3 Certificate of Incorporation and
Articles of InfoImaging
Technologies Inc.
Exhibit 1.6A ITI-Nev Officers' Certificates
Exhibit 1.6B Corsa Officers' Certificates
Exhibit 2 Corsa Disclosure Letter
Exhibit 2.2.1 Corsa Board Approval
Exhibit 2.7 Subsidiary Financial Statements, including Unaudited
Balance Sheet, Income Statement
Exhibit 2.11 Agreements and Commitments
Exhibit 2.12 Intellectual Property List
Exhibit 3 ITI-Nev Disclosure Letter
Exhibit 3.2 ITI-Nev List of Stockholders
Exhibit 3.6 ITI-Nev Unaudited Financial Statements, including Unaudited
Balance Sheet, Income Statement
Exhibit 7.6 Shareholder Agreement
Exhibit 7.7 ITI-Nev 1998 Equity Incentive Plan
INFOIMAGING TECHNOLOGIES, INC.
CONSULTING AGREEMENT
THIS AGREEMENT is made as of March 1, 1999.
BETWEEN:
InfoImaging Technologies, Inc., 1408 Pawnee Dr., Las Vegas Nevada, USA, 89109
(the "Company")
AND:
Pensbreigh Holdings Ltd., a company constituted in accordance with the laws of
Barbados, having its registered office at Chancery House, High Street,
Bridgetown, Barbados, (the " Consultant")
WHEREAS:
(A) The Consultant is an independent contractor engaged in the business of
providing various corporate and consulting services to business ventures;
(B) The Company wishes to engage the services of the Consultant;
(C) The parties have mutually agreed to evidence the terms of the consultant's
service to the Company by this Agreement;
WITNESS that in consideration of the respective covenants and agreements herein
contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by each party, the parties mutually
agree as follows:
<PAGE>
PART I
INTERPRETATION
1.1 For all purposes of this Agreement, except as otherwise expressly provided
or unless the context otherwise requires,
(a) "this Agreement" means this agreement for services from time to time
supplemented or amended by one or more agreements entered into pursuant to the
applicable provisions hereof,
(b) the words "herein", "hereof' and "hereunder" and other words of similar
import refers to this Agreement as a whole and not to any particular paragraph,
subparagraph or other subdivision,
(c) all references to currency mean United States currency, unless otherwise
specified,
(d) a reference to an entity includes any entity that is a successor to such
entity,
(e) a reference to a Part is to a part of this Agreement, and the symbol S
followed by a number or some combination of numbers and letters refers to the
section, paragraph, subparagraph, clause or sub-clause of this Agreement so
designated,
(f) the headings are for convenience only and are not intended as a guide to
interpretation of this Agreement or any portion hereof, and
(g) a reference to a statute includes all regulations made pursuant thereto,
all amendments to the statute or regulations in force from time to time, and any
statute or regulation, which supplements or supersedes such statute or
regulations.
PART 2
ENGAGEMENT
Engagement
2.1 The Company hereby retains the Consultant to provide services to the
Company and the Consultant hereby agrees to be so retained, upon and subject to
the terms and conditions hereinafter set forth for the duration of this
Agreement.
<PAGE>
Term
2.2 This Agreement will extend for 36 months unless renewed or terminated as in
the manner provided for under this Agreement. The term of such Agreement will be
renewed, on the same terms and conditions set out herein, for successive 12
month periods if
(a) 90 days before the expiry of such term the Company has not exercised its
rights under Part 6 to terminate this Agreement, and
(b) 60 days before the expiry of such term the Consultant gives the Company
notice of his desire to renew the term for an additional 12 months.
The initial 36-month term will commence on the date of this Agreement and will
expire on October 1, 2001
Term of Reference
The Company engages the Consultant to perform the following services (the
"Consulting Services")
(a) to advise and assist the with the development and operation of the
communications business to be carried on the Company or any of its direct or
indirect subsidiaries;
(b) to advise the Company on business trends, trade customs and economic,
political and regulatory conditions in Designated Areas;
(c) to assist the Company in identifying and, at the request of the Company,
conducting preliminary research on and negotiating with potential partners in
the Designated Areas;
(d) to provide such other services as may reasonably be requested by the Company
from time to time.
PART 3
COMPENSATION
Fee
3.1 For the first 12 months of this Agreement, the Consultant will receive a
monthly fee of $16,666.66 (the "Fee"). The Consultant shall submit an invoice
covering services rendered during each monthly period, together with other
supporting, documents, which
<PAGE>
may be required from time to time by the Company. Upon verification of the
Consultant's invoice, the Company shall make payment in full on a monthly basis
in arrears.
