SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549
                                ----------------
                                    FORM 10-K
(Mark One)

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

     For the fiscal year ended December 31, 2001
                               -----------------

                                       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 NE Suite 1445 Atlanta, Georgia            30326
--------------------------------------------------------     -------------------
Address of principal executive offices)                           (Zip Code)

Registrant's telephone number, including area code: 404-880-9919
                                                   --------------

Securities registered pursuant to Section 12(b) of the Act:

                                                        Name of each exchange on
    Title of each class                                     which registered
---------------------------                             ------------------------
           None                                                    None

Securities registered pursuant to Section 12 (g) of the Act:

                                 Title of Class
                               ------------------
                         Common Stock, $.0001 par value

     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 as required to file such  reports),  and (2) has been subject to such
filing requirement for the past 90 days. YES [X] NO [ ].

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

     The aggregate  market value of the voting and non-voting  common stock held
by  non-affiliates  of the  registrant,  based  upon the  closing  price for the
registrant's Common Stock on April 10, 2002 was $3,242,984.80.

     As of April 10, 2002, the registrant had 20,345,924  shares of Common Stock
outstanding.

     Documents incorporated by reference: None

<PAGE>

                                TABLE OF CONTENTS

                                     PART I
                                                                            PAGE
                                                                            ----
Item 1.   Business.........................................................    1
Item 2.   Properties.......................................................   12
Item 3.   Legal Proceedings................................................   13
Item 4.   Submission of Matters to a Vote of Security Holders..............   13

                                     PART II

Item 5.   Market Price for Our Common Stock and Related Stockholder Matters   17
Item 6.   Selected Financial Data..........................................   18
Item 7.   Management's Discussion and Analysis of Financial
                   Condition and Results of Operations.....................   19
Item 7A.  Quantitative and Qualitative Disclosures About Market Risk.......   27
Item 8.   Financial Statements and Supplementary Data......................   27
Item 9.   Changes in and Disagreements with Accounting and
                   Financial Disclosures...................................   27

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant...............   28
Item 11.  Executive Compensation...........................................   30
Item 12.  Security Ownership of Certain Beneficial
                   Owners and Management...................................   35
Item 13.  Certain Relationships and Related Transactions...................   37

                                     PART IV

Item 14.  Exhibits, Financial Statement Schedules, and
                   Reports on Form 8-K.....................................   38

                                       i
<PAGE>

                                     PART I

ITEM 1. BUSINESS

     The  Private   Securities   Litigation   Reform  Act  of  1995  provides  a
"safe-harbor" for forward-looking  statements.  Certain statements  contained in
this report which are not historical fact, including,  but mot limited to, those
concerning our  expectations of future sales revenues,  gross profits,  research
and  development,  sales and marketing,  and  administrative  expenses,  product
introductions  and cash  requirements are  "forward-looking"  statements.  These
"forward-looking"  statements  are subject to risks and  uncertainties  that may
cause our actual results to differ from expectations including variations in the
level of  orders,  general  economic  conditions  in the  markets  served by our
customers,  international  economic  and  political  climates,  timing of future
product   releases,   difficulties  or  delays  in  product   functionality   of
performance,  our  failure to respond  adequately  to changes in  technology  or
customer  preferences,  or changes in our pricing or that of our competitors and
our inability to manage growth. All of the above factors constitute  significant
risks  to our  operations.  There  can  be no  assurance  that  our  results  of
operations will not be adversely affected by one or more of these factors.  As a
result, our actual results may vary materially from our expectations.  The words
"believe",  "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.

INTRODUCTION

     We are a developer and marketer of software  products based on our 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,  which is language
transparent and platform  independent.  We believe that our 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.

     We were  organized in October 1997 to acquire two  companies  that marketed
and  developed  two  related  facsimile  storage  and  retrieval  products  that
incorporated an early version of our  technology.  Development and production of
the  facsimile  products  were  performed  in Israel by Intacta  Labs Ltd.,  and
marketing  and  distribution  were  performed  in the  United  States by Intacta
Delaware,  Inc.  We  acquired  these  companies  in May  1998  in  exchange  for
approximately  70%  of our  outstanding  capital  stock  immediately  after  the
acquisition.  The acquisition was treated, for accounting purposes, as a reverse
acquisition.

     During 1997 and part of 1998 we derived  substantially  all of our revenues
from the sale of facsimile-based products.  Beginning in the latter part of 1997
and  continuing  into  1998 we began  to wind  down our  production  and  active
marketing of the facsimile-based  products due to reduced profit margins and our
anticipation  of  further   deterioration   of  profit  margins  from  increased
competition and costs of marketing these products to the retail market.  At that
time, we initiated  research and  development of advanced  products and software
applications  based on our  technology.  We also began, on a very limited basis,
licensing our  technology for  integration  with  applications  and solutions to
end-users.

     In the middle of 1999, due to competitive  pressures and our  re-evaluation
of our business model and revenue/cost projections,  we determined,  except with
respect to certain of the advanced  products that were at or near  completion of
development, to forego further development of products based upon our technology
and to focus on  direct  marketing  of our  technology  for  licensing  to large
enterprises and third

                                       1
<PAGE>

party solution  providers.  Our limited financial and other marketing  resources
and the further  evolution  of our business  model  toward the  licensing of our
technology  prevented us from engaging in a full-scale marketing program for the
advanced products that were nearing completion.

OUR PRODUCTS

     Software Development Kits

     In March 2001, we introduced a suite of INTACTA.CODE  software  development
kits,  or SDK's,  making our  technology  available  to software  developers  to
provide rapid  integration of our  technology  into existing  legacy  enterprise
systems as well as to  application  developers  to assist  them in  creating  or
extending  software and firmware  solutions  requiring the secure compression of
data for management and transmission  across any medium  regardless of platform,
device or location.

     o    INTACTA.CODE SDK Trial Version is currently only available for Windows
          platforms  and  allows   application   developers  to  experience  the
          INTACTA.CODE  process  by  facilitating   testing,   benchmarking  and
          prototyping of 10 kilobyte data files for encoding and decoding.  This
          SDK is used as a  promotional  tool to  educate  software  application
          developers with respect to the benefits of our technology.

     o    INTACTA.CODE SDK Developer's  Edition is supportable on platforms such
          as Windows  9x,  2000 and NT,  Windows  CE, Palm OS and MAC and allows
          application  developers  to integrate  the  INTACTA.CODE  encoding and
          compression engines to process data files.

     o    INTACTA.CODE SDK Enterprise Edition is a custom  development  services
          package, geared directly to the enterprise, designed to provide custom
          access to INTACTA.CODE  encoding and decoding  engines.  This software
          supports data and image read and write  capabilities using comparison,
          authentication and encryption in digital or print media.  Digital form
          includes  support for all  platforms,  unlimited  data size and custom
          encryption.

     Our SDK Trial Version  product is a sample product  available at no charge.
Our other  SDK  products  are  subject  to  licensing  fees to be paid  prior to
delivery, at prices ranging from $500 for the Developer's Edition to $25,000 for
the  Enterprise  Edition.  In  addition,  our SDK products are also subject to a
royalty payment to the extent that the  application  developer or other end-user
modifies the SDK product for further  distribution.  These  royalty fees will be
negotiated on a per contract basis,  based upon transaction  usage  measurements
such as  amount of data  processed,  number of  transactions  processed  and the
number of installed licenses or sites utilizing our software.

     Healthcare Data Communication Solutions

     In October 2001, we introduced two data  communication  software  products,
based on our INTACTA.CODE  technology,  targeted toward the healthcare industry,
that are designed to ensure the privacy of  information  by providing  solutions
for the secure transmission of confidential  patient data as required by the new
information  security  regulations  under the Health  Insurance  Portability and
Accountability Act, HIPAA. These products are:

     o    INTACTA  Express -  Healthcare  Edition,  a Windows  application  that
          integrates with Microsoft  OfficeTM  software,  provides secure faxing
          and e-mail and supports scanning of existing paper-based  information,
          all with detailed audit reporting.

                                       2
<PAGE>

     o    INTACTA Bridgeway - Healthcare Edition, a client/server communications
          solution  that can be used to maintain  the  privacy  and  security of
          confidential patient information among physician practices, hospitals,
          third-party payors and administrative  clearing houses.  This software
          supports  existing  fax servers and email  systems  such as  Microsoft
          OutlookTM  and  Symantec's  WinFax PROTM,  automatically  converts any
          external  file type  into  INTACTA.CODE  and  supports  back-end  open
          database  communication  conduits  and  custom-developed   application
          program interfaces,  or API's, via INTACTA.CODE SDK products.  It also
          includes built in and configurable archive and auditing tools.

     Our  INTACTA  Express  and  INTACTA  Bridgeway  products  are  marketed  to
end-users  in  the  healthcare  industry  for a  one-time  licensing  fee,  with
potential additional fees for subsequent upgrades and enhancements.

     All of our software products may be downloaded from our website and certain
other participating  websites that have entered into exclusive arrangements with
us to provide for the online purchase and distribution of our products.  Support
for these software products is also provided from our website.

     In October 2001, we completed development of a prototype of XPRESS.ID 2000,
a  software   application  designed  to  combine  biometric  facial  recognition
technology  with our encoding  technology to provide an integrated  verification
solution for the  security  market.  XPRESS.ID-2000  works by creating a digital
image of an individual that is then processed as a facial template. The image is
then securely encoded with  INTACTA.CODE  and the individual's  personal data is
then embedded along with the facial image.  We believe that with the increase in
the use of false  identification  obtained  through the internet and the need to
implement more secure programs to verify identities, XPRESS.ID-2000 will provide
the biometric identification  marketplace with an easy-to-use solution to ensure
that  information  and imaging cannot be tampered with and will remain secure in
mobile applications.  Identified  applications for XPRESS.ID-2000  include visas
and passports,  drivers licenses, access cards, smartcards,  and social security
cards.

INTACTA.CODE TECHNOLOGY

     Our core technology is a unique integration of compression,  encryption and
form factor.  The compression  engine compresses binary files comprised of text,
graphics,   audio  or  video.  The  encoding  engine   simultaneously  embeds  a
proprietary  error  correction  algorithm  in  the  INTACTA.CODE  to  aid in the
accurate  recovery of the content and format of the original  digital  file,  as
well as security features to protect against  unauthorized  access or use of the
INTACTA.CODE. The resulting INTACTA.CODE is a secure, damage resistant graphical
representation  of  the  original  digital  file,  which  may be  maintained  or
transmitted  in digital format or transferred to paper format for storage and/or
facsimile  transmission.  The  following  is a graphical  representation  of the
functions of our technology:

                                       3
<PAGE>

[GRAPHIC OMITTED]

                                   BINARY DATA
                                        |
                              INTACTA CODE ENCODER
                                        |
                                  COMPRESSION
                                   |
 PASSWORD   ----       ENCRYPTION ENGINE     TIME STAMP ----    USER ID
                                   |         REGISTER       EXPIRATION DATE
ENCRYPTION                         |
2048-BIT                           |                          INTACTA CODE
 128-BIT                           ERROR CORRECTION
  56-BIT                                 |                     TIME STAMP
  40-BIT                                 |
                         SIGNATURE _  ENCODER ENGINE         EXPIRATION DATE
                                         |
                                     INTACTA CODE             ENCRYPTED DATA

                                   Copyright (c) 2001 INTACTA Technologies, Inc.

     The key features of our technology are:

     o    Compression.  The compression  capability of our technology  decreases
          the amount of bandwidth  required to transmit  data, and the amount of
          space  required to store  data.  The  recipient  of a  compressed  and
          encoded  file may then  restore  the data to its  original  format for
          further review and/or editing.

     o    Security.  The  security  features of our  technology  enable users to
          protect  information  contained  within  INTACTA.CODE.   The  security
          features  include the ability to restrict  access to particular  users
          only,  and  the  ability  to  verity  the  sender  and  content  of an
          INTACTA.CODE  file containing  sensitive  information.  Protection can
          also be layered so that a reader would require a separate and distinct
          password to access successive layers of information.

     o    Error  Correction.  Our  technology  offers a robust error  correction
          process,  which  maintains  the integrity of the content and format of
          the original compressed data in the event of degradation to the medium
          over  which the data is being  transmitted.  The user can  choose  the
          level of error correction required depending on the reliability of the
          medium being used to transmit or store the data.

                                       4
<PAGE>

     o    Transmission  and  Restoration  of Data In Any  Form.  Our  technology
          enables the encoding and transmission of data from any form, including
          paper based or digital forms, and across diverse operating  platforms,
          such as PDA's and other mobile computing devices,  personal computers,
          mainframes,  servers and databases. With our technology, the recipient
          of the transmission can decode the data without further  manipulation,
          translation or reconfiguration of the content or format.

     An  additional  feature  of our  technology  is the  interchangeability  of
certain  individual  functions such as the compression  and encryption  modules.
These  functions  may  be  substituted  with  the  potential  customer's  legacy
compression and encryption programs required by the customer's existing systems.
INTACTA.CODE's  flexibility  and  adaptability  makes it highly  compatible with
existing applications and information systems without sacrificing functionality.

     We believe that our core technology provides the following benefits:

     o    protects sensitive data such as patient records and business documents
          from unauthorized  access or use through security features,  including
          encoding and authentication;

     o    enhances   hardware   products   and  software   applications   of  an
          enterprise's existing communication and information management systems
          at a cost that is much less than a conversion to a new system but with
          similar functionality;

     o    reduces  bandwidth  required  for  storage  and  transmission  of data
          allowing  enterprises to transmit the  information  in a faster,  more
          cost-effective  manner,  and  requires  less space in both digital and
          paper-based media for the storage and archiving of documents;

     o    improves performance of wireless  communications and utility of mobile
          computing  devices such as personal digital  assistants,  notebook and
          palm-size  computers  and smart  cellular  phones by  enhancing  their
          ability to receive, store and transmit data; and

     o    maintains compatibility with existing software toolkits.

INDUSTRY

     Today's computer-based  business environment has accelerated the transition
of  enterprises  from the  historical  paper-based  business  model to a digital
model, allowing these enterprises to manage, authenticate,  archive and transmit
data electronically. This rapid transition, however, has heightened the need for
establishing and maintaining the privacy,  security and control of data which is
stored and  transmitted  across a wide  range of  evolving  and  legacy  digital
communications and information management systems.

     A report by IDC, a leading  provider of  technology  industry  analysis and
market  data  to  builders,  providers  and  users  of  information  technology,
forecasts  that the  worldwide  market for  encryption  software  will grow from
approximately  $184 million in 2000 to  approximately  $365 million in 2005. The
report by IDC also  indicates  the following key market trends that are expected
to provide enhanced revenue  opportunities  for software  developers who deliver
encryption and security related technologies:

     o    Security.  As the reliance upon the digital medium for the storage and
          transmission of data continues to grow, businesses,  professionals and
          individual consumers utilizing this medium

                                       5
<PAGE>

          are becoming increasingly  sensitive to unauthorized access and use of
          proprietary  or personal  information.  Enterprises  are  particularly
          seeking increased security in the following areas:

          -    "data at rest" and other stored data protection,  for information
               such  as  credit  care  numbers,   addresses,   social   security
               information; and

          -    copyright protection,  from unauthorized access to and subsequent
               use of copyrighted materials.

     o    Privacy  and  government   regulation.   Newly  introduced  government
          regulations  such  as  HIPAA  and  the  Gramm-Leach-Bliley   Financial
          Modernization   Act  are  requiring   improved  security  and  privacy
          protection for the storage and transmission of certain information.

     o    Wireless initiatives.  The number of mobile computing devices that can
          access the Web continues to increase, extending traditional enterprise
          tiers  for  maintaining  and  communicating  data  utilizing  wireless
          technologies.  Revenues from developer toolkits in the encryption area
          are expected to increase as  companies  develop  applications  for the
          wireless market. File encryption may provide additional protection for
          data  stored on mobile  devices  that are more  prone to being lost or
          stolen.

     Increased sensitivity to security requirements has resulted in a search for
more  comprehensive  methods of  individual  identification,  particularly  with
respect  to  controlling  or  monitoring  access by  persons  to  secure  areas,
databases,  and software  applications.  In an attempt to meet enhanced security
requirements,  biometric  data  such as  fingerprint,  iris  scans,  and  facial
recognition  technologies are receiving greater scrutiny and development efforts
as an added layer of  identification  to the more  recognized  forms of security
control such as passwords, personal identification numbers and smartcards.

     We believe that the flexibility and scalability of our technology  provides
the  building  blocks for creating a range of  solutions  addressing  the secure
communication and management of data in the digital environment.

STRATEGY

     Our strategy is to market our software products and technology  directly to
software  application  developers  for  large  enterprises,  as well as  through
strategic  relationships  with third party solution  providers and distributors,
independent   software  vendors  and  original   equipment   manufacturers  with
established  distribution  channels  and with the ability to market  value added
technology  such as ours as a module or  incorporate  or embed our  products and
technology into hardware and/or software applications for sale to end users.

     Large  Enterprises.  A  number  of large  enterprises  rely  upon  internal
resources  for systems  integration  and  product  development  with  respect to
information  management  and  communications.  We intend to market our  software
products and technology as an enhancement to an enterprise's legacy hardware and
software products by more efficient means than conversion to a new system.

     Third Party  Solution  Providers.  Third party  solution  providers such as
application  service  providers and systems  integrators  as well as independent
software  vendors  and  original  equipment  manufacturers  have the  ability to
integrate value-added  technology such as ours. Through strategic  relationships
with these  entities,  we intend to directly market and distribute or bundle our
technology as a value added service with other software or hardware  products to
be sold or licensed to end-users.

                                       6
<PAGE>

     Our target  markets for marketing  and promoting our software  products and
technology are primarily in the healthcare and security software industries.

