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, 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 March 31, 1998, Registrant had 16,290,361 shares of
common stock, no par value per share, issued and
outstanding after deducting shares held in the corporate
treasury.
PART I FINANCIAL INFORMATION
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, 1998, and the results of its operations from
July 1, 1997, through March 31, 1998, and changes in its
financial position from inception through March 31, 1998,
have been made. The results of its operations for such
interim period are not necessarily indicative of the
results to be expected for the entire year.
The 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
(Unaudited)
ASSETS
March 31, June 30,
1998 1997
----------- -----------
Current Assets
Cash and cash equivalents $ 5,085 $ 7,758
Receivable from sales representatives,
net of allowance for doubtful accounts
of $40,783 - -
Related party receivable 66,565 11,073
Prepaid expenses - 14,813
Inventory 108,092 108,092
----------- -----------
Total Current Assets 179,742 141,736
----------- -----------
Property and Equipment
Computer and electronic equipment 145,695 137,162
Furniture and fixtures 20,982 20,982
Automobiles 21,657 21,657
Leasehold improvements 18,238 18,238
----------- -----------
Total Property and Equipment 206,572 198,039
Accumulated depreciation (100,608) (74,288)
----------- -----------
Net Property and Equipment 105,964 123,751
----------- -----------
Other Assets
Patents, net of accumulated
amortization 215,441 211,500
Franchises 10,000 10,000
----------- -----------
Total Other Assets 225,441 221,500
----------- -----------
Total Assets $ 511,147 $ 486,987
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 67,308 $ 30,426
Current portion of notes payable 3,735 4,045
Accrued liabilities 6,169 6,541
----------- -----------
Total Current Liabilities 77,212 41,012
Notes Payable 3,524 6,221
----------- -----------
Total Liabilities 80,736 47,233
----------- -----------
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, 16,290,361 shares
issued and outstanding 3,681,889 2,839,727
Deficit accumulated during the
development stage (3,544,264) (2,692,759)
----------- -----------
Total Stockholders' Equity 430,411 439,754
----------- -----------
Total Liabilities and Stockholders'
Equity $ 511,147 $ 486,987
=========== ===========
INTERNATIONAL AUTOMATED SYSTEMS, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Period
From Inception
For the Three Months For the Nine Months (September 26,
Ended March 31, Ended March 31, 1996) Through
------------------------ ------------------------ March 31,
1998 1997 1998 1997 1998
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenue
Sales $ 9,870 $ 3,513 $ 11,751 $ 29,441 $ 119,716
Equipment lease income
from related party - - - - 20,000
----------- ----------- ----------- ----------- -----------
Total Revenue 9,870 3,513 11,751 29,441 139,716
----------- ----------- ----------- ----------- -----------
Cost of Sales 9,046 2,109 10,099 14,209 185,214
----------- ----------- ----------- ----------- -----------
Gross Profit (Loss) 824 1,404 1,652 15,232 (45,498)
----------- ----------- ----------- ----------- -----------
Operating Expenses
General and administrative 131,122 75,095 457,662 305,719 1,740,303
Research and development
expense 174,026 187,523 386,720 642,874 1,722,721
Amortization expense 3,551 3,070 8,737 6,350 35,484
----------- ----------- ----------- ----------- -----------
Total Operating Expenses 308,699 265,688 853,119 954,943 3,498,508
----------- ----------- ----------- ----------- -----------
Other Income (Expense)
Interest income 189 371 577 6,884 18,923
Interest expense (169) (241) (615) (1,334) (19,181)
----------- ----------- ----------- ----------- -----------
Net Other Income (Expense) 20 130 (38) 5,550 (258)
----------- ----------- ----------- ----------- -----------
Net Loss $ (307,855) $ (264,154) $ (851,505) $ (934,161) $(3,544,264)
=========== =========== =========== =========== ===========
Basic and Diluted Loss
Per Common and Preferred
Share $ (0.02) $ (0.02) $ (0.05) $ (0.06) $ (0.24)
=========== =========== =========== =========== ===========
Weighted Shares Used in
Per Share Calculation 16,290,361 16,186,100 16,273,182 16,186,100 14,572,451
== ======== =========== =========== =========== ===========
<FN>
See the accompanying notes to condensed financial statements.
