SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                ----------------
                                    FORM 10-Q
(Mark One)

(X)  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

     For the quarterly period ended March 31, 2002
                                    --------------

                                       OR

( )  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
     EXCHANGE ACT OF 1934

     For the transition period from _______________________  to ________________

     Commission file number:  0-30467
                             ---------

                            INTACTA TECHNOLOGIES INC.
                    -----------------------------------------
             (Exact name of registrant as specified in its charter)

             Nevada                                      58-2488071
  ----------------------------                   --------------------------
  (State or other jurisdiction              (I.R.S. Employer Identification No.)
of incorporation or organization)

945 East Paces Ferry Road N.E. Suite 1445, Atlanta, Georgia            30326
-----------------------------------------------------------        -------------
(Address of principal executive offices)                            (Zip Code)

Registrant's telephone number, including area 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 requirement for the past 90 days. YES X NO___.

     As of May 14, 2002, there were 20,345,924 shares of the registrant's Common
Stock, par value $.0001, outstanding.

<PAGE>

                                TABLE OF CONTENTS

                         PART I - FINANCIAL INFORMATION

                                                                            Page
                                                                            ----
Item 1.   Consolidated Financial Statements

          Consolidated Balance Sheets as of March 31, 2002
               (unaudited) and December 31, 2001                               3

          Consolidated Statements of Operations (unaudited)
               for the three months ended March 31, 2002 and 2001              5

          Consolidated Statements of Cash Flows (unaudited)
               for the three months ended March 31, 2002 and 2001              6

          Notes to Consolidated Financial Statements (unaudited)               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          15

                          PART II - OTHER INFORMATION

Item 6.   Exhibits and Reports Filed on Form 8-K                              18

Signatures                                                                    19

<PAGE>

                         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 March 31, 2002; the consolidated statements
of operations  for the three months ended March 31, 2002 and March 31, 2001; and
the  consolidated  statements of cash flows for the three months ended March 31,
2002 and March 31,  2001 have been  prepared  without  audit.  The  consolidated
balance sheet as of December 31, 2001 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 and related notes be read in conjunction
with the consolidated  financial  statements and notes thereto,  included in the
Company's Annual Report on Form 10-K for the year ended December 31, 2001.

     In the opinion of the Company,  the  statements  for the unaudited  interim
periods  presented  included  all  adjustments  that were of a normal  recurring
nature  necessary to present a fair  statement of the  financial  condition  and
results of operations  for 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.

                            INTACTA TECHNOLOGIES INC.
                           CONSOLIDATED BALANCE SHEETS

                                               MARCH 31, 2002  December 31, 2001
                                                (Unaudited)
================================================================================

ASSETS

CURRENT
   Cash and cash equivalents                    $    186,500     $    679,000
   Accounts receivable                                27,700            7,200
   Prepaid insurance and other                        75,400          106,900
--------------------------------------------------------------------------------

Total current assets                                 289,600          793,100

PROPERTY AND EQUIPMENT, net                           52,200           68,700

PATENTS, net                                         115,500          119,500
--------------------------------------------------------------------------------

                                                $    457,300     $    981,300
================================================================================
See accompanying notes to unaudited consolidated financial statements.

                                        3
<PAGE>

                            INTACTA TECHNOLOGIES INC.
                           CONSOLIDATED BALANCE SHEETS

                                               MARCH 31, 2002  December 31, 2001
                                                (Unaudited)
================================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY (CAPITAL DEFICIT)

CURRENT LIABILITIES
   Accounts payable                             $    228,600     $    133,500
   Accounts payable - related parties                 40,600           35,000
   Accrued expenses                                  231,100          230,900
--------------------------------------------------------------------------------

Total current liabilities                            500,300          399,400
--------------------------------------------------------------------------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY (CAPITAL DEFICIT)
   Preferred stock, $.0001 par value;
     50,000,000 shares authorized; no shares
     issued or outstanding                                --               --
   Common stock, $.0001 par value; 100,000,000
     shares authorized; 20,345,924 shares
     issued and outstanding                            2,035            2,035
   Additional paid-in capital                     26,336,865       26,336,865
   Deficit                                       (26,381,900)     (25,743,800)
   Unamortized stock compensation                         --          (13,200)
--------------------------------------------------------------------------------

Total stockholders' equity (capital deficit)         (43,000)         581,900
--------------------------------------------------------------------------------

                                                $    457,300     $    981,300
================================================================================
See accompanying notes to unaudited consolidated financial statements.

                                        4
<PAGE>

                            INTACTA TECHNOLOGIES INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
               FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
                                   (UNAUDITED)

                                                      THREE MONTHS ENDED
                                               MARCH 31, 2002   March 31, 2001
================================================================================

REVENUES
   Products and components                      $     22,200     $     82,200
   Royalties from licensing arrangements              32,100            9,800
--------------------------------------------------------------------------------

Total revenues                                        54,300           92,000
--------------------------------------------------------------------------------

OPERATING EXPENSES
   Cost of products and components                        --           13,800
   Research and development (including non-cash
     compensation expense in 2002 and 2001
     respectively, for the three months ended
     March 31 ($7,600, $47,300))                     160,000          292,500
   Sales and marketing (including non-cash
     compensation expense in 2002 and 2001
     respectively, for the three months ended
     March 31 ($700, $2,000))                         72,500          255,700
   General and administrative (including non-cash
     compensation expense in 2002 and 2001
     respectively, for the three months ended
     March 31 ($4,900, $5,800))                      460,100          458,200
--------------------------------------------------------------------------------

Total operating expenses                             692,600        1,020,200
--------------------------------------------------------------------------------

Loss from operations                                (638,300)        (928,200)
--------------------------------------------------------------------------------

OTHER INCOME (EXPENSE)
   Interest income                                     2,200           41,200
    Interest expense                                      --               --
   Other                                               2,500           (8,100)
--------------------------------------------------------------------------------

Total other income (expense)                           4,700           33,100
--------------------------------------------------------------------------------

Loss before provision for income taxes              (633,600)        (895,100)

PROVISION FOR INCOME TAXES                             4,500            1,300
--------------------------------------------------------------------------------

NET LOSS                                        $   (638,100)    $   (896,400)
================================================================================

BASIC AND DILUTED LOSS PER COMMON SHARE         $      (0.03)    $      (0.04)
================================================================================

BASIC AND DILUTED WEIGHTED - AVERAGE
   COMMON SHARES OUTSTANDING                      20,345,924       20,345,924
================================================================================
See accompanying notes to unaudited consolidated financial statements.

