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 June 30, 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 August 12, 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 June 30, 2002 (unaudited)
            and December 31, 2001                                              3

          Consolidated Statements of Operations (unaudited)
            for the three and six months ended June 30, 2002 and 2001          5

          Consolidated Statements of Cash Flows (unaudited)
            for the six months ended June 30, 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 June 30, 2002; the consolidated  statements
of  operations  for the three and six months  ended  June 30,  2002 and June 30,
2001;  and the  consolidated  statements  of cash flows for the six months ended
June  30,  2002  and June  30,  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

                                               JUNE 30, 2002   December 31, 2001
                                                (Unaudited)
================================================================================

ASSETS

CURRENT
   Cash and cash equivalents                    $    182,200     $    679,000
   Accounts receivable                                26,800            7,200
   Prepaid insurance and other                        17,800          106,900
--------------------------------------------------------------------------------

Total current assets                                 226,800          793,100

PROPERTY AND EQUIPMENT, net                           35,500           68,700

PATENTS, net                                         118,700          119,500
--------------------------------------------------------------------------------

                                                $    381,000     $    981,300
================================================================================
See accompanying notes to unaudited consolidated financial statements.

                                       3
<PAGE>

                            INTACTA TECHNOLOGIES INC.
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                          JUNE 30, 2002   December 31, 2001
                                                           (Unaudited)
===========================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY (CAPITAL DEFICIT)

CURRENT LIABILITIES
<S>                                                        <C>              <C>
   Accounts payable                                        $    266,100     $    133,500
   Accounts payable - related parties                            83,400           35,000
   Accrued expenses                                             286,800          230,900
-------------------------------------------------------------------------------------------

Total current liabilities                                       636,300          399,400
-------------------------------------------------------------------------------------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDER'S 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                                                  (26,594,200)     (25,743,800)
   Unamortized stock compensation                                    --          (13,200)
-------------------------------------------------------------------------------------------

Total stockholder's equity (capital deficit)                   (255,300)         581,900
-------------------------------------------------------------------------------------------

                                                           $    381,000     $    981,300
===========================================================================================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.

                                       4
<PAGE>



                            INTACTA TECHNOLOGIES INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
            FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                THREE MONTHS ENDED                 SIX MONTHS ENDED
                                                          JUNE 30, 2002    June 30, 2001    JUNE 30, 2002    June 30, 2001
==========================================================================================================================

REVENUES
<S>                                                        <C>              <C>                    <C>              <C>
   Products and components                                 $      5,900     $     (3,700)          28,000           78,500
   Royalties from licensing arrangements                        472,700            8,900          504,800           18,600
--------------------------------------------------------------------------------------------------------------------------

Total revenues                                                  478,600            5,200          532,800           97,100
--------------------------------------------------------------------------------------------------------------------------

OPERATING EXPENSES
   Cost of products and components                                   --           10,400                            24,100
   Research and development (including non-cash
       compensation expense in 2002 and 2001
       respectively, for the three months ended June 30
       ($0, $47,300) and six months ended June 30
       ($7,600, $94,600))                                       130,800          310,400          290,800          602,600
   Sales and marketing (including non-cash
       compensation expense in 2002 and 2001
       respectively, for the three months ended June 30
       ($0, $2,000) and six months ended June 30
       ($700, $4,000))                                           93,600          255,000          166,100          511,000
   General and administrative (including non-cash
       compensation expense in 2002 and 2001
       respectively, for the three months ended June 30
       ($0, $5,800) and six months ended June 30
       ($4,900, $11,600))                                       460,200          433,800          920,200          892,000
--------------------------------------------------------------------------------------------------------------------------

Total operating expenses                                        684,600        1,009,600        1,377,100        2,029,700
--------------------------------------------------------------------------------------------------------------------------

Loss from operations                                           (206,000)      (1,004,400)        (844,300)      (1,932,600)
--------------------------------------------------------------------------------------------------------------------------

OTHER INCOME (EXPENSE)
   Interest income                                                  200           26,700            2,400           67,900
   Other                                                         (6,500)             800           (4,000)          (7,300)
--------------------------------------------------------------------------------------------------------------------------

Total other income (expense)                                     (6,300)          27,500           (1,600)          60,600
--------------------------------------------------------------------------------------------------------------------------

Loss before provision for income taxes                         (212,300)        (976,900)        (845,900)      (1,872,000)

PROVISION FOR INCOME TAXES                                            0                0            4,500            1,300
--------------------------------------------------------------------------------------------------------------------------

