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 March 31, 1997
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 March 31, 1997, Registrant had 15,186,100 shares of common stock, no par
value per share, issued and outstanding after deducting shares held in the
corporate treasury.
<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 March 31, 1997, and the results of its operations from June
30, 1996, through March 31, 1997, and from January 1, 1997, through March 31,
1997, and changes in its financial position from inception through March 31,
1997, 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 of high technology which can be
applied to develop commercial products. Such development has significant
risks.
<PAGE> INTERNATIONAL AUTOMATED SYSTEMS, INC.
(A Development Stage Company)
CONDENSED BALANCE SHEETS
(Unaudited)
March 31, June 30,
1997 1996
ASSETS
Current Assets
Cash and cash equivalents $ 7,150 $545,847
Receivable from sales
representatives, net of
allowance for doubtful
accounts of $1,590 43,575 30,279
Prepaid expenses 8,675 7,259
Inventory 216,816 231,914
Total Current Assets 275,586 815,299
Property and Equipment
Computer and electronic
equipment 133,487 121,263
Furniture and fixtures 20,982 18,880
Automobiles 21,657 21,657
Leasehold improvements 18,238 10,965
Total Property and Equipment 194,364 172,765
Accumulated depreciation (65,773) (41,189)
Net Property and Equipment 128,591 131,576
Patents, net of accumulated
amortization 194,375 152,283
Total Assets $ 598,552 $1,099,158
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities
Accounts payable $13,278 $ 42,081
Current portion of long-term
debt 3,735 3,735
Accrued liabilities 7,874 1,936
Advance from majority
shareholder 459,204 647,758
Total Current Liabilities 484,091 695,510
Notes Payable 7,494 10,278
Total Liabilities 491,585 705,788
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 1,886,317 1,238,559
Deficit accumulated during the
development stage (2,072,136) (1,137,975)
Total Stockholders Equity 106,967 393,370
Total Liabilities and
Stockholders Equity $598,552 $ 1,099,158
The accompanying notes are an integral part of these
financial statements.<PAGE>
INTERNATIONAL AUTOMATED SYSTEMS, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
For the
Period
From
Inception
(September
26, 1986)
For the Three Months For the Nine Months Through
Ended March 31, Ended March 31, March 31,
1997 1996 1997 1996 1997
Revenue
Sales $ 3,513 $44,700 $29,441 $64,221 $118,363
Equipment
lease income
from related
party - 1,500 - 4,500 20,000
Total Revenue 3,514 46,200 29,441 68,721 138,363
Cost of Sales 2,109 24,987 14,209 38,420 65,506
Gross Profit 1,404 21,213 15,232 30,301 72,857
Operating
Expenses
General and
administr-
ative 75,095 51,692 305,719 94,705 897,730
Research and
development
expense 187,523 161,197 642,874 298,467 1,223,644
Amortization
expense 3,070 1,074 6,350 2,358 23,255
Total
Operating
Expenses 265,688 213,963 954,943 395,530 2,144,629
Other Income
and (Expense)
Interest
income 371 7,444 6,884 7,444 17,983
Interest
expense (241) (310) (1,334) (981) (18,347)
Net Other
Income
(Expense) 130 7,134 5,550 6,463 (364)
Net
Loss $ (264,154) $(185,616)$(934,161)$(358,766)
$(2,072,136)
Net Loss
Per Share $(0.02) $ (0.02) $ (0.06) $(0.04) $ (0.13)
Common
shares
used in
Per Share
Calcul-
ation 16,186,100 9,158,089 16,186,100 9,056,729
16,186,100
The accompanying notes are an integral part of these
financial statements.<PAGE>
INTERNATIONAL AUTOMATED SYSTEMS, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
For the
Period From
Inception
(September
26,1986)
For the Nine Months Ended Through
March 31, March 31,
1997 1996 1997
Cash Flows From
Operating Activities
Net loss $(934,161) $(358,766) $(2,072,136)
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Allowance for
doubtful accounts - - 1,590
Amortization 6,350 2,358 23,255
Depreciation 24,584 13,190 65,773
Stock based
compensation - - 132,274
Change in assets
and liabilities:
Inventory 15,728 (189,650) (216,186)
Sales representatives
receivable (13,296) (22,013) (45,165)
Prepaid expenses (1,416) (7,259) (8,675)
Accounts payable (28,803) (4,982) 13,278
Accrued liabilities 5,938 21,862 7,874
Net Cash Used By
Operating Activities (925,076) (545,260) (2,098,118)
Cash Flows From
Investing Activities
Purchase of property
and equipment (21,599) (45,069) (175,007)
Increase in patents (48,442) (65,042) (215,750)
Organization costs - - (1,880)
Net Cash Used By
Investing Activities (70,041) (110,111) (392,637)
Cash Flows From
Financing Activities
Proceeds from issuance
of common stock - 706,000 912,346
Proceeds for common
stock as part of
reorganization - - 1,116,216
Payments for treasury
stock - - (3,325)
Payments for stock
offering costs - - (56,509)
Proceeds from
borrowings from
related party 459,204 178,028 537,305
Payments on note
payable (2,784) (2,564) (8,128)
Net Cash Provided
By Financing
Activities 456,420 881,464 2,497,905
Net Increase
(Decrease) In Cash and
Cash Equivalents (538,697) (3,116) 60,770
Cash and Cash
Equivalents at
Beginning of Period 545,847 10,049 -
Cash and Cash
Cash Equivalents
at End of Period $ 7,150 $ 236,142 $ 7,150
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, and are unaudited. 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-KSB 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.