                                        5
<PAGE>

                            INTACTA TECHNOLOGIES INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
               FOR THE THREE MONTHS ENDED MARCH 30, 2002 AND 2001
                                   (UNAUDITED)

                                                      THREE MONTHS ENDED
                                               MARCH 31, 2002   March 31, 2001
================================================================================

OPERATING ACTIVITIES
   Net loss                                     $   (638,100)    $   (896,400)
   Adjustments to reconcile net loss to cash
    used in operating activities:
       Amortization of stock options                  13,200           55,000
       Depreciation and amortization                  20,500           20,300
       Changes in operating assets and
         liabilities:
         Accounts receivable                         (20,500)          26,200
         Inventories                                      --            2,200
         Accounts receivable - related parties            --           13,100
         Other current assets                         31,500          (38,900)
         Accounts payable                             95,100           84,700
         Accounts payable - related parties            5,600         (115,700)
                Accrued Expenses                         200          (36,200)
--------------------------------------------------------------------------------

Cash used in operating activities                   (492,500)        (885,700)
--------------------------------------------------------------------------------

INVESTING ACTIVITIES
  Capital expenditures                                    --          (23,600)
  Patents                                                 --          (13,400)
--------------------------------------------------------------------------------

Cash used in investing activities                         --          (37,000)
--------------------------------------------------------------------------------

NET DECREASE IN CASH AND CASH
  EQUIVALENTS                                       (492,500)        (922,700)

CASH AND CASH EQUIVALENTS, beginning of period       679,000        3,904,500
--------------------------------------------------------------------------------

CASH AND CASH EQUIVALENTS, end of period        $    186,500     $  2,981,800
================================================================================

CASH RECEIVED DURING THE PERIOD FOR
  INTEREST, NET                                 $      2,500     $     41,000

CASH PAID DURING THE PERIOD FOR INCOME TAXES    $      4,500     $      1,300

See accompanying notes to unaudited consolidated financial statements.

                                        6
<PAGE>

                            INTACTA TECHNOLOGIES INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS

     Intacta  Technologies  Inc.  and  its  wholly-owned   subsidiary,   Intacta
Delaware,  Inc.,  (collectively  the "Company"),  is a developer and marketer of
software  products  based on its patented  technology  that,  through its unique
combination  of  compression,  encoding  and  error  correction  processes,  the
technology transforms any data format ranging from text, graphic, audio or video
from a binary  file into  INTACTA.CODE(TM)  which is  language  transparent  and
platform  independent.   The  Company  believes  that  its  technology  provides
solutions   and   applications   that  enable   enterprises   to  bridge   their
communications and management information systems across digital and non-digital
media  by  providing  the  secure  bi-directional  transmission  and  subsequent
recovery and storage of data.

     Intacta  Labs Ltd.,  an Israeli  corporation  and wholly  owned  subsidiary
(Intacta Labs),  primarily conducts product research and development in the high
tech area of Beer  Sheba,  Israel,  and is  currently  conducting  new  research
projects expected to produce significant time and cost savings through continued
development of a medium for transmitting and storing data in secure formats.

PRINCIPLES OF CONSOLIDATION

     The accompanying  consolidated financial statements include the accounts of
the Company and its wholly owned  subsidiaries.  All  intercompany  accounts and
transactions have been eliminated.

USE OF ESTIMATES

     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that affect the  reported  amounts of assets and  liabilities,  the
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements,  and the  reported  amounts  of  revenues  and  expenses  during the
reporting period. Actual results could differ from those estimates.

SOFTWARE DEVELOPMENT COSTS

     In accordance with Statement of Financial  Accounting  Standards (SFAS) No.
86,  "Accounting  for the Costs of  Computer  Software  to Be Sold,  Leased,  or
Otherwise  Marketed",  costs  related to the  research  and  development  of new
products and  enhancements  to existing  products are expensed as incurred until
technological  feasibility  of the product has been  established,  at which time
such costs are capitalized,  subject to expected recoverability.  Therefore, the
Company  has not  capitalized  any  software  development  costs  related to its
products,  since  the time  period  between  technological  feasibility  and the
general release of a market accepted product is not significant.

LONG-LIVED ASSETS

     Long-lived  assets,  such  as  patents  and  property  and  equipment,  are
evaluated for impairment when events or changes in  circumstances  indicate that
the carrying  amount of the assets may not be recoverable  through the estimated
undiscounted  future cash flows resulting from the use of these assets. When any
such impairment exists, the related assets will be written down to fair value.

                                        7
<PAGE>

                            INTACTA TECHNOLOGIES INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

     In October 2001, the Financial  Accounting Standards Board issued Statement
of Financial Accounting Standards, (SFAS No. 144), "Accounting for Impairment of
Disposal  of  Long-Lived   Assets."  SFAS  No.  144  supersedes  SFAS  No.  121,
"Accounting for the Impairment of Long-Lived  Assets and Long-Lived Assets to be
Disposed  of,"  and  addresses  financial   accounting  and  reporting  for  the
impairment or disposal of  long-lived  assets.  This  statement is effective for
fiscal years  beginning after December 15, 2001. The Company does not expect the
adoption of SFAS No. 144 to have a material impact on its financial statements.

     In June 2001, the Financial Accounting Standards Board finalized Statements
No. 141,  "Business  Combinations"  (SFAS 141), and No. 142, "Goodwill and Other
Intangible  Assets" (SFAS 142). SFAS 141 requires the use of the purchase method
of  accounting  and  prohibits  the use of the  pooling-of-interests  method  of
accounting for business  combinations  initiated  after June 30, 2001.  SFAS 141
also requires that the Company recognize  acquired  intangible assets apart from
goodwill if the  acquired  intangible  assets meet  certain  criteria.  SFAS 141
applies to all  business  combinations  initiated  after  June 30,  2001 and for
purchase  business  combinations  completed  on or after July 1,  2001.  It also
requires,  upon adoption of SFAS 142, that the Company  reclassify  the carrying
amounts of intangible assets and goodwill based on the criteria in SFAS 141.