Increase of Fee
3.2 The Fee will be increased, but never decreased, on the first and each
subsequent anniversary date of the commencement of the obligation of the Company
to pay the same by adding to the Fee an amount that is the percentage of the Fee
then being paid which is equal to the percentage increase during the preceding
12 month period in the Consumer Price Index (all items for the Greater Vancouver
area as published by Industry Canada (or any successor index).
Expenses
3.3 The Company will reimburse The Consultant for all reasonable travel
expenses, including car rentals, food and lodging and sundry expenses, and all
other reasonable expenses incurred in connection with him providing service
hereunder to the Company promptly on receiving all appropriate and complete
vouchers or receipts.
Review
3.4 At the end of the first anniversary of this Agreement and annually
thereafter, the Compensation Committee of the Company will carry out an
objective review of the compensation provided herein with regards to any
developments within the Company provided herein with regards to any developments
within the company and, if warranted, the Fee may be increased (but not
decreased).
PART 4
NEGATIVE COVENANTS
Non-Competition
4.1 Without the consent of the Company, The Consultant will not, during the
term of this Agreement and for a period of one year after the termination of
this Agreement, whether directly or indirectly, either individually or in
partnership or in conjunction with any person or persons, fin-n, association,
syndicate, joint venture, partnership, company or corporation as principal,
agent, or shareholder or in any other manner whatsoever, (a) engage in any
business (directly or through any kind of ownership or other arrangement other
than ownership of securities of publicly held corporations), (b) accept
employment
<PAGE>
with, (c) provide services to, or (d) carry on, be engaged in, concerned with or
interested in any person or persons, firm, association, syndicate, joint
venture, partnership, company or corporation engaged in, concerned with or
interested in any business primarily involved in similar activities in any
country in which InfoImaging operates, or is actively considering, or take any
other action inconsistent with the relationship of a senior executive to his
corporation.
4.2 Subject to the limitation contained in 4.1, 4.3 and 4.4, the Consultant may
make investments for its own account and in any business or enterprise
whatsoever.
Non- Solicitation of Customers and Employees
4.3 The Consultant shall not, without the specific prior written consent of the
Board, during the term of this Agreement and for a period of one year after the
termination of the Agreement, either on its own behalf or on behalf of any other
person, solicit the services of or entice away any person employed by or
otherwise providing services to the other Company or its direct or indirect
subsidiaries to transfer business to any other person. However, nothing herein
will prevent the Consultant from continuing to carry on personal activities with
employees of the Company to the extent that such activities were ongoing at the
date of the Agreement.
Notice of Conflict
4.4 If the Board determines that The Consultant is engaging in conflicting
activity and causes the Consultant to be so advised in writing, The Consultant
will thereafter discontinue such activity within 90 days after such notice, or
such longer period as the Board agrees, and The Consultant will, within such
90-day period, certify in writing to the Company that he has discontinued such
activity.
Survival
4.5 The obligations of the Consultant under 4.1 and 4.3 shall, except as
otherwise provided, herein, survive the expiration or termination of this
Agreement and shall terminate one year after the termination of this Agreement.
PART 5
DUTIES OF THE CONSULTANT
Duties
5.1 Unless otherwise agreed to by the Company, the Consultant shall retain
Mr. Altaf Nazerali ("Nazerali") to perform the consulting Services and shall not
delegate or
<PAGE>
subcontract the performance of any Consulting Service to any other Person (as
hereinafter defined) except Arie Halpern. For the purposes of this Agreement,
"Person" includes, without limitation, any individual, firm, corporation,
association, partnership, joint venture, consortium, trust or other entity.
5.2 The Consultant shall cause and direct that Nazerali shall devote such
amount of his time to the Company as may be necessary to enable the Consultant
to properly and efficiently discharge its duties under this Agreement, except
such time required by Nazerali to discharge his existing, commitments to (I) the
Consultant in relation to an agreement between the Consultant and Multivision
Communications Corp. dated June 30, 1996 and (ii) as a director of other
business, and, in discharging such duties, shall direct Nazerali to use his best
efforts at all times on behalf of the Consultant.
5.3 The Consultant agrees to keep the Company informed as to the status and
particulars of its activities under this Agreement. The Consultant shall provide
monthly written reports and such other written and oral reports, analyses,
advice and other information as may be requested from time to time by the
Company.
5.4 The Consultant shall be responsible for the manner in which its work is
completed, for the methods used in completing its work, and for all acts,
omissions and things done or made in the performance (or nonperformance) of the
Consultants obligations, including those of its shareholders and other persons
used by the Consultant. Nothing contained in this Agreement shall operate or be
construed to relieve the Consultant of any duties or obligations imposed upon it
as an independent contractor.
