<PAGE>
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[Mark One]
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number: 0-24087
ITERATED SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Georgia 58-1741516
(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3525 Piedmont Road
Seven Piedmont Center
Suite 600
Atlanta, Georgia 30305-1530
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (404) 264-8000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
The number of shares of the issuer's class of capital stock as of June 30, 1999,
the latest practicable date, is as follows: 13,073,025 shares of Common Stock,
$.01 par value.
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<PAGE>
ITERATED SYSTEMS, INC.
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 1999
(unaudited) and December 31, 1998
Condensed Consolidated Statements of Operations
for the three months and six months ended June 30, 1999
and 1998 (unaudited)
Condensed Consolidated Statements of Cash Flows
for the six months ended June 30, 1999 and 1998 (unaudited)
Notes to Condensed Consolidated Financial Statements (unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
Iterated Systems, Inc.
Condensed Consolidated Balance Sheets
December 31, June 30,
1998 1999
------------ ------------
(unaudited)
Assets
Current assets
Cash and equivalents $ 3,706,070 $ 114,261
Short-term investments 4,270,444 3,486,729
Accounts receivable 214,088 340,679
Other current assets 212,132 165,401
------------ ------------
Total current assets 8,402,734 4,107,070
Property and equipment
Computer equipment and purchased software 2,872,013 2,920,431
Furniture and equipment 390,158 387,651
Leasehold improvements 135,566 143,261
------------ ------------
Total property and equipment 3,397,737 3,451,343
Accumulated depreciation (2,761,119) (2,988,759)
------------ ------------
Net property and equipment 636,618 462,584
Other assets 44,699 42,444
------------ ------------
Total assets $ 9,084,051 $ 4,612,098
============ ============
Liabilities and shareholders' equity
Current liabilities
Accounts payable $ 153,670 $ 83,040
Accrued liabilities 353,086 501,142
Deferred revenue 5,126 27,060
Current maturities of debt 4,873 2,537
Other current liabilities 34,572 31,691
------------ ------------
Total current liabilities 551,327 645,470
Non-current liabilities 14,405 0
Shareholders' equity
Common stock 130,731 130,731
Additional paid-in capital 29,806,036 29,806,036
Retained earnings (21,461,546) (26,055,333)
Currency translation adjustments 43,098 85,194
------------ ------------
Total shareholders' equity 8,518,319 3,966,628
------------ ------------
Total liabilities and shareholders' equity $ 9,084,051 $ 4,612,098
============ ============
<PAGE>
Iterated Systems, Inc.
Condensed Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1999 1998 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Development fees $ 108,434 $ 12,480 $ 228,325 $ 285,150
Product license fees 22,399 138,024 160,101 238,345
Other revenues 22,500 0 45,904 5,808
----------- ----------- ----------- -----------
Total revenues 153,333 150,504 434,330 529,303
Operating expenses:
Sales and marketing 1,039,499 862,053 2,241,181 1,763,441
Research, development and engineering 1,361,717 1,337,715 2,915,061 2,620,673
General and administrative 613,203 436,935 1,176,434 860,879
----------- ----------- ----------- -----------
Total operating expenses 3,014,419 2,636,703 6,332,676 5,244,993
Operating loss (2,861,086) (2,486,199) (5,898,346) (4,715,690)
Other income(expense):
Interest income 198,013 60,973 434,171 151,818
Interest expense (7,161) (139) (15,700) (327)
Foreign currency exchange gain (loss) 193 5,566 (1,033) (29,580)
----------- ----------- ----------- -----------
Total other income 191,045 66,400 417,438 121,911
----------- ----------- ----------- -----------
Net loss $(2,670,041) $(2,419,799) $(5,480,908) $(4,593,779)
=========== =========== =========== ===========
Basic and diluted net loss
per share of common stock $ (0.20) $ (0.19) $ (0.42) $ (0.35)
=========== =========== =========== ===========
Weighted average number of shares of
common stock outstanding 13,084,458 13,073,025 13,095,112 13,073,025
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
<PAGE>
Iterated Systems, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------------------
1998 1999
----------- -----------
<S> <C> <C>
Operating activities
Net loss $(5,480,908) $(4,593,779)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 507,167 244,010
Gain on disposal of property and equipment (35) (6,175)
Loss on foreign currency transactions 1,033 29,573
Changes in operating assets and liabilities:
Accounts receivable 240,833 (103,050)
Prepaid expenses and other assets 91,969 49,726
Accounts payable (74,743) (69,693)
Accrued expenses 16,294 145,771
Deferred revenue 0 21,934
Other liabilities (17,286) (17,286)
----------- -----------
Net cash used in operating activities (4,715,676) (4,298,969)
Investing activities
Purchases of property and equipment (244,832) (76,119)
Proceeds from sale of property and equipment 0 8,597
Sales of short-term investments 2,249,962 783,715
----------- -----------
Net cash provided by investing activities 2,005,130 716,193
Financing activities
Payments on note payable to bank (69,243) 0
Payments on capital lease obligations (36,682) (2,336)
Issuance of common stock 2,293 0
Repurchase of common stock (236,002) 0
----------- -----------
Net cash used in financing activities (339,634) (2,336)
Effect of exchange rate fluctuation on cash (354) (6,697)
----------- -----------
Decrease in cash and cash equivalents (3,050,534) (3,591,809)
Cash and cash equivalents at beginning of period 7,633,283 3,706,070
----------- -----------
Cash and cash equivalents at end of period $ 4,582,749 $ 114,261
=========== ===========
</TABLE>
See accompanying notes.
<PAGE>
Iterated Systems, Inc.
Notes to Condensed Consolidated Financial Statements
June 30, 1999
(unaudited)
1. Presentation of Interim Information
The accompanying condensed consolidated financial statements include all
adjustments consisting of normal recurring adjustments that Iterated Systems,
Inc. and its wholly owned subsidiary, Iterated Systems, Limited (collectively,
the "Company") considers necessary for a fair presentation of its unaudited
results of operations for the six months ended June 30, 1998 and 1999. Results
for the six months ended June 30, 1999 are not necessarily indicative of the
results for the year.
2. Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly owned United Kingdom subsidiary, Iterated Systems, Limited.
Significant intercompany accounts and transactions have been eliminated in
consolidation.
3. Purchases and Sales of Common Stock
During the six months ended June 30, 1998, the Company repurchased 36,100
shares of its common stock on the open market for a cost of approximately
$236,000. The Company also issued 7,200 shares upon the exercise of stock
options by employees for net proceeds of $2,300.
4. Segment Information
In accordance with the requirements of Financial Accounting Standards Board
Statement No. 131, Disclosure About Segments of an Enterprise and Related
Information, the following disclosure represents the information used by
management when evaluating the operating performance of its business units. The
information reviewed by management includes the operating revenue, net loss and
identifiable assets for the Company's two geographic areas, the United States
and the United Kingdom. Both operating segments are involved in developing and
marketing patented digital image science technology. The long-term assets of the
United States geographic area excludes inter-company accounts receivable.
Six Months Ended
June 30,
---------------------------
1998 1999
----------- -----------
Operating revenue
United States $ 432,200 $ 524,100
United Kingdom 2,100 5,200
----------- -----------
$ 434,300 $ 529,300
----------- -----------
Net Loss
United States $(5,184,600) $(4,286,800)
United Kingdom (296,300) (307,000)
----------- -----------
$(5,480,900) $(4,593,800)
----------- -----------
December 31, June 30,
1998 1999
----------- -----------
Identifiable assets, net
United States $ 3,152,000 $ 3,211,800
United Kingdom 290,400 282,000
----------- -----------
$ 3,442,400 $ 3,493,800
----------- -----------
<PAGE>
5. Comprehensive Income
In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive
Income ("Statement 130"), which establishes standards for reporting and display
of comprehensive income and its components (revenues, expenses, gains and
losses) in financial statements. Statement 130 is effective for fiscal years
beginning after December 15, 1997. The Company adopted Statement 130 in 1998 and
has not presented a statement of comprehensive income because the effect of the
components of comprehensive income is not material to its consolidated financial
statements.
<PAGE>
Item 2.
Iterated Systems, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Liquidity and Financial Condition
At June 30, 1999, the Company had cash and short-term investments of
$3,601,000. This represents a decrease of $4,366,500 from December 31,1998.
Cash and short-term investments were used primarily to fund the operating loss
the Company incurred during the first six months of 1999.
