FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
Of the Securities Exchange Act of 1934
For Quarter Ended September 30, 1996
Commission File Number 33-16531-D
INTERNATIONAL AUTOMATED SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
UTAH 87-0447580
(State or other jurisdiction of (IRS 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
Not Applicable
Former Address, if changed since last report
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
proceeding 12 months (or such shorter period that the
registrant was required to file such reports) and (2)
has been subject to such filing requirements for the
past 90 days. Yes x No
As of September 30, 1996, registrant had 15,186,100
shares of common stock, no par value per share, issued
and outstanding.
<PAGE>
PART I
ITEM I - FINANCIAL STATEMENTS
The condensed financial statements included herein
have been prepared by International Automated Systems,
Inc. (the "Company" or the "Registrant"), without
audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain
information and footnote disclosures normally included
in financial statements prepared in accordance with
generally accepted accounting principles have been
condensed or omitted pursuant to such rules and
regulations, although the Company believes that the
disclosures are adequate to make the information
presented not misleading.
In the opinion of the Company, all adjustments,
consisting of only normal recurring adjustments,
necessary to present fairly the financial position of
the Company as of September 30, 1996, and the results
of its operations from June 30, 1996, through September
30, 1996, and changes in its financial position from
inception through September 30, 1996, have been made.
The results of its operations for such interim period
is not necessarily indicative of the results to be
expected for the entire year. Registrant is a
development stage company. Historically its primary
activities have been research and development for
products based on high technology. Such development
has significant risks.
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources. As of September 30,
1996, Registrant had cash of $186,602 compared to cash
of $545,847 as of June 30, 1996. Cash declined because
of a net loss for the quarter of $(310,992). Registrant
has total assets of $779,459 and total liabilities of
$697,081 and a shareholders' equity of $82,378 as of
September 30, 1996, compared to total assets of
$1,099,158 and total liabilities of $705,788 and a
shareholders' deficit of $393,370 as of June 30, 1996.
As of June 30, 1996, Registrant had cash of $545,847
and total current assets of $815,299 and had current
liabilities of $687,709 and shareholders' equity of
$393,370. As of September 30, 1996, the ratio of
current assets to current liabilities was approximately
.67 to 1.0.
Results of Operation. For the quarter ended September
30, 1996, Registrant had revenues of $9,885 compared to
total revenues of $7,865 for the same period a year
earlier. For the quarter ended September 30, 1996,
Registrant had total expenses of $320,412 compared to
expenses of $78,046 for the same period a year earlier.
All the income was derived from sales of $9,885. Cost
of sales was $5,683 yielding gross profit of $4,202.
For the quarter ended September 30, 1995, Registrant
had a net of loss of $(310,992) compared to a net loss
of $(72,979) for the same period a year earlier. The
increase in the net loss is attributable primarily to
an increase of $145,629 in research and development
expenses. These costs for the quarter were $205,408
compared to $59,779 for the same period a year earlier.
Also the net loss is attributable to an increase in
general and administrative expense of $96,824. During
the quarter general and administrative expense was
$114,542 compared to $17,718 for the same period a year
earlier. Net loss per share for the quarter ended
September 30, 1996, was $(0.02) compared to a loss
of $(0.01) for the same period in 1995.
INTERNATIONAL AUTOMATED SYSTEMS, INC.