Relationship of Parties
5.5 The Consultant in performing its duties hereunder is acting, as an
independent contractor, and Nazerali, in providing the Consulting Service, shall
not be considered an employee of the Company and, as such, entitled to any
benefit plans to which regular employees of the Company are entitled. The
Consultant hereby acknowledges that it is responsible for remitting, its own
taxes and any contributions required by law to be remitted and the Company shall
have no responsibility in respect of any failure by the Consultant to properly
remit such amounts when due, and the Consultant agrees to indemnify and save the
Company harmless from and against assessments, losses or penalties actually
incurred by the Company in this respect.
5.6 The Consultant shall not, without the prior written consent of the
Corporation, use the name of the Corporation nor the relationship arising out of
this Agreement in any manner during or after the term hereof in any materials
advertising or promoting the Consultant or otherwise.
<PAGE>
Confidential Information
5.7 The Consultant hereby covenants, agrees and acknowledges as follows:
(a) The Consultant has and will have access to and will participate in the
development of or be acquainted with confidential or proprietary information and
trade secrets related to the business of the Company, its subsidiaries and
affiliates (collectively, the "Companies"), including but not limited to
(I) business plans, operating, plans, marketing plans, financial reports,
operating data, budgets, wage and salary rates, pricing strategies and
information, terms of agreements with suppliers or customers and others,
customer lists, patents, devices, software programs, reports, correspondence,
tangible property and specifications owned by or used in the businesses of one
or more of the Companies,
(ii) information pertaining to future developments such as, but not limited to,
research and development, future marketing, distribution, delivery or
merchandising plans or ideas, and potential new business locations, and
(iii) other tangible and intangible properties, which are used in the business
and operations of the Companies but not made publicly available.
The information and trade secrets relating to the business and operations of the
Companies described hereinabove in this paragraph (a) are hereinafter referred
to collectively as the "Confidential Information", provided that the term
Confidential Information shall not include any information (x) that is or
becomes generally publicly available (other than as a result of violation of
this Agreement by the Consultant) or (y) that the Consultant receives on a non-
confidential basis from a source (other than the Company, its affiliates or
representatives) that is not known by it to be bound by an obligation of secrecy
or confidentiality to the Companies or any of them.
(b) The Consultant hereby assigns to the Company, in consideration of its
engagement, all Confidential Information developed by or otherwise in the
possession of the Consultant at any time during the term of this Agreement,
whether or not made or conceived during working hours, alone or with others,
which relates to businesses or proposed businesses of any of the Companies, and
the Consultant agrees that all such Confidential Information shall be the
exclusive property of the Companies. Upon request of the Board of Directors of
the company, the Consultant shall execute and deliver to the Companies any
specific assignments or other documents appropriate to vest title in such
Confidential Information
(c) The Consultant shall not disclose, use or continue to make known for his or
another's
<PAGE>
benefit any Confidential Information or use such Confidential Information in any
way except in the best interests of the Companies in the performance of the
Consultant's duties under this Agreement. The Consultant may disclose
Confidential Information when required by applicable law or judicial process,
but only after notice to the Company of the Consultant's intention to do so and
opportunity for the Company to challenge or limit the scope of the disclosure.
(d) The Consultant acknowledges and agrees that a remedy at law for any breach
or threatened breach of the provisions of this S5.7 would be inadequate and,
therefore, agrees that the Companies shall be entitled to injunctive relief in
addition to any other available rights and remedies in case of any such breach
or threatened breach; provide , however, that nothing contained herein shall be
construed as prohibiting the Companies from pursuing any other rights and
remedies available for such breach or threatened breach.
(e) The Consultant agrees that upon termination of its engagement by the
Company for any reason, the Consultant shall forthwith return to the Company all
Confidential Information, documents, correspondence, notebooks, reports,
computer programs and all other materials and copies thereof (including computer
discs and other electronic media) relating in any way to the business of the
Companies in any way developed or obtained by the Consultant during, the period
of its engagement with the Company.
(f) The Consultant agrees that for a period of one year after the termination of
this Agreement not to pursue any business opportunities that were developed or
evaluated at the Company during his tenure at the Company, except such business
opportunities which have been declined by the Company.
(g) The obligations of the Consultant under this S5.7 shall, except as
otherwise provided, survive the expiration or termination of this Agreement and
shall terminate one year after the termination of this Agreement.
