As filed with the Securities and Exchange Commission on May 18, 2000. File
No. 333-30400
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 4
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 (I.R.S. Employer
incorporation or organization)Industrial Classification Identification No.)
Code Number)
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, (Name, address, including zip
and telephone number, including code, and telephone number,
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. [ ]
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 Registration Statement on such date or dates
as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
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
May 18, 2000
8,841,000
INTACTA TECHNOLOGIES INC.
Common Stock
8,841,000
This is a public offering of 8,841,000 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..............................................F-1
<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 ................ 8,841,000 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
<TABLE>
Years Ended Quarters Ended
December 31, December 31, December 31, December 31, March 31, March 31,
1996 1997 1998 1999 1999 2000
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales $ 1,019,600 $ 894,900 $ 137,800 $ 137,400 $ 59,500 $ 153,600
Loss from operations (1,958,400) (1,455,900) (2,914,500) (3,733,500) (719,800) (784,000)
Net loss (2,529,800) (2,199,700) (3,145,800) (3,617,600) (722,100) (766,700)
Basic and diluted loss per
common share (0.22) (0.19) (0.19) (0.20) (0.04) (0.04)
Book and diluted weighted
average common shares
outstanding 11,486,000 11,486,000 16,701,583 17,790,000 17,671,000 11,790,000
</TABLE>
As of As of
December 31, 1999 March 31, 2000
Balance Sheet Data:
Cash and cash equivalents $ 917,400 $ 796,400
Working capital 574,100 171,600
Total assets 1,570,900 1,396,000
Long-term obligations 0 0
Total shareholders' equity 841,500 418,800
- -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 Executive
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 result of our recurring loses, our independent auditors
modified their opinion on our 1999 financial statements and in the two
preceding years to include an explanatory paragraph expressing substantial
doubt about our ability to continue as a going concern.
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.
- -6-
<PAGE>
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:
- - 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 Executive 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 Executive 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
and 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 4 months to
meet operating expenses.
Our management anticipates that we will need to raise at least $1.5 million
during the next 4 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 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. 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 and
March 31, 2000:
December 31, March 31, 2000
1999
Cash and cash equivalents $ 917,400 $ 796,400
========== ==========
Long-term obligations, less current portion 0 0
---------- ----------
Shareholders' equity:
Preferred stock, undesignated,
$0.0001 par value; 50,000,000 shares
authorized; no shares issued and
outstanding 0 0
Common stock, $0.0001 par value,
100,000,000 shares authorized,
17,909,000 issued and outstanding 1,791 1,791
Additional paid-in capital 19,710,553 19,821,506
Accumulated deficit (17,671,200) 18,437,900
Unamortized stock compensation (1,199,644) (966,597)
---------- ----------
Total shareholders' equity (deficit) 841,500 418,800
---------- ----------
Total capitalization $ 841,500 $ 418,800
========== ==========
- -14-
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 of Number of
Name Shares Shares Shares After Before the After the
Owned Owned Sale (1) Offering Offering
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% -
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.
(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.
- -15-
<PAGE>
(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.
