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United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934
For Quarter Ended June 30, 1997 Commission File Number 33-16416-LA
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International Meta Systems, Inc.
100 N. Sepulveda Blvd., Suite 601
El Segundo, CA 90245
(Exact name of registrant as specified in its charter)
Delaware 33-0146747
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(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification Number
Registrant's telephone number, including area code: (310) 524-9300
Indicate by check whether the registrant (1) has filed all reports required to
be filed by Section 12(g) 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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International Meta Systems, Inc.
("Company" or "Registrant")
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practical date.
Common Stock, $.0001 Par Value - 38,792,840 as of August 1, 1997.
PART I.
FINANCIAL INFORMATION
Item 1 - Financial Statements
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INTERNATIONAL META SYSTEMS, INC.
BALANCE SHEETS
June 30, 1997 and December 31, 1996
ASSETS
June 30, Dec. 31
1997 1996
----------- -----------
(unaudited) (unaudited)
Current Assets
Cash and Cash Equivalents $ 44,308 $ 96,782
Marketable Securities 533,437 4,448,484
Prepaid Expenses and other
current assets 36,582 40,824
Deferred Offering Costs 25,000 0
---------- -----------
Total Current Assets 639,327 4,586,090
Furniture and Equipment
at cost less accumulated
depreciation 948,247 717,123
Patents 126,519 98,707
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TOTAL ASSETS $1,714,093 $ 5,401,920
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INTERNATIONAL META SYSTEMS, INC.
BALANCE SHEETS
June 30, 1997 and December 31, 1996
LIABILITIES AND SHAREHOLDERS' EQUITY
June 30 Dec. 31
1997 1996
----------- -----------
(unaudited) (unaudited)
Current Liabilities
Accounts Payable $ 542,858 $ 257,972
Short Term Notes Payable 320,000 0
Accrued Payroll and Payroll Taxes 195,589 167,275
Stock Dividends Payable 39,945 40,000
----------- -----------
Total Current Liabilities 1,098,392 465,247
----------- -----------
Shareholders' Equity
Preferred Stock: $.0001 par value: 1,000,000
shares authorized
Series A Convertible Preferred Stock,
10,000 shares issued and outstanding (1996)
(Effective June 30, 1997 all Series A
Preferred stock converted to
Common Stock) 0 1
Series B Convertible Preferred Stock,
250 shares issued and outstanding 1 1
Common Stock $.0001 par value,
authorized 70,000,000 shares; issued
and outstanding 37,497,100 shares (1996)
38,784,507 (1997) 3,878 3,749
Additional Paid-in Capital 18,951,331 18,563,923
Subscription Receivable (18,900) (24,120)
Accumulated Deficit (18,320,609) (13,606,881)
----------- -----------
Total Shareholders' Equity 615,701 4,936,673
----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 1,714,093 $ 5,401,920
----------- -----------
----------- -----------
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INTERNATIONAL META SYSTEMS, INC.
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
------------- ----------------
June 30 June 30 June 30 June 30
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue
Sales $ 0 $ 0 $ 0 $ 0
Contract Payment 0 0 0 0
Cost and Expenses
Research and Development 1,578,704 1,007,061 2,781,655 1,413,286
Selling, General and Admin. 734,955 728,689 1,837,327 1,181,921
Depreciation and Amort. 63,874 164,514 115,852 320,299
----------- ----------- ----------- -----------
Loss from Operations (2,377,533) (1,900,264) (4,734,834) (2,915,506)
Other Income (Expenses)
Interest Net 16,211 127,824 62,106 129,586
Loss on Marketable Securities 0 (44,244) 0 (44,244)
----------- ----------- ----------- -----------
NET LOSS $(2,361,322) $(1,816,684) $(4,672,728) $(2,830,164)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net Loss per common shares $ (.06) $ (.05) $ (.12 ) $ (.09)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average common
shares outstanding 37,712,261 37,049,373 37,668,862 32,781,554
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
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INTERNATIONAL META SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
Six Months ended
June 30, 1997 June 30, 1996
------------- -------------
Cash flows from operating activities
- - ------------------------------------
Net loss $ (4,672,728) $ (2,830,164)
Reconciliation of net loss to net
cash used in operating activities:
Amortization of deferred
compensation 0 61,374
Loss on repricing of stock options 115,935 0
Issuance of common stock for
services 116,425 15,000
Depreciation and amortization 115,851 597,035
(Increase) decrease in:
Prepaid expenses and other
current assets 4,242 15,072
Increase in:
Accounts payable and accrued
expenses 313,200 10,761
----------- -----------
Net cash used in operating activities (4,007,075) (2,130,922)
----------- -----------
Cash flows from investing activities
- - ------------------------------------
Purchase of marketable securities (377,953) 0
Proceeds from sale of marketable
securities 4,293,000 0
Acquisition of furniture and
equipment (346,975) (521,992)
Increase in patent costs (27,812) (7,074)
----------- -----------
Net cash provided by investing
activities 3,540,260 (529,066)
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Cash flows from financing activities
- - ------------------------------------
Proceeds from issuance of common
stock, net 124,121 9,473,682