     Healthcare

     A key  component  of  our  marketing  plan  is to  establish  key  industry
alliances and market our software  products and  technology  as  HIPAA-compliant
solutions for healthcare  organizations.  Among other things,  the final privacy
rule under HIPAA is requiring healthcare organizations to provide for the secure
transmission and maintenance of their patient healthcare information.  For these
organizations  to implement or reinforce  and support  these  security  efforts,
solutions for their legacy  paper-based  and automated  digital  systems will be
required to integrate  paper  records,  which account for  substantially  all of
their current healthcare records, with electronic media.

     A number  of legacy  information  systems  remain in use in the  healthcare
industry that are difficult to integrate  with newer systems or redesign to work
with  new  applications.   Additionally,   the  highly   fragmented   healthcare
information  technology  market limits the ability to build  interfaces  between
disparate information systems from different vendors making it more difficult to
implement a seamless  cross-enterprise security system. A December 2000 study by
First  Consulting  Group  prepared  for  the  American   Hospital   Association,
supplemented by a March 2001 report by First  Consulting Group subsequent to the
issuance of the final privacy rule under HIPAA,  indicates the potential cost to
hospitals  attempting  to meet the  provisions  of the privacy rule under HIPAA.
These costs, which depend in part on the compliance efforts to be taken by these
organizations and the complexity of their information  systems, are estimated to
be approximately $4 billion over five years for hospitals  generally  seeking to
comply by modifying current  information systems and approximately $22.5 billion
over  the  same  five-year  period  for  hospitals  required  to  invest  in new
information systems. We believe that the pervasive security protocol of our core
technology provides the capabilities necessary to implement internal integration
automation solutions enabling healthcare organizations to utilize their existing
communications   infrastructure   to  perform,   among  other   things,   secure
HIPAA-complaint transmissions via paper-based facsimile as well as e-mail.

     Security Software

     The security  software  industry is highly fragmented and rapidly evolving,
marked by a substantial  number of companies  developing  core  competencies  in
their chosen security segments and start-up and small niche companies seeking to
introduce  advanced  security   products.   We  believe  that  the  compression,
encryption and form factor  features of our core  technology  make it attractive
for  enhancing  existing  security  products or for  integrating  with  advanced
products in development,  particularly in the biometric  identification  market,
and we  have  established  relationships  with  security  technology  providers,
analysts,  and consultants.  A September 2001 report by International  Biometric
Group  projects that the market for biometric  technologies  is expected to grow
from  approximately  $399  million of  revenues  in 2000 to  approximately  $1.9
billion of  revenues  by 2005,  primarily  attributable  to  network  access and
e-commerce in the private sector and large-scale  public sector  investment such
as by law  enforcement  agencies.  We believe  that our core  technology  can be
integrated  as an add-on  application  to existing  as well as  evolving  facial
recognition  systems or other  biometric  client-server  solutions  enabling the
integrity of  compressed  data as well as the secure  transmission  of biometric
information over standard communication systems.

                                       7
<PAGE>

CUSTOMERS

     As a result,  primarily  of the  recent  transition  of our  business  from
facsimile-based  products to licensing  of  technology  and software  based upon
INACTA.CODE,  we have entered into a limited number of licensing agreements with
third  parties.  The  following is a list of our customers who have licensed our
technology or software applications based on our technology:

     o    DataLode,  Inc. In July 1999, we entered into a non-exclusive  license
          agreement with DataLode, Inc. to license a software product based upon
          INTACTA.CODE.  DataLode  provides  warranty  registration  services to
          Hewlett  Packard and others for  products in Europe and North  America
          and utilizes  our product to eliminate  manual data entry and the need
          for optical character recognition.

     o    Systems  Nakashima  Co.,  Ltd.  In  April  2000,  we  entered  into an
          agreement  with  Systems  Nakashima  Co.,  Ltd.  pursuant  to which we
          granted  Fujitsu  Limited,  a developer of advanced  technologies  for
          electronics and telecommunications and one of the largest providers of
          electronic  equipment to the print industry in Japan, a  non-exclusive
          right to license our  technology to a certain  number of newspapers in
          Japan. Fujitsu has licensed applications incorporating INTACTA.CODE to
          Yomiuri Shimbun, a daily newspaper  published in Japan with one of the
          largest  daily  circulations  in the world,  allowing  its  readers to
          receive multimedia content as part of their paper.

     o    Intertek Testing  International Ltd. In September 2000 we entered into
          an agreement to license INTACTA.CODE to Intertek Testing International
          Ltd.,  a  worldwide  products  testing  inspection  and  certification
          company,  in connection with a pilot program engaged in by Intertek to
          evaluate the utility of our products and technology in creating secure
          electronic  certificates,  which may be  e-mailed or  downloaded  to a
          paper  based  format and  subsequently  scanned  back into  electronic
          format. We believe that these solutions are particularly useful in the
          import/export  industry  on  account  of  the  fact  that  results  of
          inspections  or  assessments  of  shipments  may  be  encoded,   filed
          electronically and added to the certificates.

     Other than  consulting  related  revenues from our  agreement  with Systems
Nakashima,  which accounted for 42% of our revenues for fiscal 2000, we have not
generated significant revenues from our third-party licensing agreements.

     For our fiscal year 2001 Cybro Medical, Ltd., DataLode,  Inc., and Orsense,
Ltd accounted for approximately 59%, 13% and 10%, respectively, of our revenues.
For our fiscal year 2000 Systems  Nakashima Co. Ltd.,  Cybro  Medical,  Ltd. and
InterLearn,  Ltd accounted for approximately 46%, 30% and 13%, respectively,  of
our  revenues.  For our fiscal year 1999,  Brother  Industries,  Ltd.  and Cybro
Medical,  Ltd.  accounted for  approximately 53% and 40%,  respectively,  of our
revenues.  Other than Cybro Medical, Ltd. and Systems Nakashima Co. Ltd., all of
the sales to the  customers  listed  above  were from  products  and  components
related to our discontinued facsimile-based business.

     While  substantially  all of our  marketing  efforts are  currently to U.S.
customers, primarily in the healthcare industry for our HIPPA-based products, we
have,  in the past,  had sales to customers in the Mid-East and Far East. To the
extent that marketing and sales of our core  technology and related  products to
customers in foreign countries increases,  we may be subject to a number of risk
and  uncertainties  which  could  reduce  our  margins  and,  consequently,  our
operating results, including:

     o    collection of accounts receivable;

                                       8
<PAGE>

     o    trade restrictions;

     o    fluctuations in currency exchange rates;

     o    export duties and tariffs; and

     o    uncertain political, economic or military developments.

STRATEGIC RELATIONSHIPS

     We have  established  relationships  with a number of  solution  providers,
software  developers and advanced product  manufacturers  ranging from reselling
agreements to partnering arrangements for the further research, development, and
marketing of viable products or applications integrating our technology.  We did
not receive any payments for entering  into these  arrangements  and we have not
generated  revenues  at this time from these  relationships.  Although we do not
rely on  these  third  parties  for  the  sale of our  technology  or  products,
management  believes  that they  assist in  increasing  market  recognition  and
interest in our technology. These relationships include:

     o    ComponentSource.  We have a reseller arrangement with ComponentSource,
          a global  eBusiness and the world's largest  marketplace and community
          for software  components and tools for download via its website of our
          INTACTA.CODE   SDK   Developer's   Edition   and   related   products.
          ComponentSource's customer base spans over 100 countries.

     o    Fujitsu  Limited.   Beginning  in  December  2000,  Fujitsu  made  our
          technology available on their website to provide encoding and decoding
          services to their users,  as part of a test program through the end of
          March 2001. In February 2001,  Fujitsu  pre-installed a version of our
          INTACTA.CODE  capable of decoding color images, text and hyperlinks in
          HTML format, in approximately  1,000,000 newly  manufactured  personal
          computers.

     o    Imagis Technologies,  Inc. In October 2001, we entered into a business
          alliance  with  Imagis  Technologies,   Inc.,  an  affiliated  company
          involved  in  biometric  and facial  recognition  technology,  for the
          development of an  application  for the secure  encoding,  storage and
          access of images  and data for  identification  purposes.  Imagis  has
          installed versions of its biometric facial  recognition  technology at
          Pearson  International  Airport in Toronto,  in several Royal Canadian
          Mounted  Police   facilities  in  Canada  and  in  several  cities  in
          California, and Mexico.

     o    EMSi, Inc. We have a co-marketing  relationship  with EMSi,  Inc., for
          the delivery of  INTACTA.CODE  embedded  solutions  to the  healthcare
          marketplace.   EMSi   provides   development   tools  to  enable  data
          translation and interchange among disparate systems. Their client base
          includes SafeCo,  Xcare, Blue Cross/Blue Shield of Massachusetts,  and
          HealthPlus PHSP of Brooklyn.

     In addition,  we are a member of certain partnering or enablement  programs
established  by  each  of  IBM  Corporation,  Compaq  Computer  Corporation  and
Microsoft   Corporation  for  the  development  of  advanced   technologies  and
applications for their respective  hardware and software  products.  We have not
generated revenues at this time from our membership in these programs.

                                       9
<PAGE>

RESEARCH AND DEVELOPMENT

     Our research and development efforts are conducted at our Israel subsidiary
and at our headquarters in Atlanta, Georgia. At our Israel facility we engage in
demonstrations and feasibility tests of our software products and technology for
prospective  customers and in  customizing  or  configuring  our technology to a
customer's  specific  application  or product.  At our Atlanta  headquarters  we
perform certain  feasibility  testing of potential  applications and non-complex
adaptation of our technology,  as well as provide a liaison between our existing
and prospective clients and our research and development team in Israel.

     For our fiscal years 1999,  2000 and 2001,  our  research  and  development
expenses were $1,047,400,  $1,133,000 and $1,206,400,  respectively representing
27.1%, 22.5% and 32.3%,  respectively,  of our aggregate  operating expenses for
each of those periods. We intend to engage in further research efforts to refine
and enhance our technology and develop additional software products based on our
technology for commercial marketing and distribution.

INVENTORY AND DISTRIBUTION

     Our  software  products  and  technology  are  securely  maintained  on our
computer  servers  and  may be  distributed  through  our  website  and  certain
participating  websites  in an  electronic  format.  We do  not  engage  in  any
manufacturing or product packaging nor do we maintain physical  inventory of our
software  products.  Licensees  receive our software  product or technology  and
related  documentation  through a download  sequence  directly to their computer
from our website.

COMPETITION

     The market for digital  communication and data management  applications and
solutions is characterized by intense  competition and rapidly changing business
conditions,  customer requirements and technologies. We believe that the primary
competitive  factors for technologies and software  products  addressing  secure
compression,  storage  and  transmission  of data are price,  functionality  and
compatibility,  adaptability  to evolving  products,  performance,  timelines of
enhancements and customer support.

     Our  core  technology  and  related  products  integrate  several  features
including encryption, compression and error-correction which extend the value of
such  technology  and  products   beyond   traditional  bar  codes  and  provide
value-added communication applications not necessarily available from encryption
software  providers.  Consequently,  while we may compete in the data encryption
sector with companies  such as RSA Security Inc.,  Certicom Corp. and Checkpoint
Systems Inc. and companies in the digital communications sector such as Symantec
Corp.  and  Bsquare  Corporation,  as well  as  smaller  development  companies,
management  believes that there is no direct  competitor  that currently  offers
products  with the  unique  characteristics  and  capabilities  provided  by our
technology  and  software  products.  However,  as  a  result  of  our  business
transition from facsimile based products,  our recent commercial  development of
products  and our  limited  marketing  resources,  we  have  not  established  a
meaningful market share for our products and technology. Moreover, to the extent
that other companies  develop  functionally  equivalent or superior  products or
technologies  to  INTACTA.CODE,  our  technology  could become  obsolete or less
marketable.

     The  majority  of our  competitors  are  well  established  companies  with
reputations for success in the development, licensing and sale of their products
and technology that have substantially greater financial,  technical,  personnel
and other resources than we do. Our ability to compete, therefore, will

                                       10
<PAGE>

depend on our  ability  to  successfully  market  and  continually  enhance  our
software products and technology.

INTELLECTUAL PROPERTY

     Our  success is  dependent  upon our  ability to protect  our  intellectual
property rights.  We rely principally on a combination of patent,  copyright and
trademark  registrations  and trade  secrets and  non-disclosure  agreements  to
establish and maintain our intellectual  property rights.  We hold the following
five Israel patents and two United States patents,  with  corresponding  foreign
patents in Canada, Europe,  Australia and South Africa, as well as the following
patent applications pending registration:

<TABLE>
<CAPTION>
Description of Registered Patents                                          Patent No.          Expiration Date
---------------------------------                                          ----------          ---------------
<S>                                                                        <C>                 <C>
Process for making printed matter and matter obtained by said              Israel #96118       October 25, 2010
  process
Process and device for authenticating documents                            Israel #96969       January 11, 2011

Process and apparatus for transmitting messages                            Israel #96973       January 16, 2011

Process for transmitting and/or storing information                        Israel #103755      November 15, 2012

Process and apparatus for transmitting and/or storing                      Israel #105493      April 22, 2013
  compressed information

Graphic matter and process and apparatus for producing,                    U.S. #5,313,564     July 10, 2011
  transmitting and reading the same

Apparatus and method for storing and transmitting data between a           U.S. #5,790,640     July 21, 2016
computer, a facsimile machine and a telephone network

                                                                           Country Filed/      Corresponding
Description of Pending Patents                                             Application No.     Applications
------------------------------                                             ---------------     ------------
Process for transmitting and/or storing information                        Japan / 5-285375

Process for transmitting, receiving and/or storing information             Israel / 124152     Japan, Canada, France,
                                                                                               Germany and United
                                                                                               Kingdom
</TABLE>

     As part of our operating  procedures,  we generally enter into intellectual
property rights,  confidentiality and nondisclosure  agreements with each of our
key  employees  and  consultants  and limit  access to and  distribution  of our
technology and related  documentation and information.  Our  confidentiality and
non-disclosure  agreements  include  provisions  with regard to our  maintaining
ownership of technological developments.

     Notwithstanding  the precautions we take,  third parties may copy or obtain
and use information that we regard as proprietary  without our  authorization or
independently develop technologies similar or superior to our technology.  Other
parties may breach confidentiality agreements and other protective

                                       11
<PAGE>

contracts we have  entered  into.  We may not become aware of, or have  adequate
remedies,   in  the  event  a  breach  or  unauthorized  use  occurs.   Policing
unauthorized use of our technology is difficult, particularly because the global
nature of the electronic communications market makes it difficult to control the
final  destination  or  security  of  software  or  other  data   transmissions.
Furthermore,  the laws of other jurisdictions may afford little or no protection
of our  intellectual  property  rights.  Our business,  financial  condition and
operating  results  could be adversely  affected if we are unable to protect our
intellectual property rights.

     There is a risk  that our  technology  may  infringe  upon the  proprietary
rights of third parties. In addition, whether or not our technology infringes on
proprietary  rights of third parties,  infringement or invalidity  claims may be
asserted  or  prosecuted  against us and we could incur  significant  expense in
defending  them.  If any claims or actions  are  asserted  against us, we may be
required  to modify  our  technology  or seek  licenses  for these  intellectual
property rights.  We may not be able to modify our technology or obtain licenses
on commercially  reasonable  terms, in a timely manner or at all. Our failure to
do so could adversely affect our business.

PRODUCT LIABILITY

     Technology as complex as ours may contain undetected errors or defects when
first introduced or when new versions are released.  Despite our testing efforts
and testing by current and potential  customers,  our  technology and any future
enhancements may not be free from errors after commercial  shipments have begun.
The occurrence of errors or defects could result in adverse publicity,  delay in
technology  introduction,  diversion of development resources,  loss or delay in
market acceptance, increased service and warranty costs and customer claims.

     We do  not  maintain  any  product  liability  insurance.  Consequently,  a
successful claim against us for product  liability could have a material adverse
effect.

SEGMENT INFORMATION

     See Note 12 of Notes to Consolidated  Financial Statements included in this
report after Part IV

EMPLOYEES

     As of  March  31,  2002,  we  employed  a total  of 15  employees.  Of such
employees,  10 are full time and 5 are  part-time,  including 8 in research  and
development,  2 in  marketing  and  sales and 5 in  administration.  If the need
arises for additional  research and  development  employees and we are unable to
hire  qualified  employees in a timely  manner,  we may  outsource  non-critical
research and  development  projects to third parties.  None of our employees are
represented  by a union or  covered  by  collective  bargaining  agreements.  We
believe that our relations with our employees are good.

ITEM 2. PROPERTIES

     Our principal  administrative and marketing facility is located in Atlanta,
Georgia and consists of approximately 4,000 square feet of office space pursuant
to a lease that expires in February  2006.  We also conduct a limited  amount of
research and development activities at this facility.

     Our principal  research and development  facility is located in Beer Sheva,
Israel and consists of approximately  2,300 square feet pursuant to a lease that
expires in July 2005. We believe that our current administrative,  marketing and
research facilities are adequate for our planned future operations.

                                       12
<PAGE>

ITEM 3. LEGAL PROCEEDINGS

     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 Intacta  alleging patent  infringement by Intacta.  Datastrip
claims that our INTACTA.CODE  technology and its production,  use, marketing and
sales infringes upon certain bar-code  technology  claimed by a patent purported
to be owned by Datastrip.  In addition to preliminary and permanent  injunctions
sought by Datastrip  against  Intacta 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.

     Intacta believes that  Datastrip's  claims are without merit and intends to
vigorously defend this lawsuit.  We have filed a counterclaim  against Datastrip
seeking,  among other  things,  preliminary  and  permanent  injunctive  relief,
declaratory  judgments as to the invalidity and  unenforceability of Datastrip's
purported  patent  and its claim of  infringement  against  Intacta,  as well as
monetary damages, reasonable attorney's fees and litigation expenses.

     Since this lawsuit is in an early  stage,  however,  we cannot  predict the
outcome  and cannot  assure you that it will be resolved in our favor or that an
outcome  of any  further  litigation  or  settlement  would not have a  material
adverse effect on our operations or financial condition.