(h) The Consultant hereby expressly agrees that the foregoing provisions of
this S5.7 shall be binding upon the Consultant's heirs, successors and legal
representatives.
PART 6
TERMINATION
Termination by Either Party
6.1 Either party may terminate this Agreement on notice given not less than, in
the case of the Company, 90 days or, in the case of the Consultant, 60 days
before the end of the
<PAGE>
initial 36 month term or any renewal term, in which case, the Consultant will
have no benefit of the provisions under this Part 6. Notwithstanding any
provision herein, the Company will be entitled to terminate this Agreement for
cause or for any breach by the Consultant of any material covenant of this
Agreement, in which case the Consultant will have no benefit of the provisions
under this Part 6.
Termination Allowance
6.2 If this Agreement is terminated by the Company other than as provided for
in S6. 1, on the effective date of such termination the Consultant will be paid
an amount equal to the total of all payments that would have been made to the
Consultant as both the Fee and the Bonus from such effective date of termination
to the end of the current term or renewal term, as the case may be, of this
Agreement
Affect of Other Engagements
6.3 The obligation of the Company to make payment as provided in S6.2, win not
be affected by, and the amount of any such payment will not be reduced by virtue
of, the Consultant engaging in business on its own behalf or with others (except
to the extent same is in conflict with S4.1 or 4.3), at any time after
termination hereunder.
Election by the Consultant
6.4 The Consultant may by notice to the Company elect to take the termination
allowance to which it is entitled under S6.2 in a lump sum payment, or in
installments over such period as it may specify.
Rights of the Consultant Cumulative
6.5 The rights, powers and remedies of the Consultant provided in this
Agreement are cumulative and do not affect any right, power of remedy otherwise
available to the Consultant at law or in equity.
Return of Property
6.6 On the effective date of termination the Consultant will deliver up to the
Company, in a reasonable state of repair, all property, both real and personal,
including documents and copies thereof, owned, leased or bailed to the Company
and used by or in the possession of the Consultant.
<PAGE>
PART 7
LIABILITY
Liability
7.1 The Company assumes no responsibility to third parties for any costs,
losses, damages, claims or liability of whatever nature resulting from any act
or omission in the performance of the Consulting Services by the Consultant or
by Nazerali. The Consultant shall assume all risks related to the execution of
all obligations arising, under this Agreement and shall defend indemnify and
save harrnless the Company from all liabilities, suits, actions, losses, costs
(including reasonable attorneys fees), damages, claims and demands arising out
of such execution (or inexecution) or resulting from its acts or omissions.
7.2 Notwithstanding S7.1, if the Consultant or any of its officers, directors
or employees is or is threatened to be joined as a defendant in legal
proceedings with the Company in respect of a matter that does not primarily
arise out of an act or omission of the Consultant or the execution by the
Consultant of any obligation under the Agreement, the Company shall indemnify
and save the Consultant harmless from all liabilities, suits, actions, losses,
costs (including reasonable attorney fees), damages, claims and demands arising
out of or pertaining to such actual or threatened joinder.
PART 8
GENERAL
Reasonableness of Restrictions and Covenants
8.1 The Consultant confirms and agrees that the covenants and restrictions
pertaining to the Consultant contained in this Agreement, including, without
limitation, those contained in S4.1 and 4.3, are reasonable and valid and hereby
further acknowledges and agrees that the Company would suffer irreparable injury
in the event of any breach by the Consultant of its obligations under any such
covenant or restriction. Accordingly, the Consultant hereby acknowledges and
agrees that damages would be an inadequate remedy at law in connection with any
such breach and that the Company shall be entitled, in addition to any other
right or remedy which it may have at law, in equity or otherwise, to temporary
and permanent injunctive relief enjoining and restraining the Consultant from
any such breach.
Set-off
8.2 The Consultant hereby authorizes the Company to set off against any amounts
<PAGE>
payable to the Consultant hereunder any bona fide indebtedness of the Consultant
to the Company with respect to this Agreement that has been recorded on the
books and records of the Company and of which the Consultant has been given
written notice of and to make deductions and to retain any portions of such
payments to satisfy any such indebtedness, to the extent permitted by law.
Further Assurances
8.3 Each party will, at its own expense and without expense to any other party,
execute and deliver such further agreements and other documents and do such
further acts and things as any other party reasonably requests to evidence,
carry out or give full force and effect to the intent of this Agreement.
Assignment
8.4 Neither of the parties may assign any right, benefit or interest in this
Agreement without the written consent of the other, and any purported assignment
without such consent will be void.
