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Previous: THALES FUND MANAGEMENT LLC, 13F-HR, 2000-11-14 |
Next: EAGLE ENVIRONMENTAL TECHNOLOGIES LTD, NT 10-Q, 2000-11-14 |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________.
0-30467
INTACTA TECHNOLOGIES INC.
| Nevada | 58-2488071 | |
| (State or Other Jurisdiction of | (I.R.S. Employer | |
| Incorporation or Organization) | Identification No.) | |
| 235 Peachtree Street, N.E. 2215 North Tower, Atlanta, GA |
30303 | |
| (Address of Principal Executive Offices) | (Zip Code) |
(404) 880-9919
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes [ X ]
No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date:
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| Shares Outstanding | |||
| Class | November 8, 2000 | ||
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| Common stock, no par value | 20,329,224 | ||
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TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
| Page No. | |||||
| Item 1. | Consolidated Financial Statements | ||||
| Consolidated Balance Sheets | |||||
| as of September 30, 2000 (unaudited) and December 31, 1999 | 1 | ||||
| Consolidated Statements of Operations (unaudited) | |||||
| for the three and nine month periods ended September 30, 2000 and 1999 | 3 | ||||
| Consolidated Statements of Cash Flows (unaudited) | |||||
| for the three and nine month periods ended September 30, 2000 and 1999 | 4 | ||||
| Notes to Consolidated Financial Statements | 7 | ||||
| Item 2. | Management's Discussion and Analysis of Financial Condition and | ||||
| Results of Operations | 11 | ||||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 11 | |||
| PART II - OTHER INFORMATION | |||||
| Item 2. | Changes in Securities | 15 | |||
| Item 6. | Exhibits and Reports on Form 8-K | 16 | |||
| Signatures | 17 | ||||
ii
PART I. - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
The consolidated financial statements included herein have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission. The
consolidated balance sheet as of September 30, 2000; the consolidated statements
of operations for the three and nine months ended September 30, 2000 and September
30, 1999; and the consolidated statements of cash flows for the three and nine
months ended September 30, 2000 and September 30, 1999 have been prepared without
audit. The consolidated balance sheet as of December 31, 1999 has been audited
by independent certified public accountants. Certain information and footnote
disclosures normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant
to such rules and regulations, although the Company believes that the disclosures
herein are adequate to make the information presented not misleading. It is
suggested that these consolidated financial statements be read in conjunction with
the financial statements and the notes thereto included in the Company's Registration
Statement on Form S-1, File No. 333-30400.
In the opinion of the Company, the statements for the unaudited interim periods
presented included all adjustments which were of a normal recurring nature
necessary to present a fair statement of the financial condition and results of
operations of such interim periods. The results of operations for the interim
periods presented are not necessarily indicative of the results of operations
for the entire year.
| Sep 30, 2000 (unaudited) |
Dec
31, 1999 |
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| ASSETS | |||||||
| CURRENT ASSETS | |||||||
| Cash and cash equivalents | $ | 1,711,900 | $ | 917,400 | |||
| Accounts receivable | 107,200 | 31,700 | |||||
| Inventories | 225,400 | 278,600 | |||||
| Related party and employee receivables | -- | 45,000 | |||||
| Other | 77,900 | 30,800 | |||||
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| Total current assets | 2,122,400 | 1,303,500 | |||||
| Property and equipment, net | 119,000 | 156,100 | |||||
| Other assets, net | 122,900 | 111,300 | |||||
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| $ | 2,364,300 | $ | 1,570,900 | ||||
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1
| Sep 30, 2000 (unaudited) |
Dec
31, 1999 |
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| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Bridge loan financing | $ | 2,701,500 | $ | -- | ||||
| Accounts payable | 207,300 | 472,400 | ||||||
| Accounts payable - related parties | 140,300 | 90,200 | ||||||
| Advances from shareholder | 245,000 | 89,000 | ||||||
| Accrued expenses | 91,200 | 77,800 | ||||||
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| Total current liabilities | 3,385,300 | 729,400 | ||||||
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| Total liabilities | 3,385,300 | 729,400 | ||||||
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| 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 17,909,000 shares issued and outstanding, respectively |
1,791 | 1,791 | ||||||
| Additional paid-in capital | 20,128,865 | 19,710,553 | ||||||
| Deficit | (20,677,600 | ) | (17,671,200 | ) | ||||
| Unamortized stock compensation | (474,056 | ) | (1,199,644 | ) | ||||
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| Total stockholders' equity | (1,021,000 | ) | 841,500 | |||||
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| $ | 2,364,300 | $ | 1,570,900 | |||||
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| Three Months Ended | Nine Months Ended | ||||||||||||
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| September
30, 2000 |
September
30, 1999 |
September
30, 2000 |
September
30, 1999 |
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| Revenues | |||||||||||||
| Products and components | $ | 32,500 | $ | 38,500 | $ | 284,300 | $ | 103,500 | |||||
| Royalties from licensing arrangements | 24,400 | -- | 81,100 | 12,800 | |||||||||
| Consulting fee revenue | 4,000 | -- | 329,300 | -- | |||||||||