<TABLE>
Year Ended December 31, Quarter Ended March 31,
Statement of Operations Data: 1996 1997 1998 1999 1999 2000
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 1,019,600 $ 894,900 $ 137,800 $ 137,400 $ 59,500 $ 153,600
Operating Expenses:
Cost of products and
components 514,100 357,500 336,300 90,500 -- 72,100
Research and development 331,900 343,200 903,500 1,047,400 265,500 300,400
Sales and marketing 526,800 297,000 113,100 113,200 2,500 215,900
General and administrative 1,605,200 1,353,100 1,699,400 2,619,800 514,000 349,200
---------- ---------- ---------- ---------- ---------- ----------
Total operating expenses 2,978,000 2,350,800 3,052,300 3,870,900 809,000 937,600
---------- ---------- ---------- ---------- ---------- ----------
Loss from operatins (1,958,400) (1,455,900) (2,914,500) (3,733,500) (719,800) (784,000)
Interest income (expense) (578,700) (755,300) (210,000) 95,300 29,700 18,200
Taxes 7,300 11,500 (21,300) (20,600) (2,300) (900)
---------- ---------- ---------- ---------- ---------- ----------
Net loss $(2,529,800) $(2,199,700) $(3,145,800) $(3,617,600) $ (722,100) $ (766,700)
========== ========== ========== ========== ========== ==========
Basic and diluted net loss
per common share (0.22) $ (0.19) $ (0.19) $ (0.20) $ (0.04) $ (0.04)
========== ========== ========== ========== ========== ==========
Basic and diluted weighted
average common shares
outstanding 11,486,000 11,486,000 16,701,583 17,790,000 17,671,000 17,790,000
========== ========== ========== ==========
</TABLE>
<TABLE>
As of
As of December 31, March 31,
1996 1997 1998 1999 2000
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents $ 58,000 $ 169,100 $ 3,047,100 $ 917,400 $ 796,400
Working capital (deficiency) (5,773,200) (9,693,400) 1,924,200 574,100 171,600
Total assets 545,500 1,151,800 3,760,700 1,570,900 1,396,000
Long-term obligations 2,015,900 -- -- -- --
Total shareholders' equity
(deficiency) (5,677,800) (9,407,800) 2,268,600 841,500 418,800
</TABLE>
- -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 October, 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
- -18-
<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.
Regarding our most recent quarter ended March 31, 2000 our financial condition
reported includes all amounts for the parent company, Intacta Technologies
Inc., and our two wholly-owned subsidiary companies, Intacta Delaware, and
Intacta Labs, and our reported earnings from operations for the quarter
include the combined earnings of Intacta Technologies Inc. and our two
subsidiaries, consistent with the comparable quarter in 1999.
Results of Operations for the quarters ended March 31, 2000 and March 31,1999
Revenues
Our revenues for the first quarter of year 2000 aggregated $153,600, up
significantly from the 1999 level of $59,500. This year's revenues included
royalty revenues of $12,800 and unusually high products and components
revenues generated from sales primarily of chips in our Israeli inventory of
$140,800. By comparison in 1999, our royalty revenues were somewhat higher at
$44,800, while product and component sales revenues were much lower at only
$14,700. Included in this latter amount for 1999 were product sales revenues
for our discontinued FaxPal products amounting to $7,700. There were no sales
of the FaxPal product units in 2000. The remainder of $7,000 reflects sales of
Israeli components and some fees earned from providing special technical
services to another company using our technical staff because of their unique
expertise. We do not anticipate this consulting revenue source to continue at
this high level throughout the remainder of the year. However we recently
signed another licensing agreement for use of our proprietary code in Japan
and consequently expect licensing revenues to increase significantly.
Operating Expenses
Our operating expenses for the first quarter were $937,600 which is somewhat
higher than the costs of the first quarter of 1999 of $809,000. Our expenses
include Costs of Products and Components, Sales and Marketing, Research and
Development and General and Administration.
Costs of Products and Components
Our costs of products and components for the first quarter were $72,100 in
year 2000 primarily as a result of the sale of computer chips on hand in our
inventories in Israel, the costs of which were $54,000. The remaining costs
are attributable to a few sales of other components and for components used in
our development programs. By comparison, there were no costs in the first
quarter of 1999.
- -19-
<PAGE>
Research and Development
The Research and Development expenditures amounted to $300,400 in the quarter,
up from the 1999 level at $265,500. The cost level in the current year
represents the costs of our continuous research activity, salaries for
staff of $159,200 versus $159,800 in 1999, office and other support facility
costs of $50,800 in the current year as compared with $15,300 in 1999, and the
impact of our stock-based compensation of $90,400 in year 2000, the same
amount as in 1999. Our current staffing level has remained essentially
constant over the last two years and no changes are planned, and the costs of
operating this facility are also expected to remain at these approximate
levels.
