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, 1998
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, 1998, Registrant had 15,546,361 shares of common stock,
no par value per share, issued and outstanding after deducting shares held
in the corporate treasury.
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, 1998, and the results of its
operations from June 30, 1998, through September 30, 1998, and changes in
its financial position from inception through September 30, 1998, 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.
INTERNATIONAL AUTOMATED SYSTEMS, INC.
(A Development Stage Company)
CONDENSED BALANCE SHEETS
September 30, June 30,
1998 1998
----------- ----------
(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents $ 15,577 $ 92,030
Receivable from sales representatives,
net of allowance for doubtful accounts
of $40,783 - -
Net investment in direct financing leases -
related party - current portion 28,975 24,613
Prepaid expenses - 2,241
----------- ----------
Total Current Assets 44,552 118,884
----------- ----------
Property and Equipment
Computer and electronic equipment 147,685 147,684
Furniture and fixtures 20,982 20,982
Automobiles 21,657 21,657
Leasehold improvements 18,238 18,238
----------- ----------
Total Property and Equipment 208,562 208,561
Accumulated depreciation (119,081) (109,844)
----------- ----------
Net Property and Equipment 89,481 98,717
----------- ----------
Other Assets
Related party receivable 240,028 184,925
Net investment in direct financing leases
- related party 103,232 109,570
Patents, net of accumulated amortization 245,039 242,519
----------- ----------
Total Other Assets 588,299 537,014
----------- ----------
Total Assets $ 722,332 $ 754,615
=========== ==========
INTERNATIONAL AUTOMATED SYSTEMS, INC.
(A Development Stage Company)
CONDENSED BALANCE SHEETS (CONTINUED)
September 30, June 30,
1998 1998
----------- ----------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 38,129 $ 12,965
Current portion of notes payable 4,475 4,387
Accrued liabilities 4,319 4,627
Obligation under capital leases - current portion 22,229 17,867
----------- ----------
Total Current Liabilities 69,152 39,846
----------- ----------
Long Term Liabilities
Notes payable 677 1,830
Obligation under capital leases 103,232 109,570
----------- ----------
Total Long Term Liabilities 103,909 111,400
----------- ----------
Total Liabilities 173,061 151,246
----------- ----------
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,15,546,361 shares issued and
outstanding 4,465,739 4,260,739
Deficit accumulated during the development stage (4,209,254) (3,950,156)
----------- ----------
Total Stockholders' Equity 549,271 603,369
----------- ----------
Total Liabilities and Stockholders' Equity $ 722,322 $ 754,615
=========== ==========
The accompanying notes are an integral part of these financial statements.
INTERNATIONAL AUTOMATED SYSTEMS, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
For the Period
From Inception
(September
For the Three Months 26, 1986)
Ended September 30, through
----------------------- September 30,
1998 1997 1998
---------- ---------- -----------
Revenue
Sales $ - $ 400 $ 108,144
Income from related party 11,738 - 44,086
---------- ---------- -----------
Total Revenue 11,738 400 152,230
Cost of Sales
Cost of Sales - 350 80,260
Write down of carrying value of
inventories of $108,093 during
1998 and 1997 - - 216,186
---------- ---------- -----------
Total Cost of Sales - 350 296,446
---------- ---------- -----------
Gross Profit (Loss) 11,738 50 (144,216)
---------- ---------- -----------
Operating Expenses
General and administrative 151,233 135,477 1,954,477
Research and development expense 116,716 118,106 2,071,460
Amortization expense 3,550 2,593 40,599
---------- ---------- -----------
Total Operating Expenses 271,499 256,126 4,210,752
---------- ---------- -----------
Other Income and (Expense)
Interest income 494 180 20,649
Interest expense (117) (268) (19,437)
---------- ---------- -----------
Net Other Income (Expense) 377 (88) 1,212
---------- ---------- -----------
Net Loss $ (259,384) $ (256,214) $(4,209,540)
========== ========== ===========
Basic and Diluted Loss Per Share $ (0.02) $ (0.02) $ (0.29)
========== ========== ===========
Common and Preferred Shares Used in
Per Share Calculation 16,546,361 16,255,361 14,645,475
========== ========== ===========
The accompanying notes are an integral part of these financial statements.
