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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
FOR QUARTER ENDED MARCH 31, 1996 COMMISSION FILE NUMBER 33-16416-LA
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International Meta Systems, Inc.
100 N. Sepulveda Blvd., Suite 601
El Segundo, CA 90245
(Exact name of registrant as specified in its charter)
DELAWARE 0146747
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(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification Number
Registrant's telephone number, including area code: (310) 524-9300
Indicate by check whether the registrant (1) has filed all reports required to
be filed by Section 12(g) 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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INTERNATIONAL META SYSTEMS, INC.
("COMPANY" OR "REGISTRANT")
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, $.0001 Par Value -- 37,009,827 as of March 31, 1996.
Preferred Stock, no Par Value -- 10,250 as of March 31, 1996.
PART I.
FINANCIAL INFORMATION
Item 1 - Financial Statements
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INTERNATIONAL META SYSTEMS, INC.
BALANCE SHEETS
MARCH 31, 1996 AND DECEMBER 31, 1995
ASSETS
<TABLE>
<CAPTION>
March 31 Dec. 31
1996 1995
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(unaudited) (unaudited)
<S> <C> <C>
Current Assets
Cash and Cash Equivalents $ 9,400,175 $ 919,417
Inventory 20,818 20,818
Prepaid expenses and other
current assets 41,720 38,311
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TOTAL CURRENT ASSETS 9,462,713 978,546
Furniture and Equipment
at cost less accumulated
depreciation 358,983 237,672
Computer Software Costs, at cost,
less accumulated amortization 942,693 1,081,061
Patents 59,378 56,131
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TOTAL ASSETS $10,823,767 $2,353,410
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</TABLE>
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INTERNATIONAL META SYSTEMS, INC.
BALANCE SHEETS
MARCH 31, 1996 AND DECEMBER 31, 1995
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31 Dec. 31
1996 1995
------------ -----------
(unaudited) (unaudited)
<S> <C> <C>
Current Liabilities
Accounts Payable $ 74,462 $ 66,380
Accrued Payroll and payroll taxes 93,210 69,481
Capitalized lease payable -
current portion 11,948 13,581
Dividends payable 20,276 27,850
------------ ------------
TOTAL CURRENT LIABILITIES 199,896 177,292
Shareholders' Equity
Preferred stock: $.0001 par value
authorized 1,000,000 shares
Series A convertible preferred
stock, 10,000 shares issued and
outstanding 1 1
Series B convertible preferred
stock, 250 shares issued and
outstanding 1 1
Common stock $.0001 par value,
authorized 50,000,000 shares; issued
and outstanding 27,395,455
shares (1995) 37,009,827 (1996) 3,701 2,739
Additional paid-in capital 18,178,363 8,653,679
Deferred Compensation (58,385) (89,072)
Accumulated deficit (7,499,810) (6,391,230)
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TOTAL SHAREHOLDERS' EQUITY 10,623,871 2,176,118
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDER'S EQUITY $10,823,767 $ 2,353,410
------------ ------------
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</TABLE>
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INTERNATIONAL META SYSTEMS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended
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Mar. 31 Mar. 31
1996 1995
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<S> <C> <C>
Revenue
Sales 0 0
Cost and Expenses
Research and Development 406,225 69,593
Selling, general and admin. 453,232 100,320
Depreciation and Amort. 155,785 14,586
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Loss from Operations (1,015,242) (184,499)
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Other Income (Expenses)
Interest income 5,754 1,685
Interest expense (3,992) (976)
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1,762 709
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NET LOSS $(1,013,480) $ (183,790)
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Net Loss per share $ (.03) $ (.01)
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Weighted average number of
shares outstanding 31,338,909 26,551,596
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</TABLE>
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INTERNATIONAL META SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months ended
March 31, 1996 March 31, 1995
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<S> <C> <C>
Cash flows from operating activities
Net loss $(1,088,480) $(183,790)
Reconciliation of net loss to net cash
used in operating activities
Amortization of deferred compensation 30,687 30,867
Issuance of common stock for services 15,000 750
Depreciation and amortization 155,784 14,586
(Increase) decrease in:
Inventory (10,877)
Prepaid expenses and other current assets (3,409) (9,002)
Increase (decrease) in:
Accounts payable and accrued expenses 31,814 (31,288)
----------- ---------
Net cash used in operating activities (838,328) (188,754)
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Cash flows from investing activities
Increase in deferred software development
cost 0 (115,421)
Acquisition of furniture and equipment (138,727) (30,840)
Increase in patent costs 3,247 0