In the first six months of 1998 and 1999, the Company used cash in
operating activities of $4,715,700 and $4,299,000, respectively. This cash was
used to fund the net loss for the respective periods.
In the first six months of 1998 and 1999, the Company's investing
activities provided cash of $2,005,100 and $716,200, respectively. The funds
were primarily from sales of short-term investments.
In the first six months of 1998 and 1999, the Company used cash in
financing activities of $339,600 and $2,300, respectively. During 1998, the
Company used funds primarily to make payments on capital lease obligations, and
to repurchase Company shares on the Oslo Stock Exchange.
The Company will require significant increases in revenue to cover
operating costs and achieve a profitable level of operations and anticipates
that it will need to raise additional capital through debt or equity financing
during this fiscal year to provide adequate operating capital. If adequate
funds are not available, or are not available on acceptable terms, its ability
to fund its operations, take advantage of unanticipated opportunities or
otherwise respond to competitive pressure would be significantly limited. There
can be no assurance that it will be able to raise funds on favorable terms.
Results of Operations
Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998
Revenues
Total revenues decreased 2% to $150,500 in the three months ended June 30,
1999 compared to $153,300 in the same period in 1998. This resulted primarily
from the Company's planned shift in emphasis away from development fees and
toward product license fees as the company continues its change in business
focus as discussed below in Risk Factors.
Sales and Marketing
Sales and marketing expenses decreased 17% to $862,100 in the three months
ended June 30, 1999 from $1,039,500 during the same period in 1998. This
reduction resulted primarily from the reduced level of use of outside
contractors and lower levels of travel expenditures.
Research, Development and Engineering
Research, development and engineering expenses decreased 2% to $1,337,700
in the three months ended June 30, 1999 from $1,361,700 in the same period in
1998. This was due to a
<PAGE>
reduced level of full time employees which was partially offset by increased use
of independent contractors for specific projects.
General and Administrative
General and administrative expenses decreased 29% to $436,900 in the three
months ended June 30, 1999, from $613,200 in the same period in 1998. This
decrease is primarily due to the decreased personnel costs associated with the
Company's revised business focus and a reduction in the level of legal and
professional costs that was required for the Company's initial registration on
the Oslo Stock Exchange and as an SEC reporting company in the United States
during 1998.
Interest Income
Interest income decreased 69% to $61,000 in the three months ended June 30,
1999 from $198,000 in the same period in 1998. In September 1997, the Company
received approximately $18,600,000 in net proceeds from an initial public
offering of common stock on the Oslo Stock Exchange. The decrease in interest
income is due to lower interest earnings on the decreased cash and short-term
investment balances resulting from the use of these proceeds to fund the
Company's operations.
Six months Ended June 30, 1999 Compared to Six months Ended June 30, 1998
Revenues
Total revenues increased 22% to $529,300 in the six months ended June 30,
1999 compared to $434,300 in the same period in 1998. This resulted from the
increase in product license fees as the Company shifts its emphasis away from
development fees and toward product license fees as discussed below in Risk
Factors, and from the final development billing on a completed research
contract.
Sales and Marketing
Sales and marketing expenses decreased 21% to $1,763,400 in the six months
ended June 30, 1999 from $2,241,200 in the same period in 1998. This reduction
resulted primarily from the reduced level of use of outside contractors and
lower levels of travel expenditures.
Research, Development and Engineering
Research, development and engineering expenses decreased 10% to $2,620,700
in the six months ended June 30, 1999 from $2,915,100 in the same period in
1998. The decrease is primarily the result of reductions in workforce as the
Company shifts part of its development to independent contractors working on
specific projects, and a reduction in depreciation expense.
General and Administrative
General and administrative expenses decreased 27% to $860,900 in the six
months ended June 30, 1999 from $1,176,400 in the same period in 1998. This
decrease is primarily due to the decreased personnel costs associated with the
Company's revised business focus and a reduction in the level of legal and
professional costs that was required for the Company's initial registration on
the Oslo Stock Exchange and as an SEC reporting company in the United States
during 1998.