Sales and Marketing
The Sales and marketing costs for the current quarter were $215,900. This cost
level reflects the activation of our Sales and Marketing function, whereas in
1999, our costs were only $2,500, when there was no sales or marketing
activities taking place. We started to market our proprietary technology late
in 1999 and have transferred three staff members into this function and
engaged another. The results of their activities to date are reflected in the
most recent signing of a licensing agreement in Japan and with other licensing
discussions currently under way. Costs this quarter include primarily salaries
of $142,500, and the cost of our stock-based compensation program as it
affects options granted to the Sales and Marketing staff amounting to $28,200.
As previously reported, our management decided late in 1997 to commence the
wind down of all marketing efforts and to focus on developing new products
utilising the Company's core technology. All sales staff were released in 1998
and senior management were released later in the year. Consequently, costs in
the prior year's quarter were virtually nil.
General and Administration
Our first quarter General and Administration costs this year amounted to
$349,200 which is 35 per cent lower than the 1999 costs of $541,000. This
decrease reflects primarily the transfer of the three staff members to the
Sales and Marketing function on a full time basis. In 1999, two of these staff
members were on board at the time. General and Administration costs for 2000
included salaries of $64,000, facility and support costs of $14,700,
professional fees and regulatory costs of $45,100, and option compensation
amortisation of $225,400. The 1999 costs included salaries of $117,300,
professional fees of $67,200, office, travel and general of $156,300, and the
stock compensation charge of $200,100.
Other Income(Expense)
We earned interest on funds held on deposit during the period amounting to
$18,200. In 1999, we earned $29,700, higher due to the higher level of funds
on deposit during the prior year.
Net Losses
Our net loss was $766,700 after taxes of $900 in the quarter, which is only
six per cent higher than the loss in 1999 of $722,100 when taxes were $2,300.
The slightly higher loss this year reflects the activation of the marketing
function and commensurate higher Sales and Marketing costs this year.
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 FaxPal product group of only $9,500 and the sale of electronic
components held in inventory in Israel and related technical support fees
amounting to $54,500, these two sales aggregating $64,000, and royalty
revenues of $73,400. In 1999, FaxPal product sales revenues for the
- -20-
<PAGE>
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 companies
including depreciation. Our costs of products and components amounted to
$90,500 in 1999. This amount included both costs related to electronic
components sold 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 discontinued FaxPal unit materials determined to no
longer possess any resale value amounted to $46,100 with the remainder of
$44,400 representing the costs related to the electronic components sold and
other material costs. 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 $1,047,400, were 16 per
cent higher than those for 1998 of $903,500. 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 56 per cent of our total costs of our Israeli
operations this year, down from 72 per cent in 1998. The current staffing
level is expected to be maintained and the costs of operating this facility to
remain approximately constant also over the next year. The total costs for
both years include the impact of our stock compensation and represents in 1999
$222,400 or 21 per cent of the total function costs, and for 1998 the impact
amounted to $129,700 or 14 per cent of the prior year total cost amount. The
determination of these costs is more fully described in conjunction with our
discussion of Administration costs below.
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
- -21-
<PAGE>
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 54 per cent over the prior year's
amount of $1,699,400 to $2,619,400 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.
The 54 per cent increase over the 1998 level reflects primarily 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 total
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. 234. By comparison, the
expense recorded in 1998 amounted to $668,800. Of the total 1999 amount of
$1,238,400, $222,400 was allocated to Research and development as it relates
to options granted to the technical staff and the remaining $1,016,000 relates
to options granted to directors, officers and others all charged to
Administration. The 1998 comparable total charge equaled $668,800, of which
$129,700 was allocated to Research and development and the remaining amount of
$539,100 was allocated to Administration.