     SFAS 142 requires,  among other things,  that companies no longer  amortize
goodwill,  but instead  test  goodwill  for  impairment  at least  annually.  In
addition,  SFAS 142 requires that the Company  identify  reporting units for the
purposes of assessing  potential  future  impairments of goodwill,  reassess the
useful  lives  of  other  existing  recognized   intangible  assets,  and  cease
amortization of intangible  assets with an indefinite useful life. An intangible
asset  with an  indefinite  useful  life  should be  tested  for  impairment  in
accordance  with the guidance in SFAS 142. SFAS 142 is required to be applied in
fiscal  years  beginning  after  December  15,  2001 to all  goodwill  and other
intangible assets recognized at that date,  regardless of when those assets were
initially  recognized.  SFAS 142 requires the Company to complete a transitional
goodwill  impairment  test six months from the date of adoption.  The Company is
also required to reassess the useful lives of other intangible assets within the
first interim  quarter after  adoption of SFAS 142. The adoption of SFAS No. 141
and SFAS No.  142 is not  expected  to have a material  effect on the  Company's
financial position,  results of operations and cash flows in 2002 and subsequent
years.

REVENUE RECOGNITION

     The Company's revenue recognition policies are in compliance with generally
accepted  accounting  principles  including  Statement  of Position  (SOP 97-2),
:"Software Revenue Recognition". As such, the Company recognizes product revenue
upon  shipment if persuasive  evidence of an  arrangement  exists,  delivery has
occurred, the fees are fixed and determinable and collectibility is probable.

     Revenues,  if any, from  arrangements to provide  maintenance,  bug fixing,
support,  upgrades and enhancements are recognized over the period in which such
arrangements  exist.  While  such  arrangements  were  made  available  to  some
customers on a limited basis during the reporting  periods  presented,  SOP 97-2
allows for full revenue  recognition  upon delivery if certain criteria are met.
Such  criteria  include such factors as  insignificant  costs of providing  such
arrangements and minimal and infrequent  upgrades and enhancements,  among other
things.  The Company met the  conditions of such criteria and, as a result,  was
not  required to defer the  recognition  of revenue for  arrangements  described
above.

     License revenues are recognized based on actual sales of licensed  software
by a  customer/licensee  and are not  recognized by the company as revenue until
the final sale is reported by the  customer/licensee.  This is the time at which
the Company  believes that revenue  recognition in accordance  with SOP 97-2, as
described  above,  has  occurred.   Support  revenue  is  not  integral  to  the
functionality of the licensed software and is billed and recognized as incurred.

                                        8
<PAGE>

                            INTACTA TECHNOLOGIES INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

     The  Company  believes  that  it is in  compliance  with  Staff  Accounting
Bulletin No. 101, "Revenue Recognition",  which outlines the basic criteria that
must be met to recognize  revenue and  provides  guidance  for  presentation  of
revenue and for disclosure related to revenue recognition  policies in financial
statements filed with the SEC.

LOSS PER SHARE

     Basic  loss  per  share  is   computed   by   dividing   net  loss  by  the
weighted-average  number of common shares outstanding during the period.  Shares
issued  during the year are  weighted for the portion of the year that they were
outstanding. Diluted loss per share is computed in a manner consistent with that
of basic loss per share while giving effect to all  potentially  dilutive common
shares  outstanding  during the period. As a result of losses, all stock options
and  warrants  outstanding  for the  periods  presented  were  antidilutive  and
accordingly, were excluded from the computation of loss per share.

2.   GOING CONCERN

     The accompanying  consolidated financial statements have been prepared on a
going  concern  basis,  which  contemplates  the  realization  of assets and the
satisfaction  of liabilities  in the normal course of business.  As shown in the
consolidated  financial  statements,  the  Company has a  cumulative  deficit of
$26,381,900  through  March 31,  2002 and has  incurred  losses  of  $3,521,400,
$4,551,200 and $3,617,600 for the years ended December 31, 2001,  2000 and 1999,
and $638,100 for the three  months  ended March 31,  2002,  respectively.  These
losses were  primarily the result of the Company's  transition in late 1997 from
production and marketing of its  facsimile-based  products upon realization that
the market potential for such products was diminished, and the significant costs
required  to  support  research,  development  and  marketing  efforts  for  the
Company's  INTACTA.CODE  related  technology.  These  conditions  give  rise  to
substantial  doubt about the Company's  ability to continue as a going  concern.
The  financial  statements  do  not  include  any  adjustments  relating  to the
recoverability  and classification of assets or the amount and classification of
liabilities  that might be necessary should the Company be unable to continue as
a going concern.

     Through the first half of 2000,  the Company's  marketing and sales efforts
were limited and the Company focused its efforts on design revisions to its core
applications  without the benefit of significant cash flow from  operations.  In
the  second  half of  2000,  primarily  as a  result  of  additional  resources,
marketing  efforts  increased  and, in addition to marketing its  technology for
licensing  arrangements,  the Company  focused on the  marketing of its suite of
INTACTA.CODE  Software  Development Kit (SDK) products,  which were subsequently
launched in March 2001. This marketing  generated  increased activity to its web
site and  initiated  downloads  of the offered  Trial SDK.  There is not yet any
revenue  impact from this product line. In addition to the above,  at the end of
third quarter 2001 the Company launched a suite of data communications  products
targeted to the  health-care  industry  addressing new  health-care  information
security regulations; the Health Insurance Portability and Accountability Act of
1996 (HIPAA).

     The Company's capital requirements continue to be significant and it is not
currently  generating revenues from operations  sufficient to fund its operating
activities. The Company anticipates incurring continuing losses in the future as
it  expands  the  development  and  marketing  of  its  software   products  and
technology.  Based upon current  estimates,  management  believes  that existing
cash,  supplemented  with funds to be  received in  accordance  with the license
agreements  described  in  Note 4,  will be  sufficient  to fund  the  Company's
operating  activities  and  capital  requirements  into the  middle of its third
quarter  of  2002.   Unanticipated  changes  in  economic  conditions  or  other
unforeseen  circumstances  may cause  the  Company  to expend  its cash and cash
equivalents in a shorter period of time.

     As a result of the above, the Company's  continuation as a going concern is
substantially  dependent  upon its ability to obtain  additional  financing that
will be required to fund  research  and  development  and  marketing  of its new
products as well as to fund its current  operating  activities.  If  significant
revenues materialize and adequate financing is obtained, the Company anticipates
viability  for the year 2002 and beyond,  though there can be no assurance  that
the Company will be successful in these  efforts.  At this time the Company does
not have any current arrangements with respect to other

                                        9
<PAGE>

                            INTACTA TECHNOLOGIES INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

potential sources of additional  financing and cannot assure you that additional
financing will be available to it on commercially reasonable terms or at all.

