<PAGE>

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

                           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
          --------                                         ----------
(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
   -------       -------

<PAGE>

                           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


                                          1

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

  TOTAL ASSETS                                      $1,714,093    $ 5,401,920
                                                    ----------    -----------
                                                    ----------    -----------


                                          2

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


                                          3

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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>

                                          4

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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)
                                      -----------    -----------

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

Net increase (decrease) in cash 
  and cash equivalents                    (52,474)     6,807,831
                                      -----------    -----------

Cash and cash equivalents, 
  beginning of period                      96,782        919,417
                                      -----------    -----------

Cash and cash equivalents, end 
  of period                           $    44,308    $ 7,727,248
                                      -----------    -----------
                                      -----------    -----------

                                          5

<PAGE>

                           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.


                                          6

<PAGE>

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.
  

                                          7

<PAGE>

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 


                                          8

<PAGE>

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

<PAGE>

    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 


                                          10

<PAGE>

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 


                                          11

<PAGE>

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