NET LOSS                                                   $   (212,300)    $   (976,900)        (850,400)      (1,873,300)
==========================================================================================================================

BASIC AND DILUTED LOSS PER COMMON SHARE                    $      (0.01)    $      (0.05)    $      (0.04)    $      (0.09)
==========================================================================================================================

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

                                       5
<PAGE>

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

<TABLE>
<CAPTION>
                                                             SIX MONTHS ENDED
                                                      JUNE 30, 2002    June 30, 2001
====================================================================================

OPERATING ACTIVITIES
<S>                                                    <C>              <C>
  Net loss                                             $   (850,400)    $ (1,873,300)
  Adjustments to reconcile net loss to cash
    used in operating activities:
       Amortization of stock options                         13,200          110,100
       Depreciation and amortization                         41,200           41,900
       Changes in operating assets and liabilities:
         Accounts receivable                                (19,600)          56,600
         Inventories                                             --            1,800
         Accounts receivable - related parties                   --           13,100
         Other current assets                                89,000          (47,100)
         Accounts payable                                   180,600           68,900
         Accounts payable - related parties                 (23,900)         (85,100)
         Accrued Expenses                                    80,300           (1,900)
------------------------------------------------------------------------------------

Cash used in operating activities                          (489,600)      (1,715,000)
------------------------------------------------------------------------------------

INVESTING ACTIVITIES
  Capital expenditures                                           --          (27,400)
  Patents                                                    (7,200)         (13,500)
------------------------------------------------------------------------------------

Cash used in investing activities                            (7,200)         (40,900)
------------------------------------------------------------------------------------

NET DECREASE IN CASH AND CASH
  EQUIVALENTS                                              (496,800)      (1,755,900)

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

CASH AND CASH EQUIVALENTS, end of period               $    182,200     $  2,148,600
====================================================================================

CASH RECEIVED DURING THE PERIOD FOR INTEREST, NET      $      2,400     $     67,900

CASH PAID DURING THE PERIOD FOR INCOME TAXES           $      4,500     $        900
</TABLE>

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  subsidiaries,  Intacta
Delaware,  Inc.,  and Intacta Labs,  Ltd,  (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,  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.
The Company believes that the  recoverability of its long-lived assets is likely
whether or not the Company continues as a going concern or ceases operations.

                                       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 144),  "Accounting for Impairment of
Disposal of Long-Lived  Assets." SFAS 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 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
$26,594,200   through  June  30,  2002.  The  Company  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  $850,400  for  the  six  months  ended  June  30,  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,  in advance of any
significant  generation of revenue.  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.

     The Company is continuing to incur  significant  losses from operations and
is not  generating  sufficient  revenue to meet its  operating  activities.  The
Company  anticipates  incurring  continuing losses in the future as it continues
the development and marketing of its software products and technology. Moreover,
the  Company  estimates  that cash and cash  equivalents  will be  substantially
depleted by the middle of the third  quarter of fiscal  2002.  The Company  will
therefore require third-party financing, either debt or equity, in the immediate
future in order to continue  operations.  At this time the Company does not have
any current  arrangements  with respect to other potential sources of additional
financing and cannot assure you that  additional  financing will be available to
it on  commercially  reasonable  terms  or at  all.  If  such  financing  is not
available  to the  Company in the near term,  the  Company  may be  required  to
curtail  its  operations  significantly  or  cease  operations  altogether.   If
operations  are  curtailed,  the Company  will  continue its efforts to generate
revenues by (i) assisting current  customers and business  partners  introducing
their products and processes  incorporating the Company's technology on a timely
basis,  and (ii)  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  additional  revenue and
financing from these business alliances.  There is no assurance,  however,  that
these  efforts  will  result  in an  increase  in  revenues  or the  receipt  of
financing.

                                       9
<PAGE>

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

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.

<TABLE>
<CAPTION>
                                                                         JUNE 30, 2002      December 31, 2001
===============================================================================================================
Long-lived assets (gross)
<S>                                                                        <C>                <C>
     - United States                                                       $   97,000         $   97,000
     - Israel                                                                 292,200            292,200
---------------------------------------------------------------------------------------------------------------
                            THREE MONTHS ENDED    Three months ended    SIX MONTHS ENDED   Six months ended
                                   2002                  2001                 2002               2001
===============================================================================================================
Revenues
     Asia                       $  469,000             $  3,700            $  469,000         $    8,000
     Africa/Mid-East                 4,800               (3,700)               27,000             78,500
     North America                   4,800                5,200                36,800             10,600
---------------------------------------------------------------------------------------------------------------
                                 $ 478,600             $  5,200            $  532,800         $   97,100
===============================================================================================================
</TABLE>

4.   SUBSEQUENT EVENTS

     On August 9, 2002 the Company  accepted the  resignations of two members of
its Board of Directors,  Charles Johnston and Bernard Girma. The Company has not
appointed new Board members in their place as of the date hereof.