3.   SEGMENT INFORMATION

     During 1999, the Company adopted SFAS No. 131  "Disclosures  about Segments
of an Enterprise and Related  Information"  which establishes  standards for the
way that public business enterprises report information about operating segments
in their  financial  statements.  The  standard  defines  operating  segments as
components  of an  enterprise  about which  separate  financial  information  is
available that is evaluated  regularly by the chief operating  decision maker in
deciding how to allocate resources and in assessing performance.  Based on these
standards  the Company  has  determined  that it operates in a single  operating
segment:  the  development,  marketing  and  licensing  of software  and sale of
ancillary components.

Geographic Segments:

     The following table represents revenues and other financial  information at
and for the periods designated below.  Revenues attributable to geographic areas
are based on the location of the customer.

                                      MARCH 31, 2002          December 31, 2001
================================================================================
  Long-lived assets (gross)
     - United States                    $   97,000                 $ 97,000
     - Israel                              292,200                  292,200
================================================================================
Three Months Ended June 30,         THREE MONTHS ENDED        Three months ended
                                           2002                      2001
--------------------------------------------------------------------------------
  Revenues
     Asia                               $        -                 $  4,400
     Africa/Mid-East                        22,200                   82,200
     North America                          32,100                    5,400
--------------------------------------------------------------------------------
                                        $   54,300                 $ 92,000
================================================================================

4.   SUBSEQUENT EVENTS

     On May 9, 2002, the Company entered into a formal licensing  agreement with
Zixsys  Inc.,  a  newly  formed  joint  venture   between  Sanyo   Semiconductor
Corporation and Imagis Technologies, Inc., an affiliated entity, relating to the
licensing of its technology for  integration  by Zixsys in the  development  and
manufacturing  of advanced  security based  products and systems.  The agreement
provides  for the  payment  of a  non-refundable  initial  licensing  fee to the
Company of  approximately  $470,000,  which the  Company  anticipates  receiving
before  the end of May 2002,  as well as  subsequent  royalty  fees  based  upon
revenues  from  sales  of  products  by  Zixsys   incorporating   the  Company's
technology.

                                       10
<PAGE>

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

     The  Private   Securities   Litigation   Reform  Act  of  1995  provides  a
"safe-harbor" for forward-looking  statements.  Certain statements  contained in
this report that are not historical fact,  including,  but not limited to, those
concerning its  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
its actual results to differ from expectations including variations in the level
of orders,  general economic  conditions in the markets served by its customers,
international  economic  and  political  climates,   timing  of  future  product
releases,  difficulties or delays in product  functionality of performance,  its
failure to respond adequately to changes in technology or customer  preferences,
changes in its pricing or that of its  competitors  and its  inability to manage
growth. All of the above factors constitute significant risks to its operations.
There can be no assurance that the Company's  results of operations  will not be
adversely  affected  by one or more of these  factors.  As a result,  its actual
results  may  vary  materially  from  its  expectations.  The  words  "believe",
"expect",  "anticipate",  "intend",  and "plan" and similar expressions identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these  forward-looking  statements which speak only as of the date the statement
was made.

GENERAL

     The  Company  is engaged  in the  development  and  marketing  of  software
products  based on its  INTACTA.CODE  technology  which  provides  solutions and
applications for the secure storage and  bi-directional  transmission of data in
digital and non-digital media.

     Its  revenues  were  $137,400  for fiscal  1999,  $794,500 for fiscal 2000,
$140,800 for fiscal 2001, and $54,300 for the three months ended March 31, 2002.

     Its revenues in fiscal 1999 reflect the transition of its business from the
production and sale of facsimile  storage and retrieval  products to development
of software products based upon its core technology. Revenues from the licensing
of its technology for fiscal 1999 were $73,400, representing approximately 53.4%
of its total  revenues for fiscal 1999. The remainder of its revenues for fiscal
1999 was derived  from the sale from its  inventory  of products  and  component
parts relating to its discontinued facsimile-based business.

     Through the second  quarter of fiscal  2000,  primarily  as a result of its
limited financial  resources and personnel  available for marketing  activities,
the Company made limited progress in establishing further licensing arrangements
for its technology. The majority of its revenues during this time were generated
primarily from a consulting  arrangement and the sale of  discontinued  hardware
products.  This consulting  project was a one-time service  performed for one of
its  clients  and was  completed  during  the  second  quarter  of fiscal  2000.
Consulting fees from this project  accounted for  approximately 42% of its total
revenues  for fiscal  2000.  While the Company may perform  certain  consulting,
maintenance and other support  services for  prospective  customers that license
its  technology  or  software  products,   for  which  the  Company  anticipates
generating  additional  fees,  the Company does not  anticipate  any  meaningful
portion of its  revenues in the future to be derived from these  consulting  and
related services. Beginning in the second quarter of fiscal 2000, as a result of
increased  resources  and a shift of  personnel  to  marketing  activities,  the
Company  entered  into  two  licensing  arrangements  for  its  technology  with
third-party  enterprises.  For fiscal 2000, its licensing revenues were $94,000.
Although this  represented  an increase of  approximately  28% from fiscal 1999,
licensing revenues accounted for only approximately 12% of its total revenues in
fiscal  2000.  Sales of certain  test  platforms  constructed  principally  from
component parts from its  discontinued  facsimile  business,  the production and
sale of which has since been discontinued, together with sales of other products
from  its  inventory  of  discontinued  facsimile  business,  accounted  in  the
aggregate for approximately 46% of its total revenues for fiscal 2000.

     As a result of its continuing  shift in business  strategy toward licensing
of its technology and software  applications  combined with the depletion of the
remaining  inventory of hardware and other  non-proprietary  computer processing
equipment from its discontinued  facsimile  business,  its sales of products and
components decreased to $94,400 for fiscal 2001, representing an approximate 74%
decrease from the prior year. Further, as a consequence of its reduced marketing
resources  resulting in its  inability to obtain  additional  customers  for its
Developer's  Edition and  Enterprise  Edition SDK products,  as well as extended
sales  cycles for  implementation  of its  technology  and  related  products to
existing customers,

                                       11
<PAGE>

royalties  from  licensing  arrangements  decreased  to $46,400 for fiscal 2001,
representing an approximate 51% decrease in such revenues from the prior year.