Commitments to issue common stock have been included by
using the treasury stock method.
NOTE 3--RELATED PARTY TRANSACTIONS
$647,758 advanced by Neldon Johnson, the controlling
shareholder, in June 1996 was a prepayment to be used
by the Company for future research and development to
be performed for Mr. Johnson. The research has been
performed as of December 31, 1996. The settlement of
the advance was accounted for as a conversion of the
advance to stockholders equity as additional paid-in
capital. Repayment terms for the $459,204 advanced to
the Company by Mr. Johnson as of March 31, 1997
have not been determined.
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. 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 U.S. 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>ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources. As of March 31, 1997, Registrant had
cash of $7,150 compared to cash of $545,847 as of June 30, 1996. Cash
decreased because of the continuing losses from research and development and
other activities. Inventory decreased from $231,914 as of June 30, 1996, to
$216,186 as of March 31, 1997. As of March 31, 1997, total current assets were
$275,586 and total assets were $598,552 compared to total current assets
$815,299 and total assets $1,099,158 as of June 30, 1996.
As of March 31, 1997, Registrant had total liabilities of $491,585 and
shareholders' equity of $106,967 compared to total current liabilities of
$705,788 and shareholders' equity of $393,370. The decrease in liabilities is
attributable to a decrease in the advance from the majority shareholder in the
amount of $188,554. The deficit accumulated during the development stage was
$2,072,136 as of March 31, 1997, compared to $(1,137,975) as of June 30,
1996. For the near term the Company's ability to continue it operations and
activities is dependent upon the Company's major shareholder providing funds
to the Company. At this time the Company is not generating sufficient funds
to sustain its operations. The decrease in shareholders' equity is
attributable primarily to the continued research and development activities.
These activities have significant risks involving the development of
technology and the development of products that may be commercially acceptable
and profitable. As of March 31, 1997, the ratio of current assets to current
liabilities was approximately .57 to one.
Results of Operation. For the quarter ended March 31, 1997, Registrant
had total revenues of $3,513 compared to total revenues of $44,700 for the
same period a year earlier. For the quarter ended March 31, 1997, Registrant
had total operating expenses of $265,688 compared to expenses of $213,963
during the same quarter a year earlier. The decrease in income reflects a
lack of sales. As of March 31, 1997, cost of sales was $2,109 compared to
$24,987 a year earlier and gross profit was $1,404 compared to $21,213 a year
earlier. For the quarter Registrant had a net loss of $(264,154) compared to
a net loss of $(185,616) for the same quarter a year earlier. The increase in
net loss is attributable to the increase in general and administrative
expenses and research and development expenses. For the quarter the net loss
per share was $(0.02) compared to $(0.02). For the quarter ended March 31,
1997, general and administrative expenses were $75,095 compared to $51,692 and
research and development expenses were $187,523 compared to $161,197 a year
earlier. The Company has only minimal revenues, but its level of operations
requires additional funds.
