U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[ x ] Annual report under section 13 or 15 (d) of
the Securities Exchange Act of 1934 for the fiscal year
ended June 30, 1996. or
[ ] Transition report under section 13 or 15 (d)
of the Securities Exchange Act of 1934 for the
transition period from ___ to ____
Commission file number 33-16531-D
INTERNATIONAL AUTOMATED SYSTEMS, INC.
(Name of small business issuer in its charter)
Utah 87-0447580
State or other jurisdiction of I.R.S.Employer
incorporation or organization Identification No.
512 South 860 East, American Fork, Utah 84003
(Address of principal executive offices)
Registrant's telephone number, including area
code:(801) 763-9965
Securities registered pursuant to Section 12(b) of the
Act: None
Title of each class Name of each exchange on which
registered
N/A N/A
Securities to be registered under section 12(g) of the
Act: None
Check whether the registrant (1) 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 report(s), and (2)
has been subject to such filing requirements for the
past 90 days. x Yes No
Check if disclosure of delinquent filers in response to
Item 405 of Regulations S-B is not contained in this
form, and no disclosure will be contained, to the best
of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this Form 10-KSB or any amendment to this
Form 10-KSB. [ x ]
State the registrant's net revenue (loss) for its most
recent fiscal year: $(687,189).
The aggregate market value of voting stock held by
non-affiliates of the registrant on June 30, 1996, was
approximately $26,026,250.
State the number of shares outstanding of each of the
issuer's classes of common equity, as of the latest
practicable date: as of June 30, 1996, there were
outstanding 15,186,100 shares of registrant's Common
stock, no par value per share.
Documents incorporated by reference: Exhibits, Item
13.
PART I.
THE COMPANY
Exact corporate name:International Automated Systems,
Inc.
State and date of incorporation: Utah- September 26,
1986.
Street address of principal office:512 South 860 East
American Fork, Utah 84003.
Company telephone number: (801) 763-9965
Fiscal year: June 30
BUSINESS AND PROPERTIES
A. OVERVIEW
International Automated Systems, Inc., a Utah
corporation (hereinafter "Registrant" or "Company")
based in American Fork, Utah, designs, produces and
markets technology based products. One set of products
constitutes an automated self-service check-out system.
This system allows retail customers to ring up their
purchases without a cashier or clerk. The automated
self-service, check-out system may be practical in
different retail business operations although it was
primarily designed for grocery stores.
In addition, another set of products is related to
and has as its core the Company's Automated Fingerprint
Identification Machine ("AFIM") which has the
capability of verifying the identity of individuals.
AFIM applications may include products for employee
time-keeping and security, and access control.
Registrant believes that its identity verification
system has a variety of uses and applications for both
commercial and governmental users.
Also, Registrant is seeking to enhance and develop
technology which, if commercially acceptable products
are developed, will implement a different and more
efficient method of transmitting information and data
using transmission waves in the electromagnetic
spectrum. The Company calls this technology digital
wave modulation ("DWM"). The Company believes that if
the technology is proven and implemented commercially,
the technology has the capability to increase
significantly the amount of information which can be
transmitted using different mediums. The Company is
continuing the development of the digital wave
modulation technology and the commercial feasibility
of the technology has not been demonstrated. Registrant
believes that it has many competitors in the
communications, information and data transfer
industries which have greater capital resources, more
experienced personnel, and technology which is more
established and accepted in the market place.
The first anticipated product using this technology
for commercialization is an high speed modem. The
modem is projected to be faster than modems currently
in use. Generally speaking modems are used for
purposes of transmitting data over telephone lines and
through telecommunications systems, and over wireless
mediums such as satellite transmissions. Presently
there is a prototype of the modem but additional
development to achieve a commercial product is on
going. In addition, the Company has future plans to
apply the digital wave modulation technology in other
areas. The Company has not established a plan or order
of priorities for any future product development.
Because of the high tech nature of this technology and
the time and funding required Registrant may not be
successful in its efforts to have commercial
exploitable products. Competitors may develop
technologies which are superior and will make obsolete
the digital wave modulation technology. Further, cost
will be a factor in both the development and the
commercialization of any new products. Costs to offer
new products and to establish the environment and
surrounding technology may be prohibitive.
Background.
The Company, was organized under the laws of the
State of Utah on September 26, 1986. In April 1988 the
Company filed a registration statement for a public
offering under the provisions of the Securities Act of
1933 ("1933 Act") to sell a maximum of 1,074,000 units
at a price of $.50 per unit. Each unit was comprised
of one share of common stock and one common stock
purchase warrant. The Company sold approximately
200,000 units at the offering price of $.50 per unit
realizing total proceeds of approximately $100,000.
All warrants expired without exercise.
The Company acquired the technology from its
president for its different products and areas of
further research.
Automated Self-Service Check-Out System.
In 1988 the Company commenced development of an
automated self-service check-out system (hereinafter
referred to as "Self-Check System" or "System"). In
retail operations customers themselves use the system
to check-out the items they select for purchase. For
approximately three years a form of the Self-Check
System was used in a grocery store in Salem, Utah.
Description.
The Self-Check System is an automated check-out
system for customers of retail establishments and
provides for self-service check-out lines. The System
has a scanner to read the bar codes of items purchased
and a scale to weigh the items scanned and placed in
the receiving basket. The scale verifies the accuracy
of the item scanned and placed in the basket by
comparing the weight of the item scanned with the
weight change recorded in the receiving basket. The
Self-Check System is designed to replace traditional
clerk operated cashier registers. In addition, the
Self-Check System is intended to allow a store manager
to maintain a complete inventory count on a
contemporaneous basis. The information is used for
reordering. The System facilitates price verification
and integrity and provides customers the opportunity to
check-out their purchases.
Operation.
The Self-Check System operates as follows. A
customer places the grocery cart at the head of the
System, removes the products from the grocery basket
and scans the bar codes on the products across the
reader. The bar code provides the product description,
weight and price. This information is then relayed on
an item by item basis to the main computer and the main
computer transmits the data in its memory to the
check-out terminal. The product information, item
description and price, is then displayed on the screen.
A running subtotal for all items purchased is also
shown. Once scanned an item is placed into the
receiving basket or cart. The cart is positioned on a
sensitive scale which measures and verifies the weight
of each item scanned and placed in the receiving
basket. The computer compares the weight of the item
purchased with the weight for that item in the
database. If the weight differs, an error code is
displayed and an attendant is summoned to assist the
customer or to override the System. Once all the items
are scanned, a final tally is made. Payment is then
made to the attendant who may supervise multiple
check-out terminals.
The Self-Check System interfaces with the computer
and data is transferred back and forth between the
check-out terminal and the main computer. The interface
may be compatible with various scanners and scales so
the Self-Check System may be adaptable to equipment
already in use. The System allows one clerk
simultaneously to handle multiple check-out stations.
Possible Advantages.
Management believes the Self-Check System may have
several possible advantages over conventional retail
check-out systems. These advantages are: reduced labor
costs, more accurate inventory, theft reduction and
deterrence, faster service, and greater convenience and
privacy for customers. A retail establishment may not
need as many cashiers with the Self-Check System.
Management believes that the market for the
Self-Check System may include several types of retail
establishments, such as grocery stores, drug stores,
discount stores, and fast food restaurants. If
operating properly the Self-Check system lessens the
impact of having too many attendants or cashiers
available. Because customer traffic volume is
difficult to predict, retailers wanting to satisfy
customers' need for a quick check-out must have
sufficient clerks available. The Self-Check System
improves a retailer's capability of meeting this need.
Customer traffic patterns during peak hours of the day
or weekends are unpredictable. Establishments using the
Self-Check System during peak times, it is anticipated,
will have greater capability and flexibility to reduce
waiting time for customers to complete the check-out
and purchase process.
The Self-Check System uses proprietary software
developed by the Company. The System also offers a
hand-held unit to be used for price checking and taking
physical inventory counts. The hand-held unit reads the
bar codes and verifies the price in the database. This
hand-held unit also is used to take physical counts or
inventory. The software adds inventory on the shelf to
items of the product in storage. The System may also
include a check-in station at the loading dock. Items
delivered are checked and the prices verified against
purchase orders. This feature may help reduce potential
fraud or theft when inventory is received at the
loading dock.
Price verification can be done using the hand-held
unit while the products are on the shelf. Conventional
systems require the product to be taken to a check-out
terminal to verify the price. This is time consuming
and labor intensive.
For the Self-Check System to operate efficiently at
least 95% of the items must have bar codes. In the
past few years virtually all packaged goods have bar
codes. Items purchased across the counter, such as
bakery, meat and deli products usually have no bar
code. Grocery stores or other retail operations using
the System may have to install scales and labelers to
place bar codes on items with no bar code. As an
option the Company offers scales and labellers for
produce and delicatessen items which interface with the
Self-Check System.
Management believes that the Self-Check System may
help reduce theft. For instance, one clerk cannot
check-out another clerk's or friend's purchases using
incorrect and understated prices. The System has the
contemporaneous weight and price verification which
would show that incorrect prices were being used. A
portion of the theft in supermarkets is attributable to
employees doing what is called "sweet hearting" by
checking-out the purchases of other employees or
friends a reduced prices.
Possible Marketing as a Franchise.
The Company is considering forming a wholly-owned
subsidiary in the near term to market franchise rights
to the System. In the wholly-owned subsidiary most, if
not all, of the franchise activities would occur. The
Company is considering making the necessary filings to
offer franchises for the Self-Check System. It is
anticipated that any franchises would be sold on a
store-by-store basis. To sell franchises the Company
must comply with both federal and state franchise
statutes and regulations. The System for a retail
establishment would be sold as a franchise. Depending
on the needs and the configuration of the retail
operation a System would be designed to fit the
requirements of the establishment. The franchise would
consist of the necessary equipment to operate the
System and the procedures and instructions to implement
and operate the System. The price to purchase a
franchise will vary depending on the size of the retail
operation.
Automatic Fingerprint Identification Machine.
While developing the Self-Check System the Company
realized the necessity of identification verification.
To fill this need the Automated Fingerprint
Identification Machine ("AFIM") for purposes of
verifying an individual's identity was developed. The
AFIM digitizes the unique characteristics of a person's
fingerprint and then records or stores the information
on a magnetic strip similar to the strip on the back of
a credit card or on other storage medium. The identity
verification process is simple, quick, easy, and
reliable. AFIM connects to and operates with a
personal computer. AFIM has unique software, lens, and
lighting. Management believes that AFIM is unique and
is superior to other fingerprint based identification
systems.