<PAGE>
Interest Income
Interest income decreased 65% to $151,800 in the six months ended June 30,
1999 from $434,200 in the same period in 1998. In September 1997, the Company
received approximately $18,600,000 in net proceeds from an initial public
offering of common stock on the Oslo Stock Exchange. The decrease in interest
income is due to lower interest earnings on the decreased cash and short-term
investment balances resulting from the use of these proceeds to fund the
Company's operations.
Impact of Year 2000
The Company is in the process of evaluating the potential impact of what is
commonly referred to as the year 2000 issue, concerning the inability of certain
computer systems to properly recognize and process dates starting with the year
2000 and beyond. The Company is taking steps to ensure that its business systems
software and equipment will continue to function properly after December 31,
1999. In doing so, the Company has established a team, which will work directly
with management to (1) assess and test all internal information systems and
other systems that may be affected by the year 2000 date change; (2) assess and
test its products that may be affected by the year 2000 date change; (3)
communicate with third parties that supply its products to ensure they are
addressing the year 2000 issue; and (4) compose a contingency and disaster
recovery plan to ensure resolution of problems that may arise as a result of the
year 2000 date change. Until this assessment is completed, the Company will not
be able to determine the costs of becoming year 2000 compliant, the risks of
non-compliance, and its ability to conduct its business under a contingency
plan.
The Company's products do not contain any real-time clocks and, therefore,
the products themselves do not present any year 2000 issues.
With respect to its information technology accounting systems, the
assessment of equipment and software was started in June 1998. The Company will
have completed the upgrade of these systems to versions that are stated to be
2000 compliant by August 31, 1999.
The Company has completed testing and established compliance with respect
to all of its systems and products, subject to possible equipment upgrades
during 1999 and ongoing communications with third parties.
The Company plans to devote the necessary resources to resolve all
significant year 2000 issues in a timely manner. Based upon current estimates,
the Company believes that its direct costs for year 2000 compliance will consist
primarily of costs related to the staff time devoted to year 2000 compliance.
The Company does not expect material capital expenditures will be necessary for
year 2000 related compliance costs and capital expenditures in these areas have
not been material for historical periods.
Regardless of the year 2000 compliance of its systems and products, the
Company may be adversely affected by disruptions in the operations of the
enterprises with which it interacts. These business enterprises include
suppliers, corporate partners, both domestic and international, government
agencies, and other third parties. The Company cannot reasonably predict the
impact on its operations and financial condition if any such businesses are
adversely affected by the year 2000 issue.
Statements made herein about the implementation of various phases of the
Company's year 2000 program, the costs expected to be associated with that
program, and the results it expects to achieve constitute forward-looking
information. There are many uncertainties involved in the year 2000 issue and
the following important factors, among others, could affect the impact of the
year 2000 issue: (1) the inherent uncertainty of the costs and timing of
achieving compliance on the wide variety of systems used by the Company; (2) the
reliance on the efforts of vendors, customers, government agencies, and other
third parties beyond its control to achieve adequate compliance and avoid
disruption of its business in early 2000; and (3) the uncertainty of the
ultimate costs and consequences of any unanticipated disruption of its business
resulting from the failure of one of its applications or of a third party's
systems.
<PAGE>
Software Revenue Recognition
The American Institute of Certified Public Accountants issued Statement of
Position 97-2 ("SOP 97-2"), SOP 98-4, and SOP 98-9, to clarify guidance on
applying generally accepted accounting principles to software transactions and
to provide guidance on when revenue should be recognized and in what amounts for
licensing, selling, leasing, or otherwise marketing computer software. The
adoption of this guidance had no impact on the Company's methods of recognizing
revenue.
Inflation
The effects of inflation on the Company's operations were not significant
during the periods presented in the consolidated financial statements, and the
effects thereof are not considered to be of significance in the future.
Generally, throughout the periods discussed above, the changes in revenue have
resulted primarily from fluctuations in sales levels, rather than price changes.
Market Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of short-term investments,
trade accounts receivable, and accounts payable.
The Company maintains cash and cash equivalents and certain other financial
instruments with various financial institutions. Company policy is designed to
limit exposure at any one institution. Certain investments are in excess of
Federal Deposit Insurance Corporation ("FDIC") guaranteed amounts. The Company
performs periodic evaluations of the relative credit standing of those financial
institutions that are considered in the Company's investment strategy.
