INTERNATIONAL META SYSTEMS INC/DE/, S-1/A, 1997-12-04

INTERNATIONAL META SYSTEMS INC/DE/
S-1/A, 1997-12-04
PREPACKAGED SOFTWARE

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 4, 1997

REGISTRATION NO. 333-38921

AMENDMENT NO. 1
TO

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933
------------------------

INTERNATIONAL META SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 3674 33-0146747
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) Number)
</TABLE>

100 NORTH SEPULVEDA BOULEVARD
SUITE 601
EL SEGUNDO, CALIFORNIA 90245
(310) 524-9300

(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)

GEORGE W. SMITH
CHIEF EXECUTIVE OFFICER
INTERNATIONAL META SYSTEMS, INC.
100 NORTH SEPULVEDA BOULEVARD
SUITE 601
EL SEGUNDO, CALIFORNIA 90245
(310) 524-9300

(Name and address, including zip code, and telephone number, including area
code, of agent for service)
------------------------

COPIES TO:

<TABLE>
<S> <C>
MATTHIAS & BERG LLP LEHMAN & EILEN
ATTN: JEFFREY P. BERG, ESQ. ATTN: HANK GRACIN, ESQ.
1990 South Bundy Drive 50 Charles Lindbergh Boulevard
Suite 790 Suite 505
Los Angeles, California 90025 Uniondale, New York 11553
Phone: (310) 820-0083 Phone: (516) 222-0888
Fax: (310) 820-8313 Fax: (516) 222-0948
</TABLE>

------------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT
------------------------

If any of the securities being registered on this Form are to be offered on
a delayed basis pursuant to Rule 415 under the Securities Act of 1933, check the
following box. /X/
------------------------

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) OFFERING PRICE(1) OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, par value $0.0001 per share... (2) $ $28,375,000 $8,212.12
Shares of Common Stock underlying the
Underwriter's Warrants.................... $ $ $
Total....................................... $28,375,000 $8,212.12
</TABLE>

(1) Estimated solely for the purpose of calculating the registration fee.

(2) Includes shares of Common Stock that may be purchased by the
Underwriters from the Company to cover over-allotments, if any.
--------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>

INTERNATIONAL META SYSTEMS, INC.

CROSS REFERENCE SHEET

Pursuant to Item 501(b) of Regulation S-K.

Showing Location in the Prospectus of Information
Required by Items 1 through 12, Part I, of Form S-1

Registration Statement Item Number and Caption Location in Prospectus
- ---------------------------------------------- ----------------------

1. Forepart of the Registration Statements and
Outside Front Cover Page of Prospectus...... Outside Front Cover Page
of Prospectus

2. Inside Front and Outside Back Cover Pages
of Prospectus............................... Inside Front and Outside
Back Cover Pages of
Prospectus; Additional
Information

3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges.......... Prospectus Summary; Risk
Factors; Selected
Financial Data

4. Use of Proceeds............................... Use of Proceeds

5. Determination of Offering Price............... Underwriting

6. Dilution...................................... Dilution

7. Selling Security Holders...................... Not Applicable

8. Plan of Distribution.......................... Outside Front Cover Page
of Prospectus;
Underwriting

9. Description of Securities to Be Registered.... Outside Front Cover Page
of Prospectus; Dividend
Policy; Shares Eligible
for Future Sale;
Description of Securities

10. Interests of Named Experts and Counsel....... Legal Matters

11. Information with Respect to the Registrant... Outside Front Cover Page
of Prospectus; Prospectus
Summary; Risk Factors;
Dividend Policy;
Capitalization; Selected
Financial Data;
Management's Discussion
and Analysis of Financial
Condition and Results of
Operations; Business;
Management; Compensation
of Executive Officers and
Directors; Certain
Relationships and Related
Transactions; Shares
Eligible for Future Sale;
Financial Statements.

12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................ Not Applicable

<PAGE>

THIS PRELIMINARY PROSPECTUS AND THE INFORMATION CONTAINED HEREIN ARE SUBJECT TO
COMPLETION OR AMENDMENT. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY
BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
UNDER NO CIRCUMSTANCES SHALL THIS PRELIMINARY PROSPECTUS CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES, IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD
BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
SUCH JURISDICTION.

<PAGE>

INTERNATIONAL META SYSTEMS, INC.
___________ SHARES

International Meta Systems, Inc. (the "Company") is hereby offering _____
shares (the "Shares") of common stock, $0.0001 par value (the "Common Stock").
See "Description of Securities" and "Underwriting."

The Company's Common Stock is currently listed for trading on the OTC
Electronic Bulletin Board maintained by the National Association of Securities
Dealers, Inc. ("NASD") or in the "pink sheets" maintained by the National
Quotation Bureau, Inc. (the "Over-The-Counter Market") under the symbol "IMES."
See "Underwriting" for information relating to the factors considered in
determining the initial public offering price. The Company has applied for
listing of the Common Stock in the NASDAQ National Market System ("NASDAQ/NMS")
under the symbol "IMES." On November 28, 1997, the closing market price for the
Common Stock in the Over-the-Counter Market was approximately $ 0.70 per share.
See "Risk Factors" and "Price Range of Common Stock."

THESE SECURITIES ARE HIGHLY SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK AND
IMMEDIATE SUBSTANTIAL DILUTION. INVESTMENT IN THESE SECURITIES SHOULD BE MADE
ONLY BY INVESTORS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT.
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE MATTERS SET FORTH UNDER
"RISK FACTORS," BEGINNING AT PAGE __, AND "DILUTION."

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.

- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
Underwriting Discounts Proceeds to
Price to Public and Commissions (1) Company (2)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share............... $__________ $_________ $__________

Total(3)................ $25,000,000 $2,500,000 $22,500,000
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------

</TABLE>

(1) Does not include additional compensation to be received by the Underwriters
in the form of: (i) a non-accountable expense allowance of 3% of the gross
proceeds of this Offering or $_________ per share (for an aggregate amount of
$__________, or $________ if the over-allotment option described in note 3 below
is exercised in full); and (ii) Underwriters' warrants to purchase up to
___________ shares of Common Stock to be sold to such Underwriters for nominal
consideration, exercisable commencing one year after the date of this
Prospectus. In addition, the Company has agreed to indemnify the Underwriters
against certain liabilities under the Securities Act of 1933, as amended (the
"Securities Act"). See Underwriting."

(2) Before deducting expenses of the Offering, estimated at $__________,
payable by the Company. See "Use of Proceeds" and "Underwriting."

(3) The Underwriters have been granted a 30-day option (the "Over-allotment
Option") to purchase up to _________ additional shares of Common Stock from the
Company, on the same terms set forth above, solely to cover over-allotments, if
any. If the Underwriters' Over-allotment Option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions and Proceeds to Company
will be $28,375,000, $2,837,500 and $25,537,500, respectively.

-------------------------------------

The Shares are being offered, subject to prior sale, when, as and if
delivered to and accepted by Nichols, Safina, Lerner & Co., Inc. and Millennium
Financial Group, Inc. (the "Representatives"), as Representatives of the
underwriters (the "Underwriters") of this Offering, and subject to approval of
certain legal matters by counsel and subject to certain other conditions. The
Representatives reserve the right to withdraw, cancel or modify the offering
without notice and to reject any order, in whole or in part. It is expected
that delivery of the certificates representing the Shares will be made against
payment therefor at the offices of Nichols, Safina, Lerner & Co., Inc. in New
York, New York, on or about ____________, 1997.

NICHOLS, SAFINA, LERNER & CO., INC. MILLENNIUM FINANCIAL GROUP, INC.

The date of this Prospectus is _________, 1997

SUBJECT TO COMPLETION DATED ______________, 1997

<PAGE>

This Prospectus may be deemed to contain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform
Act"). Forward-looking statements in this Prospectus or hereafter included in
other publicly available documents filed with the Securities and Exchange
Commission (the "Commission"), reports to the Company's stockholders and other
publicly available statements issued or released by the Company involve known
and unknown risks, uncertainties and other factors which could cause the
Company's actual results, performance (financial or operating) or achievements
to differ from the future results, performance (financial or operating) or
achievements expressed or implied by such forward-looking statements. Such
future results are based upon management's best estimates based upon current
conditions and the most recent results of operations. These risks include, but
are not limited to, the risks set forth herein, each of which could adversely
affect the Company's business and the accuracy of the forward-looking statements
contained herein.

-----------------------------------

IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING TRANSACTIONS MAY BE EFFECTED IN THE NASDAQ NATIONAL
MARKET SYSTEM OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED
AT ANY TIME. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS AND SELLING GROUP MEMBERS, IF
ANY, OR THEIR RESPECTIVE AFFILIATES, MAY ENGAGE IN PASSIVE MARKET MAKING
TRANSACTIONS IN THE COMMON STOCK IN THE NASDAQ NATIONAL MARKET SYSTEM IN
ACCORDANCE WITH RULE 103 OF REGULATION M UNDER THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED. SEE "UNDERWRITING."

ii
<PAGE>

PROSPECTUS SUMMARY

The following is a summary of certain information in this Prospectus. This
summary should be read in conjunction with, and is qualified in its entirety by,
the more detailed information and financial statements, including the notes
thereto, appearing elsewhere in this Prospectus. Unless otherwise indicated,
the information in this Prospectus: (i) assumes that the Over-allotment Option
will not be exercised, and (ii) gives effect to a reverse stock split of the
issued and outstanding shares of Common Stock on a 1-for-_____ basis to be
effectuated on the effective date (the "Effective Date") of the Registration
Statement. The Shares offered hereby involve a high degree of risk. Investors
should carefully consider the information set forth under the heading "Risk
Factors."

THE COMPANY

The Company designs and develops x86-compatible microprocessors and related
components and designs. A microprocessor is an integrated circuit consisting of
millions of transistors which executes instructions to perform logical and
mathematical operations in electronic devices. Microprocessors serve as the
central processing unit or management/control unit of personal computers ("PCs")
and other electronic devices utilizing microprocessors (collectively,
"microprocessor-based devices"). The microprocessor is responsible for
controlling data flowing through the PC or microprocessor-based device,
manipulating such data as specified by the related operating software, and
coordinating all hardware functions within the system. The demand for higher
performance PCs and microprocessor-based devices has driven advances in circuit
design and large scale integration process technology. Improvements in the
performance of microprocessors, coupled with decreases in costs resulting from
advances in design and process technology, have substantially broadened the
market and increased the demand for PCs, microprocessor-based devices and
microprocessors.

The Company's operating strategy seeks to take advantage of a number of
emerging trends in the PC and microprocessor-based device industries, including:
(i) a focus on the fast growing high performance segments of the PC and custom
core microprocessor markets, (ii) maintaining compatibility with widely accepted
x86 based software standards, (iii) accessing advanced manufacturing
capabilities available by contracting with third-party manufacturers, (iv)
providing hardware compatibility to allow for universal product application, and
(v) utilizing advanced automated design technologies to lower the cost of design
and accelerate the time to market for future versions of its products and
products of its customers.

The Company's marketing strategy is targeted to the high performance
segments of the microprocessor industries. The Company has focused its
marketing strategy on four (4) segments of the market: (i) standard products
which may serve as replacement upgrade microprocessors for installed PCs which
are based on socket-7 pin compatible Pentium-TM- microprocessors (standard
products for microprocessor retrofitting), (ii) customized versions of standard
microprocessors designed for original equipment manufacturers ("OEMs") who
desire to integrate x86 compatible custom microprocessors with their
technologies (custom core products), (iii) programmable logic features for the
design or manufacture of custom products (design elements), and (iv) the
technological expertise and capability of the Company's design team for OEMs to
utilize in integrating the Company's custom core products and design elements
into the OEMs' customized technologies (design services).

The Company's principal executive offices are located at 100 North
Sepulveda Boulevard, Suite 601, El Segundo, California 90245, (310) 524-9300.

2
<PAGE>

THE OFFERING

Securities Offered by the
Company...................... _________ Shares of Common
Stock. See "Description of
Securities" and
"Underwriting."

Common Stock Outstanding(1):
Before the Offering.......... 38,925,941 shares
After the Offering........... _________ shares

Use of Proceeds............... The Company intends to use the
net proceeds of this Offering
to fund research and
development, administrative
expenses, repayment of debt
and for working capital and
general corporate purposes.
See "Use of Proceeds."

Risk Factors and Dilution..... The securities offered hereby
are highly speculative and
involve a high degree of risk
and immediate substantial
dilution. These factors
include, but are not limited
to risks related to the
Company's historical lack of
revenues or profitability,
legislative and regulatory
restrictions impacting the
Company's business operations
and industry and the market
for the securities offered
hereby. An investment in
these securities should be
made only by investors who can
afford the loss of their
entire investment. See "Risk
Factors" and "Dilution."

Proposed
NASDAQ/NMS Symbol(2)

Common Stock................. IMES
__________________________

(1) Does not include shares of Common Stock that are reserved for issuance
upon exercise of the Underwriters' Warrants or pursuant to certain stock option
plans of the Company, certain other options, warrants and convertible securities
of the Company. See "Price Range of Common Stock," "Management - Stock Option
Plans," "Certain Relationships and Related Transactions," "Description of
Securities" and "Underwriting."

(2) The Company's Common Stock is currently listed for trading in the
Over-the-Counter Market under the symbol "IMES." The Company has applied for
the listing of the Common Stock for trading in the NASDAQ/NMS. See "Risk
Factors" and "Price Range of Common Stock."

3
<PAGE>

SUMMARY FINANCIAL INFORMATION
(In Thousands, except for Per Share Data)

NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
------------------------------------------------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA

Revenues $ 6 $ 0 $ 0 $ 910 $ 300 $ 300 $ 150
Loss from operations ($ 756) ($ 897) ($1,207) ($1,716) ($7,406) ($4,358) ($7,241)
Net loss ($ 782) ($ 873) ($1,153) ($1,712) ($7,135) ($4,180) ($7,199)

Net loss per ($0.04) ($0.04) ($ 0.05) ($ 0.06) ($ 0.20) ($ 0.12) ($ 0.19)
common share

Weighted average
common shares
outstanding 17,656 22,576 25,602 26,652 35,118 34,328 38,055

<CAPTION>
DECEMBER 31,
------------------------------------------------------- SEPTEMBER 30, 1997
1992 1993 1994 1995 1996 ACTUAL AS ADJUSTED(1)
------------------------------------------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital (deficit) $ 214 $ 969 $ 314 $ 801 $4,121 ($3,311)
Total assets $1,692 $2,584 $2,269 $2,353 $5,402 $1,898
Total liabilities $ 146 $ 115 $ 145 $ 177 $ 465 $3,718

Total stockholders'
equity (deficit) $1,546 $2,468 $2,124 $2,176 $4,937 ($1,821)

</TABLE>

____________________

(1) PRO FORMA to give effect to: (i) the sale of __________ shares of Common
Stock offered by the Company, and (ii) the application of the net proceeds
therefrom estimated at approximately $___________. See "Use of Proceeds,"
"Capitalization" and "Description of Securities."

4
<PAGE>

RISK FACTORS

THE SECURITIES OFFERED HEREBY ARE HIGHLY SPECULATIVE AND INVOLVE A HIGH
DEGREE OF RISK AND SUBSTANTIAL DILUTION. AN INVESTMENT IN THESE SECURITIES
SHOULD BE MADE ONLY BY INVESTORS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE
INVESTMENT. IN ADDITION TO THE FACTORS SET FORTH ELSEWHERE IN THIS PROSPECTUS,
PROSPECTIVE INVESTORS SHOULD GIVE CAREFUL CONSIDERATION TO THE FOLLOWING RISK
FACTORS IN EVALUATING THE COMPANY AND ITS BUSINESS BEFORE PURCHASING THE
SECURITIES OFFERED HEREBY.

THIS PROSPECTUS MAY BE DEEMED TO CONTAIN FORWARD-LOOKING STATEMENTS WITHIN
THE MEANING OF THE REFORM ACT. FORWARD-LOOKING STATEMENTS IN THIS PROSPECTUS OR
HEREAFTER INCLUDED IN OTHER PUBLICLY AVAILABLE DOCUMENTS FILED WITH THE
COMMISSION, REPORTS TO THE COMPANY'S STOCKHOLDERS AND OTHER PUBLICLY AVAILABLE
STATEMENTS ISSUED OR RELEASED BY THE COMPANY INVOLVE KNOWN AND UNKNOWN RISKS,
UNCERTAINTIES AND OTHER FACTORS WHICH COULD CAUSE THE COMPANY'S ACTUAL RESULTS,
PERFORMANCE (FINANCIAL OR OPERATING) OR ACHIEVEMENTS TO DIFFER FROM THE FUTURE
RESULTS, PERFORMANCE (FINANCIAL OR OPERATING) OR ACHIEVEMENTS EXPRESSED OR
IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. SUCH FUTURE RESULTS ARE BASED UPON
MANAGEMENT'S BEST ESTIMATES BASED UPON CURRENT CONDITIONS AND THE MOST RECENT
RESULTS OF OPERATIONS. THESE RISKS INCLUDE, BUT ARE NOT LIMITED TO, RISKS SET
FORTH HEREIN, EACH OF WHICH COULD ADVERSELY AFFECT THE COMPANY'S BUSINESS AND
THE ACCURACY OF THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN.

LACK OF REVENUES AND HISTORY OF LOSSES. The Company has generated minimal
revenues from operations since inception and no revenues from sales of products
since approximately 1990, and has been engaged primarily in research and
development of its products. The Company has only generated revenues in 1995
and 1996 from certain milestone payments related to the research and development
of the Company's microprocessors, and in November, 1997 from an advance payment
pursuant to an agreement to provide certain design services and the use of the
Company's proprietary technologies and methodologies to customers of a large
supplier of software tools and professioinal services related to silicon designs
and electronics equipment. The Company has incurred net losses in each year
since inception, and, as of September 30, 1997, the Company had an accumulated
deficit of $20,847,459. As of the date of this Prospectus, the financial
condition of the Company raises substantial doubts about the ability of the
Company to continue as a going concern. The Company expects to continue to
incur significant operating losses over at least the following two years as it
continues to devote significant financial resources to product development
activities and as the Company expands its operations. In order to achieve
profitability, the Company will have to develop, manufacture and market products
which are accepted on a widespread commercial basis. There can be no assurances
that the Company will develop, manufacture or market any products successfully,
operate profitably in the future or generate revenues from operations, or that
capital in excess of the net proceeds of this Offering will not be required in
order to accomplish the Company's current business plan. See "Use of Proceeds,"
"Management's Discussion and Analysis of Results of Operations and Financial
Condition," "Business" and "Financial Statements."

QUALIFIED FINANCIAL STATEMENTS; NEED FOR ADDITIONAL FINANCING. The
Company's auditors have included an explanatory paragraph in their Report of
Independent Certified Public Accountants to the effect that recoverability of a
major portion of the Company's recorded asset amounts shown in the Company's
financial statements is dependent upon continued operations of the Company,
which in turn, is dependent upon the Company's ability to continue to meet its
financing requirements and to succeed in its future operations. The Company has
historically financed its operations principally through the private placement
of equity and debt securities. From January 1, 1995 through September 30, 1997,
the Company had raised gross proceeds of $13,455,000 through such private
placements, including $2,000,000 in loan financing from affiliates. Subsequent
to September 30, 1997, the Company has obtained an additional $450,000 in loan
financing, including $200,000 from an affiliate. The Company continues to
require such financing in order to remain in business. The Company believes
that the proceeds of this Offering will be sufficient to finance the Company's
operations and continued development of the Company's products for a period of
approximately eighteen (18) months following the date of this Prospectus, based
on the Company's current business plan. However, there can be

5
<PAGE>

no assurance that the Company will be able to generate revenues prior to such
date or at all, or that the Company will not require additional financing at or
prior to such date in order to continue operations and product development.
There can be no assurances that any additional sources of financing will be
available on terms favorable to the Company, or at all, or that the business of
the Company will ever achieve revenues or profitable operations. Further, any
additional financing may be senior to the Company's Common Stock or result in
significant dilution to the holders of the Common Stock. In the event the
Company does not receive any such financing or generate profitable operations,
management may have to suspend or discontinue its business activity or certain
components thereof in its present form or cease operations altogether. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" and "Financial Statements."

NEED TO DEVELOP AND POTENTIAL OBSOLESCENCE OF NEW PRODUCTS. The Company is
engaged in the business of developing new products and technologies for the
microprocessor and computer industries, but has not completed development on any
such product or technology to the point where it may be commercially introduced
into the market, and no assurance can be given that the Company will ever be
able to do so. The markets for the Company's products are characterized by
rapidly changing technology, frequent new product introductions and price
erosion. Accordingly, the Company believes its future prospects depend on its
ability not only to enhance and successfully market its products in development,
but also to develop and introduce new products in a timely fashion that achieve
market acceptance. There can be no assurance that the Company will be able to
identify, design, develop, market or support such products successfully or that
the Company will be able to respond effectively to technological changes or
product announcements by competitors. Delays in new product introductions or
product enhancements, or the introduction of unsuccessful products, could have a
material adverse effect on the Company. Even if the Company receives all of the
proceeds from this Offering and completes the development of any of its
products, no assurance can be given that any such product will perform according
to the design specifications of the Company. Even if such product performs to
such specifications, no assurance can be given that technologies developed by
others will not render any product developed by the Company obsolete, or
otherwise significantly diminish the value of the Company's products, or that
there will still be a market for such product by the time such product is ready
for production. If the Company does not develop one or more finished products at
a time when a market window for such a product is still open, there would be a
material adverse effect on the Company's financial position, and the Company may
be compelled to curtail or cease its operations altogether. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business."

RISK OF MARKET ACCEPTANCE OF THE COMPANY'S PRODUCTS. The Company's growth
will depend on the Company's ability to identify, develop and successfully
market new products. The microprocessor and computer industries are populated
by many companies of various sizes and types and are characterized by constant
and rapid technological and other change, innovation and new discoveries, which
make conducting such a business more difficult. The identification of specific
market needs is seldom made by any one company alone, and no assurance can be
given that there are not many other microprocessor companies actively engaged in
developing products designed to solve the needs identified by the Company or
that one or more such companies could not develop a product which has the effect
of capturing the market which has been targeted by management of the Company for
its products or making obsolete a product or technology developed by the
Company. There can be no assurance that any products which may be developed by
the Company, if at all, will meet any specific needs then existing in the market
or that such products will obtain commercial acceptance in the market. See
"Business," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Financial Statements."

6
<PAGE>

DIFFICULTY OF MARKETING THE COMPANY'S PRODUCTS. The Company faces a number
of obstacles to the successful marketing of certain of its products which are
under development and certain of its products which are ready for marketing, but
which have not been successfully marketed as of the date of this Prospectus. No
assurance can be given that the markets currently projected by the Company for
such products will exist, or if it does, that the products using the Company's
technologies will achieve acceptance in the market. Even in the event that the
Company's products find a level of market acceptance, there can be no assurance
that the sale of such products will generate significant revenue for or result
in profitability to the Company. The Company may face a formidable task in
marketing such products in the face of efforts by other companies to market
their own products, even if such companies' products do not, in the opinion of
management of the Company, perform as effectively or efficiently as the
Company's products. Further, no assurance can be given that any market share
which may be achieved by the Company will not be overtaken by products
manufactured by other companies possessing far greater technical and financial
resources. See "Business - Products; - License and Production Agreement; -
Design Agreement; - Competition."

DEPENDENCE ON MANUFACTURER AND RISKS OF ACCESS TO ALTERNATIVE MANUFACTURING
SOURCES AND MANUFACTURING DELAYS. The Company will rely on outside parties for
the manufacture of its products. Accordingly, the Company will be dependent on
the capabilities of these outside parties for the successful manufacture of its
products. There can be no assurance that these manufacturers will be willing or
able to meet the Company's product needs in a satisfactory and timely manner.
The Company's reliance on third-party manufacturers involves a number of
additional risks, including the absence of guaranteed capacity, and reduced
control over delivery schedules, quality assurance, production yields and costs.
Although the Company believes that these manufacturers would have an economic
incentive to perform such manufacturing for the Company, the amount and timing
of resources to be devoted to these activities are not within the control of the
Company, and there can be no assurance that manufacturing problems will not
occur in the future.

As of the date of this Prospectus, the Company has entered into an
agreement (the "Production Agreement") with one manufacturer (the
"Manufacturer") for the production of the Meta 6000. The Company and the
Manufacturer currently have agreed that the Manufacturer will be under no
further obligation to make payments, provide personnel of the Manufacturer or to
acquire or make available capital equipment to the Company, and will only be
obligated to provide to the Company certain access to specific technologies,
equipment and manufacturing processes of the Manufacturer, with respect to the
continued development of the Meta 6000, and that the Meta 6000 will be designed
exclusively by the Company.

Based on the reduction of the commitment of the Manufacturer's capital and
technological resources in connection with the development of the Meta 6000, the
Company will be required to utilize primarily its own resources to continue
development of the Meta 6000. There can be no assurances that the proceeds of
this Offering will be sufficient to complete development of the Meta 6000 or
that the Company will be able to obtain additional financing or technological
assistance from other parties to be able to complete the development of the Meta
6000.

The Production Agreement provides limited assurances of deliveries of such
products for a limited period of time. To generate revenues from sales of the
Company's Meta 6000 chips and related technologies, the Company will need to
obtain volumes of wafers of the of Meta 6000 chips. The Company expects to ask
for needed supply commitments over time, but there can be no assurance that the
Company will be successful in obtaining those requested supply commitments. The
Manufacturer's specific manufacturing technology ("fabrication process") which
the Company and the Manufacturer expect to use to fabricate the Meta 6000 is not
a qualified manufacturing process for volume production as of the date of the
Production Agreement. Aggressive technological cooperation between the Company
and the Manufacturer is required by the competitive nature of the microprocessor
business. There can be no assurance that significant levels of technological
cooperation will be made available by the Manufacturer or others, or that this
fabrication process

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will be fully qualified by the Manufacturer and available for manufacture of the
Meta 6000 as soon as desired, or at all.

If one or more products developed by the Company under the Production
Agreement should achieve some measure of acceptance in the market, the Company's
ability to earn revenue from the commercial exploitation of such products will
depend on the manufacture of such products by the Manufacturer. Under the
Production Agreement, the Manufacturer is under no obligation to manufacture and
sell any chips developed pursuant to the Production Agreement. In addition, to
the extent that the Company wishes to sell chips directly, the Company's success
will depend in significant part on the timely and adequate production of chips
by the Manufacturer for an inventory of such chips, on terms to be negotiated
between the Company and the Manufacturer, and no assurance can be given that the
Manufacturer will be able or willing to provide such production, or if it does,
that it will do so on terms and conditions satisfactory to the Company. In such
circumstance, the Company may not be able to continue in business.

Production of the Company's Meta 6000 requires the use of process
technologies, which are available from only a few sources. There can be no
assurance that the Company will continue to have access to such technology or to
other process technologies that the Company may require for future products. In
the event the Manufacturer is unwilling to meet the Company's needs, the Company
believes alternative suppliers could be found. However, a change in suppliers
or any significant delay in the Company's ability to have access to such
resources, whether resulting from the need to access alternative process
technologies, to resolve manufacturing problems at existing suppliers or for
other reasons, would have a material adverse effect on the Company's delivery
schedules, business, operating results and financial condition.

There can be no assurance that the Company will be able to enter into
agreements with additional manufacturers or that, if it is able to enter into
such agreements, that those agreements will be on terms favorable to the
Company. Converting the physical design for the Company's processor and system
logic products to the design rules of a different fabrication facility is a
difficult task. Each new manufacturer has a different set of design rules for
manufacturing products, which may require the Company to generate a new design
for each manufacturer. Additional silicon and design iterations in excess of
the Company's current plan, if required, may cause additional delays and may
cause the Company to incur substantial additional costs. Product positioning
and market acceptance may be adversely affected by such delays, particularly if
competitors introduce improved or superior products during such period. There
can be no assurance that such additional iterations will not be required. See
"Business - License and Production Agreement."

DEPENDENCE ON THE PRODUCTION AGREEMENT AND DESIGN AGREEMENT. As of the
date of this Prospectus, the Company has entered into two (2) contracts which
have the potential for generating revenue from the sale or license of the
Company's products. These agreements include the Production Agreement and an
agreement (the "Design Agreement") to provide design services and the use of the
Company's proprietary technologies and methodologies to customers of a large
supplier of software tools and professional services related to silicon designs
and electronics equipment. Fulfillment of the Company's obligations under the
Production Agreement and the Design Agreement will require the Company to
concentrate its resources thereon, reducing the possibility that the Company
will be able to identify and obtain other potential arrangements for the
development and exploitation of its products and technologies. Thus, the success
of the Company's microprocessor business is dependent in large part on the
success of the development and exploitation of products and services pursuant to
the terms of the Production Agreement and the Design Agreement. If the Company
is unable to meet its obligations under either of the Production Agreement or
the Design Agreement, or if either of the Production Agreement or the Design
Agreement is terminated for any reason, there would be a material adverse effect
on the Company's financial condition, and the Company may be compelled to
curtail or cease business operations altogether. See "Business - License and
Production Agreement; - Design Agreement."