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| Total revenues | 60,900 | 38,500 | 694,700 | 116,300 | |||||||||
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| Operating expenses | |||||||||||||
| Cost of products and components | 16,800 | -- | 113,200 | -- | |||||||||
| Research and development (including non-cash
compensation expense
in 2000 and 1999, respectively for the three months ended September 30 ($90,400, $90,400) and for the nine months ended September 30 ($271,200, $271,200) |
320,600 |
366,000 |
929,200 |
889,300 |
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| Sales and marketing (including non-cash
compensation expense in 2000 and 1999, respectively for the three months ended September 30 ($9,700, $0) and for the nine months ended September 30 ($61,800, $0) |
360,000 |
33,800 |
844,600 |
81,100 |
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| General and administrative (including non-cash
compensation expense
in 2000 and 1999, respectively for the three months ended September 30 ($143,200, $232,200) and for the nine months ended September 30 ($534,500, $644,800) |
637,300 |
606,800 |
1,567,300 |
1,789,600 |
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| Total operating expenses | 1,334,700 | 1,006,600 | 3,454,300 | 2,760,000 | |||||||||
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| Loss from operations | (1,273,800 | ) | (968,100 | ) | (2,759,600 | ) | (2,643,700 | ) | |||||
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| Other income (expense) | |||||||||||||
| Interest income | 23,500 | 16,500 | 57,500 | 88,500 | |||||||||
| Interest (expense) | (282,800 | ) | (7,900 | ) | (303,400 | ) | (8,300 | ) | |||||
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| Loss before provision for income taxes | (1,533,100 | ) | (959,500 | ) | (3,005,500 | ) | (2,563,500 | ) | |||||
| Provision for income taxes | -- | 3,000 | 900 | 6,600 | |||||||||
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| Net loss | $ | (1,533,100 | ) | $ | (962,500 | ) | $ | (3,006,400 | ) | $ | (2,570,100 | ) | |
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| - Basic and diluted loss per common share | $ | (0.09 | ) | $ | (0.05 | ) | $ | (0.17 | ) | $ | (0.14 | ) | |
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| - Basic and diluted weighted - average common shares outstanding |
17,909,000 | 17,673,615 | 17,909,000 | 17,752,077 | |||||||||
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| Three Months Ended | Nine Months Ended | |||||||||||||
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| September
30, 2000 |
September
30, 1999 |
September
30, 2000 |
September
30, 1999 |
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| Operating activities: | ||||||||||||||
| Net loss | (1,533,100 | ) | (962,500 | ) | (3,006,400 | ) | (2,570,100 | ) | ||||||
| Adjustments to reconcile net loss
to cash used in operating activities |
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| Non-cash compensation expense | 243,300 | 322,600 | 867,500 | 916,000 | ||||||||||
| Depreciation and amortization | 232,200 | 14,400 | 287,300 | 73,800 | ||||||||||
| Changes in operating assets and liabilities: | ||||||||||||||
| Accounts receivable | (46,500 | ) | (12,800 | ) | (77,600 | ) | 28,300 | |||||||
| Inventories | -- | -- | 53,200 | (8,700 | ) | |||||||||
| Accounts payable | 38,900 | 241,600 | (214,800 | ) | 260,000 | |||||||||
| Accrued expenses | 75,700 | -- | 13,400 | -- | ||||||||||
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| Cash (used in) operating activities | (989,500 | ) | (396,700 | ) | (2,077,400 | ) | (1,300,700 | ) | ||||||
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| Investing activities | ||||||||||||||
| Capital expenditures | (25,000 | ) | 12,500 | (54,700 | ) | (22,700 | ) | |||||||
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| Cash provided by (used in) investing activities | (25,000 | ) | 12,500 | (54,700 | ) | (22,700 | ) | |||||||
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| Financing activities | ||||||||||||||
| Common stock | -- | -- | -- | -- | ||||||||||
| Advances from shareholder | -- | -- | 704,500 | -- | ||||||||||
| Bridge loan financing | -- | -- | 2,770,600 | -- | ||||||||||
| Advance conversion | -- | -- | (250,000 | ) | -- | |||||||||
| Repayment of shareholder advances | -- | -- | (298,500 | ) | (280,000 | ) | ||||||||
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| Cash provided by (used in) financing activities | -- | -- | 2,926,600 | (280,000 | ||||||||||
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| Increase/(decrease) in cash | (1,014,500 | ) | (384,200 | ) | 794,500 | (1,603,400 | ) | |||||||
| Cash, beginning of period | 2,726,400 | 1,827,900 | 917,400 | 3,047,100 | ||||||||||
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| Cash, end of period | $ | 1,711,900 | $ | 1,443,700 | $ | 1,711,900 | $ | 1,443,700 | ||||||
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4
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6 7 8 9 10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Safe harbor Statement under the Private Securities Litigation Reform Act
of 1995:
Statements in this Quarterly Report which are not historical fact, 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 are "forward-looking" statements. These
"forward-looking" statements are subject to risks and uncertainties that may
cause our actual results to differ from expectations including variations in the
level of orders, general economic conditions in the markets served by our customers,
international economic and political climates, timing of future product releases,
difficulties or delays in product functionality of performance, our failure to
respond adequately to changes in technology or customer preferences, or changes
in our pricing or that of our competitors and our inability to manage
growth. All of the above factors constitute significant risks to our company.