     Other than the proceeding noted above we are not aware of any other pending
or threatened litigation.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     There were no matters  submitted to a vote of security  holders  during the
fourth quarter of 2001.

RISK FACTORS

Risks Related to Our Financial Condition

WE HAVE  INCURRED  LOSSES SINCE  INCEPTION  AND WE EXPECT TO INCUR LOSSES IN THE
FUTURE.

     We have  incurred  significant  net  losses in each  fiscal  year since our
inception  and expect  losses to  continue.  During the year ended  December 31,
2000,  we had a net loss of  approximately  $4.5  million and for the year ended
December 31, 2001, we had a net loss of  approximately  $3.5 million.  We cannot
assure you that our future operations will ever become profitable.

OUR INDEPENDENT  AUDITORS HAVE EXPRESSED  SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO
CONTINUE AS A GOING CONCERN.

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

BECAUSE OUR  OPERATIONS  DO NOT GENERATE  CASH FLOW,  IF WE ARE UNABLE TO OBTAIN
FINANCING WHEN NEEDED, WE MAY BE REQUIRED TO CURTAIL OR CEASE OPERATIONS.

     Our operating  requirements  have been and will continue to be significant.
Our operations do not currently  generate positive cash flow. Based upon current
estimates, we believe that we will be able to

                                       13
<PAGE>

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

Risks Related to Our Operations

WE  MAY  NOT  BE  ABLE  TO  ACHIEVE  MARKET  ACCEPTANCE  FOR  SOFTWARE  PRODUCTS
INCORPORATING OUR TECHNOLOGY.

     Because our  technology  and related  software  products have only recently
been  introduced  and  are  marketed  in a  rapidly  evolving  industry,  market
acceptance  of our  technology is  uncertain.  Despite the expanding  market for
secure  data  transmission  and  storage  solutions,  we have not  been  able to
increase our market  acceptance  and our revenues  from  software  licensing has
declined.  We will be  required  to  expend  a  substantial  amount  of funds on
marketing  efforts to inform end-users of the perceived  benefits and advantages
of our technology and to update and enhance our existing products and technology
on a timely  basis.  We cannot  assure  you that we will have the funds or other
resources necessary to achieve our marketing and product-enhancement  objectives
and  successfully  compete in our markets or that these  increased  efforts,  if
engaged in, will result in successful commercialization and market acceptance of
our 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 our technology.

OUR FUTURE REVENUE GROWTH DEPENDS  SUBSTANTIALLY  ON OUR ABILITY TO SUCCESSFULLY
IDENTIFY  APPLICATIONS OR PRODUCTS FOR WHICH OUR TECHNOLOGY MAY BE DEVELOPED AND
MARKETED.

     If we are unable to identify  applications  or products  that will  achieve
widespread  commercial  acceptance or adapt or enhance our  technology for these
applications  or  products  we will be  unable  to  expand  the  market  for our
technology. Adapting and enhancing technology as complex as ours 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.  We cannot assure you that we will be able to
identify   applications   or  products,   adapt  our   technology  for  specific
applications  or  products on a timely  basis or be able to achieve  significant
market acceptance of our technology.

WE HAVE LIMITED  MARKETING  CAPABILITIES AND WILL BE DEPENDENT UPON ARRANGEMENTS
WITH THIRD-PARTY SOLUTION PROVIDERS TO MARKET AND DISTRIBUTE OUR TECHNOLOGY.

     We  have  limited  marketing  experience,  as well  as  limited  financial,
personnel and other resources, to undertake extensive marketing activities. As a
result,  we rely to a large  extent on  arrangements  with third party  solution
providers for the marketing and  distribution  of our  technology.  We have only
recently  entered  into  marketing   arrangements   with  a  limited  number  of
third-party  solution providers and other strategic  partners and,  accordingly,
have  not  developed  any  meaningful  sales  through  any  of  these  marketing
arrangements.  Our prospects  will depend on our 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 us. A  decline  in the
financial prospects

                                       14
<PAGE>

of a  third-party  solution  provider or other  strategic  partner  with whom we
develop a significant  marketing  relationship  could adversely affect our sales
efforts.

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

     The  markets  for our  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 we have limited resources, we may not be able
to develop new products,  technologies  and  applications  or otherwise  compete
successfully.  Many of our competitors  have  substantially  greater  financial,
technical,  personnel,  and  other  resources  than we do and  have  established
reputations  for  success  in the  development,  licensing,  and  sale of  their
products and  technology.  Additionally,  future  technologies or products could
render our technology  obsolete or less  marketable.  As a result of our limited
resources,  significant  competition  and  the  nature  of the  markets  for our
technology, we may not be able to compete successfully.

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

     We were  organized in October 1997 and did not commence  active  operations
until May 1998.  In addition,  during 1998, we shifted the focus of our business
from  production  and sale of  facsimile-based  products to the  development  of
advanced products based upon our proprietary  technology.  More recently we have
determined  to  focus  on the  commercial  exploitation  of our  technology  for
applications  and solutions in the area of data  compression  and  transmission.
Because  our  business  has  significantly  changed  and much of our  historical
operating  results do not  reflect  our  current  operations,  we have a limited
relevant  operating  history  upon which you can evaluate  our  performance  and
prospects.  Additionally,  we 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 our business and results of operations.

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

     Our principal  research and development  facility is located in Beer Sheva,
Israel. We are, 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 our operations.

WE ARE 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 us 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, we cannot
predict the outcome and cannot  assure you that it will be resolved in our favor
or that an outcome of any  further  litigation  or  settlement  would not have a
material adverse effect on our operations or financial condition.

                                       15
<PAGE>

Risks Related to Our Securities

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

     We currently have 20,345,924 shares of common stock outstanding, 12,358,920
of which are currently freely tradeable 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 our 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 OUR COMMON STOCK AND COULD  INTERFERE  WITH OUR ABILITY TO RAISE
CAPITAL.

     We currently have outstanding options and warrants to purchase an aggregate
of 5,599,474 shares of our 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 our  stockholders  will
occur and any sales in the public  market of our common stock  underlying  those
options and warrants  may  adversely  affect  prevailing  market  prices for our
common  stock.  Moreover,  the  terms  upon  which  we 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 we 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.

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

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

                                       16
<PAGE>

                                     PART II

ITEM 5. MARKET PRICE FOR OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS

     Our common stock has been quoted on the OTC Bulletin Board under the symbol
"ITAC.OB"  since  August 19,  1999.  From May 28, 1998 to August 19,  1999,  our
common  stock was quoted on the OTC Bulletin  Board under the symbol  "ZFAX.OB."
The  following  table  shows the high and low bid prices of our common  stock as
reported by the OTC Bulletin  Board for the fiscal years ended December 31, 2000
and 2001 and for the first and second  quarters of fiscal 2002 through April 10,
2002:

                                                   HIGH         LOW
                                                   ----         ---
2000
   First Quarter................................   $6.25       $2.25
   Second Quarter ..............................    4.88        2.38
   Third Quarter ...............................    4.31        4.00
   Fourth Quarter ..............................    3.75         .78

2001
   First Quarter................................    1.38         .30
   Second Quarter...............................     .58         .13
   Third Quarter................................     .28         .14
   Fourth Quarter...............................     .62         .09

2002
   First Quarter................................     .40         .11
   Second Quarter (through April 10, 2002)......     .25         .19

     The OTC  Bulletin  Board is a more limited  trading  market than the Nasdaq
SmallCap or Nasdaq  National  Markets,  and timely,  accurate  quotations of the
price of our common stock may not always be  available.  You may expect  trading
volume  to be low in such a market.  Consequently,  the  activity  of only a few
shares may  affect  the  market  and may  result in wide  swings in price and in
volume.  Additionally,  the foregoing  quotations reflect  inter-dealer  prices,
without  retail  mark-up,  mark-down  or  commission  and  may  not  necessarily
represent actual retail transactions.

     The trading price of our common stock may be highly volatile as a result of
factors  specific  to us or  applicable  to our market and  industry in general.
These factors, include:

     o    variations  in our annual or quarterly  financial  results or those of
our competitors;

     o    changes by financial  research  analysts in their  recommendations  or
estimates of our earnings;

     o    conditions in the economy in general or in the information  technology
service sector in particular; and

     o    announcements  or  technological  innovations or new products by us or
our competitors.

     In addition, the stock market,  particularly the Nasdaq SmallCap Market and
the OTC Bulletin  Board,  has recently  been subject to extreme price and volume
fluctuations. This volatility has

                                       17
<PAGE>

significantly  affected the market prices of securities issued by many companies
for reasons  unrelated to the operating  performance of these companies.  In the
past,  following  periods  of  volatility  in the  market  price of a  company's
securities,  some  companies  have been sued by their  stockholders.  If we were
sued,  it could  result in  substantial  costs and a diversion  of  management's
attention and resources, which could adversely affect our business.

     On April 10, 2002,  the last reported sale price of our common stock on the
OTC  Bulletin  Board  was $.20 per  share.  As of April  10,  2002,  there  were
approximately  77 record owners of our common  stock.  We believe that there are
many  beneficial  owners of our common  stock  whose  shares are held in "street
name".

     We have  never  declared  and do not  anticipate  declaring  or paying  any
dividends  on our common stock in the near  future.  We intend to retain  future
earnings,  if any,  that may be  generated  from our  operations  to finance our
future  operations  and any  possible  expansion.  Any decision as to the future
payment of  dividends  will depend on our results of  operations  and  financial
position  and such other  factors as our board of  directors  in its  discretion
deems relevant.

RECENT ISSUANCES OF UNREGISTERED SECURITIES

     During  the year  ended  December  31,  2001 we  granted  an  aggregate  of
1,325,000  options under our 1998 Stock Option Plan to certain of our directors,
officers,  employees and  consultants  at an exercise  price of $0.75 per share.
Additionally,  during the year ended  December 31, 2001, we granted an aggregate
of  1,003,000  options  under  our 2000  Stock  Option  Plan to  certain  of our
directors, officers, employees and consultants at an exercise price of $0.75 per
share. In connection with the foregoing transactions, we relied on the exemption
from  registration  requirements  under the  Securities  Act provided by Section
2(a)(3) and/or 4(2) of the Securities Act.

ITEM 6. SELECTED FINANCIAL DATA

     The following  selected  financial  data are qualified in their entirety by
reference  to,  and you  should  read  them in  conjunction  with  "Management's
Discussion  and  Analysis of  Financial  Condition  and  Results of  Operations"
section of this report and the audited  consolidated  financial  statements  and
notes  to  those  financial  statements  included  in  and  made  part  of  this
prospectus.  We have derived the balance sheet and statement of operations  data
at and for the years ended December 31, 1997 and 1998 and the balance sheet data
as of December 31, 1999 from our audited consolidated financial statements which
are not included in this report and we have derived the  statement of operations
data for the years ended December 31, 1999,  2000 and 2001 and the balance sheet
data as of December  31, 2000 and 2001 from our audited  consolidated  financial
statements included in and made part of this report.

STATEMENT OF OPERATIONS DATA:

<TABLE>
<CAPTION>
                                                                   YEAR ENDED DECEMBER 31,
                                       --------------------------------------------------------------------------------

                                           1997             1998             1999             2000             2001
                                       ------------     ------------     ------------     ------------     ------------

<S>                                    <C>              <C>              <C>              <C>              <C>
Revenues ..........................    $    894,900     $    137,800     $    137,400     $    794,500     $    140,800
Operating expenses:
   Cost of revenues ...............         357,500          336,300           90,500          417,500           78,900
   Research and development .......         343,200          903,500        1,047,400        1,133,000        1,206,400
   Sales and marketing ............         297,000          113,100          113,200        1,182,100          733,100
   General and administrative .....       1,353,100        1,699,400        2,619,800        2,306,500        1,715,400
                                       ------------     ------------     ------------     ------------     ------------

                                       18
<PAGE>

      Total operating expenses ....       2,350,800        3,052,300        3,870,900        5,039,100        3,733,800
                                       ------------     ------------     ------------     ------------     ------------

Loss from operations ..............      (1,455,900)      (2,914,500)      (3,733,500)      (4,244,600)      (3,593,000)
Interest income (expense) .........        (755,300)        (210,000)          95,300         (298,900)          82,600
Taxes and other ...................          11,500          (21,300)          20,600           (7,700)         (11,000)
                                       ------------     ------------     ------------     ------------     ------------

Net loss ..........................    $ (2,199,700)    $ (3,145,800)    $ (3,617,600)    $ (4,551,200)    $ (3,521,400)
                                       ============     ============     ============     ============     ============

Basic and diluted net loss
  per common share ................    $       (.19)    $       (.19)    $       (.20)    $       (.25)    $       (.17)
                                       ============     ============     ============     ============     ============
Basic and diluted weighted
  Average Common Stock
  Outstanding .....................      11,486,000       16,701,583       17,790,000       18,483,179       20,345,924
                                       ============     ============     ============     ============     ============

BALANCE SHEET DATA:

                                                                          DECEMBER 31,
                                       --------------------------------------------------------------------------------

                                           1997             1998             1999             2000             2001
                                       ------------     ------------     ------------     ------------     ------------

Cash and cash equivalents .........    $    169,100     $  3,047,100     $    917,400     $  3,904,500     $    679,000
Working capital (deficit) .........      (9,693,400)       1,924,200          574,100        3,641,500          393,700
Total assets ......................       1,151,800        3,760,700        1,570,900        4,260,500          981,300
Long-term obligations .............               0                0                0                0                0
Total stockholders' equity
    (deficit) .....................      (9,407,800)       2,268,600          841,500        3,865,200          581,900
</TABLE>

ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

     The  following  discussion  and  analysis of our  financial  condition  and
results  of  operations   should  be  read  in  conjunction   with  the  audited
consolidated  financial statements and notes thereto appearing elsewhere in this
report.

GENERAL

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

     Our revenues  were  $137,400 for fiscal 1999,  $794,500 for fiscal 2000 and
$140,800 for fiscal 2001.

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

     Through the second  quarter of fiscal  2000,  primarily  as a result of our
limited financial resources and personnel available for marketing activities, we
made limited  progress in establishing  further  licensing  arrangements for our
technology.  The  majority  of our  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
our  clients  and was  completed  during  the  second  quarter  of fiscal  2000.
Consulting fees from this project  accounted for  approximately 42% of our total
revenues for fiscal 2000. While we may perform certain  consulting,  maintenance
and other support

                                       19
<PAGE>

services  for  prospective  customers  that license our  technology  or software
products,  for  which  we  anticipate  generating  additional  fees,  we do  not
anticipate  any  meaningful  portion of our 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,  we  entered  into  two  licensing  arrangements  for our
technology with third-party enterprises. For fiscal 2000, our licensing revenues
were $94,000.  Although this represented an increase of  approximately  28% from
fiscal 1999,  licensing  revenues  accounted for only  approximately  12% of our
total  revenues in fiscal  2000.  Sales of certain  test  platforms  constructed
principally from component parts from our discontinued  facsimile business,  the
production and sale of which has since been discontinued, together with sales of
other products from our inventory of discontinued facsimile business,  accounted
in the aggregate for approximately 46% of our total revenues for fiscal 2000.

     As a result of our continuing  shift in business  strategy toward licensing
of our technology and software  applications  combined with the depletion of the
remaining  inventory of hardware and other  non-proprietary  computer processing
equipment from our discontinued  facsimile  business,  our 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 our reduced marketing
resources  resulting in our  inability to obtain  additional  customers  for our
Developer's  Edition and  Enterprise  Edition SDK products,  as well as extended
sales  cycles for  implementation  of our  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 March 2001, we 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, we
introduced a suite of data communications  software products addressing security
features in connection with new privacy  requirements under HIPAA.  Although the
release of our SDK  products  generated  increased  activity to our web site and
initiated  downloads  of our  INTACTA.CODE  Trial  Version  SDK, we have not yet
received  any  meaningful  revenues  from  this  product  line or from  our data
communications software products addressing HIPAA regulations.

     Our sales cycle for the licensing of our  technology  and related  software
products  which  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 will vary depending upon the customer
and  the  product  sought  to  be  licensed.  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 to its operations.

     Our  independent  auditors have included an explanatory  paragraph in their
report on our  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
our ability to continue as a going concern.

                                       20
<PAGE>

RESULTS OF OPERATIONS

Year ended December 31, 2001 compared to year ended December 31, 2000

     Revenues.  Revenues decreased by $653,700 or 82.3% to $140,800 for the year
ended  December 31, 2001,  from  $794,500 for the year ended  December 31, 2000.
This decrease was primarily  attributable to (i) consulting  revenue in the year
ended December 31, 2000 of $329,300 from a one-time consulting project completed
in the  second  quarter of fiscal  2000,  (ii)  reduced  royalty  revenues  from
existing  licensing  arrangements from $94,000 to $46,400 and (iii) more limited
sales of products and components from our discontinued facsimile-based business.

     Cost of products  and  components.  Cost of  products  and  components  was
$78,900 for the year ended December 31, 2001, a decrease of $224,700,  or 74.0%,
compared to $303,600 of such costs for the year ended  December  31,  2000.  The
decrease in such costs was primarily attributable to the corresponding reduction
in sales of discontinued products and components.

     Consulting  fees expense.  We did not incur any consulting fees expense for
the year ended December 31, 2001,  compared to $113,900 of such  consulting fees
expense for the year ended  December  31,  2000  resulting  from the  consulting
project we performed in the second quarter of fiscal 2000.