For the nine period ended March 31, 1997, Registrant had total revenues
$29,441 compared total revenues of $64,221 for the same period a year
earlier. Revenues decreased because of lack of sales. For the period cost of
sales was $14,209 compared to $38,420 and gross profit was $15,232 compared to
$30,301. Total operating expenses for nine month period ended March 31, 1997,
were $954,943 compared to $395,530. General and administrative expenses were
$305,719 compared to $94,705 and research and development expenses were
$642,874 compared to $298,467. The Company incurred substantial research and
development costs in its efforts to develop its technology and products. For
the nine month period ended March 31, 1997, the net loss was $ (934,161)
compared to $(358,766) for the same period a year earlier. The loss for the
ninth month period was primarily attributable to the Company's increased
research and development expenses. Net loss per share was $(0.06) compared to
$(0.04).
The Company's ability to continue its activities is dependent on it
receiving funds either as loans, advances or sales of equity. Previously the
major shareholder has provided funds, but there is no formal agreement between
the Company and the majority shareholder to continue providing funds in the
future. If the Company had to seek funds from another source there is no
assurance that funds would be available at all or on terms acceptable to the
Company.
<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. At this time 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 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.
In August 1996, the Company learned that the U.S. Securities and Exchange
Commission issued a formal order of private investigation on or about August
13, 1996, to investigate whether violations of the federal securities laws
have occurred. The SEC staff subpoenaed documents from entities and
individuals including the Registrant. Also, Registrant is aware that the SEC
issued subpoenas to take the testimony under oath and on the records of
individuals including persons associated with the Registrant. Routinely the
Staff advised that its inquiry should not be construed as any indication that
any violations of law have occurred.
In April 1997 a complaint was filed against the Company for breach of
contract seeking damages of $60,000 plus interest and attorney's fees. The
litigation was filed in the state court in Utah and is captioned Alarm Control
Company v. International Automated Systems, Incorporated. The Company
believes the suit lacks merit and intends to defend it vigorously.
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.
During the quarter the Company entered into an agreement titled by the
parties as General Affiliation Agreement Letter with Utah Valley State College
("UVSC") in Orem, Utah.
Under the agreement the parties will share information and explore the
feasibility of future joint cooperative agreements. The Company's technology
involved will be the Automatic Fingerprint Identification Machine, the Digital
Wave Modulation ("DWM") and Identification Information Depository ("IID").
The strategy is to implement telecommunications both software and hardware.
The ultimate goal is to develop or enhance telecommunications software and
hardware and the Internet for interactive distance learning curricula. The
agreement provides that on a project by project basis the parties will enter
into separate addenda to the agreement addressing such matters and
considerations as costs and royalties. Other provisions of the agreement
pertain to confidentiality, distribution rights and defining the respective
roles of the parties.
The parties have entered into Addendum A to the agreement which provides
for collaboration on testing, proving, and demonstrating the Company's
technology. Specifically the Company's technology will be tested in the K-12
Wireless and Native American Community College Internet Connection Grant
Projects. Also, UVSC and an affiliated non-profit educational foundation,
known as New Vista International Foundation, have agreed to test applications
of IAS technology including beta site testing in the educational setting. IAS
has agreed to pay royalties when certain events happen. The royalties will be
either 5%, 10% or 25% depending on the revenue source to IAS. A copy of the
agreement with Addendum A is an exhibit to this report. This summary of the
agreement is subject to the agreement itself and if there is any variance the
entire agreement takes precedence.
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.
None.
<PAGE>Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date 5-14-97
International Automated Systems, Inc.
By Neldon Johnson
President and Chief Executive Officer
By Neldon Johnson
Chief Financial Officer
GENERAL AFFILIATION AGREEMENT LETTER
This Agreement Letter is made and entered into this 5th day of March, 1997
between Utah Valley State College (UVSC) and its Electronic Campus, located at
800 West 1200 South, Orem, Utah 84058 and International Automated Systems,
located at 512 South 860 East, American Fork, Utah 84003, hereinafter IAS.
Whereas, IAS is a company engaged in the primary business of the development,
production and marketing of digital computer data, audio and video
compression, verification and transmission systems and related technologies;
Whereas, UVSC has resources including experienced management, technicians,
faculty, staff and students to assist in the production and distribution of
interactive multimedia and technology assisted courses learning systems; and
is a 4-year fully accredited college and institution of higher learning in the
State of Utah with interests in affiliating with other educational
institutions, companies, governments and other outside parties;
Whereas, the parties desire to enter into an agreement for cooperation
relative to the testing design, production and dissemination of
technology-assisted learning and associated new technologies for mutual
benefit.