Operation.
To use the AFIM the person whose identity will be
verified has the fingerprint read by the AFIM. The
finger is placed on the lens and AFIM reads the print,
digitizes, and stores the digitized fingerprint. To
verify a person's identity AFIM reads the fingerprint
and compares it to the digitized fingerprint on the
magnetic strip or other medium. The stored number must
be accessed so it can be compared with the actual
fingerprint. A match verifies the person's identity.
Possible Commercial Applications.
Different commercial applications of the AFIM are
under development. One application is a time clock.
The digitized fingerprint stored must match the the
person's actual fingerprint who is recording his
arrival at or departure from the workplace. Because
the AFIM system validates the identity of the person
using the time clock, fellow workers can not make in or
out entries for co-workers.
Also, AFIM with software modifications allows for
fingerprints of individuals to be stored in a database.
A persons's fingerprint is read by the AFIM and then
verified against the database for identification and
access purposes. Searching the database requires
additional time to verify the identity of the
individual. The marketing of the AFIM time clock may
commence in the near term. Changes have been made in
the AFIM which also changed the time clock.
The Company has not undertaken a comprehensive study
or evaluation to determine the reliability of the AFIM
or the frequency or percentage of false positives.
Management believes, based on the limited experience
available, that AFIM does not yield false positives or
false negatives at unsatisfactory levels.
In addition, the Company has under development an
AFIM version that, if successfully completed, will read
and simultaneously digitize thumb prints and
fingerprints on four fingers. To have this capability
AFIM will need a different lens system and software to
read and to process the full set of fingerprints. The
Company believes there may be a market for the full-
print AFIM as it may replace the ink pad and card
system used by law enforcement and other governmental
agencies. Development of this application is
continuing.
Another potential product based on AFIM technology is
door or entry security. The person seeking entry would
have his fingerprint read by an AFIM. The AFIM would
read a card on which the fingerprint of the person
seeking entry would be encoded and stored. The
fingerprint as read would have to match the fingerprint
digitized and encoded on the card. To have any
possibility of success the Company believes that the
door security adaptation must be compatible with or
adaptable to other door entry security systems already
in place. This is a factor as development is
continuing.
Another product based on AFIM technology is identity
verification on computer networks or identification
when data is transmitted or accessed. The Company is
developing a smaller version of the AFIM that would fit
into the tower or case of a computer. The user would
have the fingerprint read either to validate identity
or to gain access to data or be able to operate
different applications or functions on the computer.
For future development and possible commercialization
of the AFIM technology the Company is exploring the
possibility of entering into licensing agreements or
joint ventures. Presently the Company is merely
exploring the possibility of these kinds of
arrangements. At this time there are no agreements to
which the Company is a party for licensing, royalties,
or joint venture projects.
Competition.
The AFIM based products compete with a broad spectrum
of products which verify identity. Some competitors use
fingerprint based systems. Other competitors use voice
prints where the speech pattern of a person is recorded
and put into a database which is then used to verify
the identity. Other systems have key words which are
used and recorded by the computer. Facial photographs,
iris readings, hand prints, and voice prints are all
serve as different methods to verify identity. The
success of these other entities and the system used
may, individually or collectively, significantly
affect the Company's attempt to commercialize AFIM.
The Company has not done any market studies to
determine its relative position with these competitors
in the market place.
Possible Advantages.
The Company believes that the AFIM based products
will be quicker, more reliable, and more cost-effective
than competing identification systems. The AFIM must
be used with a personal computer. A customer may have
to purchase a new computer to operate the AFIM.
Depending on the application each verification point or
station will need an AFIM or an AFIM reader.
Digital Wave Technology.
Digital Wave Modulation technology may provide a new
way of transmitting data. Basically different wave
patterns are generated on the magnetic spectrum which
may increase flows of data and information transmission
and communication. When data is transmitted, more data
will be transmitted in a shorter time period. Speed
may be increased and correspondingly transmission costs
would be reduced.
DWM technology is based on the separation of a number
of combined and symmetrical, asymmetrical, and
reference waves. The Company has a modem prototype
that has the capability of separating the combined
multiple waves. Depending upon the frequencies the
Company believes it can achieve speeds in excess of
modems currently in use. Data transmission speed will
depend on such factors as the transmission medium,
frequencies used, and wave combinations.
When using plain old telephone system ("POTS") to
achieve the highest rates of data transmission a DWM
apparatus, when fully developed, will have to be
installed at the local switching station. It is
anticipated that the DWM modem may transmit at faster
rates over POTS without an DWM apparatus in place at
the local switching station. For transmission to
occur DWM modems must be at each end.
DWM can be used to transmit over any analog media
including wireless. Because wave frequencies may be
higher when sent through the air, data transmission
using DWM technology may send information at higher
rates.
Preliminary evaluations indicate that DWM technology
may be applied for storage on magnetic media, such as
floppy disks, hard drives, video cassettes, tapes etc.
Because various forms of magnetic media use storage in
analog format, DWM may increase the storage capacity of
some magnetic based devices. DWM storage enhancement
applications have not been fully developed and tested
and may ultimately prove infeasible and impractical.
DWM must be developed from a prototype to a
commercially viable product. Even though the Company
has a prototype, the Company makes no assurance that
the DWM technology can be made into a commercially
viable product or products.
If the research and development of the modem is
successful and the Company then has a commercially
viable product, the Company will consider various
alternatives. It may seek a joint venture partner or
it may license the modem technology to another company
and receive royalty payments. No plan has been adopted
regarding the manufacturing, marketing, or distributing
of the modem, when and if commercialization is
achieved. Because of the high tech nature of the
product no assurance can be given that the
commercialization efforts for the modem will be
successful or that the Company will be able to
effectively penetrate and capture a share of the modem
market. Any possible ventures are predicated on the
Company developing a commercially viable product.
Presently, the Company's efforts regarding DWM are
directed primarily toward the DWM modem. Management
believes that because of the increased amount of
information that can be transmitted, other applications
in the telecommunications industry may be feasible and
beneficial. Again because of the sophisticated and
high tech nature of this technology, these other
applications may not ultimately be successful.
For the DWM modem to transmit it will be necessary
for the receiving modem to be a DWM modem. Because the
DWM modem is based on different technology it will not
be compatible with modems other than DWM based modems.
Also, the medium of transmission may influence the
overall speed or rate at which data and other
information may be transmitted.
The Company is a development stage company and its
business is subject to considerable risks. The Company
activities have not developed sufficient cash flows
from business operations to sustain itself. The
Company is small and has an extremely limited
capitalization. Many of its actual and potential
competitors have greater financial strength, more
experienced personnel, and extensive resources
available. Also, the Company is engaged in
technological development. It is expensive to do
research and development on new products or
applications of new or existing technology. Resources
can be used and depleted without achieving the desired
or expected results. Also, because of the rapid
development of technology the Company's products may
become obsolete. Some of the Company's technology is
revolutionary in that it is based on unconventional
technological theories.
Management of the Company has had limited experience
in the operation of a public company and the management
of a commercial enterprise large in scope.
The Company has a marketing staff of five people. In
addition, the Company has established numerous
independent representatives or marketing entities which
will market the Company's products. Marketing through
independent sales representatives means the Company
does not control directly its marketing efforts and is
dependent upon the skill and efforts of unrelated
parties to achieve any marketing success. The Company
may have to devote substantial funds if the marketing
plan falters and additional resources are required.
There can be no assurance that the Company will be able
to market its products in commercial quantities at
reasonable costs, that its products will be marketed
successfully or achieve market acceptance, that the
Company will be successful in establishing and
maintaining a dealer network, or that the Company will
develop commercially viable products.
The Company's business, if its technological
development is successful, will require the Company to
enter new fields of endeavor and even new industries.
If the products are successfully developed so that
potential commercialization is possible, the Company
will enter new industries and new markets. The Company
has not adopted a definitive plan establishing the
order of product development or the priority it will
follow in attempting to enter markets. Entry into new
markets will have many risks and require significant
capital resources which, if available, may not be
available to the Company on acceptable terms. Success
will be dependent on the judgment and skill of
management and the success of the development of any
new products.
The Company's success depends, and is expected to
continue to depend, to a large extent, upon the efforts
and abilities of managerial employees, particularly Mr.
Johnson, President of the Company. The loss of Mr.
Johnson would have a material adverse effect on the
Company. Presently the Company has no employment
contract with Mr. Johnson.
If the Company's projects are developed into
commercially viable products, they will have inherent
risks. It is anticipated that the Company will not be
insured against all risks or potential losses which may
arise from the Company's activities because insurance
for such risks is unavailable or because insurance
premiums, in the judgment of management, would be
too high in relation to the risk. If the Company
experiences an uninsured loss or suffers liabilities,
the Company's operating funds would be reduced and may
even be depleted causing financial difficulties for the
Company.
Patents.
The Company has two U.S. patents and rights to four
patents pending. One patent granted in November 1988
deals with the Self-Check System. The patent pertains
to an apparatus attached to a computer which has in its
database the weights and prices of all items for sale.
As each item is checked the computer verifies the
weight of the item purchased with the weight of the
item placed in the receiving basket and the weight of
the item in the database. Also, a tally is shown for
the total purchase amount. The total weight of items
scanned and placed in the cart is compared to the
computerized cumulative total weight. This is a
further check on determining that all the items the
customer purchased have been scanned for check-out.
The Company has a patent relating to the DWM
technology. The patent relates to combining and then
separating waves in the electromagnetic spectrum. One
of the patents pending relates to AFIM and the other
three relate to the DWM.
The Company has not sought or received an opinion
from an independent patent attorney regarding the
strength of the patents or patents pending and the
ability of the Company to withstand any challenge to
the patent or any future efforts by the Company to
enforce its rights under a patent or patents against
others.
The Company believes that it has developed trade
secrets and it has made efforts to safeguard and to
secure its trade secrets. There can be no assurance
that these safeguards will enable the Company to
prevent competitors from gaining knowledge of these
trade secrets and using them to their advantage and to
the detriment of the Company.
The Company relies heavily on its proprietary
technology in the development of its products. There
can be no assurance that others may not develop
technology which competes with the Company's products
and technology. The Company intends to take certain
steps to protect its unpatented know-how. No assurance
can be given that parties not associated with the
Company will not gain access to such information.