The carrying amounts reported in the balance sheet for cash and cash
equivalents, short-term investments, accounts receivable, accounts payable, and
notes payable approximate their estimated fair values.
Risk Factors
The following factors may affect the Company's future performance.
We Have a History of Losses. We have incurred net operating losses since
1991 and as of June 30, 1999, we have had an accumulated deficit of
approximately $26,055,300. We will need significant increases in revenue to
meet our projected development, selling, marketing and other operating costs and
to achieve a profitable level of operations. There can be no assurance,
however, as to when or if such increases in revenues will be achieved.
Our Revenues Have Decreased Following Expiration of the 1994 MCI Agreement.
From September 1994 until September 1997, approximately 84% of our revenue was
derived from MCI Telecommunications Corporation under the 1994 MCI Agreement.
Due to the expiration of the 1994 MCI Agreement in September 1997, our revenue
has decreased dramatically. There can be no assurance that we will be
successful in replacing revenues at the same level in the future.
We Have Changed Our Business Focus. We have revised our business plan to
focus on the development and delivery of technology to the digital imaging
market. As a result of this shift in focus and the expiration of our agreement
with MCI, total revenues decreased 92% in the year ended December 31, 1998
compared to 1997. Our future financial performance will depend in large part on
the successful implementation of our new business focus. There can be no
assurance that we will succeed in implementing our business strategy and any
failure to do so may have a material adverse effect on our business, financial
condition and results of operations.
<PAGE>
We Depend on Emerging Markets to Utilize our Products. Currently, only a
limited number of applications incorporating our products or technologies are in
commercial production. Our ability to generate significant revenues will be
dependent on the development of new opportunities for digital images in the
computer and photography markets and/or the adoption of our technologies by
producers and users of such images. The potential size of these new market
opportunities and the timing of their development are uncertain.
Our Results of Operations May Fluctuate. Our quarterly operating results
have in the past and may in the future vary significantly depending on factors
such as:
. revenue from software licenses;
. the timing of new product and service announcements;
. market acceptance of new and enhanced versions of our products;
. the size and timing of significant orders;
. changes in operating expenses;
. changes in our strategy; and
. general economic factors.
We have limited or no control over many of these factors. We operate with
virtually no service or software license order backlog because our services are
purchased on demand and our software licenses typically are shipped shortly
after orders are received. As a result, revenues in any quarter are
substantially dependent on the quantity of orders received in that quarter.
Quarterly revenues also are difficult to forecast because the market for our
products is evolving and our revenues in any period are significantly affected
by the announcements and product offerings of our competitors as well as
alternative technologies. As a result, we believe that period-to-period
comparisons of our results of operations are not necessarily meaningful and
should not be relied upon as indications of future performance.
Our Success Depends Upon the New Products We Develop and Improving our
Technology. Our operating results depend upon our ability to successfully
introduce new products and improve our core technology on a timely basis and/or
reduce costs of existing products. As a result, we believe that continued
significant expenditures for research and development will be required in the
future. There can be no assurance that new products will be successfully
developed or will achieve market acceptance.
Our Markets are Highly Competitive. The development and marketing of
digital image products and technologies is extremely competitive. Many of the
companies developing and marketing competitive technologies have competitive
advantages over us, because they have established positions in the market, brand
name recognition or established ties with OEMs. Further, there can be no
assurance that our competitors will not succeed in developing products or
technologies that are more effective than those being developed by us or that
would render our products and technologies obsolete. In addition, many of our
competitors have substantially greater financial, technical, marketing and human
resources capabilities than us.
Our Ability to Generate a Sufficient Amount of Capital is Uncertain. We
anticipate that, in order to maintain a competitive position in our market, we
must expend substantial resources to continue research and development relating
to potential applications and new technologies. We must also expand our sales,
marketing and distribution activities. There can be no assurance that we will
be able to generate internally the funds necessary to continue such research and
development efforts or to expand sales and marketing activities, or that
additional funds from outside sources will be available for such purposes.
Our Success Depends Upon Management, Directors and Key Employees. We are
substantially dependent upon the efforts and abilities of our officers,
directors and certain key employees. The loss or unavailability of any of our
executive officers, directors or key employees could have a material adverse
effect
<PAGE>
on our business. We have employment agreements with certain key employees.