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<PAGE>

DEPENDENCE ON EFFECTIVE PRODUCT DEVELOPMENT. In order to compete
successfully in the future, the Company will continuously need to develop higher
performance and cost-reduced versions of the Meta 6000, and will also need to
develop future generations of products. The Company has experienced significant
delays in product development in the past. The Company's future products will
require significant additional research and development prior to their
commercialization. Further design and silicon iteration may be necessary to
attain competitive performance for any future generation products. The nature
of the Company's research and development activities is inherently complex,
precluding definitive statements as to the time required and costs involved in
reaching certain objectives. Consequently, actual research and development
costs could exceed amounts budgeted from the proceeds of this Offering and
estimated time frames may require extension. Any delays or additional research
costs could require the raising of funds in addition to the proceeds of this
Offering, and therefore could have a material adverse effect on the Company's
business and results of operations. There can be no assurance that any
potential products will be capable of being produced in commercial quantities on
a timely basis at acceptable costs or be successfully marketed, or that the
Company will be able to obtain such additional financing on terms favorable to
the Company, or at all. See "Business."

PRODUCT DEFECTS. In the event that the Company produces and distributes
products, it is possible that one or more of the Company's products may be found
to be defective after the Company has already shipped in volume, requiring a
product replacement or a software fix which might cure such defect, but impede
performance. Product returns and the potential need to remedy defects or
provide replacement products or parts could impose substantial costs to the
Company and have a material adverse effect on the Company. See "Business."

NO INDEPENDENT CERTIFICATION OF PRODUCTS. The Company is currently
developing products and technologies which have not been commercially
distributed to the public. None of the Company's proposed products have been
subjected to independent examination with respect to their efficacy or
marketability. Further, in order to market any microprocessors which may be
produced by the Company and to demonstrate compatibility with software or
hardware of manufacturers which constitute a significant portion of the
established market, prior to volume production and product shipment, the Company
must receive independent certifications from other manufacturers, such as
Windows certification from Microsoft, and Platinum certification from XXCAL, a
nationally recognized testing organization. Although the Company intends to
submit its products to rigorous internal (ITT and proprietary test suites) and
external (XXCAL and Microsoft certification) testing, there can be no assurance
that the Company's products will receive such certifications or be compatible
with all standard PC software or hardware. Further, the Company's library of
design elements must also be certified by tool vendors, or may require
certification by industry standard bodies in the future. Any inability of the
Company's products to achieve such compatibility with other software or hardware
or to obtain required certifications would have a material adverse effect on the
Company's business and operating results. See "Business."

LARGER AND MORE ESTABLISHED COMPETITION. The market for the Company's
products is extremely competitive. The Company directly and indirectly competes
with other businesses, including businesses in the computer and microprocessor
industries. In most cases, these competitors are substantially larger and more
firmly established, have greater marketing and development budgets and
substantially greater capital resources than the Company. Accordingly, there
can be no assurance that the Company will be able to achieve and maintain a
competitive position in the Company's industry. Further, in order to compete
effectively in the market for high performance x86 microprocessors, the Company
must develop and introduce on a timely basis competitive products that embody
new technology, meet evolving industry standards, and achieve increased levels
of performance at prices acceptable to the market. In particular, the market
for microprocessor products has been and continues to be characterized by
intense and increasing price competition, even for advanced microprocessor
products. Intel has increasingly made more frequent and more significant price
reductions to stimulate market demand for its Pentium-TM- and advanced
generation microprocessors and encourage the migration of original equipment
manufacturers ("OEMs") and end users to its latest generation of
microprocessors.

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<PAGE>

The Company's competitors in the market for x86 microprocessors include
Intel, Advanced Micro Devices, Inc. ("AMD"), and National Semiconductor (which
recently acquired Cyrix) and others with substantially greater resources in
technology, finance, manufacturing, sales, marketing, distribution, customer
service and support, as well as greater experience and name recognition, than
the Company. Intel, in particular, has long had a dominant position in the
market for microprocessors used in PCs. Intel's dominant market position, to
date, has allowed it to set standards and thus dictate the type of product the
market requires of Intel's competitors. The Company believes that the Meta 6000
will need to be competitive primarily with Intel Pentium-TM-. It is expected
that Intel will introduce faster versions of the Pentium-TM- and advanced
generation microprocessors and that other companies will continue to develop
competitive technologies. Intel has announced the architecture and technology
of its next generation microprocessor. AMD has announced that it has begun the
shipment of its sixth generation product and Cyrix has announced it intends to
begin shipping its new microprocessor product. The Company expects substantial
direct competition, both from existing competitors and from new market entrants.

Further, larger and more established competitors may seek to impede the
Company's ability to establish a market share for any products which may be
developed by the Company through competitive pricing activities. Intel
recently announced that it will market inventories of prior generation
Pentium-TM-microprocessors at discounted prices. Also, prospective customers
for the Company's products may be reluctant to disrupt relationships with
well-established distributors of products which may be comparable in quality
or pricing to any of the Company's products.

The Company's competitors spend substantial sums on research and
development, manufacturing facilities, and intensive advertising campaigns
designed to engender brand loyalty among PC end-users in order to maintain their
respective market positions. The Company does not have comparable resources
with which to invest in research and development and advertising and is at a
competitive disadvantage with respect to its ability to develop products. The
Company may also encounter difficulties in customer acceptance because it is
likely to be perceived as a new processor supplier whose identity is not yet
well known and whose reputation and commercial longevity are not yet
established. Substantial marketing and promotional costs, possibly in excess of
what the Company can afford, may be required to overcome barriers to customer
acceptance. There can be no assurance that the Company will be able to overcome
such barriers. The failure to gain customer acceptance of the Meta 6000 and
related technology would have a material adverse effect on the Company. So long
as Intel remains in this dominant position, its product introduction schedule
and product pricing will materially, and at times adversely, affect the
Company's business and financial condition. See "Business - Competition."

DEPENDENCE ON MARKET DEVELOPMENT. In contrast to the standard x86
microprocessor market, the market for custom x86-compatible Pentium-TM- cores is
not fully developed. Although no directly equivalent combination of core
products and services intended to be offered by the Company is currently being
marketed, it is possible that such competitive products may appear in the
future. Sales of the Company's custom core products and services could also be
adversely affected by customer substitution of variants of microprocessors
currently produced or which may be produced by Intel and others. There can be
no assurance that the Company's custom core products and services will be
preferred over existing lower-performance 386 and 486-class cores, or future
Pentium-TM- class alternatives.

The Company also intends to develop, market and sell design elements
derived from its research and development efforts. Such design elements, which
include so-called "custom super-macro cells," like adders and multipliers,
synthesis libraries and other intellectual property, also may address an
emerging market. Sales of these products and the Company's financial
performance could be adversely affected by competition from others and future
improvements in silicon design technology (e.g., more effective synthesis
tools), the appearance of superior competitive products, or the industry
infrastructure associated with advanced silicon design. No assurance can be
given that this market will develop as anticipated by the Company, or that the

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<PAGE>

Company will be able to develop the alliances necessary to penetrate this market
effectively. See "Business - Sales, Marketing and Distribution."

NO MARKETING STUDIES. No independent studies with regard to feasibility of
the Company's proposed business plan have been conducted at the expense of the
Company or by any independent third parties with respect to the Company's
present and future business prospects and capital requirements. In addition,
there can be no assurances that the Company's products and services will find
sufficient commercial acceptance in the marketplace to enable the Company to
fulfill its long and short term goals, even if adequate financing is available
and products are ready for market, of which there can be no assurance. See
"Business."

HIGHLY LEVERAGED BUSINESS OPERATIONS. As of the date of this Prospectus,
the Company had short-term borrowings in the aggregate amount of $2,880,000, of
which $2,200,000 was payable to an affiliate of Martin S. Albert, a director and
principal beneficial stockholder of the Company and secured by the Company's
intellectual property rights related to the Meta 6000. In addition, during the
period in which $2,000,000 of such obligation remains unpaid, such affiliate of
Mr. Albert has the right to appoint an additional member to the Company's Board
of Directors, which right has not been exercised as of the date of this
Prospectus. The Company intends to pay $680,000 of these short-term obligations
to certain non-affiliates from the proceeds of this Offering. The Company may
require additional financings in order to pay off these obligations, and the
failure to raise additional funds and the default on any of these obligations
could have a material adverse effect upon the business operations of the
Company. See "Management's Discussion and Analysis of Results of Operations and
Financial Condition," "Certain Relationships and Related Transactions" and
"Underwriting."

DEPENDENCE ON KEY PERSONNEL. The Company is dependent upon the skills of
its management and technical team. There is strong competition for qualified
personnel in the computer microprocessor industry, and the loss of key personnel
or an inability to continue to attract, retain and motivate key personnel could
adversely affect the Company's business. There can be no assurances that the
Company will be able to retain its existing key personnel or to attract
additional qualified personnel. The Company does not have key-person life
insurance on any of its employees, other than George Smith, its Chief Executive
Officer. See "Management."

RELIANCE ON PATENT PROTECTION AND PROPRIETARY TECHNOLOGY. The Company's
business is dependent upon its ability to protect its intellectual property,
including patented and other proprietary technology, certain of which is
licensed by the Company and certain of which is owned by the Company. To the
extent the Company or the owners of the patented technology are unsuccessful in
protecting proprietary rights to such technology or such technology may infringe
on proprietary rights of third parties, that portion of the Company's business
could suffer. The Company's more significant proprietary technology is based on
unpatented trade secrets and know-how. To the extent that the Company relies
upon unpatented trade secrets and know-how and the development of new products
and improvements thereon in establishing and maintaining a competitive advantage
in the market for the Company's products, there can be no assurances that such
proprietary technology will remain a trade secret or that others will not
develop substantially equivalent or superior technologies to compete with the
Company's products. In addition, there can be no assurances that others will
not independently develop similar or superior technologies which will enable
them to provide superior products or services. Further, there can be no
assurances that patentable improvements on such technology will be developed or
that existing or improved technology will have competitive advantages or not be
challenged by third parties. The Company also has certain proprietary rights in
certain registered trademarks related to the Company's products. No assurance
can be given that the trademarks will afford the Company any competitive
advantages. Further, the microprocessor industry has been marked by costly and
time-consuming litigation with respect to intellectual property rights between
competitors. There can be no assurances that third parties will not claim that
some or all of the Company's technology infringes on proprietary rights of
others. Such litigation may be used to seek damages or to enjoin alleged
infringement of proprietary rights of others. Further, the defense of any such
litigation, whether or not meritious, may divert financial and other resources
of the Company, including the proceeds of this Offering, which may

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<PAGE>

otherwise be devoted to development of the Company's business plan, and
therefore, may have a material adverse effect on the financial condition of the
Company. An adverse decision to the Company in any such litigation may result
in a significant damages award payable by the Company or enjoin the Company from
marketing its then existing products, and therefore, would have an adverse
effect on the Company's ability to continue in business. In the event of an
adverse result in such litigation, the Company would be required to expend
significant resources to develop non-infringing technology or to obtain licenses
to the disputed technology from third parties. There can be no assurances that
the Company will have the resources to develop or license such technology, or if
so, that the Company would be successful in such development or that any such
licenses would be available on commercially reasonably terms.

Further, the Company may be required to commence litigation against third
parties to protect any proprietary rights of the Company. There can be no
assurances that the Company will be able to afford to prosecute such litigation,
or if so, that such litigation will be successful. See "Business - Patents."

RISK OF LOSING NASDAQ/NMS LISTING. The Company's Common Stock is
currently quoted in the over-the-counter market (the "Over-the-Counter
Market") in the so-called "pink sheets" or the "Electronic Bulletin Board" of
the National Association of Securities Dealers, Inc. ("NASD"). The Company
has applied for the Common Stock to be listed in the NASDAQ/NMS and
anticipates that it will meet the initial inclusion requirements for the
NASDAQ/NMS at the time of the closing of this Offering. Although the Company
believes that it meets the current NASDAQ/NMS initial listing requirements
and expects to be included on the NASDAQ/NMS, there can be no assurances that
the Company will meet the criteria for continued listing on the NASDAQ/NMS.
Continued inclusion on the NASDAQ/NMS generally requires that a company would
need to have, among other things: (i) net tangible assets of $4,000,000, a
minimum public float of 750,000 shares with an aggregate market value of
$5,000,000, and a minimum bid price of $1.00 per share, or (ii) either a
market capitalization of $50,000,000, total assets and total revenues of
$50,000,000 each for the most recently completed fiscal year or two (2) of
the three (3) most recently completed fiscal years, and, in addition, a
minimum public float of 1,100,000 shares with an aggregate market value of
$15,000,000, and a minimum bid price of $5.00 per share. Additionally, for
continued listing on the NASDAQ/NMS, a company will be required to continue
to have at least two independent directors, and an Audit Committee, a
majority of the members of which would need to be independent directors. If
the Company is unable to satisfy the NASDAQ/NMS maintenance requirements, its
Common Stock may be delisted from the NASDAQ/NMS. In addition, the
NASDAQ/NMS has the right to review and reverse a decision to list a security
on the NASDAQ/NMS before or after the completion of an offering. In the
event of any such delisting, trading, if any, in the Common Stock, would
thereafter be conducted in the Over-the-Counter Market, and it could be more
difficult to obtain quotations of the market price of the Company's Common
Stock. Consequently, the liquidity of the Company's Common Stock could be
impaired, not only in the number of securities which could be bought and
sold, but also through delays in the timing of transactions, reduction in
participation of broker/dealers, and security analysts' and media's coverage
of the Company and, further, result in difficulty in obtaining future
financing for the Company. See "Underwriting."

EFFECT OF REVERSE STOCK SPLIT ON MARKET FOR COMMON STOCK. The Company
intends to effect a reverse split of the issued and outstanding shares of Common
Stock, excluding the shares to be issued in connection with this Offering, on a
1-for-___________ basis on the Effective Date. Although the number of shares of
Common Stock issued and outstanding will be reduced by a factor of
_____________, and the offering price on the Effective Date will be $________
per share, after giving effect to the reverse stock split, there can be no
assurance that the market price will increase proportionately to the ratio of
the reverse split in the future based on historical market prices. See "Price
Range of Common Stock" and "Underwriting."

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DISCLOSURE RELATING TO LOW-PRICED STOCKS. The Company's Common Stock is
currently listed for trading in the Over-the-Counter Market. The Company has
applied for the Common Stock to be listed in the NASDAQ/NMS upon effectiveness
of this Offering. If, at any time, the Company's securities are not listed for
trading in the NASDAQ/NMS, the Company's securities could become subject to the
"penny stock rules" adopted pursuant to Section 15 (g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The penny stock rules
apply to non-NASDAQ companies whose common stock trades at less than $5.00 per
share or which have tangible net worth of less than $5,000,000 ($2,000,000 if
the company has been operating for three or more years). Such rules require,
among other things, that brokers who trade "penny stock" to persons other than
"established customers" complete certain documentation, make suitability
inquiries of investors and provide investors with certain information concerning
trading in the security, including a risk disclosure document and quote
information under certain circumstances. Many brokers have decided not to trade
"penny stock" because of the requirements of the penny stock rules and, as a
result, the number of broker-dealers willing to act as market makers in such
securities is limited. In the event that the Company's securities become
subject to the "penny stock rules," there may develop an adverse impact on the
market for the Company's securities. See "Underwriting."

CERTAIN REGISTRATION RIGHTS. The Company has entered into various
agreements pursuant to which certain holders of the Company's outstanding Common
Stock and convertible securities have been granted the rights under various
circumstances, to have Common Stock that is currently outstanding or underlying
such convertible securities registered for sale in accordance with the
registration requirements of the Securities Act upon demand or which may be
"piggybacked" to a registration statement which may be filed by the Company.
Any such registration statement may have a material adverse effect on the market
price for the Company's Common Stock resulting from the increased number of free
trading shares of Common Stock in the market. There can be no assurances that
such registration rights will not be enforced or that the enforcement of such
registration rights will not have a material adverse effect on the market price
for the Common Stock. See "Certain Relationships and Related Transactions,"
"Description of Securities" and "Dilution."

LACK OF DIVIDENDS ON COMMON STOCK. The Company has paid no dividends on
its Common Stock to date and there are no plans for paying dividends in the
foreseeable future. The Company intends to retain earnings, if any, to provide
funds for the expansion of the Company's business. See "Dividend Policy" and
"Description of Securities."

POTENTIAL ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS. The Company
is subject to certain provisions of the Delaware General Corporation Law which,
in general, restrict the ability of a publicly held Delaware corporation from
engaging in certain "business combinations," with certain exceptions, with
"interested stockholders" for a period of three (3) years after the date of
transaction in which the person became an "interested stockholder." Further,
the Company's Certificate of Incorporation includes certain provisions which are
intended to protect the Company's stockholders by rendering it more difficult
for a person or persons to obtain control of the Company without cooperation of
the Company's management. These provisions include the implementation of a
classified Board of Directors and certain super majority requirements for the
amendment of the Company's Certificate of Incorporation and Bylaws. Such
provisions are often referred to as "anti-takeover" provisions. The inclusion
of such "anti-takeover" provisions in the Certificate of Incorporation may
delay, deter or prevent a takeover of the Company which the stockholders may
consider to be in their best interests, thereby possibly depriving holders of
the Company's securities of certain opportunities to sell or otherwise dispose
of their securities at above-market prices, or limit the ability of stockholders
to remove incumbent directors as readily as the stockholders may consider to be
in their best interests. See "Description of Securities - Certain Business
Combinations and Other Provisions of Certificate of Incorporation."

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DILUTION. The public offering price of the Shares of Common Stock is
substantially higher than the book value per share of the Common Stock. This
Offering will result in immediate and substantial dilution of $________ per
share of Common Stock (or _______% of the assumed offering price per share),
based on the Company's capitalization as of September 30, 1997, which amount
represents the difference between the net tangible book value per share of
Common Stock before and after the Offering. As of the date of this Prospectus,
the Company had 38,925,941 shares of Common Stock issued and outstanding. See
"Dilution" and "Description of Securities."

SHARES ELIGIBLE FOR FUTURE SALE; ISSUANCE OF ADDITIONAL SHARES. Future
sales of shares of Common Stock by the Company and its stockholders could
adversely affect the prevailing market price of the Common Stock. There are
currently _________ restricted shares and __________ shares of Common Stock
which are freely tradeable or eligible to have the restrictive legend removed
pursuant to Rule 144(k) promulgated under the Securities Act. Of the _________
restricted shares, __________ shares have been held for at least one year from
the date of this Prospectus, and in the absence of an agreement with the
Representatives, are currently eligible for resale under Rule 144. Of the
restricted shares, __________ shares held by certain of the Company's officers
and directors will be subject to certain lock-up agreements with the
Representatives during the __________ (_____) month period following the date of
this Prospectus. Further, the Company has granted options to purchase up to an
additional 5,684,273 shares of Common Stock, 2,965,117 of which are currently
exercisable, and warrants to purchase up to 864,298 shares of Common Stock,
614,298 of which warrants have certain registration rights. The Company has
filed a registration statement which registers up to 9,000,000 shares of Common
Stock underlying certain options which have been or may be granted pursuant to
certain stock option plans (911,500 of which have been exercised, an additional
3,256,323 of which have been granted and 1,057,167 of which are currently
exercisable), and holders of options to purchase an additional 1,772,950 shares
have certain registration rights in connection with such options. Sales of
substantial amounts of Common Stock in the public market, or the perception that
such sales may occur, could have a material adverse effect on the market price
of the Common Stock. Pursuant to its Certificate of Incorporation, the Company
has the authority to issue additional shares of Common Stock and Preferred
Stock. The issuance of such shares could result in the dilution of the voting
power of Common Stock purchased in the Offering. See "Compensation of Executive
Officers and Directors - Stock Option Plans," "Principal Stockholders,"
"Description of Securities," "Shares Eligible for Future Sale" and
"Underwriting."

FUTURE ISSUANCES OF PREFERRED STOCK. The Company's Certificate of
Incorporation, as amended, authorizes the issuance of preferred stock with such
designation, rights and preferences as may be determined from time to time by
the Board of Directors, without shareholder approval. In the event of the
issuance of additional series of preferred stock, the preferred stock could be
utilized, under certain circumstances, as a method of discouraging, delaying or
preventing a change in control of the Company. Although the Company has no
present intention to issue any shares of its preferred stock, there can be no
assurances that the Company will not do so in the future. See "Description of
Securities."

UNDERWRITERS' WARRANTS AND OPTIONS; RISK OF FURTHER DILUTION. The Company
has agreed to sell to the Underwriters, for nominal consideration, warrants to
purchase up to _________ shares of Common Stock at an exercise price of _______%
of the price at which the Shares are offered to the public (the "Underwriters'
Warrants"). The Underwriters' Warrants and any profits realized by the
Underwriters on the sale of the shares of Common Stock underlying the
Underwriters' Warrants could be considered additional underwriting compensation.
For the life of the Underwriters' Warrants, the holders thereof are given, at
nominal cost, the opportunity to profit from the difference, if any, between the
exercise price of the Underwriters' Warrants and the value of or market price
(if any) for the Shares, with a resulting dilution in the interest of existing
stockholders. The terms on which the Company could obtain additional capital
during the exercise period of the Underwriters' Warrants may be adversely
affected as the holders of the Underwriters' Warrants may be expected to
exercise them when in all likelihood, the Company would be able to obtain any
needed capital by

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<PAGE>

a new placement of securities on terms more favorable than those provided for by
the Underwriters' Warrants. See "Underwriting."

LIMITATIONS ON DIRECTOR LIABILITY. The Company's Certificate of
Incorporation provides, as permitted by governing Delaware law, that a director
of the Company shall not be personally liable to the Company or its stockholders
for monetary damages for breach of fiduciary duty as a director, with certain
exceptions. These provisions may discourage stockholders from bringing suit
against a director for breach of fiduciary duty and may reduce the likelihood of
derivative litigation brought by stockholders on behalf of the Company against a
director. In addition, the Company's Certificate of Incorporation and Bylaws
provide for mandatory indemnification of directors and officers to the fullest
extent permitted by Delaware law. See "Management."

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USE OF PROCEEDS

The net proceeds to the Company from the sale of the __________ Shares
offered hereby are estimated to be $______________, or $_____________ if the
Underwriters' Over-allotment Option is exercised in full, after deducting
estimated underwriting discounts, commissions and other offering expenses and
assuming a public offering price of $_________ per Share. The Company intends
to use such net proceeds as follows:

APPLICATION AMOUNT PERCENTAGE
- ----------- ------ ----------

Research and development
of microprocessor technologies(1) $14,624,080

Marketing expenses (2) 1,326,300

Administrative expenses (3) 1,763,700

Repayment of debt (4) 680,000

Working capital (5) ---------- ----------

Total $ 100.00 %
---------- --------
---------- --------

Management believes that, based on the Company's current business plan, the
net proceeds of this Offering should be sufficient to provide operating capital
for a period of approximately eighteen (18) months following the date of this
Prospectus. However, there can be no assurance that changes in the Company's
research and development plans or other changes affecting the Company's
operating expenses and business strategy will not result in the expenditure of
such resources before such time or that the Company will be able to generate
revenues prior to such date, or at all, or that the Company will not require
additional financing at or prior to such time in order to continue operations
and product development. There can be no assurance that additional capital will
be available on terms favorable to the Company, if at all. To the extent that
additional capital is raised through the sale of additional equity or
convertible debt securities, the issuance of such securities could result in
additional dilution to the Company's stockholders. Moreover, the Company's cash
requirements may vary materially from those now planned because of results of
research and development, product testing, relationships with manufacturers,
changes in the focus and direction of the Company's research and development
programs, competitive and technological advances, the level of working capital
required to sustain the Company's planned growth, litigation, operating results,
including the extent and duration of operating losses, and other factors. In
the event that the Company experiences the need for additional capital, and is
not able to generate capital from financing sources or from future operations,
management may be required to modify, suspend or discontinue the business plan
of the Company. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources" and
"Financial Statements."

Pending full utilization of the proceeds of this Offering, the Company may
invest the net proceeds in short-term, investment grade, interest bearing
securities. See "Business."

(FOOTNOTES ON NEXT PAGE)
------------------------

16
<PAGE>

(FOOTNOTES FROM PRIOR PAGE)
- ---------------------------

(1) The Company intends to use these proceeds to continue development of
the Meta 6000 and its related technologies. See "Business."

(2) The Company intends to use these proceeds to hire personnel and cover
expenses related to a marketing program for the Company's products. See
"Business - Sales, Marketing and Distribution."

(3) The Company intends to use these proceeds to pay for administrative
expenses, including administrative salaries, rent, professional fees and other
related expenses. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business."

(4) These amounts are set aside for the repayment of certain
indebtedness, including accrued interest thereon, of the Company owing to
certain non-affiliates of the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources."

(5) This amount may be used for general corporate purposes in connection
with the operation of the Company's business. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business."

17
<PAGE>

DIVIDEND POLICY

No dividend has been declared or paid by the Company since inception on the
Company's Common Stock. The Company does not anticipate that any dividends will
be declared or paid in the future on the Company's Common Stock. See
"Description of Securities."

PRICE RANGE OF COMMON STOCK

As of the date of this Prospectus, the Company had 38,925,941 shares of
Common Stock issued and outstanding. Further, the Company has issued and
outstanding options and warrants to purchase an additional 6,258,748 shares of
Common Stock.

The Company's Common Stock is listed for trading in the Over-The-Counter
Market under the symbol "IMES." In connection with and as a condition of the
closing of this Offering, the Company intends to apply for a listing for the
Common Stock on the NASDAQ/NMS.

The following table sets forth quotations for the bid and asked prices
for the Common Stock for the periods indicated below, based upon quotations
between dealers, without adjustments for stock splits, dividends, retail
mark-ups, mark-downs or commissions, and therefore, may not represent actual
transactions:

BID PRICES ASKED PRICES
---------- ------------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
Year Ended December 31, 1995

1st Quarter 1 13/32 5/16 2 5/8 5/8
2nd Quarter 1 1/2 7/8 1 11/16 1 1/32
3rd Quarter 2 31/32 7/8 3 1/16 31/32
4th Quarter 2 3/32 31/32 3 1/8 1

Year Ended December 31, 1996

1st Quarter 2 3/8 1 5/16 2 7/16 1 3/8
2nd Quarter 2 5/16 1 5/8 2 7/16 1 23/32
3rd Quarter 2 7/32 1 5/16 2 5/16 1 1/2
4th Quarter 1 23/32 31/32 1 25/32 1 1/16

Year Ending December 31, 1997

1st Quarter 2 1 1/8 2 1/16 1 1/4
2nd Quarter 1 21/32 15/16 1 11/16 1
3rd Quarter 1 3/16 9/16 1 15/64 5/8

</TABLE>

On November 28, 1997, the closing market price for the Company's Common
Stock in the Over-the-Counter Market was approximately $0.70 per share. As of
_________, 1997, without giving effect to the number of stockholders whose
shares are held in "street name," the Company had approximately ______
stockholders of record. Management believes that the Company had approximately
_________ beneficial stockholders as of ____________, 1997. The Company intends
to effect a reverse split of the Common Stock on a 1-for-_____ basis on the
Effective Date. The market prices for the Common Stock in the tables set forth
above do not give effect to such reverse split and reflect the actual market
prices of the Common Stock during such periods.

18
<PAGE>

DILUTION

The net tangible book value of the Common Stock at September 30, 1997 was
($2,011,139) or( $0.05) per share. Net tangible book value per share is
determined by dividing the Company's tangible net worth (tangible assets less
liabilities) by the 38,855,941 shares of Common Stock outstanding as of such
date. Dilution per share represents the difference between the amount per
share paid by the purchasers of the _____________ shares of Common Stock offered
by the Company, and the pro forma net tangible book value per share of Common
Stock immediately after this Offering.

After giving effect to the sale of ______________ shares of Common Stock
offered by the Company in this Offering, at an assumed public offering price of
$_________ per share, and the receipt of the net proceeds therefrom, and without
giving effect to any other changes since such date, the adjusted net tangible
book value of the Company as of September 30, 1997 would have been approximately
$____________ or $_________ per share. This represents an immediate decrease in
net tangible book value of $__________ per share to current stockholders and an
immediate dilution in net tangible book value of $_________ per share to
purchasers of Common Stock to be sold in this Offering, as illustrated in the
following table:

Assumed initial public offering price per
share............................................ $_______
Net tangible book value per share at
September 30, 1997............................. $_______
Increase in net tangible book value
per share attributable to new
stockholders................................. _______
Pro forma net tangible book value after this
Offering......................................... _______
Dilution per share to new
stockholders..................................... $_______
_______

19
<PAGE>

The following table illustrates at September 30, 1997, with respect to
existing stockholders and investors purchasing the ______________ shares of
Common Stock offered hereby, a comparison of the number of shares of Common
Stock acquired from the Company, the percentage ownership of such shares, the
total capital stock and paid in capital contributed, the percentage of total
investment and the average price paid per share:

SHARES PURCHASED(1) TOTAL CONSIDERATION AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(2)
New stockholders
All stockholders(3)
______________

</TABLE>

(1) The number of shares set forth in this column reflects the number of
shares of Common Stock issued and outstanding as of September 30, 1997. As of
the date of this Prospectus, the Company had 38,925,941 shares of Common Stock
issued and outstanding, and, assuming the completion of this Offering, will have
___________ shares of Common Stock and issued and outstanding, as adjusted.
These numbers give effect to a reverse split of the issued and outstanding
shares of Common Stock on a 1-for-_____ basis to be effectuated by the Company
on the Effective Date of this Offering. See "Description of Securities."