     In March 2001,  the Company  introduced  a suite of  INTACTA.CODE  software
development   kits,  or  SDK's,  for  integration  by  software   developers  in
applications  requiring secure transmission and storage of compressed data, and,
in October 2001, the Company introduced a suite of data communications  software
products   addressing   security   features  in  connection   with  new  privacy
requirements  under HIPAA.  Although  the release of its SDK products  generated
increased  activity to its web site and initiated  downloads of its INTACTA.CODE
Trial Version SDK, the Company has not yet received any meaningful revenues from
this product line or from its data  communications  software products addressing
HIPAA regulations.

     The sales cycle for the licensing of the Company's  technology  and related
software products commences at the time a prospective  customer  demonstrates an
interest in licensing  the  technology or product and ends upon the delivery and
installation of the technology or product and varies depending upon the customer
and the product sought for licensing. Sales of products such as the INTACTA.CODE
SDK  Developer's  Edition  and the INTACTA  Express-Healthcare  Edition may have
shorter  sales cycles  resulting  from their  specific  utilities  whereas sales
cycles for products  such as  INTACTA.CODE  SDK  Enterprise  Edition and INTACTA
Bridgeway-Healthcare  Edition  could  extend for periods of nine months or more,
depending  on the time  required by the  customer to evaluate the utility of the
product for its operations.

     The Company's  independent auditors have included an explanatory  paragraph
in the report on its  financial  statements  for each of the three  years in the
period ended December 31, 2001,  stating that recurring  losses from  operations
and an accumulated deficit at December 31, 2001 of $25,743,800 raise substantial
doubt its ability to  continue as a going  concern.  The  Company's  accumulated
deficit as of March 31, 2002 is $26,381,900.

RESULTS OF OPERATIONS

Three months ended March 31, 2002 compared to three months ended March 31, 2001

     Revenues.  Revenues  decreased by $37,700 or 41.0% to $54,300 for the three
months ended March 31,  2002,  from $92,000 for the three months ended March 31,
2001. This decrease was primarily attributable to more limited sales of products
and components from its discontinued facsimile-based business, and was partially
offset by an  increase  in  royalty  revenues  from new and  existing  licensing
arrangements.

     Cost  of  products  and  components.  There  was no cost  of  products  and
components  for the three months  ended March 31,  2002,  compared to $13,800 of
such costs for the three months ended March 31, 2001. The decrease in such costs
was  attributable  to the  corresponding  reduction  in  sales  of  discontinued
products and components.

     Research  and  development  expenses.  Research  and  development  expenses
decreased  by $132,500 or 45.3% to $160,000 for the three months ended March 31,
2002,  from $292,500 for the three months ended March 31, 2001. The decrease was
primarily  attributable  to the  reduction  in staff  related  to the  Company's
discontinued   facsimile-based   business.  This  decrease  was  also  partially
attributable  to a decrease in non-cash  charges to $7,600 for the first quarter
of fiscal 2002 from $47,300 for the first quarter of fiscal 2001, to account for
options  previously granted below fair market value as compensation to employees
and consultants.

     Sales and marketing  expenses.  Sales and marketing  expenses  decreased by
$183,200 or 71.6%,  to $72,500 for the three months  ended March 31, 2002,  from
$255,700 for the three months ended March 31, 2001.  The decrease was  primarily
attributable to the lowered (i) salary costs from the reduction of personnel and
(ii) expenses related to marketing  materials,  as well as consultants and other
outside services.

     General and administrative  expenses.  General and administrative  expenses
increased  by $1,900 or 0.4% to $460,100  for the three  months  ended March 31,
2002, from $458,200 for the three months ended March 31, 2001. This increase was
attributable to legal costs  associated  with the Company's  defense of a patent
infringement  claim,  and which  increase  was  partially  offset by lowered (i)
salary costs related to the reduction of its administrative staff, and

                                       12
<PAGE>

(ii) third-party  consulting and  professional  fees in connection with business
strategy development and management and operation of its business. This increase
was also partially  offset by a reduction in non-cash  charges to $4,900 for the
first quarter of fiscal 2002 from $5,800 for the first quarter of fiscal 2001 to
account for options  previously  granted below fair market value as compensation
to employees and consultants.

     Interest  income  (expense),  net. Net  interest  income was $2,200 for the
three months ended March 31, 2002 compared to $41,200 of net interest income for
the three months ended March 31, 2001, a decrease of $39,000 or 94.7%.

     Net  loss.  As a  result,  net  loss  decreased  by  $258,300  or 28.8 % to
$638,100,  or $(.03) per share,  for the three months  ended March 31, 2002,  as
compared to its net loss of $896,400,  or $(.04) per share, for the three months
ended March 31, 2001.

LIQUIDITY AND CAPITAL RESOURCES

     Since  inception,  the Company has financed its operating costs and capital
requirements primarily through:

     o    the private sale of its capital stock to various parties;

     o    non-interest-bearing  loans from Valor Invest Limited, an affiliate of
          the Company's  Chairman of the Board,  substantially  all of which was
          subsequently repaid or converted into equity; and

     o    cash acquired in connection with the acquisition of its subsidiaries.

     At March 31, 2002 the Company  had  $186,500 in cash and cash  equivalents,
the majority of which  represented  the balance of proceeds  remaining  from its
October 2000  private  placement.  At March 31, 2002,  the Company had a working
capital  deficit of  $210,700  as  compared  to working  capital of  $393,700 at
December 31, 2001.

     Cash used in operating activities for the three months ended March 31, 2002
was $492,500,  primarily consisting of net loss, partially offset by an increase
in accounts payable of $95,100,  and a decrease in other assets of $31,500.  The
Company did not  receive or use cash in  investing  activities  during the first
quarter of 2002 and as a result, had a net decrease of $492,500 in cash and cash
equivalents during the three months ended March 31, 2002.

     Cash used in operating activities for the three months ended March 31, 2001
was $885,700, primarily consisting of net loss and a decrease of an aggregate of
$151,900 in accrued  expenses and related party  payables,  partially  offset by
$55,000 of non-cash  compensation  expense and a decrease in accounts receivable
of $26,200.  Cash used in investing  activities  was $37,000.  As a result,  the
Company had a net decrease of $922,700 in cash and cash  equivalents  during the
three months ended March 31, 2001.

