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 December 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 December 31, 1997, 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
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 December 31, 1997, and the results of its operations from
June 30, 1997, through December 31, 1997, and changes in its
financial position from inception through December 31, 1997,
have been made. The results of its operations for such
interim periods 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
(Unaudited)
December 31, June 30,
1997 1997
---------- ----------
ASSETS
Current Assets
Cash and cash equivalents $ 13,684 $ 7,758
Receivable from sales
representatives, net of
allowance for doubtful accounts
of $40,783 - -
Related party receivable 8,600 11,073
Prepaid expenses - 14,813
Inventory 108,092 108,092
---------- ----------
Total Current Assets 130,376 141,736
---------- ----------
Property and Equipment
Computer and electronic equipment 137,973 137,162
Furniture and fixtures 20,982 20,982
Automobiles 21,657 21,657
Leasehold improvements 18,238 18,238
---------- ----------
Total Property and Equipment 198,850 198,039
---------- ----------
Accumulated depreciation (91,523) (74,288)
---------- ----------
Net Property and Equipment 107,327 123,751
---------- ----------
Other Assets
Patents, net of accumulated
amortization 215,594 211,500
Franchises 10,000 10,000
---------- ----------
Total Other Assets 225,594 221,500
---------- ----------
Total Assets $ 463,297 $ 486,987
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 56,196 $ 30,426
Current portion of notes payable 4,045 4,045
Accrued liabilities 5,595 6,541
Advance from majority
shareholder - -
---------- ----------
Total Current Liabilities 65,836 41,012
---------- ----------
Notes Payable 4,236 6,221
---------- ----------
Total Liabilities 70,072 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 3,336,848 2,839,727
Deficit accumulated during the
development stage (3,236,409) (2,692,759)
---------- ----------
Total Stockholders' Equity 393,225 439,754
---------- ----------
Total Liabilities and Stockholders'
Equity $ 463,297 $ 486,987
========== ==========
See the accompanying notes to the condensed financial
statements.
<TABLE>
INTERNATIONAL AUTOMATED SYSTEMS, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For the Period
For the Three For the Six From Inception
Months Ended Months Ended (September 26, 1986)
December 31, December 31, Through
---------------------- ---------------------- December 31,
1997 1996 1997 1996 1997
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Revenue
Sales $ 1,481 $ 16,043 $ 1,881 $ 25,928 $ 109,846
Equipment lease income
from related party - - - - 20,000
---------- ---------- ---------- ---------- -----------
Total Revenue 1,481 16,043 1,881 25,928 129,846
---------- ---------- ---------- ---------- -----------
Cost of Sales 703 6,417 1,053 12,100 176,168
---------- ---------- ---------- ---------- -----------
Gross Profit/(Loss) 778 9,626 828 13,828 (46,322)
---------- ---------- ---------- ---------- -----------
Operating Expenses
General and adminis-
trative 191,063 116,082 326,540 230,624 1,609,181
Research and develop-
ment expense 94,588 249,943 212,694 455,351 1,548,695
Amortization expense 2,593 2,818 5,186 3,280 31,933
---------- ---------- ---------- ---------- -----------
Total Operating
Expenses 288,244 368,843 544,420 689,255 3,189,809
---------- ---------- ---------- ---------- -----------
Loss from Operations (287,466) (359,217) (543,592) (675,427) (3,236,131)
Other Income and (Expense)
Interest income 208 1,021 388 6,513 18,734
Interest expense (178) (819) (446) (1,093) (19,012)
---------- ---------- ---------- ---------- -----------
Net Other Income
(Expense) 30 202 (58) 5,420 (278)
---------- ---------- ---------- ---------- -----------
Net Loss $ (287,436) $ (359,015) $ (543,650) $ (670,007) $(3,236,409)
========== ========== ========== ========== ===========
Net Loss Per Share $ (0.02) $ (0.02) $ (0.03) $ (0.04) $ (0.20)
========== ========== ========== ========== ===========
Common shares used in Per
Share Calculation 16,290,361 16,186,100 16,290,361 16,186,100 16,290,361
========== ========== ========== ========== ===========
<FN>
See the accompanying notes to the 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, 1986)
For the Six Months Ended Through
December 31, December 31,
1997 1996 1997
----------- ----------- ------------
Cash Flows From Operating
Activities
Net loss $ (543,650) $ (670,007) $ (3,236,409)
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Allowance for doubtful
accounts - - 40,783
Amortization 5,186 3,280 31,933
Depreciation 17,235 16,190 91,523
Stock based compensation - - 331,747
Change in assets and liabilities:
Inventory - 32,154 (108,092)
Sales representatives
receivable - (16,651) (40,783)
Prepaid expenses 14,813 2,395 -
Accounts payable 25,770 (10,868) 56,196
Accrued liabilities (946) (1,426) 5,595
----------- ----------- -----------
Net Cash Used By Operating
Activities (481,592) (644,933) (2,827,507)
----------- ----------- -----------
Cash Flows From Investing
Activities
Purchase of property and
equipment (811) (21,599) (179,493)
Purchase of rights to technology (9,280) (25,830) (245,647)
Organization costs - - (1,880)
Purchase of franchise rights - - (10,000)
Proceeds to related party 2,473 - (8,600)
----------- ----------- ------------
Net Cash Used By Investing
Activities (7,618) (47,429) (445,620)
----------- ----------- ------------
Cash Flows From Financing
Activities
Proceeds from issuance of
common stock 50,000 - 962,346
Proceeds from advance from
controlling shareholder 447,121 - 2,317,274
Payments for treasury stock - - (3,325)
Payments for stock offering
costs - - (56,509)
Proceeds from net borrowings
from related party - 209,128 78,101
Payments on note payable (1,985) (1,843) (11,076)
----------- ----------- -----------
Net Cash Provided By
Financing Activities 495,136 207,285 3,286,811
----------- ----------- -----------
Net Increase (Decrease) In
Cash and Cash Equivalents 5,926 (485,077) 13,684
----------- ----------- -----------
Cash and Cash Equivalents at
Beginning of Period 7,758 545,847 -
----------- ----------- -----------
Cash and Cash Equivalents
at End of Period $ 13,684 $ 60,770 $ 13,684
=========== =========== ===========
See the accompanying notes to the condensed financial statements.