It is hereby agreed as follows:
1. Cooperation and Exchange of Information
A. This Agreement Letter is based upon earlier expressions of the good faith
and effort of the parties to share information and to diligently explore the
feasibility of a joint cooperative agreement and to enter into negotiation
with the intent of entering into this contractual arrangement.
B. It is mutually agreed that the parties will cooperate in developing
strategies for the creation and enhancement of other telecommunications,
computer technologies, software and/or hardware, Internet or interactive
distance learning curricula for various commercial or educational market
sectors and users and actively seek for other areas or cooperation as well.
The parties will also work closely together in the joint development of
mutually beneficial tuition, pricing and marketing strategies. It is
anticipated that as a result of the consultations between the parties, the
parties will develop separate addenda on a project-by-project basis which
shall contain specific costs, terms and conditions (royalties) for each
project. These addenda will form a significant and integral part of this
Agreement between the parties for the joint development and distribution of
interactive multimedia in the form of on-line or stand-alone courses or
modules. It is understood that the primary interest of UVSC is to provide
enhanced technology-assisted systems and to provide training and development
opportunities for training and education worldwide.
II. Confidentiality
A. The parties hereby agree that any proprietary information provided by
either party pursuant to this Agreement will not be shared by either party or
any of its agents or employees with any third party without the express
written consent of the parties. This agreement extends to technical materials
relating to specific projects, technologies or systems as well as business
plans and strategies and financial information relating to the business
resources, activities, and plans of UVSC and IAS.
B. IAS specifically claims for itself a "business confidentiality"
restriction pursuant to the Utah Government Records Access and Management Act
and Sections 53B-16-301 et seq., Utah Code Annotated, with respect to
information provided to UVSC pursuant to this agreement of any subsequent
agreement and a subsequent agreement would relate primarily to technology
transfer of sponsored research as defined in the Government Records Access and
Management Act.
C. This Agreement does not grant, infer, assign, or convey to UVSC any
proprietary right held by IAS for any of its patents, pending patents,
copyrights, logos, trademarks, equipment, documentation, and/or IAS hardware
and software design and application. IAS is to retain all proprietary rights
held prior to the entering into of this Agreement. UVSC is to preserve IAS's
proprietary rights as herein described.
D. UVSC is not knowingly at any time or in any manner to allow reverse
engineering, either by itself or knowingly be a party to any manufacturer,
company, entity, person of IAS's products, ideas, or enforcement of this
Section in the event that any of the above should occur.
E. The IAS Software is being granted pursuant to a limited nonexclusive right
and license from IAS to UVSC, and is not to be construed as a sale by IAS to
UVSC of any protected proprietary rights, patents, pending patents,
copyrights, logos, trademarks, product design, or software applications. IAS
will approve all written contracts to all third parties having to do with IAS
review technologies.
F. If, during the performance of this Agreement, new patentable inventions
result, as a result of contributions made by UVSC or IAS or other third
parties introduced by either party, then it is hereby agreed that parties
shall negotiate in good faith the terms, conditions, royalties, ownership
rights, etc. and jointly agree to the filing of patents, trademarks or other
protective agreements related to this new invention. IAS and UVSC agree to
use their best efforts to complete this process with 90 days of the date of
the identification of the new patentable invention; the terms of which shall
be covered under a new addendum to this contract.
III. Other Mutually Agreed Upon Terms and Conditions
A. Non-Exclusivity/Non-Partnership
The relationship under this Agreement between the parties shall remain
nonexclusive and the final cooperation agreement shall in no way constitute
the creation of a partnership between UVSC and IAS under the legal statutes
and laws governing partnerships; neither does it constitute in any form
whatsoever an agency or employment relationship.
B. Independent Contractors
UVSC and IAS shall be considered independent contractors and not an agent or
employee of the other. Neither party shall have any authority, whether
express, implied or apparent to bind the other to any agreement or make
representations or warranties of any kind with respect to the other.
C. Governing Law Agreement
This shall be construed and regulated by and under the laws of the State of
Utah and the United States of America.
D. Ethics and conflict of Interest
The employees of Utah Valley State College are public employees and are
governed by Utah Public Officers' Employees' Ethics Act and the policies of
the College. Each party agrees to disclose to the other any person who has a
financial interest or serves as an officer or director of a contractor if such
person is also an employee of the College.