     Research  and  development  expenses.  Research  and  development  expenses
increased by $73,400 or 6.5% to $1,206,400 for the year ended December 31, 2001,
from $1,133,000 for the year ended December 31, 2000. The increase was primarily
attributable  to the  reclassification  of $108,900 of these costs as consulting
fees expense and, to a lesser extent,  from personnel,  office and other support
facility costs related to research and  development at our Atlanta  headquarters
and  additional  research  and  development  support at our Israel  facility  in
connection with the development of our new SDK and data communications  software
products.  This increase was partially  offset by a decrease in non-cash charges
to $189,200 for year fiscal 2001 from  $361,600 for year fiscal 2000, 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
$449,000 or 38.0%,  to  $733,100  for the year ended  December  31,  2001,  from
$1,182,100  for the year ended  December  31, 2000.  The decrease was  primarily
attributable  to the reduction of expenses  related to marketing  materials,  as
well as consultants  and other outside  services,  and the reduction in non-cash
charges to $7,800 for fiscal 2001 from $69,600 for fiscal  2000,  to account for
options  previously granted below fair market value as compensation to employees
and consultants.

     General and administrative  expenses.  General and administrative  expenses
decreased  by $591,100 or 25.6% to  $1,715,400  for the year ended  December 31,
2001,  from  $2,306,500 for the year ended December 31, 2000.  This decrease was
attributable  to the  reduction  in non-cash  charges to $41,100 for fiscal 2001
from  $571,500 for fiscal 2000 to account for options  previously  granted below
fair market value as  compensation to employees and  consultants.  The foregoing
decrease in expenses was partially  offset by (i) additional  salaries and costs
related  to an  increase  in our  administrative  staff,  and  (ii)  third-party
consulting  and   professional   fees  in  connection  with  business   strategy
development and management and operation of our business.

     Interest  income  (expense),  net. Net interest  income was $82,600 for the
year ended December 31, 2001 compared to ($298,900) of net interest  expense for
the year ended  December 31, 2000.  The net increase was primarily the result of
interest  earned  during  fiscal  2001 on cash  balances  resulting  from  funds
received  from our  October  2000  private  placement,  as  compared to interest
expense related to debt

                                       21
<PAGE>

incurred in our May and June 2000 bridge loan financing and accretion of related
warrants recognized during fiscal 2000.

     Net loss.  As a result,  our net loss  decreased by $1,029,800 or 22.6 % to
$3,521,400,  or $(.17)  per share,  for the year ended  December  31,  2001,  as
compared to our net loss of $4,551,200,  or $(.25) per share, for the year ended
December 31, 2000.

Year ended December 31, 2000 compared to year ended December 31, 1999

     Revenues.  Our revenues increased by $657,100 or 478.2% to $794,500 for the
year ended  December 31,  2000,  from  $137,400 for the year ended  December 31,
1999.  This increase was primarily  attributable to (i) consulting fees which we
earned in our second  quarter of fiscal 2000  relating  to a custom  programming
project  performed  for an  existing  client,  and (ii)  sales of  products  and
components  which  increased  by  approximately  468% from the prior  comparable
period primarily resulting from the sale of software  development test platforms
and  surplus  memory  chip  inventory.  In  addition,  revenues  from  licensing
arrangements  increased by 28.1% to $94,000 for the year ended December 31, 2000
from $73,400 for the prior comparable period.

     Cost of products  and  components.  Cost of  products  and  components  was
$303,600  for the year ended  December  31,  2000,  representing  an increase of
$213,100 or 235.5% compared to $90,500 of such costs for the year ended December
31, 1999. The increase in such costs was  attributable  to (i) purchase costs of
components  consumed in the  manufacture of test platforms  sold,  (ii) sales of
surplus non-proprietary  computer processing chips held in inventory and sold in
the first quarter of 2000, and (iii) a write-off of obsolete  inventory  related
to discontinued hardware products.

     Consulting  fees expense:  We incurred  consulting fees expense of $113,900
for the year ended  December 31, 2000,  resulting  from a consulting  project we
performed  in the second  quarter of fiscal  2000.  We did not incur any of such
costs for the year ended December 31, 1999.

     Research  and  development  expenses.  Research  and  development  expenses
increased by $85,600 or 8.2% to $1,133,000 for the year ended December 31, 2000,
from  $1,047,400  for the  year  ended  December  31,  1999.  The  increase  was
attributable to (i) an increase in material costs consumed in operations as well
as an increase in personnel and related office and other support  facility costs
related to research and  development,  and (ii), an increase in non-cash charges
to  $361,600  for fiscal  2000 from  $222,400  for 1999 to account  for  options
previously  granted  below fair market value as  compensation  to employees  and
consultants.  This  increase was  partially  offset by the  reclassification  of
$108,900 of such costs as consulting fees expense.

     Sales and marketing  expenses.  Sales and marketing  expenses  increased by
$1,068,900 or 944.3% to $1,182,100  for the year ended  December 31, 2000,  from
$113,200  for the year  ended  December  31,  1999.  The  increase  in sales and
marketing  expenses was primarily  attributable  to (i)  increased  salaries and
related costs  resulting from the hiring of new personnel in connection with our
decision to renew the focus on marketing our Intacta technology,  (ii) costs for
the development of marketing materials and related market research,  and (iii) a
non-cash  charge of $69,600 for fiscal  2000 to account  for options  previously
granted  below  fair-market  value as  compensation  to  certain  employees  and
consultants. No similar charge was required for fiscal 1999.

     General and administrative  expenses.  General and administrative  expenses
decreased by $313,300 or $12.0% to  $2,306,500  for the year ended  December 31,
2000,  from  $2,619,800  for the year ended  December 31, 1999.  The decrease in
general and  administrative  expenses was  attributable  to the reduction of the
non-cash  stock option  charge to $571,500 for fiscal 2000 from  $1,016,000  for
fiscal

                                       22
<PAGE>

1999,  partially offset by administrative  costs associated with our bridge loan
financing and private placement during 2000.

     Interest income (expense), net. Net interest expense was $(298,900) for the
year ended December 31, 2000 compared to $95,300 of net interest  income for the
year ended  December 31,  1999,  primarily  as a result of the  short-term  debt
incurred in the second and third quarters of 2000 in connection  with our bridge
financing.

     Net loss.  As a result,  our net loss  increased  by  $933,600 or 25.8 % to
$4,551,200,  or $(.25)  per share,  for the year ended  December  31,  2000,  as
compared to a net loss of  $3,617,600,  or $(.20) per share,  for the year ended
December 31, 1999.

LIQUIDITY AND CAPITAL RESOURCES

     Since  inception,   we  have  financed  our  operating  costs  and  capital
requirements primarily through:

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

     o    non-interest-bearing  loans from Valor Invest Limited, an affiliate of
our 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 our subsidiaries.

     In April and May 1998, we sold, in two private placements,  an aggregate of
150,000 shares of our common stock at a price of $3.00 per share,  for aggregate
gross proceeds of $450,000.

     In December 1998, we sold, in a private placement,  1,000,000 shares of our
common stock at a price per share of $4.00 for gross proceeds of $4,000,000.

     From  December  1997  through   December  31,  1998,   Valor  made  several
non-interest-bearing  loans to us in the aggregate amount of $2,172,000.  During
the first six months of 1999, we repaid $1,131,000 of these loans. In June 1999,
we converted  $952,000 of these loans into 238,000 shares of our common stock at
the rate of $4.00 per share. At December 31, 1999, a balance of $89,000 of loans
from Valor remained outstanding.

     During  the  first  half of 2000,  Valor  made an  additional  $704,500  of
non-interest-bearing  loans to us, of which we subsequently repaid $312,000.  In
May 2000, Valor converted $250,000 of the unpaid balance of these loans into 2.5
units  identical to the units  offered by us in our bridge  financing  described
immediately  below. Valor also agreed to subordinate the balance of its loans to
us to our  repayment  of the bridge  notes  issued in our bridge  financing.  As
discussed  below,  Valor converted the principal amount of the notes included in
the  units it  acquired  in May  2000 as well as a  substantial  portion  of its
subordinated loans into units offered in our October 2000 private placement.

     In May and June 2000, we completed a bridge  financing,  in which we issued
25 units,  each unit consisting of a $100,000  principal  amount bridge note and
bridge  warrants to purchase  25,000 shares of common stock at an exercise price
of $3.50 per share, for aggregate gross proceeds of $2,500,000.

     In October  2000,  we  completed a private  placement in which we issued an
aggregate of 2,333,310 units consisting of one share of our common stock and one
warrant to purchase one share of our common stock at an exercise price of $3.50,
for aggregate  gross  proceeds of  $7,000,000.  Approximately  $2,267,000 of the
gross proceeds received in the private  placement  represented the conversion of
the

                                       23
<PAGE>

principal  and accrued  interest of a majority of the  outstanding  bridge notes
into units in the private  placement.  A portion of the  proceeds of the private
placement was used to repay the principal and accrued interest on the balance of
outstanding  bridge  notes not  converted  into units in the private  placement.
After  deduction  of  cash  commissions  and  related  expenses  as  well as the
conversion  of the bridge  notes,  we received  approximately  $3,522,000 in net
proceeds from the private  placement.  In connection with the private placement,
Valor  converted  the  principal  amount of its notes into units in the  private
placement.  Valor  also  converted  a  substantial  portion  of its  outstanding
subordinated loans into units in the private placement.

     At December  31, 2001 we had  $679,000  in cash and cash  equivalents,  the
majority of which represented the balance of proceeds remaining from our October
2000 private placement. At December 31, 2001, we had working capital of $393,700
as compared to working capital of $3,641,500 at December 31, 2000.

     Cash used in operating  activities for the year ended December 31, 2001 was
$3,168,600,  primarily consisting of our net loss and an increase of $106,800 in
other current assets and partially  offset by $238,100 of non-cash  compensation
expense,  the  write-down  of obsolete  inventory of $53,100,  and a decrease in
accounts receivable of $56,300.  Cash used in investing  activities was $56,900.
As a result,  we had a net decrease of $3,225,500  in cash and cash  equivalents
during the year ended December 31, 2001.

     Cash used in operating  activities for the year ended December 31, 2000 was
$3,158,600,  primarily  consisting of our net loss and a decrease of $411,000 in
accounts  payable,  partially  offset by  $1,002,700  of  non-cash  compensation
expense,  and the interest  accretion of common  stock  warrants  related to our
bridge financing of $276,200, and the write-off of obsolete inventory related to
facsimile-based  products of  $222,900.  Cash used in investing  activities  was
$61,300.  Cash provided by financing  activities was  $6,207,000  primarily as a
result of net proceeds received in our bridge financing in May and June 2000 and
our private  placement in October  2000.  As a result,  we had a net increase of
$2,987,100 in cash and cash equivalents during the year ended December 31, 2000.

     Cash used in operating  activities for the year ended December 31, 1999 was
$1,816,000,  primarily consisting of our net loss, which was partially offset by
$1,238,400  of non-cash  compensation  expense and an increase of  approximately
$468,800 in accounts payable.  Cash used in investing activities was $33,800 and
cash used in  financing  activities  was  $279,900.  As a  result,  we had a net
decrease  in cash and cash  equivalents  of  $2,129,700  during  the year  ended
December 31, 1999.

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

     We are not currently generating  sufficient revenues from our operations to
fund our operating costs and expenses. We have incurred losses to date resulting
in an accumulated deficit as of December 31, 2001 of $25,743,800.  We anticipate
losses to continue.  Since  September  30, 2001 we have reduced our personnel by
approximately  30% and we have  recently  instituted  a firm-wide  reduction  of
salaries by 20%. As of February 28, 2002,  we had cash and cash  equivalents  of
approximately $385,000. Based

                                       24
<PAGE>

upon our recent cost-reduction efforts,  management estimates that cash and cash
equivalents  will be  sufficient to fund our  operating  activities  and capital
requirements  into the  middle  of our  second  quarter  of 2002.  Unanticipated
changes in economic conditions or other unforeseen circumstances may cause us to
expend our cash and cash equivalents in a shorter period of time.

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

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

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

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

     We have recently  concluded  negotiations  with Zixsys Inc., a newly formed
joint venture between Sanyo Semiconductor  Corporation and Imagis  Technologies,
Inc.,  relating  to the  licensing  of our  technology  for  integration  in the
development and  manufacturing of advanced  security based products and systems.
We  anticipate  entering into a formal  licensing  agreement by the end of April
2002, which agreement would provide for the payment of an initial  licensing fee
to us of  approximately  $470,000 as well as subsequent  royalty fees based upon
revenues  from sales of products  incorporating  our  technology.  Although  the
parties  have  orally  agreed  in  principle  to  the  terms  of  the  licensing
arrangement,  we cannot  assure  you that we will  enter  into a formal  written
agreement or otherwise consummate the transaction.

     Our ability to continue as a going concern is dependent upon our ability to
obtain  additional  financing  or  generate  increased  revenues  to support our
current  operating  activities as well as research and development and marketing
of our new products.  At this time we do 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 us on  commercially  reasonable
terms or at all. If we are unable to increase our 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,  we may be
required to curtail or cease operations.

INFLATION

     We do not believe that  inflation has had a material  impact on revenues or
expenses during our last three fiscal years.

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.  221,
"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

                                       25
<PAGE>

December  15,  2001.  We do not  expect the  adoption  of SFAS No. 144 to have a
material impact on our financial statements.

     In June 2001, the Financial  Accounting  Standards Board  finalized  issued
SFAS No. 141,  Business  Combinations and No. 142, Goodwill and Other Intangible
Assets.  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
companies  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 companies 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  companies  identify  reporting  units for the
purpose 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  companies to complete a  transitional
goodwill  impairment  test six months from the date of adoption.  Companies  are
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  Intacta's
financial position,  results of operations and cash flows in 2002 and subsequent
years.

     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting  for  Derivative  Instruments  and Hedging  Activities.  SFAS No. 133
establishes  accounting and reporting  standards requiring that every derivative
instrument,   including  certain  derivative   instruments   imbedded  in  other
contracts,  be  recorded in the  balance  sheet as either an asset or  liability
measured at its fair value.  The  statement  also  requires  that changes in the
derivative's  fair  value  be  recognized  in  earnings  unless  specific  hedge
accounting criteria are met. SFAS No. 137 delayed the effective date of SFAS No.
133 to fiscal years beginning after June 15, 2000. SFAS No. 138,  Accounting for
Certain Derivative Instruments and Certain Hedging Activities, Amendment of SFAS
No. 133,  liberalized the application of SFAS No. 133 in a number of areas.  The
adoption  of SFAS No.  133 did not have a  material  impact on our  consolidated
financial position or results of operations.

     The Financial  Accounting  Standards  Board issued  Interpretation  No. 44,
Accounting  for  Certain   Transactions   involving   Stock   Compensation,   an
Interpretation  of APB Opinion No. 25 which  became  effective  on July 1, 2000.
Interpretation  No. 44 clarifies (a) the  definition of employee for purposes of
applying  Opinion  No.  25, (b) the  criteria  for  determining  whether a stock
compensation  plan  qualifies  as a  noncompensatory  plan,  (c) the  accounting
consequence of various  modifications  to the terms of a previously  fixed stock
option or award,  and (d) the accounting  for an exchange of stock  compensation
awards in a business  combination.  Adoption of the provisions of Interpretation
No. 44 did not have a significant impact on Intacta's financial statements.

     We believe that we are 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 Securities and Exchange Commission.

                                       26
<PAGE>

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We do not engage in trading  market risk sensitive  instruments,  nor do we
purchase  for  investment,   hedging  or  for  purposes  "other  than  trading,"
instruments that are likely to expose us to market risk,  whether it be interest
rate,  foreign  currency  exchange,   commodity  price  or  equity  price  risk.
Consequently,  we believe that as of December 31, 2001,  we do not have exposure
to foreign currency exchange risk.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     This  information  appears in a separate  section of this report  following
Part IV.

ITEM  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURES.

     Not Applicable.

                                       27
<PAGE>

                                    PART III

ITEM 10. EXECUTIVE OFFICERS AND DIRECTORS

     Our executive officers and directors are:

NAME                     AGE     POSITION
----                     ---     --------
Altaf S. Nazerali        48      Chairman of the Board
Charles C. Johnston      66      Vice Chairman of the Board
Noel R. Bambrough        63      President, Chief Executive Officer and Director
Graham E. Argott         38      Chief Financial Officer and Secretary
Ross Wilmot              57      Director
Bernard F. Girma         54      Director

     Altaf S.  Nazerali  has served as an  executive  officer  and  director  of
Intacta since its  inception in October  1997,  most recently as Chairman of the
Board of Directors. Mr. Nazerali currently serves in the following capacities of
other publicly held companies:

     o    Chief Executive Officer (since November 1995),  President and Director
          (each from  October  1995 to  present) of  Multivision  Communications
          Corp, the operator of MMDS TV systems in Bolivia; and

     o    Director of Imagis  Technologies  Inc.,  formerly  Colloquium  Capital
          Corp.  (since July 1998),  a  technology  company  that  develops  and
          markets biometric and imaging software to law enforcement,  gaming and
          security sectors.

     Mr. Nazerali is also an executive officer of Valor Invest Limited,  a money
manager and financial  advisor to high net worth  institutional  investors;  the
President and director of Pensbreigh  Holdings Ltd., an  independent  contractor
that provides  various  corporate and consulting  services;  and President and a
director of International  Portfolio  Management Inc., a private holding company
that provides  corporate  finance and other  management  services to private and
public  companies.  From November 1994 to October 1995, Mr.  Nazerali  served as
Chief  Executive  Officer and  President  of Canbras  Communications  Corp.,  an
operator of pay television and telephone systems in Brazil.