(2) As of the date of this Prospectus, the Company had 38,925,941 shares
of Common Stock issued and outstanding. These numbers give effect to a reverse
split of the issued and outstanding shares of Common Stock on a 1-for-_____
basis to be effectuated by the Company on the Effective Date. See "Description
of Securities."

(3) Does not include shares of Common Stock that are reserved for issuance
upon exercise of the Underwriters' Warrants, or pursuant to certain stock option
plans of the Company, and certain other options, warrants and convertible
securities of the Company. See "Management - Stock Option Plans," "Certain
Relationships and Related Transactions," "Description of Securities" and
"Underwriting."

20
<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of the Company as of: (i)
September 30, 1997, (ii) on a PRO FORMA basis after giving effect to the sale
of 50,000 shares of Common Stock and the automatic conversion of the shares of
Series B Convertible Preferred Stock into 20,000 shares of Common Stock, and
(iii) as adjusted to reflect the sale of the ___________ shares of Common Stock
offered hereby, at an assumed public offering price of $__________ per Share,
and an additional financial expense of $500,000 relating to $2,000,000 of
convertible promissory notes. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Certain Relationships and
Related Transactions" and "Underwriting." This table should be read in
conjunction with the financial statements and related notes included elsewhere
in this Prospectus:

SEPTEMBER 30, 1997

ACTUAL PRO FORMA AS ADJUSTED(1)
------ --------- --------------
<S> <C> <C> <C>
NOTES PAYABLE $ 2,430,000

STOCKHOLDERS' EQUITY:

Preferred Stock, par value
$0.0001, authorized
1,000,000 shares; issued and
outstanding 250 Series B shares 1

Common Stock, par value
$0.0001; 70,000,000 shares
authorized: issued and
outstanding 38,855,941 shares;
____ PRO FORMA(2); ____ as adjusted 3,885

Additional paid-in-capital 19,041,632

Subscription receivable (18,900)

Accumulated deficit (20,847,459)
----------
Total stockholders'
equity (deficit) (1,820,841)
---------
Total capitalization $ 609,159
----------
----------
________________________

</TABLE>

(1) Does not include shares of Common Stock that are reserved for issuance
upon exercise of the Underwriters' Warrants, or pursuant to certain stock option
plans of the Company, and certain other options, warrants and convertible
securities of the Company. See "Management - Stock Option Plans," "Certain
Relationships and Related Transactions," "Description of Securities" and
"Underwriting."

(2) As of the date of this Prospectus, the Company had 38,925,941 shares
of Common Stock issued and outstanding, and, assuming the completion of this
Offering, will have ___________ shares of Common Stock issued and outstanding,
as adjusted. This number gives effect to a reverse split of the issued and
outstanding shares of Common Stock on a 1-for-______ basis to be effectuated on
the Effective Date. See "Description of Securities" and "Underwriting."

21
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION

This Prospectus, including the disclosures below, contains certain
forward-looking statements that involve substantial risks and uncertainties.
When used herein, the terms "anticipates," "expects," "estimates," "believes"
and similar expressions, as they relate to the Company or its management, are
intended to identify such forward-looking statements. The Company's actual
results, performance or achievements may differ materially from those
expressed or implied by such forward-looking statements. Factors that could
cause or contribute to such material differences include the factors
disclosed in the "Risk Factors" section of this Prospectus, which prospective
purchasers of the securities offered hereby should consider carefully.

GENERAL

Since the mid-1980's, the Company has been developing and designing
microprocessors for PCs. The pace of technological advancements in PC and
microprocessor technologies during this period has required the Company to
continuously upgrade the Company's microprocessor designs in seeking to develop
a commercially competitive microprocessor concurrently with these advancements.
See "Business - History of the Company."

Since April, 1995, the Company has been developing the Company's
microprocessor designs in conjunction with technical assistance from SGS-Thomson
Microelectronics, Inc., an international semiconductor manufacturer (the
"Manufacturer") to research, develop and manufacture microprocessor chips for
the Company based on the Company's microprocessor technology design pursuant to
the terms of a License and Production Agreement (the "Production Agreement").
See "Business - License and Production Agreement."

In November, 1997, the Company entered into an agreement (the "Design
Agreement") to provide design services and the use of the Company's proprietary
technologies and methodologies to customers of Cadence Design Systems, Inc.
("Cadence"). Cadence is a large supplier of software tools and professional
services related to silicon designs and electronics equipment. See "Business -
Design Agreement."

The Company has generated minimal revenues from operations since inception
and no revenues from sales of products since approximately 1990, and has been
engaged primarily in research and development of its products. The Company has
only generated revenues in 1995 and 1996 from certain milestone payments related
to the Production Agreement, and in November, 1997 from an advance payment
pursuant to the Design Agreement. The Company has incurred net losses in each
year since inception, and, as of September 30, 1997, the Company had an
accumulated deficit of $20,847,459. As of the date of this Prospectus, the
financial condition of the Company raises substantial doubts about the ability
of the Company to continue as a going concern. The Company expects to continue
to incur significant operating losses over at least the following two years as
it continues to devote significant financial resources to product development
activities and as the Company expands its operations. In order to achieve
profitability, the Company will have to develop, manufacture and market products
which are accepted on a widespread commercial basis. There can be no assurances
that the Company will develop, manufacture or market any products successfully,
operate profitably in the future or generate revenues from operations, or that
capital in excess of the net proceeds of this Offering will not be required in
order to accomplish the Company's current business plan. See "Use of Proceeds,"
"Business - License and Production Agreement; - Design Agreement" and "Financial
Statements."

The Company expended approximately $275,000, $666,000 and $3,885,000,
respectively, during the fiscal years ended December 31, 1994, 1995 and 1996,
and $4,513,605 during the nine (9) months ended September 30, 1997, on research
and development of the various iterations of the Company's microprocessor
designs.

22
<PAGE>

The Company intends to use the proceeds of this Offering to continue to
pursue the development of a prototype for the Meta 6000, and thereafter, a
finished marketable standard Meta 6000 chip. The Company also is devoting its
efforts toward the completion of the development of the Meta 6000 in order to
initiate revenues from the marketing of custom core products based on the design
of the Meta 6000 and a library of individual design elements. See "Use of
Proceeds" and "Business."

The following discussion reflects the financial condition and results of
operations of the Company for the nine (9) month periods ended September 30,
1997 and 1996 and the years ended December 31, 1996, 1995 and 1994.

RESULTS OF OPERATIONS

RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND
1996. Total revenues for the nine (9) month period ended September 30, 1997
decreased to $150,000 from $300,000 during the nine (9) month period ended
September 30, 1996.

Total operating costs and expenses during the nine (9) month period ended
September 30, 1997 increased to $7,390,951 from $4,657,814 during the nine (9)
month period ended September 30, 1996. Total operating costs and expenses
include: (i) research and development costs, (ii) selling, general and
administrative expenses, and (iii) depreciation and amortization, as follows:

Research and development expense during the nine (9) month period ended
September 30, 1997 increased to $4,513,605 from $2,507,275 during the nine (9)
month period ended September 30, 1996. This increase primarily resulted from
the hiring of additional engineers and outside consultants for the Company's
design center opened in Austin, Texas late in the fourth quarter of 1995. The
Austin design center was established by the Company for the purpose of
developing the Company's Meta 6000 microprocessor chip.

Selling, general and administrative expenses during the nine (9) month
period ended September 30, 1997 increased to $2,691,584 from $1,655,567 during
the nine (9) month period ended September 30, 1996. This increase primarily
related to rent and personnel recruiting fees and costs with respect to the
establishment of the Company's Austin design center, taxes and professional
fees.

Depreciation and amortization during the nine (9) month period ended
September 30, 1997 decreased to $185,762 from $484,972 during the nine (9) month
period ended September 30, 1996. This decrease primarily resulted from a
decrease in amortization of capitalized software development costs.

The Company experienced an increase in loss from operations during the nine
(9) month period ended September 30, 1997 to $7,240,951 from $4,357,814 during
the nine (9) month period ended September 30, 1996. This increase primarily
resulted from an increase in research and development costs and selling, general
and administrative expenses related to the establishment of the Austin design
center.

Other income during the nine (9) month period ended September 30, 1997
decreased to $41,809 from $177,740 during the nine (9) month period ended
September 30, 1996. This decrease in income between the respective nine (9)
month periods resulted primarily from a decrease in dividend and interest income
offset, in part, by a decrease in loss on marketable securities.

As a result of the foregoing, the Company experienced a net loss of
$7,199,142 (or $0.19 per share) during the nine (9) month period ended September
30, 1997, as compared to a net loss of $4,180,074 (or $0.12 per share) during
the nine (9) month period ended September 30, 1996. See "Liquidity and Capital
Resources."

23
<PAGE>

As a result of the Company's cumulative operating losses, the Company has
not paid income tax since inception. As of December 31, 1996, the Company had
net operating loss carryforwards totalling approximately $15,250,000 for federal
income tax purposes. Utilization of the Company's net operating loss may be
subject to limitation under certain circumstances.

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995.
Total revenues for the year ended December 31, 1996 decreased to $300,000 from
$909,988 for the year ended December 31, 1995. During the year ended December
31, 1995, the Company received $900,000 from the Manufacturer pursuant to the
Production Agreement as milestone payments and payments relating to the grant to
the Manufacturer of a non-exclusive license for the Company's Meta 3250
microprocessor, and an additional $9,988 as consulting fees relating to a
technology study conducted by the Company for Sharp Corporation. All of the
Company's revenues during the year ended December 31, 1996 were generated from
payments by the Manufacturer relating to the achievement of certain milestones
by the Company pursuant to the Production Agreement. The Company did not
generate any revenues from product sales during the years ended December 31,
1996 and 1995.

Total operating costs and expenses during the year ended December 31, 1996
increased to $7,705,795 from $2,625,864 during the year ended December 31, 1995.
Total operating costs and expenses include: (i) research and development costs,
(ii) selling, general and administrative expenses, and (iii) depreciation and
amortization, as follows:

Research and development expense during the year ended December 31, 1996
increased to $3,884,963 from $666,287 during the year ended December 31, 1995.
This increase primarily resulted from the hiring of additional engineers and
outside consultants for the Company's design center opened in Austin, Texas late
in the fourth quarter of 1995. The Austin design center was established by the
Company for the purpose of developing the Company's Meta 6000 microprocessor.

Selling, general and administrative expenses during the year ended December
31, 1996 increased to $2,612,600 from $1,341,964 during the year ended December
31, 1995. This increase primarily related to rent and personnel recruiting fees
and costs with respect to the establishment of the Company's Austin design
center, taxes and professional fees.

Depreciation and amortization during the year ended December 31, 1996
increased to $1,208,232 from $617,613 during the year ended December 31, 1995.
This increase primarily resulted from an increase in amortization of capitalized
software development costs.

The Company experienced an increase in loss from operations during the year
ended December 31, 1996 to $7,405,795 from $1,715,876 during the year ended
December 31, 1995. This increase primarily resulted from an increase in
research and development costs and selling, general and administrative expenses
related to the establishment of the Austin design center in the fourth quarter
of 1995.

Other income during the year ended December 31, 1996 increased to $271,016
from $4,280 during the year ended December 31, 1995. This increase in income
between the respective years resulted primarily from the Company's earning of
$285,120 in dividend income on investments in money market funds relating to
proceeds received from certain private placements conducted by the Company in
1996.

As a result of the foregoing, the Company experienced a net loss of
$7,134,779 (or $0.20 per share) during the year ended December 31, 1996, as
compared to a net loss of $1,711,596 (or $0.06 per share) during the year ended
December 31, 1995. See "Liquidity and Capital Resources."

24
<PAGE>

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994.
Total revenues for the year ended December 31, 1995 increased to $909,988 from
none for the year ended December 31, 1994. During the year ended December 31,
1995, the Company received $900,000 from the Manufacturer pursuant to the
Production Agreement as milestone payments and payments relating to the grant to
the Manufacturer of a non-exclusive license for the Company's Meta 3250
microprocessor chip in connection with the Production Agreement, and an
additional $9,988 as consulting fees relating to a technology study conducted by
the Company for Sharp Corporation. The Company did not generate any revenues
from product sales during the years ended December 31, 1995 and 1994.

Total operating costs and expenses during the year ended December 31, 1995
increased to $2,625,864 from $1,207,068 during the year ended December 31, 1994.
Total operating costs and expenses include: (i) research and development costs,
(ii) selling, general and administrative expenses, (iii) depreciation and
amortization, and (iv) inventory adjustment to market, as follows:

Research and development expense during the year ended December 31, 1995
increased to $666,287 from $275,229 during the year ended December 31, 1994.
This increase primarily resulted from the hiring of additional engineers and
outside consultants at the Company's El Segundo, California corporate
headquarters and at the Company's design center opened in Austin, Texas late in
the fourth quarter of 1995. The Austin design center was established by the
Company for the purpose of developing the Company's Meta 6000 microprocessor
chip.

Selling, general and administrative expenses during the year ended December
31, 1995 increased to $1,341,964 from $710,859 during the year ended December
31, 1994. This increase primarily related to rent and personnel recruiting fees
and costs with respect to the establishment of the Company's Austin design
center, taxes and professional fees.

Depreciation and amortization during the year ended December 31, 1995
increased to $617,613 from $170,864 during the year ended December 31, 1994.
This increase primarily resulted from an increase in amortization of capitalized
software development costs.

Inventory adjustment to market during the year ended December 31, 1995
decreased to none from $50,116 during the year ended December 31, 1994. This
decrease primarily resulted from a write-off of certain obsolete inventory in
1994. In 1995, inventory was minimal and no further write-offs were deemed
necessary.

The Company experienced an increase in loss from operations during the year
ended December 31, 1995 to $1,715,876 from $1,207,068 during the year ended
December 31, 1994. This increase primarily resulted from an increase in
research and development costs and selling, general and administrative expenses
related to the establishment of the Austin design center in the fourth quarter
of 1995.

Other income during the year ended December 31, 1995 decreased to $4,280
from $53,877 during the year ended December 31, 1994. This decrease in income
between the respective years resulted primarily from the receipt of funds in
connection with the settlement of certain litigation in 1994 and a decrease in
net interest income from 1994 to 1995.

As a result of the foregoing, the Company experienced a net loss of
$1,711,596 (or $0.06 per share) during the year ended December 31, 1995, as
compared to a net loss of $1,153,191 (or $0.05 per share) during the year ended
December 31, 1994. See "Liquidity and Capital Resources."

25
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

The Company has historically financed its operations principally through
the private placement of equity and debt securities. From January 1, 1995
through September 30, 1997, the Company had raised gross proceeds of $13,455,000
through such private placements, including $2,000,000 in loan financing from
affiliates. Subsequent to September 30, 1997, the Company has obtained an
additional $450,000 in loan financing, including $200,000 from an affiliate.
The Company continues to require such financing in order to remain in business.

The Company is in the process of developing microprocessor products for
commercialization and currently does not have any marketable products. Since
inception, the Company has generated nominal revenues from licensing agreements
and providing consulting services.

During the years ended December 31, 1996 and 1995, the Company used an
aggregate of $6,139,057 of cash from operating activities, which primarily was
the result of losses of $7,134,779 and $1,711,596, in each respective year.

Cash and cash equivalents were $158,782 as of September 30, 1997, as
compared to $96,782 as of December 31, 1996. This decrease was primarily
attributable to the use of cash in operations. Investments in marketable
securities were $29,450 as of September 30, 1997, as compared to $4,448,484, as
of December 31, 1996. This decrease was due to the sale of marketable
securities by the Company.

As of September 30, 1997, the Company had short-term borrowings in the
aggregate amount of $2,430,000, an increase from none as of December 31, 1996.
The increase was attributable to the Company's obtaining of bridge loans during
the third quarter of 1997 following the expenditure of the proceeds of prior
equity financings.

The Company used approximately $5,129,555 and $168,662 of net cash from
investing activities during the years ended December 31, 1996 and 1995,
respectively. Cash outflows from investing activities during these years
resulted from the net purchase of certain marketable securities, the purchase of
furniture and equipment and expenditures related to the processing of
applications for patents. Further, the Company received net cash from investing
activities during the nine (9) months ended September 30, 1997 of $3,870,994,
primarily from the net sale of marketable securities.

Subsequent to September 30, 1997 through the date of this Prospectus, the
Company's cash flows needs have been met from loans of $450,000, including
$200,000 from an affiliate, and $500,000 as an advance payment pursuant to the
Design Agreement. The Company intends to repay approximately $680,000 in loan
obligations owing to certain non-affiliates from the proceeds of this Offering.
See "Use of Proceeds" and "Business - Design Agreement."

The Company's auditors have included an explanatory paragraph in their
Report of Independent Certified Public Accountants to the effect that
recoverability of a major portion of the Company's recorded asset amounts shown
in the Company's financial statements is dependent upon continued operations of
the Company, which in turn, is dependent upon the Company's ability to continue
to meet its financing requirements and to succeed in its future operations. See
"Financial Statements."

26
<PAGE>

BUSINESS

GENERAL

27
<PAGE>

Company's custom core products and design elements into the OEMs' customized
technologies (design services).

HISTORY OF THE COMPANY

The Company's first microprocessor, the Meta 3230, implemented high-level
computer languages, such as Fortran, C and Smalltalk, on PCs. The Company sold
over 200 computer boards containing this chip to the aerospace and defense
industries, but did not penetrate the general PC market because the Meta 3230
did not keep pace with the rapid technology change associated with such market.

In 1989 and 1990, the Company developed the Meta 3240 as a Smalltalk
processor for Apple Computer systems. Smalltalk is an object-oriented computer
language that became popular in the mid 1980's, and was used in many different
system environments. The Company completed a development contract with NCR to
demonstrate the use of this technology in its product line. However, a distinct
market for Smalltalk execution processors did not mature before advances in
technologies developed beyond the design of the Meta 3240.

By 1993, the Company had designed and developed prototype chips (i.e.
silicon encapsulated microprocessors) of the Meta 3250, which were produced by
SGS-Thomson, and the Meta 3250 A&B, that were produced by Texas Instruments.
The design of the Meta 3250 forms the foundation for the Company's current
design of the Meta 6000.

Since April, 1995, the Company has been developing the Company's
microprocessor designs in conjunction with technical assistance from SGS-Thomson
Microelectronics, Inc., an international semiconductor manufacturer (the
"Manufacturer") to research, develop and manufacture chips for the Company based
on the Company's microprocessor technology design pursuant to the terms of the
Production Agreement. See "Business - License and Production Agreement."

In November, 1997, the Company entered into the Design Agreement to provide
design services and the use of the Company's proprietary technologies and
methodologies to customers of Cadence. Cadence is a large supplier of software
tools and professional services related to silicon designs and electronics
equipment. See "Business - Design Agreement."

28
<PAGE>

INDUSTRY BACKGROUND

During the last decade, the PC industry has grown rapidly as technological
advances and increased functionality, combined with lower prices, have made PCs
valuable and affordable for business and personal use. The number of PCs sold
annually has grown from approximately 200,000 units in 1982 to approximately 100
million units in 1996. PCs comprise the largest segment of the computer
industry, with the largest portion of that segment being the x86/Pentium-TM-
equivalent market. The installed hardware base utilizing Pentium-TM- equivalent
systems is estimated to exceed 100 million units worldwide.

This large installed base of PCs, together with the popularity of
Microsoft's MS-DOS and Windows operating systems, have resulted in the creation
of a standard environment for PC hardware, software and peripherals. Hardware
manufacturers and software developers are now able to introduce and sell
products based on a set of common specifications or "industry standards" for the
PC market. The proliferation of software written for PCs has served to
reinforce and support these industry standards.

The first PC, introduced by IBM in 1981, used an 8088 microprocessor
designed by Intel. Intel subsequently developed and shipped newer generations of
microprocessors, including the 286 in 1984, the 386 in 1986, the 486 in 1989,
and the Pentium -TM- in 1993. These microprocessors, and microprocessors
developed by other companies that run the same instruction set and software, are
commonly referred to as x86 microprocessors. Improvements in semiconductor
manufacturing technology have led to continuous increases in the operating speed
of computers ("clock rates," which are measured in megahertz, abbreviated as
"MHz"). These improvements have further increased the performance and
functionality of each x86 product family, while maintaining complete hardware,
software and peripheral compatibility for commodity PC systems.

Through a series of licensing and product agreements, Intel encouraged
others to manufacture its earliest x86 microprocessors (8088, 8086 and 286),
thereby accelerating acceptance of this architecture in the marketplace. Intel
did not, however, establish alternative suppliers for the 386 or subsequent
generations of its microprocessors. For five years, Intel was the sole supplier
of 386 microprocessors, and for three years, Intel was the sole supplier of 486
microprocessors. This situation created an interest from PC manufacturers for
alternative microprocessor suppliers to provide price competition and assure
availability.

In its original x86 design, Intel's microprocessor designers chose an
architectural approach that required a large number of instruction sets and
complex hardware to perform its internal operations. This approach, referred to
as "complex instruction set computing" ("CISC"), has been used by Intel in each
subsequent generation of its x86 microprocessors. The x86 instruction set
consists of a large number of instructions of uneven length, which consequently
requires more than one clock cycle to execute.

In an effort to achieve higher performance microprocessors, workstation
designers developed an architectural approach that required a smaller number of
simplified instructions to perform their internal operations. This approach,
referred to as "reduced instruction set computing" ("RISC"), reduced both the
number of types and complexity of instructions in order to execute at the rate
of one instruction per clock cycle.

A significant barrier to entry into the PC microprocessor market is the
need for a microprocessor to run a wide range of PC software applications
without sacrificing performance. This has led to only a few manufacturers'
attempting to challenge Intel's dominance of the x86 microprocessor market by
introducing products that are compatible with x86 software. Since 1991, AMD,
Cyrix, IBM and others have introduced 386, 486 and more recently, Pentium -TM-
class microprocessors. In recent years, the non-Intel x86 microprocessors have
achieved significant market acceptance, particularly in segments of the PC
market where they provide price, performance and availability advantages.
However, due to the significant design challenges and high

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costs associated with developing microprocessors, to date, competitors have been
unable to introduce leading edge products on the same schedule as Intel.

Intel's response to this increased competition has been to continue to
introduce new microprocessors with even higher performance, including the
Pentium-Pro -TM- with MMX -TM- (multimedia extensions) technology in 1997 and
more recently, the Pentium II -TM- microprocessors, which require a complete
redesign of the computer motherboards to accommodate a new Slot-1 cartridge, as
opposed to the previous socket-7 cartridge. Intel also has employed a pricing
strategy of making frequent and significant price reductions to stimulate market
demand and encourage the migration of OEMs and end users to their latest
generation of microprocessors. Intel's new microprocessors have achieved rapid
market growth because end-users of PCs continue to demand those products with
the highest performance.

The establishment of hardware and software standards and the emergence of
numerous PC suppliers have caused the PC industry to be extremely competitive,
with short product lifecycles, limited product differentiation and substantial
price competition. To compete more effectively, many PC suppliers have evolved
from fully integrated manufacturers of proprietary system designs to resale
vendors focused on building brand recognition and distribution capabilities.
Many of these suppliers now rely on third-party manufacturers for the major
subsystems of their PCs to incorporate the latest features and performance at
low prices. Increasingly, these suppliers are also selling PC systems through
alternative distribution channels. Historically, these resale suppliers have
had periods of difficulty in obtaining adequate supplies of the highest
performance microprocessors. Consequently, they also represent a significant
source of demand for alternatives to Intel products.

PRODUCTS

META 6000. The Meta 6000 is a microprocessor in the course of being
developed based on the Company's proprietary microarchitecture. The Meta 6000
employs a superscalar structure to enhance performance and is based on RISC
performance principles to implement standard x86 instruction sets. This
advanced superscaler architecture is being designed to execute x86 programs at
higher clock rates. The superscalar structure of the Company's microprocessor
design includes the following features:

SUPERSCALER EXECUTION. Superscalar execution is a method by which the
microprocessor executes multiple instructions in parallel using
independent execution units. This technique allows microprocessors to
operate faster than the early RISC objective of one cycle per instruction.

BRANCH PREDICTION. Branch prediction is a method by which a processor
may continue to fetch instructions from the most likely execution path
without having to wait for the completion of other pending instructions.

SPECULATIVE EXECUTION. Speculative execution is an advanced
capability by which instructions fetched using branch prediction are
executed by the microprocessor before it is known whether the selected
execution path of a program will use those instructions, thereby increasing
performance. A necessary companion capability is called backout, which
enables the microprocessor to undo instruction executions if the branch
prediction was incorrect.

REGISTER RENAMING. Register renaming is an advanced technique whereby
the microprocessor physically implements more general purpose registers
than are specified in the x86 instruction set. These additional registers
are then used to relieve register usage bottlenecks which develop in
program code, thereby increasing performance.

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OUT-OF-ORDER EXECUTION. Out-of-order execution is a technique that
allows instructions to be executed in an order different from that
specified by the program in order to increase performance. The basic
technique is to allow instructions to execute as soon as the operands (i.e.
data values) for the instruction are available. In this way, an
instruction that comes later in a program instruction stream, but whose
operands are ready, can execute without waiting for an instruction that
came earlier in the instruction stream, but whose operands are not yet
available.

DATA FORWARDING. Data forwarding is a technique whereby the results
of one instruction are made available as the inputs of other instructions
without waiting for registers or memory locations to be updated and read
back, which is the case when this technique is not used.

Microprocessors are connected to the PC motherboard through metal pins. A
microprocessor is designed to have a certain "pinout," or specification of
number, orientation, and definition of specific pin functions. PC motherboards
are then designed to be able to accept the pinout of a microprocessor.
Microprocessors that have identical pinouts are said to be "pin-compatible"
because they can fit into the same slot on a motherboard.

The Meta 6000 chip is being designed to provide at least comparable
performance, in certain material respects, to similarly configured systems
based on Intel's current Pentium-TM- design utilizing: (i) socket-7, zero
insertion force ("socket-7") connectors to maintain pin-to-pin hardware
compatibility with an existing large installed hardware base of approximately
100 million PCs, and (ii) the industry standard x86 instruction sets to
maintain compatibility with an existing large installed base of software and
peripherals which have been developed for the PC. Further, the Company is
developing the Meta 6000 chip to perform at clock rates comparable to Intel's
recently introduced Pentium II-TM- chip, as opposed to the lower clock rates
of the previously introduced Pentium-TM- chip, and to provide on-chip
multimedia execution capabilities ("MMX"), such as sound, graphics and voice
compression, compatible with Intel MMX-TM-architecture at the higher clock
rate.

Intel's Pentium II-TM- has been designed to utilize a slot-1 cartridge
connector which requires the use of replacement motherboards with compatible
connector slots for hardware compatibility. This design modification differs
from the socket-7 connector utilized with the Pentium-TM-. The Company's
current objective is to design the Meta 6000 as a retrofitting or replacement
chip with socket-7 connectors, which performs at higher clock speeds than
Intel's prior generation Pentium-TM-, to owners of PCs who may desire to upgrade
their PCs by purchasing a replacement chip rather than an entire replacement
motherboard with a Pentium II-TM- chip or a new computer.

The Company estimates there are over 100 million socket-7 PCs in use today.
With the initiation of the slot-1 cartridge in Intel's newly introduced Pentium
II-TM- systems, which have higher performance levels than the Pentium-TM-
systems, the Company believes that a market may develop in socket-7 pin
compatible replacement microprocessors with performance levels comparable to
Pentium II-TM- microprocessors. However, there can be no assurances that such a
market will ever develop.

The Company has produced a tape-out of a test chip (i.e. a silicon chip
containing key elements of the microprocessor's design, but not a complete or
final production chip) for the Meta 6000 developed for manufacture with a
0.35 micron CMOS wafer fabrication process, and continues to work to develop
a tape-out of the complete Meta 6000 design using the emerging industry
standard 0.25 micron CMOS wafer fabrication process. A "tape-out" is the
delivery to a proposed manufacturer of a design of the microprocessor which
has been validated by industry standard design tools, and which thereafter
may be integrated into a silicon prototype or production chip. In order to
develop a marketable chip, the Company will need to develop a manufacturing
prototype of the Meta 6000, the performance of which must be certified by
independent industry testing organizations (i.e. XXCAL) and existing
manufacturers to demonstrate software and hardware

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compatibility with existing broad-based distributed PC products. The Company
intends to use a significant portion of the proceeds of this Offering to
continue the development of the Meta 6000.