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Net cash used in investing activities (141,974) (146,261)
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Cash flows from financing activities
Proceeds from issuance of common
stock, net 9,439,151 19,331
Payments on capitalized leases payable (1,633) (5,410)
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Net cash provided by financing activities 9,417,242 13,921
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Net increase (decrease) in cash and cash
equivalents 8,480,758 (321,094)
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Cash and cash equivalents, beginning
of period 919,417 409,812
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Cash and cash equivalents, end of period $ 9,400,175 $ 88,718
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</TABLE>
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INTERNATIONAL META SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended March 31,
1996 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1996. For further information, refer to the financial
statements and footnotes thereto included in the Company's annual report on Form
10-KSB for the year ended December 31, 1995.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
During the reporting period the Company received $1.5 million to complete
an agreement with Paragon Limited Partnership to purchase $2 million of
restricted Rule 144 common stock at $1.00 per share. Paragon also acted as an
exclusive placement agent for $8 million of restricted Rule 144 common stock at
$1.00 per share. This placement was fully subscribed during the reporting
period and the Company received the entire $8 million.
Management projects that this funding will support operations for 15-18
months at current and anticipated spending levels. The Company is now
financially positioned to make the necessary investment in staffing, outside
contractors, facilities, and computer hardware and software systems for product
and market development. This investment will support initial development in the
new product areas of voice compression, and the internet microprocessor and also
enable the Company to complete the development of its Pentium compatible
microprocessor, the Meta 6000, although no assurance can be given to that
effect.
Pursuant to an agreement reached with a major international semiconductor
manufacturer on April 27, 1995 to design a Pentium compatible microprocessor
chip, the Meta 6000, the Company continued to dedicate its resources to the
successful completion of the design in accordance with the specifications and
schedules agreed to by both parties. During the reporting period the Company
added 8 full-time and 2 part-time personnel to its staff in El Segundo,
California and Austin, Texas. These personnel are focused on the development of
the Meta 6000 microprocessor chip. The Company is continuing an aggressive
recruiting program to increase the staffing of the Meta 6000 development team to
meet schedule requirements (see Subsequent Events).
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Management has recognized market opportunities which can be addressed by
leveraging previous investments in prior microprocessor designs and in voice
compression. These new product areas are being developed by outside consultants
through the proof of concept and/or demonstration stage of development while the
Company actively pursues a partner to share full product development costs in
return for a royalty bearing license to the technology.
The voice compression software product has been contracted to Standard
Object Systems for development exclusively for IMS. The product specifications
are to reduce the required number of bits per second for telephone toll quality
speech from 3,400 to 1,000. At present the product has been developed to 1,800
bits per second within acceptable quality limits. Applications for the product
include wireless transmission systems and internet telephone communications.
The Company anticipates that another 12-18 months will be required to develop
this product to its intended specifications. No assurance can be given that
this schedule can be met or that the specifications required for the product to
be successfully marketed can be achieved.
The Company is also taking advantage of its investment in its Meta 3230 and
Meta 3240 microprocessor designs to develop a chip for the emerging internet
computer market. The internet computer is a low cost (less than $500) product
designed to access data and applications communicated through local area
networks and the internet with limited local processing capability. In
addition, intelligent televisions with embedded microprocessors capable of
internet access are being developed for the consumer market. This new
microprocessor chip from IMS could also service this market. These internet
products require a low cost microprocessor capable of processing the new
internet language called "Java" which was developed by Sun Microsystems. The
main advantage of the Java language is that applications can be developed and
operated across many disparate computer platforms such as IBM, Apple, Sun
Microsystems, Digital, etc. The disadvantage is that powerful microprocessors
are required to operate these Java applications with acceptable performance.
These microprocessors, such as the Pentium, are too costly to be used in an
internet computer. The Meta 3240 and prior IMS microprocessor designs were
developed to optimize the performance of computer languages similar to Java.
Management believes that the Meta 3240 can be modified within 12 months to
create an internet microprocessor chip design that will process the Java
language at high performance levels with very low manufacturing cost although no
assurance can be given to that effect. Note that this development will be
independent and separate from the Meta 6000.
There was no revenue from sales or development contract payments during the
reporting period. The next scheduled development contract payment is not due
until the subsequent reporting period.
Research and development expense in during the reporting period increased
by $336,632 over the comparable period in 1995. This increase was primarily due
to the increase in staffing and consulting to support the Meta 6000 development.
In addition, Austin Design Center expenses were incurred during the reporting
period. The Austin Design Center was not operational during the comparable
period in 1995.
Selling, general and administrative expense during the reporting period
increased by $352,912 over the comparable period in 1995. This increase was due
to an increase in rent as a
7
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result of the relocation of Company headquarters to a larger facility, an
increase in travel to coordinate the Meta 6000 development between headquarters
and the Austin Design Center, recruiting fees for staffing, relocation fees for
new employees, and consulting fees for product studies, and market development
for voice compression and internet computer products.
Depreciation and Amortization increased during the reporting period by
$141,199 over the comparable period in 1995. Amortization of the Meta 3250
software was begun after the comparable period in 1995 and represents the
largest item in the increase.
LIQUIDITY AND CAPITAL RESOURCES
The successful sale of $2 million of common stock to Paragon Limited
Partnership, which resulted in the receipt of $500,000 in December 1995 and $1.5
million during the reporting period, and the successful Private Placement of $8
million of common stock during the reporting period provided a cash position for
the Company of $9,400,175 at the end of the reporting period. The Company also
anticipates progress payments from its Meta 6000 development contract, as
milestones are achieved during the next 12 months, although no assurance can be
given that all or any of such milestones will be achieved. Management does not
foresee the need for additional financing during the next 15-18 months unless;
new business opportunities develop which would require an investment that is not
presently considered in the Company's cash flow projection, or there is a
significant delay in bringing the Meta 6000 to market.
PART II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None.
Item 2. CHANGES IN SECURITIES
None.
Item 3. DEFAULTS IN SENIOR SECURITIES
There have been no defaults in any security issued by IMS.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
IMS held its annual Shareholder's Meeting on July 26, 1995.
8
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Item 5. SUBSEQUENT EVENTS.
Subsequent to the end of the reporting period to May 6, 1996, fourteen
additional design engineers were added to the staff bringing the total number of
Company personnel to forty-four. In addition, two suppliers of contract layout
engineers were engaged to provide thirteen people to the Meta 6000 project. The
Company also leased an additional 1,500 sq. ft. of office space, at $1.18 per
sq. ft. per month, to expand its Austin Design Center facility.
Effective May 3, 1996, Richard A. Hahn, Executive Vice President and Chief
Financial Officer, resigned as an officer and director of the Company to return
to his management consulting business. The Company also announced the Paul
Sefchek has been promoted to Vice President Finance. Mr. Sefchek will also
continue as Comptroller and Director of Administration.
Pursuant to the requirements of the Securities Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
INTERNATIONAL META SYSTEMS, INC.
Date: May 6, 1996
/s/ George W. Smith
- - -----------------------------------
George W. Smith, President and CEO
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 9,400,175
<SECURITIES> 0
<RECEIVABLES> 41,720
<ALLOWANCES> 0
<INVENTORY> 20,818
<CURRENT-ASSETS> 9,462,713
<PP&E> 1,361,054
<DEPRECIATION> 0
<TOTAL-ASSETS> 10,823,767
<CURRENT-LIABILITIES> 199,896
<BONDS> 0
2
0
<COMMON> 3,701
<OTHER-SE> 10,620,168
<TOTAL-LIABILITY-AND-EQUITY> 10,823,767
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,015,242
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,762
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,013,480)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> 0
</TABLE>