Other Income (Expenses)
In 1999, we earned $104,000 in interest income from funds on deposit from a
financing completed in December 1998. No comparable interest revenues were
earned in 1998. Also, in 1999, we incurred interest costs of $8,700 in our
Israeli operation related to the inventory purchases made in the year. By
comparison, in 1998 we incurred $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.
- -22-
<PAGE>
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 realized 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 totaled $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 $903,500 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 and to the impact of our
stock compensation plan. Costs in both years include salaries, the costs
associated with the stock compensation plan and office support as well as some
development software and other equipment. Several additions to staff were made
during 1998, the stock plan cost for the year of $129,700 and the 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 163 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 $1,699,400 representing an
increase of $346,300 or 26 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
- -23-
<PAGE>
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, of
which $129,700 was allocated to Research and development and the remainder of
$539,100 to Administration. 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
In 1999, we 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 our activities during 1999 and the first quarter of 2000, our
cash position at the beginning of 1999 of $3,047,100 has declined to the
relatively low position at December 31, 1999 of $917,400 and lower still at
March 31, 2000 at $796,400. The total drawdown of $2,250,700 over the fifteen
month period resulted from the impact of the losses in 1999 of $3,617,600 and
for the first quarter 2000 of $766,700, offset only by advances from a
shareholder of $436,000 received this past quarter, although the impact of the
stock compensation charges to 1999 of $1,238,400 and to 2000 of $344,000
included in these losses were non-cash in nature.
While the losses in prior years have approximated the 1999 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.
Our management anticipates that we will need to raise at least $1.5 million
during the next four months to meet our operating expenses, as our average
monthly costs approximate $200,000 (primarly salaries, travel, office and
other similar expenses). While we have recently completed a licensing
agreement which will generate larger revenues that earned in the past and are
presently negotiating with other potential licensees, we recognized the need
late in 1999 for additional funding to meet operating expenses and to expand
our activities in the coming months, and we plan to raise $1.5 million through
the completion of a bridge note financing as soon as possible. We believe
that this note financing will be completed in May, 2000. We also plan to
raise up to $10.0 million by means of a private placement of our common
stock in the next quarter and have had preliminary discussions with potential
broker sponsors. These funds are intended to permit us to expand our
marketing efforts through additions to staff and to develop and execute a
comprehensive market exposure program to introduce our product applications
in the field of data management.
Should our immediate plans for the note financing fail, we have received from
shareholders indications of interest to provide additional funding if required
to sustain us in the interim period until we can successfully complete
adequate financing to allow us to cover operations. However, these
shareholders are under no obligation to provide additional financing.
Nor can we be assured that we will be successful in completing the bridge
note financing or the private placement of our common stock in the near term.
Our independent auditors have expressed substantial doubt about our ability to
continue as a going concern. Primarily as a result of our losses, our
independent auditors modified their opinion on our 1999 financial statements
and the two preceding years to include an explanatory paragraph expressing
substantial doubt about our ability to continue as a going concern at that
time.
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.
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<PAGE>
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.
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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<PAGE>
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.
- -27-
<PAGE>
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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<PAGE>
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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<PAGE>
- - 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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<PAGE>
- - 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.
- -31-
<PAGE>
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 shows 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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<PAGE>
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.
- -33-
<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-President and Chief Operating Officer of Triax Telecommunications Company
L.L.C. From July 1993 to April
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<PAGE>
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 reviews general policies
relating to compensation and benefits of our employees. Messrs. Nazerali, Sagi
and
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<PAGE>
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
fficer 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 Compensation
Option/
SARs (#)
Altaf S. Nazerali $25,000(1) 150,000 --
President and CEO $100,000(2)
Menachem Tassa $120,000(1) 150,000 --
Vice President, $120,000(2)
Research and 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."