Offering costs (35,000) 0
Decrease in subscriptions
receivable 5,220 0
Payments on capitalized leases
payable 0 (5,863)
Short term notes payable 320,000 0
----------- -----------
Net cash provided by financing
activities 414,341 9,467,819
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Net increase (decrease) in cash
and cash equivalents (52,474) 6,807,831
----------- -----------
Cash and cash equivalents,
beginning of period 96,782 919,417
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Cash and cash equivalents, end
of period $ 44,308 $ 7,727,248
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INTERNATIONAL META SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-QSB and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for annual financial statements. In
the opinion of management, all adjustments (consisting only of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the six month period ended June 30, 1997 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1997. For further information, refer to the financial statements
and footnotes thereto included in the Company's annual report on Form 10-KSB for
the year ended December 31, 1996.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL
THE COMPANY
IMS designs and develops microprocessor chip technologies, focusing on ways
to raise the performance and functionality of industry-standard microprocessors
while lowering their cost. IMS intends to sell its technologies through
licensing arrangements with industry leaders or will sell end products directly
to consumers.
IMS has established a focused business strategy to achieve future growth. It
includes:
- - - Develop proprietary technology for leading-edge designs.
- - - Establish partnerships and joint development or marketing arrangements with
select, industry leaders.
- - - Market a diverse product line that targets mainstream industry-compatible
devices to meet the needs of major computer, entertainment and
telecommunications markets and the high end of the emerging Internet access
market.
This strategy, coupled with the Company's plan to leverage and reuse its
technology, is intended to permit IMS to develop and market products that are
anticipated to have substantial market demand.
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IMS PRODUCTS
IMS is currently focusing on completion of the Meta 6000, an Intel-compatible
processor, and conducting prototype development and market acceptance studies
for an Internet language accelerator, the Meta Expresso.
INTEL-COMPATIBLE PROCESSORS
Over the past decade, IMS has designed and produced a series of
microprocessors, the Meta 3230, 3240 and 3250, that emulate both high-level
languages and industry-standard machine languages. The Meta 3240 emulated
Motorola's 68000 instruction set, while the Meta 3250 could emulate both the
Motorola 68040 and the Intel 486 instruction sets. These emulators performed
well and exhibited good fidelity, running industry-standard software like DOS
and Windows.
In partnership with a major international semiconductor manufacturer, the
development partner, IMS is developing the Meta 6000, a fully custom socket-
compatible version of the Intel Pentium-TM- chip. Performance is targeted to
approximate that of a 300 MHz Pentium-TM-. Special design elements, which are
individually reusable, include:
- - - Deep pipeline with multiple execution units allowing out-of-sequence
execution.
- - - On-chip MMX (Intel's Multimedia Unit) calculated to be 30% more powerful than
Intel's P55C MMX, on a clock-for-clock basis.
- - - Process accelerator mechanisms. IMS-proprietary branch prediction and memory
structures help avoid pipeline breakage due to control transfers or memory
access delays, increasing the number of instructions that can be executed in
a single cycle. Each of these design elements is individually reusable.
The Meta 6000 will be manufactured by the development partner using a .35
micron production process. The Company anticipates migrating the design to a
.25 micron process, resulting in a chip called the Meta 6500 that may have a
substantial performance increase over the Meta 6000. No assurances can be
provided that the Meta 6000 will achieve its performance objectives. Also, no
assurances can be given that IMS will be successful in obtaining agreement from
the development partner to proceed with the Meta 6500 project or that, if
pursued, the anticipated performance increase will be achieved.
Dr. Lee W. Hoevel was employed as President of the Company on February 3,
1997. Prior to accepting this position, Dr. Hoevel had served as a consultant
with the Company in connection with the Meta 6000 Chip project for seven months.
Dr. Hoevel is currently working from the Austin Design Center.
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INTERNET LANGUAGE ACCELERATORS
IMS has deep roots in designing very high level language engines -- the Meta
3230 and 3240. These products were developed to execute Smalltalk byte-codes in
addition to standard machine languages, such as C, C++ and FORTRAN. Indeed, the
Meta 3240 ran Smalltalk programs 10-30 times faster than competing
microprocessors.
The mechanisms and techniques developed by IMS for supporting these earlier
products are directly applicable to Java technology, a simple, general purpose
programming language gaining rapid use for Internet applications. The Java
language is designed so that applications written in it will run in a network of
computers made by different manufacturers, or using different microprocessors.