IV. Name, Trademark, Patent, Copyright Protection and Licensing
A. IAS shall endeavor in all cases to protect the name, trademarks, logos, and
copyrights of UVSC with respect to any current or contemplated project,
technologies or contractual joint venture, and UVSC will similarly respect in
good faith the same rights held by IAS. Care will be taken by IAS to restrict
the manner in which the name of Utah Valley State College or the nature and
scope of this Agreement and/or relationship in dealing with other third
parties within the defined scope of this Agreement only.
B. UVSC shall be granted a license to test and use, with option to
sub-license, IAS-developed systems and technologies which shall be set forth
under a separate addendum or agreement, provided such agreement can be
mutually agreed upon by both parties. IAS shall determine the granting of any
sub-licensing of its developed systems and technologies.
V. Distribution and Use of Technologies or Content Material Derived Therefrom
A. UVSC shall have the non-exclusive right to the use of the technologies,
systems, and materials within its own defined education service area in Utah
and the right to introduce or sponsor the use and the distribution of
interactive-technology assisted learning and delivery systems, courseware,
Internet-based courses, modules or jointly produced materials under this
Agreement, with other educational institutions, businesses or individuals
outside of its defined Utah geographical service area. In the latter case, a
separate introduction fee or ongoing royalty arrangement shall be defined on a
case-by-case basis between the parties and shall be attached as an addendum to
this Agreement.
B. Both parties shall have the mutual right to inspect, modify and approve
jointly all promotional, advertising or other materials intended for use by
the public domain prior to dissemination.
C. That UVSC agrees to work toward integration of IAS technologies or systems
materials within the scope of all of its overall educational mission,
provided, however, that the final use or purchase of these systems or
technologies, especially as part of a fully accredited college or higher
education system shall be the sole and final decision of the Administrative
and Academic Authorities of UVSC and any other third part beneficiary
institution or company referred by UVSC.
VI. Liability
Neither party will be liable to the other hereunder for any direct, indirect,
consequential, special, incidental or punitive damages of any kind or nature
whatsoever.
VII. Term of the Agreement
The term of this Agreement shall be initially for a period of two years from
the date of signing and may be extended or renewed for an additional 2 years
at the option of either party by notice to the other party at least 60 days
prior to the expiration date of this Agreement.
VIII. Termination of Agreement
Either party shall have the right to cancel or terminate without cause by
giving written notice to the other party outlining the intent and reason for
termination at least 90 days in advance of the contemplated date of
termination. It is hereby agreed that notwithstanding the above indicated
right of either party to terminate, the right to protection of proprietary
information, trademarks, licensing along with obligations to pay fees and
royalties so specified in this Agreement or addenda attached hereto shall
survive in all cases.
In witness whereof the parties have set their hands this 5 day of March, 1997.
International Automated Systems, Inc.
s/Neldon Johnson
By Neldon Johnson
Title: President
s/ Randale Johnson
By Randale Johnson
Title: Vice President
Utah Valley State College
s/Gregory H. Jackson
By Gregory H. Jackson
Title: Electronic Campus Projects
s/ Dick L. Chappell
By Dick L. Chappell
Title: Vice President for Administration and Institutional Advancement
<PAGE>
Addendum A
Initial Scope of Affiliation and Cooperation
Party A: Utah Valley State College (UVSC), of Orem, Utah 84058
Party B: International Automated Systems, Inc. (IAS), of American Fork, Utah
84003
Party C: New Vista International Foundation (NVIF), of American Fork, Utah
84003
Date: February 10, 1997
As a means of clarifying and focusing the mutual scope and cooperative
efforts, the parties listed above have attached this addendum to their General
Affiliation Agreement Letter; dated February 11, 1997 which shall become an
integral part of their mutual agreements. The scope and workflow of the
parties shall until further notice be concentrated in the following list of
projects and priorities:
1. IAS per their letter of support dated May 14, 1996 to UVSC agrees to
collaborate with both UVSC and NVIF to test, prove and demonstrate the direct
application or value of Digital Wave Modulation (DWM), Automated Fingerprint
Identification (AFIM), Identification Information depository (IID) and other
database information systems, wireless telecommunications technologies, and
hardware or software primarily to the education sector worldwide.
2. The initial test of these systems shall be incorporated as planned within
the K-12 Wireless and Native American Community College Internet Connections
Grant Projects undertaken by UVSC with support from the national Science
Foundation.