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
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<PAGE>
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 Mr. 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
<TABLE>
Number of Securuties Value of Unexercised In-
Underlying Unexercised the-Money Options at
Options at December 31, December 31, 1998
1998
Shares
Name Acquired on Value Realized Exercisable Unexercisable Exercisable Unexercisable
Exercise
<S> <C> <C> <C> <C> <C> <C>
Altaf Nazerali - - - 150,000 - $423,000
Menachem Tassa - - - 150,000 - $423,000
</TABLE>
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
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<PAGE>
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-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 year 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 W. 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 1% 1%
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 19 th 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.
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<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
Materials
High Bid Low Bid
1999
4 th Quarter 3 7/16 1 3/4
3 rd Quarter 3.8 1 7/8
2 nd Quarter 4 3/16 3
1 st Quarter 4 15/32 3 13/16
1998
4 th Quarter 4 3/4 3 7/8
3 rd Quarter 5 1/2 4
2 nd 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
retail mark-up, mark-down or commission and may not necessarily represent
actual transactions.
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<PAGE>
The price of our common stock on the Nasdaq OTCBB on April 18, 2000 was $4 1/8
(high) and $3 (low).
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 note 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
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<PAGE>
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
interest 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 17 th 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 8,841,000 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
options 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 to 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.
- -49-
<PAGE>
LEGAL MATTERS
McDonald Carano Wilson McCune Bergin Frankovich & Hicks LLP has acted as
special counsel on matters of Nevada law with respect to 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 our 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 our 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 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 our 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 5 th 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 5 th 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.
- -50-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Intacta Technologies Inc.
Financial Statements
Page
Audited Consolidated Financial Statements F-2
Reports of Independent Accountants F-5
Consolidated Balance Sheets for the periods ended
December 31, 1999 and December 31, 1998 F-7
Consolidated Statements of Operations for the periods
ended December 31, 1999, December 31, 1998 and December
31, 1997 F-9
Consolidated Statements of Stockholders' Equity
(Deficit) for the years ended December 31, 1999,
December 31, 1998 and December 31, 1997 F-10
Consolidated Statements of Cash Flows for the periods
ended December 31, 1999, December 31, 1998 and
December 31, 1997 F-11
Notes to Consolidated Financial Statements F-12
Unaudited financial statements for the three months
ended March 31, 2000 F-27
<PAGE>
Intacta Technologies Inc. and Subsidiaries
(fka InfoImaging
Technologies, Inc.)
Consolidated Financial Statements
Years Ended December 31, 1999, 1998 and 1997
F-2
<PAGE>
Intacta Technologies Inc. and Subsidiaries
(fka InfoImaging
Technologies, Inc.)
Consolidated Financial Statements
Years Ended December 31, 1999, 1998 and 1997
F-3
<PAGE>
Intacta Technologies Inc. and Subsidiaries
(fka InfoImaging Technologies, Inc.)
Contents
Report of Independent Certified Public Accountants 2
Consolidated Financial Statements
Consolidated balance sheets 4
Consolidated statements of operations 5
Consolidated statements of stockholders' equity 6
Consolidated statements of cash flows 7
Notes to consolidated financial statements 8-22
F-4
<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. 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.
We conducted our audits 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 that our audits provide a
reasonable basis for our opinion.
In our opinion, 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.
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 suffered recurring losses 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>
Report of Independent Certified Public Accountants
To The Board of Directors and Shareholders of
ITI InfoImaging Technologies, Inc.
We have audited the combined statements of operations, shareholders' deficiency
and cash flows of ITI InfoImaging Technologies, Inc. and Fontech Ltd. for the
year ended December 31, 1997. 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 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 provides a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined results of operations and cash
flows of ITI InfoImaging Technologies, Inc. and Fontech Ltd. for the year ended
December 31, 1997 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/ Meredith, Cardozo, Lanz & Chiu, LLP
San Jose, California
February 20, 1998
F-6
<PAGE>
December 31, 1999 1998
As Restated
(Note 7)
Assets
Current
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-7
<PAGE>
Intacta Technologies Inc.