                                       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.

     The Company's  revenues were $140,800 for fiscal 2001, and $532,800 for the
six months ended June 30, 2002.

     Beginning in 1998,  the Company  commenced  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.

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

     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 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.  Under the
agreement, the Company received in June 2002, a non-refundable initial licensing
fee of $469,000  and is entitled to receive  subsequent  royalty fees based upon
revenues  from  sales  of  products  by  Zixsys   incorporating   the  Company's
technology.

                                       11
<PAGE>

     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 June 30, 2002 is $26,594,200.

RESULTS OF OPERATIONS

Three months ended June 30, 2002 compared to three months ended June 30, 2001

     Revenues.  Revenues  increased by $473,400 to $478,600 for the three months
ended June 30, 2002,  from $5,200 for the three months ended June 30, 2001. This
increase was  primarily  attributable  to the receipt of an initial  license fee
from Zixsys, Inc., of $469,000.

     Cost  of  products  and  components.  There  was no cost  of  products  and
components for the three months ended June 30, 2002, compared to $10,400 of such
costs for the three months  ended June 30, 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 $179,600 or 57.9% to $130,800  for the three months ended June 30,
2002,  from $310,400 for the three months ended June 30, 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 $0 for the second quarter of
fiscal 2002 from $47,300 for the second  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
$161,400 or 63.3%,  to $93,600 for the three months  ended June 30,  2002,  from
$255,000 for the three months  ended June 30, 2001.  The decrease was  primarily
attributable  to (i) lowered salary costs and consulting fees from the reduction
of personnel as well as consultants and other outside  services and (ii) reduced
expenses  related  to  marketing  materials,  partially  offset by a  commission
expense of approximately $42,000 related to Zixsys Inc. license fees.

     General and administrative  expenses.  General and administrative  expenses
increased  by $26,400 or 6.1% to $460,200  for the three  months  ended June 30,
2002,  from $433,800 for the three months ended June 30, 2001. This increase was
attributable to legal costs  associated  with the Company's  defense of a patent
infringement  claim,  taxes of  approximately  $46,900  related to Zixsys,  Inc.
license fees,  partially offset by lowered salary costs related to the reduction
of its administrative staff, and third-party consulting and professional fees in
connection  with business  strategy  development and management and operation of
its business.

     Interest income (expense),  net. Net interest income was $200 for the three
months ended June 30, 2002  compared to $26,700 of net  interest  income for the
three months ended June 30, 2001.

     Net loss. As a result, net loss decreased by $764,600 or 78.3% to $212,300,
or $(.01) per share,  for the three months  ended June 30, 2002,  as compared to
its net loss of $976,900,  or $(.05) per share,  for the three months ended June
30, 2001.

Six months ended June 30, 2002 compared to six months ended June 30, 2001

     Revenues.  Revenues  increased  by $435,700 to $532,800  for the six months
ended June 30, 2002,  from $97,100 for the six months ended June 30, 2001.  This
increase was  primarily  attributable  to the receipt of an initial  license fee
from Zixsys, Inc., of $469,000 during the second quarter 2002.

     Cost  of  products  and  components.  There  was no cost  of  products  and
components  for the six months ended June 30, 2002,  compared to $24,100 of such
costs for the six months  ended June 30,  2001.  The  decrease in such costs was
attributable to the  corresponding  reduction in sales of discontinued  products
and components.

                                       12
<PAGE>

     Research  and  development  expenses.  Research  and  development  expenses
decreased  by $311,800 or 51.7% to  $290,800  for the six months  ended June 30,
2002,  from  $602,600 for the six months  ended June 30, 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 half of
fiscal  2002 from  $94,600  for the first half 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
$344,900 or 67.5%,  to $166,100  for the six months  ended June 30,  2002,  from
$511,000  for the six months ended June 30,  2001.  The  decrease was  primarily
attributable  to (i) lowered salary costs and consulting fees from the reduction
of personnel as well as consultants and other outside  services and (ii) reduced
expenses  related  to  marketing  materials,  partially  offset by a  commission
expense of approximately $42,000 related to Zixsys Inc. license fees.