     Charles C.  Johnston has served as Vice  Chairman of the Board of Directors
of Intacta since May 31, 2001.  Mr.  Johnston  served as Chairman of each of AFD
Technologies  Inc., a manufacturer  of fuel  additives,  J&C  Resources,  LLC, a
business  management  and investment  company,  and  UltraClenz  Corporation,  a
manufacturer  of touch-free soap  dispensers and hand-wash  monitoring  systems,
since 1992. In 1969, Mr. Johnston founded ISI Systems, Inc. ("ISI"), a developer
of software  systems and related  services.  Mr.  Johnston  was Chief  Executive
Officer of ISI when it went public on the American  Stock  Exchange in 1987. ISI
was subsequently acquired by Teleglobe Corporation of Montreal,  Canada in 1989.
Mr. Johnston  continued to serve as Chief  Executive  Officer of ISI until 1992.
Mr. Johnston currently serves as the chairman of the Board of Ventex Technology,
Inc.  and as a  member  of the  board  of  directors  of each  of the  following
companies: Bitwise Designs, Inc., Internet Commerce Corporation,

                                       28
<PAGE>

Hydron Technologies,  and McData Corporation. He also serves as a Trustee on the
President's Advisory Council for the Worcester Polytechnic  Institute,  and as a
Trustee  for  the  Institute  of  Psychiatric  Research  at  the  University  of
Pennsylvania.

     Noel R.  Bambrough  has served as an  executive  officer  and a director of
Intacta since April 1, 1999.  Currently,  Mr.  Bambrough serves as the President
and Chief Executive  Officer of Intacta.  From November 1998 through April 1999,
Mr.  Bambrough served as a consultant to Hunt Power  Corporation,  a Texas-based
utility  company where he was responsible for developing a business plan for the
launch  of  telephone,   internet  and  cable  television  service  to  a  mixed
residential and industrial  development owned by Hunt's real estate  subsidiary.
From  April  1995  through   November   1998,   Mr.   Bambrough   was  Executive
Vice-President and Chief Operating Officer of Triax  Telecommunications  Company
L.L.C. From July 1993 to April 1995, he served as Senior  Vice-President of Shaw
Communications, Inc., a major cable television corporation. In January 1993, Mr.
Bambrough was appointed Interim CEO of Microcell Telecommunications, Inc., a PCS
service provider,  and served until July 1993. Mr. Bambrough  continues to serve
as a member  of the  Board of  Directors  of  Microcell.  From  1984  until  its
acquisition by Shaw  Communications,  Inc. in January 1993, Mr. Bambrough served
as President and Chief Executive Officer of Cablecasting Ltd.

     Graham E. Argott was appointed Chief Financial Officer of Intacta as of May
31, 2001 and  corporate  Secretary  as of  February  8, 2002,  and has been with
Intacta since October 2000.  From February to September  2000, Mr. Argott served
as a consultant to Rodeer Systems, an e-commerce medical  transcription and data
management  company.  In September  1997 he joined  Preferred  Networks  Inc., a
wireless   communications  company  as  Corporate  Controller  and  Director  of
Information  Technology.  In July 1998 Mr. Argott was appointed Vice President -
Finance  of  Preferred  Networks'  subsidiary,   EPS  Wireless  Inc.,  a  device
remanufacturing and distribution  company, and served in that position until the
acquisition  of  EPS  Wireless  by  Celestica   Corporation  in  December  1999.
Thereafter,  Mr. Argott  served as interim  General  Manager of Celestica.  From
April 1994 through September 1997, Mr. Argott served as Corporate  Controller of
MRC  Group,  a  medical  transcription  and  records  company.  Mr.  Argott is a
certified  public  accountant  with  more  than  fifteen  years of  finance  and
accounting   experience,   including   twelve  years  in  the   technology   and
communications industries.

     Ross Wilmot  served as an executive  officer of Intacta from its  inception
through May 31, 2001.  Mr. Wilmot has also served as a director of Intacta since
its inception in October  1997.  Mr.  Wilmot is a chartered  accountant  and has
provided financial  management  services as an independent  consultant to public
companies  since  August  1991.  He  has  special   expertise  in  international
operations  and  high  tech  start-ups,  and  has  completed  numerous  business
valuations and  acquisitions in this sector.  Mr. Wilmot is also  experienced in
public  company  reporting  practices in both the United States and Canada.  Mr.
Wilmot  currently  serves in the  following  capacities  of other  publicly held
operating companies:

     o    Vice  President,  Finance and director of  Multivision  Communications
Corp. (since August 1995);

     o    Vice President, Finance of CTF Technologies, Inc. (since July 1996);

     o    Chief Financial Officer of Imagis  Technologies,  Inc. (since February
1999);

     o    Vice  President,  Finance and director of Botex  Industries  Corp.,  a
manufacturer of plastic materials (since June 1996); and

     o    President and director of Plata Minerals Corp. (since April 1999).

                                       29
<PAGE>

     Mr. Wilmot is also an officer and director of the  following  non-operating
public companies: Breckenridge Resources, Ltd., Harambee Mining Corp., Orko Gold
Ltd. and Paloma Ventures Ltd.

     Bernard F. Girma has served as a director  of Intacta  since May 31,  2001.
Mr. Girma is a founder and the President of DigiTech  Strategy a recent start-up
company to provide digital imaging management  consulting.  Prior, thereto, from
September 1996 to January 2000, Mr. Girma was Chief  Executive  Officer of Vivid
Image Technology,  Inc., a developer of imaging  controllers for color printers.
In November 1995, Mr. Girma,  together with several other individuals acquired a
controlling  interest  in Newgen  Systems,  a  manufacturer  of digital  imaging
products,  at which Mr. Girma served as Chief Executive Officer until the merger
of Newgen Systems with Imaging Technologies,  Inc., in August 1996. From 1991 to
1995,  Mr.  Girma  served as Vice  President  and  General  Manager  of  Calcomp
Corporation,  a subsidiary of Lockheed-Martin  Corporation.  Mr. Girma currently
serves on the board of directors of BrightCube Inc., a public company as well as
two privately  held  companies  involved in printing and  publishing and digital
photo imaging, respectively. Mr. Girma is the co-founder of the Digital Printing
and  Imaging  Association  and served on its board of  directors  for nine years
including as Chairman from 1996 to 1997.

     Each director serves until the next annual meeting of stockholders or until
his successor is duly elected and qualified. The executive officers serve at the
discretion  of the  board.  There are no family  relationships  among any of our
directors and executive officers.

BOARD COMMITTEES

     We have established a compensation committee and an audit committee each of
which is  currently  composed  of  Messrs.  Johnston,  Girma and  Nazerali.  The
function  of  the  compensation  committee  is to  evaluate  and  determine  the
compensation of our executive officers and employees.  The function of the audit
committee is to review and monitor our corporate financial  reporting,  external
audits and internal control functions.  In addition, the audit committee has the
responsibility  to consider and recommend the  appointment of, and to review fee
arrangements with, our independent auditors.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Section  16(a)  of  the  Securities  Exchange  Act  of  1934  requires  our
directors,  officers and persons who own more than 10% of a registered  class of
our equity securities to file with the Securities and Exchange Commission,  SEC,
initial  reports  of  ownership  and  reports of  changes  in  ownership  of our
securities.  Officers,  directors and greater than 10% stockholders are required
by the SEC to furnish  Intacta  with  copies of all forms they file  pursuant to
Section 16(a).

     Based  solely  upon our review of copies of such  forms,  we  believe  that
during the year ended December 31, 2001, all filing  requirements  applicable to
our officers,  directors and greater than 10%  stockholders  were complied with,
except a Form 3 for each of Charles Johnston and Bernard Girma,  each a director
of Intacta and Graham Argott and Sandra Bushau, each an officer of Intacta,  was
not timely filed and a Form 5 for Arie Halpern and Corsa S.A.  Holdings  (each a
greater than 10% stockholder of the Company) was not timely filed.

ITEM 11.  EXECUTIVE COMPENSATION

     The following table sets forth the  compensation  paid,  during the periods
indicated, to our chief executive officer and all other executive officers whose
compensation  exceeded  $100,000,  our "named executive  officers," for our last
completed fiscal year. No other executive officer of Intacta earned a salary and
bonus for the fiscal year ended December 31, 2001 in excess of $100,000. None of
the named

                                       30
<PAGE>

executive officers received compensation in the form of a bonus during the years
presented in the table below.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
                                                             LONG TERM COMPENSATION           ALL
                                                             SECURITIES UNDERLYING           OTHER
 NAME AND PRINCIPAL POSITION      YEAR     SALARY ($)           OPTION/SARS (#)           COMPENSATION
------------------------------------------------------------------------------------------------------
<S>                               <C>       <C>                   <C>                          <C>
     Altaf S. Nazerali,           2001       85,415                 350,000                    --
  Chairman of the Board of        2000      100,000                    --                      --
        Directors (1)             1999      100,000               150,000 (2)                  --
------------------------------------------------------------------------------------------------------
      Noel R. Bambrough           2001      250,000                 440,000                    --
President and Chief Executive     2000      250,000                    --                      --
         Officer (3)              1999      154,165               200,000 (4)                  --
------------------------------------------------------------------------------------------------------
      Graham E. Argott            2001      150,000                  75,000                    --
 Chief Financial Officer (5)      2000       31,250                    --                      --
                                  1999         --                      --                      --
------------------------------------------------------------------------------------------------------
</TABLE>

(1)  Mr. Nazerali  served as our President and Chief Executive  Officer for each
     of 1999 and 2000 and through May 31, 2001. Mr. Nazerali currently serves as
     our Chairman of the Board of Directors. The compensation to Mr. Nazerali in
     each of  2001,  2000  and  1999 was  paid  directly  to Mr.  Nazerali  from
     Pensbreigh Holdings Ltd. and represents a portion of the monthly consulting
     fee we pay to  Pensbreigh.  These amounts  exclude  $80,000,  $88,000,  and
     $94,000 paid for  administrative  services provided to Intacta during 2001,
     2000 and 1999 by  International  Portfolio  Management  Inc.,  of which Mr.
     Nazerali is a stockholder and President and a director. See "Employment and
     Consulting Agreements" and "Certain Transactions."

(2)  This option terminated by its terms on May 31, 2001.

(3)  Mr. Bambrough became an executive  officer of Intacta effective as of April
     1, 1999 and served as our  Executive  Vice  President  and Chief  Operating
     Officer  through  May 31,  2001  when he was  elected  President  and Chief
     Executive  Officer.  The  compensation  to Mr.  Bambrough  in 1999 and 2000
     included  an  aggregate  of $41,665  and  $50,000  respectively,  which was
     accrued and unpaid. We have since repaid such accrued salary from a portion
     of the proceeds of our October 2000 private placement.  The compensation to
     Mr.  Bambrough in 2001 included an aggregate of $20,833 of salary which was
     accrued and unpaid in accordance  with an agreement with Intacta to defer a
     portion of his salary  until  Intacta is capable of  generating  sufficient
     revenue to enable payment of the full salary.

(4)  This option was cancelled effective as of December 4, 2001.

(5)  Mr. Argott became an executive  officer of Intacta  effective as of May 31,
     2001 and currently serves as our Chief Financial Officer.  The compensation
     paid to Mr.  Argott in 2001 included an aggregate of $3,125 of salary which
     was accrued and unpaid in  accordance  with an  agreement  with  Intacta to
     defer a portion of his  salary  until  Intacta  is  capable  of  generating
     sufficient revenue to enable payment of the full salary.

OPTION GRANTS IN THE LAST FISCAL YEAR

     The following table discloses  options granted during the fiscal year ended
December 31, 2001 to

                                       31
<PAGE>

our named executive officers.

<TABLE>
<CAPTION>
                                                                                           POTENTIAL
                         NUMBER OF                                                         REALIZABLE VALUE AT
                         SHARES         % OF  TOTAL                                        ASSUMED RATES OF
                         UNDERLYING     OPTIONS GRANTED    EXERCISE                        STOCK PRICE
                         OPTIONS        TO EMPLOYEES IN    PRICE                           APPRECIATION FOR
NAME                     GRANTED        FISCAL YEAR        ($/SHARE)    EXPIRATION DATE    OPTION TERM (6)
----                     -------        -----------        ---------    ---------------    ---------------
                                                                                            5%       10%
                                                                                            --       ---
<S>                      <C>                <C>              <C>         <C>               <C>       <C>
Altaf S. Nazerali        150,000 (1)         6.7%            $0.75       May 31, 2006      $0        $0
                         200,000 (2)         8.9              0.75       May 31, 2006       0         0
Noel R. Bambrough        200,000 (3)         8.9              0.75       May 31, 2006       0         0
                         240,000 (4)        10.7              0.75       May 31, 2005       0         0
Graham E. Argott          75,000 (5)         3.3              0.75       May 31, 2006       0         0
</TABLE>

(1)  This option was fully vested and the underlying  shares were exercisable in
     full on June 1, 2001, the date of grant.

(2)  This option vests annually in equal one-third  increments beginning on June
     1, 2002.

(3)  This option vested as to 144,000  underlying shares of common stock on June
     1, 2001, the date of grant, and the balance of 56,000  underlying shares of
     common stock became exercisable on March 31, 2002.

(4)  This option vests annually in equal one-third  increments beginning on June
     1, 2002.

(5)  This option will vest: (a) as to 30,750  underlying  shares of common stock
     on June 1, 2002; (b) as to 31,500 underlying shares of common stock on June
     1, 2003;  and (c) as to the balance of 12,750  underlying  shares of common
     stock on November 1, 2004.

(6)  The exercise price of the options granted to the named  executive  officers
     exceeded  the market  price of our common stock on the date of grant and no
     potential  realizable  value is  attributable  to the options  assuming the
     indicated rates of appreciation compounded over the terms of the options.

OPTION EXERCISES IN FISCAL YEAR ENDED DECEMBER 31, 2001

     The named executive  officers set forth on the compensation table above did
not exercise  any options  during the fiscal year ended  December 31, 2001.  The
following table sets forth information concerning the number of options owned by
each of those executive  officers and the value of any in-the-money  unexercised
options held at December 31, 2001.

                 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                        AND FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
                                                             NUMBER OF SECURITIES           VALUE OF UNEXERCISED
                                                            UNDERLYING UNEXERCISED        IN-THE-MONEY OPTIONS AT
                                                         OPTIONS AT DECEMBER 31, 2001        DECEMBER 31, 2001
                             SHARES
                            ACQUIRED
         NAME             ON EXERCISE    VALUE REALIZED   EXERCISABLE  UNEXERCISABLE   EXERCISABLE     UNEXERCISABLE
         ----             -----------    --------------   -----------  -------------   -----------     -------------
<S>                            <C>              <C>         <C>              <C>            <C>              <C>
Altaf S. Nazerali               -               -           150,000          --             -                -
Noel R. Bambrough               -               -           144,000          --             -                -
Graham E. Argott                -               -                 -          --             -                -
</TABLE>

                                       32
<PAGE>

     o    As of December 31, 2001, none of the  unexercised  options held by the
executive officers set forth in the table above were in-the-money.

DIRECTOR COMPENSATION

     We do not currently pay any cash  compensation  to directors for serving on
our board, but we do reimburse directors for out-of-pocket expenses incurred for
services  rendered  as  members  of the board  including,  but not  limited  to,
attending board meetings.

     Each  of  our  directors  is  eligible  to  be  granted  options  or  other
stock-based  awards under either of our 1998 stock option plan or our 2000 stock
incentive plan.

SPECIAL ADVISORS

     We have entered into an agreement  with Martin  Singer  whereby Mr.  Singer
acts,  on an  independent  consultant  basis,  as an  advisor  to our  board  of
directors.  Mr. Singer is currently the President and CEO of SAFCO Technologies,
Inc.  Prior  thereto,  from  1990 to 1997,  Mr.  Singer  held  executive  office
positions with various divisions of Motorola, Inc., ultimately as Vice President
and General Manager of its Wireless Access Business  Development  division.  Mr.
Singer has also held management  positions with Tellabs,  Inc. and AT&T. We have
granted Mr.  Singer  options to purchase an  aggregate  of 50,000  shares of our
common stock, which options vest in one-third  increments on each anniversary of
the date of grant and we have  agreed to pay Mr.  Singer a fee of 2% of revenues
generated  from any  sales,  licensing  or  royalty  arrangements  generated  or
introduced to Intacta by Mr. Singer.

     Yechiel  Sharabi,  Yehoshua Sagi and Amnon Shai,  each a former director of
Intacta,  and Menachem  Tassa,  formerly the Executive Vice President - Research
and  Development,  continue  to serve as  advisors  to Intacta  pursuant to oral
arrangements.  Each of Messrs.  Sharabi, Sagi and Shai has been granted options,
under our 1998 stock option plan, to purchase  50,000 shares of our common stock
at a price of $.75 per share and Mr. Tassa has been granted  options to purchase
150,000  shares of our common stock,  also at a price of $.75 per share.  All of
the options granted to Messrs. Sharabi, Sagi, Shai and Tassa are fully vested.

EMPLOYMENT AND CONSULTING AGREEMENTS

     We entered into a consulting  agreement with  Pensbreigh  Holdings Ltd., an
independent  contractor  engaged in the business of providing  various corporate
and consulting  services to businesses,  of which Mr.  Nazerali is a stockholder
and officer, dated as of March 1, 1999. Under the agreement, Pensbreigh provides
us with the services of Mr.  Nazerali and Arie Halpern,  an affiliate of Intacta
and the  controlling  stockholder  of  Corsa.  During  the  initial  term of the
agreement, we agreed to pay Pensbreigh a monthly fee of $16,666.  Effective June
1, 2001, the monthly fee we paid to Pensbreigh  under the  consulting  agreement
was reduced to $12,500.  This  agreement  was extended,  in accordance  with its
terms,  for a one-year  period  through  October 1, 2002,  with a monthly fee of
$12,500. In January 2002, Pensbreigh agreed to defer approximately $4,167 of its
monthly fee payments until Intacta is capable of generating  sufficient revenues
to enable full payment of the monthly fees.  Since Mr. Nazerali does not have an
employment  contract with us, he is therefore not entitled to participate in any
benefit plans to which regular employees are eligible.