(A Development Stage Company)
BALANCE SHEETS
(Unaudited)
September 30, June 30,
1996 1996
ASSETS
Current Assets
Cash and cash equivalents $186,602 $ 545,847
Receivable from sales
representatives, net of
allowance for doubtful
accounts of $1,590 33,780 30,279
Prepaid expenses 12,877 7,259
Inventory 236,344 231,914
Total Current Assets 469,603 815,299
Property and Equipment
Computer and electronic
equipment 127,204 121,263
Furniture and fixtures 20,982 18,880
Automobiles 21,657 21,657
Leasehold improvements 18,238 10,965
Total Property and Equipment 188,081 172,765
Accumulated depreciation (48,986) (41,189)
Net Property and Equipment 139,095 131,576
Patents, net of accumulated
amortization of $15,487 and
$15,025, respectively 170,761 152,283
Total Assets $ 779,459 $1,099,158
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 34,554 $42,081
Current portion of
long-term debt 3,735 3,735
Accrued payroll expenses 1,662 1,936
Advance from majority
shareholder 647,758 647,758
Total Current Liabilities 687,709 695,510
Notes Payable 9,372 10,278
Total Liabilities 697,081 705,788
Stockholders Equity
Preferred stock, Class A, no
par value, 5,000,000 shares
authorized, 1,000,000 shares
issued and outstanding 292,786 292,786
Common stock, no par value,
45,000,000 shares authorized,
15,186,100 shares issued and
outstanding 1,238,559 1,238,559
Deficit accumulated during the
development stage (1,448,967) (1,137,975)
Total Stockholders Equity 82,378 393,370
Total Liabilities and
Stockholders Equity $779,459 $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
(Unaudited)
Cumulative
For the
Period
September 26,
For the Three Months Ended 1986(Inception)
September 30, Through
1996 1995 Sept. 30, 1996
Revenue
Sales $ 9,885 $ 6,365 $ 98,807
Equipment lease
income from
related party - 1,500 20,000
Total Revenue 9,885 7,865 118,807
Cost of Sales 5,683 2,454 56,980
Gross Profit 4,202 5,411 61,827
Operating Expenses
General and
administrative
expense 114,542 17,718 706,553
Research and
development expense 205,408 59,779 786,178
Amortization expense 462 549 17,367
Total Operating
Expenses 320,412 78,046 1,510,098
Other Income and
(Expense)
Interest income 5,492 - 16,591
Interest expense (274) (344) (17,287)
Net Other Income
and (Expense) 5,218 (344) (696)
Net Loss 310,992) $(72,979) $ (1,448,967)
Net Loss Per Share $ (0.02) $ (0.01) $ (0.09)
Common shares used
in Per Share
Calculation 16,186,100 9,006,600 16,186,100
The accompanying notes are an integral part of these
financial statements.<PAGE>
INTERNATIONAL AUTOMATED SYSTEMS, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
(Unaudited)
Cumulative
For the Period
September 26
For the Three Months Ended 1986 (Inception)
September 30, Through
1996 1995 Sept 30, 1996
Cash Flows
From Operating
Activities
Net loss $ (310,992) $ (72,979) $ (1,448,967)
Adjustments
to reconcile
net income to
net cash
provided by
operating
activities:
Allowance
for doubtful
accounts - - 1,590
Amortization 462 550 17,367
Depreciation 7,797 3,513 48,986
Stock based
compensation - - 132,274
Change in assets
and liabilities:
Inventory (4,430) (16,476) (236,344)
Sales
representatives
receivable (3,501) - (35,370)
Prepaid
expenses (5,618) - (12,877)
Accounts payable(7,527) (482) 34,554
Deferred revenue - (1,500) -
Accrued
liabilities (274) - 1,662
Net Cash Used By
Operating
Activities (324,083) (87,374) (1,497,125)
Cash Flows From
Investing Activities
Purchase of
property and
equipment (15,316) (24,334) (168,724)
Purchase of
rights to
technology (18,940) (9,728) (186,248)
Organization
costs - - (1,880)
Net Cash Used
By Investing
Activities (34,256) (34,062) (356,852)
Cash Flows From
Financing Activities
Proceeds from
issuance of
common stock - - 912,346
Proceeds from
advance from
controlling
shareholder - - 1,116,216
Payments for
treasury stock - - (3,325)
Payments for
stock offering
costs - - (56,509)
Proceeds (payments)
from net borrowings
from related
party - 110,969 78,101
Payments on
note payable (906) (838) (6,250)
Net Cash Provided
By (Used In)
Financing
Activities (906) 110,131 2,040,579
Net Increase
(Decrease)
In Cash (359,245) (11,305) 186,602
Cash and Cash
Equivalents at
Beginning of
Period 545,847 10,049 -
Cash (Overdraft)
and Cash
Equivalents at
End of Period $ 186,602 $ (1,256) $186,602
The accompanying notes are an integral part of these
financial statements.<PAGE>
INTERNATIONAL AUTOMATED SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1--INTERIM FINANCIAL STATEMENTS
The accompanying financial statements have been
prepared by the Company, without audit. In the opinion
of management, the accompanying unaudited financial
statements contain all necessary adjustments for fair
presentation, consisting of normal recurring
adjustments except as disclosed herein. The results of
operations of the interim periods presented are not
necessarily indicative of the results to be expected
for the entire year.