The Company's Meta 6000 is anticipated to be manufactured by the
Manufacturer under a long-term agreement signed in April, 1995, using the
Manufacturer's 0.25 micron CMOS, 6-layer metal, 8" wafer fabrication process
and advanced package technologies. The Company believes its strategy of
using outside manufacturers will allow it to minimize its capital
requirements while focusing on design expertise. The Company also intends
to explore strategic relationships with other semiconductor manufacturers who
possess state-of-the-art production facilities and process technologies. See
"Business - License and Production Agreement."

In future implementations of the Meta 6000, the Company intends to increase
operating frequency and reduce the die size of its microprocessor.
Additionally, future implementations of the Company's microprocessors are being
targeted to include an ultra-high performance chip that supports the industry's
leading programming and applications paradigms, such as Java, which are
currently used on the Internet. However, there can be no assurances that the
Company will be able to develop and market more advanced designs of the
Company's microprocessors.

CORE MICROPROCESSORS. The Company intends to reuse portions of the
proprietary core architecture of the Meta 6000 for custom designed
microprocessors which are integrated with proprietary designs and technologies
of other customers. Management believes that this core may be integrated with
components of larger computerized systems, on a customized basis, in order to
assist other manufacturers to develop high quality, cost competitive products in
their market segments.

The Company intends to offer its technology and design services, together
with the expertise of the Company's engineers, to assist in product development,
and further, to create and service a market for custom microprocessors based on
the Company's x86 compatible core design. See "Products - Design and
Engineering Support of the Sales Process."

The Company believes that significant market opportunities exist for
suppliers other than Intel that can provide high performance core processors
with x86 software compatibility to support the installed base of software for
PCs, particularly if such suppliers can provide products that enable a
competitive advantage in cost or time to market for manufacturers in their
market segments.

LIBRARY COMPONENTS. The Company has developed a proprietary library which
contains marketable design elements for applications within other technologies.
The Company believes that these library components may be utilized by other
manufacturers as components of their own proprietary technologies.

The Company's library consists of approximately 200 proprietary individual
circuits, including iterations of each component for different applications
within given circuits. These circuits include adders, buffers, flip-flops,
inverters, latches and other proprietary macrocells based on the integration of
these circuits into larger components.

The Company has initially targeted manufacturers of programmable logic,
digital signal processors and high performance graphic accelerators as potential
markets for the application of the Company's proprietary library components.
The Company's library components are currently available for application in 0.35
micron processes, and the Company continues to develop these library components
for application in the newer 0.25 micron processes. Most of these target
manufacturers do not yet have complete 0.35 micron libraries, and even fewer
have 0.25 micron libraries.

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Management believes that the market for high performance component
libraries is growing and will continue to grow rapidly. The continuing shortage
of integrated circuit designers and the rapid, world-wide growth in new foundry
capacity has created a substantial market for high performance component
libraries. The Company expects to expand its component library by incorporating
custom circuits developed under contract with customers utilizing its
microprocessor core products. In addition, as library components are upgraded to
newer, smaller fabrication processes, the next generation library will be
established. Management believes that this strategy will enable the Company to
provide technology upgrades to customers as their needs dictate.

DESIGN AND ENGINEERING SUPPORT OF THE SALES PROCESS. During the course of
the development of the Company's microprocessor technologies, the Company
assembled a staff of approximately 40 engineers, including 28 engineers with
advanced graduate degrees (including 7 PhDs), who have technological expertise
in the design of microprocessors and related technologies. This organization
has created a resource from which to market the design and development service
capabilities of the Company to manufacturers on an independent contractor basis.
The Company also has accumulated a sophisticated design system consisting of
both proprietary industry standard and computer-aided engineering tools to
facilitate product design, simulations and compatibility testing. The Company
intends to utilize the experience and skills of its engineering staff and its
software tools and processes to design and develop high-performance,
cost-effective designs for other manufacturers.

The Company also intends to offer these design and development services in
conjunction with the marketing of its core microprocessors and design elements,
which require integration into other systems. This market plan is intended to
create additional markets for the Company's products by engineering the
integration of the Company's proprietary technologies as a component of products
or processes of other manufacturers. In November, 1997, the Company entered
into the Design Agreement to provide design services and the use of the
Company's proprietary technologies and methodologies to customers of Cadence.
See "Business - Design Agreement."

BUSINESS STRATEGY

The Company's operating strategy seeks to take advantage of a number of
emerging trends in the PC and microprocessor-based device industries, including:
(i) a focus on the fast growing high performance segments of the PC and custom
core microprocessor markets, (ii) maintaining compatibility with widely accepted
x86 based software standards, (iii) accessing the most advanced manufacturing
capabilities available by contracting with third-party manufacturers, (iv)
providing complete hardware compatibility to allow for universal product
application, and (v) utilizing advanced automated design technologies to lower
the cost of design and accelerate the time to market for future versions of its
products and products of its customers.

DEVELOP PRODUCTS AND PROVIDE DESIGN SERVICES FOR THE HIGH PERFORMANCE
SEGMENTS OF THE MICROPROCESSOR MARKET. The Company is developing advanced x86
microprocessors, which are not currently available to market, and libraries,
macros and cores for the high performance segments of the PC and custom core
markets. These segments of the market have grown rapidly as more advanced
software applications are introduced by others and end-users continue to demand
increasingly faster systems.

The Company intends to reuse portions of the proprietary core architecture
of the Company's microprocessors for custom design microprocessors which are
integrated with proprietary designs and technologies of others. The Company
also has developed a proprietary library which contains marketable design
elements for applications within other technologies. The Company also intends
to offer the design tools and services of its engineering staff in conjunction
with the marketing of its core microprocessors and design elements to assist
customers in integrating the Company's proprietary technologies and
methodologies into their products. See "Business - Design Agreement."

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In late 1996, microprocessors with on-chip, multimedia instruction
execution capabilities were introduced by others. The Company expects the
continuing introduction of software applications by others that will optimize
the features of the multimedia-enabled chips. As these introductions occur, the
demand for high performance multimedia enabled devices is expected to increase.

MAINTAIN COMPATIBILITY WITH PC INDUSTRY STANDARDS. The Company's intends
to develop microprocessors and related technologies that are compatible with
existing PC industry standards. The Company's proprietary microarchitecture is
being designed to maintain compatibility with PC software, hardware and
peripherals. The Meta 6000 custom core and selected design elements are being
developed to be hardware compatible with existing PC standards, such as socket-7
connectors.

ESTABLISH STRATEGIC MANUFACTURING RELATIONSHIPS. The Company has
established a strategic relationship with the Manufacturer, which possesses
state-of-the-art production facilities and process technologies. The Company
believes this strategy allows it to minimize its capital requirements while
focusing on its design expertise. The Company intends to negotiate with
additional manufacturers to obtain multiple sources for its microprocessors and
related system products. See "Business - License and Production Agreement."

DEVELOP FUTURE PRODUCTS UTILIZING ADVANCED AUTOMATED DESIGN TECHNOLOGIES.
The Company is currently developing and plans to introduce future generations of
x86 processors. The Company has developed a sophisticated design database and
software engineering process which it believes will enable it to develop higher
performance, lower power consumption versions of the Meta 6000, as well as
future generations of microprocessors. The core architecture of the Meta 6000
enables the Company's engineers to develop and enhance design elements of the
processor individually. The Company believes that the modular nature of its
microprocessor architecture will result in lower cost of design and accelerated
time to market for future versions of its products, such as the custom core and
derivative design elements, due to the reusability of its modular components.

LICENSE AND PRODUCTION AGREEMENT

In April, 1995, the Company entered into a License and Production Agreement
(the "Production Agreement") with the Manufacturer, which initially provided for
the development by the Company, together with the Manufacturer, of the Meta 6000
and certain related technologies. The Manufacturer has cross-licensed United
States patent portfolios with Intel, thereby providing legal protection for the
Company to develop, manufacture and distribute x86 compatible microprocessors.
Pursuant to the Production Agreement, the Manufacturer has provided to the
Company: (i) development funding in the amount of $1,200,000, (ii) technical
assistance from personnel employed by the Manufacturer, and (iii) the use of
certain specialized capital equipment and software owned by the Manufacturer for
the development of the Meta 6000. In addition, at various stages in the
development process of the Meta 6000, the Manufacturer has provided prototyping
for the Meta 6000 (i.e. design rules, manufacturing assistance and prototype
silicon wafers) to the Company.

The Company and the Manufacturer currently have agreed that the
Manufacturer will be under no further obligation to make payments, provide
personnel of the Manufacturer or to acquire or make available capital equipment
to the Company with respect to the continued development of the Meta 6000, and
that the Meta 6000 will be designed exclusively by the Company. The
Manufacturer has agreed to provide the Company with certain access to specific
technologies of the Manufacturer relating to the Manufacturer's manufacturing
processes and certain testing equipment, and to provide specific quantities of
test chips in connection with the Company's continued development of the Meta
6000.

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Based on the reduction of the commitment of the Manufacturer's capital and
technological resources in connection with the development of the Meta 6000, the
Company will be required to utilize primarily its own resources to continue
development of the Meta 6000. There can be no assurance that the proceeds of
this Offering will be sufficient to complete development of the Meta 6000 or
that the Company will be able to obtain additional financing or technological
assistance from other parties to be able to complete the development of the Meta
6000.

Pursuant to the terms of the Production Agreement, the Company has granted
to the Manufacturer a perpetual, royalty-bearing, exclusive worldwide license to
make, use or sell the Meta 6000 chip and a perpetual, nonexclusive worldwide
license to use certain of the Company's proprietary technologies to use the Meta
6000 to make, use or sell products designed by the Manufacturer derived from the
Meta 6000 or elements thereof. The Manufacturer has agreed to pay certain
royalties to the Company from sales (net of taxes, returns, insurance and
freight) of Meta 6000 chips and other related products and has granted back to
the Company certain rights to manufacture and sell chips under the Company's own
brand name. No assurance can be given that even if the Company's Meta 6000 chip
is developed to the point of being ready for manufacture and sale, that the
Manufacturer will be both willing and able to exploit such chip in the market,
or that the Company will be able to generate revenues from the marketing of the
chip.

Under the Production Agreement, the Manufacturer has granted back to the
Company a license to make, use or sell the Meta 6000. Such right does not
permit the Company to sublicense or to contract with other foundries to
manufacture the Meta 6000, except under certain limited circumstances. Thus, to
the extent that the Company wishes to sell the Meta 6000, the Company will
effectively depend on the timely and adequate production of Meta 6000 chips by
the Manufacturer for inventory, on terms to be negotiated between the Company
and the Manufacturer. The Production Agreement provides that if the Manufacturer
is unable or unwilling to provide the Company with adequate amounts of Meta 6000
chips, the Manufacturer has agreed to permit, under certain conditions, the
Company to contract with other manufacturers to produce Meta 6000 chips bearing
the Company's own brand name, but will not permit the Company to license other
manufacturers to produce Meta 6000 chips under such other manufacturers' own
name. No assurance can be given that the Company will be able to contract with
other manufacturers to manufacture chips and to market such chips under such
circumstances. As a consequence, the sale by the Company of Meta 6000 chips
manufactured by other manufacturers, except as a result of the Manufacturer's
being unwilling or unable to provide adequate inventory, will reduce the
Company's right to receive royalties on sales of such products by the
Manufacturer, on a unit for unit basis.

DESIGN AGREEMENT

In November, 1997, the Company entered into the Design Agreement with
Cadence, pursuant to which the Company has agreed to provide design services and
the use of the Company's proprietary technologies and methodologies to Cadence's
customers. Cadence has agreed to pay the Company an advance prepayment of
$1,000,000 in connection with design services to be provided by the Company or
non-exclusive licenses which may granted by the Company to use certain design
elements of the Company's proprietary library. The Company has received
$500,000 of this prepayment from Cadence as of the date of this Prospectus.

SALES, MARKETING AND DISTRIBUTION

The Company's primary marketing and sales objective is to achieve revenue
by developing a diversified customer base for its technology. The Company
intends to customize its x86 microprocessor core for various applications and to
offer its library of design elements derived from the development of the Meta
6000. The Company also intends to offer the design tools and services of its
engineering staff in conjunction with the marketing of its core microprocessors
and design elements to assist customers in integrating the Company's proprietary
technologies and methodologies into their products. The Company also intends to
market the Meta 6000 chip as a retrofit to PCs utilizing Pentium-TM- chips with
socket-7 connectors.

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Because the Company does not currently have a marketable microprocessor,
the Company has targeted its initial marketing efforts on selling its existing
library of design elements to various technology vendors in order to gain market
penetration and name recognition for the Company.

The Company will require substantial efforts and the expenditure of
significant funds to establish market acceptance and name recognition of the
Company and its proposed products and technologies in the high technology
industry and among end users, OEMs and value added resellers. The Company
intends to use a portion of the proceeds of this Offering to continue
development of its marketing program relating to the Company's proposed
products.

The Company does not currently contemplate that it will directly have the
ability to manufacture any of its products for the foreseeable future, but
instead intends to commercialize its products and their related technology
through direct licensing arrangements with third party manufacturers. However,
the Company may, if the opportunity arises, enter into joint ventures or
strategic alliances with other parties engaged in the marketing or manufacture
of computer systems or computer components. The Company believes that this
strategy will allow it to avoid many of the significant capital costs ordinarily
associated with the manufacturing of computer products.

The Company's target markets for its products range from owners of existing
PCs that are suitable for upgrade to large companies that may integrate the
Company's proprietary designs into their specific product applications. The PC
and PC products marketplace is characterized by a very high degree of
standardization, allowing an equally high degree of compatibility of
sub-assembly products within different PC applications. The Company's goal is
to create such compatible microprocessor designs to provide custom solutions for
various x86 market segments.

Presently, the Company's management and a marketing consultant serve as
interfaces with potential customers, pursuing discussions of product orders and
various strategic relationships. However, as the Company furthers development
of the Meta 6000 and its related technologies, the Company intends to develop a
larger sales organization.

The Company intends to use a portion of the proceeds of this Offering to
hire a director of sales, a field applications engineer and two additional sales
personnel. This initial sales organization will be responsible for identifying,
evaluating and engaging sales representative organizations throughout strategic
metropolitan areas of the United States. The primary function of the Company's
representatives will be to sell products to a specific industry or market. The
representatives selected by the Company will need to be well-versed in their
market and the territory they will be covering, know the individual employees of
the customer and be aware of the requirements for selling to that specific
organization. The Company intends to expand this sales organization by
establishing regional sales offices and franchised distributors, as the volume
of sales of products may justify. See "Use of Proceeds."

The Company intends to establish additional marketing and sales programs to
generate sales of its standard chips, microprocessor core products and design
elements, as they are developed. The Company intends to establish a network of
independent sales representatives to reach large volume purchasers and a larger
direct sales organization to target OEM accounts.

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COMPETITION

The market for the Company's proposed products is extremely competitive.
The Company directly and indirectly competes with other businesses, including
businesses in the computer microprocessor industry. In many cases, these
competitors are substantially larger and more firmly established than the
Company. In addition, many of such competitors have greater marketing and
development budgets and substantially greater capital resources than the
Company. Accordingly, there can be no assurance that the Company will be able to
achieve and maintain a competitive position in the Company's industry. Further,
in order to compete effectively in the market for high performance x86
microprocessors and related technology, the Company must develop and introduce
on a timely basis competitive products that embody new technology, meet evolving
industry standards, and achieve competitive levels of performance at prices
acceptable to the market. In particular, the market for microprocessor products
has been and continues to be characterized by intense and increasing price
competition, even for the most advanced microprocessor products. Intel has
increasingly made more frequent and more significant price reductions to
stimulate market demand for its Pentium-TM- and advanced generation
microprocessors and encourage migration of OEMs and end users to its latest
generation of processors.

The Company's competitors in the market for x86 microprocessors include
Intel, Advanced Micro Devices, Inc. ("AMD"), and National Semiconductor (which
recently acquired Cyrix) and others with substantially greater resources in
technology, finance, manufacturing, sales, marketing, distribution, customer
service and support, as well as greater experience and name recognition, than
the Company. Intel, in particular, has long had a dominant position in the
market for microprocessors used in PCs. Intel's dominant market position has,
to date, allowed it to set standards and thus dictate the type of product the
market requires of Intel's competitors. The Company believes that the Meta 6000
will need to be competitive primarily with Intel Pentium-TM-. It is expected
that Intel will introduce faster versions of the Pentium-TM- and advanced
generation microprocessors and that other companies will continue to develop
competitive technologies. Intel has announced the architecture and technology of
its next generation microprocessor. AMD has announced that it has begun the
shipment of its sixth generation product and Cyrix has announced it intends to
begin shipping its new microprocessor product. The Company expects substantial
direct competition, both from existing competitors and from new market entrants.

Further, larger and more established competitors may seek to impede the
Company's ability to establish a market share for any products which may be
developed by the Company through competitive pricing activities. Intel
recently announced that it will market inventories of prior generation
Pentium-TM- microprocessors at discounted prices. Also, prospective customers
for the Company's products may be reluctant to disrupt relationships with
well-established distributors of products which may be comparable in quality
or pricing to any of the Company's products.

Further, the Company's competitors spend substantial sums on research and
development, manufacturing facilities, and intensive advertising campaigns
designed to engender brand loyalty among PC end-users in order to maintain their
respective market positions. The Company does not have comparable resources
with which to invest in research and development and advertising and is at a
competitive disadvantage with respect to its ability to develop products. The
Company may also encounter difficulties in customer acceptance because it is
likely to be perceived as a new processor supplier whose identity is not yet
well known and whose reputation and commercial longevity are not yet
established. Substantial marketing and promotional costs, possibly in excess of
what the Company can afford, may be required to overcome barriers to customer
acceptance. There can be no assurance that the Company will be able to overcome
such barriers. The failure to gain customer acceptance of the Meta 6000 and
related technology would have a material adverse effect on the Company. So long
as Intel remains in this dominant position, its product introduction schedule
and product pricing will materially, and at times adversely, affect the
Company's business and financial condition.

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PATENTS AND TRADEMARKS

The Company regards its technological processes and product designs as
proprietary and seeks to protect its rights in them through a combination of
patents, internal procedures and non-disclosure agreements. The Company also
utilizes licenses from third parties for processes and designs used by the
Company which are proprietary to other parties. The Company believes that its
success will depend in part on the protection of its proprietary information and
patents, and the licenses of technologies from third parties.

The Company has been issued a United States patent (No. 5,574,927) which
relates to the proprietary microarchitecture for the Company's core
microprocessor technology.

There can be no assurances as to the range or degree of protection any
patent or registration which may be owned or licensed by the Company will
afford, that such patents or registrations will provide any competitive
advantages for the Company, or that others will not obtain patents or
registrations similar to any patents or registrations owned or licensed by the
Company. There can be no assurances that any patents or registrations owned or
licensed by the Company will not be challenged by third parties, invalidated,
rendered unenforceable or designed around, or that the Company's competitors
will not independently develop technologies which are substantially equivalent
or superior to the technologies owned or licensed by the Company and which do
not infringe patents or proprietary rights of the Company. Further, there can
be no assurances that any pending patent or registration applications or future
applications will result in the issuance of a patent or registration. There can
be no assurances that the Company or any licensor to the Company will be
successful in protecting its proprietary rights. No assurances can be given
that the technology owned or licensed by the Company will not infringe on
patents or proprietary rights of others, or that the Company can obtain or renew
licenses to use such proprietary rights, if necessary.

To the extent that the Company relies upon trade secrets and unpatented
know-how, and the development of new products and improvements of existing
products in establishing and maintaining a competitive advantage in the market
for the Company's products and services, there can be no assurances that such
proprietary technology will remain a trade secret or be available to the
Company, or that others will not develop substantially equivalent or superior
technologies to compete with the Company's products and services.

Any asserted claims or litigation to determine the validity of any third
party infringement claims could result in significant expense to the Company or
any licensor of such technology and divert the efforts of the Company's
technical and management personnel, whether or not such litigation is resolved
in favor of the Company or any such licensor. In the event of an adverse result
in any such litigation, the Company or any such licensor could be required to
expend significant time and resources to develop non-infringing technology or to
obtain licenses to the disputed technology from third parties. There can be no
assurances that the Company or any such licensor would be successful in such
development or that any such licenses would be available to the Company on
commercially reasonably terms, if at all.

EMPLOYEES

As of November 30, 1997, the Company had approximately 44 full-time
employees, including 29 employees in the Company's Texas design center and 15 in
the Company's California corporate offices. These employees include technical,
administrative and clerical personnel. The Company also has engaged 17
consultants to perform services as independent contractors related to the
Company's business operations. The Company intends to hire additional personnel
as the development of the Company's business makes such action appropriate. The
loss of the services of such key employees as George W. Smith and Lee W. Hoevel
could have a material adverse effect on the Company's business. Since there is
intense competition for qualified personnel knowledgeable of the Company's
industry, no assurances can be given that the Company will be successful in
retaining and recruiting needed personnel. See "Management - Key Person
Insurance Policies."

38
<PAGE>

The Company's employees are not represented by a labor union or covered by
a collective bargaining agreement, and the Company believes it has good
relations with its employees. The Company provides its employees with certain
benefits, including health insurance.

PROPERTIES

The Company leases an approximately 7,955 square foot facility located at
100 North Sepulveda Boulevard, Suite 601, El Segundo, California from an
unaffiliated third party. This facility serves as the Company's executive
headquarters and as a research and development facility. The Company pays
$8,353 per month on a lease which expires in May, 2001. The Company also
currently leases an approximately 8,205 square foot facility located at 7718
Woodhollow Drive, Suite 1150, Austin, Texas from an unaffiliated third party.
This facility serves as a research and development facility. The Company pays
$9,723 per month on this lease which expires in February, 1999.

LITIGATION

The Company knows of no material legal actions, pending or threatened, or
judgments entered against the Company or any officer or director of the Company
in his capacity as such.

39
<PAGE>

MANAGEMENT

The Company's Restated Certificate of Incorporation provides that at the
first annual meeting of the Company's stockholders after the authorized number
of directors is six (6) or more, the Board of Directors shall be divided into
three (3) classes with staggered terms, Class I, Class II and Class III. As the
Company's Bylaws provide that the authorized number of directors shall be not
less than three (3) members and not more than eleven (11) members, the Board of
Directors has been divided into the three (3) classes.

The Company currently has seven (7) directors who serve staggered terms, as
follows: (i) CLASS I - two (2) directors serve for one-year terms; (ii) CLASS II
- - two (2) directors serve for two-year terms; and (iii) CLASS III - three (3)
directors serve for three-year terms, or, in each case, until a successor has
been duly elected and qualified.

The Board of Directors met five (5) times during the year ended December
31, 1996. All directors standing for reelection attended 100% of the meetings
of the Board, except for Frank LaChapelle and Masahiro Tsuchiya, who attended
three (3) and four (4) meetings, respectively.

Officers serve at the discretion of the Board of Directors. There are no
family relationships among any of the Company's directors and executive
officers.

NAME POSITION AGE
---- -------- ---
<S> <C> <C>
CLASS I (ONE-YEAR TERM)

George W. Smith Director, Chief Executive Officer 58
and Chief Financial Officer (acting)

Sigmund Hartmann Director 68

CLASS II (TWO-YEAR TERM)

Frank LaChapelle Director 55

Philip Neches Director 45

CLASS III (THREE-YEAR TERM)

Martin S. Albert Chairman of the Board of Directors 64

Lee W. Hoevel Director, President and Secretary 47

Masahiro Tsuchiya Director 47

</TABLE>

40
<PAGE>

GEORGE W. SMITH, Director and Chief Executive Officer, has served the
Company in these offices since election by the shareholders in December, 1988.
He has served as the Company's acting Chief Financial Officer since April 3,
1997. Prior to December, 1988, he founded the entity which entered into a
reorganization agreement with the Company on December 31, 1988, and served as
its President and Chief Executive Officer and Director from its inception in
December 1985 until December 31, 1988. From October, 1967 to August, 1985, he
was employed by the Aerospace Corporation, where his positions included
Principal Director for DOD Space Shuttle Operations and Systems Director for
Development and Operations of several classified Air Force programs. While
employed by the Aerospace Corporation, he managed programs with budgets
exceeding $300 million. He has an extensive background in managing the design,
development and manufacturing of complex high-tech products. His awards include
the Trustees' Distinguished Achievement Award granted by the Aerospace
Corporation in recognition of his technical leadership and management and the
Air Force Outstanding Service Award. He received a Bachelor of Science degree
in electrical engineering from the University of Nevada and has performed
graduate work at U.C.L.A.

SIGMUND HARTMANN has served as a Director since August, 1995. He has
previously held the positions of Vice President and Assistant General Manager of
TRW Incorporated, President, Software Division of Commodore Business Machines,
and President of Software of Atari Corporation. At Commodore, Mr. Hartmann
directed the company from a $300 million, low end computer business to a $1.2
billion systems company. At Atari, he reversed the fortunes of that entity from
losing $500 million a year to a profitable operation. Mr. Hartmann currently
serves as a consultant to the Company. See "Certain Relationships and Related
Transactions."

FRANK LACHAPELLE has served as a Director since September, 1993. He is a
founder of Interscience Computer Corporation and has served as the Chairman of
the Board since its formation in 1983. Mr. LaChapelle served as President of
Interscience Computer Corporation from 1983 until January, 1991, and has served
as Chief Executive Officer since September, 1991. Interscience Computer
Corporation filed for protection under Chapter 11 of the U.S. Bankruptcy Act on
March 6, 1997.

PHILIP NECHES has served as a Director since November, 1996. He has
previously held positions as Founder, Chief Scientist and Vice President,
Teradata Corporation, Sr. Vice President and Chief Scientist, NCR Corporation
and Vice President and Group Technical Officer, Multimedia Products and
Services, AT&T Corporation. At present, Dr. Neches is an outside consultant and
investor in several companies. Dr. Neches holds a Bachelor of Science degree
(with honors) from the California Institute of Technology, a Masters Degree in
Engineering Science from the California Institute of Technology and a Ph.D. in
Computer Science from the California Institute of Technology.

MARTIN S. ALBERT has served as a Director since March, 1996, and as
Chairman of the Board of Directors since August 1, 1997. He is the President
and Chief Executive Officer of Dolphin Interconnect Solutions, Inc. ("Dolphin"),
a stockholder of Amerscan, A.S., Dolphin's largest stockholder, and has been a
director of Dolphin since its incorporation. He is a director of Paragon
Capital Management LLC, the sole general partner of Paragon Limited Partnership,
a principal stockholder of the Company. He is also a director and Deputy
Chairman of Amerscan Capital Management, Ltd., the general partner and
investment advisor of Amerscan Partners III, Limited Partnership. He is also a
director of Scada, Inc. Mr. Albert has a bachelor's degree in Physics from the
City College of New York and carried out post graduate studies in Philosophy of
Science and Business at the University of California, Los Angeles and Columbia
University. He has previously been involved in corporate investment and
consultancy work and has served as a director of numerous companies,
particularly being involved with a number of small-to medium sized technology
companies seeking funding to expand their strategic and operational
capabilities. He has also been involved in developing and managing disk-drive
test and development systems companies and other companies involved in computer
disk and tape technologies. Mr. Albert has led several high technology
companies through their

41
<PAGE>

original public offerings and oversaw their future acquisition by substantially
larger firms. See "Certain Relationships and Related Transactions."

LEE W. HOEVEL has served as President since February, 1997 and Director and
Secretary since April, 1997. He received his undergraduate degrees in
mathematics and economics at Rice University. He received graduate degrees in
electrical engineering and computer science at Johns Hopkins University. Dr.
Hoevel's career spans nearly twenty years of technology development and
executive management. During his tenure at AT&T/NCR, he held numerous positions
of increased responsibility including director of Advanced Architecture, chief
architect for Workstation Products Division, vice president for Research and
Development Division, and chief technical officer for AT&T Global Information
Solutions. Dr. Hoevel holds seven U.S. Patents in technology design and is the
author of 39 technical papers.

MASAHIRO TSUCHIYA has served as a Director since August, 1992. He received
his Ph.D. degree in computer sciences from the University of Texas at Austin.
Currently he is president of Sypex International Company, based in the U.S. and
Japan. As founder and president of Sypex, he has served as consultant to
several startup and major corporations in the U.S., Japan and Korea on high
technology product development and marketing plans. From 1980 to 1988, he
worked on systems engineering of several major U.S. missile and space defense
programs at TRW Defense Systems Group, Redondo Beach, California. His academic
career includes a research associate at the University of California, Berkeley
in 1991, and an adjunct professor of computer science at the University of
Southern California, Los Angeles, in 1986. From 1973 to 1979, he was an
associate professor at the University of Hawaii at Manoa, Honolulu, an assistant
professor at the University of California, Irvine, and at Northwestern
University, Evanston, Illinois. In 1975, he was a visiting computer scientist
for research in computer architecture at Arhus University, Arhus, Denmark, and
in 1972, he was a visiting lecturer at Konan University, Japan.