     Other than the leases for its offices and research  facilities  in Atlanta,
Georgia and Beer Sheba,  Israel,  and certain computer equipment relating to its
research  and  development  activities,  the Company  does not have any material
capital  obligations  and the Company  does not  anticipate  making any material
capital  expenditures in the immediate future.  The Company's  aggregate minimum
commitments  under its existing  operating leases for fiscal 2002, 2003 and 2004
are $153,000,  $153,300 and $144,500,  respectively.  Additionally,  the Company
does  not  carry  any  material  short  or  long-term  debt or  other  financing
commitments.  As a result,  the  majority of its  business  costs are the direct
result of its operating costs including personnel expenses, such as payroll, and
other facility maintenance and overhead expenses.

     The  Company  is not  currently  generating  sufficient  revenues  from its
operations  to fund its operating  costs and expenses.  The Company has incurred
losses to date  resulting  in an  accumulated  deficit  as of March 31,  2002 of
$26,381,900.  The Company  anticipates  losses to continue.  Since September 30,
2001 the Company has reduced its personnel by approximately 30%, and the Company
has recently instituted a firm-wide reduction of salaries by 20%. Based upon its
recent cost-reduction efforts, management estimates that cash, supplemented with
funds to be received in accordance with the license  agreement  described below,
will be  sufficient to fund its operating  activities  and capital  requirements
into the middle of its third quarter of 2002.  Unanticipated changes in economic
conditions or other unforeseen circumstances may cause the Company to expend its
cash and cash equivalents in a shorter period of time.

                                       13
<PAGE>

     In addition to its cost-reduction  efforts,  the Company has engaged in, or
is currently  engaging  in, the  following  activities  in an effort to increase
revenues and obtain  financing to supplement  its cash and cash  equivalents  in
order to meet its operating costs over the next 12 months:

     o    Conducting a marketing  program involving several pilot sites in which
          the Company has installed its data  communications  software  products
          for  application  solutions  under HIPAA's  privacy  regulations.  The
          Company  anticipate  that the Company will begin to generate  revenues
          from one or more of these sites in the third quarter of fiscal 2002;

     o    Developing a qualified  value-added  reseller  program for its INTACTA
          Bridgeway product;

     o    Seeking to establish additional business alliances for the integration
          of its  technology  into firmware  products in the area of secure data
          storage,  transmission  and  retrieval,  and obtaining  financing from
          these business alliances.

     In May 2002,  the Company  entered into a formal  licensing  agreement with
Zixsys  Inc.,  a  newly  formed  joint  venture   between  Sanyo   Semiconductor
Corporation and Imagis  Technologies,  Inc., an affliliated entity,  relating to
the licensing of its technology for integration by Zixsys in the development and
manufacturing  of advanced  security based  products and systems.  The agreement
provides  for the  payment  of a  non-refundable  initial  licensing  fee to the
Company of  approximately  $470,000,  which the  Company  anticipates  receiving
before  the end of May 2002,  as well as  subsequent  royalty  fees  based  upon
revenues  from  sales  of  products  by  Zixsys   incorporating   the  Company's
technology.

     The Company's  ability to continue as a going concern is dependent upon its
ability to obtain additional financing or generate increased revenues to support
its  current  operating  activities  as well as  research  and  development  and
marketing  of its new  products.  At this  time  the  Company  does not have any
current  arrangements  with  respect to other  potential  sources of  additional
financing and cannot assure you that  additional  financing will be available to
the Company on commercially reasonable terms or at all. If the Company is unable
to increase its revenue  from  existing  sources,  develop  revenues  from those
potential sources listed above or obtain additional  financing over the next few
months and as  subsequently  needed,  the  Company may be required to curtail or
cease operations.

CRITICAL ACCOUNTING POLICIES

     The Company  believes the following  critical  accounting  policies,  among
others,  affect  its  more  significant  judgments  and  estimates  used  in the
preparation of its consolidated financial statements.

     Revenue  Recognition.  The Company's  revenue  recognition  policies are in
compliance with generally accepted accounting  principles including Statement of
Position  (SOP)  97-2,  Software  Revenue  Recognition.  As  such,  the  Company
recognizes   product  revenue  upon  shipment  if  persuasive   evidence  of  an
arrangement exists,  delivery has occurred,  the fees are fixed and determinable
and collectibility is probable.

     Revenues,  if any, from  arrangements to provide  maintenance,  bug fixing,
support,  upgrades and enhancements are recognized over the period in which such
arrangements  exist.  While  such  arrangements  were  made  available  to  some
customers on a limited basis during the reporting  periods  presented,  SOP 97-2
allows for full revenue  recognition  upon delivery if certain criteria are met.
Such  criteria  include such factors as  insignificant  costs of providing  such
arrangements and minimal and infrequent  upgrades and enhancements,  among other
things.  The Company met the  conditions of such criteria and, as a result,  was
not  required to defer the  recognition  of revenue for  arrangements  described
above.

     License revenues are recognized based on actual sales of licensed  software
by a  customer/licensee  and are not  recognized by the company as revenue until
the final sale is reported by the  customer/licensee.  This is the time at which
the Company  believes that revenue  recognition in accordance  with SOP 97-2, as
described  above,  has  occurred.   Support  revenue  is  not  integral  to  the
functionality of the licensed software and is billed and recognized as incurred.

     The  Company  believes  that we are in  compliance  with  Staff  Accounting
Bulletin ("SAB") No. 101, Revenue Recognition, which outlines the basic criteria
that must be met to recognize  revenue and provides guidance for presentation of
revenue and for disclosure related to revenue recognition  policies in financial
statements filed with the SEC.

     Valuation of Long-lived  Assets.  The Company evaluates  long-lived assets,
such as patents and property and equipment for impairment when events or changes
in  circumstances  indicate that the carrying  amount of these 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 are
written down to fair value.

                                       15
<PAGE>

     Software  Development  Costs.  In  accordance  with  Statement of Financial
Accounting  Standards No. 86,  "Accounting for the Costs of Computer Software to
Be Sold,  Leased,  or  Otherwise  Marketed",  costs  related to the research and
development of new products and  enhancements to existing  products are expensed
as incurred until technological feasibility of the product has been established,
at which time such costs are  capitalized,  subject to expected  recoverability.
Therefore,  the Company  has not  capitalized  any  software  development  costs
related to its products, since the time period between technological feasibility
and the general release of a market accepted product is not significant.

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company does not engage in trading market risk  sensitive  instruments,
nor does the Company  purchase for  investment,  hedging or for purposes  "other
than trading",  instruments that are likely to expose it to market risk, whether
it be interest rate, foreign currency exchange,  commodity price or equity price
risk.  Consequently,  management believes that as of March 31, 2002, the Company
does not have exposure to foreign currency exchange risk.