Technology Exchange
The Company acquired the technology referred to as
digital wave modulation ("DWM") and technology related
to AFIM from its President. The acquisition was
approved by the Board of Directors. The Board of
Directors has five members, Neldon Johnson, his wife,
and his son, and two employees of the Company. The
acquisition of the technology may be considered to
be a related party transaction. In the acquisition
effective as of June 30, 1996, Mr. Johnson exchanged
the DWM technology and the AFIM technology, and
satisfied $468,458 of $1,116,216 previously advanced to
the Company for 6,000,000 shares of common stock and
1,000,000 shares of preferred stock with voting rights
of ten votes per share. The directors when approving
the transaction determined that the exchange involving
the technology was in the best interests of the Company
and its shareholders. The directors considered such
things as the nature and character of the technology
and its future potential. There were no independent
opinions or appraisals available to the Board of
Directors.
General
Registrant's principal executive offices are located
at 512 South 860 East, American Fork, Utah 84003 and
its telephone number is (801) 763-9965.
The Company was founded in 1986 by Neldon Johnson to
engage in the supermarket business. Since its formation
the Company has developed technologies which are in
different stages of development.
From its inception the Company's primary activity has
been research and development. The Company believes
that AFIM is a product for which there may be great
demand in the identification industry and marketplace.
Identification and access control are potentially
significant markets. The AFIM system with
modifications and additional software may control
access to computer networks and other products.
However, presently the primary focus for AFIM
development is on time clocks.
Products and Technologies
The Company is presently commencing to test market
the AFIM time clocks. Additional uses for AFIM are
under consideration and development. These uses
include a larger model of the machine to allow for the
digital recording of a full set of fingerprints
simultaneously. This model if successfully developed
and completed would replace the conventional
fingerprinting method now used. Also, another possible
use is security for hotel rooms or other entries. A
smaller AFIM unit would be incorporated into existing
door security products. The person attempting to gain
access would have his fingerprint read and compared
to his fingerprint on a card. Also, the fingerprint of
the person entering could be stored to provide a record
for purposes of knowing who entered the room and at
what time. Presently AFIM must operate with a
personal computer.
Warranty
The Company's products has not set any warranty
provisions but it is anticipated that the Company's
warrant will be similar to warranties for competitive
products in the market or industry. Typically
warranties for electronics products are limited.
Marketing
The Company has entered into agreements with
independent marketing entities. Because of the
potential diverse nature of the Company's products
different marketing approaches for each product may
become necessary. For the AFIM time clocks the Company
presently is relying primarily on its independent
marketing entities or independent sales
representatives. As part of their Agreement with the
Company, they each purchase a machine for $2,500 with a
downpayment of $400 to $800. The remaining balance is
to be paid within 90 days. If not paid, a $1,000
finance charge is added to the outstanding balance.
The Company has established a payment plan under which
the sales representatives can pay $90 per month until
the balance is paid. Payments have been suspended
pending completion of modifications to the AFIM. AFIM
units previously placed with sales representatives will
be retrofitted to include modifications. Some of the
units have been retrofitted. For the Self-Check System
the Company may form a separate subsidiary and market
the System as a franchise on a store-by-store basis.
The development of the modem based on DWM technology
into a marketable commercial product is not completed.
The Company has not determined any marketing approach
if development is successfully achieved and a
commercial quality modem is available to market. The
Company may seek joint venture partners, may license
the product to others, or may seek to establish
distribution channels. It is anticipated that any
marketing efforts will require time and capital to
develop.
Competition
Because the Company has products that are distinct,
each product will face different competitive forces.
AFIM competes with all forms and systems of identity
verification. In addition, the Company is aware of
other manufacturers which offer fingerprint based
identification systems. Further, other applications
for fingerprint based identification compete with other
forms of identity verification. End users have
different demands which include cost, sophistication,
degree of security, operational requirements, time for
individual verification and convenience. No firm
dominates the identity verification market.
In the modem market, if a commercial quality product
is available, the Company faces competition from large,
well-established firms. These firms offer products
with immediate name recognition and are established in
the market place and are compatible with other modems.
The Company believes because of the speed at which its
modem may operate it may have a competitive advantage.
Nevertheless the Company has not done any marketing
studies or market research to determine the acceptance
of the modem in the market place or the best marketing
method to follow. Further, no assurance can be given
that the Company will be successful in its further
development of the DWM products.
The Company has no market share for any products at
this time. The Company is commencing its marketing
efforts for the AFIM and past marketing efforts have
been minimal. No assurances can be given that the
Company's marketing efforts will be successful or that
the marketing approach the Company is using for the
AFIM is practical under all circumstances. If the
Company successfully markets the AFIM, other
competitors may develop similar products. The Company
has no name recognition and has not established
credibility or reputation in the market place.
In the point of sale terminal market the Company
faces competition from major companies with established
systems. Further, the idea of customers checking out
their purchases is a relatively novel concept.
Overcoming reluctance to change will be difficult. In
addition, the System may not be compatible with all
types of retail establishments. The Self-Check System
presents a different method of operating the front end
of a retail establishment. The Company has engaged in
limited marketing efforts to prospects known to
management or developed by word of mouth. The Company
may develop a franchise program as a means to market
and distribute the Self-Check System.
Manufacturing
For production of the initial AFIM units the Company
did the assembly. If the Company were successful in
its marketing efforts and demand for the AFIM were to
increase, the Company may be unable to meet the demand
and may have to use independent contract assemblers.
AFIM is comprised of off-the-shelf components and
proprietary components developed by the Company which
are then assembled. The Company's proprietary software
controls AFIM's operations. The Company has no
agreement with any independent contract assemblers.
Management believes that the supplies and parts are
readily available from sources presently used by the
Company or from alternative sources which can be used
as needed. The Company has not determined the number
of units of the AFIM it will seek to maintain in
inventory. Presently the Company has limited inventory
and backlog.
The Self-Check System is comprised of off-the-shelf
parts and components. These parts are assembled into
the Self-Check System. The Company's proprietary
software ties together the individual components and
operates the System. Scanners, video display terminals,
and computers are available from several sources. The
software and circuit boards used in the System are
proprietary components developed by the Company. The
circuit boards were specifically developed to interact
with the various peripherals, the main computers and
the check-out terminals. The circuit boards will be
manufactured by the Company from off-the-shelf
components and parts which the Company believes
are readily available from a variety of sources. Only
one Self-Check System has been assembled.
The Company operates in industries subject to
rapid and significant technological change. Future
growth for the Company may be dependent on its ability
to innovate and adapt its technologies to the changing
needs of a marketplace. In the past the Company's
activities have primarily consisted of its efforts in
research and development. During fiscal years ended
June 30, 1996 and 1995, research and development
expenses were $382,327 and $39,430,respectively.
Although no precise dollar amount has been determined,
the Company will continue to allocate resources to
product development. The Company expenses development
costs as they occur. The Company intends to work
closely with its customers and prospective customers to
determine design enhancements and modifications.
The Company has two patents and owns rights to
other technology. In addition, the Company believes
that its proprietary technology and know-how may
provide it with a competitive advantage.
Item 2. Description of the Property and Facilities
The Company leases offices, warehouse and manufacturing
space comprised of approximately 10,000 square feet in
American Fork, Utah. The lease is on a month to month
basis and the monthly lease is $1,000.
Item 3. Legal Proceedings
In July 1996 the Company and its president were named
as defendants in a purported class action lawsuit
seeking damages for violations of the anti-fraud
provisions of the federal securities laws. The Company
intends to vigorously defend the lawsuit.
The Company in August 1996 became aware that the U.
S. Securities and Exchange Commission ("SEC") issued a
private formal order of investigation to determine if
there have been violations of the federal securities
laws. In particular, the formal order addresses
possible violations of the registration provisions of
the 1933 Act and the anti-fraud provisions of the
Securities Exchange Act of 1934 ("1934 Act"). The SEC
issued subpoenas to the Company and persons related to
it requiring the production of certain documents.
Item 4. Submission of Matters to a Vote of Security
Holders
No matters were submitted to a vote of security
holders.
PART II.
Item 5. Market for Common Equity and Related
Stockholder Matter
Presently Registrant's common stock is traded on the
NASD Electronic Bulletin Board under the symbol "IAUS".
The table below sets forth the closing high and low
prices at which the Company's shares of common stock
were quoted during the quarter identified. The prices
shown in U.S. Dollars reflect actual trades that may
have occurred during the quarter ended as identified.
High Low
1996
September 30 29.50 4.50
June 30 57.00 10.00
March 31 43.00 16.00
1995
December 31 20.00 4.00
September 30 5.00 2.00
June 30 5.00 1.50
March 31 2.50 .50
1994
December 31 .75 .25
The Company's shares are volatile and subject to
broad price movements and fluctuations. The Company has
no knowledge regarding the price movements. Based on
the foregoing, the Company's shares are subject to wide
price fluctuations and should be considered speculative
securities. On June 30, 1996, the Company had
approximately 980 shareholders of record.
As of June 30, 1996, Registrant had 15,186,100 shares
of common stock issued and outstanding. Of these
shares approximately 1,601,500 shares were free trading
shares. There were approximately 2,100,000 shares
which are held by non-affiliates and at different times
will become available for resale pursuant to the
provisions of Rule 144 promulgated under the 1933 Act.
Shareholders holding 1,000 restricted shares or more
number at least 285. Shareholders owing 10,000 or more
restricted shares number at least forty. Many of these
shares have been held or will soon be held for
sufficient time to satisfy the required two year
holding period under Rule 144. At least 700,000
restricted shares of common stock have been held for
sufficient time to satisfy the three year holding
period under Rule 144(k). Rule 144(k) allows a
restricted legend to be removed upon sale after the
three year holding period has been satisfied and
provides that certain provisions of Rule 144 are not
applicable. The Company has no knowledge regarding any
sales or plannedsales by any shareholders acting in
concert to sell their shares. From time to time the
Company receives from shareholders general inquiries
about resales under the Rule. Sales pursuant to the
provisions of Rule 144 could adversely affect the
market price of the shares. Auction markets typically
are in part based on supply and demand. If more shares
are available for sale into the market by holders of
restricted shares who satisfy the conditions of Rule
144, the market price of the stock will be adversely
affected.