     General and administrative  expenses.  General and administrative  expenses
increased by $28,200 or 3.2% to $920,200 for the six months ended June 30, 2002,
from  $892,000  for the six  months  ended  June 30,  2001.  This  increase  was
attributable to legal costs  associated  with the Company's  defense of a patent
infringement  claim,  taxes of  approximately  $46,900  related to Zixsys,  Inc.
license fees,  partially offset by lowered salary costs related to the reduction
of its administrative staff, and third-party consulting and professional fees in
connection  with business  strategy  development and management and operation of
its business.

     Interest income (expense),  net. Net interest income was $2,400 for the six
months ended June 30, 2002  compared to $67,900 of net  interest  income for the
six months ended June 30, 2001.

     Net loss.  As a  result,  net loss  decreased  by  $1,022,900  or 54.6 % to
$850,400,  or $(.04) per  share,  for the six months  ended  June 30,  2002,  as
compared to its net loss of $1,873,300,  or $(.09) per share, for the six months
ended June 30, 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 June 30, 2002 the Company had $182,200 in cash and cash equivalents, the
majority of which represented the balance of proceeds remaining from its October
2000  private  placement.  At June 30, 2002,  the Company had a working  capital
deficit of $409,500 as compared to working  capital of $393,700 at December  31,
2001.

     Cash used in  operating  activities  for the six months ended June 30, 2002
was $489,600,  primarily consisting of net loss, partially offset by an increase
of an aggregate of $237,000 in accounts payable,  accrued expenses,  and related
party  payables,  and a decrease in other  assets of $89,000.  Cash in investing
activities  during the first half of 2002 was $7,200.  As a result,  the Company
had a net  decrease  of  $496,800  in cash and cash  equivalents  during the six
months ended June 30, 2002.

     Cash used in  operating  activities  for the six months ended June 30, 2001
was $1,715,000,  primarily  consisting of net loss and an increase of $47,100 in
other  current  assets,  partially  offset by $110,100 of non-cash  compensation
expense and a decrease in accounts receivable of $56,600. Cash used in investing
activities  was  $40,900.  As a  result,  the  Company  had  a net  decrease  of
$1,755,900  in cash and cash  equivalents  during the six months  ended June 30,
2001.

                                       13
<PAGE>

     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.

     In an effort to reduce its  operating  costs,  the  Company,  beginning  in
September  2001,  reduced its personnel by  approximately  30%, and instituted a
firm-wide reduction of salaries by 20%.

     In addition to its cost-reduction  efforts,  the Company has engaged in, or
is currently  engaging in, efforts to increase  revenues and obtain financing to
supplement its cash and cash equivalents in order to meet its operating costs in
the near term. These efforts include:

     o    Assisting current  customers and business  partners  introducing their
          products and processes  incorporating  the  Company's  technology on a
          timely basis.

     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 additional revenue
          and financing from these business alliances.

There is no assurance, however, that these efforts will result in an increase in
revenues or the receipt of financing.

     The Company is continuing to incur  significant  losses from operations and
is not generating sufficient revenue to meet its operating  activities.  At June
30, 2002 the Company had an accumulated  deficit of $26,594,200.  Moreover,  the
Company estimates that cash and cash equivalents will be substantially  depleted
by the middle of the third  quarter of fiscal 2002.  The Company will  therefore
require third-party financing, either debt or equity, in the immediate future in
order to continue operations. 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 such financing is not available to
the Company in the near term,  and the Company is unable to increase its revenue
from  existing  sources  to meet its  operating  expenses,  the  Company  may be
required to curtail its operations significantly or cease operations altogether.

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

                                       14
<PAGE>

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.

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 June 30, 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 six  months  ended June 30,  2002,  it had a net loss of  $850,400.  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 fund its
operating  activities  and capital  requirements  only through the middle of the
third fiscal quarter of 2002. The Company does not

                                       15
<PAGE>

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 only
slowly increased. 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  IS  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 FACES INTENSE  COMPETITION IN THE MARKETS FOR ITS TECHNOLOGY,  WHICH
COULD  RESULT IN PRICE  REDUCTIONS,  LOWER  GROSS  MARGINS OR LOSS OF ITS MARKET
SHARE.

     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

                                       16
<PAGE>

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.

     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.

                                       17
<PAGE>

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

          99.1  Certification  by Chief Executive  Officer Pursuant to 18 U.S.C.
          Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
          Act of 2002.

          99.2  Certification  by Chief Financial  Officer Pursuant to 18 U.S.C.
          Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
          Act of 2002.

     (b)  Reports on Form 8-K
               none

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                                   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: August 14, 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

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