INTERNATIONAL AUTOMATED SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
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.
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
During the year ended June 30, 1997, the company advanced a corporation
controlled by the company's majority shareholder $11,073; this advance
was paid off in August 1997. Subsequently, the Company has advanced
this same corporation an additional $8,600, no terms for repayment have
been established.
For the six months and quarter ending December 31, 1997 $447,121 and
$214,436 was advanced by Neldon Johnson, the controlling shareholder,
for research as additional paid-in-capital. No additional preferred or
common stock was issued.
NOTE 4--COMMON STOCK TRANSACTIONS
On November 12, 1997, 35,000 shares of common stock were sold at $1.50
per share for $50,000.
NOTE 5--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.
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.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES. As of December 31, 1997, Registrant
had cash of $13,684 compared to cash of $7,758 as of June 30, 1997. Cash
increased because of paid in capital from a majority shareholder. Inventory
did not change from June 30, 1997. As of December 31, 1997, total current
assets were $130,376 and total assets were $463,297 compared to total current
assets $141,736 and total assets $486,987 as of June 30, 1997.
As of December 31, 1997, Registrant had total liabilities of $70,072 and
shareholders' equity of $393,225 compared to total current liabilities of
$47,233 and shareholders' equity of $439,754. The deficit accumulated during
the development stage was $3,236,409 as of December 31, 1997, 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. These activities have significant risks involving the development of
technology and the development of products that may be commercially acceptable
and profitable. As of December 31, 1997, the ratio of current assets to
current liabilities was approximately 1.98 to one.
RESULTS OF OPERATION. For the quarter ended December 31, 1997,
Registrant had total revenues of $1,481 compared to total revenues of $16,043
for the same period a year earlier. For the quarter ended December 31, 1997,
Registrant had total operating expenses of $288,244 compared to expenses of
$368,843 during the same quarter a year earlier. The decrease in income
reflects a lack of sales and increased operating expenses. As of December 31,
1997, cost of sales was $703 compared to $6,417 a year earlier and gross
profit was $778 compared to $9,626 a year earlier. For the quarter Registrant
had a net loss of $287,436 compared to a net loss of $ 359,015 for the same
quarter a year earlier. The decrease in net loss is attributable to the
decrease in general and administrative expenses and research and development
expenses due to downsizing to meet the Company's current financial position.
For the quarter the net loss per share was $(0.02) compared to $(0.02) for the
same quarter a year earlier. For the quarter ended December 31, 1997, general
and administrative expenses were $191,063 compared to $116,082 and research
and development expenses were $94,588 compared to $249,943 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.
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.
On November 12, 1997, 35,000 shares of common restricted stock were sold
to an outside source for $50,000 which equates to a $1.50 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 the 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. Three of the seven payments will be paid in 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 11-7-97
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
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet as of December 31, 1997, and statements of operations for the six months
ended December 31, 1997, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> DEC-31-1997
<CASH> 13,684
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 108,092
<CURRENT-ASSETS> 130,376
<PP&E> 198,850
<DEPRECIATION> (91,523)
<TOTAL-ASSETS> 463,297
<CURRENT-LIABILITIES> 65,836
<BONDS> 0
0
292,786
<COMMON> 3,336,848
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 463,297
<SALES> 1,881
<TOTAL-REVENUES> 1,881
<CGS> 1,053
<TOTAL-COSTS> 544,420
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 58
<INCOME-PRETAX> (543,650)
<INCOME-TAX> 0
<INCOME-CONTINUING> (543,650)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (543,650)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> 0
</TABLE>