42
<PAGE>

COMPENSATION OF
EXECUTIVE OFFICERS AND DIRECTORS

SUMMARY COMPENSATION TABLE

The following table sets forth certain information concerning compensation
of certain of the Company's executive officers, including the Company's Chief
Executive Officer and all executive officers (the "Named Executive") whose total
annual salary and bonus exceeded $100,000, for the years ended December 31,
1996, 1995 and 1994:

<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------------------------ -------------------------------------
Awards Payouts
- --------------------------------------------------------------------------------------------------------------------------
Name and Restricted Securities
principal Other annual stock underlying LTIP All other
position Year Salary Bonus compensation award(s) Options/SARs payouts compensation
($) ($) (#) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------- -------------------------------------------------------------
George W. 1996 $160,000 0 0 0 0 0 0
Smith, CEO 1995 $130,000 0 0 0 0 0 0
1994 $130,000 0 0 0 0 0 0

</TABLE>
- -----------------------------------------

OPTION EXERCISES AND YEAR-END VALUES

The following table sets forth information with respect to the exercised
and unexercised options to purchase shares of Common Stock for each of the Named
Executives held by them at December 31, 1996:

Value of Unexercised
Shares Number of Unexercised In the Money
Acquired Value Options at Options at
on Exercise Realized(1) December 31, 1996 December 31, 1996(2)
----------- ----------- ----------------- ----------------------
NAME Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
George A. Smith 298,077 $593,173 1,160,000 0 $995,200 0

</TABLE>
- ------------------

(1) Represents an amount equal to the number of options multiplied by the
difference between the average of the closing bid and asked prices for the
Common Stock in the Over-the-Counter Market on the date of exercise, June
24, 1996 ($2.00 per share) and any lesser exercise price.

(2) Represents an amount equal to the number of options multiplied by the
difference between the average of the closing bid and asked prices for the
Common Stock in the Over-the Counter Market on December 31, 1996 ($1.22 per
share) and any lesser exercise price.

43
<PAGE>

EMPLOYMENT AGREEMENTS

As of February 3, 1997, the Company entered into a three (3) year
employment agreement with Dr. Lee W. Hoevel, the Company's President, pursuant
to which the Company agreed to pay Dr. Hoevel an annual base salary of $130,000,
plus other benefits. The Company granted options to Dr. Hoevel to purchase up
to 600,000 shares of Common Stock, 300,000 options of which are the subject of a
registration statement, at an exercise price of $1.29 per share. The options
vest at the rate of 200,000 options per year on each of the three (3)
anniversaries following the date of the employment agreement. Further, the
Company has agreed to issue up to an additional 50,000 shares of Common Stock
and to grant options to purchase up to 50,000 shares of Common Stock based on
the achievement of certain events related to the development of the Company's
Meta 6000 microprocessor chip. The exercise price of the 50,000 options will be
based on the market price of the Company's Common Stock on the grant date of the
options. The vesting of these options may be accelerated in the event of a
change of control of the Company.

In the event that the Company terminates Dr. Hoevel without cause or Dr.
Hoevel resigns under circumstances designated as a "forced resignation," Dr.
Hoevel will be entitled to receive his salary for a period of six (6) months
from the effective date of his termination of employment, and further, under
such circumstances or in the event of his death or disability, will be entitled
to receive options to purchase up to 16,667 shares of Common Stock for each full
month of his prior employment and an additional 100,000 options representing the
accelerated vesting of options for the six (6) month period following the
termination of the employment agreement.

STOCK OPTION PLANS

The Company has adopted three (3) stock option plans (collectively, the
"Stock Option Plans") for officers, directors, key employees and certain
consultants of the Company and its subsidiaries.

1996 STOCK OPTION PLAN. In 1996, the Company and its stockholders adopted
the Company's 1996 Stock Option Plan (the "1996 Plan").

The Company has reserved for issuance thereunder an aggregate of 4,500,000
shares of Common Stock, none of which have been exercised. All of the shares
which are reserved under the 1996 Plan are the subject of a currently effective
registration statement. The Company has granted options to purchase up to
847,000 shares of Common Stock under the 1996 Plan which are currently
unexercised. Of the 847,000 options granted, no options have vested, and the
remaining 847,000 options may vest subject to certain schedules. The Board of
Directors has approved a provision in the 1996 Plan which places a 500,000 share
limit on the number of options that may be granted under the 1996 Plan to an
employee in each fiscal year.

A description of the 1996 Plan is set forth below. The description is
intended to be a summary of the material provisions of the 1996 Plan and does
not purport to be complete.

ADMINISTRATION OF AND ELIGIBILITY UNDER 1996 PLAN. The 1996 Plan, as
adopted, provides for the issuance of options to purchase shares of Common Stock
to officers, directors, employees, independent contractors and consultants of
the Company and its subsidiaries as an incentive to remain in the employ of or
to provide services to the Company and its subsidiaries. The 1996 Plan
authorizes the issuance of incentive stock options ("ISOs"), non-qualified stock
options ("NSOs") and stock appreciation rights ("SARs") to be granted by a
committee (the "Committee") to be established by the Board of Directors to
administer the 1996 Plan.

44
<PAGE>

Subject to the terms and conditions of the 1996 Plan, the Committee will
have the sole authority to determine: (a) the persons ("optionees") to whom
options to purchase shares of Common Stock and SARs will be granted, (b) the
number of options and SARs to be granted to each such optionee, (c) the price to
be paid for each share of Common Stock upon the exercise of each option, (d) the
period within which each option and SAR will be exercised and any extensions
thereof, and (e) the terms and conditions of each such stock option agreement
and SAR agreement which may be entered into between the Company and any such
optionee.

All officers, directors and employees of the Company and its subsidiaries
and certain consultants and other persons providing significant services to the
Company and its subsidiaries will be eligible to receive grants of options and
SARs under the 1996 Plan. However, only employees of the Company and its
subsidiaries are eligible to be granted ISOs.

STOCK OPTION AGREEMENTS. All options granted under the 1996 Plan will
be evidenced by an option agreement or SAR agreement between the Company and the
optionee receiving such option or SAR. Provisions of such agreements entered
into under the 1996 Plan need not be identical and may include any term or
condition which is not inconsistent with the 1996 Plan and which the Committee
deems appropriate for inclusion.

INCENTIVE STOCK OPTIONS. Except for ISOs granted to stockholders
possessing more than ten percent (10%) of the total combined voting power of all
classes of the securities of the Company or its subsidiaries to whom such
ownership is attributed on the date of grant ("Ten Percent Stockholders"), the
exercise price of each ISO must be at least 100% of the fair market value of the
Company's Common Stock as determined on the date of grant. ISOs granted to Ten
Percent Stockholders must be at an exercise price of not less than 110% of such
fair market value.

Each ISO must be exercised, if at all, within ten (10) years from the date
of grant, but, within five (5) years of the date of grant in the case of ISO's
granted to Ten Percent Stockholders.

An optionee of an ISO may not exercise an ISO granted under the 1996 Plan
so long as such person holds a previously granted and unexercised ISO.

The aggregate fair market value (determined as of time of the grant of the
ISO) of the Common Stock with respect to which the ISOs are exercisable for the
first time by the optionee during any calendar year shall not exceed $100,000.

As of the date of this Prospectus, ISOs have been granted under the 1996
Plan to purchase up to 77,519 shares of Common Stock, at an exercise price of
$1.29 per share, subject to certain vesting schedules.

NON-QUALIFIED STOCK OPTIONS. The exercise price of each NSO will be
determined by the Committee on the date of grant. However, the exercise price
for the NSOs under the 1996 Plan will in no event be less than 100% of the fair
market value of the Common Stock on the date the option is granted, or not less
than 110% of the fair market value of the Common Stock on the date such option
is granted in the case of an option granted to a Ten Percent Stockholder.

The exercise period for each NSO will be determined by the Committee at the
time such option is granted, but in no event will such exercise period exceed
ten (10) years from the date of grant.

As of the date of this Prospectus, NSOs have been granted under the 1996
Plan to purchase up to 769,481 shares of Common Stock, subject to certain
vesting schedules. These options have per share exercise prices which range
from $0.72 to $1.47.

45
<PAGE>

STOCK APPRECIATION RIGHTS. Each SAR granted under the 1996 Plan will
entitle the holder thereof, upon the exercise of the SAR, to receive from the
Company, in exchange therefor, an amount equal in value to the excess of the
fair market value of the Common Stock on the date of exercise of one share of
Common Stock over its fair market value on the date of grant (or in the case of
an SAR granted in connection with an option, the excess of the fair market of
one share of Common Stock at the time of exercise over the option exercise price
per share under the option to which the SAR relates), multiplied by the number
of shares of Common Stock covered by the SAR or the option, or portion thereof,
that is surrendered.

SARs will be exercisable only at the time or times established by the
Committee. If an SAR is granted in connection with an option, the SAR will be
exercisable only to the extent and on the same conditions that the related
option could be exercised. The Committee may withdraw any SAR granted under the
1996 Plan at any time and may impose any conditions upon the exercise of an SAR
or adopt rules and regulations from time to time affecting the rights of holders
of SARs.

As of the date of this Prospectus, no SARs have been granted under the 1996
Plan.

TERMINATION OF OPTION AND TRANSFERABILITY. In general, any unexpired
options and SARs granted under the 1996 Plan will terminate: (a) in the event of
death or disability, pursuant to the terms of the option agreement or SAR
agreement, but not less than six (6) months or more than twelve (12) months
after the applicable date of such event, (b) in the event of retirement,
pursuant to the terms of the option agreement or SAR agreement, but no less that
thirty (30) days or more than three (3) months after such retirement date, or
(c) in the event of termination of such person other than for death, disability
or retirement, until thirty (30) days after the date of such termination.
However, the Committee may in its sole discretion accelerate the exercisability
of any or all options or SARs upon termination of employment or cessation of
services.

The options and SARs granted under the 1996 Plan generally will be
non-transferable, except by will or the laws of descent and distribution.

ADJUSTMENTS RESULTING FROM CHANGES IN CAPITALIZATION. The number of
shares of Common Stock reserved under the 1996 Plan and the number and price of
shares of Common Stock covered by each outstanding option or SAR under the 1996
Plan will be proportionately adjusted by the Committee for any increase or
decrease in the number of issued and outstanding shares of Common Stock
resulting from any stock dividends, split-ups, consolidations,
recapitalizations, reorganizations or like event.

AMENDMENT OR DISCONTINUANCE OF 1996 PLAN. The Board of Directors has
the right to amend, suspend or terminate the 1996 Plan at any time. Unless
sooner terminated by the Board of Directors, the 1996 Plan will terminate on
July 10, 2006, the tenth (10th) anniversary date of the effectiveness of 1996
Plan.

1993 STOCK OPTION PLANS. In 1993, the Company adopted two stock option
plans, an Incentive Stock Option Plan ("ISOP") and a Nonqualified Stock Option
Plan ("NSOP") (collectively, the "1993 Plans"). The 1993 Plans are for
officers, directors, key employees and certain consultants of the Company and
its subsidiaries.

The Company has reserved for issuance thereunder an aggregate of 4,500,000
shares of Common Stock, 911,500 of which have been exercised. All of the shares
which are reserved under the 1993 Plans are the subject of a currently effective
registration statement. The Company has granted options to purchase up to
2,409,323 shares of Common Stock under the 1993 Plans which are currently
unexercised. Of the 2,409,323 options granted, 1,057,167 have vested, and the
remaining 1,352,156 options may vest subject to certain schedules.

A description of the 1993 Plans is set forth below. The description is
intended to a summary of the material provisions of the 1993 Plans and does not
purport to be complete.

46
<PAGE>

INCENTIVE STOCK OPTION PLAN Under the ISOP, the Board of Directors is
authorized to grant options to purchase up to 500,000 shares of Common Stock to
officers, directors and key employees of the Company. The Board of Directors
administers the ISOP and designates the optionees and the number of shares
subject to the options.

Except for options granted to certain Ten Percent (10%) Stockholders, as
hereinafter defined, the exercise price of the option must be at least one
hundred percent (100%) of the fair market value of the Company's Common Stock as
determined on the date of grant. Options granted to stockholders possessing
more than ten percent (10%) of the combined voting power of all classes of the
Company's Common Stock or to persons to whom such ownership is attributed on the
effective date of the grant ("Ten Percent (10%) Stockholders") must be at an
exercise price of not less than 110% of such fair market value. Each option
granted under the ISOP must be exercised, if at all, within nine (9) years and
eleven (11) months from the date of grant with respect to optionees, but within
four (4) years and eleven (11) months from the date of grant with respect to 10%
Stockholders, and becomes exercisable commencing one year after the date of
grant of the option. An optionee may not exercise an option granted under the
ISOP so long as such optionee holds a previously granted and unexercised
incentive stock option. In the event of termination of employment, the
optionee's option must be exercised within thirty (30) days of termination,
unless extended by the Board of Directors, (one year in the event termination is
caused by death or permanent and total disability) to the extent the option is
otherwise exercisable. The Board of Directors shall have the ability to set the
terms for granting future options with the only proviso being that the price of
the option on the date it is granted be equal to the then fair market value of
the Company's Common Stock as determined by the Board of Directors. As of the
date of this Prospectus, the Company has granted options to purchase up to
40,000 shares of Common Stock an at exercise price of $1.00 per share, 8,000 of
which are currently exercisable.

NONQUALIFIED STOCK OPTION PLAN. The NSOP provides for the creation of
non-qualified stock options for the purchase of up to 4,000,000 shares of the
Company's Common Stock for officers, directors, key employees and certain
consultants of the Company. An officer or director who receives a nonqualified
stock option will not recognize taxable income. However, upon exercise of a
nonqualified stock option, an officer or director will recognize ordinary
taxable income and the Company will be entitled to a corresponding deduction in
an amount equal to the difference between the option exercise price and the fair
market value of the Common Stock on the date of exercise of the nonqualified
stock option. The Company hereby undertakes not to grant any option under the
NSOP at an exercise price less than 85% of the fair market value of the Common
Stock on the date of grant of any option under the NSOP. As of the date of
this Prospectus, the Company had granted options to purchase up to 3,280,823
shares of Common Stock, 911,500 of which have been exercised. Of the options to
purchase up to 2,369,323 shares, which remain issued and outstanding, at
exercise prices ranging from $0.125 to $1.47 per share, 1,057,167 are currently
exercisable, subject to certain vesting schedules.

COMPENSATION OF DIRECTORS

The Company does not compensate directors for services rendered as
directors. Outside directors are issued stock options which vest over a period
of three years. The Company reimburses directors for travel expenses incurred
by directors for the benefit of the Company. The Company has obtained
directors' and officers' liabilities insurance with a $1,000,000 limit of
liability. The policy period expires on January 12, 1998. The Company intends
to renew such policy or obtain comparable coverage after the expiration of such
policy. However, there can be no assurances to this effect. See "Description
of Securities - Options."

47
<PAGE>

LIMITATION ON DIRECTORS' LIABILITIES; INDEMNIFICATION OF OFFICERS AND DIRECTORS

The Company's Certificate of Incorporation and Bylaws designate the
relative duties and responsibilities of the Company's officers, establish
procedures for actions by directors and stockholders and other items. The
Company's Certificate of Incorporation and Bylaws also contain extensive
indemnification provisions which will permit the Company to indemnify its
officers and directors to the maximum extent provided by Delaware law. Pursuant
to the Company's Certificate of Incorporation and under Delaware law, directors
of the Company are not liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty, except for liability in connection with a
breach of duty of loyalty, for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, for dividend
payments or stock repurchases illegal under Delaware law or any transaction in
which a director has derived an improper personal benefit.

In addition, the Company has adopted a form of indemnification agreement
(the "Indemnification Agreement") which provides the indemnitee with the maximum
indemnification allowed under applicable law. The Company has entered into
Indemnification Agreements with each of its directors. Since the Delaware
statute is non-exclusive, it is possible that certain claims beyond the scope of
the statute may be indemnifiable. The Indemnification Agreements provide a
scheme of indemnification which may be broader than that specifically provided
by Delaware law. It has not yet been determined, however, to what extent the
indemnification expressly permitted by Delaware law may be expanded, and
therefore the scope of indemnification provided by the Indemnification
Agreements may be subject to future judicial interpretation.

The Indemnification Agreement provides, in pertinent part, that the Company
shall indemnify an indemnitee who is or was a party or becomes a party or is
threatened to be made a party to any threatened, pending or completed action or
proceeding whether civil, criminal, administrative or investigative by reason of
the fact that the indemnitee is or was a director, officer, key employee or
agent of the Company or any subsidiary of the Company. The Company shall
advance all expenses, judgments, fines, penalties and amounts paid in settlement
(including taxes imposed on indemnitee on account of receipt of such payouts)
incurred by the indemnitee in connection with the investigation, defense,
settlement or appeal of any civil or criminal action or proceeding as described
above. The indemnitee shall repay such amounts advanced only if it shall be
ultimately determined that he or she is not entitled to be indemnified by the
Company. The advances paid to the indemnitee by the Company shall be delivered
within 20 days following a written request by the indemnitee. Any award of
indemnification to an indemnitee, if not covered by insurance, would come
directly from the assets of the Company, thereby affecting a stockholder's
investment.

TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL AGREEMENTS

Except as set forth in employment agreements of certain employees of the
Company, the Company has no compensatory plans or arrangements which relate to
the resignation, retirement or any other termination of an executive officer or
key employee with the Company or a change in control of the Company or a change
in such executive officer's or key employee's responsibilities following a
change in control.

KEY PERSON INSURANCE POLICIES

The Company has obtained a term life insurance policy in the amount of
$1,500,000 with respect to George Smith, the Company's Chief Executive Officer,
of which the Company is the beneficiary of $1,000,000 and Mr. Smith's wife is
the beneficiary of $500,000. The Company and Mr. Smith pay the premium for such
policy pro rata to their respective beneficial interests in the policy.

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COMPENSATION AND AUDIT COMMITTEES; COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION

The Board has a Compensation Committee comprised of the following members
of the Board of Directors: Sigmund Hartmann, Frank LaChapelle and Masahiro
Tsuchiya, the latter two (2) of whom may be deemed to be outside/non-employee
directors. The Company also has an Audit Committee comprised of the following
members of the Board of Directors: Philip Neches, Frank LaChapelle and Masahiro
Tsuchiya, each of whom may be deemed to be outside/non-employee directors. The
Board has no standing committee on nominations or any other committees
performing equivalent functions.

The Compensation Committee reviews and approves the annual salary and bonus
for each executive officer (consistent with the terms of any applicable
employment agreement), reviews, approves and recommends terms and conditions for
all employee benefit plans (and changes thereto) and administers the Stock
Option Plans and such other employee benefit plans as may be adopted by the
Company from time to time.

The Audit Committee reports to the Board regarding the appointment of the
independent public accountants of the Company, the scope and fees of the
prospective annual audit and the results thereof, compliance with the Company's
accounting and financial policies and management's procedures and policies
relative to the adequacy of the Company's system of internal accounting
controls.

Certain of the Company's principal stockholders have entered into voting
agreements with respect to 10,000,000 shares of Common Stock and other shares of
Common Stock which may be converted from up to $2,000,000 of certain convertible
promissory notes. See "Certain Relationships and Related Transactions."

COMPLIANCE WITH SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934

Section 16(a) of the Exchange Act requires the Company's directors and
executive officers and the holders of more than 10% of the Company's Common
Stock to file with the Commission initial reports of ownership and reports of
changes in ownership of equity securities of the Company. Based solely upon a
review of such forms, or on written representations form certain reporting
persons that no other reports were required for such persons, the Company
believes that all reports required pursuant to Section 16(a) with respect to its
executive officers, directors and 10% stockholders for the 1996 fiscal year were
timely filed, except as set forth below.

Sigmund Hartmann, a director of the Company, inadvertently failed to file
on a timely basis a Form 4 with the Commission disclosing his change in
beneficial ownership when he acquired 53,334 shares of the Company's Common
Stock pursuant to the exercise of a stock option. The Form 3 disclosing his
initial beneficial ownership of the option was filed on a timely basis. Mr.
Hartmann subsequently filed a Form 4 disclosing the transaction.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

CONSULTING AGREEMENT WITH UNIVERSAL MICROTECHNOLOGY, INC.

On September 1, 1995, the Company entered into a consulting agreement with
Universal Microtechnology, Inc. ("Universal"), all of the shares of which are
beneficially owned by its President, Sigmund Hartmann, who is also a director of
the Company, for the provision to the Company of services related to the
development of speech and voice technology. The consulting agreement was
amended on November 27, 1996 pursuant to which Universal agreed to provide
additional technical and administrative services to the Company and the Company
agreed to pay Universal the sum of $8,000 per month in fees during the period
from January 1, 1997 through May 1, 1998.

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KEY PERSON INSURANCE POLICIES

STOCK PURCHASE AGREEMENT WITH PARAGON LIMITED PARTNERSHIP AND RELATED
SHAREHOLDERS AGREEMENT

On January 26, 1996, the Company entered into a Stock Purchase Agreement
with Paragon Limited Partnership, an exempted limited partnership organized
under the laws of the Cayman Islands, British West Indies ("Paragon"), pursuant
to which Paragon purchased 2,000,000 shares of Common Stock at a purchase price
of $1.00 per share. Of the 2,000,000 shares, 50,000 shares were purchased on
December 29, 1995.

Further, on such date, the Company entered into a placement agreement (the
"Placement Agreement") with Paragon Capital Management LLC, an exempted limited
liability company organized under the laws of the Cayman Islands, British West
Indies ("Paragon Capital"), pursuant to which Paragon Capital agreed to act as
placement agent with respect to the sale of up to an additional 8,000,000 shares
of Common Stock at a purchase price of $1.00 per share. Paragon Capital is the
sole general partner of Paragon. On or about March 26, 1996, the Company issued
an additional 8,000,000 shares of Common Stock at a purchase price of $1.00 per
share to certain persons (the "Purchasers") pursuant to the Placement Agreement,
including, Den Norsk Krigsforsikring for Skib (2,000,000 shares),
Investeringsselskapet Amandus AS (2,000,000 shares), A/S/ Selvaag Invest
(1,500,000 shares), Andreas Ugland (1,500,000 shares), Woodbridge Asset
Management Limited (266,667 shares), Pollex A/S (200,000 shares), J. Arthur
Olafsen (250,000 shares), Filab A/S (100,000 shares), Martin S. Albert (133,333
shares) and Bent Aasnas (50,000 shares). Paragon Capital received a placement
fee from the Purchasers, and not from the proceeds of such offering, of $0.055
per share, pursuant to separate agreements between Paragon Capital and each of
the Purchasers.

On March 19, 1996, Martin S. Albert, a director of Paragon Capital, became
a director of the Company in connection with the closing of the purchase of the
initial 2,000,000 shares pursuant to the Stock Purchase Agreement. Mr. Albert
became the Chairman of the Board of Directors of the Company on August 1, 1997.
Further, the Company has agreed to use its best efforts to elect Mr. Albert or
another designee of Paragon, as a director of the Company so long as Paragon
continues to own at least 1,000,000 shares of the Company's Common Stock.

Each of the Purchasers and Paragon have entered into a Shareholders
Agreement pursuant to which, in pertinent part, the Purchasers and Paragon have
agreed to vote the 10,000,000 shares owned or controlled by them: (i) in favor
of the election of Martin S. Albert, or another designee of Paragon, as a
director of the Company, (ii) in favor of each of the actions contemplated by
the Shareholders Agreement and any action required in furtherance thereof, and
(iii) except as specifically instructed by Paragon in advance, against (A) any
action or agreement which would result in a breach of any covenant,
representation or warranty or any other obligation or agreement of the Company
under the Shareholders Agreement, (B) any extraordinary corporate transaction,
such as a merger, consolidation or other business combination involving the
Company or any subsidiary of the Company, (C) any sale, lease or transfer of a
material amount of assets of the Company or any subsidiary of the Company, (D)
any change in the majority of the board of directors of the Company, (E) any
material change in the present capitalization of the Company (other than as
contemplated by the Shareholders Agreement), (F) any amendment of the Company's
Certificate of Incorporation or Bylaws, (G) any other material change in the
Company's corporate structure or business, or (H) any other action which is
intended, or could reasonably be expected to impede, interfere with, delay,
postpone, discourage or materially adversely affect, the transaction
contemplated by the Shareholders Agreement. See "Certain Relationships and
Related Transactions - Amerscan Partners III Convertible Promissory Notes."

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<PAGE>

Further, each of the parties to the Shareholders Agreement has granted to,
and appointed, Paragon and Erik C.T. Tiller, Rolv E. Norderhaug and Martin S.
Albert, in their respective capacities as directors of Paragon Capital, and any
individual who shall thereafter succeed any of them as a director of Paragon
Capital, and any other designee of Paragon, individually, such person's
irrevocable proxy and attorney-in-fact (so long as such person is a party to the
Shareholders Agreement), with full power of substitution, to vote the shares of
Common Stock owned by each such person in accordance with the immediately
preceding paragraph. Mr. Tiller is also an affiliate of Woodbridge Asset
Management Limited.

The Shareholders Agreement will terminate on the earlier of: (i) April 30,
1998, (ii) the date on which the Company's Board of Directors and the
stockholders of the Company vote as required by law and by the Company's
Certificate of Incorporation and By-laws for the merger or consolidation of the
Company with another company, or for the sale of all or substantially all of the
Company's assets, or for its liquidation, (iii) the date on which the holders of
not less than 66-2/3% of the shares of Common Stock subject to the Shareholders
Agreement agree in writing to the termination of the Shareholders Agreement, and
(iv) the date on which the combined holdings of the parties to the Shareholders
Agreement are reduced to ownership of less than 5% of the issued and outstanding
shares of Common Stock.

The Company has granted Paragon and the Purchasers the right, upon the
written request of at least 25% of the holders of the 10,000,000 shares, to
require the Company to effect two registrations of such shares, and an unlimited
number of "piggy back" registrations with respect to such shares, subject to
certain conditions.

The Company also has granted Paragon a right of first refusal to purchase
or cause to be purchased from the Company any of its securities which may be
offered in any private placement exempt from registration under the Securities
Act, on the same terms and conditions that may be offered to any third party.
In connection with such right of first refusal, the Company is required to give
Paragon 60 days' prior written notice of the Company's intention to conduct such
a private placement, including the material terms and conditions thereof.
Paragon will have 10 days (deemed to begin no earlier than 10 days prior to the
end of such 60 day period) to provide the Company with written notice of
Paragon's election to exercise such right of first refusal.

AMERSCAN PARTNERS III CONVERTIBLE PROMISSORY NOTES

As of July 15, 1997, the Company executed a convertible promissory note
(the "First Amerscan Note"), in the principal amount of $1,500,000, in favor of
Amerscan Partners III, Limited Partnership, an exempted limited partnership
organized under the laws of Bermuda ("Amerscan Partners III"), with respect to a
loan to the Company in the amount of $1,500,000.

The First Amerscan Note bears interest at the rate of eight percent PER
ANNUM, with the principal amount of the First Amerscan Note, together with
accrued and unpaid interest thereon, payable on July 15, 1998.

Amerscan Partners III has the option at any time to convert the outstanding
principal amount of the First Amerscan Note, together with accrued and unpaid
interest thereon, into shares of the Company's Common Stock at a per share
conversion rate equal to the aggregate principal amount of the First Amerscan
Note, together with accrued and unpaid interest thereon, divided by the lower
of: (i) $1.00, subject to adjustments for stock splits, reverse splits, stock
dividends or recapitalizations of the Common Stock, and (ii) 75% of the average
of the mean between the closing bid and asked prices for the Common Stock during
the five (5) trading days preceding the notice date of the exercise of such
option. Further, the Company has the right to require Amerscan Partners III, at
any time prior to July 15, 1998, to convert the outstanding principal amount of
the First Amerscan Note, together with accrued and unpaid interest thereon, if
on the date of such request, the mean between the closing bid and asked prices
of the Common Stock is greater than $2.00 per share, subject to adjustments for
stock splits, reverse splits, stock dividends or recapitalizations.

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<PAGE>

As of September 16, 1997, the Company executed a convertible promissory
note (the "Second Amerscan Note"), in the principal amount of $500,000, in favor
of Amerscan Partners III, with respect to a loan to the Company in the amount of
$500,000.

The Second Amerscan Note bears interest at the rate of eight percent PER
ANNUM, with the principal amount of the Second Amerscan Note, together with
accrued and unpaid interest thereon, payable on September 16, 1998.

Amerscan Partners III has the option at any time to convert the outstanding
principal amount of the Second Amerscan Note, together with accrued and unpaid
interest thereon, into shares of the Company's Common Stock at a per share
conversion rate equal to the aggregate principal amount of the Second Amerscan
Note, together with accrued and unpaid interest thereon, divided by the lower
of: (i) $0.50, subject to adjustments for stock splits, reverse splits, stock
dividends or recapitalizations of the Common Stock, and (ii) 75% of the average
of the mean between the closing bid and asked prices for the Common Stock during
the five (5) trading days preceding the notice date of the exercise of such
option. Further, the Company has the right to require Amerscan Partners III, at
any time prior to September 16, 1998, to convert the outstanding principal
amount of the Second Amerscan Note, together with accrued and unpaid interest
thereon, if on the date of such request, the mean between the closing bid and
asked prices of the Common Stock is greater than $2.00 per share, subject to
adjustments for stock splits, reverse splits, stock dividends or
recapitalizations.