RISK FACTORS

Risks Related to the Company's Financial Condition

THE COMPANY HAS INCURRED  LOSSES SINCE  INCEPTION AND IT EXPECTS TO INCUR LOSSES
IN THE FUTURE.

     The Company has incurred  significant  net losses in each fiscal year since
its inception and expects losses to continue. During the year ended December 31,
2000,  the Company had a net loss of  approximately  $4.5 million;  for the year
ended December 31, 2001, it had a net loss of  approximately  $3.5 million;  and
for the three months ended March 31,  2002,  it had a net loss of $638,100.  The
Company  cannot  assure  you  that  its  future   operations  will  ever  become
profitable.

THE COMPANY'S  INDEPENDENT  AUDITORS HAVE EXPRESSED  SUBSTANTIAL DOUBT ABOUT ITS
ABILITY TO CONTINUE AS A GOING CONCERN.

     Primarily as a result of the Company's  recurring  losses,  its independent
auditors qualified their opinion on the Company's 2001 financial  statements and
in the two  preceding  years to  include  an  explanatory  paragraph  expressing
substantial doubt about its ability to continue as a going concern.

BECAUSE THE  COMPANY'S  OPERATIONS DO NOT GENERATE CASH FLOW, IF IT IS UNABLE TO
OBTAIN FINANCING WHEN NEEDED, IT MAY BE REQUIRED TO CURTAIL OR CEASE OPERATIONS.

     The  Company's  operating  requirements  have been and will  continue to be
significant.  Its operations do not currently generate positive cash flow. Based
upon current  estimates,  the Company  believes that it will be able to

                                       15
<PAGE>

fund its operating  activities and capital  requirements only through the middle
of  the  third  fiscal  quarter  of  2002.  Unanticipated  changes  in  economic
conditions or other unforeseen circumstances may cause the Company to expend its
cash and cash  equivalents  in a shorter period of time, in which case it may be
required to seek  additional  financing  sooner in order to fund its capital and
operating  activities.  The Company does not have any current  arrangements with
respect to other potential sources of additional  financing.  The Company cannot
assure you that  additional  financing  will be available to it on  commercially
reasonable  terms or at all. If the Company is unable to obtain  financing  when
needed, it may be required to curtail or cease operations.

Risks Related to the Company's Operations

THE COMPANY MAY NOT BE ABLE TO ACHIEVE MARKET  ACCEPTANCE FOR SOFTWARE  PRODUCTS
INCORPORATING ITS TECHNOLOGY.

     Because its  technology  and related  software  products have only recently
been  introduced  and  are  marketed  in a  rapidly  evolving  industry,  market
acceptance  of its  technology is  uncertain.  Despite the expanding  market for
secure data transmission and storage solutions, the Company has not been able to
increase its market  acceptance  and its revenues  from  software  licensing has
declined.  The Company will be required to expend a substantial  amount of funds
on  marketing  efforts  to  inform  end-users  of  the  perceived  benefits  and
advantages of its technology and to update and enhance its existing products and
technology  on a timely basis.  The Company  cannot assure you that it will have
the  funds  or  other   resources   necessary  to  achieve  its   marketing  and
product-enhancement  objectives and successfully  compete in its markets or that
these   increased   efforts,   if  engaged  in,   will   result  in   successful
commercialization and market acceptance of its software products and technology.
Moreover,  potential  customers  may elect to utilize  competitive  products and
services  embodying new technologies  that they believe to be more efficient and
have other advantages over its technology.

THE COMPANY'S  FUTURE  REVENUE GROWTH  DEPENDS  SUBSTANTIALLY  ON ITS ABILITY TO
SUCCESSFULLY  IDENTIFY  APPLICATIONS OR PRODUCTS FOR WHICH ITS TECHNOLOGY MAY BE
DEVELOPED AND MARKETED.

     If the Company is unable to  identify  applications  or products  that will
achieve widespread  commercial acceptance or adapt or enhance its technology for
these  applications  or products the Company will be unable to expand the market
for  its  technology.  Adapting  and  enhancing  technology  as  complex  as the
Company's will be subject to risks of unanticipated  technical or other problems
and  possible   insufficiency  of  funds  which  could  result  in  a  delay  of
introduction or abandonment of the proposed  application or product. The Company
cannot  assure you that it will be able to identify  applications  or  products,
adapt its technology for specific  applications or products on a timely basis or
be able to achieve significant market acceptance of its technology.

THE  COMPANY HAS  LIMITED  MARKETING  CAPABILITIES  AND WILL BE  DEPENDENT  UPON
ARRANGEMENTS  WITH THIRD-PARTY  SOLUTION  PROVIDERS TO MARKET AND DISTRIBUTE ITS
TECHNOLOGY.

     The Company has limited marketing experience, as well as limited financial,
personnel and other resources, to undertake extensive marketing activities. As a
result,  the Company relies to a large extent on  arrangements  with third party
solution  providers for the marketing and  distribution of its  technology.  The
Company has only recently  entered into  marketing  arrangements  with a limited
number of  third-party  solution  providers  and other  strategic  partners and,
accordingly,  has not  developed  any  meaningful  sales  through  any of  these
marketing arrangements.  Its prospects will depend on its ability to develop and
maintain strategic relationships with additional solution providers and upon the
marketing and distribution  efforts of these solution  providers.  Additionally,
the time and resources devoted to these activities generally will be contributed
to and  controlled by these third  parties and not by the Company.  A decline in
the financial  prospects of a third-party  solution  provider or other strategic
partner with whom the Company develop a significant marketing relationship could
adversely affect its sales efforts.

THE COMPANY FACE INTENSE  COMPETITION IN THE MARKETS FOR ITS  TECHNOLOGY,  WHICH
COULD  RESULT IN PRICE  REDUCTIONS,  LOWER  GROSS  MARGINS OR LOSS OF ITS MARKET
SHARE.

                                       16
<PAGE>

     The  markets  for its  technology  are  characterized  by rapidly  changing
technological  and  industry  standards.  As a result,  to compete  effectively,
companies must be able to develop new products, technologies and applications to
respond to these changes.  Because the Company has limited resources, it may not
be able to develop new  products,  technologies  and  applications  or otherwise
compete  successfully.  Many of the  Company's  competitors  have  substantially
greater financial,  technical,  personnel,  and other resources than it does and
have established reputations for success in the development, licensing, and sale
of their products and technology.  Additionally, future technologies or products
could  render its  technology  obsolete or less  marketable.  As a result of the
Company's  limited  resources,  significant  competition  and the  nature of the
markets for its technology, the Company may not be able to compete successfully.