(fka 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-8
<PAGE>
Intacta Technologies Inc.
(fka 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 (including
non-cash compensation expense of
$222,400, $129,700 and $0 in 1999,
1998 and 1997 respectively) 1,047,400 903,500 343,200
Sales and marketing 113,200 113,100 297,000
General and administrative
(including non-cash compensation
expense of $1,016,000, $539,100 and
$0 in 1999, 1998 and 1997
respectively) 2,619,800 1,699,400 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 104,000 - -
Interest (expense) (8,700) (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-9
<PAGE>
Intacta Technologies Inc.
(fka InfoImaging Technologies, Inc.)
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
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 capital 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-As -- -- 2,840,566 (2,840,566) -- --
Restated (Note7)
Amortization of stock
Options-As Restated (Note -- -- -- 668,800 -- 668,800
7)
Net loss-As Restated (Note7) -- -- -- -- (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-10
<PAGE>
Intacta Technologies Inc.
(fka 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-11
<PAGE>
Intacta Technologies Inc.
(fka InfoImaging Technologies, Inc.)
Notes to Consolidated Financial Statements
1. Summary of Significant
Accounting Policies
The Company
Intacta Technologies Inc. (formerly 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). As such, in conjunction with the
acquisition, the historical financial statements of the acquirer replaced
the historical financial statements of the Company. 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-12
<PAGE>
Intacta Technologies Inc.
(fka 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 1998 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
F-13
<PAGE>
Intacta Technologies Inc.
(fka InfoImaging Technologies, Inc.)
Notes to Consolidated Financial Statements
ultimately lead to profitable operations, and is seeking 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
F-14
<PAGE>
Intacta Technologies Inc.
(fka InfoImaging Technologies, Inc.)
Notes to Consolidated Financial Statements
evaluated for impairment when events or changes in circumstances indicate that
the carrying amount of the assets may not be recoverable through the estimated
undiscounted future cash flows resulting from the use of these assets. When
any such impairment exists, the related assets will be written down to fair
value.
Software Development Costs
In accordance with Statement of Financial Accounting Standards (SFAS) No. 86,
Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise
Marketed, costs related to the research and development of new products and
enhancements to existing products are expensed as incurred until technological
feasibility of the product has been established, at which time such costs are
capitalized, subject to expected 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 (SOP) 97-2,
Software Revenue Recognition. As such, the Company recognizes product revenue
upon shipment if persuasive evidence of an arrangement exists, delivery has
occurred, the fees are fixed and determinable and collectibility is probable.
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 revenues.
License revenues are recognized based on actual sales of the licensed software
by the customer/licensee and therefore are not recognized as revenue until
reported by the customer/licensee. This is the time at
F-15
<PAGE>
Intacta Technologies Inc.
(fka InfoImaging Technologies, Inc.)
Notes to Consolidated Financial Statements
which the Company believes that revenue recognition in accordance with SOP
97-2, as described above, has occurred. Support revenue is not integral to the
functionality of the licensed software and is billed and recognized as
incurred.
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.
F-16
<PAGE>
Intacta Technologies Inc.
(fka InfoImaging Technologies, Inc.)
Notes to Consolidated Financial Statements
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 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
F-17
<PAGE>
Intacta Technologies Inc.
(fka InfoImaging Technologies, Inc.)
Notes to Consolidated Financial Statements
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.
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.
F-18
<PAGE>
1998.Intacta Technologies Inc.
(fka InfoImaging Technologies, Inc.)
Notes to Consolidated Financial Statements
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
========== ==========
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.
F-19
<PAGE>
Intacta Technologies Inc.
(fka InfoImaging Technologies, Inc.)
Notes to Consolidated Financial Statements
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. Notwithstanding 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 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 expenses, loss from operations, net loss and
deficit by $668,800 and to increase basic and diluted loss per share by
$(0.04) as follows:
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)
F-20
<PAGE>
Intacta Technologies Inc.