</FN>
</TABLE>
INTERNATIONAL AUTOMATED SYSTEMS, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Period
From Inception
(September 26,
For the Nine Months 1986) Through
Ended March 31, March 31,
1998 1997 1998
---------- ---------- -----------
Cash Flows From Operating
Activities
Net loss $ (851,505) $ (934,161) $(3,544,264)
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Allowance for doubtful
accounts - - 40,783
Amortization 8,737 6,350 35,484
Depreciation 26,320 24,584 100,608
Stock based compensation - - 331,747
Change in assets and
liabilities:
Inventory - 15,728 (108,092)
Sales representatives
receivable - (13,296) (40,783)
Prepaid expenses 14,813 (1,416) -
Accounts payable 36,882 (28,803) 67,308
Accrued liabilities (372) 5,938 6,169
---------- ---------- -----------
Net Cash Used By Operating
Activities (765,125) (925,076) (3,111,040)
---------- ---------- -----------
Cash Flows From Investing
Activities
Purchase of property and
equipment (8,530) (21,599) (187,212)
Purchase of rights to
technology (12,678) (48,442) (249,045)
Organization costs - - (1,880)
Purchase of franchise rights - - (10,000)
Proceeds to related party (55,492) - (66,565)
---------- ---------- -----------
Net Cash Used By Investing
Activities (76,700) (70,041) (514,702)
---------- ---------- -----------
Cash Flows From Financing
Activities Proceeds from
issuance of common stock 50,000 - 962,346
Proceeds from advance from
controlling shareholder 792,162 - 2,662,315
Payments for treasury stock - - (3,325)
Payments for stock offering
costs - - (56,509)
Proceeds from net borrowings
from related party - 459,204 78,101
Payments on note payable (3,010) (2,784) (12,101)
---------- ---------- -----------
Net Cash Provided By
Financing Activities 839,152 456,420 3,630,827
---------- ---------- -----------
Net Increase (Decrease) In
Cash and Cash Equivalents (2,673) (538,697) 5,085
Cash and Cash Equivalents
at Beginning of Period 7,758 545,847 -
---------- ---------- ------------
Cash and Cash Equivalents
at End of Period $ 5,085 $ 7,150 $ 5,085
========== ========== ===========
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, 1997. The financial position and results of
operations presented in the accompanying financial
statements are not necessarily indicative of the results
that may be expected for the year ended June 30, 1998.
NOTE 2--LOSS PER SHARE
In the first quarter of 1998, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 128,
Earnings Per Share. Under SFAS 128, basic loss per share is
computed by dividing net loss available to common and
preferred stockholders by the weighted-average number of
shares outstanding during the period. Any shares issued as
part of a reorganization are considered outstanding since
inception. Previously, the Company had computed loss per
share based on the number of common and preferred shares
outstanding. Prior periods have been restated to conform to
the requirements of SFAS 128, with the only material
adjustment being loss per share since inception. Loss per
share since inception would have been $(0.22) under the
prior method; under SFAS 128 loss per share since inception
is $(0.24).
NOTE 3--RELATED PARTY TRANSACTIONS
During the year ended June 30, 1997, the Company
advanced $11,073 to a corporation controlled by the
Company's majority shareholder. This advance was paid off
in August 1997. Subsequently, the Company has advanced this
same corporation an additional $66,565. No terms for
repayment have been established.
For the nine months ending March 31, 1998, the
controlling shareholder, Neldon Johnson, contributed
$792,162 for research. The contribution was accounted for
as additional paid-in capital with no additional preferred
or common stock issued.
NOTE 4--COMMON STOCK TRANSACTIONS
On November 12, 1997, 35,000 shares of common stock
were sold at $1.43 per share for $50,000.