DIVIDENDS
Registrant has not declared or paid any dividends to
holders of its common stock. In the future it is
unlikely that the Company will pay any dividends.
Item 6.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
General
Historically, the Company's activities have been
dominated by its research and development. As a result
there have not been revenues and costs associated with
operations. The Company has limited experience
regarding profit margins or the costs associated with
operating a business.
Results of Operations
Fiscal year ended June 30, 1996
For the year ended June 30, 1996, the Company had
revenues of $96,922 compared to revenues of $6,000 for
the year ended June 30, 1995. The Company had sales of
$88,922 during fiscal 1996. Cost of sales was $51,297
compared to nil a year earlier. Total operating
expenses were $740,729 compared to $206,356 a year
earlier. General and administrative expense increased
from $165,078 to $356,554 for an increase during fiscal
1996 of $191,476. Research and development expense
increased from $39,430 to $382,327 in fiscal 1996 for
an increase of $342,897. These increase were
attributable to additional development of the Company's
products.
For the year ended June 30, 1996, the Company had a
net loss of $(687,189) compared to a net loss of
$(201,222) a year earlier. The year to year comparison
of net loss per share was $(.04) in fiscal 1996
compared to $(.01) in fiscal 1995.
Fiscal year ended June 30, 1995
Operations for the year ended June 30, 1995, pertained
to research and development and other activities.
Research and development expenses were $39,430
increasing by $37,362. The increase was attributable to
additional development regarding AFIM. General and
administrative expenses increased from $17,612 to
$165,078 during fiscal 1995. This increase was a
result of additional development. For 1995 fiscal year
total income was $6,000, total expenses were $207,222
resulting in a net loss of $(201,222). The loss
increased from $15,528 to $201,222 because of the
increased research and development expense and general
and administrative expenses.
Liquidity and Capital Resources
In January 1996 the Company completed a private
placement of its securities involving the sale of
176,500 shares of common stock at a purchase price of
$4.00 per share. The Company realized gross process of
approximately $718,000 and net proceeds of
approximately $693,000. In the past the Company's
president loaned money to the Company to fund its
operations. Mr. Johnson and the Company have no formal
agreement as to any future loans. The Company has no
line of credit with any financial institution. The
Company believes that until it has operations and
revenues consistently, it will be unable to establish a
line of credit from conventional sources.
The Company's liquidity is limited given the current
rate of expenditures. More liquidity may be required
to support ongoing product development, finance
marketing programs, and establish distribution
networks. The Company has current assets of $815,299
and total assets of $1,099,158. It has current
liabilities of $695,510 and total liabilities of
$705,788. The current ratio of current assets to
current liabilities is approximately 1.2. If the
Company continues to have a negative cash flow or if
the Company is unable to generate sufficient revenues
to meet its operation expenses, the Company will
experience liquidity difficulties.
For the Company the risks involved relate to the
development of commercially viable products based on
its technology and that the products developed will
then be accepted in the market. The Company is unable
to predict when any products will commence to
contribute to revenues. No assurance can be given that
the objectives will be achieved.
Item 7. Financial Statements
The financial statements are filed as part of this
Annual Report on Form 10-KSB.
INTERNATIONAL AUTOMATED SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
REPORT OF INDEPENDENT AUDITORS
AND
FINANCIAL STATEMENTS
June 30, 1996<PAGE>
INTERNATIONAL AUTOMATED SYSTEMS, INC.
(A Development Stage Company)
TABLE OF CONTENTS
Page
Report of Independent Auditors 1
Balance Sheet - June 30, 1996 2
Statements of Operations for the Years Ended
June 30, 1996 and 1995 and for the Period From
September 26, 1986 (Date of Inception) Through
June 30, 1996 3
Statements of Stockholders Equity for the Years
Ended June 30, 1996 and 1995 and the Period
From September 26, 1986 (Date of Inception)
Through June 30, 1996 4
Statements of Cash Flows for the Years Ended June 30,
1996 and 1995 and for the Period From September 26,
1986 (Date of Inception) Through June 30, 1996 5
Notes to the Financial Statements 6
<PAGE>HANSEN, BARNETT & MAXWELL
A Professional Corporation
CERTIFIED PUBLIC ACCOUNTANTS
801) 532-2200
Member of AICPA Division of Firms Fax (801)532-7944
Member of SECPS 345 East 300 South, Suite 200
Member of Summit International Associates Salt Lake
City, Utah
84111-2693
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
International Automated Systems, Inc.
We have audited the accompanying balance sheet of
International Automated Systems, Inc. (a development
stage company) as of June 30, 1996, and the related
statements of operations, stockholders equity, and
cash flows for the years ended June 30, 1996 and 1995,
and for the period September 26, 1986 (date of
inception) through June 30, 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.
The financial statements of the Company from September
26, 1986 through June 30, 1990 were audited
by other auditors whose reports, dated October 21, 1988
and April 30, 1991 , were qualified subject to
the effects of such adjustments, if any, as might have
been required had the outcome of the uncertainties
referred to in Note 1 been known. Our opinion, in so
far as it relates to the period from September 26,
1986 through June 30, 1990, is based solely on the
reports of the other auditors.
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 and the reports of the other auditors provides
a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of
the other auditors, the financial statements referred
to above present fairly, in all material respects, the
financial position of International Automated Systems,
Inc. as of June 30, 1996, and the results of its
operations and its cash flows for the years ended June
30, 1996 and 1995, and for the period September 26,
1986 through June 30, 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. The Company is a development stage
enterprise engaged in developing technology related
to production of electronic security and communication
equipment. As discussed in Note 1 to the financial
statements, the Company s operating losses since
inception and the deficit accumulated during the
development stage raise substantial doubt about its
ability to continue as a going concern. Management s
plans concerning these matters are also described in
Note 1. The financial statements do not include any
adjustments that might result from the outcome of this
uncertainty.
HANSEN, BARNETT & MAXWELL
Salt Lake City, Utah
August 29, 1996, except for
Note 2 as to which the date is
November 14, 1996
<PAGE>
INTERNATIONAL AUTOMATED SYSTEMS, INC.
(A Development Stage Company)
BALANCE SHEET
JUNE 30, 1996
ASSETS
Current Assets
Cash and cash equivalents $545,847
Receivable from sales representatives,
net of allowance for doubtful accounts
of $1,590 30,279
Prepaid expenses 7,259
Inventory 231,914
Total Current Assets 815,299
Property and Equipment
Computer and electronic equipment 121,263
Furniture and fixtures 18,880
Automobiles 21,657
Leasehold improvements 10,965
Total Property and Equipment 172,765
Accumulated depreciation (41,189)
Net Property and Equipment 131,576
Patents, net of accumulated amortization
of $15,025 152,283
Total Assets $1,099,158
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 42,081
Current portion of long-term debt 3,735
Accrued payroll expenses 1,936
Advance from majority shareholder 647,758
Total Current Liabilities 695,510
Notes Payable 10,278
Total Liabilities 705,788
Stockholders' Equity
Preferred stock, Class A, no par value,
5,000,000 shares authorized, 1,000,000
shares issued and outstanding 292,786
Common stock, no par value, 45,000,000
shares authorized, 15,186,100 shares issued
and outstanding 1,238,559
Deficit accumulated during the development
stage (1,137,975)
Total Stockholders" Equity 393,370
Total Liabilities and Stockholders' Equity $ 1,099,158
The accompanying notes are an integral part of these
financial statements.
<PAGE>
INTERNATIONAL AUTOMATED SYSTEMS, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
Cumulative
For the Period
September 26,
For the Years Ended 1986 (Inception)
June 30, Through
1996 1995 June 30, 1996
Revenue
Sales $ 88,922 $ - $ 88,922
Equipment lease income
from related party 8,000 6,000 20,000
Total Revenue 96,922 6,000 108,922
Cost of Sales 51,297 - 51,297
Gross Profit 45,625 6,000 57,625
Operating Expenses
General and administrative
expense 356,554 165,078 592,011
Research and development
expense 382,327 39,430 580,770
Amortization expense 1,848 1,848 16,905
Total Operating Expenses 740,729 206,356 1,189,686
Other Income and (Expense)
Interest income 9,187 - 11,099
Interest expense (1,272) (866) (17,013)
Net Other Income and
(Expense) 7,915 (866) (5,914)
Net Loss $ (687,189)$(201,222)$(1,137,975)
Net Loss Per Share $ (0.04) $ (0.01) $ (0.07)
Common shares used in Per
Share Calculation 16,186,100 16,006,600 16,186,100
The accompanying notes are an integral part of these
financial statements.<PAGE> INTERNATIONAL AUTOMATED SYSTEMS,
INC.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS EQUITY
Deficit
Accumulated
During
Preferred Stock Common Stock Development
Shares Amount Shares Amount Stage
Balance -
September 26,
1986 - $- - $ - $ -
Stock issued
for cash
September 1986-
$.002 per share - - 5,100,000 11,546 -
September 1988
(Net $38,702 of
offering costs)
- - $.32 per share- - 213,065 67,964 -
December 1988
(Net $6,059 of
offering costs)
- -$.32 per share - - 33,358 10,641 -
March 1989 (Net
$4,944 of
offering costs)
- -$.32 per share - - 27,216 8,681 -
June 1989 (Net
$6,804 of
offering costs)
$.32 per share - - 37,461 11,950 -
January 1994 -
$.40 per share - - 59,856 23,942 -
May 1994 -
$.20 per share - - 137,500 27,500 -
Stock issued
for services
September 1986 -
$.002 per share - - 300,000 679 -
June 1989 -
$.32 per share - - 5,000 1,595 -
April 1991 -
$.10 per share - - 300,000 30,000 -
Stock issued to
satisfy
liabilities June
1991 -
$.03 per share - - 2,700,000 78,101 -
Purchase and
retirement of
treasury stock
December 1991 -
$.49 per share - - (5,000) (2,425) -
December 1992 -
$.49 per share - - (1,856) (900) -
Net loss for the
period from
September 26,
1986 through
June 30, 1994 - - - - (249,564)
Balance - June
30, 1994 - - 8,906,600 269,274 (249,564)
Stock issued
for services
January 1995 -
$1.00 per share - - 100,000 100,000 -
Net Loss - - - - (201,222)
Balance -
June 30, 1995 - - 9,006,600 369,274 (450,786)
Stock issued
for cash
January 1996 -
$3.86 per
share (Net
of $24,387
of deferred
offering costs) - - 179,500 693,613 -
-
Stock issued
as part of
reorganization
- - Note 2
Various dates
$0.02 per
share 1,000,000 292,786
6,000,000 175,672 -
Net Loss - - - - (687,189)
Balance -
June 30,
1996 1,000,000 $292,786
15,186,100 $1,238,559
$(1,137,975)
The accompanying notes are an integral part of these
financial statements.<PAGE> INTERNATIONAL AUTOMATED SYSTEMS,
INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
Cumulative
For the
Period
September 26,
For the Years Ended 1986(Inception)
June 30, Through
1996 1995 June 30, 1996
Cash Flows
From Operating
Activities
Net loss $ (687,189)$ (201,222) $(1,137,975)
Adjustments to
reconcile net
income to
net cash
provided by
operating
activities:
Allowance for
doubtful accounts 1,590 - 1,590
Amortization 1,848 1,848 16,905
Depreciation 22,816 7,452 41,189
Stock based
compensation - 100,000 132,274
Change in assets
and liabilities:
Inventory (231,914) - (231,914)
Sales
representatives
receivable (31,869) - (31,869)
Prepaid expenses (7,259) - (7,259)
Accounts payable 33,599 482 42,081
Deferred revenue (8,000) (6,000) -
Accrued liabilities 1,936 - 1,936
Net Cash Used By
Operating
Activities (904,442) (97,440) (1,173,042)
Cash Flows
From Investing
Activities
Purchase of
property and
equipment (96,215) (20,446) (153,408)
Purchase of
rights to
technology (135,892) - (167,308)
Organization costs - - (1,880)
Net Cash Used By
Investing Activities (232,107) (20,446) (322,596)
Cash Flows From
Financing Activities
Proceeds from
issuance of
common stock 693,613 - 912,346
Proceeds from
advance from
controlling
shareholder -
Note 2 1,116,216 - 1,116,216
Payments for
treasury stock - - (3,325)
Payments for
stock offering
costs - - (56,509)
Proceeds (payments)
from net borrowings
from related party (134,029) 98,688 78,101
Payments on note
payable (3,453) (1,891) (5,344)
Net Cash Provided
By Financing
Activities 1,672,347 96,797 2,041,485
Net Increase
(Decrease) In
Cash 535,798 (21,089) 545,847
Cash and Cash
Equivalents at
Beginning
of Period 10,049 31,138 -
Cash and Cash
Equivalents at
End of Period $ 545,847 $10,049 $ 545,847
The accompanying notes are an integral part of these
financial statements.<PAGE> INTERNATIONAL AUTOMATED SYSTEMS,
INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1996 and 1995
NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING
PRINCIPLES
Organization - International Automated Systems, Inc.