Typically, the Java instructions are interpreted in these machines through the
use of their own native instructions and this often significantly slows down
their execution time. Therefore, many companies are looking for ways to
accelerate Java and obtain much higher levels of performance. When applied to
Java, the existing IMS 3240 design yields substantially improved performance
over software interpretation of Java on standard Reduced Instruction Set ( RISC)
engines.
IMS is using its 3240 technology to develop a prototype of a
high-performance Java chip, the Meta Expresso-TM-, which will support the
proliferation of inexpensive Java-programmable devices. The Company is
currently evaluating potential approaches for marketing a Java capability and
is seeking a development partner.
As more elaborate multimedia human interfaces and broader use of Java as a
general-purpose language create the need for even greater performance, IMS may
develop an even higher performance engine, the Meta Double-Expresso-TM-, by
applying the super-scalar technologies and mechanisms now under development for
the Meta 6000. No assurance can be given that IMS will be successful in
developing or marketing either of these Java processors.
RESULTS OF OPERATIONS, 2ND QUARTER, 1997
The operating loss for the quarter increased by $510,228 compared to the
same quarter in 1996, while the net loss increased by $577,597. For the six
months ended June 30, 1997, the operating loss increased by $1,819,328 and the
net loss increased by $1,842,564 compared to the same period in 1996. The
increased losses are primarily attributable to significant increases in
personnel in 1996 and throughout the 1997 year. The Meta 6000 Microprocessor
Design Project was near full staffing during this reporting period, while in the
same 1996 period, the staffing effort was recently underway. The Austin Design
Center was also expanded during this year. These factors and ongoing costs in
connection with the Meta 6000 project, account for the vast majority of the
increase in net loss for the period.
Research and Development expense during the reporting quarter increased by
$330,553 over the comparable quarter in 1996, and by $1,368,369 for the current
6 months ended 6/30/97 over the comparable period in 1996. This increase was
primarily due to the increase in staff from 28 at
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3/31/96 to 58 at 6/30/97. The staff of 58 full time employees and a number of
part-time and full-time consultants now support the Meta 6000 development and
the other Company projects. There also were increased expenses associated with
the expansion of the Austin Design Center, from 5,604 square feet to 8,205
square feet at the beginning of this year.
Selling, general and administrative expenses during the current quarter
increased by $280,315 over the comparable quarter in 1996, and by $655,406 for
the current six months ended 6/30/97 over the comparable period in 1996. These
increases were primarily due to increases in travel; communications charges
required to coordinate the Meta 6000 development between headquarters and the
Austin Design Center; recruiting fees for staffing; relocation fees for new
employees; and consulting fees for product studies. Also, Federal and state
taxes, employee benefits, insurance costs and utilities increased
proportionately with the increases in staffing and space.
Depreciation and Amortization decreased during the current quarter by
$100,640 and by $204,447 for the six months ended 6/30/97 over the comparable
periods in 1996. The Meta 3250 software was fully amortized at the end of 1996,
thus no further amortization is being accrued.
Interest Income decreased by $111,613 during the current quarter over the
comparable period in 1996, and by $67,480 during the current six months ended
6/30/97 over the comparable period in 1996. These decreases reflect the
utilization during the current periods of the Marketable Securities balances
which provide the Interest Income. These funds were utilized for working
capital.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
The Company's total current assets including cash or cash equivalents was
$639,327 at the end of the current quarter compared to $4,586,090 at the end of
1996. These assets, combined with anticipated progress payments from the
development partner for the Meta 6000 development contract, are not sufficient
to allow the Company's activities related to the Meta 6000 Project to proceed
through initial chip production. The anticipated progress payments are tied to
milestone achievements, and no assurance can be given that all or any of such
milestones will be achieved.
Additional funding is required for IMS to complete product design and
testing, and to market and inventory the chip for the retrofit market or for
direct sales to Original Equipment Manufacturers. On May 7, 1997 the Company
signed a firm letter of intent with respect to a public offering by
International Meta Systems, Inc. of up to $25 million of shares of common stock
to be underwritten by a group of underwriters led by Nicols, Safina, Lerner and
Company, Inc., New York, N.Y. There can be no assurances that this proposed
offering will be completed on these terms or at all.
9
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In connection with this proposed offering, the Company began to pursue
interim funding through bridge financing, to be redeemed upon completion of the
public offering, and through a Regulation D private placement of equity. As of
June 30, 1997 commitments for $1,820,000 of this interim financing were received
and on June 24, 1997 funds amounting to $320,000 were received by the Company.