NOTE 5--CONTINGENCIES
On July 2, 1996, shareholders filed a class action
lawsuit against the Company for securities violations. The
class action has been commenced on behalf of all persons
and entities who purchased shares of common stock from May
13, 1996 to June 27, 1996. The shareholders are seeking
damages incurred based on the decrease in the Company's
stock price because of alleged material misrepresentations
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 U.S. Securities and Exchange
Commission (SEC) served the Company a formal order of
private investigation. 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.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources. As of March 31,
1998, Registrant had cash of $5,085 compared to cash of
$7,758 as of June 30, 1997. Inventory did not change from
June 30, 1997. As of March 31, 1998, total current assets
were $179,742 and total assets were $511,147 compared to
total current assets of $141,736 and total assets of
$486,987 as of June 30, 1997.
As of March 31, 1998, Registrant had total liabilities
of $80,736 and shareholders' equity of $430,411 compared to
total liabilities of $47,233 and shareholders' equity of
$439,754. The deficit accumulated during the development
stage was $3,544,264 as of March 31, 1998, compared to
$2,692,759 as of June 30, 1997. 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 continuing operating losses. The Company's
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,
1998, the ratio of current assets to current liabilities
was approximately 2.33 to one.
Results of Operation. For the quarter ended March 31,
1998, Registrant had total revenues of $9,870 compared to
total revenues of $3,513 for the same period a year
earlier. For the quarter ended March 31, 1998, the
Registrant had total operating expenses of $308,699
compared to expenses of $265,688 during the same quarter a
year earlier. As of March 31, 1998, cost of sales was
$9,046 compared to $2,109 for the same period a year
earlier. Gross profit was $824 compared to $1,404 for the
same period a year earlier. For the current quarter the
Registrant had a net loss of $ 307,855 compared to a net
loss of $ 264,154 for the same quarter a year earlier. The
increase in net loss is attributable to the increase in
general and administrative expenses The Registrant has
incurred more in legal fees because of its involvement with
the below stated "Legal Proceedings". For the current
quarter the net loss per share was $(0.02) compared to
$(0.02) for the same period a year earlier. For the quarter
ended March 31, 1998, general and administrative expenses
were $131,122 compared to $75,095, and research and
development expenses were $174,026 compared to $187,523 for
the same period a year earlier. The Company's level of
operations requires additional funds, but it has only
minimal revenues.
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 OTHER INFORMATION
Item I - 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
indicated 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 condensed 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, the 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 SEC 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
On November 12, 1997, 35,000 shares of common
restricted stock were sold to an outside source for $50,000
which equates to a $1.43 per share.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Matters Submitted to a Vote of the Company's
Shareholders.
None.
Item 5. Other Information
The Company entered into a relationship with
the Communications Satellite Planning Center of Stanford
University to conduct a study designed to verify the DWM
technology. This study is being funded by an unrestricted
grant from IAS to the Center under which the Center is free
to conduct independent testing of the technology and to
publish its conclusions in normal academic channels. The
Company committed to pay seven $5,000 payments in the form
of grants. The final payment was made on March 16, 1998.
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 05-15-98
International Automated Systems, Inc.
By /S/ Neldon Johnson
President and Chief Executive Officer
By /S/ Neldon Johnson
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 5,085
<SECURITIES> 0
<RECEIVABLES> 40,783
<ALLOWANCES> (40,783)
<INVENTORY> 108,092
<CURRENT-ASSETS> 179,742
<PP&E> 206,572
<DEPRECIATION> (100,608)
<TOTAL-ASSETS> 511,147
<CURRENT-LIABILITIES> 77,212
<BONDS> 0
0
292,786
<COMMON> 3,681,889
<OTHER-SE> (3,544,264)
<TOTAL-LIABILITY-AND-EQUITY> 511,147
<SALES> 11,751
<TOTAL-REVENUES> 11,751
<CGS> 10,099
<TOTAL-COSTS> 853,119
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (38)
<INCOME-PRETAX> (851,505)
<INCOME-TAX> 0
<INCOME-CONTINUING> (851,505)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (851,505)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