     We entered into an employment  agreement with Noel Bambrough in March 1999,
which provided for a salary of $12,500 per month from April 1, 1999 through July
31, 1999 and a salary of $20,833 per month thereafter.  However, we had paid Mr.
Bambrough only $12,500 per month through June 30, 2000.  Since July 1, 2000, Mr.
Bambrough has been receiving $20,833 per month. The balance

                                       33
<PAGE>

of accrued but unpaid salary of approximately  $91,665 was paid to Mr. Bambrough
from a portion of the proceeds of our October 2000 private placement. In October
2001, in connection with our  cost-reduction  efforts,  Mr.  Bambrough agreed to
defer payment of  approximately  40% of his monthly  salary until we are able to
generate  sufficient revenue to enable full payment of his salary. Mr. Bambrough
is also  eligible  for a bonus  not to  exceed  $100,000  per year  based on the
achievement  of  specific  agreed upon  business  goals and  targets.  Under the
agreement, we granted Mr. Bambrough an option, under our 1998 stock option plan,
to purchase  200,000  shares of common  stock at a price of $0.75 per share.  In
addition,  subject to our board of directors'  approval,  we agreed to grant Mr.
Bambrough  options to  purchase a number of shares at least  equal to 10% of the
aggregate  number of options  available  for grant under any  subsequent  option
plan.  Accordingly,  on June 1, 2001, we granted Mr. Bambrough an option,  under
our 2000 stock incentive  plan, to purchase  240,000 shares of common stock at a
price of $.75 per share.

STOCK OPTION PLAN

     On June 1, 1998,  our board of directors  approved the creation of our 1998
stock option plan.  Under our 1998 stock option plan, our board of directors may
grant incentive and non-qualified  options to acquire up to a total of 1,667,100
shares of common stock to our directors, officers, employees and consultants. As
of the date of this report,  options to acquire  1,300,000  shares at a price of
$.75 per share were outstanding.

     On July 21, 2000, our board of directors  adopted our 2000 stock  incentive
plan, which was subsequently  approved by our stockholders at our annual meeting
in May 2001. Our 2000 stock  incentive plan provides for the grant of any or all
of the following types of awards:

     o    stock  options,  which  may  be  either  incentive  stock  options  or
          non-qualified stock options;

     o    restricted stock;

     o    deferred stock; and

     o    other stock based awards.

     A total of  2,400,000  shares  of  common  stock  have  been  reserved  for
distribution  under  our  2000  stock  incentive  plan.  As of the  date of this
prospectus,  options to acquire 941,750 shares at a price of $.75 per share were
outstanding.

     Of the  options  granted  under our 1998  stock  option  plan,  options  to
purchase  an  aggregate  of 425,000  shares have been  granted to the  following
executive officers and directors:

     o    options to purchase 350,000 shares were granted to Altaf Nazerali, our
Chairman of the board of directors; and

     o    options to purchase  75,000  shares  were  granted to Ross  Wilmot,  a
member of our board of directors.

     An aggregate of 200,000 options granted to Messrs.  Nazerali and Wilmot are
fully  vested  and the  balance  of options  will vest in  one-third  increments
annually beginning on June 1, 2002.

     Of the options  granted  under our 2000 stock  incentive  plan,  options to
purchase  an  aggregate  of 690,000  shares have been  granted to the  following
executive officers and directors:

                                       34
<PAGE>

     o    options to purchase 440,000 shares were granted to Noel Bambrough, our
President and Chief Executive Officer and a member of our board of directors;

     o    options  to  purchase  100,000  shares  were  granted  to  Charles  C.
Johnston, our Vice Chairman of the board of directors;

     o    options to purchase  75,000 shares were granted to Bernard F. Girma, a
member of our board of directors; and

     o    options to purchase  75,000 shares were granted to Graham Argott,  our
Chief Financial Officer.

     An aggregate of 200,000 options  granted to Mr.  Bambrough are fully vested
and the remaining  options to purchase  490,000  shares will vest  incrementally
over the next three years.

COMPENSATION  COMMITTEE  INTERLOCKS AND INSIDER  PARTICIPATION  IN  COMPENSATION
DECISIONS

     Our  compensation  committee  was  formed  effective  May 31,  2001  and is
comprised of Messrs.  Altaf Nazerali,  Charles  Johnston and Bernard Girma.  Mr.
Nazerali  served as our President and Chief  Executive  Officer  through May 31,
2001,  and continues to serve as Chairman of our board of directors.  During the
fiscal year ended December 31, 2001, Mr.  Nazerali  served as a director of each
of  Multivision   Communications  Corp.,  CTF  Technologies,   Inc.  and  Imagis
Technologies,  Inc. Ross Wilmot, a member of our board of directors served as an
executive officer of Multivision, CTF Technologies and Imagis. We did not engage
in any material transactions with Multivision, CTF Technologies or Imagis during
the fiscal year ended December 31, 2001.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The  following  table  sets forth  information  concerning  the  beneficial
ownership of our outstanding common stock as of March 31, 2002:

     o    each  person or group that we know owns  beneficially  more than 5% of
          our common stock;

     o    each of our directors and named executive officers individually; and

     o    all directors and executive officers as a group.

     We  believe  that all  persons  named in the  table  have sole  voting  and
investment power with respect to all shares of common stock  beneficially  owned
by them except as noted.

     A person is deemed to be the  beneficial  owner of  securities  that can be
acquired by that person  within 60 days from March 31, 2002 upon the exercise of
options, warrants or convertible securities.  Each beneficial owner's percentage
ownership  is  determined  by assuming  that  options,  warrants or  convertible
securities that are held by that person, but not those held by any other person,
and which are  exercisable  within 60 days of March 31, 2002 have been exercised
and  converted.  The  information  presented  in  the  following  table  assumes
approximately   20,345,924  shares  of  common  stock  outstanding   before  any
consideration  is  given  to  outstanding   options,   warrants  or  convertible
securities.

     Unless  otherwise  noted below,  the address for each named  individual  or
group is in care of Intacta  Technologies Inc., 945 East Paces Ferry Road, N.E.,
Suite 1445, Atlanta, Georgia 30326-1372.

                                       35
<PAGE>

<TABLE>
<CAPTION>
             NAME AND ADDRESS                      AMOUNT AND NATURE OF                 OUTSTANDING STOCK
           OF BENEFICIAL OWNER                     BENEFICIAL OWNERSHIP                 BENEFICIALLY OWNED
           -------------------                     --------------------                 ------------------
<S>                                                     <C>                                     <C>
Corsa S.A. Holdings
   Arie Halpern...........................              4,000,000                               19.7%
Altaf S. Nazerali.........................                278,000                                1.4
Noel R. Bambrough.........................                203,000                                 *
Charles C. Johnston.......................                183,332                                 *
Ross Wilmot...............................                 50,000                                 *
Bernard F. Girma..........................                    ---                                ---
Graham E. Argott........................                      ---                                ---
All officers and directors as a group
(6 persons)...............................                714,332                                3.4
</TABLE>
--------------------
*  Indicates a  percentage  beneficial  ownership  of less than 1% of the shares
outstanding.

     Corsa S.A.  Holdings is a Luxembourg  holding  company with an address at 8
rue Notre Dame,  L-2240 Grand Duchy,  Luxembourg,  of which 90% is controlled by
Mr. Arie Halpern and 10% is  controlled  by Shira  Advising,  Communication  and
Investments  Ltd., a company  controlled  by Mr.  Yechiel Y.  Sharabi,  a former
director of Intacta,  and his wife  Hadassa Y.  Sharabi.  Mr.  Halpern is also a
director of Corsa S.A.  Holdings and exercises sole voting and dispositive power
over the shares  held by Corsa  S.A.  Holdings.  This  amount  does not  include
150,000 shares underlying currently exercisable options held by Mr. Halpern.

     Mr. Nazerali's beneficially owned shares include

     o    128,000 shares held by Mr. Nazerali; and

     o    150,000 shares underlying currently exercisable options.

     Mr. Nazerali's beneficially owned shares do not include:

     o    200,000 shares underlying options which are not currently exercisable;
and

     o    an aggregate of 282,090 shares and 244,590 shares underlying currently
exercisable warrants held by Valor Invest Limited.

     Mr.  Nazerali is a director of Valor but has entered into an agreement with
the principal  owner of Valor not to exercise  voting or dispositive  power with
respect to securities of Intacta held by Valor.

     Mr. Bambrough's beneficially owned shares include:

     o    3,000 shares held by Mr. Bambrough; and

     o    200,000 shares underlying currently exercisable options.

                                       36
<PAGE>

     Mr.  Bambrough's  beneficially  owned shares do not include an aggregate of
240,000 shares underlying options which are not currently exercisable.

     Mr. Johnston's address is c/o Ventex Technologies,  7830 Byron Drive, Suite
10,  Riviera Beach,  Florida  33404.  Mr.  Johnson's  beneficially  owned shares
include:

     o    66,666  shares held by J & C Resources,  LLC,  over which Mr.  Johnson
exercises sole voting and dispositive power; and

     o    116,666 shares underlying currently exercisable warrants held by J & C
Resources,  LLC, over which Mr.  Johnston  exercises sole voting and dispositive
power.

     Mr.  Johnston's  beneficially  owned shares do not include  100,000  shares
underlying options which are not currently exercisable.

     Mr.  Wilmot's  beneficially  owned shares include 50,000 shares  underlying
currently  exercisable  options,  but exclude 25,000 shares  underlying  options
which are not currently exercisable.

     Mr.  Girma's  address is c/o  Digitech  Strategy,  26072 Spur Branch  Lane,
Laguna Hills,  California  92653.  Mr. Girma is the  beneficial  owner of 75,000
shares underlying options which are not currently exercisable.

     The  beneficially  owned shares of our  officers  and  directors as a group
includes:

     o    197,666 shares of our common stock;

     o    400,000 shares of our common stock  underlying  currently  exercisable
options; and

     o    116,666 shares of our common stock  underlying  currently  exercisable
warrants.

     The beneficially owned shares of our officers and directors as a group does
not include:

     o    an  aggregate  of  715,000  shares  underlying  options  which are not
currently exercisable; and

     o    282,090 shares and 244,590  shares  underlying  currently  exercisable
warrants held by Valor.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     In  January  2001,  we  entered  into an  agreement  with  Bernard F. Girma
pursuant to which we agreed to pay Mr. Girma a  commission  equal to ten percent
of all  revenues,  net of certain  taxes,  costs and fees,  received  by us from
clients  introduced  by Mr.  Girma  that  acquire or license  our  products  and
technology.  The  agreement  also  provides  for our  reimbursing  Mr. Girma for
certain  expenses  he incurs in  connection  with the  promotion  of  Intacta to
prospective  clients.  To date,  no  commissions  have been paid to Mr. Girma in
accordance with this agreement.

     During 2001 we paid  consulting,  management  and marketing fees to some of
our directors or stockholders and/or their affiliates in the following amounts:

     o    $170,000  to  Pensbreigh  Holdings  Ltd.,  of which  Mr.  Nazerali  is
President and a stockholder; and

                                       37
<PAGE>

     o    $70,000 to  Menachem  Tassa,  our  former  Executive  Vice  President,
Research  and  Development.  Mr.  Tassa  subsequently  resigned  his position of
Executive Vice President, Research and Development,  effective July 1, 2001. Mr.
Tassa  continued  to serve  Intacta as a consultant  through July 31, 2001.  Mr.
Tassa currently serves as an advisor to Intacta pursuant to an oral arrangement.

     We  paid  approximately  $80,000  during  2001 to  International  Portfolio
Management  Inc., in connection  with  administrative  services  provided to us.
Altaf S.  Nazerali,  our  Chairman  of the  Board,  is the sole  stockholder  of
International  Portfolio Management Inc., Ross Wilmot, our director, is the Vice
President,  Finance of  International  Portfolio  Management Inc., and Sandra E.
Buschau,  formerly our corporate Secretary, is a Vice President of International
Portfolio Management Inc.

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)  1.   Financial Statements.

          Report of Independent Certified Public Accountants.................F-2
          Consolidated Balance Sheets as of December 31, 2001 and 2000.......F-3
          Consolidated Statements of Operations for the years ended
                   December 31, 2001, 2000 and 1999 .........................F-5
          Consolidated Statements of Changes in Stockholders' Equity
                   for the years ended December 31, 2001, 2000 and 1999 .....F-6
          Consolidated Statements of Cash Flows for the years ended
                   December 31, 2001, 2000 and 1999 .........................F-7
          Notes to Consolidated Financial Statements.........................F-8

     2.   Financial Statement Schedules.

               Schedules have been omitted since the required information is not
          present or is not present in amounts  sufficient to require submission
          of the schedules,  or because the information  required is included in
          the consolidated financial statements, including the notes thereto.

     3.   Index to Exhibits.

EXHIBIT           DESCRIPTION OF EXHIBIT

3.1       Articles of Incorporation of Intacta  Technologies Inc. and amendments
          thereto (1)
3.2       Bylaws of Intacta Technologies Inc. (1)
4.1       Specimen Stock Certificate (1)
4.2       Form of warrant issued pursuant to the  registrant's  bridge financing
          in May and June 2000 (3)
4.3       Form of warrant issued pursuant to the registrant's  private placement
          in October 2000 (3)
10.1      Licensing  Agreement  dated  July 19,  1999,  between  registrant  and
          DataLode Inc. (1)+
10.2      Form  of  Lease  Agreement  dated  November  17,  2000,   between  the
          registrant and North Atlanta Realty Acquisition Company, Inc. (3)
10.3      Form of Tenancy  Agreement dated August 1, 2000,  between Intacta Labs
          Ltd. and Hakirya Towers Beer Sheva Ltd. (3)
10.4      1998 Stock Option Plan (1)
10.5      Consulting  Agreement  dated October 1, 1998,  between  registrant and
          Pensbreigh Holdings Ltd. (1)
10.6      Agreement  dated  June  30,  1999,  between  registrant  and  Noel  R.
          Bambrough (1)
10.7      Exchange  Agreement  dated May 31, 1998 between  registrant  and Corsa
          S.A. Holdings (1)
10.8      Consulting  Agreement  dated  March 1,  1999  between  registrant  and
          Pensbreigh Holdings Ltd. (1)
10.9      2000 Stock Incentive Plan, as amended (2)
10.10     License  Agreement  dated April 17, 2000  between the  registrant  and
          Systems Nakashima Co., Ltd. (3)+

                                       38
<PAGE>

10.11     License  Agreement  dated June 30,  2000  between the  registrant  and
          Intertek Testing Systems International Ltd. (3)+
21.1      List of subsidiaries of registrant (3)
23.1      Consent of BDO Seidman, LLP

(1)  Incorporated  by  reference  to the  exhibit  filed  with the  registrant's
     registration statement on Form S-1 (SEC File No. 333-30400).

(2)  Incorporated by reference to Exhibit A to the registrant's Definitive Proxy
     Statement on Schedule 14A dated April 27, 2001.

(3)  Incorporated  by  reference  to the  exhibit  filed  with the  registrant's
     registration statement on Form S-1 (SEC File No. 333-51210).

+    Filed  in  redacted  form  pursuant  to  Rule  406  promulgated  under  the
     Securities Act of 1933, as amended (the  "Securities  Act").  Copies of the
     exhibit  containing the redacted  portions have been filed  separately with
     the   Securities  and  Exchange   Commission   subject  to  a  request  for
     confidential treatment pursuant to Rule 406 under the Securities Act.

(b)  Reports on Form 8-K.

     On October 24,  2001,  the  registrant  filed a Current  Report on Form 8-K
reporting the release of its suite of HIPAA complaint communication products.

     On October 24,  2001,  the  registrant  filed a Current  Report on Form 8-K
reporting the  announcement of a partnership  with Transcend  Services,  Inc. to
evaluate new service to the medical transcription market and the availability of
its new INTACTA.CODE SDK - Developer's  Edition v5.1 on the  ComponentSource(TM)
Website.

                                       39
<PAGE>

                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) 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.

                                        INTACTA TECHNOLOGIES, INC.

                                        By: /s/ Noel R. Bambrough
                                            ---------------------------------
                                            Name:  Noel R. Bambrough
                                            Title: President and Chief
                                                   Executive Officer

Dated:   April 15, 2002

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
        SIGNATURE                            TITLE                                 DATE
        ---------                            -----                                 ----
<S>                              <C>                                           <C>
/s/ Altaf S. Nazerali            Chairman of the Board of Directors            April 15, 2002
-----------------------------
Altaf S. Nazerali

/s/ Charles C. Johnston          Vice Chairman of the Board of Directors       April 15, 2002
-----------------------------
Charles C. Johnston

/s/ Noel R. Bambrough            President, Chief Executive Officer and        April 15, 2002
-----------------------------
Noel R. Bambrough                Director (Principal Executive Officer)

/s/ Graham E. Argott             Chief Financial Officer                       April 15, 2002
-----------------------------
Graham E. Argott                 (Principal Accounting Officer)

/s/ Ross Wilmot                  Director                                      April 15, 2002
-----------------------------
Ross Wilmot

/s/ Bernard F. Girma             Director                                      April 15, 2002
----------------------
Bernard F. Girma
</TABLE>

                                       40
<PAGE>

                          INDEX TO FINANCIAL STATEMENTS

                   INTACTA TECHNOLOGIES INC. AND SUBSIDIARIES


                                                                            PAGE
Audited Consolidated Financial Statements:
     Report of Independent Certified Public Accountants....................  F-2
     Consolidated Balance Sheets - December 31, 2001 and December 31, 2000   F-3
     Consolidated Statements of Operations for the years ended December
         31, 2001, December 31, 2000 and December 31, 1999.................  F-5
     Consolidated Statements of Stockholders' Equity for the years ended
         December 31, 2001, December 31, 2000 and December 31, 1999........  F-6
     Consolidated Statements of Cash Flows for the years ended December
         31, 2001, December 31, 2000 and December 31, 1999.................  F-7
     Notes to Consolidated Financial Statements............................  F-8

<PAGE>

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To The Board of Directors and Shareholders of
Intacta Technologies Inc.