3. NVIF, as a concurrent UVSC-affiliated non-profit educational foundation
shall act as an independent entity in establishing further liaisons and
opportunities for the use of IAS technologies by other, national, and
international schools, colleges, universities and other corporations,
governments and institutions, investors, foundations or grant making parties.
The scope of NVIF's cooperation with IAS id defined under separate agreement.
4. Both UVSC and NVIF represent that they plan to incorporate IAS systems and
matching support into upcoming grant proposals and funding agreements with
other parties. All parties have agreed to cooperate in the development of
integrated strategies, budgets and implementation plans for their mutual
benefit as a part of these grant or funding proposals.
5. UVSC and NVIF anticipate the introduction, test and use of IAS systems as
may be applicable from time to time in both their Utah-based Electronic
Education, EDNET, UVNET or other technology-assisted learning systems and
other relationships on a world-wide basis. The specific phases and steps for
implementation are defined by both parties below (see sections Phase I and
Phase II)
6. IAS plans to provide match technological support cash and in-kind to UVSC
and NVIF as a part of their affiliation. The scope and amount of this support
shall be further defined by mutual agreement on a project-by-project basis.
Phase I
Conduct jointly sponsored beta-tests of the DWM, AFIM and IID systems and
technologies for use in an educational delivery setting.
Step A: Testing will be limited to a UVSC, Orem main campus location.
Step B: Testing will expand to joint demonstrations, presentations and
installation of beta-test systems or prototypes for evaluation at other
schools or locations. Initially this focus upon those institutions affiliated
with UVSC and/or NVIF under the National Science Foundation supported Internet
Connections Grant projects (3 Utah High Schools, the Catholic Diocese School
System of Salt Lake City, and 3 Regional Native American Community Colleges)
and shall be expanded.
Step C: Initiation of potential beta test applications in other grant
projects, states or countries.
Definition of Responsibilities and Duties
D. IAS shall in each case of step listed above:
1. Provide set-up and installation at each location the required DWM<
AFIM or IID hardware and software for beta-test evaluation.
2. Train UVSC and NVIF employees, students or individuals at each
location in the operation and use of the IAS systems.
3. Provide each beta-test site with hardware and software maintenance and
support.
E. UVSC and NVIF shall:
1. Provide introduction and access to required facilities, equipment and
the cooperation of staff, students or other individuals who will work together
to test, evaluate and adapt as necessary the IAS technologies to their
respective educational setting. (Applies to Steps A, B, and C - mentioned
above).
2. Allow IAS access to hardware and software equipment for joint use at
each location with concurrent sponsorship at each of the beta-test sites by
local management administration or personnel.
3. Organize and publicize demonstrations of the IAS systems with other
third parties, vendors or companies from time to time.
It is anticipated that normal beta-test evaluation shall have an average
duration of 60-90 days. Thereafter a joint review and evaluation report
including recommendations for improvement shall be jointly prepared by IAS,
UVSC and NVIF and beta-test site counterparts.
Phase II
After appropriate confirmation and beta-testing of the IAS systems, all
parties agree to begin jointly introduce, sponsor, jointly negotiate and
promote the use or purchase of these technologies to local, national and
international schools, colleges, universities, governments, companies or other
entities. UVSC and NVIF with letters of support and matching funding or
in-kind from IAS shall work to incorporate the use of IAS systems in it
proposals seeking grants, private or other commercial funding for continued
technology advancement improvement and promotion.
For its role IAS has agreed to pay UVSC and NVIF consideration in the form of
such things as fees for introduction or sales referrals; funding sources,
funding support and ongoing royalties of
A. 5% of the total amount of funding received as a result of introduction or
referral by UVSC or NVIF on any funding support granted to IAS by another
third party grantor, investor, financial institution or private party. IAS is
to be appraised of funding sources and give final approval prior to entering
into any funding agreements.
B. A 10% royalty based on the adjusted gross sale price of any DWM, AFIM or
IID system purchased or leased by a third party introduced or intermediated by
UVSC and/or NVIF.
C. 25% of the IID verification user adjusted gross transaction fees collected
by UVSC or NVIF and 10% of the same fee collected by IAS from other third
parties introduced by UVSC or NVIF.
D. Adjust gross is defined as gross sale price minus cost of equipment for
said sale of transaction.
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