(fka InfoImaging Technologies, Inc.)
Notes to Consolidated Financial Statements
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, 1997 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
1999 contractual exercise
Exercise price life price
$ 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
F-21
<PAGE>
Intacta Technologies Inc.
(fka InfoImaging Technologies, Inc.)
Notes to Consolidated Financial Statements
compensation expense is recognized for the intrinsic value of the options
granted. Options granted to all others are accounted for in accordance with
SFAS No. 123 and compensation expense is recognized for the fair value of the
options granted. SFAS No. 123 also requires that the Company provide pro forma
information regarding the net loss as if the compensation cost for the
Company's 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.
F-22
<PAGE>
9. Income Taxes
For the years ended December 31, 1999, 1998 and 1997, the provision for income
taxes consists of current minimum state taxes.
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 Ending December 31, 1999 1998 1997
As Restated
(Note 7)
Federal income tax benefit
at statutory rate $(1,229,700) $(1,069,000) $ (747,300)
State income tax benefit,
net of federal tax benefit (210,900) (183,300) (128,100)
Foreign operations not
subject to taxes 316,700 277,000 179,100
Tax benefits not currently
recognizable (4,600) 90,100 122,400
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
carryforward $ 4,602,500 $ 3,965,000
Stock option compensation
not currently deductible 764,800 268,200
Accumulated depreciation
and amortization and
other 13,300 10,300
---------- ----------
Total deferred tax assets 5,380,600 4,243,500
---------- ----------
Reserves not currently
deductible (204,000) (193,500)
Other, net - (2,700)
---------- ----------
Total deferred tax liabilities (204,000) (196,200)
F-23
<PAGE>
Intacta Technologies Inc.
(fka InfoImaging Technologies, Inc.)
Notes to Consolidated Financial Statements
Net deferred tax asset 5,176,600 4,047,300
Valuation allowance (5,176,600) (4,047,300)
---------- ----------
$ -- $ --
========== ==========
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-24
<PAGE>
Intacta Technologies Inc.
(fka InfoImaging Technologies, Inc.)
Notes to Consolidated Financial Statements
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-25
<PAGE>
Intacta Technologies Inc.
(fka InfoImaging Technologies, Inc.)
Notes to Consolidated Financial Statements
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-26
<PAGE>
INTACTA TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
AS AT MARCH 31, 2000 and DECEMBER 31, 1999
(Unaudited)
March 31, Dec 31,
2000 1999
ASSETS
Current
Cash and cash equivalents $ 796,400 $ 917,400
Accounts receivable 42,300 31,700
Inventories 234,300 278,600
Related party and employee receivable 45,000 45,000
Other 30,800 30,800
---------- ----------
Total current assets 1,148,800 1,303,500
Property and equipment 140,400 156,100
Other assets 106,800 111,300
---------- ----------
$1,396,000 $1,570,900
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 319,000 $ 472,400
Accounts payable - related parties 133,200 90,200
Advances from shareholder 525,000 77,800
---------- ----------
Total current liabilities 977,200 729,400
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 1,791 1,791
shares authorized, 17,909,000 and 17,909,000
shares issued and outstanding, respectively
Additional paid-in capital 19,821,506 19,710,553
Deficit (18,437,900) (17,671,200)
Unamortized stock compensation (966,597) (1,199,644)
---------- ----------
$1,396,000 $1,570,900
========== ==========
F-27
<PAGE>
INTACTA TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(Unaudited)
March 31, Dec 31,
2000 1999
Revenues
Products and components $ 140,800 $ 14,700
Royalties from licensing arrangements 12,800 44,800
---------- ----------
153,600 59,500
---------- ----------
Operating expenses
Costs of products and components 72,100 --
Research and development (including non- 300,400 265,500
cash compensation expense of $90,400
and $90,400 in 2000 and 1999 respectively)
Sales and marketing (including non-cash 215,900 2,500
compensation expense of $28,200 and $0