There can be no assurance that our results of operations will not be adversely
affected by one or more of these factors. As a result, our actual results may
vary materially from our expectations.
General
We have developed our patented Intacta technology which, through its unique
compression, encoding and error correction processes, provides solutions and
applications that enable enterprises to bridge their communications and information
management systems across digital and non-digital media.
We were organized in October 1997 to acquire two subsidiary companies of Corsa
S.A. Holdings ("Corsa") that marketed and developed two related facsimile storage
and retrieval products that incorporated an early version of the Intacta technology.
Development and production of the facsimile products was performed in Israel by
Intacta Labs Ltd. and marketing and distribution was performed in the United States
by Intacta Delaware, Inc. We acquired the subsidiaries from Corsa in May 1998
in exchange for approximately 70% of our outstanding capital stock immediately
after the acquisition. The acquisition was treated, for accounting purposes, as
a reverse acquisition. The references to "we" and "us" refer to the operation of
the entities we acquired both before and after the acquisition.
During 1997 and part of 1998 we derived substantially all of our revenues from
the sale of facsimile-based products. Beginning in the latter part of 1997 and
continuing into 1998 we began to wind down our production and active marketing
of the facsimile-based products due to reduced profit margins and anticipated
further deterioration of profit margins from increased competition and costs of
marketing the products to the retail market. At that time, we initiated research
and development of advanced products and software applications based on our Intacta
technology. We also began, on a very limited basis, licensing the Intacta technology
for integration with applications and solutions to end users. As a result, our
revenues declined substantially from approximately $895,000 for 1997 to approximately
$138,000 for each of 1998 and 1999, and our research and development expenses
increased substantially from approximately $343,000 in 1997 to approximately
$903,500 in 1998 and $1,047,400 in 1999.
In the middle of 1999, due to competitive pressures and our re-evaluation of our
business model and revenue/cost projections, we determined to focus on direct
marketing of our technology for licensing to large enterprise end users and third
party solution providers. Three products based upon our Intacta technology were
at or nearing completion at the time we shifted our focus to marketing our
technology; Intacta.MobileCE, Intacta.Courier, and Intacta.Bridgeway. Intacta
MobileCE and Intacta.Courier are developed software products that are marketable
as a diskette or as a download file. Our limited financial and other marketing
resources, however, have prevented us from engaging in a full-scale marketing
campaign for these products and based upon our current business model and operating
strategy we do not intend to devote any significant financial or other resources
at this time to the further development or marketing of these products.
Primarily as a result of the limited financial resources and personnel available
for marketing activities, we had limited revenues from licensing arrangements
during the first quarter of 2000.
In April 2000, we entered into a licensing agreement with Fujitsu Ltd., of Japan,
for a specialized application of Intacta.Code™ to bring multi-media capabilities
to newspapers in Japan. Fujitsu, in turn, licensed our technology to the Yomiuri
Shimbun, one of the world's largest daily circulation newspapers. Our agreement
with Fujitsu contains limitations on their use of Intacta.Code™, but provides
for further agreements with them expanding our initial licensing arrangement. Customization
fees received from Fujitsu have been recognized in the second quarter of 2000.
Primarily as a result of our recurring losses, our independent auditors'
opinion on our 1999 financial statements and the two preceding years
includes an explanatory paragraph expressing substantial doubt about our ability
to continue as a going concern.