We  have  audited  the  accompanying  consolidated  balance  sheets  of  Intacta
Technologies  Inc.  and  subsidiaries  as of December  31, 2001 and 2000 and the
related  consolidated  statements of operations,  stockholders'  equity and cash
flows for each of the three years in the period ended  December 31, 2001.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. These standards require that we plan and perform our audit
to obtain reasonable  assurance about whether the financial  statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation. We believe our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all  material   respects,   the  consolidated   financial  position  of  Intacta
Technologies  Inc. and  subsidiaries  as of December 31, 2001 and 2000,  and the
consolidated  results of their  operations  and cash flows for each of the three
years in the period ended  December  31, 2001,  in  conformity  with  accounting
principles generally accepted in the United States.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
financial statements,  the Company has suffered recurring losses from operations
and, at December 31, 2001,  has an accumulated  deficit that raises  substantial
doubt about its ability to continue as a going  concern.  Management's  plans in
regards  to  these  matters  are  also  described  in Note 2.  The  consolidated
financial  statements do not include any adjustments  that might result from the
outcome of this uncertainty.

/s/ BDO Seidman, LLP

Atlanta, Georgia
March 25, 2002,
except for Note 2,
which is as of April 12, 2002

                                      F-2
<PAGE>

                                      INTACTA TECHNOLOGIES INC. AND SUBSIDIARIES

                                                     CONSOLIDATED BALANCE SHEETS

================================================================================

December 31,                                                2001            2000
================================================================================

ASSETS

CURRENT
   Cash and cash equivalents                        $    679,000    $  3,904,500
   Accounts receivable                                     7,200          63,500
   Inventories                                                --          55,700
   Related party and employee receivables                     --          13,100
   Prepaid insurance and other                           106,900              --
--------------------------------------------------------------------------------

Total current assets                                     793,100       4,036,800

PROPERTY AND EQUIPMENT, net                               68,700         104,800

PATENTS, net                                             119,500         118,900
--------------------------------------------------------------------------------

                                                    $    981,300    $  4,260,500
================================================================================

                                       F-3
<PAGE>

                                      INTACTA TECHNOLOGIES INC. AND SUBSIDIARIES

                                                     CONSOLIDATED BALANCE SHEETS

================================================================================

<TABLE>
<CAPTION>
December 31,                                                        2001             2000
=========================================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
<S>                                                         <C>              <C>
   Accounts payable                                         $    133,500     $     61,400
   Accounts payable - related parties                             35,000          127,400
   Accrued expenses                                              230,900          206,500
-----------------------------------------------------------------------------------------

Total current liabilities                                        399,400          395,300
-----------------------------------------------------------------------------------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
   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 and 17,909,000 shares issued
     and outstanding, respectively                                 2,035            2,035
   Additional paid-in capital                                 26,336,865       26,336,865
   Deficit                                                   (25,743,800)     (22,222,400)
   Unamortized stock compensation                                (13,200)        (251,300)
-----------------------------------------------------------------------------------------

Total stockholders' equity                                       581,900        3,865,200
-----------------------------------------------------------------------------------------

                                                            $    981,300     $  4,260,500
=========================================================================================
                             See accompanying notes to consolidated financial statements.
</TABLE>

                                       F-4
<PAGE>

                                      INTACTA TECHNOLOGIES INC. AND SUBSIDIARIES

                                           CONSOLIDATED STATEMENTS OF OPERATIONS

================================================================================

<TABLE>
<CAPTION>
Years ended December 31,                                             2001             2000             1999
===========================================================================================================

REVENUES
<S>                                                          <C>              <C>              <C>
   Products and components                                   $     94,400     $    363,400     $     64,000
   Royalties from licensing arrangements                           46,400           94,000           73,400
   Consulting fees                                                     --          337,100               --
-----------------------------------------------------------------------------------------------------------

Total Revenues                                                    140,800          794,500          137,400
-----------------------------------------------------------------------------------------------------------

OPERATING EXPENSES
   Cost of products and components                                 78,900          303,600           90,500
   Consulting fees expenses                                            --          113,900               --
   Research and development (including non-cash
     compensation expense of $189,200, $361,600, $222,400
      in 2001, 2000 and 1999 respectively)                      1,206,400        1,133,000        1,047,400
   Sales and marketing (including non-cash compensation
      expense of $7,800 and $69,600 in 2001 and 2000)             733,100        1,182,100          113,200
   General and administrative (including non-cash
     compensation expense of $41,100, $571,500, and
     $1,016,000 in 2001, 2000 and 1999 respectively)            1,715,400        2,306,500        2,619,800
-----------------------------------------------------------------------------------------------------------

Total operating expenses                                        3,733,800        5,039,100        3,870,900
-----------------------------------------------------------------------------------------------------------

Loss from operations                                           (3,593,000)      (4,244,600)      (3,733,500)
-----------------------------------------------------------------------------------------------------------

Other income (expense)
   Interest income                                                 82,700           90,600          104,000
   Interest (expense)                                                (100)        (389,500)          (8,700)
   Other                                                           (5,200)              --           21,400
-----------------------------------------------------------------------------------------------------------

Total other income (expense)                                       77,400         (298,900)         116,700
-----------------------------------------------------------------------------------------------------------

Loss before provision for income taxes                         (3,515,600)      (4,543,500)      (3,616,800)

PROVISION FOR INCOME TAXES                                          5,800            7,700              800
-----------------------------------------------------------------------------------------------------------

Net loss                                                     $ (3,521,400)    $ (4,551,200)    $ (3,617,600)
===========================================================================================================

Basic and diluted loss per common share                      $      (0.17)    $      (0.25)    $      (0.20)
===========================================================================================================

BASIC AND DILUTED WEIGHTED - AVERAGE
   COMMON SHARES OUTSTANDING                                   20,345,924       18,483,179       17,791,630
===========================================================================================================
                                               See accompanying notes to consolidated financial statements.
</TABLE>

                                       F-5
<PAGE>

                                      INTACTA TECHNOLOGIES INC. AND SUBSIDIARIES

                                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

================================================================================

<TABLE>
<CAPTION>
                                              Common Stock            Additional     Unamortized
                                       ---------------------------      Paid-in          Stock
                                          Shares        Amount          Capital      Compensation        Deficit           Total
===================================================================================================================================
<S>                                    <C>           <C>             <C>             <C>              <C>              <C>
BALANCE, December 31, 1998             17,671,000    $      1,767    $ 18,492,199    $ (2,171,766)    $(14,053,600)    $  2,268,600
   Conversion of debt to equity -
     Stockholder                          238,000              24         952,076              --               --          952,100
   Stock options granted                       --              --         266,278        (266,278)              --               --
   Amortization of stock options               --              --              --       1,238,400               --        1,238,400
   Net loss                                    --              --              --              --       (3,617,600)      (3,617,600)
-----------------------------------------------------------------------------------------------------------------------------------

BALANCE, December 31, 1999             17,909,000           1,791      19,710,553      (1,199,644)     (17,671,200)         841,500
   Conversion of debt to equity -
     Stockholder                          160,483              16         481,484              --               --          481,500
     Conversion of debt to
     equity                               755,778              76       2,267,224              --               --        2,267,300
   Issuance of common stock in
     Private Placement, net of
     issuance costs of
     $1,054,000                         1,503,963             150       3,522,050              --               --        3,522,200
   Stock options exercised                 16,700               2          24,998              --               --           25,000
   Amortization of stock options               --              --              --       1,002,700               --        1,002,700
   Stock options granted                       --              --          46,800         (46,800)              --               --
   Other                                       --              --           7,556          (7,556)              --               --
   Discount on debt with
     convertible warrant feature               --              --         276,200              --               --          276,200
   Net loss                                    --              --              --              --       (4,551,200)      (4,551,200)
-----------------------------------------------------------------------------------------------------------------------------------

BALANCE, December 31, 2000             20,345,924           2,035      26,336,865        (251,300)     (22,222,400)       3,865,200
   Amortization of stock options               --              --              --         238,100               --          238,100
   Net loss                                    --              --              --              --       (3,521,400)      (3,521,400)
-----------------------------------------------------------------------------------------------------------------------------------

BALANCE, December 31, 2001             20,345,924    $      2,035    $ 26,336,865    $    (13,200)    $(25,743,800)    $    581,900
===================================================================================================================================
                                                                       See accompanying notes to consolidated financial statements.
</TABLE>

                                       F-6
<PAGE>

                                      INTACTA TECHNOLOGIES INC. AND SUBSIDIARIES

                                           CONSOLIDATED STATEMENTS OF CASH FLOWS

================================================================================

<TABLE>
<CAPTION>
Years ended December 31,                                       2001             2000             1999
=====================================================================================================

OPERATING ACTIVITIES
<S>                                                    <C>              <C>              <C>
  Net loss                                             $ (3,521,400)    $ (4,551,200)    $ (3,617,600)
  Adjustments to reconcile net loss to cash
    used in operating activities:
       Amortization of stock options                        238,100        1,002,700        1,238,400
       Depreciation and amortization                         92,300           99,300          110,800
       Interest accretion on warrants                            --          276,200               --
       Write-down of inventory                               53,100          222,900           46,100
       Loss on equipment disposals                               --            5,700               --
       Changes in operating assets and liabilities:
         Accounts receivable                                 56,300          (31,800)         (20,300)
         Inventories                                          2,600               --          (26,000)
         Accounts receivable - related parties               13,100           31,900             (600)
         Other current assets                              (106,800)          30,800          (16,100)
         Accounts payable                                    72,100         (411,000)         468,800
         Accounts payable - related parties                 (92,400)          37,200               --
         Accrued expenses                                    24,400          128,700              500
-----------------------------------------------------------------------------------------------------

Cash used in operating activities                        (3,168,600)      (3,158,600)      (1,816,000)
-----------------------------------------------------------------------------------------------------

INVESTING ACTIVITIES
  Capital expenditures                                      (38,000)         (34,600)         (18,600)
  Patents                                                   (18,900)         (26,700)         (15,200)
-----------------------------------------------------------------------------------------------------

Cash provided by (used in) investing activities             (56,900)         (61,300)         (33,800)
-----------------------------------------------------------------------------------------------------

FINANCING ACTIVITIES
  Exercise of stock options                                      --           25,000               --
  Net proceeds from private placement                            --        3,522,200               --
  Loans from shareholder                                         --          704,500               --
  Bridge loan financing, net                                     --        2,267,300               --
  Repayment of shareholder loans                                 --         (312,000)        (279,900)
-----------------------------------------------------------------------------------------------------

Cash provided by (used in) financing activities                  --        6,207,000         (279,900)
-----------------------------------------------------------------------------------------------------

NET INCREASE (DECREASE) IN CASH AND CASH                 (3,225,500)       2,987,100       (2,129,700)
  EQUIVALENTS

CASH AND CASH EQUIVALENTS, beginning of year              3,904,500          917,400        3,047,100
-----------------------------------------------------------------------------------------------------

CASH AND CASH EQUIVALENTS, end of year                 $    679,000     $  3,904,500     $    917,400
=====================================================================================================
                                         See accompanying notes to consolidated financial statements.
</TABLE>

                                       F-7
<PAGE>

                                      INTACTA TECHNOLOGIES INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

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  Sheva,  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.

     CASH AND CASH EQUIVALENTS

     For  purposes of the  consolidated  statements  of cash flows,  the Company
     considers all highly liquid  investments with original  maturities of three
     months or less to be cash equivalents.

     INVENTORIES

     Inventories  are  stated  at the  lower of cost  (first-in,  first-out)  or
     market.

                                      F-8
<PAGE>

                                      INTACTA TECHNOLOGIES INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

     PROPERTY AND EQUIPMENT

     Property and equipment is stated at cost, net of  accumulated  depreciation
     and amortization.  Depreciation is provided using the straight-line  method
     over the estimated useful lives of the assets, generally ranging from three
     to seven years.

     PATENTS

     Patents are amortized on a  straight-line  basis over the estimated  useful
     life of the patents, generally ten years. As of December 31, 2001 and 2000,
     accumulated  amortization  amounted to approximately  $109,500 and $91,200,
     respectively.

                                      F-9
<PAGE>

                                      INTACTA TECHNOLOGIES INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

     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.

     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.

     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.

                                      F-10
<PAGE>

                                      INTACTA TECHNOLOGIES INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

     The Company recognized  consulting fee revenue during 2000 that was derived
     from certain  software  development and programming  projects  performed on
     behalf of customers.  Revenue was recorded as the services  were  performed
     and these projects were started and completed within the year.

     The  Company  believes  that  it is 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.

     ADVERTISING COSTS

     The cost of advertising is expensed as incurred.  Advertising costs for the
     years ended December 31, 2001, 2000 and 1999 were  approximately  $154,100,
     $34,900 and $0, respectively.

     INCOME TAXES

     The Company  accounts  for income  taxes in  accordance  with  Statement of
     Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes,
     which requires an asset and liability  approach.  This approach  results in
     the   recognition   of  deferred  tax  assets  (future  tax  benefits)  and
     liabilities  for  the  expected   future  tax   consequences  of  temporary
     differences  between the book carrying  amounts and the tax basis of assets
     and  liabilities.  The deferred tax assets and  liabilities  represent  the
     future tax return  consequences of those differences,  which will either be
     deductible  or taxable  when the assets and  liabilities  are  recovered or
     settled.  Future tax  benefits  are subject to a valuation  allowance  when
     management believes it is more likely than not that the deferred tax assets
     will not be realized.

     LOSS PER SHARE

     Basic  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  at
     December 31, 2001, 2000 and 1999 were  antidilutive and  accordingly,  were
     excluded from the computation of loss per share.

                                      F-11
<PAGE>

                                      INTACTA TECHNOLOGIES INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

     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. 221, "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
     issued SFAS No. 141, Business  Combinations and No. 142, Goodwill and Other
     Intangible  Assets.  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 companies 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  companies  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 companies identify reporting
     units  for  the  purpose  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 companies to complete a transitional  goodwill impairment test six
     months from the date of adoption.  Companies  are 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  Intacta's  financial
     position,  results  of  operations  and cash  flows in 2002 and  subsequent
     years.

          In June 1998, the Financial Accounting Standards Board issued SFAS No.
     133, Accounting for Derivative Instruments and Hedging Activities. SFAS No.
     133  establishes  accounting and reporting  standards  requiring that every
     derivative instrument, including certain derivative instruments imbedded in
     other contracts, be recorded in the balance sheet as

                                      F-12
<PAGE>

                                      INTACTA TECHNOLOGIES INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

     either an asset or liability measured at its fair value. The statement also
     requires  that  changes in the  derivative's  fair value be  recognized  in
     earnings  unless specific hedge  accounting  criteria are met. SFAS No. 137
     delayed the effective date of SFAS No. 133 to fiscal years  beginning after
     June 15, 2000. SFAS No. 138, Accounting for Certain Derivative  Instruments
     and Certain Hedging Activities,  Amendment of SFAS No. 133, liberalized the
     application of SFAS No. 133 in a number of areas.  The adoption of SFAS No.
     133 did not have a material impact on the Company's  consolidated financial
     position or results of operations.

          The Financial Accounting Standards Board issued Interpretation No. 44,
     Accounting  for  Certain  Transactions  involving  Stock  Compensation,  an
     Interpretation  of APB Opinion  No. 25 which  became  effective  on July 1,
     2000.  Interpretation  No. 44 clarifies (a) the  definition of employee for
     purposes  of  applying  Opinion No. 25, (b) the  criteria  for  determining
     whether a stock compensation plan qualifies as a noncompensatory  plan, (c)
     the  accounting  consequence  of  various  modifications  to the terms of a
     previously  fixed  stock  option or award,  and (d) the  accounting  for an
     exchange of stock compensation awards in a business  combination.  Adoption
     of the  provisions  of  Interpretation  No.  44 did not have a  significant
     impact on Intacta's financial statements.

          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  Securities  and Exchange
     Commission.

     FOREIGN CURRENCY

     The Company has designated the U.S.  dollar as its functional  currency for
     Intacta Labs, a foreign subsidiary. Financial statements of this subsidiary
     are translated into U.S. dollars for  consolidation  purposes using current
     rates of exchange for monetary assets and liabilities and historical  rates
     of exchange for non-monetary assets and related elements of expense.  Sales
     and other  expenses are translated at rates that  approximate  the rates in
     effect on the translation  dates.  Immaterial  translation gains and losses
     are included in the consolidated statement of operations.

                                      F-13
<PAGE>

                                      INTACTA TECHNOLOGIES INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

     FAIR VALUES OF FINANCIAL INSTRUMENTS

     Fair values of cash and cash  equivalents and short-term  debt  approximate
     cost due to the short period of time to maturity.

     RECLASSIFICATIONS

     Certain 1999 amounts have been reclassified to conform to the 2001 and 2000
     presentation.

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  $25,743,800  through  December  31,  2001 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,  respectively.  These losses were primarily the result
     of the decision by the Company in late 1997 to curtail  further  production
     and marketing of its  facsimile-based  products upon  realization  that the
     market  potential for such products was diminished,  and by the significant
     overhead  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 reduced 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  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 and cash equivalents will be sufficient to fund the Company's
     operating  activities  and capital  requirements  through the middle of its
     second  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  potential  sources  of  additional  financing  and cannot
     assure  you  that   additional   financing  will  be  available  to  it  on
     commercially  reasonable  terms  or  at  all.  The  Company  has,  however,
     concluded  negotiations  with  a  newly  formed  joint  venture  of  Imagis
     Technologies,   Inc.,  a  related   party   company,   and  a  third  party
     (collectively "the parties") early in the second quarter of 2002. The joint
     venture was formed for purposes of developing and manufacturing of advanced
     security  based  products and systems that would  license and integrate the
     Company's  technology.  Management  anticipates  that  a  formal  licensing
     agreement will be executed with the parties by the end of April 2002. Under
     the  preliminary  terms of the  agreement,  the  Company  would  receive an
     initial up front licensing fee of  approximately  $470,000,  and would earn
     royalty  fees on future  product  sales  generated  by the  joint  venture.
     Although  the parties  have agreed  orally on the  principal  terms of this
     agreement,  there can be no assurance  that the agreement  will be formally
     executed,  that the  initial  licensing  fee will be paid,  or that  future
     royalty fees will be generated under this agreement.