in 2000 and 1999 respectively)
General and administrative (including 349,200 541,000
non-cash compensation expense of
$225,400 and $200,100 in 2000 and 1999
respectively)
---------- ----------
Total operating expenses 937,600 809,000
---------- ----------
Loss from operations (784,000) (749,500)
---------- ----------
Other income (expense)
Interest income 18,200 29,700
---------- ----------
Loss before provision for income taxes (765,800) (719,800)
Provision for income taxes 900 2,300
---------- ----------
Net loss (766,700) (722,100)
Deficit - Beginning of period (17,671,200) (14,053,600)
---------- ----------
Deficit - End of period $(18,437,900) $(14,775,700)
========== ==========
Basic and diluted loss per common share $ (0.04) $ (0.04)
========== ==========
Basic and diluted weighted - average
common shares outstanding 17,790,000 17,671,000
========== ==========
F-28
<PAGE>
INTACTA TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(Unaudited)
March 31, Dec 31,
2000 1999
Operating activities
Net loss $ (766,700) $ (722,100)
Adjustments to reconcile net loss to cash
used in operating activities
Non-cash compensation expense 344,000 290,500
Depreciation and amortization 20,200 33,200
Changes in operating assets and
liabilities:
Accounts receivable (10,600) 5,600
Inventories 44,300 (8,700)
Accounts payable (110,400) (58,800)
Accrued expenses (77,800) --
---------- ----------
(557,000) (460,300)
---------- ----------
Investing activities
Capital expenditur -- (20,300)
---------- ----------
Financing activities
Advances from shareholder 436,000 --
Repayment of shareholder advances -- (260,000)
---------- ----------
436,000 (260,000)
---------- ----------
Increase/(decrease) in cash during
the period (121,000) (740,600)
Cash, beginning of period 917,400 3,047,100
---------- ----------
Cash, end of period $ 796,400 $2,306,500
========== ==========
F-29
<PAGE>
8,841,000 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 if 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. Description
10.15| Consulting Agreement dated March 1, 1999 between registrant and
Pensbreigh Holdings Ltd.
21.1| List of subsidiaries of registrant
23.1 Consent of BDO Seidman, LLP
23.2 Consent of Meredith, Cardozo, Lanz and Chiu, LLP
23.3| 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
- ---------------
+ Confidential treatment has been requested as to certain portions of this
exhibit. Omitted portions have been 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 May 17, 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 May 17, 2000
- --------------------- Officer and Director
Altaf S. Nazerali
* Vice President, Finance and May 17, 2000
- --------------------- Director
Ross Wilmot
* Director May 17, 2000
- ---------------------
Yehoshua Sagi
* Executive Vice President, Chief May 17, 2000
- --------------------- Operating Officer and Director
Noel Bambrough
* Executive Vice President, Research May 17, 2000
- --------------------- and Development and Director
Menachem Tassa
* Director May 17, 2000
- ---------------------
Yechiel Y. Sharabi
* Director May 17, 2000
- ---------------------
Amnon Shai
* By: /s/ Altaf S. Nazerali
---------------------
Altaf S. Nazerali
Attorney-in-Fact
<PAGE>
Exhibit Index
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
10.15| Consulting Agreement dated March 1, 1999 between registrant and
Pensbreigh Holdings Ltd.
21.1| List of subsidiaries of registrant
23.1 Consent of BDO Seidman, LLP
23.2 Consent of Meredith, Cardozo, Lanz and Chiu, LLP
23.3| 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
- ---------------
+ Confidential treatment has been requested as to certain portions of this
exhibit. Omitted portions have been filed separately with the Securities and
Exchange Commission.
| Previously filed.
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
May 18, 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
May 18, 2000
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 796,400
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<RECEIVABLES> 42,300
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<SALES> 153,600
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