(the Company ) was incorporated in the State of Utah
on September 26, 1986. The principals of the Company
have been involved in the research and development of
electronic security and communication equipment as well
as an automated self check-out system for retail stores
for the past nine years. The Company is deemed to be in
the development stage and its activities to date
consist of obtaining the rights to certain technology
involved with an automated self check-out system for
retail stores, developing other electronic security and
communication equipment and developing a business plan.
Basis of Presentation - The accompanying financial
statements have been prepared on a going concern basis,
which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of
business. As shown in the financial statements, during
the years ended June 30, 1996 and 1995, the Company
incurred net losses of $687,189 and $201,222,
respectively, and as of June 30, 1996, the Company's
losses accumulated from inception totaled $1,137,975.
These factors, among others, indicate that the Company
may be unable to continue as a going concern for a
reasonable period of time. The consolidated financial
statements do not include any adjustments relating to
the recoverability and classification of recorded asset
amounts or the amount and classification of liabilities
that might be necessary should the Company be unable to
continue as a going concern. The Company's ability to
continue as a going concern is dependent upon its
ability to generate sufficient cash flow to meet its
obligations on a timely basis, to obtain additional
financing as may be required, and ultimately to attain
successful operations. Management is in the process of
negotiating various sales agreements and is hopeful
these sales will generate sufficient cash flow for the
Company to continue as a going concern.
Financial Instruments - The Company considers all
highly liquid debt instruments purchased with a
maturity of three months or less to be cash
equivalents. Cash in banks exceeded the federal deposit
insurance limits at June 30, 1996. The Company has
entered into a sweep account arrangement whereby excess
funds are invested in U.S. Government obligations on a
daily basis. Those investments are considered cash
equivalents at June 30, 1996.
The amounts reported as cash and cash equivalents,
accounts receivable, prepaid expenses, rights to
technology, accounts payable, notes payable to related
parties and notes payable are considered to be
reasonable approximations of their fair values. The
fair values presented herein were based on market
information and management's estimates.
Concentration of Credit Risk - The Company's sales
relate to its automated fingerprint identification
machines which are sold primarily throughout the United
States.
NOTE 1--(CONTINUED)
Inventory - Inventory consist of raw materials, work
in process and finished goods pertaining to the
Company's automated fingerprint identification machine.
Inventory is valued at the lower of cost or market,
with cost being determined using the first-in first-out
method. Inventory consisted of the following at June
30, 1996:
Raw materials $ 158,664
Work in process 44,128
Finished goods 29,122
Total Inventory $ 231,914
Receivable From Sales Representatives - Sales
representatives are independent contractors of the
Company who locate potential buyers of the automated
fingerprint identification machine. As part of their
agreement with the Company, they each purchased a
machine for $2,500 with a $400 to $800 down payment
required. If the remaining balance is not paid within
90 days a $1,000 finance charge is added to the
outstanding balance. The income relating to the finance
charge will not be recognized until payments are
received. The Company has established a payment plan
whereby the sales representatives can pay $90 a month
until the balance is satisfied; these payments have
been suspended until further modifications to the
automated fingerprint identification machine are
completed. An allowance for doubtful accounts has been
established in the amount of $1,590 relating to these
accounts. The Company has no other trade receivables at
June 30, 1996.
Property and Equipment - Property and equipment are
recorded at cost and are depreciated using the
straight-line method based on the expected useful lives
of the assets which range from five to ten years.
Depreciation expense for the years ended June 30, 1996
and 1995 was $22,816 and $7,452, respectively.
Revenue Recognition - Sales are recognized upon
delivery and acceptance of the automated fingerprint
identification machine.
Loss Per Share - The Company has computed loss per
share based on the number of common and preferred
shares outstanding as of June 30, 1996 and 1995 under
the treasury stock method. The common and preferred
shares issued as discussed in Note 2 are considered to
be outstanding since inception.
Use of 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 at the date of the
financial statements and the reported amounts of
revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Reclassification - Certain previously reported amounts
have been reclassified to conform to the June 30, 1996
presentation. These reclassifications had no effect on
previously reported net income.
NOTE 2--REORGANIZATION
In November 1996 the Company entered into a
reorganization agreement with Mr. Neldon Johnson, which
was effective June 30, 1996. Mr. Johnson, prior to the
reorganization, owned a majority of the common stock of
the Company. The purpose of the reorganization was to
transfer ownership of all patents relating to the
Automated Fingerprint Identification Machine technology
and the Digital Wave technology owned by Mr. Johnson to
the Company and to satisfy $468,458 of a liability
payable to Mr. Johnson in the amount of $1,116,216 in
exchange for the issuance of 1,000,000 preferred shares
and 6,000,000 common shares of the Company. The
remaining $647,758 which was advanced by Mr. Johnson in
June 1996 was a prepayment to be used by the Company
for future research and development to be performed for
Mr. Johnson. When the parties agree that the research
has been performed, the Company will invoice Mr.
Johnson. However, the invoicing of Mr. Johnson and the
settlement of the advance will be accounted for as
the conversion of the advance to stockholders' equity
as additional paid-in capital for financial reporting
purposes.
During the period of time that Mr. Johnson advanced the
$468,458 to the Company, he held a controlling
ownership interest in the Company and he held an 80
percent interest in the transferred technology through
his ownership interest in the Company after the
transaction. The reorganization is therefore an
exchange between enterprises under common control and,
accordingly, the patents were recorded at Mr. Johnson s
historical cost, which was none. The preferred and
common shares are presented in the accompanying
financial statements as having been issued on the
various dates during the year ended June 30, 1996 when
the Company received the cash advances.
The preferred shares have equal dividend rights to
the common shares, are not convertible into common
shares and have no liquidation preferences to the
common shares. Each preferred share is entitled to the
voting rights of ten common shares. The proceeds from
the issuance of the preferred and common shares were
allocated based on the respective voting rights of the
shares issued.
NOTE 3--RELATED PARTY TRANSACTIONS
The Company paid $134,029 and received $98,688 in
net short-term cash advances from a shareholder during
the years ended June 30, 1996
and 1995. These advances were utilized to
finance the operations of the Company and the
research and development activities discussed
in Note 7.
As further discussed in Note 2, $468,458 of
advances from the controlling shareholders,
totaling $1,116,216, were converted to common and
preferred shares of stock.
During the years ended June 30, 1996 and 1995, the
Company leased electronic equipment to a majority
shareholder for use in his store on a test basis.
$8,000 and $6,000 have been recognized as revenue for
the years ending June 30, 1996 and 1995, respectively.
<PAGE> NOTE 4--NOTE PAYABLE
At June 30, 1996 the Company had a note payable to
a bank, secured by a vehicle with monthly payments of
$394, including interest at 8%, through November 1999
in the amount of $14,013.
Annual maturities of this note payable for the
next five years are as follows:
Year Ending June 30, Amount
1997 $ 3,735
1998 4,055
1999 4,381
2000 1,842
$14,013
NOTE 5--INCOME TAXES
Effective July 1, 1993, the Company adopted Statement
of Financial Accounting Standards No. 109, Accounting
for Income Taxes. The
adoption of the new accounting standard had
no effect on prior periods. Statement No. 109
requires the recognition of a liability or asset,
net of valuation allowance for the deferred tax
consequences of temporary differences and
operating loss carryforwards.
The Company did not have a current or deferred
provision for income taxes for the years ended June 30,
1996 and 1995. The following presents the components of
the net deferred tax asset at June 30, 1996:
Operating loss carryforwards $202,613
Difference in basis of patents 140,537
Accumulated depreciation 20
Total Deferred Tax Assets 343,170
Less: Valuation Allowance (343,170)
Net Deferred Tax Asset $ -
The valuation allowance increased $203,001 and
$68,415 during the years ended June 30, 1996 and 1995,
respectively. The Company has net operating loss
carryforwards of $675,376 that expire, if unused, in
years 2002 through 2012.