As of the date of this Report, Company has received $1,320,000 of these
commitments. An additional $500,000 are due upon written request by the Company
to an affiliate. No assurances can be given that the Company will obtain all the
committed funds or that the balance of the interim financing will be completed
on terms acceptable to the Company or at all. SEE PART II - ITEM 5 - OTHER
INFORMATION.
Business opportunities related to follow-on chips such as the Meta 6500,
Java products or other projects would require additional funds to initiate these
new projects. No assurances can be given that any new project will be
initiated, completed, or that funding for such projects can be obtained.
The Company elected to pay interest, due December 31, 1996, on its Series A
and Series B Convertible Preferred Stock in shares of Common Stock. The amount
of such interest aggregated $40,000, and resulted in the issuance of 30,693
shares of Common Stock. The Company also elected to satisfy the $39,945 of
interest due on June 30, 1997 on both series of Preferred Stock through the
issuance of 38,101 additional shares of Common Stock - SEE PART II - ITEM 2 -
CHANGES IN SECURITIES.
AVAILABILITY OF NOLS
The Company estimates that it had, for federal income tax purposes, net
operating loss carryforwards ("NOLs") amounting to approximately $15,250,000 at
December 31, 1996, which expire at various amounts through the year 2011, if not
utilized before then to offset taxable income.
Section 382 of the Internal Revenue Code of 1986, as amended, and
regulations issued thereunder, impose limitations on the ability of corporations
to use NOLs if the corporation experiences a more than 50% change in ownership
during certain periods. The determination of whether an ownership change within
the meaning of Section 382 has occurred during the most recent period has not
yet been made. The detailed information necessary to determine testing dates
and percentage ownership increases of five percent owners, if any, is not
readily available; therefore, a determination of the testing dates and
percentage ownership increases will not be made until the NOL is ready to be
utilized.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
This Report, 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 statments. The Company's actual
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results, performance or achievements may differ materially from those expressed
or implied by such forward-looking statements. The forward-looking statements
in this quarterly report may be affected by a number of factors including but
not limited to changes in the market for microprocessors, competitive actions
taken by competitors, the ability of the Company to recruit the necessary
technical staff, or the availability of financing. No assurance can be given
that any projected schedule can be met, financing achieved, or that the
specifications required for the products to be successfully marketed can be
achieved.
PART II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
None.
Item 2. CHANGES IN SECURITIES.
(c) Pursuant to its terms, all of the 10,000 issued and outstanding shares
of the Company's Series A preferred stock was all converted to common stock
effective June 30, 1997, at a conversion price of $.95 per share, resulting in
the issuance of 1,052,632 shares of common stock. The Company also issued
an aggregate of 38,101 shares of Common Stock as dividends on the then issued
and outstanding shares of Series A and Series B Preferred Stock as of June 30,
1997. Management believes that all of these issuances were to accredited
investors exempt from the registration requirements of the Securities Act of
1933, as amended, pursuant to Section 4(2) promulgated thereunder.
Item 3. DEFAULTS IN SENIOR SECURITIES.
There have been no defaults in any security issued by IMS.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
Item 5. OTHER INFORMATION.
As of July 15, 1997, the Company executed a convertible promissory note
(the "Amerscan Note"), in the principal amount of up to $1,500,000 in favor of
Amerscan Partners III, Limited Partnership, an exempted limited partnership
organized under the laws of Bermuda ("Amerscan Partners III"). Amerscan
Partners III is an affiliate of certain principal stockholders of the
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Company and the Company's Chairman of the Board of Directors. Amerscan Partners
III has agreed to lend the Company, subject to the terms of the Amerscan Note,
an amount up to $1,500,000, of which $1,000,000 has been loaned to the Company
as of the date of filing of this quarterly report. The balance of the Amerscan
Note is required to be loaned to the Company in an additional installment of
$500,000, which is due within 3 business days following written request by the
Company. However, the balance is due in no event later than 60 days following
the date of the Amerscan Note. The Note bears interest at the rate of 8% per
annum, with the principal of the Note, together with accured and unpaid interest
thereon, payable on July 15, 1998.
On August 1, 1997, Mr. Martin S. Albert, an affiliate of certain of the
Company's principal stockholders, became the Chairman of the Board of Directors
of the Company.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
None.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTERNATIONAL META SYSTEMS, INC.
Date: August 14, 1997
/s/ George W. Smith
- - -----------------------------------
George W. Smith, CEO and Acting Chief
Financial Officer
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> MAR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 44,308
<SECURITIES> 533,437
<RECEIVABLES> 61,582
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 639,327
<PP&E> 1,074,766
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,714,093
<CURRENT-LIABILITIES> 1,098,392
<BONDS> 0
1
0
<COMMON> 3,878
<OTHER-SE> 611,822
<TOTAL-LIABILITY-AND-EQUITY> 1,714,093
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,377,533
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,211
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,361,322)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> 0
</TABLE>