Severability
8.5 If any provision of this Agreement is unenforceable or invalid for any
reason it will be severable from the remainder of this Agreement and, in its
application at that time, this Agreement will be construed as though such
provision was not contained herein and the remainder will continue in full force
and effect and be construed as if this Agreement had been executed without the
invalid or unenforceable provision.
Waiver and Consent
8.6 No consent or waiver, express or implied, by any party to or of any breach
or default by any other parry of any or all of its obligations under this
Agreement will
(a) be valid unless it is in writing and stated to be a consent or waiver
pursuant to this section,
(b) be relied upon as a consent to or waiver of any other breach or default of
the same or any other obligation,
(c) constitute a general waiver under this Agreement, or
(d) eliminate or modify the need for a specific consent or waiver pursuant to
this section in any other or subsequent instance.
<PAGE>
Notice
8.7 Every notice, request, demand or direction (each, for the purposes of this
section, a "notice") to be given pursuant to this Agreement by any party to
another will be in writing and will be delivered or sent by registered or
certified mail postage prepaid and mailed in any government post office or by
telex, telegram, cable, or other similar form of written communication, in each
case, addressed as applicable as follows:
<PAGE>
If to the Consultant at:
Chancery House
High Street
Bridgetown, Barbados
Telecopier: (604) 684-4691
Attention: Corporate Secretary
If to the Company at:
1408 Pawnee Dr.
Las Vegas, Nevada USA 89109
Telecopier:
Attention: Corporate Secretary
or to such other address as is specified by the particular party by notice to
the other.
8.8 Any notice delivered or sent in accordance with S8.6 will be deemed to have
been given and received
(a) if delivered, on the day of delivery,
(b) if mailed, on the earlier of the day of receipt and the sixth business day
after the day of mailing, or
(c) if sent by telex, telegram cable or other similar form of written
communication, on the first business day following the day of transmittal.
8.9 If a notice is sent by mail and mail service is interrupted between the
point of mailing and the destination by strike, slowdown, force majeure or other
cause within two days before or after the time of mailing, the notice will not
be deemed to be received until actually received, and the party sending the
notice will use any other service which has not been so interrupted or will
deliver the notice in order to ensure prompt receipt.
Binding Effect
8.10 This Agreement will ensure to the benefit of and be binding upon the
respective legal representatives, successors and permitted assigns of the
parties.
Time of Essence
8.11 Time is of the essence in the performance of each obligation under this
Agreement.
<PAGE>
Governing Law
8.12 This Agreement shall be governed by and construed in accordance with the
laws of the State of Nevada.
Counterparts
This Agreement may be executed in any number of counterparts with the same
effect as if all parties to this Agreement had signed the same document and all
counterparts will be construed together and will constitute and the same
instrument.
IN WITNESS WHEREOF the parties hereto have executed this Agreement effective as
of the day and year first above-written.
PENSBREIGH HOLDINGS LTD.
Per: /s/ A. Nazerali
-------------------
Name: Altaf Nazerali
Title: President
INFOIMAGING TECHNOLOGIES INC.
Per: /s/ R. Wilmot
Name: Ross Wilmot
Title: Vice President, Finance
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Intacta Technologies Inc.
We hereby consent to the use in the prospectus constituting a part of this
Registration Statement of our report dated April 14, 2000 relating to the
consolidated financial statements of Intacta Technologies Inc., which is
contained in that Prospectus. Our report contained an explanatory paragraph
regarding the Company's ability to continue as a going concern.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO Seidman, LLP
Atlanta, Georgia
April 25, 2000
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Intacta Technologies Inc.
We hereby consent to the use in the prospectus constituting a part of this
Registration Statement of our report dated February 20, 1998, relating to the
combined financial statements of Intacta Delaware Inc. (formerly ITI
InfoImaging Inc.) and Intacta Labs, Ltd. (formerly Fontech Ltd.) for the year
ended December 31, 1997, which is contained in that Prospectus. Our report
contained an explanatory paragraph regarding the Company's ability to continue
as a going concern.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ Meredith, Cardozo, Lanz & Chiu, LLP
San Jose, California
April 25, 2000
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Intacta Technologies Inc.
We hereby consent to the use in the prospectus constituting a part of this
Registration Statement of our report dated February 12, 1998, March 16, 1999
and April 12, 2000 relating to the financial statements of Intacta Labs, Ltd.
(formerly Fontech Ltd.), which is contained in that Prospectus. Our reports
contained an explanatory paragraph regarding the Company's ability to continue
as a going concern.
We also consent to the reference to us under the caption "Experts" in the
Prospectus
/s/ Penini & Penini, C.P.A. (ISR)
Ramat-Gan, Israel
April 25, 2000
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