INTERNATIONAL AUTOMATED SYSTEMS, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Period
From Inception
(September
For the Three Months 26, 1986)
Ended September 30, through
----------------------- September 30,
1998 1997 1998
---------- ---------- -----------
Cash Flows From Operating Activities
Net loss $ (259,384) $ (256,214) $(4,209,540)
Adjustments to reconcile net
income to net cash provided by
operating activities:
Allowance for doubtful accounts - - 40,783
Amortization 3,550 2,593 40,599
Depreciation 9,236 8,618 119,080
Stock based compensation - - 338,497
Change in assets and liabilities:
Sales representatives receivable - - (40,783)
Prepaid expenses 2,241 5,073 -
Accounts payable 25,450 (6,247) 38,415
Accrued liabilities (308) (879) 4,319
---------- ----------- ----------
Net Cash Used By Operating
Activities (219,215) (247,056) (3,668,630)
---------- ----------- ----------
Cash Flows From Investing Activities
Purchase of property and equipment - (811) (189,204)
Purchase of rights to technology (6,070) (3,855) (283,758)
Organization costs - - (1,880)
Net cash loaned to related party (55,104) 9,769 (240,029)
---------- ----------- ----------
Net Cash Used By Investing
Activities (61,174) 5,103 (714,871)
---------- ----------- ----------
Cash Flows From Financing Activities
Proceeds from issuance of
common stock - - 1,262,346
Cash from controlling shareholder 205,000 - 232,685
Payments for treasury stock - - (3,325)
Payments for stock offering costs - - (56,509)
Proceeds from net borrowings from
related party - 8,000 78,101
Payments on note payable (1,064) (983) (20,950)
---------- ----------- ----------
Net Cash Provided By Financing
Activities 203,936 239,702 4,399,078
---------- ----------- ----------
Net Increase (Decrease) In Cash
and Cash Equivalents (76,453) (2,251) 15,577
Cash and Cash Equivalents at
Beginning of Period 92,030 7,758 -
---------- ---------- ----------
Cash and Cash Equivalents at
End of Period $ 15,577 $ 5,507 $ 15,577
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
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 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, 1998. The financial
position and results of operations of the interim periods
presented are not necessarily indicative of the results to be
expected for the year ended June 30, 1999.
NOTE 2--RELATED PARTY TRANSACTIONS
During the year ended June 30, 1998, the Company advanced a
corporation controlled by the Company's majority shareholder
$184,925. Subsequently, the Company has advanced this same
corporation an additional $55,103 for the period ended
September 30, 1998. Total advances are $240,028. No terms for
repayment have been established.
For the three months ending September 30, 1998, the
controlling shareholder, Neldon Johnson, contributed $205,000
for research as additional paid-in capital. No additional
preferred or common stock was issued.
NOTE 3--CONTINGENCIES
On July 2, 1996, the Company had a class action law suit
filed against it 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. Except
for proceedings resulting in the dinial of class
certification, the parties have not engaged in extensive
discovery. No settlement discussions have occurred to date.
The company intends to continue vigorously defending the
lawsuit.
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. This investigation has resulted in a complaint
against IAS and Neldon Johnson being filed by the SEC in the
United States District Court, Central Division, on September
23, 1998. Donnel Johnson and Randale Johnson were also named
as relief defendants.
IAS continue to stand by its Digital Wave Modulation (DWM)
technology and its inventor and president Neldon Johnson.
IAS and Neldon Johnson denies the allegation of participation
in fraudulent microcap schemes and the other substantive
allegations filed in the complaint by the SEC and intend to
vigorously defend the lawsuit.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources. As of September 30, 1998,
Registrant had cash of $15,577 compared to cash of $92,030 as of
June 30, 1998. Cash decreased because of the continuing losses
from research and development and other activities. Inventory did
not change from June 30, 1998. As of September 30, 1998, total
current assets were $44,552 and total assets were $722,332
compared to total current assets $118,884 and total assets
$754,615 as of June 30, 1998.
As of September 30, 1998, Registrant had total liabilities of
$173,061 and shareholders' equity of $549,271 compared to total
current liabilities of $39,846 and shareholders' equity of
$603,369 as of June 30, 1998. The deficit accumulated during the
development stage was $4,209,254 as of September 30, 1998,
compared to $3,950,156 as of June 30, 1998. 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 September 30, 1998, the ratio of current assets
to current liabilities was approximately .64 to one.
Results of Operation. For the quarter ended September 30, 1998,
Registrant had total revenues of $11,738 compared to total
revenues of $400 for the same period a year earlier. For the
quarter ended September 30, 1998, Registrant had total operating
expenses of $271,499 compared to expenses of $256,176 during the
same quarter a year earlier. The decrease in income reflects a
lack of sales. As of September 30, 1998, cost of sales was $0
compared to $350 a year earlier and gross profit was $11,738
compared to $50 a year earlier. For the quarter Registrant had a
net loss of $ 259,384 compared to a net loss of $ 256,214 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 September 30, 1998, general and administrative
expenses were $151,235 compared to $135,477 and research and
development expenses were $116,716 compared to $118,106 a year
earlier. The Company has only minimal revenues, but its level of
operations requires additional funds.
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.
PART II.
Item 1. Legal Proceedings.
In April 1997 the Company was named in a defendant in an
action caption "Alarm Control Company V. International Automated
Systems, Incorporated". The complaint claims breach of contract
and seeks $60,000 plus interest from the Company. The action was
in the third District Court of Salt Lake County, State of Utah.
The Company has filed for a Summary Judgement. The court ruled in
favor of IAS and consequently the case was dismissed.
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.
None.
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 11-06-98
International Automated Systems, Inc.
By Neldon Johnson
President and Chief Executive Officer
By Neldon Johnson
Chief Financial Officer
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<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet as of September 30, 1998, and statements of operations for the three
months ended September 30, 1998, and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
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<PERIOD-TYPE> 3-MOS
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