However, we do not maintain key man life insurance policies on any of our key
employees.
Our Success Depends on Our Patents and Proprietary Rights. Our ability to
compete effectively will depend in part on our ability to maintain the
proprietary nature of our technology through a combination of copyright, patent
and trade secret protection and contractual provisions and non-disclosure
agreements. Competition in our market is intense and there can be no assurance
that our competitors will not independently develop or obtain patents on
technologies that are substantially equivalent or superior to our technology. We
could incur substantial costs in defending Iterated Systems in patent
infringement lawsuits brought by others and in prosecuting patent infringement
lawsuits against third party infringers. We also rely on trade secrets and
proprietary know-how that we seek to protect, in part, by non-disclosure
agreements with our employees, suppliers, consultants and potential strategic
partners and customers. There can be no assurance that these agreements will
not be breached, that we will have adequate remedies for any such breach or that
our trade secrets and proprietary know-how will not otherwise become known or be
independently developed by competitors.
Forward-Looking Statements
The discussions herein contain trend information and other forward-looking
statements that involve a number of risks and uncertainties. The actual results
of the Company could differ materially from its historical results of operations
and those discussed in the forward-looking statements. The forward-looking
statements are based on the beliefs of the Company's management as well as
assumptions made by and information currently available to the Company's
management. When used herein, the words "anticipate," "believe," "estimate,"
"expect" and "intend" and words or phrases of similar import, as they relate to
the Company or the Company's management, are intended to identify forward-
looking statements.
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Stockholders was held on April 12, 1999 at which time
certain matters were submitted to such stockholders for a vote. Below is a
brief description of each such matter as well as the number of shares
represented at the meeting and entitled to vote and voting for, against or
abstaining as to each matter.
. The following directors were elected to serve on a one-year term expiring
in 2000.
---------------------------------------------------------------------------
Shares Shares
FOR WITHHOLD
---------------------------------------------------------------------------
Nominees: (# and %) (# and %)
---------------------------------------------------------------------------
John C. Bacon 9,712,002 (100%) 27,100 (0%)
---------------------------------------------------------------------------
Michael F. Barnsley 9,712,002 (100%) 27,100 (0%)
---------------------------------------------------------------------------
John R. Festa 9,711,902 (100%) 27,200 (0%)
---------------------------------------------------------------------------
Terje Mikalsen 9,711,002 (100%) 28,100 (0%)
---------------------------------------------------------------------------
Alan D. Sloan 9,712,002 (100%) 27,100 (0%)
---------------------------------------------------------------------------
R. Asmund Slogedal 9,711,002 (100%) 28,100 (0%)
---------------------------------------------------------------------------
. The stockholders approved an amendment to the Company's 1994 Amended and
Restated Stock Option Plan.
---------------------------------------------------------------------------
Shares Shares Shares
FOR AGAINST ABSTAIN
---------------------------------------------------------------------------
(# and %) (# and %) (# and %)
---------------------------------------------------------------------------
9,717,201 (100%) 11,101 (0%) 10,800 (0%)
---------------------------------------------------------------------------
. The stockholders ratified the appointment of Ernst & Young LLP as the
Company's independent auditors for the fiscal year ended December 31, 1999.
---------------------------------------------------------------------------
Shares Shares Shares
FOR AGAINST ABSTAINED
---------------------------------------------------------------------------
(# and %) (# and %) (# and %)
---------------------------------------------------------------------------
9,734,702 (100%) 0 (0.00%) 4,400 (0%)
---------------------------------------------------------------------------
<PAGE>
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
The following exhibits are filed with this Report:
Exhibit 27.1 Financial Data Schedule
(b) Reports on Form 8-K.
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ITERATED SYSTEMS, INC.
Date: August 12, 1999 /s/ John C. Bacon
--------------- ------------------
John C. Bacon
President and Chief Executive Officer
(Principal Executive Officer) and Director
Date: August 12, 1999 /s/ Haines H. Hargrett
--------------- -----------------------
Haines H. Hargrett
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 114,261
<SECURITIES> 3,486,729
<RECEIVABLES> 347,520
<ALLOWANCES> 6,841
<INVENTORY> 0
<CURRENT-ASSETS> 4,107,070
<PP&E> 3,451,343
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0
0
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</TABLE>