Results of Operations
Three Months Ended September 30, 2000 as compared to the Three Months Ended
September 30, 1999
Revenues:
Revenues increased by $22,400 from $38,500 in the third quarter of 1999 to
$60,900 in the comparable period this year. The increase in revenues resulted
primarily from revenues generated by our licensing of the core technology.
Cost of products and components:
Cost of products and components was $16,800 for the three months ended
September 30, 2000. There was no cost of products and components in the third
quarter of 1999, as all inventories of older products had been written off in the
prior year. The costs incurred in the third quarter of 2000 are a
result of components consumed in the manufacture and sale of development test
platforms.
Research and development expenses:
Research and development expenses decreased by $45,400 or 12.4% to $320,600 for
the third quarter of 2000, as compared to $366,000 for the comparable period in 1999. The
decrease was attributable to lower costs for materials used in research functions.
The amounts reflected as research and development expense for
the third quarter of each of 1999 and 2000 include a non-cash charge to account
for the value of options previously granted below fair market value as compensation
to employees and consultants, amounting to $90,400 in each quarter, respectively.
Sales and marketing expenses:
Sales and marketing expenses increased 965% to $360,000 for the third
quarter of 2000 as compared to $33,800 for the prior comparable period. The
increase is attributable to our hiring of personnel together with transfers of existing
personnel from our administrative group to this function as well as costs for the
development of marketing materials and other market research data
General and administrative expenses:
General and administrative expenses increased by 5% to $637,300 for the
three months ended September 30, 2000 from $606,800 for the comparable period in
1999. The increase was primarily attributable to higher professional
fees relating to the company's registration and reporting requirement and higher corporate
and shareholder relations costs.
Operating Expenses:
Operating expenses for the third quarter of 2000 were $1,334,700 representing an
increase of 33 per cent over the comparable third quarter of 1999 of $1,006,600.
The increase is primarily attributable to the higher sales and marketing costs due
to new staff, and higher general and administrative costs resulting from the higher
professional fees, and corporate and shareholder relations costs.
Interest income (expense):
We earned interest income of $23,500 for the three months ended September 30,
2000 as compared to $16,500 for the comparable 1999 period. We incurred interest
expense in the third quarter of 2000 of $282,800 resulting from the bridge
financing completed in June, 2000, as compared to $7,900 in the third quarter
of 1999.
Net loss:
As a result of the foregoing, we experienced a net loss of $1,533,100 or $.09
per share as compared to a net loss of $962,500 or $.05 per share during the
quarter ended September 30, 1999.
Nine Months Ended September 30, 2000 as compared to the Nine Months Ended
September 30, 1999
Revenues:
Revenues for the nine months ended September 30, 2000 increased by 497%
to $694,700 from $116,300 for the comparable period in 1999. The increase was
attributable to (i) consulting fees of apprixomately $325,300 earned in the second quarter
relating to custom programming, (ii) sales of products and components, primarily
software development test platforms and surplus memory chip inventory and (iii)
an increase in core technology licensing income. By comparison,
for the comparable period in 1999, product sales included only sales of discontinued
products.
Cost of products and components:
Cost of products and components for the nine months ended September 30, 2000 were
$113,200. There were no costs of products and components for the comparable period
in 1999 as all inventories of older products had previously been written off in our
accounts. The cost incurred during this period is attributable to (i)
purchase costs of components consumed in the manufacture of the test platforms
sold and (ii) sales of surplus non-proprietary computer processing chips held in
inventory and sold in the first quarter of 2000.
Research and development expenses:
Research and development expenses for the nine months ended September 30, 2000
were $929,200, representing an increase of approximately 4%, up from $889,300 for the
comparable period in 1999. The increase was attributable to an increase
in material costs consumed in operations, as well as an increase in personnel
and related office and other support facility costs. The costs reflected as research and
development expenses for the nine-month period in each of 2000 and 1999 include
a non-cash charge of $271,200, to account for options previously
granted below fair market value as compensation to employees and consultants.
Sales and marketing expenses:
Sales and marketing expenses for the nine months ended September 30, 2000
increased approximatley 941% to $844,600, from $81,100 in 1999. The increase is
attributable to (i) increased salaries and related costs resulting from the
transfer of personnel from administration and the hiring of new personnel, (ii)
costs for the development of marketing materials and other market research, and
(iii) a non-cash charge of $61,800 to account for options previously granted
below fair market value as compensation to employees and consultants. No similar charge
was required in the prior year.