The accompanying unaudited interim financial statements
have been condensed pursuant to the rules and
regulations of the Securities and Exchange Commission;
therefore, certain information and disclosures
generally included in financial statements have been
condensed or omitted. These financial statements should
be read in connection with the Company s annual
financial statements included in the Company's annual
report on Form 10-K as of June 30, 1996.
NOTE 2--LOSS PER SHARE
The Company has computed loss per share based on the
number of common and preferred shares outstanding as of
September 30, 1996 and 1995 under the treasury stock
method.
NOTE 3--RELATED PARTY TRANSACTIONS
The $647,758 advanced by Neldon Johnson, the
controlling shareholder in June 1996 was 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. As of
September 30, 1996 no amounts had been invoiced.
NOTE 4--CONTINGENCY
On July 2, 1996, the Company had a class action law
suit filed against them 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 May 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. 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 U.S. Securities
and Exchange Commission (SEC). 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>
Part II.
Item 1. Legal Proceedings.
On July 2, 1996, the Company and its president
were named as defendants in a proposed class action
lawsuit filed on behalf of certain shareholders seeking
damages for violations of the federal securities laws.
The Complaint was claims to be brought on behalf of all
persons and entities who purchased shares of common
stock of the Company during the period of May 13, 1996,
to June 27, 1996. The suit seeks damages based on the
decrease in the Company's stock price in the trading
market because the Company made allegedly material
misrepresentations concerning new technology being
developed. On August 8, 1996, an amended complaint was
filed which increased the number of plaintiffs,
added and modified certain allegations, and changed the
proposed period from April 3, 1996, to June 27, 1996.
This lawsuit is in its preliminary stages. The final
outcome of the litigation cannot be determined. The
Company intends to defend vigorously the litigation.
No provision for any liability that may result from any
adverse adjudication has been made in the accompanying
financial statements and any effect on future financial
statements is unknown. The lawsuit is now captioned
Edouard Serfaty, David D. Baker, Michael Berry,
Margaret Moskes, Craig Swapp, Linda M. Baker, Robert H.
Baker, Kourosh Khalili and Ariel Tzadik, v.
International Automated Systems, Inc., and Neldon P.
Johnson, Civil No. 2:96 CV 0583 C, filed in the United
States District Court for the District of Utah, Central
Division.
The Company in August 1996 became aware that the U.S.
Securities and Exchange Commission ("SEC") issued a
private formal order of investigation in regard to the
Company to determine if there have been violation of
the federal securities laws. In particular, the formal
order addresses possible violations of the registration
provisions of the Securities Act of 1933 and the
anti-fraud provisions of the Securities Exchange Act of
1934.
Item 2. Changes in Securities.
None.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Matters Submitted to a Vote of the Company's
Shareholders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits, Financial Statements, Schedules and
Reports on Form 8-K.
A. Exhibits.
Ex. 27 Financial Data Summary.
B. Reports on Form 8-K.
July 12, 1996, and August 23, 1996.
<PAGE>
Signatures
Pursuant to the requirements of the Securities
Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: 12-3-96
International Automated Systems, Inc.
By Neldon Johnson
President, Chief Executive Officer, and Chief
Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 186,602
<SECURITIES> 0
<RECEIVABLES> 33,708
<ALLOWANCES> 0
<INVENTORY> 236,344
<CURRENT-ASSETS> 469,603
<PP&E> 139,095
<DEPRECIATION> 0
<TOTAL-ASSETS> 779,459
<CURRENT-LIABILITIES> 687,709
<BONDS> 0
0
292,786
<COMMON> 1,238,559
<OTHER-SE> (1,448,967)
<TOTAL-LIABILITY-AND-EQUITY> 779,459
<SALES> 9885
<TOTAL-REVENUES> 9885
<CGS> 5683
<TOTAL-COSTS> 320,412
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (310,992)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