<PAGE>NOTE 5--(CONTINUED)
The following is a reconciliation of the income tax
benefit computed at the federal statutory tax rate with
the provision for income taxes for the years ended June
30, 1996 and 1995:
June 30,
1996 1995
Income tax benefit at statutory
rate (34%) $(233,644) $(68,415)
Current operating loss not
recognized 74,216 68,415
Deferred tax valuation allowance
change 159,298 -
Non deductible expenses 130 -
Provision for Income Taxes $ - $ -
NOTE 6--PATENTS
The Company s policy on recording patent costs is to
capitalize legal fees incurred in obtaining patents in
the United States and other countries. Costs incurred
to develop the technology were recognized as research
and development expense by the Company when incurred.
The patents are being amortized on a straight-line
basis over a 17- year life.
NOTE 7--RESEARCH AND DEVELOPMENT EXPENSE
Research and development has been the principal
function of the Company. Expenses in the accompanying
financial statements include certain costs which are
directly associated with the Company's research and
development of both the Automated Fingerprint
Identification Machine technology and the Digital Wave
Modulation technology. These costs, which consist
primarily of fees paid to individuals, materials and
supplies amounted to $382,327 and $39,430 for the
fiscal years ended June 30, 1996 and 1995,
respectively.
NOTE 8--OPERATING LEASES
The Company occupies facilities under a lease agreement
on a month-to-month basis. Rental expense relating to
this operating lease was $17,382 and $11,060 for the
years ended June 30, 1996 and 1995, respectively. The
Company also operates an office out of the majority
shareholder's home at no cost to the Company.
NOTE 9--SUPPLEMENTAL CASH FLOW INFORMATION
During the years ended June 30, 1996 and 1995, the
Company paid $1,272 and $866 in interest.
During the year ended June 30, 1995, the Company
purchased an automobile with a note for $19,357. The
Company also issued 100,000 shares of common stock
valued at $1.00 per share for management and consulting
services.
NOTE 9--(CONTINUED)
Since inception, the Company has issued 705,000
shares of common stock valued at an average of $0.19
per share for services.
During June of 1991, the Company issued 2,700,000
shares of common stock to satisfy amounts owed to a
majority shareholder in the amount of $78,101.
NOTE 10--CONTINGENCY
On July 2, 1996, a class action law suit was filed
against the Company by shareholders for securities
violations. The class action has been brought on behalf
of all persons and entities who purchased shares of
common stock from April 13, 1996 to June 27, 1996. The
suit is seeking damages incurred based on the decrease
in the Company s stock price because of alleged
material misrepresentations by the Company regarding
new technology developed by the Company. This action is
in its preliminary stages. The ultimate outcome of the
litigation cannot presently be determined. Accordingly,
no provision for any liability that may result upon
adjudication has been made in the accompanying
financial statements and the possible effect it will
have on future financial statements is unknown.
On August 13, 1996 the Company was served a formal
order of private investigation by the US Securities and
Exchange Commission (SEC). To date, the SEC has issued
a subpoena requiring the production of certain
documents. The SEC staff has advised that its inquiry
should not be construed as an indication by the SEC
or its staff that any violations of law have occurred.
<PAGE> <PAGE>
<PAGE>
Item 8. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS
During the fiscal year 1996 Hansen, Barnett and
Maxwell replaced H. Sherwood & Company's independent
certified public accountants. Hansen, Barnett and
Maxwell did an audit for the year ended June 30, 1995,
and did the audit for the year ended June 30, 1996.
H. Sherwood & Company's relationship with the Company
was not terminated because of any resolved or
unresolved disagreement on any matter of accounting
principles or practices, financial statement disclosure
or auditing scope or procedure. Hansen, Barnett &
Maxwell were engaged pursuant to a resolution of the
Board of Directors.
PART III.
Item 9. DIRECTORS AND OFFICERS OF THE REGISTRANT
Directors and Officers
The executive officers and directors of the Company are
as follows:
Name Age Position with the Company
Neldon Johnson 50 Chairman of the oard of Directors
and President
Ina Johnson 48 Secretary and Director
Donnel Johnson 31 Director and Vice-President
Christopher Taylor 27 Director
Stacy Curtis Snow 30 Director
Douglas H. Lloyd 45 Vice-President
Randale Johnson 27 Vice-President
All Directors hold office until the next annual
meeting of shareholders of the Company or until their
successors have been elected. All officers are
appointed annually by the Board of Directors and serve
at the discretion of the Board.
Directors will be reimbursed by the Company for any
expenses incurred in attending Directors' meetings. The
Company also intends to obtain Officers and Directors
liability insurance, although no assurance can be given
that it will be able to do so.
Background of Executive Officers and Directors
Neldon Johnson is the co-founder of the Company and
the primary inventor of the Self-Check system, AFIM,
and the DWM technologies. Mr. Johnson directs the
Company's research and development program. Mr. Johnson
studied physics and mathematics at Brigham Young
University in Provo, Utah, and graduated from Utah
Technical College's Electronics Technology Program in
1964. He has taken training courses and has taught
courses in electronics programming, microwave and wave
switch programs. From 1965 to 1968 he worked for
American Telephone and Telegraph, Inc., as an engineer.
From 1983 to the present, Mr. Johnson has been
developing the Self-Check System. Also, from 1975 to
1990 he worked at a Ream's Grocery Store and had
management responsibilities for operations. Mr.
Johnson has real estate holdings, one of which is a
grocery store of 20,000 square feet presently under
construction in Salem, Utah.
Ina Johnson is the wife of Neldon Johnson. She has
been a bookkeeper for the past 25 years. She has been
the secretary and treasurer of the Company since 1988.
Recently she resigned as treasurer of the Company, but
remains the secretary.
Donnel Johnson is the son of Neldon Johnson and Ina
Johnson. He has been a director of the Company since
May 1996. He received a bachelor's degree in
Electrical Engineering from Brigham Young University in
1991.
Christopher Taylor received an Associates of Science
Degree from Utah Valley State College in 1992. He was
a sergeant in the U. S. Army. Since 1992 Mr. Taylor
has worked on projects relating to Registrant's
products and technology. Presently Mr. Taylor
supervises production and product inventory control and
debugs software.
S. Curtis Snow graduated from Brigham Young
University in 1991 receiving a Bachelor's Degree in
design engineering. Since 1991 Mr. Snow has worked on
several projects relating to the Self-Check System and
AFIM.
Douglas H. Lloyd became a Vice-President of the
Company in June 1996. Prior to his joining the Company
he was a consultant to Pinnacle. During 1995 he was
president of Fonix Systems, Inc., and from 1993 to
1995 he was president of Sensar. From 1983 to 1993 he
was the Executive Director of WordPerfect Corporation.
Randale P. Johnson, age 27, is the son of Neldon
Johnson and Ina Johnson. He has been an officer since
June 1996. His responsibilities include marketing.
Mr. Johnson who will hold an associate degree in
Computer Science and has four years of experience in
the computer industry. He joined the Company in 1996.
None of the officers or directors of the Company has
during the past five years, been involved in any events
such as petitions in bankruptcy, receivership or
insolvency, criminal proceedings or proceedings
relating to securities violations.
Significant Employees and Managers
Monty Hamilton, age 56, is an employee having
responsibilities for marketing. Mr. Hamilton holds a
Master of Business Administration and a B.S. degree in
Banking and Finance from the University of Utah. He
joined the Company in 1996. From 1987 to 1995 Mr.
Hamilton was an account executive with Wilson-Davis
& Company, Inc., a securities broker-dealer.
Ralph Thomson, age 58, is an employee of the Company.
Dr. Thomson joined the Company in May 1996. From 1988
to the present Dr. Thomson has been the president of
International Business Catalyst a firm consulting on
mergers and acquisitions. For the past twenty years
Dr. Thomson has been involved at state/local and
national levels with technology, technology
transfers, international trade and finance. Dr.
Thomson received in 1968 a PhD. Degree in International
Politics and Economics from Fletcher School of Law and
Diplomacy (a consortium of Harvard, M.I.T. and Tufts
Universities), in 1964 received a Masters degree in
International Law and Diplomacy from Fletcher and in
1963 received a Masters degree in International Affairs
from Fletcher. In 1962 he received a Bachelor of Arts
degree in Political Science and Economics from the
University of Utah.
Item 10. Executive Compensation
Currently the Company has no employment agreement
with any of its officers, directors or employees.
During the year ended June 30, 1996, Neldon Johnson,
who is an officer and a director of the Company,
received benefits of $5,320. That same amount is
attributable to his wife Ina Johnson, who is an officer
and a director of the Company. Mr. Johnson received no
salary.
During the year ended June 30, 1996, Donnel Johnson,
who is an officer and a director received salary and
benefits totalling $42,647. Christopher Taylor, who
became a director in June 1996, received salary and
benefits totalling $34,633. S. Curtis Snow, who became
a director in June 1996, received salary and benefits
totalling $32,849. Randy Johnson, who is an officer,
received salary and benefits of $62,508. Douglas Lloyd,
who is an officer, received fees of $15,000.
Employment Agreement
The Company has no employment agreements with any of
its employees. Each employee has signed a
non-disclosure agreement with the Company.
The Company has no stock option plan.
Item. 11. Security Ownership of certain Beneficial
Owners and Management
The following table sets forth certain information
known to the Company regarding beneficial ownership of
the Company's Common Stock as of June 30, 1996, by (i)
each person known by the Company to own, directly or
beneficially, more than 5% of the Company's Common
Stock, (ii) each of the Company's directors, and (iii)
all officers and directors of the Company as a group.
Except as otherwise indicated, the Company believes
that the beneficial owners of the Common Stock listed
below, based on information furnished by such owners,
have sole investment and voting power with respect to
such shares, subject to community property laws,
where applicable.