AS AN EARLY-STAGE  COMPANY,  THE COMPANY'S  LIMITED  OPERATING  HISTORY IS NOT A
RELIABLE  PREDICTOR  OF ITS  FUTURE  OPERATING  RESULTS  AND WE FACE MANY  RISKS
INCLUDING LIQUIDITY PROBLEMS, DELAYS AND UNCERTAINTIES.

     The Company  was  organized  in October  1997 and did not  commence  active
operations  until May 1998. In addition,  during 1998,  the Company  shifted the
focus of its business from  production and sale of  facsimile-based  products to
the development of advanced products based upon its proprietary technology. More
recently the Company has determined to focus on the commercial  exploitation  of
its technology for  applications  and solutions in the area of data  compression
and transmission. Because its business has significantly changed and much of the
Company's  historical  operating results do not reflect its current  operations,
the Company has a limited relevant operating history upon which you can evaluate
its performance and prospects. Additionally, the Company face many of the risks,
expenses,   delays,  problems  and  uncertainties   encountered  by  early-stage
companies in rapidly  evolving  markets,  including  generating and  maintaining
sufficient  liquidity for operating and capital expenses as well as identifying,
developing and marketing  commercially  viable products on a timely basis, which
could materially adversely affect its business and results of operations.

THE MAJORITY OF THE COMPANY'S RESEARCH AND DEVELOPMENT  ACTIVITIES ARE CONDUCTED
IN ISRAEL, WHICH MAY BE SUBJECT TO ECONOMIC, MILITARY AND POLITICAL INSTABILITY.

     The Company's  principal  research and  development  facility is located in
Beer Sheba,  Israel.  The  Company is,  therefore,  directly  influenced  by the
economic,  political and military  conditions in Israel and the Middle East. Any
major  hostilities  involving  Israel,  the interruption or curtailment of trade
between  Israel  and its  trading  partners  or a  significant  downturn  in the
economic or financial  condition of Israel could have a material  adverse effect
on its operations.

THE COMPANY IS THE SUBJECT OF A PATENT INFRINGEMENT CLAIM BY A THIRD PARTY.

     In November 2001,  Datastrip  International  Limited,  an Ireland  company,
filed a complaint in the United States District Court for the Northern  District
of Georgia  against the Company  alleging  patent  infringement.  In addition to
preliminary and permanent  injunctions  sought by Datastrip from further alleged
infringement  of its  patent,  Datastrip  seeks an  unstated  amount of monetary
damages  equal to three  times the amount the court  would  deem  sufficient  to
compensate Datastrip for the alleged  infringement.  Since this lawsuit is in an
early stage,  the Company  cannot predict the outcome and cannot assure you that
it will be  resolved  in the  Company's  favor or that an outcome of any further
litigation  or  settlement  would  not have a  material  adverse  effect  on its
operations or financial condition.

Risks Related to the Company's Securities

MOST OF THE COMPANY'S SHARES OF COMMON STOCK ARE CURRENTLY ELIGIBLE FOR SALE AND
COULD BE SOLD IN THE MARKET IN THE NEAR  FUTURE,  WHICH COULD  DEPRESS ITS STOCK
PRICE.

     The Company  currently has 20,345,924  shares of common stock  outstanding,
12,358,920 of which are currently freely tradable without  restriction under the
Securities Act of 1933. Of the remaining 7,987,004 shares outstanding, 6,412,004
shares have been  registered for resale.  The balance of shares  outstanding are
restricted securities, however, substantially all of these restricted securities
have been held for more than two years and are available for resale  pursuant to
Rule 144 promulgated under the Securities Act.

                                       17
<PAGE>

     The sale of a significant  number of shares of common stock could adversely
affect the market price of the Company's common stock. Moreover, as these shares
are sold,  the market  price  could drop  significantly  if the holders of these
restricted  shares sell them or if the market  perceives that the holders intend
to sell these shares.

THE  SIGNIFICANT  NUMBER OF  OUTSTANDING  OPTIONS AND WARRANTS COULD DEPRESS THE
MARKET PRICE OF THE COMPANY'S  COMMON STOCK AND COULD INTERFERE WITH ITS ABILITY
TO RAISE CAPITAL.

     The Company  currently has outstanding  options and warrants to purchase an
aggregate of 5,599,474  shares of its common stock,  at exercise  prices ranging
from $.75 to $3.50 per share.  To the extent  that the  outstanding  options and
warrants  are  exercised,  dilution  to  the  percentage  of  ownership  of  its
stockholders  will occur and any sales in the public  market of its common stock
underlying  those options and warrants may adversely  affect  prevailing  market
prices for its common stock.  Moreover, the terms upon which the Company will be
able to obtain  additional  equity  capital may be adversely  affected since the
holders of  outstanding  options and warrants  can be expected to exercise  them
when the Company would, in all likelihood,  be able to obtain any needed capital
on terms more favorable to us than those provided in the outstanding options and
warrants.

THE  COMPANY'S  COMMON STOCK IS SUBJECT TO THE SEC'S PENNY STOCK RULES WHICH CAN
AFFECT THE MARKET  LIQUIDITY  AND THE ABILITY OF  PURCHASERS  TO SELL ITS COMMON
STOCK.

     Because the Company's  common stock is not listed on the Nasdaq National or
SmallCap markets or a national  securities exchange and the trading price of its
common stock is below $5.00 per share,  trading in the Company's common stock is
subject  to the SEC's  penny  stock  rules,  which  severely  limit  the  market
liquidity  of its  common  stock and the  ability  of  purchasers  to sell their
shares.  As a result,  a purchaser of the  Company's  common stock could find it
more  difficult to dispose of, or obtain  accurate  quotations  as to the market
value of its common stock.

                          PART II. - OTHER INFORMATION

ITEM 6.   EXHIBITS AND REPORTS FILED ON FORM 8-K

     (a)  Exhibits
          none

     (b)  Reports on Form 8-K
          none

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<PAGE>

                                   SIGNATURES

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

Dated: May 20, 2002

                                        INTACTA TECHNOLOGIES INC.
                                        (Registrant)


                                        By: /s/ Noel R. Bambrough
                                        --------------------------
                                        Noel R. Bambrough
                                        President and CEO


                                        By: /s/ Graham E. Argott
                                        --------------------------
                                        Graham E. Argott
                                        Chief Financial Officer

                                       19