                                      F-14
<PAGE>

                                      INTACTA TECHNOLOGIES INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

3.   INVENTORIES

     Inventories consisted of the following:

     December 31,                     2001               2000
     ---------------------------------------------------------

     Components                 $        -        $    55,700
     =========================================================

     Inventories  at December 31, 2000 related  substantially  to computer chips
     and  boards  appropriately  capitalized  in  accordance  with  SFAS No.  2,
     Accounting  for  Research  and  Development  Costs  which  allows  for  the
     capitalization of materials if they have alternative future uses.

     During 2001, 2000 and 1999, the Company  wrote-off  approximately  $53,100,
     $222,900, and $46,100,  respectively, of its inventory due to reduced sales
     and obsolescence, which is included in cost of products and components.

4.   PROPERTY AND EQUIPMENT

     Property and equipment consisted of the following:

     December 31,                                  2001               2000
     ----------------------------------------------------------------------

     Equipment                              $   307,500         $  287,800
     Furniture and fixtures                      81,700             63,400
     ----------------------------------------------------------------------
                                                389,200            351,200
     Less accumulated depreciation             (320,500)          (246,400)
     ----------------------------------------------------------------------

                                            $    68,700         $  104,800
     ======================================================================

     Depreciation expense was $74,100,  $80,200, and $94,200 for the years ended
     December 31, 2001, 2000 and 1999.

5.   ACCRUED EXPENSES

     Accrued expenses consisted of the following:

     DECEMBER 31,                                  2001               2000
     ---------------------------------------------------------------------

     Vacation and severance                $     67,200       $     51,700
     Accounting fees                             76,500                  -
     Deferred compensation and salaries          50,800            154,800
     Rent and other                              36,400                  -
     ---------------------------------------------------------------------
                                           $    230,900       $    206,500
     =====================================================================

                                      F-15
<PAGE>

                                      INTACTA TECHNOLOGIES INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

6.   COMMITMENTS AND CONTINGENCIES

     Leases

     The Company  leases its facilities and certain  equipment  under  operating
     leases, which expire through February 2006. The facility leases require the
     Company  to  pay  certain  maintenance  and  operating  expenses,  such  as
     utilities, property taxes, and insurance costs.

     At December 31, 2001,  aggregate  minimum rent commitments  under operating
     leases with initial or remaining terms of one year or more were as follows:

            Year                         Amount
     -------------------------------------------------

            2002                      $ 153,000
            2003                        153,300
            2004                        144,500
            2005                        134,000
            2006                         17,800
     -------------------------------------------------

                                      $ 602,600
     =================================================

     Rent expense related to these operating leases was $150,500,  $127,600, and
     $135,709  for  the  years  ended   December   31,  2001,   2000  and  1999,
     respectively.

     Legal Proceedings
     In November  2001,  a party  filed a  complaint  against the Company in the
     United States District Court alleging patent  infringement.  In addition to
     preliminary   and  permanent   injunctions   sought  from  further  alleged
     infringement  of its  patent,  the party is seeking an  unstated  amount of
     monetary  damages.  The Company  believes that the claims are without merit
     and intends to vigorously defend this lawsuit.  Since this lawsuit is in an
     early stage,  however,  management  cannot  predict  whether the outcome of
     these claims will be resolved favorably.

7.   STOCKHOLDERS' EQUITY

     During 2000,  the Company  completed a bridge  financing in which 25 bridge
     units were issued. Each bridge unit consisted of a $100,000 bridge note and
     warrant to purchase  25,000 shares of common stock at an exercise  price of
     $3.50 per share.  Aggregate  gross  proceeds in connection  with this issue
     were $2,500,000.  Additionally,  a related party converted $250,000 of debt
     into 2.5 units,  similar in all respects to the bridge units. A discount of
     $276,200  for  the  fair  value  of  detachable   warrants  was  recognized
     concurrent with this  transaction.  The fair value was determined using the
     Black  Schole's  option  pricing  model  with  the  following  assumptions:
     Dividend yield of 0%;

                                      F-16
<PAGE>

                                      INTACTA TECHNOLOGIES INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

     expected  volatility  of 40%;  risk-free  interest  rate of  6.17%;  and an
     expected life of one year. These warrants expire in 2005.

     During 2000, the Company issued an aggregate of 250,000 warrants to a third
     party  and its  designees,  which are  exercisable  at a price of $3.50 per
     share and were valued and expensed for services  rendered in their entirety
     during  2000.  The fair  value  ($92,000)  was  determined  using the Black
     Schole's  option  pricing  model with the following  assumptions:  Dividend
     yield of 0%; expected  volatility of 40%; risk-free interest rate of 6.17%;
     and an expected life of one year.  These  warrants  expire in 2005, and are
     outstanding as of December 31, 2001.

     On October 16, 2000, the Company completed a private placement of 2,333,310
     equity units each  consisting  of one share of common stock and one warrant
     to  purchase  one  share of  common  stock at a price  of $3.50  per  share
     resulting  in  net  proceeds  of  approximately   $3.5  million  after  the
     conversion of the aforementioned  bridge units,  accrued interest and other
     loans into equity units.  All warrants issued in connection with the bridge
     financing  (687,500)  remain  outstanding at December 31, 2001. The Company
     issued  86,914  units,  similar in all respects to the equity  units,  as a
     commission in connection with the private  placement to certain parties.  A
     related  party  received  21,600  of these  units  and cash  commission  of
     approximately  $194,000. All warrants issued in connection with the private
     placement expire in 2005, and are outstanding as of December 31, 2001.

8.   STOCK OPTION PLANS

     The Company has a 1998 Stock Option Plan and a 2000 Incentive  Stock Option
     Plan  (collectively the "Plans") that provide for, among other things,  the
     granting  of  non-qualified  and  incentive  stock  options  to  employees,
     directors,  officers,  outside consultants and other third parties. Options
     vest over a maximum of five years and expire in a maximum of ten years. The
     Company has reserved  1,650,400 and 2,400,000  shares,  respectively of its
     common stock for issuance under the Plans.

                                      F-17
<PAGE>

                                      INTACTA TECHNOLOGIES INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

     A summary of stock option transactions for the above plans are as follows:

                                                                Weighted average
                                           Number of shares      exercise price
     ---------------------------------------------------------------------------

     Outstanding at December 31, 1998           1,005,000            $   1.50
     Granted                                      370,000                3.49
     ---------------------------------------------------------------------------
     Outstanding at December 31, 1999           1,375,000                2.03
     Granted                                       96,800                3.03
     Exercised                                    (16,700)               1.50
     Forfeited                                    (78,300)               1.50
     ---------------------------------------------------------------------------
     Outstanding at December 31, 2000            1,376,800               2.14
     Granted                                     2,328,000               0.75
     Forfeited/Cancelled                        (1,463,050)              2.06
     ---------------------------------------------------------------------------
     Outstanding at December 31, 2001            2,241,750              $0.75
     ===========================================================================

                                                                Weighted average
     Options exercisable                   Number of shares      exercise price
     ---------------------------------------------------------------------------

     December 31, 2000                            854,000               $1.82
     December 31, 2001                          1,151,000                0.75
     ===========================================================================

     Required  disclosures  for options  outstanding at December 31, 2001 are as
     follows:

                                           Weighted average
     Exercise     Number outstanding at       remaining        Weighted average
       price        December 31, 2001      contractual life     exercise price
     ---------------------------------------------------------------------------

      $ 0.75            2,241,750               4.42                $0.75
     ---------------------------------------------------------------------------

     The  weighted  average  fair  value of all  options,  calculated  using the
     Black-Scholes  Option Pricing Model, granted during 2001, 2000, and 1999 is
     $0.01, $1.04, and $1.38 per share, respectively.

     The Company  applies both Accounting  Principles  Board Opinion No. 25 (APB
     No.  25),   Accounting   for  Stock   Issued  to   Employees   and  related
     interpretations and SFAS No. 123,  Accounting for Stock-Based  Compensation
     in accounting for its stock option plans.  Options granted to employees and
     directors are accounted  for under APB No. 25 and  compensation  expense is
     recognized for the intrinsic value of the options granted.  Options granted
     to all  others  are  accounted  for in  accordance  with  SFAS No.  123 and
     compensation  expense  is  recognized  for the fair  value  of the  options
     granted.  SFAS No. 123 also  requires  that the  Company  provide pro forma
     information  regarding  the net  loss as if the  compensation  cost for the
     Company's Plans had

                                      F-18
<PAGE>

                                      INTACTA TECHNOLOGIES INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

     been  determined  in  accordance  with the fair market value method for all
     options.  The Company  estimates the fair value of all stock options at the
     grant date using the Black Schole's option pricing model with the following
     weighted average  assumptions for 2001, 2000 and 1999:  Dividend yield of 0
     in all years;  expected  volatility of 65% in 2001,  75% in 2000 and 40% in
     1999; risk-free interest rate of 4.22% in 2001, 6.36% in 2000, and 5.23% in
     1999;  and an expected life of 1.5 years in 2001,  4.00 years in 2000,  and
     2.61 years in 1999.

     Under the accounting provisions of SFAS No. 123, the Company's net loss and
     basic and diluted loss per common share would have been adjusted to the pro
     forma amounts indicated below:


     Years ended December 31,              2001            2000            1999
     ---------------------------------------------------------------------------

     Net loss, as reported         $ (3,521,400)   $ (4,551,200)   $ (3,617,600)
     Pro forma                       (3,522,000)     (4,690,900)     (3,736,400)
     ---------------------------------------------------------------------------

     Basic and diluted loss per
     share, as reported            $      (0.17)   $      (0.25)   $      (0.20)

     Pro forma                            (0.17)          (0.25)          (0.21)
     ---------------------------------------------------------------------------

9.   RELATED PARTY TRANSACTIONS

     During  2001,   2000  and  1999,  the  Company   received   administrative,
     consulting,  management and marketing  services from several  organizations
     that are owned by directors or shareholders of the Company.  These services
     aggregated  approximately  $365,800,  $592,100,  and $346,300 for the years
     ended December 31, 2001,  2000 and 1999,  respectively  of which  $295,800,
     $472,100,  and $226,300  have been  included in general and  administrative
     expenses and $70,000, $120,000, and $120,000 have been included in research
     and development expenses.

                                      F-19
<PAGE>

                                      INTACTA TECHNOLOGIES INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

10.  INCOME TAXES

     Provisions  for federal,  foreign and state income taxes  (benefits) in the
     consolidated statements of operations consist of the following components:

     Years Ending December 31,              2001            2000           1999
     ---------------------------------------------------------------------------

     Current:
       Federal                       $         -     $         -     $        -
       State                               5,800           7,700            800
     ---------------------------------------------------------------------------

                                           5,800           7,700            800
     ---------------------------------------------------------------------------

     Deferred
       Federal                            62,536      (1,256,272)       150,977
       State                               9,306        (186,944)        22,467
     ---------------------------------------------------------------------------

                                          71,842     (1,443,216)        173,444
     ---------------------------------------------------------------------------

     Change in valuation
        Allowance                        (71,842)      1,443,216       (173,444)
     ---------------------------------------------------------------------------

     Total income tax provision      $     5,800     $     7,700     $      800
     ===========================================================================

     Deferred tax assets were comprised of the following:

     December 31,                                       2001            2000
     ---------------------------------------------------------------------------

     Net operating loss                           $5,237,125        $4,183,780
        Carryforward
     Stock option compensation
        not currently deductible                           -         1,123,227
     Accumulated depreciation,
        amortization and other                         8,093            10,053
     ---------------------------------------------------------------------------

     Net deferred tax asset                        5,245,218         5,317,060
     ---------------------------------------------------------------------------

     Valuation allowance                          (5,245,218)       (5,317,060)
     ---------------------------------------------------------------------------
                                                  $        -        $        -
     ===========================================================================

     The  effective  tax  rate on  income  before  taxes  differs  from the U.S.
     statutory  rate.  The  following  summary  reconciles  taxes  at  the  U.S.
     statutory rate with the effective rates:

                                      F-20
<PAGE>

                                      INTACTA TECHNOLOGIES INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

     Year Ended December 31,                     2001                2000
     ---------------------------------------------------------------------------

     Taxes on income at U.S. statutory rate     (34.0)%             (34.0)%
     State  income taxes, net of federal
        benefit                                  (3.3)               (2.6)
     Foreign and U.S. tax effect attributable
        to foreign operations                    16.9                14.5
     Change in valuation allowance               12.0                21.2
     Permanent differences                        8.6                 1.1
     ---------------------------------------------------------------------------

                                                  0.2%                0.2%
     ===========================================================================

     The   permanent   differences   noted  above  relate   primarily  to  stock
     compensation expense associated with certain of the Company's stock options
     which is  non-deductible  for income tax purposes.  The Company has federal
     net operating loss carryforwards available to reduce future taxable income,
     if any, of approximately $14,500,000. The benefits from these carryforwards
     expire through 2021. As of December 31, 2001, management believes it cannot
     be determined that it is more likely than not that these  carryforwards and
     its other  deferred tax assets will be  realized,  and  accordingly,  fully
     reserved for these deferred tax assets.

11.  EMPLOYEE BENEFIT PLANS

     401(k)
     Plan  During  2001  the  Company   implemented   a  401(k)  plan   covering
     substantially all of its employees. The Plan allows for the Company to make
     discretionary  matching  contributions to be determined by the Company each
     year. There were no matching contributions for the years ended December 31,
     2001.  Employees are eligible to participate  after meeting certain minimum
     age and length of service requirements.  Employee  contributions are vested
     immediately and employer contributions vest over a 5 year period.

     Profit Sharing Plan
     The Company has a profit  sharing  plan  covering  all  eligible  employees
     meeting  certain age and length of service  requirements.  Under the profit
     sharing plan,  the Board of  Directors,  at their  election,  can authorize
     contributions  up  to a  maximum  of  3% of  eligible  participants'  total
     compensation.  For the years ended  December  31,  2001,  2000 and 1999 the
     Company made no discretionary contributions

12.  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.

                                      F-21
<PAGE>

                                      INTACTA TECHNOLOGIES INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

     Major Customers

     During 2001, three customers  accounted for approximately  59%, 13% and 10%
     of net sales.

     During 2000, three customers  accounted for approximately  46%, 30% and 13%
     of net sales.

     During 1999, two customers  accounted for  approximately 53% and 40% of net
     sales.

     Geographic Segments

     The following table presents  revenues and other financial  information for
     the years ended December 31, 2001, 2000 and 1999:

     Years ended December 31,                 2001           2000           1999
     ---------------------------------------------------------------------------

     Long-lived assets (gross)
                - United States           $ 97,000      $  69,500      $ 157,800
                - Israel                   292,200        281,700        363,700
     ===========================================================================
          Revenues
             Asia                         $ 11,600      $ 389,100     $   68,500
             Africa/Mid-East               107,700        376,600         54,400
             North America                  21,500         28,800         14,500
     ---------------------------------------------------------------------------

                                          $140,800       $794,500       $137,400
     ===========================================================================

     Revenues  attributable to geographic areas are based on the location of the
     customer.

13.  CONCENTRATION OF CREDIT RISK

     Financial   instruments,   which   potentially   subject   the  Company  to
     concentration  of  credit  risk,  consist  principally  of  cash  and  cash
     equivalents  and trade  receivables.  The Company  places its cash and cash
     equivalents with high quality  financial  institutions  and, as a matter of
     policy,  limits  the  amounts  of  credit  exposure  to any  one  financial
     institution.

     As of December  31, 2001 the  Company's  accounts  receivable  are limited.
     However,  the Company believes any risk of accounting loss is significantly
     reduced due to  provisions  for returns  recorded at the date of sale,  and
     ongoing  analysis  of  its  customers'  financial  condition.  The  Company
     generally  does not require cash  collateral  or other  security to support
     customer receivables.

                                      F-22
<PAGE>

                                      INTACTA TECHNOLOGIES INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

14.  QUARTERLY DATA (UNAUDITED)

     The following table sets forth, for the fiscal periods indicated,  selected
     consolidated financial data.

     Year ended December 31, 2001
     ===========================================================================
                               First       Second         Third        Fourth
                              Quarter      Quarter       Quarter       Quarter
     ---------------------------------------------------------------------------

     Revenues             $     92,000  $      5,200   $   28,600   $    15,000
     Operating expenses      1,020,200     1,009,600      886,600       817,400
     Net loss                 (896,400)     (976,900)    (849,300)     (798,800)
     ---------------------------------------------------------------------------

     Loss per share
       -Basic and diluted        (0.04)        (0.05)       (0.04)        (0.04)
     ---------------------------------------------------------------------------

     Year ended December 31, 2000
     ===========================================================================
                               First       Second         Third        Fourth
                              Quarter      Quarter       Quarter       Quarter
     ---------------------------------------------------------------------------
     Revenues               $  153,600  $    480,200   $   60,900   $    99,800
     Operating expenses        937,600     1,182,000    1,334,700     1,584,800
     Net loss                 (766,700)    (706,600)   (1,533,100)   (1,544,800)
     ---------------------------------------------------------------------------

     Loss per share
        -Basic and diluted       (0.04)        (0.04)       (0.09)        (0.08)
     ===========================================================================

                                      F-23
<PAGE>

                                      INTACTA TECHNOLOGIES INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

15.  STATEMENT OF CASH FLOWS

     Cash paid during the year consists of the following:

     Year ended December 31,                    2001           2000         1999
     ===========================================================================
     Income taxes                          $   5,800     $    7,700       $  800

     Interest                              $     100     $  113,300       $    -
     ===========================================================================

                                      F-24
<PAGE>