Amount and Nature of
Beneficial Owner
Name and Address of Number of Percent (1)
Beneficial Owner Shares Owned
Neldon Johnson
512 South 860 East
American Fork, Utah 10,558,433 70
Donnel Johnson
512 South 860 East
American Fork, Utah 547,400 3
Christopher Taylor
512 South 860 East
American Fork, Utah 700
S. Curtis Snow
512 South 860 East
American Fork, Utah 6,000
Directors and
Officers as a Group
5 persons 11,112,533 73
(1) Based on 15,186,100 shares issued and outstanding,
but does not include the 1,000,000 shares of Series 1
Class A Preferred Stock held by Neldon Johnson. Each
share of the Series 1 Class A Preferred Stock has ten
votes per share and votes with the shares of common
stock on all matters. Mr. Neldon Johnson has
approximately 81 per cent of the voting control of the
Company when the voting power of the shares of
preferred stock and common stock are taken together.
Item 12. Certain Relationships and Related Transactions
The Company effective as of June 30, 1996, exchanged
6,000,000 shares of common stock and 1,000,000 shares
of Series 1 Class A Preferred Stock for technology
related to the Automatic Fingerprint Identification
Machine and the Digital Wave Modulation as well as
$468,458 of obligations owed to the Company's
President. The transaction is a related party
transaction. No independent appraisal regarding the
value of the exchange was available.
PART IV
Item 13. Exhibits and Reports on From 8-K
a. Exhibits
INDEX TO EXHIBITS
3.(i) *Certificates of Articles of Incorporation
3.(ii) *By-laws.
3.(iii) Notification of Series 1 Class A Preferred
Stock
4.(i) *Specimen Certificate of Common Stock.
4(ii) *Form of Warrant Purchase Option
to be issued to Underwriter.
10.(i) *Consulting Agreement with Wilson-Davis
10.(a) Agreement with Company Officer
10.(11) *Assignment of Patent.
*This document was previously filed with the Commission
and is incorporated in this report by
reference.
b. Reports on Form 8-K.
During the period ended June 30, 1996, Registrant
filed one report on Form 8-K.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d)
of the Securities Exchange Act of 1934, the Company has
duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
INTERNATIONAL AUTOMATED SYSTEMS, INC.
NELDON JOHNSON
Title: President, Chief Executive
Officer, and Chief Financial Officer
(Principal Executive and Financial
Officer)
Date: November 21, 1996
<PAGE>
DIRECTORS
NELDON JOHNSON
Title: Director
Date: November 21, 1996
INA JOHNSON
Title: Director
Date: November 21, 1996
DONNELL R. JOHNSON
Title: Director
Date: November 21, 1996
CHRISTOPHER J. TAYLOR
Title: Director
Date: November 21, 1996
S. CURTIS SNOW
Title: Director
Date: November 21, 1996
AGREEMENT
THIS AGREEMENT made this 20th day of November,
1996, by and between Neldon P. Johnson and
(hereinafter "Transferor") and International Automated
Systems, Inc., a Utah corporation, (hereinafter "IAS")
WITNESSETH:
WHEREAS, Transferor owns the items of personal
property listed on Exhibit A (hereinafter collectively
referred to as the "Assets");
WHEREAS, IAS and Transferor agree that it would be
to their mutual benefit for IAS to receive from
Transferor the Assets in exchange for 6,000,000 shares
of IAS restricted common stock and 1,000,000 shares of
Series A Preferred Stock with voting rights of 10 votes
per share; and
WHEREAS, previously IAS and Transferor have
discussed the acquisition of certain assets from the
Transferor and the Board of Directors of IAS adopted
certain minutes pertaining to the purchase and
acquisition of certain assets from Transferor.
NOW THEREFORE, in consideration of the promises
and of the mutual covenants herein contained, the
parties hereto hereby agree as follows:
1. (REPRESENTATIONS AND WARRANTIES OF TRANSFEROR)
Transferor hereby represents and warrants to IAS that:
a) He, as investor, has complete title and
owns as of the date hereof, and as of the Closing Date
hereinafter provided will own the Assets free and clear
of all liens, charges and encumbrances except those
assets previously assigned to IAS.
b) He is not a defendant, nor a plaintiff,
against whom a counterclaim has been asserted, in any
litigation, pending or threatened, other than the
litigation filed in the United States District Court
for the District of Utah captioned Edouard Serfaty
et al. v. International Automated Systems, Inc. Civil
No. 2:96CV0583C and a Formal Order for a private
investigation issued by the Securities and Exchange
Commission, File No. D-2043, dated July 25, 1996, and
there has not been any material claim made or asserted
against him nor are there any proceedings threatened or
pending before any federal, state or municipal
government, or any department, board, body or agency
thereof, involving him, except as disclosed in Exhibit
"B".
c) Transferor is not in default under any
material agreement to which it is a party nor in the
payment of any obligation.
d) This Agreement has been duly executed by
Transferor and the execution and performance of this
Agreement will not violate, or result in a breach of,
or constitute a default in any agreement, instrument,
judgment order or decree to which Transferor is a party
or to which Transferor is subject nor will such
execution and performance constitute a violation of or
conflict with any fiduciary to which Transferor is
subject.
e) All representations and warranties made
by Transferor in connection with the transactions
contemplated hereunder shall be truthful and not
misleading.
f) Transferor has no liens filed against
him by any governmental authority, commission,
department, or agency.
g) Transferor warrants that the ideas for
the Assets were conceived by him and that he developed
the assets with his own funds or he advanced funds to
IAS for such Asset development.
h) Transferor warrants to the best of his
knowledge that he is in compliance with all relevant
statutes, laws, regulations, and administrative rules
regarding the Assets.
2. (REPRESENTATIONS AND WARRANTIES OF IAS) IAS
represents and warrants that:
a) It is a corporation duly organized and
validly existing and in good standing under the laws of
the State of Utah; has an authorized capitalization of
50,000,000 shares comprised of 5,000,000 shares of
preferred stock, no par value per share and 45,000,000
shares of common stock, no par value per share, of
which there are issued and outstanding 9,158,089 shares
of common stock, no par value per share as of March 31,
1996, and IAS has the corporate authority, right, and
power to enter into this Agreement.
b) IAS represents that it is also a
defendant in the litigation and private investigation
referenced at paragraph 1 (a) of this Agreement. IAS
expressly makes no representations regarding the final
outcome, or adjudication, or determination which may
result from the litigation. Also, IAS received a
subpoena from the Securities and Exchange Commission
for the production of certain of its records and that
the subpoena was issued pursuant to a formal order of
private investigation regarding the Company and its
president.
3. (CLOSING) The Closing of this Agreement shall
proceed on November 15, 1996, at 512 South 860 East,
American Fork, Utah, or at such other place as
designated and determined between the parties, as
follows:
a) IAS shall undertake and perform all
necessary requirements to issue the 6,000,000 shares of
common stock and 1,000,000 shares of Series A Preferred
Stock and IAS shall deliver instructions to its
transfer agent to issue certificates evidencing
the aforementioned shares to Transferor and the
certificates so issued shall bear a restrictive legend
prohibiting the transfer by the holder without first
complying with the Securities Act of 1933, as amended,
or Rule 144 promulgated thereunder. In addition, IAS
shall file with the Utah Division of Corporations all
documents required to authorize the issuance of the
Series A Preferred Stock which Series when issued shall
provide that each share of the 1,000,000 shares of
Series A Preferred Stock, no par value per share, and
each share shall be entitled to ten votes per share and
that the shares of Series A Preferred Stock shall vote
with the shares of common stock as to all matters.
b) Transferor shall do the following: (1)
present a certification that Transferor has clear title
and unencumbered ownership of the Assets, (2) present
an executed investment letter in the form mutually
agreed upon by the parties, and (3) execute bills of
sale or other documents transferring the Assets to IAS.
c) As a continuing obligation and duty to
IAS for the purchase of the Assets, Transferor
expressly covenants and promises that he will execute
as may be required in the future all documents
necessary to effect the transfer of the Assets to IAS.
4. (TAX TREATMENT) IAS expressly makes no
warranty to Transferor regarding any possible tax
treatment of his sale of the Assets which any
governmental entity may accord the transaction.
IAS to the extent practicable will do all acts and will
cooperate to the extent possible to assist Transferor
to receive favorable tax treatment to him.
5. (BANKRUPTCY) If any proceeding under the
Bankruptcy Act, as amended, is commenced by or against
the Company, or if IAS is adjudged insolvent, or if a
receiver is appointed in any proceeding, or if any
court or governmental agency restricts, removes, or
forbids Transferor from working and/or operating within
IAS in conjunction with the heretofore transferred
Assets, Transferor shall immediately without further
action on his part and without any court order or
proceeding, receive back all right, title and interest
to the Assets, but only upon the occurrence of any of
the aforesaid events.
6. (EFFECTIVE DATE) The parties agree that the
sale, transfer of all title and interest and conveyance
of the Assets shall be given effect as of June 30,
1996.
7. (CONDITIONS TO CLOSING) The obligations of
IAS and Transferor to complete the transactions
provided for herein shall be subject to the performance
of all their respective agreements to be performed
hereunder on or before the Closing, to the material
truth and accuracy of the respective representations
and warranties of IAS and Transferor contained herein,
and to the further conditions that:
(a) All representations and warranties of
IAS and Transferor contained in this Agreement are
substantially true and correct on and as of the Closing
with the same effect as if made on and as of said date.
(b) As of the Closing there shall have been
no material adverse change in the affairs, business,
property or financial condition of IAS or Transferor
and shall so certify in writing.
(c) All of the agreements and covenants
contained in this Agreement that are to be complied
with, satisfied and performed by each of the parties
hereto on or before the Closing, shall, in all material
respects, have been complied with, satisfied and
performed.
8. (ADDITIONAL COVENANTS) During the period
between the date hereof and the Closing, IAS shall
conduct its business and operations in the same manner
in which the same have heretofore been conducted.
During such period, unless it has received written
consent thereto from the other party, neither IAS nor
Transferor will:
(a) Incur any obligation, liability or
commitment, absolute or contingent, other than current
liabilities incurred in the ordinary and usual course
of business.
(b) Declare or pay and dividends on or make
any distributions in respect of, or issue, purchase or
redeem any of its shares of stock except in accordance
with this Agreement.
(c) Subject any of its properties to a
mortgage, pledge or lien, except in the usual and
ordinary course of business.
(d) Sell or transfer any of its properties,
except in the usual and ordinary course of business.
(e) Make any investment of a capital nature,
except in the usual and ordinary course of business.
(f) Enter into any long-term contracts or
commitments or modify or terminate any existing
agreements, except in the usual and ordinary course of
business.