General and administrative expenses:
General and administrative expenses for the nine-month period ended September 30,
2000 decreased approximately 12% to $1,567,300 from $1,789,600 for the comparable period
in 1999. The decrease is primarily attributable to the decrease in salaries and
related costs for certain employees transferred to our sales and marketing function,
and to the reduction of the non-cash stock option charge to $441,500 for the nine
months ended September 30, 2000 from $644,800 for the comparable period in 1999.
Operating expenses:
Operating expenses for the nine months ended September 30, 2000 were $3,454,300,
representing an increase of approximately 25% from $2,760,000 for the prior comparable
period. The increase is primarily attributable to the increase in sales and
marketing expenses.
Interest income (expense):
Interest income for the nine months ended September 30, 2000 was $57,500, as
compared to $88,500 in the 1999 period. Interest expense for the nine months ended
September 30, 2000 was $303,400, resulting from the bridge financing completed in June 2000, as
compared to interest expense in 1999 of only $8,300.
Net loss:
As a result of the foregoing, our net loss for the nine months ended September 30,
2000 was $3,006,400 or $.17 per share, as compared to a net loss in the prior
comparable period of 1999 of $2,570,100 or $.14 per share.
Liquidity and Capital Resources:
Since inception, we have financed our capital requirements primarily through the
private sale of our capital stock to various parties and advances from Valor, an
affiliate of our President and Chief Executive Officer, a majority of which was
subsequently converted into equity, and from cash acquired in connection with the
acquisition of our subsidiaries from Corsa. As a result of a bridge financing we
completed in the second quarter of 2000, we had cash and cash equivalents of $1,711,900
at September 30, 2000 but a working capital deficit of $1,265,300, primarily as a
result of short term indebtedness relating to the bridge loan financing in June
2000.
Cash used in operating activities for the nine months ended September 30, 2000
was $2,077,400, consisting primarily of our net loss, a decrease in accounts
payable of approximately $214,800, partially offset by $867,500 of non-cash
compensation expenses. Cash used in investing activities was $54,700 and cash
provided by financing activities was $2,926,600 primarily resulting from the
proceeds of the bridge financing of approximately $2,770,600 (including
conversion of a portion of unpaid advances by Valor) and
approximately $704,500 of additional advances from Valor.
Cash used in operating activities for the nine months ended September 30, 1999
was $1,300,700, consisting primarily of our net loss offset to a significant
degree by $916,000 of non-cash compensation expenses and an increase in accounts
payable of $260,000. Cash used in financing activities was $22,700 and cash
used in investing activities was $280,000, consisting entirely of the repayment
of prior advances by Valor.
As a consequence primarily of our net loss and capital expenditures this year,
our cash at the beginning of this year of approximately $917,000 has been substantially
depleted. The additional advances from Valor and the Bridge Financing
have served to offset our cash shortfall and to provide the present
cash on hand of $1,711,900.
In May and June 2000, we completed the Bridge Financing in which we issued 25
Bridge Units, each Bridge Unit consisting of a $100,000 principal
amount Bridge Note and Bridge Warrants to purchase
25,000 shares of our common stock at an exercise price of $3.50 per share, for
aggregate gross proceeds of $2,500,000.
At December 31, 1999, an aggregate of $89,000 of advances from Valor to us remained
outstanding. Through the first half of 2000, Valor had advanced
to us an additional $704,500 on a non
interest-bearing basis. We repaid $298,500 against this indebtedness during this
period, such that our net indebtedness to Valor prior to the Bridge Financing was
$495,000. As part of the Bridge Financing, Valor agreed to convert $250,000 of
the outstanding indebtedness into 2.5 Valor Units identical to
the Bridge Units offered by us in our Bridge Financing. Valor also agreed to
subordinate the balance of the $245,000 of its advances to repayment of the Bridge
Notes.
Subsequent to September 30, 2000, we completed a private placement of approximately 2,333,310 Units
each consisting of one share of common stock and one warrant to purchase one share of common
stock at a price of $3.50 per share resulting in proceeds of $7 million. The gross
proceeds included substantial conversion of the outstanding bridge notes Units in the private
placement. We currently estimate that the proceeds from this placement, together with
cash we anticipate from operations and our existing cash and cash equivalents on hand,
will be sufficient to fund operations and capital requirements through the end of
2001.
We currently are not generating sufficient revenue from operations to fund our
operating activities and we may be dependent in the future upon additional financing
from external sources. To the extent that the proceeds from our private placement
are expended sooner than we anticipated or due to changes or inaccuracies in our
assumptions or unanticipated changes in economic conditions or other unforseen
circumstances, we may be required to seek additional financing. We have no current
arrangements with respect to, or potential sources of, additional financing.
Furthermore, we cannot assure you that additional financing will be available to
us when needed or on commercially reasonable terms or at all.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Not applicable
11
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