So long as any amount of either of the First Amerscan Note or the Second
Amerscan Note (collectively, the "Amerscan Notes") remains unpaid, Amerscan
Partners III or its designee shall be entitled to appoint one member to the
Board of Directors of the Company, who shall further be entitled to appoint the
chairman of a Finance Committee of the Board of Directors which shall consist of
at least three (3) members of the Board of Directors. As of the date of this
Prospectus, Amerscan has not exercised its right to appoint such a director.
Each of the Amerscan Notes is secured by the Company's intellectual property
rights relating to the Meta 6000, pursuant to the terms of a Security Agreement,
dated July 15, 1997, subject to the terms and conditions of any prior agreements
of the Company with respect to the Meta 6000.

Upon conversion of any portion of either of the Amerscan Notes into shares
of Common Stock, Amerscan Partners III has agreed to sign an endorsement to the
Shareholders Agreement agreeing to be bound by the terms of the Shareholders
Agreement with respect to such shares so converted, as though Amerscan Partners
III were an original party thereto. Amerscan Partners III will have the sole
power to vote and dispose of such shares of Common Stock, subject to the terms
of the Shareholders Agreement.

Amerscan Capital Management, Ltd., a Bermuda exempted limited duration
company ("Amerscan Capital") is the sole general partner of Amerscan Partners
III. Mr. Albert serves as a director and Deputy Chairman, Rolv Norderhaug
serves as Vice President and a director, and Erik C.T. Tiller serves as a
director of Amerscan Capital.

The Company has agreed to pay to Amerscan Capital a placement fee equal to
eight percent (8%) of the gross proceeds of funds received by the Company
pursuant to each of the Amerscan Notes. The Company continues to owe Amerscan
Capital the amount of $160,000 as a placement fee.

The Company believes that all such transactions with affiliates of the
Company have been entered into on terms no less favorable to the Company than
could have been obtained from independent third parties. The Company intends
that any transactions and loans with officers, directors and five percent (5%)
or greater stockholders, following the date of this Prospectus, will be on terms
no less favorable to the Company than could be obtained from independent third
parties and will be approved by a majority of the independent, disinterested
directors of the Company.

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PRINCIPAL STOCKHOLDERS

The following table reflects, as of the date of this Prospectus,
information concerning the beneficial Common Stock ownership of: (a) each
director of the Company, (b) each executive officer named in the Summary
Compensation Table, (c) each person known by the Company to be a beneficial
holder of five percent (5%) or more of its Common Stock, and (d) all executive
officers and directors of the Company as a group:

NAME AND ADDRESS NO. OF PERCENT #
OF BENEFICIAL OWNER SHARES BEFORE OFFERING AFTER OFFERING
- ------------------- ------ --------------- --------------
George W. Smith(1) 2,287,077 5.71

Lee W. Hoevel(2) 30,000 *

Masahiro Tsuchiya(3) 3,740,583 9.61

Frank LaChapelle(4) 100,000 *

Sigmund Hartmann(5) 76,667 *

Philip Neches(6) 0 *

Martin S. Albert(7) 10,000,000 25.69

Paragon Limited
Partnership(7) 10,000,000 25.69

Den Norsk
Krigsforsikring
for Skib(7) 2,000,000 5.14

Investeringsselskapet
Amandus AS(7) 2,000,000 5.14

All directors and
officers as a group
(7 persons)(8) 16,234,327 40.50

________________________________

# Pursuant to the rules of the Commission, shares of Common Stock which
an individual or group has a right to acquire within 60 days pursuant to the
exercise of options or warrants are deemed to be outstanding for the purpose of
computing the percentage ownership of such individual or group, but are not
deemed to be outstanding for the purpose of computing the percentage ownership
of any other person shown in the table.

* Less than 1%.

1. Mr. Smith's address is c/o International Meta Systems, Inc., 100 North
Sepulveda Boulevard, Suite 601, El Segundo, California 90245. Mr. Smith's
holdings consist of 1,127,077 shares of Common Stock currently owned and vested
options for 1,160,000 shares.

2. Dr. Hoevel's address is c/o International Meta Systems, Inc., Austin
Design Center, 7718 Wood Hollow Drive, Suite 150, Austin, TX 78731. Dr.
Hoevel's holdings consist of 30,000 shares of Common Stock and unvested options
for 600,000 shares of Common Stock.

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<PAGE>

3. Dr. Tsuchiya's address is 1585 Kaminaka Drive, Honolulu, Hawaii 96846.
Included in the shares owned by Dr. Tsuchiya are 886,583 shares owned by Sypex
International, of which Dr. Tsuchiya is part owner.

4. Mr. LaChapelle's address is c/o Interscience Computer Corporation,
5171 Clareton Drive, Agoura Hills, California 91301. In addition, Mr.
LaChapelle holds unvested options for 100,000 shares.

5. Mr. Hartmann's address is c/o International Meta Systems, Inc., 100
North Sepulveda Boulevard, Suite 601, El Segundo, California 90245. In
addition, Mr. Hartmann holds unvested options for 23,333 shares.

6. Dr. Neches' address is 12 Murray Hill Manor, Murray Hill, NJ 07974.
In addition, Dr. Neches holds unvested options for 100,000 shares.

7. Mr. Albert's address is c/o Dolphin Interconnect Solutions, Inc.,
3609 E. Thousand Oaks Boulevard, Suite 209, Westlake Village, California 91362.
Mr. Albert is the registered owner of 133,000 shares, and he is a director of
Paragon Capital Management LLC ("Paragon Capital"), which is the sole general
partner of Paragon Limited Partnership ("Paragon"), the registered owner of
2,000,000 shares. Certain parties, who in the aggregate own or control
10,000,000 shares of Common Stock, have entered into a Shareholders Agreement,
dated March 26, 1996 (the "Shareholders Agreement"), pursuant to which such
parties have granted certain voting rights to Paragon and certain directors of
Paragon Capital with respect to the 10,000,000 shares. The parties to the
Shareholders Agreement include: Paragon (2,000,000 shares), Den Norsk
Krigsforsikring for Skib (2,000,000 shares), Investeringsselskapet Amandus AS
(2,000,000 shares), A/S/ Selvaag Invest (1,500,000 shares), Andreas Ugland
(1,500,000 shares), Woodbridge Asset Management Limited (266,667 shares), Pollex
A/S (200,000 shares), J. Arthur Olafsen (250,000 shares), Filab A/S (100,000
shares), Martin S. Albert (133,333 shares) and Bent Aasnas (50,000 shares). The
Shareholders Agreement remains in effect until April 30, 1998, unless earlier
terminated in accordance with its provisions. The number of shares reflected in
the chart as beneficially owned by Mr. Albert and Paragon does not include
shares of Common Stock which may be converted from: (a) the First Amerscan Note
issued in the name of Amerscan Partners III, in the principal amount of
$1,500,000, at a per share conversion price equal to the lower of: (i) $1.00,
subject to certain adjustments, and (ii) 75% of the average of the mean between
the closing bid and asked prices for the Common Stock during the five (5)
trading days preceding the date of notice of conversion, or (b) the Second
Amerscan Note issued in the name of Amerscan Partners III, in the principal
amount of $500,000, at a per share conversion price equal to the lower of: (i)
$0.50, subject to certain adjustments, and (ii) 75% of the average of the mean
between the closing bid and asked prices for the Common Stock during the five
(5) trading days preceding the date of notice of conversion. Mr. Albert is a
director and Deputy Chairman of Amerscan Capital, the general partner of
Amerscan Partners III. Amerscan Partners III has agreed to be bound by the
terms of the Shareholders Agreement with respect to any shares of Common Stock
which may be converted from either of the Amerscan Notes. See "Certain
Relationships and Related Transactions."

8. Includes 15,074,327 shares of Common Stock and vested options to
purchase up to 1,160,000 shares of Common Stock. Does not include unvested
options to purchase up to 823,333 shares of Common Stock or shares of Common
Stock which may be converted from the Amerscan Notes. See "Certain
Relationships and Related Transactions."

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DESCRIPTION OF SECURITIES

GENERAL

The Company's authorized capital stock consists of 70,000,000 shares of
Common Stock, par value $0.0001 per share, and 1,000,000 shares of preferred
stock, par value $0.0001. As of the date of this Prospectus, there were issued
and outstanding 38,925,941 shares of Common Stock and no shares of preferred
stock. There were also issued and outstanding warrants and options to purchase
up to 6,548,571 shares of Common Stock.

COMMON STOCK

Holders of the Common Stock are entitled to cast one vote for each share
held of record, to receive such dividends as may be declared by the Board of
Directors out of legally available funds and to share ratably in any
distribution of the Company's assets after payment of all debts and other
liabilities, upon liquidation, dissolution or winding up. Holders of the Common
Stock do not have preemptive rights or other rights to subscribe for additional
shares, and the Common Stock is not subject to redemption. The outstanding
shares of Common Stock are validly issued, fully paid and nonassessable.

Under Delaware law, each holder of a share of Common Stock is entitled to
one vote per share for each matter submitted to the vote of the stockholders,
and cumulative voting is allowed for the election of directors, if provided for
in the Certificate of Incorporation. The Company's Certificate of Incorporation
does not provide for cumulative voting.

PREFERRED STOCK

The Board of Directors is expressly authorized from time to time to provide
for the issuance of shares of preferred stock in one or more series, with such
voting powers and with such designations, preferences and other rights and
qualifications, limitations or restrictions thereof as shall be stated and
expressed in the resolution providing for the issue thereof adopted by the Board
of Directors. The Board of Directors may issue such preferred stock without
stockholder approval, and the voting and conversion rights of such stock
potentially could adversely affect the voting power of the holders of Common
Stock.

WARRANTS

The Company has issued and outstanding, non-callable warrants to purchase
up to 614,298 shares of Common Stock at an exercise price of $_________ per
share, which have certain demand and piggyback registration rights and expire on
July 31, 2002, and additional warrants to purchase up to 250,000 shares of
Common Stock at an exercise price of $0.50 per share, which expire on October 9,
1999.

OPTIONS

The Company has issued and outstanding options to purchase 5,684,273 shares
of Common Stock to various employees, officers, directors and consultants of the
Company at exercise prices ranging from $0.01 to $1.47 per share, 2,965,117 of
which are currently exercisable. Of these options, 3,256,323 options have been
granted pursuant to certain stock option plans of the Company and are the
subject of certain currently effective registration statements, 1,057,167 of
which are currently exercisable, and an additional 1,772,950 options have
certain registration rights. See "Compensation of Executive Officers and
Directors - Stock Option Plans."

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<PAGE>

CONVERTIBLE PROMISSORY NOTES

FIRST AMERSCAN NOTE. As of July 15, 1997, the Company executed the First
Amerscan Note, in the principal amount of $1,500,000, in favor of Amerscan
Partners III, with respect to a loan to the Company in the amount of
$1,500,000.

The First Amerscan Note bears interest at the rate of eight percent (8%)
PER ANNUM, with the principal amount of the First Amerscan Note, together with
accrued and unpaid interest thereon, payable on July 15, 1998.

SECOND AMERSCAN NOTE. As of September 16, 1997, the Company executed the
Second Amerscan Note, in the principal amount of $500,000, in favor of Amerscan
Partners III, with respect to a loan to the Company in the amount of $500,000.

The Second Amerscan Note bears interest at the rate of eight percent (8%)
PER ANNUM, with the principal amount of the Second Amerscan Note, together with
accrued and unpaid interest thereon, payable on September 16, 1998.

UNDERWRITERS' WARRANTS

The Company has agreed to sell to the Representatives, for $______,
warrants (the "Underwriters' Warrants") to purchase from the Company up to
_________ shares of Common Stock at an exercise price equal to _______% of the
offering price at which the Shares are initially offered to the public. The
Underwriters' Warrants are exercisable for a period of four (4) years commencing
one year from the date of this Prospectus, and are not transferable except to
the Representatives or members of the underwriting syndicate.

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<PAGE>

The Company has agreed to grant certain "piggyback" registration rights
with respect to the securities underlying the Underwriters' Warrants. If the
Company files a registration statement with respect to the Company's securities
during the period commencing one year from the date of this Prospectus and
ending five (5) years thereafter, except on certain forms of registration
statement, the holders of the securities underlying the Underwriters' Warrants
will be entitled to include their Units in such registration statement. The
Underwriters' Warrants contain anti-dilution provisions providing for adjustment
of the number of warrants and exercise price under certain conditions.

TRANSFER AGENT

The transfer agent for the Common Stock is Interwest Transfer Company,
Inc., 1981 East 4800 South, Suite 110, Salt Lake City, Utah 84117, (801)
272-9294.

CERTAIN BUSINESS COMBINATIONS AND OTHER PROVISIONS OF CERTIFICATE OF
INCORPORATION

The Company's Certificate of Incorporation includes certain provisions
which are intended to protect the Company's stockholders by rendering it more
difficult for a person or persons to obtain control of the Company without
cooperation of the Company's management. These provisions include the potential
implementation of a classified Board of Directors and certain supermajority
requirements for the amendment of the Company's Certificate of Incorporation and
Bylaws. Such provisions are often referred to as "anti-takeover" provisions.

The inclusion of such "anti-takeover" provisions in the Certificate of
Incorporation may delay, deter or prevent a takeover of the Company which the
stockholders may consider to be in their best interests, thereby possibly
depriving holders of the Company's securities of certain opportunities to sell
or otherwise dispose of their securities at above-market prices, or limit the
ability of stockholders to remove incumbent directors as readily as the
stockholders may consider to be in their best interests.

BUSINESS COMBINATIONS WITH SUBSTANTIAL STOCKHOLDERS. Delaware law contains
a statutory provision which is intended to curb abusive takeovers of Delaware
corporations. Section 203 of the Delaware General Corporation Law addresses the
problem by preventing certain business combinations of the corporation with
interested stockholders within three years after such stockholders become
interested. Section 203 provides, with certain exceptions, that a Delaware
corporation may not engage in any of a broad range of business combinations with
a person or an affiliate, or associate of such person, who is an "interested
stockholder" for a period of three (3) years from the date that such person
became an interested stockholder unless: (i) the transaction resulting in a
person becoming an interested stockholder, or the business combination, is
approved by the Board of Directors of the corporation before the person becomes
an interested stockholder; (ii) the interested stockholder acquired 85% or more
of the outstanding voting stock of the corporation in the same transaction that
makes such person an interested stockholder (excluding shares owned by persons
who are both officers and directors of the corporation, and shares held by
certain employee stock ownership plans); or (iii) on or after the date the
person becomes an interested stockholder, the business combination is approved
by the corporation's board of directors and by the holders of at least 66-2/3%
of the corporation's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholder. Under Section 203, an
"interested stockholder" is defined as any person who is: (i) the owner of
fifteen percent (15%) or more of the outstanding voting stock of the corporation
or (ii) an affiliate or associate of the corporation and who was the owner of
fifteen percent (15%) or more of the outstanding voting stock of the corporation
at any time within the three (3) year period immediately prior to the date on
which it is sought to be determined whether such person is an interested
stockholder.

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<PAGE>

SUPERMAJORITY REQUIRED FOR AMENDMENT OF CERTIFICATE OF INCORPORATION AND
BYLAWS. In order to insure that the substantive provisions set forth in the
Certificate of Incorporation are not circumvented by the amendment of such
Certificate of Incorporation pursuant to a vote of a majority of the voting
power of the Company's outstanding shares, the Certificate of Incorporation
also provides that any amendment, change or repeal of the provisions
contained in the Certificate of Incorporation with respect to: (i) the
Company's capitalization, (ii) amendment of the Bylaws, (iii) determination
by the Board of the number of directors, (iv) filling Board vacancies, (v)
the requirement that stockholder action be taken at an annual or special
meeting, (vi) the calling of a special meeting of stockholders only by the
Board of Directors or by the Chairman of the Board, (vii) requirements with
respect to appraisal rights for stockholders, (viii) the amendment of the
provision imposing such supermajority requirement for amendment of the
Certificate of Incorporation, or (ix) classification of the Board of
Directors, shall require the affirmative vote of the holders of at least 80%
of the voting power of all outstanding shares of voting stock, including, in
any instance where the repeal or amendment is proposed by an interested
stockholder or its affiliate or associate, the affirmative vote of a majority
of the voting power of all outstanding shares of voting stock held by persons
other than such interested stockholder or its affiliates or associates.
However, only the affirmative vote of the majority of the voting power of all
outstanding shares of voting stock is required if the amendment of any of the
foregoing provisions is approved by a majority of the continuing directors.

The Certificate of Incorporation permits the Board of Directors to adopt,
amend or repeal any or all of the Company's bylaws without stockholder action
and provide that such bylaws may also be adopted, amended or repealed by its
stockholders, but only if approved by holders of 80% or more of the voting power
of all outstanding shares of voting stock, including in any instance in which
the alteration is proposed by an interested stockholder or by affiliates or
associate of any interested stockholder, the affirmative vote of the holders of
at least a majority of voting power of all outstanding shares of voting stock
held by persons other than the interested stockholder who proposed such action.
However, the only stockholder vote required if the modification is approved by a
majority of the continuing directors is the affirmative vote of the majority of
the voting power of all outstanding shares of voting stock.

CLASSIFIED BOARD AND RESTRICTIVE REMOVAL PROVISIONS. The Certificate of
Incorporation provides that at the first annual meeting of the Company's
stockholders after the authorized number of directors is six (6) or more, that
Board of Directors shall be divided into three classes, Class I, Class II and
Class III. The Company's Bylaws authorize the election up to eleven (11)
members on the Company's Board of Directors. As a result, the Company's Board
of Directors has been divided into these three (3) classes with staggered terms.
The initial Class I directors serve for a term of one year, the Class II
directors for a term of two years, and the Class III directors for a term of
three years. Thereafter, all directors shall serve for three year terms. The
effect of these provisions is that not more than one-third of the Company's
directors will be elected at any single annual meeting. As a result, a person
seeking control of the Company may not necessarily be able to acquire a
controlling block of stock and effect an entire change in management at a single
annual meeting.

In addition, the Certificate of Incorporation provides that directors of
the Company may be removed for cause or without cause and only by the
affirmative vote of least 80% of the voting power of all outstanding shares of
the Company's voting stock, thus forcing a third party seeking to gain control
of the Board of Directors to await the expiration of the respective terms of
incumbent directors, unless there was sufficient voting strength to remove a
particular director or directors. The Certificate of Incorporation further
provides, however, that if a majority of the directors approves the removal of
a director for cause or without cause, then the only stockholder vote required
would be that of a majority of the voting power of all outstanding shares of
voting stock.

FAIR PRICE PROVISIONS. Further, under the Company's Certificate of
Incorporation, a broad range of business combinations between the Company or a
subsidiary of the Company, and an interested stockholder or its affiliate or
associate may be effected only if it is approved by one of three methods.
First, a business combination may proceed if it has been approved by the holders
of not less than 80% of the voting power of all outstanding shares of voting
stock, provided such 80% includes a majority of the voting power of all

58
<PAGE>

outstanding shares of voting stock held by persons other than an interested
stockholder that is a party to such business combination or any of its
affiliates or associates. Second, a business combination which has been
approved by a majority of the continuing directors requires only such
stockholder approval, if any, as mandated by law. Third, a business
combination may be approved by a majority of the voting power of
alloutstanding shares of voting stock, provided that the terms of such
business combination satisfy all of the minimum price, form of consideration
and procedural requirements described below.

To comply with the form of consideration requirements in the context of a
business combination involving payment of cash or other consideration to
stockholders, the interested stockholder must offer either cash or the same type
of consideration used by the interested stockholder in acquiring the largest
number of shares of Common Stock previously acquired by the interested
stockholder. To satisfy the minimum price requirements, the aggregate amount of
cash and the fair market value of the consideration other than cash to be
received per share by holders of Common Stock in any business combination must
be at least equal to the higher of: (i) the highest per share price paid or
agreed to be paid by the interested stockholder for any shares of Common Stock
during the two (2) year period immediately prior to and including the date of
the final public announcement of the proposed business combination (the
"Announcement Date") or the highest per share price paid in the transaction in
which he became an interested stockholder, whichever is higher; or (ii) the
higher of the fair market value per share of Common Stock on the Announcement
Date or on the date on which the interested stockholder became an interested
stockholder, in every case appropriately adjusted for any stock dividend, stock
split or combination of shares. The fair market value of any non-cash
consideration to be paid to stockholders would be required to meet the above
minimum price condition on the date the business combination is consummated and
is to be determined in good faith as of such date by a majority of the
continuing directors.

In the case of payments to holders of any class or series of the Company's
voting stock other than Common Stock, the per share fair market value of such
payments would have to be at least equal to the higher of: (i) the highest per
share price determined with respect to such class or series of stock in the same
manner as described in clauses (i) and (ii) of the preceding paragraph; or (ii)
the highest preferential amount per share to which the holders of such class or
series of voting stock are entitled in the event of a voluntary or involuntary
liquidation of the Company. The interested stockholder would be required to
meet the minimum price criteria with respect to each class of voting stock,
whether or not the interested stockholder owned shares of that class prior to
proposing the business combination.

If the proposed business combination does not involve the receipt by the
other stockholders of the Company of any cash or other property (such as a sale
of assets or an issuance of the Company's securities to an interested
stockholder), then the price criteria discussed above would not apply and an 80%
vote of stockholders and a majority vote of holders of voting stock other than
the interested stockholder and its affiliates and associates would be required,
unless the transaction were approved by a majority of the continuing directors
and such stockholder vote, if any, required by law.

Finally, an interested stockholder must comply with certain additional
procedural requirements in order to satisfy the minimum price, form of
consideration and procedural requirements alternative. To comply with this
alternative, a stockholder and its affiliates and associates, once such
stockholder has become an interested stockholder and prior to the consummation
of any business combination involving such interested stockholder or any of its
affiliates or associates, may not, with certain exceptions, acquire any shares
of voting stock, even for investment purposes, and may not receive certain
benefits, including loans, from the Company. (If an interested stockholder does
not wish to comply with this alternative, it may acquire additional shares of
voting stock in accordance with applicable law. Such acquisition would not
prevent such interested stockholder from effecting a business combination
approved by the requisite supermajority stockholder vote or by a majority of the
continuing directors in accordance with the other alternatives discussed above.)

59
<PAGE>

For purposes of these antitakover provisions in the Company's Certificate
of Incorporation: (i) an "interested stockholder" is defined as a person (other
than the Company, its subsidiaries or certain employee benefit plans of the
Company) who is, together with its affiliates and associates, the beneficial
owner of 10% or more of the voting power of all outstanding shares of voting
stock (or 10% or more of the voting stock of a subsidiary of the Company), and
includes any person who, in a transaction not involving a public offering, is an
assignee of, or has succeeded to, any shares of voting stock which were at any
time within the prior two (2) year period beneficially owned by an interested
stockholder, and (ii) a "continuing director" is defined as a director (a) who
(1) is not an interested stockholder, (2) is neither an affiliate nor an
associate of an interested stockholder; and (3) was a director prior to the date
on which the interested stockholder became such; or (b) who was elected or
nominated by a majority of the continuing directors.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this Offering, assuming no exercise of the
Over-allotment Option, the Company will have ___________ shares of Common
Stock outstanding. All of the ____________ shares of Common Stock sold in
this Offering will be freely transferable without further restriction or
registration under the Securities Act, except for any shares purchased by an
"affiliate" of the Company (as defined under the Securities Act).

As of the date of this Prospectus, the Company had issued and outstanding
38,925,941 shares of Common Stock. There are currently ___________ shares of
Common Stock which are restricted shares and __________ shares which are freely
tradeable or eligible to have the restrictive legend removed pursuant to Rule
144(k) promulgated under the Securities Act. Of the restricted shares,
_________ shares have been held for at least one year from the date of this
Prospectus and, in the absence of agreements with the Representatives, are
currently eligible for resale under Rule 144. Of the restricted shares,
_________ shares held by certain of the Company's officers and directors will be
subject to certain lock-up agreements with the Representatives during the
____________ (________) month period following the date of this Prospectus.
Further, the Company has issued and outstanding options to purchase up to
5,684,273 shares of Common Stock, 2,965,117 of which are currently exercisable,
and warrants to purchase up to 864,298 shares of Common Stock, 614,298 of which
warrants have certain demand and piggyback registration rights. The Company has
filed a registration statement which registers up to 9,000,000 shares of Common
Stock underlying certain options which have been or may be granted pursuant to
certain stock option plans (911,500 of which have been exercised, an additional
3,256,323 of which have been granted and 1,057,167 of which are currently
exercisable), and holders of options to purchase an additional 1,772,950 shares
have certain registration rights in connection with such options.

Holders of restricted securities must comply with the requirements of Rule
144 in order to sell their shares in the open market. In general, under Rule
144 as currently in effect, any affiliate of the Company and any person (or
persons whose sales are aggregated) who has beneficially owned his or her
restricted shares for at least two years, may be entitled to sell in the open
market within any three-month period in brokerage transactions or to
marketmakers a number of shares that does not exceed the greater of: (i) 1% of
the then outstanding shares of the Company's Common Stock (approximately
__________ shares immediately after this Offering), or (ii) the average weekly
trading volume reported in the principal market for the Company's Common Stock
during the four calendar weeks preceding such sale. Sales under Rule 144 are
also subject to certain limitations on manner of sale, notice requirement and
availability of current public information about the Company. Nonaffiliates who
have held their restricted shares for three years are entitled to sell their
shares under Rule 144 without regard to any of the above limitations, provided
they have not been affiliates of the Company for the three months preceding such
sale. An aggregate of 8,088,500 shares of Common Stock will be reserved for
future issuances to employees and consultants of the Company pursuant to the
Company's Stock Option Plans.

60
<PAGE>

The Company can make no prediction as to the effect, if any, that sales of
shares of Common Stock or the availability of shares for sale will have on the
market price of Common Stock. Nevertheless, sales of significant amounts of
Common Stock could adversely affect the prevailing market price of the Common
Stock, as well as impair the ability of the Company to raise capital through the
issuance of additional equity securities.

UNDERWRITING

Subject to the terms and conditions set forth in the Underwriting
Agreement, the Company has agreed to sell to the Underwriters named below, and
each of the Underwriters, for whom the Representatives are acting as
Representatives, have severally and not jointly agreed to purchase the number of
Shares set forth opposite their respective names in the table.

NAME OF UNDERWRITER NUMBER OF SHARES
------------------- ----------------
Nichols, Safina, Lerner & Company...............
Millennium Financial Group, Inc.................

Total......................................

The nature of the obligations of the Underwriters is such that if any of
the Shares offered hereby are purchased, all must be purchased.

The Company has been advised by the Representatives that the Underwriters
propose initially to offer the Shares to the public at the Price to Public set
forth on the cover page of this Prospectus and to certain selected dealers at
such price less customary concessions. The Underwriters may allow $________ as
concessions to certain dealers. Each of the concessions allowed will be to
members of the National Association of Securities Dealers, Inc. After the
initial public offering, concessions and other selling terms may be changed by
the Representatives.

The Company has granted an option to the Underwriters, exercisable within
forty-five (45) days of the date of this Prospectus, to purchase up to ________
additional Shares at the public offering price, less the underwriting discount,
as set forth on the cover page of this Prospectus. This option may be exercised
only for the purpose of covering over-allotments which may be made in connection
with the sale of the Shares offered hereby.

The Company has agreed to pay the Representatives a non-accountable expense
allowance of three percent (3%) of the total proceeds of this Offering,
including any Shares purchased pursuant to the Over-allotment Option, of which
$_________ has already been paid.

The Company has agreed to sell to the Representatives, for nominal
consideration, warrants (the "Underwriters' Warrants") to purchase up to _______
shares of Common Stock. The Underwriters' Warrants are exercisable for a period
of four (4) years commencing one year after the date of this Prospectus. The
Underwriters' Warrants are exercisable at a price of ________% of the price at
which the Shares are initially offered to the public. The Underwriters'
Warrants may not be sold, transferred, assigned or hypothecated for one year
except to persons who are officers of an Underwriter. The Underwriters'
Warrants contain anti-dilution provisions providing for appropriate adjustments
upon the occurrence of certain events, and contain one-time demand and unlimited
participatory registration rights.

Certain of the Company's officers and directors, and certain other
stockholders of the Company have agreed that, for a period of up to ___________
(____) months after the date of this Prospectus, they will not, without the
prior written consent of the Representatives, sell or otherwise dispose of any
of their shares of Common Stock. See "Shares Eligible for Future Sale."

61
<PAGE>

The Underwriters do not intend to confirm sales to any accounts over which
they have discretionary authority.

The Underwriting Agreement contains reciprocal agreements of indemnity
between the Company and the Underwriters as to certain liabilities in connection
with this Offering, including liabilities under the Securities Act. Insofar as
indemnification for liabilities arising under the Securities Act, may be
permitted pursuant to the foregoing provisions, the Company has been informed
that, in the opinion of the Commission, such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.

The Underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Exchange Act. Over-allotment involves syndicate sales in excess of
the offering size, which creates a syndicate short position. Stabilizing
transactions permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the securities in the open market after the
distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the Underwriters to reclaim a selling concession from a
syndicate member when the securities originally sold by such syndicate member
are purchased in a syndicate covering transaction to cover syndicate short
positions. Such stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the Common Stock to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
affected on the NASDAQ/NMS or otherwise and, if commenced, may be discontinued
at any time and will, in any event, be discontinued thirty (30) days after
settlement of this Offering.

The foregoing is a brief summary of the provisions of the Underwriting
Agreement and does not purport to be a complete statement of its terms and
conditions. A copy of the Underwriting Agreement has been filed as an exhibit
to the Registration Statement of which this Prospectus is a part.

Prior to this Offering, the Company's Common Stock has been listed in the
Over-the-Counter Market Shares. In connection with this Offering, the Company
has agreed to apply for a listing of the Common Stock in the NASDAQ/NMS. The
public offering price for the Shares will be determined by negotiations between
the Company and the Representatives. The factors considered in determining the
public offering price include the market price of the Common Stock, the
Company's growth since its organization, the industry in which it operates, the
Company's business potential and earning prospects and the general condition of
the securities markets at the time of the Offering. The Representatives have
informed the Company that it currently intends to make a market in the Company's
securities subsequent to the effectiveness of the Offering. But there can be no
assurance that the Representatives will take any action to make such a market.

LEGAL MATTERS

Certain matters with respect to the validity of the Shares offered hereby
will be passed upon for the Company by Matthias & Berg LLP, Los Angeles,
California. The Underwriters are represented by Lehman & Eilen, Uniondale, New
York.

EXPERTS

The audited financial statements of the Company as of December 31, 1996,
1995 and 1994 and the related statements of operations, stockholders' equity and
cash flows for the years ended December 31, 1996, 1995 and 1994, included
elsewhere in this Prospectus, have been so included in reliance on the report of
Singer Lewak Greenbaum & Goldstein LLP (successors to the practice of Shillan
Abrams & Company), independent certified public accountants, given on the
authority of such firm as experts in auditing and accounting.

62
<PAGE>

ADDITIONAL INFORMATION

The Company has filed with the Commission, a registration statement on Form
S-1 (the "Registration Statement") under the Securities Act with respect to the
Securities offered hereby. This Prospectus does not contain all the information
set forth in the Registration Statement and the exhibits and schedules thereto.
For further information with respect to the Company and the Securities,
reference is made to the Registration Statement and the exhibits and schedules
filed as a part thereof. Statements made in this Prospectus as to the contents
of any contract or any other document referred to are not necessarily complete,
and, in each instance, reference is made to the copy of such contract or
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference to such exhibits. The
Registration Statement, including exhibits and schedules thereto, may be
inspected without charge at the Public Reference Room of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
regional offices of the Commission at 7 World Trade Center, Suite 1300, New
York, New York 10048; and at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of the Registration Statement and the exhibits and
schedules thereto may be obtained from the Public Reference Room of the
Commission at its principal office in Washington, D.C. at prescribed rates. In
addition, such materials may be accessed electronically at the Commission's site
on the World Wide Web, located at http://www.sec.gov.

The Company is currently subject to the reporting requirements of the
Exchange Act and in accordance therewith files reports, proxy and information
statements and other information with the Commission. Such reports, proxy and
information statements and other information may be inspected and copied at the
Public Reference Room of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington D.C. 20549; and at the regional offices of the Commission at 7
World Trade Center, Suite 1300, New York, New York 10048; and at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661, and copies of such
materials can be obtained from the Public Reference Section of the Commission at
its principal office in Washington, D.C. at prescribed rates. The Company
intends to furnish its stockholders with annual reports containing audited
financial statements and such other periodic reports as the Company may
determine to be appropriate or as may be required by law.

<PAGE>

INTERNATIONAL META SYSTEMS, INC.
CONTENTS
AS OF DECEMBER 31, 1996

- --------------------------------------------------------------------------------

Page

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1

FINANCIAL STATEMENTS

Balance Sheets 2 - 3

Statements of Operations 4

Statements of Stockholders' Equity (Deficit) 5 - 6

Statements of Cash Flows 7 - 9

Notes to Financial Statements 10 - 25

<PAGE>

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders
International Meta Systems, Inc.

We have audited the accompanying balance sheet of International Meta Systems,
Inc. as of December 31, 1996 and the related statements of operations,
stockholders' equity, and cash flows for each of the two years in the period
ended December 31, 1996. 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 generally accepted auditing
standards. Those standards require that we plan and perform the 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 that 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 financial position of International Meta Systems,
Inc. as of December 31, 1996 and the results of its operations and its cash
flows, for each of the two years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company incurred net losses of $7,134,779 and $1,711,596 for the years ended
December 31, 1996 and 1995, respectively. This factor, as discussed in Note 1
to the financial statements, raises substantial doubt about the Company's
ability to continue as a going concern. Management's plan in regard to this
matter is also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

SINGER LEWAK GREENBAUM & GOLDSTEIN LLP

Los Angeles, California
February 21, 1997

<PAGE>

INTERNATIONAL META SYSTEMS, INC.
BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND SEPTEMBER 30, 1997 (UNAUDITED)
(SEE REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS)

- --------------------------------------------------------------------------------

ASSETS (NOTE 8)

December 31, September 30,
1996 1997
------------ -------------
(unaudited)

CURRENT ASSETS
Cash and cash equivalents (Note 2) $ 96,782 $ 158,782
Marketable securities (Note 3) 4,448,484 29,450
Accounts receivable - 150,000
Prepaid expenses and other current assets 40,824 68,830
---------- ----------

Total current assets 4,586,090 407,062

FURNITURE AND EQUIPMENT, net (Note 4) 717,123 1,050,233
PATENTS 98,707 127,875
DEFERRED OFFERING COSTS - 62,423
LEASE DEPOSIT - 250,000
---------- ----------

TOTAL ASSETS $5,401,920 $1,897,593
---------- ----------
---------- ----------

<PAGE>

INTERNATIONAL META SYSTEMS, INC.
BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND SEPTEMBER 30, 1997 (UNAUDITED)
(SEE REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS)

- --------------------------------------------------------------------------------

LIABILITIES AND STOCKHOLDERS' EQUITY

December 31, September 30,
1996 1997
------------ -------------
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Notes payable (Note 8) $ - $ 2,430,000
Accounts payable 257,972 979,986
Accrued payroll and payroll taxes 167,275 307,525
Dividends payable 40,000 923
------------ ------------

Total current liabilities 465,247 3,718,434
------------ ------------

COMMITMENTS AND CONTINGENCIES (Notes 7 and 9)

STOCKHOLDERS' EQUITY (DEFICIT) (Note 5)
Preferred stock, $.0001 par value, 1,000,000 shares authorized
Series A convertible preferred stock
10,000 and 0 (unaudited) shares issued and outstanding 1 -
Series B convertible preferred stock
250 and 250 (unaudited) shares issued and outstanding 1 1
Common stock, $.0001 par value
70,000,000 shares authorized
37,497,100 and 38,855,941 (unaudited) shares issued and
outstanding 3,749 3,885
Additional paid-in capital 18,563,923 19,041,632
Subscription receivable (24,120) (18,900)
Accumulated deficit (13,606,881) (20,847,459)
------------ ------------

Total stockholders' equity (deficit) 4,936,673 (1,820,841)
------------ ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,401,920 $ 1,897,593
------------ ------------
------------ ------------
</TABLE>

<PAGE>

INTERNATIONAL META SYSTEMS, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
(SEE REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS)

- --------------------------------------------------------------------------------

For the Years Ended For the Nine Months Ended
December 31, September 30,
----------------------------------- --------------------------------------
1996 1995 1997 1996
------------- --------------- -------------- ----------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
REVENUES (Notes 1 and 9)
License $ - $ 309,988 $ - $ -
Contract 300,000 600,000 150,000 300,000
------------- --------------- -------------- ---------------

Total revenues 300,000 909,988 150,000 300,000
------------- --------------- -------------- ---------------

OPERATING COSTS AND EXPENSES
Research and development 3,884,963 666,287 4,513,605 2,507,275
Selling, general, and
administrative 2,612,600 1,341,964 2,691,584 1,665,567
Depreciation and amortization 1,208,232 617,613 185,762 484,972
------------- --------------- -------------- ---------------

Total operating costs and
expenses 7,705,795 2,625,864 7,390,951 4,657,814
------------- --------------- -------------- ---------------

LOSS FROM OPERATIONS (7,405,795) (1,715,876) (7,240,951) (4,357,814)

OTHER INCOME (EXPENSE)
Interest income 21,829 5,066 4,374 19,763
Dividend income 285,120 - 61,516 214,589
Interest expense (4,060) (786) (24,081) (4,060)
Loss on marketable securities (31,873) - - (52,552)
------------- --------------- -------------- ---------------

Total other income (expense) 271,016 4,280 41,809 177,740
------------- --------------- -------------- ---------------

NET LOSS $ (7,134,779) $ (1,711,596) $ (7,199,142) $ (4,180,074)
------------- --------------- -------------- ---------------
------------- --------------- -------------- ---------------

NET LOSS PER COMMON SHARE $ (.20) $ (.06) $ (.19) $ (.12)
------------- --------------- -------------- ---------------
------------- --------------- -------------- ---------------

WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 35,117,725 26,651,601 38,054,647 34,327,838
------------- --------------- -------------- ---------------
------------- --------------- -------------- ---------------
</TABLE>

<PAGE>

INTERNATIONAL META SYSTEMS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED)
(SEE REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS)
- --------------------------------------------------------------------------------

CONVERTIBLE PREFERRED STOCK COMMON STOCK ADDITIONAL
--------------------------- ----------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>

BALANCE, DECEMBER 31, 1994 $ 26,517,792 $2,651 $7,033,720

ISSUANCE OF SERIES A
PREFERRED STOCK (Note 5) 9,800 1 979,999
ISSUANCE OF SERIES B
PREFERRED STOCK (Note 5) 250 1 24,999
ISSUANCE OF COMMON STOCK (Note 5) 540,000 54 519,946
OFFERING COSTS (58,121)
ISSUANCE OF SERIES A PREFERRED
STOCK FOR OFFERING COSTS (Note 5) 200
ISSUANCE OF COMMON STOCK
IN EXCHANGE FOR SERVICES 109,663 11 97,159
EXERCISE OF OPTIONS 228,000 23 55,977
AMORTIZATION OF DEFERRED
COMPENSATION
DIVIDENDS DECLARED
NET LOSS
---------- ---------- ---------- ---------- -----------

BALANCE, DECEMBER 31, 1995 10,250 2 27,395,455 2,739 8,653,679

ISSUANCE OF COMMON STOCK (Note 5) 9,500,000 950 9,499,050
OFFERING COSTS (62,078)
ISSUANCE OF COMMON STOCK
IN EXCHANGE FOR SERVICES 37,461 4 51,216
EXERCISE OF OPTIONS 522,909 52 173,243
CONVERSION OF DIVIDENDS PAYABLE
TO COMMON STOCK 41,275 4 68,718
AMORTIZATION OF DEFERRED
COMPENSATION
REPRICING OF STOCK OPTIONS (Note 5) 180,095
DIVIDENDS DECLARED
NET LOSS
---------- ---------- ---------- ---------- -----------

BALANCE, DECEMBER 31, 1996 10,250 2 37,497,100 3,749 18,563,923

COMMON
STOCK DEFERRED ACCUMULATED
SUBSCRIBED COMPENSATION DEFICIT TOTAL
---------- ------------ ----------- ----------

<S> <C> <C> <C> <C>
Balance, December 31, 1994 $ (48,375) $ (212,000) $(4,651,784) $2,124,212

ISSUANCE OF SERIES A
PREFERRED STOCK (Note 5) 980,000
ISSUANCE OF SERIES B
PREFERRED STOCK (Note 5) 25,000
ISSUANCE OF COMMON STOCK (Note 5) 520,000
OFFERING COSTS (58,121)
ISSUANCE OF SERIES A PREFERRED
STOCK FOR OFFERING COSTS (Note 5)
ISSUANCE OF COMMON STOCK
IN EXCHANGE FOR SERVICES 97,170
EXERCISE OF OPTIONS 48,375 104,375
AMORTIZATION OF DEFERRED
COMPENSATION 122,928 122,928
DIVIDENDS DECLARED (27,850) (27,850)
NET LOSS (1,711,596) (1,711,596)
---------- ---------- ---------- ----------

BALANCE, DECEMBER 31, 1995 - (89,072) (6,391,230) 2,176,118

ISSUANCE OF COMMON STOCK (Note 5) 9,500,000
OFFERING COSTS (62,078)
ISSUANCE OF COMMON STOCK
IN EXCHANGE FOR SERVICES 51,220
EXERCISE OF OPTIONS (24,120) 149,175
CONVERSION OF DIVIDENDS PAYABLE
TO COMMON STOCK 68,722
AMORTIZATION OF DEFERRED
COMPENSATION 89,072 89,072
REPRICING OF STOCK OPTIONS (Note 5) 180,095
DIVIDENDS DECLARED (80,872) (80,872)
NET LOSS (7,134,779) (7,134,779)
---------- ---------- ---------- ----------

BALANCE, DECEMBER 31, 1996 (24,120) - (13,606,881) 4,936,673
</TABLE>

The accompanying notes are an integral part of these financial statements.

<PAGE>

INTERNATIONAL META SYSTEMS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED)
(SEE REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS)
- --------------------------------------------------------------------------------

CONVERTIBLE PREFERRED STOCK COMMON STOCK ADDITIONAL
--------------------------- ------------ PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>

CONVERSION OF SERIES A PREFERRED STOCK
TO COMMON STOCK (unaudited) (Note 5) (10,000) $ (1) 1,052,632 $ 105 $ (104)
OFFERING COSTS (unaudited) (10,000)
ISSUANCE OF COMMON STOCK
IN EXCHANGE FOR SERVICES (unaudited) 95,750 10 99,880
EXERCISE OF OPTIONS (unaudited) 141,665 14 148,934
CONVERSION OF DIVIDENDS PAYABLE
TO COMMON STOCK (unaudited) 68,794 7 81,032
REPRICING OF STOCK OPTIONS (unaudited)
(Note 5) 157,967
DIVIDENDS DECLARED (unaudited)
NET LOSS (unaudited)
---------- ---------- ---------- ---------- -----------

BALANCE, SEPTEMBER 30, 1997
(UNAUDITED) 250 $ 1 38,855,941 $ 3,885 $19,041,632
---------- ---------- ---------- ---------- -----------
---------- ---------- ---------- ---------- -----------

COMMON
STOCK DEFERRED ACCUMULATED
SUBSCRIBED COMPENSATION DEFICIT TOTAL
---------- ------------ ----------- ----------
<S> <C> <C> <C> <C>

CONVERSION OF SERIES A PREFERRED STOCK
TO COMMON STOCK (unaudited) (Note 5) $ - $ - $ - $ -
OFFERING COSTS (unaudited) (10,000)
ISSUANCE OF COMMON STOCK
IN EXCHANGE FOR SERVICES (unaudited) 99,890
EXERCISE OF OPTIONS (unaudited) 5,220 154,168
CONVERSION OF DIVIDENDS PAYABLE
TO COMMON STOCK (unaudited) 81,039
REPRICING OF STOCK OPTIONS (unaudited)
(Note 5) 157,967
DIVIDENDS DECLARED (unaudited) (41,436) (41,436)
NET LOSS (unaudited) (7,199,142) (7,199,142)
---------- ---------- ------------ -----------

BALANCE, SEPTEMBER 30, 1997
(UNAUDITED) $ (18,900) $ - $(20,847,459) $(1,820,841)
---------- ---------- ------------ -----------
---------- ---------- ------------ -----------
</TABLE>

The accompanying notes are an integral part of these financial statements.

<PAGE>

INTERNATIONAL META SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
(SEE REPORT OF INDEPENDENT CERTIFIED PUBLIC aCCOUNTANTS)

- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
----------------------- -------------------------
1996 1995 1997 1996
----------- ----------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss $(7,134,779) $(1,711,596)$(7,199,142) (4,180,074)
Non-cash items included in
net loss
Issuance of common stock
for services 51,220 97,170 99,890 23,140
Loss on repricing of stock
options 180,095 - 157,967 -
Loss on sale of marketable
securities 31,873 - - -
Depreciation 127,171 77,083 185,762 69,868
Amortization of software
development costs 1,081,061 540,530 - 415,104
Amortization of deferred
compensation 89,072 122,928 - 89,072
(Increase) decrease in
Accounts receivable - - (150,000) (300,000)
Inventory 20,818 (10,818) - -
Prepaid expenses and other
current assets (2,513) (12,586) (28,006) 22,409
Lease deposit - - (250,000) -
Increase (decrease) in
Accounts payable and
accrued expenses 289,386 24,828 862,790 35,970
------------ ----------- ----------- -----------
Net cash used in operating
activities (5,266,596) (872,461) (6,320,739) (3,824,511)
------------ ----------- ----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of marketable
securities (8,471,269) - (2,491,516) (8,442,704)
Proceeds from sale of
marketable securities 3,990,912 - 6,910,550 2,592,264
Acquisition of furniture
and equipment (606,622) (159,025) (518,872) (570,984)
Increase in patent costs (42,576) (9,637) (29,168) (8,917)
------------ ----------- ----------- -----------

</TABLE>

<PAGE>

INTERNATIONAL META SYSTEMS, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
(SEE REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS)

- --------------------------------------------------------------------------------

FOR THE YEARS ENDED FOR THE NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
----------------------- -------------------------
1996 1995 1997 1996
----------- ----------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES $(5,129,555) $(168,662) $3,870,994 $(6,430,341)
------------ ----------- ----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from issuance of
preferred stock - 1,005,000 - -
Proceeds from issuance of
common stock 9,649,175 624,375 148,948 9,611,281
Proceeds from notes payable - - 2,430,000 -
Decrease (increase) in
subscription receivable - - 5,220 (28,570)
Payments on capitalized
leases payable (13,581) (20,526) - (9,758)
Offering costs (62,078) (58,121) (72,423) (62,704)
------------ ----------- ----------- -----------
Net cash provided by financing
activities 9,573,516 1,550,728 2,511,745 9,510,249
------------ ----------- ----------- -----------
Net (decrease) increase in cash
and cash equivalents (822,635) 509,605 62,000 (744,603)

CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 919,417 409,812 96,782 919,417
------------ ----------- ----------- -----------
CASH AND CASH EQUIVALENTS,
END OF YEAR $96,782 $919,417 $158,782 $174,814
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------

</TABLE>

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
During the years ended December 31, 1996 and 1995 and the nine months ended
September 30, 1997 and 1996, interest paid was $4,060, $786, $24,081
(unaudited), and $4,060 (unaudited).

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During the year ended December 31, 1996 and the nine months ended September 30,
1997, 81,425 and $26,000 (unaudited) shares of common stock from the exercise of
options were subscribed for with a subscription receivable in the amount of
$24,120 and $18,900 (unaudited).

<PAGE>

- --------------------------------------------------------------------------------

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES (CONTINUED)
During the year ended December 31, 1996, the Company converted dividends payable
in the amount of $68,722 into 41,275 shares of common stock. During the nine
months ended September 30, 1997, the Company converted dividends payable in the
amount of $81,039 (unaudited) into 68,794 (unaudited) shares of common stock.

During the year ended December 31, 1996 and the nine months ended September 30,
1997, the Company declared dividends amounting to $80,872 and $41,436
(unaudited), respectively.

<PAGE>

INTERNATIONAL META SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
(THE INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED.)
(SEE REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS)

- --------------------------------------------------------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND LINE OF BUSINESS
International Meta Systems, Inc. (the "Company") was incorporated in
Delaware on May 4, 1987. The Company is engaged in the design and
development of microprocessors which are the heart of computers and many
other electronic devices.

INTERIM FINANCIAL INFORMATION
The unaudited financial information furnished herein reflects all
adjustments, consisting only of normal recurring adjustments, which in the
opinion of management, are necessary to fairly state the Company's
financial position, the results of its operations, and cash flows for the
periods present. The results of operations for the nine months ended
September 30, 1997 are not necessarily indicative of results for the entire
fiscal year ending December 31, 1997.

FINANCIAL CONDITION
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles which contemplate continuation of
the Company as a going concern. However, the Company has sustained
substantial losses of $7,134,779 and $1,711,596 in 1996 and 1995,
respectively. In addition, the Company has used, rather than provided,
cash from its operations. In view of the matters described above,
recoverability of a major portion of the recorded asset amounts shown in
the accompanying balance sheet is dependent upon continued operations of
the Company, which in turn, is dependent upon the Company's ability to
continue to meet its financing requirements and to succeed in its future
operations. The financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset
amounts, or amounts and classification of liabilities that might be
necessary should the Company be unable to continue in existence.

Management plans to raise capital during 1997 either through a private
placement or secondary public offering which it expects will provide
sufficient funding to continue present operations and support future
marketing and development activities.

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 and
disclosures of contingent assets and liabilities at the date of the
financial statements as well as the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.

<PAGE>

- --------------------------------------------------------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

CASH EQUIVALENTS
For purpose of the statements of cash flow, the Company considers all
highly liquid instruments purchased with original maturities of three
months or less or be cash equivalents.

NON-MONETARY TRANSACTIONS
The Company accounts for its non-monetary transactions based on the fair
value of the asset or liability that is received or surrendered, whichever
is more clearly evident.

PATENTS
The cost of patents acquired is being amortized on the straight-line method
over their useful lives of 17 years.

FURNITURE AND EQUIPMENT
Furniture and equipment are recorded at cost less accumulated depreciation.
Depreciation is provided using the straight-line method over estimated
useful lives of two to five years.

SOFTWARE DEVELOPMENT COSTS
Certain software development costs are capitalized 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." Capitalization of software development costs begins upon the
establishment of technological feasibility and is discontinued when the
product is available for sale. The establishment of technological
feasibility and the ongoing assessment for recoverability of capitalized
software development costs require considerable judgment by management with
respect to certain external factors, including, but not limited to,
technological feasibility, anticipated future gross revenues, estimated
economic life, and changes in software and hardware technologies.

<PAGE>

- --------------------------------------------------------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

SOFTWARE DEVELOPMENT COSTS (Continued)
Amortization of capitalized software development costs is provided on a
product by product basis on the straight-line method over the remaining
estimated economic life of the product (not to exceed three years).
Management periodically compares estimated net realizable value by product
to the amount of software development costs capitalized for that product to
ensure the amount capitalized is not in excess of the amount to be
recovered through revenues. Any such excess of capitalized software
development cost to expected net realizable value is expensed at that time.
During 1996, management reevaluated the economic useful life of the product
and determined they should be amortizing the capitalized software
development costs over two years instead of three years. Accordingly, as
of December 31, 1996, software development costs of $1,081,061 in aggregate
were fully amortized.

REVENUE RECOGNITION

LICENSE
The Company recognizes revenues related to software licenses upon
shipment of the product, provided that no significant vendor or
post-contract support obligations remain outstanding.

JOINT PRODUCTION AGREEMENT (CONTRACT)
The Company has a production agreement under which it is developing
certain computer processing products. Under this agreement, it can
receive a total of $2,500,000. Payments under this agreement will be
received upon reaching milestones that are defined in the agreement.
The Company recognizes income from its joint production agreement upon
the reaching of defined milestones. The agreement may be terminated
if milestones are not met, but payments already received are not
required to be returned. The party to this agreement has also
provided certain personnel and equipment for use during the
development period. Upon completion of the development phase, the
products will be manufactured by the partner to the agreement and the
Company will receive royalties based upon sales of the product.

In 1996 and 1995, the Company received $300,000 and $600,000,
respectively, of payments under this agreement. Subsequent to
September 30, 1997, the Company received $150,000 (unaudited) of
payments under this agreement.

<PAGE>

- --------------------------------------------------------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to expense as incurred. These
costs consist primarily of salaries and consulting fees.

INCOME TAXES
The Company utilizes SFAS No. 109, "Accounting for Income Taxes." The
asset and liability method requires the recognition of deferred tax assets
and liabilities for the future tax consequences of temporary differences
between the financial statement basis and the tax basis of assets and
liabilities.

NET LOSS PER SHARE
During the year ended December 31, 1996 and nine months ended September 30,
1997 and 1996, net loss per common share is based on the weighted-average
number of common shares outstanding. The shares to be issued upon exercise
of outstanding stock options, warrants, and convertible preferred stock are
not included as they are anti-dilutive.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT
The Financial Accounting Standards Board ("FASB") issued SFAS No. 128,
"Earnings Per Share," which is effective for financial statements issued
for periods ending after December 15, 1997, including interim periods.
SFAS No. 128 requires public companies to present basic earnings per share
and, if applicable, diluted earnings per share instead of primary and
fully-diluted earnings per share. The Company does not believe that
diluted earnings per share in accordance with SFAS No. 128 will be
materially different from the earnings per share previously reported.

SFAS No. 129, "Disclosure of Information about Capital Structures," issued
by FASB is effective for financial statements ending after December 15,
1997. The new standard reinstates various securities disclosure
requirements previously in effect under Accounting Principles Bulletin
("APB") Opinion No. 15, "Computing Earnings per Share," which has been
superseded by SFAS No. 128. The Company does not expect adoption of SFAS
No. 129 to have a material effect, if any, on its financial position or
results of operations.

<PAGE>

- --------------------------------------------------------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT (Continued)
SFAS No. 130, "Reporting Comprehensive Income," issued by FASB is effective
for financial statements with fiscal years beginning after December 15,
1997. SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. The Company does not expect adoption of SFAS No. 130
to have a material effect, if any, on its financial position or results of
operations.

NOTE 2 - CASH

The Company maintains cash deposits at several banks located in California.
Deposits at each bank are insured by the Federal Deposit Insurance
Corporation up to $100,000. In addition, the Company also had deposits with
an uninsured financial institution. As of December 31, 1996 and September
30, 1997, uninsured portions of balances held at this financial institution
totaled $139,822 and $119,168 (unaudited), respectively. The Company has
not experienced any losses in such accounts and believes it is not exposed
to any significant credit risk on cash and cash equivalents.

NOTE 3 - MARKETABLE SECURITIES

The Company adopted SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." The Company classifies its investment in
marketable equity securities as available-for-sale. Available-for-sale
securities are carried at fair value with the unrealized gains and losses
reported as a net amount in a separate component of shareholders' equity
until realized. As of December 31, 1996 and September 30, 1997
(unaudited), the Company owned shares in a Merrill Lynch Institutional Fund
which are uninsured.

<PAGE>

- --------------------------------------------------------------------------------

NOTE 4 - FURNITURE AND EQUIPMENT

Furniture and equipment consisted of the following:

December 31, September 30,
1996 1997
------------ -------------
(unaudited)

Machinery and equipment $ 883,130 $1,385,972
Production tooling 323,649 323,649
Office equipment 39,138 36,713
Furniture and fixtures 46,293 64,757
Equipment under capitalized leases 49,670 49,670
---------- ----------
1,341,880 1,860,761
Less accumulated depreciation (including
$49,670 at 1997 and 1996 for
capitalized leases) 624,757 810,528
---------- ----------
TOTAL $ 717,123 $1,050,233
---------- ----------
---------- ----------

NOTE 5 - STOCKHOLDERS' EQUITY

SERIES A CONVERTIBLE PREFERRED STOCK
In 1995, the Company sold 9,800 shares of Series A Convertible Preferred
Stock ("Series A Preferred") for a price of $100 per share. The Company
also issued 200 shares of Series A Preferred for offering costs. The
holders of the Series A Preferred are entitled to receive a cumulative
preferential dividend of $8.00 per share per annum, payable semi-annually
in cash or shares of common stock, at the option of the Company.

The Series A Preferred will be automatically converted into shares of
common stock at the conversion price of $0.95 per share on June 30, 1997.
In addition, the Company may convert the Series A Preferred into shares of
common stock at the conversion price after the common stock has been
trading at an average price of $3.00 per share for twenty consecutive
days. The Series A Preferred is convertible at the option of the holder
prior to June 30, 1997. On June 30, 1997, all 10,000 (unaudited) shares
of Series A Preferred was converted into 1,052,632 (unaudited) shares of
common stock.

<PAGE>

- --------------------------------------------------------------------------------

NOTE 5 - STOCKHOLDERS' EQUITY (CONTINUED)

SERIES A CONVERTIBLE PREFERRED STOCK (Continued)
The Series A Preferred has a liquidation preference of $100 per share plus
all accrued and unpaid dividends prior to the payment of any amount to
holders of any other equity securities of the Company.

SERIES B CONVERTIBLE PREFERRED STOCK
In 1995, the Company sold 250 shares of Series B Convertible Preferred
Stock ("Series B Preferred") for a price of $100 per share. The holders of
the Series B Preferred are entitled to receive a cumulative preferential
dividend of $8.00 per share per annum, payable semi-annually in cash or
shares of common stock, at the option of the Company.

The Series B Preferred will be automatically converted into shares of
common stock at the conversion price of $1.25 per share on November 30,
1997. In addition, the Company may convert the Series B Preferred into
shares of common stock at the conversion price after the common stock has
been trading at an average price of $3.00 per share for twenty consecutive
days. The Series B Preferred is convertible at the option of the holder
prior to November 30, 1997.

The Series B Preferred has a liquidation preference of $100 per share plus
all accrued and unpaid dividends, following payment of accrued and unpaid
dividends and payment of the liquidation preferences of the Series A
Preferred.

ISSUANCE OF COMMON SHARES
During the year ended December 31, 1996, the Company sold 9,500,000 shares
of common stock in two private placements for a total of $9,437,922, net of
offering costs.

During the year ended December 31, 1995, the Company sold 540,000 shares of
common stock in a private placement for a total of $520,000 before offering
expenses.

During the years ended December 31, 1996 and 1995 and the nine months ended
September 30, 1997, the Company issued 37,461, 109,663, and 95,750
(unaudited) shares of common stock, respectively, in exchange for services
rendered.

<PAGE>

- --------------------------------------------------------------------------------

NOTE 5 - STOCKHOLDERS' EQUITY (CONTINUED)

STOCK OPTION PLANS
The Company has adopted three stock option plans, the 1993 Incentive Stock
Option Plan, the 1993 Nonqualified Stock Option Plan, and the 1996 Stock
Option Plan. Incentive and nonqualified options under these plans may be
granted to employees, officers, directors, and consultants of the Company.
There are 9,000,000 shares of common stock reserved for issuance under
these plans. The exercise price of the options are determined by the board
of directors, but in the case of an incentive stock option, the exercise
price may not be less than 100% of the fair market value on the date of
grant. Options vest over periods not to exceed ten years.

The Company has adopted only the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." It applies APB Opinion No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations in
accounting for its plans and does not recognize compensation expense for
its stock-based compensation plans other than for restricted stock and
options issued to outside third parties. If the Company had elected to
recognize compensation expense based upon the fair value at the grant date
for awards under these plans consistent with the methodology prescribed by
SFAS 123, the Company's net loss and loss per share would be reduced to the
pro forma amounts indicated below:
Year Ended
December 31,
Millions, except for share amounts 1996
----------------
Net loss
As reported $ 7,135
Pro forma $ 7,169
Loss per common share
As reported $ (.20)
Pro forma $ (.20)

<PAGE>

- --------------------------------------------------------------------------------

NOTE 5 - STOCKHOLDERS' EQUITY (CONTINUED)

STOCK OPTION PLANS (Continued)
These pro forma amounts may not be representative of future disclosures
because they do not take into effect pro forma compensation expense related
to grants made before 1995. Pro forma amounts do take into effect pro
forma compensation expense relating to 1995 grants, which were affected by
the repricing in 1996 (see below). The fair value of these options was
estimated at the date of grant using the Black-Scholes option-pricing model
with the following weighted-average assumptions for the year ended December
31, 1996: dividend yield of 0%; expected volatility of 35%; risk-free
interest rates of 7%; and expected life of 1.5 years. The weighted-average
fair value of options granted during the year ended December 31, 1996 for
which the exercise price equaled the market price on the grant date, which
were subsequently repriced (see below) was $0.48, and the weighted-average
exercise price (repriced) was $1.00 (see below).

The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the
fair value of its employee stock options.

The following summarizes the Company's stock option transactions under the
stock option plans:
Shares Under Option Price
Option Per Share
------------ --------------
Options outstanding, December 31, 1994 1,388,000 $.125 - 1.37

Granted 1,165,000 .75 - 2.43
Canceled/Expired (235,000) .40 - 1.37
Exercised (228,000) .125 - 1.25
-----------
Options outstanding, December 31, 1995 2,090,000 .125 - 2.43

Granted 1,760,000 1.06 - 2.31
Canceled/Expired (725,000) .87 - 1.93
Exercised (144,832) .01 - 1.75
-----------

<PAGE>

- --------------------------------------------------------------------------------

NOTE 5 - STOCKHOLDERS' EQUITY (CONTINUED)

STOCK OPTION PLANS (Continued)
Shares Under Option Price
Option Per Share
----------- ------------
Options outstanding, December 31, 1996 2,980,168 $.40 - 2.43

Granted (unaudited) 937,000 1.00 - 1.56
Canceled/Expired (unaudited) (585,000) 1.00 - 1.34
Exercised (unaudited) (166,668) .00 - 1.00
----------
OPTIONS OUTSTANDING, SEPTEMBER 30, 1997
(UNAUDITED) 3,165,500 $.00 - 1.56
----------
----------

At December 31, 1996 and September 30, 1997, 760,166 and 1,018,167
(unaudited) options were exercisable.

During the year ended December 31, 1996, the Company repriced options to
employees which had exercise prices of $1.00 or higher. The new exercise
price for these options is $1.00, which was below the market price at the
repricing date. Since the options vest over five years, the difference
between the original option price and $1.00 is expensed over five years.
During the year ended December 31, 1996 and the nine months ended September
30, 1997, the Company recorded an additional expense of $180,095 and
$157,967 (unaudited) and the remaining $526,867 will be expensed over the
next 3.25 years.

OTHER OPTIONS
In addition to options issued pursuant to the stock option plans, the
Company has issued additional options to officers, directors, consultants,
and others. The following summarizes the Company's other stock option
transactions:

Shares Under Option Price
Option Per Share
------------ -------------

Options outstanding, December 31, 1993 2,954,391 $.01 - 1.25

Canceled/Expired (34,090) .22 - .30
Exercised (517,424) .01 - .10
----------
Options outstanding, December 31, 1994
and 1995 2,402,877 .01 - .75

<PAGE>

- --------------------------------------------------------------------------------

NOTE 5 - STOCKHOLDERS' EQUITY (CONTINUED)

OTHER OPTIONS (Continued)
Shares Under Option Price
Option Per Share
------------ ------------

Granted 315,000 $ .65 - .81
Canceled/Expired (331,850) .30 - .65
Exercised (378,077) .01 - .81
----------

Options outstanding, December 31, 1996 2,007,950 .30 - .81

Granted (unaudited) 580,000 1.18 - 1.65
Canceled/Expired (unaudited) (180,000) .65 - 1.65
Exercised (unaudited) - -
----------
OPTIONS OUTSTANDING, SEPTEMBER 30, 1997
(UNAUDITED) 2,407,950 $ .30 - 1.65
----------
----------

At December 31, 1996 and September 30, 1997, 1,717,950 and 1,907,950
(unaudited) options were exercisable.

In December 1994, the Company extended certain options until September
1996, resulting in deferred compensation being recognized in the amount of
$212,000. As of December 31, 1996, the above deferred compensation was
fully amortized.

WARRANTS
In connection with a private placement of common stock in 1994, 460,000
warrants to purchase common stock at $2.50 per share were issued, which
originally expired in October 1996. In 1996, the Company extended the
expiration date to April 30, 1997. As of September 30, 1997 (unaudited),
the warrants have expired.

<PAGE>

- --------------------------------------------------------------------------------

NOTE 6 - INCOME TAXES

No provision for income taxes has been provided due to the net loss. As of
December 31, 1996 and September 30, 1997, the Company had federal net
operating loss carryforwards of approximately $15,250,000 and $14,515,000
(unaudited), respectively, which expire at various amounts through 2011 and
2012, respectively. The Company also has approximately $147,000 and
$531,000 (unaudited) of federal research and development tax credit
carryforwards for the year ended December 31, 1996 and the nine months
ended September 30, 1997 (unaudited).

Significant components of the Company's deferred tax liabilities and assets
for federal and state income taxes are as follows:

Nine Months
Year Ended Ended
December 31, September 30,
1996 1997
------------ ------------
(unaudited)
Deferred tax assets
Net operating loss carryforwards $5,869,000 $5,506,000
Tax credits 491,000 849,000
Depreciation and amortization costs - 2,560,000
Other 6,000 47,000
---------- ----------
Total deferred tax assets 6,366,000 8,962,000

Valuation allowance for deferred
tax assets 6,366,000 8,962,000
---------- ----------
NET DEFERRED TAX ASSETS $ - $ -
---------- ----------
---------- ----------

The net change in the valuation allowance for the year ended December 31,
1996 and the nine months ended September 30, 1997 was an increase of
$3,528,000 and $2,596,000 (unaudited), respectively.

<PAGE>

- --------------------------------------------------------------------------------

NOTE 7 - COMMITMENTS

The Company leases certain facilities for its corporate offices under
long-term lease agreements. Minimum annual rental commitments under these
leases are as follows:

Year Ending
December 31,
--------------
1997 $ 213,651
1998 218,585
1999 121,355
2000 101,909
Thereafter 42,462
---------------
TOTAL $ 697,962
---------------
---------------

Rent expense was $182,187 and $84,326 for the years ended December 31, 1996
and 1995, respectively, and $165,632 (unaudited) and $136,855 (unaudited)
for the nine months ended September 30, 1997 and 1996, respectively.

EMPLOYMENT AGREEMENTS (UNAUDITED)
On February 3, 1997, the Company entered into a three-year employment
agreement with the Company's President to pay an annual base salary of
$130,000 plus other benefits.

NOTE 8 - NOTES PAYABLE (UNAUDITED)

Notes payable as of September 30, 1997 consist of:

(A) UNSECURED PROMISSORY NOTES
In June and August 1997, the Company entered into unsecured
promissory notes which bear interest at 8% per annum.
The notes are payable the earlier of (i) five business days
following the closing of a secondary public offering of the
Company's securities or (ii) one year following the date of the
note.

<PAGE>

- --------------------------------------------------------------------------------

NOTE 8 - NOTES PAYABLE (UNAUDITED) (CONTINUED)

(A) UNSECURED PROMISSORY NOTES (Continued)
In addition, for each $5,000 principal amount of notes
subscribed, the holder will receive 7,143 warrants to
purchase shares of the Company's common stock.
The warrants are exercisable at an exercise price equal to
(i) 100% of the per share public offering price, in the
event that the shares shall be registered in connection
with an effective registration statement related to a
secondary public offering of the Company's securities on or
before December 31, 1997 or (ii) 75% of the average closing
bid price for the common stock over the five trading-day period
ending on the day preceding the date of exercise of the
warrant, in the event that the common shares shall not be
registered and the public offering shall not be completed on
or before December 31, 1997. The shares will be restricted
from transfer or resale during the nine months following the
effective date of the secondary public offering and have
certain demand and piggyback registration rights.

In connection with the above notes, 614,298 warrants to
purchase the Company's common stock were issued. The
warrants expire on July 31, 2002. $ 430,000

(B) CONVERTIBLE PROMISSORY NOTE (NOTE 1)
In July 1997, the Company entered into a convertible promissory
note, with a majority stockholder. The note bears interest at 8%
per annum. The principal amount together with the accrued and
unpaid interest is payable on July 15, 1998. The holder of the
note has the option at any time to convert the outstanding
principal together with accrued and unpaid interest into shares
of the Company's common stock at a per share conversion rate
equal to the aggregate principal together with accrued
and unpaid interest, divided by the lower of (i) $1.00, subject
to adjustments for stock splits, reverse splits, stock
dividends, or recapitalizations of the common stock and

<PAGE>

- --------------------------------------------------------------------------------

NOTE 8 - NOTES PAYABLE (UNAUDITED) (CONTINUED)

(B) CONVERTIBLE PROMISSORY NOTE (NOTE 1) (Continued)
(ii) 75% of the average of the mean between the closing bid and
asked prices for the common stock during the five trading days
preceding the notice date of the exercise of such option.
Further, the Company has the right to require the holder at
any time prior to July 15, 1998, to convert the outstanding
principal together with accrued and unpaid interest, if the
mean between the closing bid and asked prices of the common
stock is greater than $2.00 per share, subject to adjustments
for stock splits, reverse splits, stock dividends, or
recapitalizations. The note is secured by the Company's
assets. $1,500,000

CONVERTIBLE PROMISSORY NOTE (NOTE 2)
On September 16, 1997, the Company entered into a
convertible promissory note, with a majority stockholder.
The note bears interest at 8% per annum. The principal
amount together with the accrued and unpaid interest is
payable on September 16, 1998. The holder of the note
has the option at any time to convert the outstanding prin-
cipal together with accrued and unpaid interest into
shares of the Company's common stock at a per
share conversion rate equal to the aggregate prin-
cipal together with accrued and unpaid interest, divided
by the lower of (i) $.50, subject to adjustments for stock
splits, reverse splits, stock dividends, or recapitalizations
of the common stock and (ii) 75% of the average of the
mean between the closing bid and asked prices for
the common stock during the five trading days preceding
the notice date of the exercise of such option. Further,
the Company has the right to require the holder at any
time prior to September 16, 1998, to convert the
outstanding principal together with accrued and unpaid
interest, if the mean between the closing bid and asked
prices of the common stock is greater than $2.00 per
share, subject to adjustments for stock splits,
reverse splits, stock dividends, or recapitalizations.
The note is secured by the Company's assets. 500,000
--------------
TOTAL $ 2,430,000
--------------
--------------

<PAGE>

- --------------------------------------------------------------------------------

NOTE 9 - SUBSEQUENT EVENTS (UNAUDITED)

PROMISSORY NOTE
On October 10, 1997, the Company issued $250,000 of promissory notes which
accrue interest at a rate of 10% per annum. The principal sum together
with interest payable in arrears is due on January 9, 1998. In addition,
250,000 warrants to purchase shares of common stock at $0.50 per share were
issued which expire on October 9, 1999.

OTHER
In November 1997, the Company entered into an agreement to receive an
advance of $1,000,000 in which $500,000 was received upon signing of the
agreement and $500,000 is due in December 1997. The advance is to be used
for payment of services to be provided by the Company, or for a
non-exclusive use license of the Company's library or software products for
a twelve month period.

STOCK OPTIONS
Subsequent to September 30, 1997, the Company granted 25,000 stock options
with an exercise price of $0.63 per share. In addition, 340,000 options
expired.

STOCK
In November 1997, the Company issued 50,000 shares of common stock to a
consultant in exchange for services rendered.

<PAGE>

NO DEALER, SALES REPRESENTATIVES, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO, OR A SOLICITATION
OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.

TABLE OF CONTENTS

Page

Prospectus Summary . . . . . . . . . . . . . . . . . . . . 2
Summary Financial Information. . . . . . . . . . . . . . . 4
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . 5
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . 16
Dividend Policy. . . . . . . . . . . . . . . . . . . . . . 18
Price Range of
Common Stock . . . . . . . . . . . . . . . . . . . . . . 18
Dilution.. . . . . . . . . . . . . . . . . . . . . . . . . 19
Capitalization . . . . . . . . . . . . . . . . . . . . . . 21
Management's Discussion and
Analysis of Results of
Operations and Financial
Condition . . . . . . . . . . . . . . . . . . . . . . . . 22
Business.. . . . . . . . . . . . . . . . . . . . . . . . . 27
Management . . . . . . . . . . . . . . . . . . . . . . . . 40
Compensation of Executive
Officers and Directors. . . . . . . . . . . . . . . . . . 43
Certain Relationships
and Related Transactions. . . . . . . . . . . . . . . . . 49
Principal Stockholders . . . . . . . . . . . . . . . . . . 53
Description of Securities. . . . . . . . . . . . . . . . . 55
Shares Eligible for Future Sale. . . . . . . . . . . . . . 60
Underwriting . . . . . . . . . . . . . . . . . . . . . . . 61
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . 62
Experts... . . . . . . . . . . . . . . . . . . . . . . . . 62
Additional Information . . . . . . . . . . . . . . . . . . 63
Financial Statements . . . . . . . . . . . . . . . . . . . 64

Until _______, 1997 (25 days from the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligations of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.

INTERNATIONAL META
SYSTEMS, INC.

_____________ SHARES

____________

PROSPECTUS
____________

NICHOLS, SAFINA,
LERNER & CO., INC.

MILLENNIUM FINANCIAL
GROUP, INC.

_______________, 1997
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The Registrant estimates that expenses in connection with the Offering
described in this Registration Statement, other than the underwriting discount,
will be as follows:

Securities and Exchange Commission Registration Fee . . . . . . . . $
National Association of Securities Dealers, Inc. Filing Fee . . . .
Accounting Fees and Expenses . . . . . . . . . . . . . . . . . . . .
Registrant's Legal Fees and Expenses . . . . . . . . . . . . . . . .
Blue Sky Fees and Expenses . . . . . . . . . . . . . . . . . . . . .
Exchange Listing Fee . . . . . . . . . . . . . . . . . . . . . . . .
Printing Expenses . . . . . . . . . . . . . . . . . . . . . . . . .
Transfer Agent Fee . . . . . . . . . . . . . . . . . . . . . . . . .
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.

The Company's Certificate of Incorporation generally provides for the
maximum indemnification of a corporation's officers and directors as
permitted by law in the State of Delaware. Delaware law empowers a
corporation to indemnify any person who was or is a party or who is
threatened to be made a party to any threatened, pending, or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, except in the case of an action by or in the right of the
corporation, by reason of the fact that he or she is or was a director,
officer, employee or agent of the corporation or is or was serving at the
request of the corporation as a director, officer, employee or agent of
another corporation or other enterprise. Depending on the character of the
proceeding, a corporation may indemnify against expenses (including
attorney's fees), judgments, fines and amounts paid in settlement actually
and reasonably incurred in connection with such action, suit or proceeding if
the person indemnified acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceedings, had no
reasonable cause to believe his or her conduct was unlawful.

A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he or she is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation or other
enterprise, against expenses, including amounts paid in settlement and
attorney's fees actually and reasonably incurred by him or her in connection
with the defense or settlement of the action or suit if he or she acted in good
faith and in a manner which he or she reasonably believed to be in or not
opposed to the best interests of the corporation. Indemnification may not be
made for any claim, issue or matter as to which such a person has been adjudged
by a court of competent jurisdiction, after exhaustion of all appeals therefrom,
to be liable to the corporation or for amounts paid in settlement to the
corporation unless and only to the extent that the court in which the action or
suit was brought or other court of competent jurisdiction determines upon
application that in view of all the circumstances of the case, the person is
fairly and reasonably entitled to indemnity for such expenses as the court deems
proper.

II-1
<PAGE>

To the extent that a director, officer, employee or agent of a corporation
has been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to above, or in defense of any claim, issue or matter
therein, he or she must be indemnified by the corporation against expenses,
including attorney's fees, actually and reasonably incurred by him in connection
with the defense. Any indemnification under this section, unless ordered by a
court or advanced pursuant to this section, must be made by the corporation only
as authorized in the specific case upon a determination that indemnification of
the director, officer, employee or agent is proper in the circumstances. The
determination must be made: (a) by the stockholders; (b) by the board of
directors by majority vote of a quorum consisting of directors who were not
parties to the action, suit or proceeding; (c) if a majority vote of a quorum
consisting of directors who were not parties to the action, suit or proceeding
so orders, by independent legal counsel in a written opinion; or (d) if a quorum
consisting of directors who were not parties to the action, suit or proceeding
cannot be obtained, by independent legal counsel in a written opinion.

The articles of incorporation, the bylaws or an agreement made by the
corporation may provide that the expenses of officers and directors incurred in
defending a civil or criminal action, suit or proceeding must be paid by the
corporation as they are incurred and in advance of the final disposition of the
action, suit or proceeding upon receipt of an undertaking by or on behalf of the
director or officer to repay the amount if it is ultimately determined by a
court of competent jurisdiction that he or she is not entitled to be indemnified
by the corporation. The provisions of this section do not affect any rights to
advancement of expenses to which corporate personnel other than directors or
officers may be entitled under any contract or otherwise by law.

The indemnification and advancement of expenses authorized in or ordered by
a court pursuant to this section: (a) does not exclude any other rights to which
a person seeking indemnification or advancement of expenses may be entitled
under the articles of incorporation or any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, for either an action in
his or her official capacity or an action in another capacity while holding his
or her office, except that indemnification, unless ordered by a court pursuant
to this section or for the advancement of any director or officer if a final
adjudication establishes that his or her acts or omissions involved intentional
misconduct, fraud or a knowing violation of the law and was material to the
cause of action; and (b) continues for a person who has ceased to be a director,
officer, employee or agent and inures to the benefit of the heirs, executors and
administrators of such a person.

The Company has obtained directors' and officers' liabilities insurance
with a $1,000,000 limit of liability. Further, the Company may enter into
agreements of indemnification with its directors to provide for indemnification
to the fullest extent permitted under Delaware law.

The Underwriting Agreement, the proposed form of which is filed herewith,
contains provisions by which the Underwriters agree to indemnify the Registrant,
each person who controls the Registrant within the meaning of Section 15 of the
Securities Act of 1933, as amended (the "Securities Act"), or Section 20 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), each director
of the Registrant, and each officer of the Registrant who signs this
Registration Statement with respect to information relating to such underwriter
furnished in writing by such Underwriter for use in the Registration Statement.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

The Company intends to effect a reverse split of the issued and outstanding
shares of Common Stock on a 1-for-___ basis on the Effective Date of this
Registration Statement. The number of shares of Common Stock and per share
purchase prices set forth in this Item 15 give effect to such reverse stock
split.

II-2
<PAGE>

From August, 1995 to October, 1995, the Company issued 10,000 shares of
Series A Preferred Stock, at an aggregate purchase price of $980,000. From
January, 1996 to July, 1996, the Company issued 41,275 shares of Common Stock as
dividends on the Series A Preferred Stock to such persons. On June 30, 1997,
the 10,000 shares of Series A Preferred Stock were converted by their terms into
1,052,632 shares of Common Stock.

In November, 1995, the Company issued 250 shares of Series B Preferred
Stock, at an aggregate purchase price of $25,000. From July, 1996 to July,
1997, the Company issued 2,209 shares of Common Stock as dividends on the Series
B Preferred Stock to such persons. On November 30, 1997, the 250 shares of
Series B Preferred Stock were converted by their terms into 20,000 shares of
Common Stock.

From December, 1995 to March, 1996, the Company issued 10,000,000 shares of
Common Stock, at an aggregate purchase price of $10,000,000.

From 1995 to 1996, the Company issued an aggregate of 147,124 shares of
Common Stock, at an aggregate purchase price of $148,390, as compensation for
services rendered to the Company.

From June through August, 1997, the Company issued an aggregate of $430,000
of certain unsecured promissory notes and warrants to purchase up to 614,298
shares of Common Stock. The Company paid placement fees equal to 10% of the
gross purchase price of the notes.

In July, 1997, the Company issued $1,500,000 of promissory notes
convertible into shares of Common Stock. The Company paid placement fees equal
to 8% of the gross purchase price of the notes.

In September, 1997, the Company issued $500,000 of promissory notes
convertible into shares of Common Stock. The Company paid placement fees equal
to 8% of the gross purchase prices of the notes.

In October, 1997, the Company issued $250,000 of certain unsecured
promissory notes and warrants to purchase up to 250,000 shares of Common Stock.

In November, 1997, the Company issued 50,000 shares of Common Stock, at an
aggregate purchase price of $25,500, for services rendered to the Company.

Except as otherwise provided above, the Company believes each of the
foregoing issuances of securities was made to accredited investors in
transactions exempt from registration under Section 4(2) of the Securities Act.

II-3
<PAGE>

ITEM 16

EXHIBITS.
- ---------

1.1 Underwriting Agreement(1)
1.2 Underwriters' Warrant*
1.3 Selected Dealer Agreement*
1.4 Agreement Among Underwriters*
3.1 Restated Certificate of Incorporation(2)
3.2 Certificate of Amendment to the Restated Certificate of
Incorporation(1)
3.3 Form of Certificate of Amendment to the Restated Certificate of
Incorporation(3)
3.4 Bylaws(2)
3.5 Certificate of Rights and Preferences of Series A Convertible
Preferred Stock(1)
3.6 Certificate of Rights and Preferences of Series B Convertible
Preferred Stock(1)
4.1 Specimen Common Stock Certificate*
5.1 Opinion of Matthias & Berg LLP(1)
10.1 1996 Stock Option Plan(2)
10.2 1993 Incentive Stock Option Plan(4)
10.3 1993 Non-Qualified Stock Option Plan(4)
10.4 Employment Agreement between the Company and Lee W. Hoevel(1)
10.5 Stock Purchase Agreement between the Company and Paragon Limited
Partnership(1)
22.1 List of subsidiaries of the Company(1)
24.1 Consent of Singer Lewak Greenbaum & Goldstein LLP
24.2 Consent of Matthias & Berg LLP (included in Exhibit 5.1)(1)
25.1 Power of Attorney (included on signature page)(1)
27.1 Financial Data Schedules

_____________________________

* To be filed by amendment.

1. Filed previously as part of this Registration Statement.
2. Filed as part of the Company's Registration Statement on Form S-8,
dated January 24, 1997.
3. Filed as part of the Company's Proxy Statement on Schedule 14A, dated
August 6, 1997
4. Filed as part of the Company's Registration Statement on Form S-8,
dated February 11, 1994.

II-4
<PAGE>

ITEM 17. UNDERTAKINGS.

The undersigned Registrant hereby undertakes:

At the closing of this Offering, the Company will provide certificates
evidencing the Common Stock in such denominations and registered in such names
as required by the Underwriters to permit prompt delivery to the purchasers.

The undersigned Registrant hereby undertakes it will:

(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this Registration Statement to:

(i) Include any Prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the Prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement; and
(iii) Include any material information with respect to the plan of
distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.

(2) For the purpose of determining any liability under the Securities Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered, and the offering of the securities
at that time shall be deemed to be the initial bona fide offering thereof.

(3) File a post-effective amendment to remove from registration any of the
securities being registered that remain unsold at the end of the Offering.

In addition, the undersigned Registrant hereby undertakes:

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.

For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be a part of this Registration
Statement as of the time it was declared effective.

For the purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.

II-5
<PAGE>

SIGNATURES AND POWERS OF ATTORNEY

Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of El Segundo, California on
December 3, 1997.

INTERNATIONAL META SYSTEMS, INC.

By: /s/George W. Smith
-----------------------------------------
George W. Smith, Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

Signature Capacity in Which Signed Date
--------- ------------------------ ----

<S> <C> <C>
/s/George W. Smith Director, Chief Executive Officer December 3, 1997
- ----------------------------------- and Chief Financial Officer (acting)
George W. Smith (Principal Financial Officer
and Principal Accounting
Officer)

/s/Lee W. Hoevel Director, President and Secretary December 3, 1997
- ------------------------------------
Lee W. Hoevel

/s/Martin S. Albert Chairman of the Board of Directors December 3, 1997
- -------------------------------------
Martin S. Albert

/s/Frank LaChapelle Director December 3, 1997
- -------------------------------------
Frank LaChapelle

/s/Philip Neches Director December 3, 1997
- -------------------------------------
Philip Neches

/s/ Masahiro Tsuchiya Director December 3, 1997
- -------------------------------------
Masahiro Tsuchiya

/s/ Sigmund Hartmann Director December 3, 1997
- -------------------------------------
Sigmund Hartmann

</TABLE>
II-6

<PAGE>

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We have issued our report dated February 21, 1997, accompanying the financial
staements of International Meta Systems, Inc. contained in the Registration
Statement and Prospectus. We consent to the use of the aforementioned report in
the Registration Statement and Prospectus, and to the use of our name as it
appears under the caption "Experts."

SINGER LEWAK GREENBAUM & GOLDSTEIN LLP

Los Angeles, California
December 2, 1997

<PAGE>
<ARTICLE> 5

<S> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 SEP-30-1997
<CASH> 96,782 158,782
<SECURITIES> 4,448,484 29,450
<RECEIVABLES> 0 150,000
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 4,586,090 407,062
<PP&E> 1,341,880 1,860,761
<DEPRECIATION> 624,757 810,528
<TOTAL-ASSETS> 5,401,920 1,897,593
<CURRENT-LIABILITIES> 465,247 3,718,434
<BONDS> 0 0
2 1
0 0
<COMMON> 3,749 3,885
<OTHER-SE> 4,932,922 (1,824,727)
<TOTAL-LIABILITY-AND-EQUITY> 5,401,920 1,897,593
<SALES> 300,000 150,000
<TOTAL-REVENUES> 300,000 150,000
<CGS> 0 0
<TOTAL-COSTS> 7,705,795 7,390,951
<OTHER-EXPENSES> 31,873 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (4,060) (24,081)
<INCOME-PRETAX> (7,134,779) (7,199,142)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (7,134,779) (7,199,142)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (7,134,779) (7,199,142)
<EPS-PRIMARY> (.20) (.19)
<EPS-DILUTED> (.20) (.19)

</TABLE>