(g) Use any of its assets or properties
except for proper corporate purposes.
(h) Sell, contract to sell or issue any
equity or debt securities.
9. (MERGER CLAUSE) This Agreement
supersedes all prior agreements and understandings
between the parties and may not be changed or
terminated orally, and no attempted change, termination
or waiver of any of the provisions hereof shall be
binding unless in writing and signed by the parties
hereto.
10. (GOVERNING LAW) This Agreement shall be
governed by and construed according to the laws of the
State of Utah.
11. (ATTORNEY) This Agreement has been drafted
and prepared by the firm of Boyack, Ashton & Jenkins,
which firm represents exclusively IAS. Transferor has
had the opportunity to seek counsel, advice, and
direction from his attorney. The firm representing IAS
is not representing in any manner the interests of
Transferor.
12. (SUCCESSOR AND ASSIGNS) The Assets, after
closing, may be assigned, in whole or in part, to an
independent entity or a subsidiary or subsidiaries of
IAS. This Agreement may also be assigned by any of the
parties hereto to any other party, person or entity
without written notification to the other party. This
Agreement shall extend to and be binding upon the
successors, heirs and assigns of the respective parties
hereto.
13. (FORCE MAJEURE) Neither party shall be in
default of this Agreement or liable to the other party
for any delay or default in performance where
occasioned by any cause of any kind to the extent such
cause is beyond its control, including but not limited
to, armed conflict or economic dislocation, civil
disorder of any kind, action of any civil or military
authorities (including priorities and allocations),
fires, floods and accidents.
14. (HEADINGS) Headings in this Agreement are
for the convenience of the parties only and they shall
not be deemed to change or alter the meaning of any
section, paragraph, or part of this Agreement.
15. (SEVERABILITY) Every restriction or
limitation in this Agreement is severable any any other
possible future finding by a duly constituted authority
that a particular provision herein is invalid, the
parties hereto have made this agreement with the clear
intention of continuing to perform all provisions
hereof which have not been found invalid. The parties
agree to consult about modification of any provision of
the Agreement that may be found invalid by such duly
constituted authority. All other valid clauses are
operative and shall be enforced.
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed the day and year first
above written.
Dated this 20 day of November, 1996.
INTERNATIONAL AUTOMATED SYSTEMS, INC.
ATTEST:
Inas Johnson Neldon Johnson
Secretary President
ACKNOWLEDGMENT
STATE OF UTAH )
: ss.
UTAH COUNTY )
On this 20 day of November 1996, before me the
undersigned officer, personally appeared Neldon P.
Johnson and Ina Marie Johnson, known personally to me
to be the President and Secretary, respectively, of the
above-named corporation, and that they, as such
officers, being authorized so to do, executed the
foregoing instrument for the purposes therein
contained, by signing the name of the corporation
by themselves as such officers.
IN WITNESS WHEREOF, I have hereunto set my hand
and official seal.
NOTARY PUBLIC
My Commission Expires: Residing at:
TRANSFEROR:
Neldon P. Johnson
State of Utah )
)
County of Utah )
Subscribed and sworn to before me this 20 day of
November, 1996.
Notary Public
<PAGE>
Agreement between International Automated Systems,
Inc., and Neldon Johnson
EXHIBIT A
The following is a description of the Assets:
I. Automatic Fingerprint Identification Machine
("AFIM") technologies including present patents,
designs, contracts, hardware and software as related
to, but not limited to the following:
1)Time clocks,
2)Controlled access security devices,
3)Government agencies and programs' access (i.e. EBT,
Social Security, food stamps, welfare, etc.),
4)Membership identification,
5)Citizenship of naturalization identification,
6)Live scanner for law enforcement (I.e., criminal
identification, fraudulent activities, etc.),
7)Financial transaction security,
8)Records security (i.e., medical, financial, personal,
etc.)
9)Computer, network or internet security,
10)Automated car rental,
11)Automated ticket sales (i.e., planes, buses, trains,
movies, amusement parks, concerts, etc.)
12)Automated gas pumps, vending machines, and
convenience stores, and
13)Any identification and/or verification devices and
applications not mentioned above.
II. Digital Wave Modulation ("DWM") technologies
including present patents and patents pending, designs,
contracts, hardware, and software as related to but not
limited to the following:
1)High speed pot line modem from outside unit to
central phone office,
2)Medium speed modem for long distance communication,
3)Cable modem,
4)Cellular phone communication,
5)Magnetic storage mediums (i.e., tape recorders, VCR,
hard drives, floppy drives, etc.)
6)Stereo communication,
7)Television communication,
8)Satellite communication,
9)All other communication devices, recording mediums
and methods of transferring data not mentioned above
using DWM technology.
III. Monies and funds advanced to International
Automated Systems, Inc., used to develop the above
technologies or for other purposes, in the amount of
$468,458. The amount of $647,458 as of June 30,
1996, which Mr. Johnson advanced to the Company is
specifically excluded from this transaction by the
parties and shall not be considered a part of the
Assets subject to the Agreement.
<PAGE>Agreement between International Automated Systems,
Inc., and Neldon Johnson
Exhibit B
None.
<PAGE> GENERAL BILL OF SALE
KNOWN ALL MEN BY THESE PRESENTS that Neldon
Johnson ("Transferor") for valuable consideration
hereby exchanges, conveys, transfers, assigns and
delivers to International Automated Systems, Inc., a
Nevada corporation, (the "Company") all right, title
and interest in and to the following assets, to wit:
I. Automatic Fingerprint Identification Machine
("AFIM")technologies including present patents,
designs, contracts, hardware and software as related
to, but not limited to the following:
1)Time clocks,
2)Controlled access security devices,
3)Government agencies and programs' access (i.e.
EBT,Social Security, food stamps, welfare,
etc.),
4)Membership identification,
5)Citizenship of naturalization identification,
6)Live scanner for law enforcement (I.e., criminal
identification, fraudulent activities, etc.),
7)Financial transaction security,
8)Records security (i.e., medical, financial,
personal, etc.)
9)Computer, network or internet security,
10)Automated car rental,
11)Automated ticket sales (i.e., planes, buses,
trains, movies, amusement parks, concerts,
etc.)
12)Automated gas pumps, vending machines, and
convenience stores, and
13)Any identification and/or verification devices
and applications not mentioned above; AND
II. Digital Wave Modulation ("DWM") technologies
including present patents and patents pending, designs,
contracts, hardware, and software as related to but not
limited to the following:
1)High speed pot line modem from outside unit to
central phone office,
2)Medium speed modem for long distance
communication,
3)Cable modem,
4)Cellular phone communication,
5)Magnetic storage mediums (i.e., tape recorders,
VCR, hard drives, floppy drives, etc.)
6)Stereo communication,
7)Television communication,
8)Satellite communication,
9)All other communication devices, recording
mediums and methods of transferring data not
mentioned above using DWM technology; AND
III. Monies and funds advanced to International
Automated Systems, Inc., used to develop the above
technologies or for other purposes, in the amount of
$468,458.
and to have and to hold said assets, property and
rights unto the Company, its assigns and successors
forever.
Transferor hereby promises, warrants and
represents that he has complete and unencumbered
ownership of the foregoing assets set forth above
except as previously assigned to the Company.
Transferor is not hereby transferring or conveying
any other assets not specifically set forth herein
including but not limited to advances to the Company as
of June 30, 1996, in the amount of $647,458, and said
assets shall be retained by Transferor.
IN WITNESS WHEREOF, Transferor hereby has caused
this document to be signed and executed individually
this 20 day of November, 1996.
TRANSFEROR:
NELDON JOHNSON
State of Utah )
)ss.
County of Utah )
On this 20 day of November, 1996, before me, the
undersigned, a notary public, Neldon Johnson appeared
and being sworn, subscribed and acknowledged that he
executed the within instrument as his free and
voluntary act.
Notary Public
NOTIFICATION OF
INTERNATIONAL AUTOMATED SYSTEMS, INC.
I.
Name of Corporation
The name of the corporation filing this notice
under Section 16-10a-602 of the Utah Code is
International Automated Systems, Inc., a Utah
corporation.
II.
Issuance of Series 1 Class A Preferred Stock.
The Board of Directors in accordance with the
Articles of Incorporation for this Corporation and
pursuant to the Utah Revised Business Corporation Act
have adopted resolution authorizing the issue of Series
1 Class A Preferred Stock.
The resolution authorizing the officers to issue
Series 1 Class A Preferred Stock states as follows:
RESOLVED, that the officers of this
Corporation are hereby authorized to issue as
one million shares of Series 1 Class A
Preferred Stock, no par value per share, for
valuable consideration received, receipt of
which is hereby acknowledged, and such shares
shall be fully paid and nonassessable and
shall be issued after notification is filed
with the Division of Corporations, State of
Utah, and the shares of Preferred Stock shall
have the rights and privileges as designated
by the Board of Directors.
FURTHER RESOLVED that Series 1 Class A
Preferred Stock upon issue shall have voting
powers in the amount of ten votes for each
share, in person or by proxy, and shall vote
with the common stock on all matters; shall
not be subject to redemption; shall not have
any preferential rights upon dissolution or
distribution; shall not have any rights of or
to dividends except as declared by the Board
of Directors; and shall not be convertible
into common stock of the Corporation.
III.
Adoption
The resolution authorizing the issue of Series 1
Class A Preferred Stock, without par value per share,
was adopted by the directors at a meeting of the
directors held on October 28, 1996. No shareholder
action was required to issue the shares of Series
A Preferred Stock. Further, this notification does not
alter or revoke the preferences, limitations, or
relative rights granted to or imposed upon any wholly
unissued class of or series of shares of any wholly
unissued class.
DATED this 29 day of October, 1996.
INTERNATIONAL AUTOMATED SYSTEMS, INC.
By: Neldon Johnson
President
By: Ina Marie Johnson
Secretary
STATE OF UTAH )
) ss.
COUNTY OF SALT LAKE )
The undersigned, a Notary Public, hereby certifies that
on the 29 day of October 1996, personally appeared
before me Neldon Johnson and Ina Johnson who are known
to be the president and secretary, respectively,
International Automated Systems, Inc., and that they
signed this document as officers with full authority to
execute this document and that the statements contained
here are true. As witness, I have set my hand and seal
this 29 day of October 1996.
NOTARY PUBLIC
Residing at:
My Commission Expires:
