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, 1999
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, 1999, 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 March 31, 1999, and the results of its
operations and changes in its financial position from June 30, 1998, through
March 31, 1999, and from inception through March 31, 1999, 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
March 31, June 30,
1999 1998
----------- -----------
(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents $ 8,304 $ 92,030
Receivable from sales representatives,
net of allowance for doubtful accounts
of $40,783 - -
Receivable from related party 266,628 184,925
Net investment in direct financing leases -
related party - current portion 23,327 24,613
Prepaid expenses - 2,241
----------- ----------
Total Current Assets 298,259 303,809
----------- ----------
Property and Equipment
Computer and electronic equipment 148,864 147,684
Furniture and fixtures 32,746 20,982
Automobiles 21,657 21,657
Leasehold improvements 18,238 18,238
----------- ----------
Total Property and Equipment 221,505 208,561
Accumulated depreciation (136,814) (109,844)
----------- ----------
Net Property and Equipment 84,691 98,717
----------- ----------
Other Assets
Net investment in direct financing leases
- related party 87,105 109,570
Patents, net of accumulated amortization 262,396 242,519
----------- ----------
Total Other Assets 349,501 352,089
----------- ----------
Total Assets $ 732,451 $ 754,615
=========== ==========
INTERNATIONAL AUTOMATED SYSTEMS, INC.
(A Development Stage Company)
CONDENSED BALANCE SHEETS (CONTINUED)
March 31, June 30,
1999 1998
----------- -----------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 61,614 $ 12,965
Accrual for stockholder class action
settlement expense 170,631 -
Note payable - current portion 3,700 4,387
Accrued liabilities 8,344 4,627
Obligation under capital leases -
current portion 20,483 17,867
----------- ----------
Total Current Liabilities 264,772 39,846
----------- ----------
Long Term Liabilities
Notes payable 11,362 1,830
Obligation under capital leases 83,202 109,570
----------- ----------
Total Long Term Liabilities 94,564 111,400
----------- ----------
Total Liabilities 359,336 151,246
----------- ----------
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 4,991,739 4,260,739
Deficit accumulated during the development
stage (4,911,410) (3,950,156)
----------- ----------
Total Stockholders' Equity 373,115 603,369
----------- ----------
Total Liabilities and Stockholders' Equity $ 732,451 $ 754,615
=========== ==========
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, 1998) Through
------------------------ ------------------------ March 31,
1999 1998 1999 1998 1999
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenue
Sales $ - $ 9,870 $ - $ 11,751 $ 108,144
Equipment lease income
from related party 1,078 - 13,510 - 45,858
----------- ----------- ----------- ----------- -----------
Total Revenue 1,078 9,870 13,510 11,751 154,002
----------- ----------- ----------- ----------- -----------
Cost of Sales
Cost of sales 62 9,046 62 10,099 80,322
Write down of carrying
value of inventories of
$108,093 during 1998
and 1997 - - - - 216,186
----------- ----------- ----------- ----------- -----------
Total Cost of Sales 62 9,046 62 10,099 296,508
----------- ----------- ----------- ----------- -----------
Gross Profit/(Loss) 1,016 824 13,448 1,652 (142,506)
----------- ----------- ----------- ----------- -----------
Operating Expenses
General and
administrative 119,394 131,122 343,937 457,662 2,167,120
Research and development
expense 129,396 174,026 448,668 386,720 2,383,473
Amortization expense 3,550 3,551 10,651 8,737 47,700
----------- ----------- ----------- ----------- -----------
Total Operating
Expenses 252,340 308,699 803,256 853,119 4,598,293
----------- ----------- ----------- ----------- -----------
Loss From Operations (251,324) (307,875) (789,808) (851,467) (4,740,799)
Other Income and (Expense)
Interest income 193 189 898 577 21,053
Interest expense (172) (169) (1,713) (615) (21,033)
Stockholder class action
settlement expense (170,631) - (170,631) - (170,631)
----------- ----------- ----------- ------------ -----------
Net Other Income
(Expense) (170,610) 20 (171,446) (38) (170,611)
----------- ----------- ----------- ----------- -----------
Net Loss $ (421,934) $ (307,855) $ (961,254) $ (851,505) $(4,911,410)
=========== =========== =========== =========== ===========
Basic and Diluted Loss
Per Share $ (0.03) $ (0.02) $ (0.06) $ (0.05) $ (0.33)
=========== =========== =========== =========== ===========
Common and Preferred Shares
Used in Per Share
Calculation 16,546,361 16,290,361 16,546,361 16,273,182 14,721,194
=========== =========== =========== =========== ===========
-5-
</TABLE>
INTERNATIONAL AUTOMATED SYSTEMS, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Period
From Incpetion
(September 26,
1986)
For the Nine Months Through
------------------------ March 31,
1999 1998 1999
----------- ---------- -----------
<S>
<C> <C> <C>
Cash Flows From Operating Activities
Net loss $ (961,254) $ (851,505) $(4,911,410)
Adjustments to reconcile net income to
net cash provided by operating
activities:
Allowance for doubtful accounts - - 40,783
Amortization 10,651 8,737 47,700
Deprecation 26,970 26,320 136,814
Stock based compensation - - 338,497
Change in assets and liabilities:
Sales representatives receivable - - (40,783)
Prepaid expenses 2,241 14,813 -
Accounts payable 48,650 36,882 61,615
Accrued liabilities 3,715 (372) 8,342
Accrual for stockholder class action
settlement expense 170,631 - 170,631
----------- ---------- -----------
Net Cash Used In Operating Activities (698,396) (765,125) (4,147,811)
----------- ---------- -----------
Cash Flows From Investing Activities
Purchase of property and equipment (1,180) (8,530) (202,148)
Purchase of rights to technology (30,528) (12,678) (308,216
Organization costs - - (1,880)
Net cash loaned to related party (81,703) (55,492) (266,628
----------- ---------- -----------
Net Cash Used In Investing Activities (113,411) (76,700) (778,872)
----------- ---------- -----------
Cash Flows From Financing Activities
Proceeds from issuance of common stock - 50,000 1,262,346
Cash from controlling shareholder 731,000 792,162 3,665,415
Payments for treasury stock - - (3,325)
Payments for stock offering costs - - (56,509)
Proceeds from net borrowings from
related party - - 78,101
Payments on note payable and capital
lease obligations, net (2,919) (3,010) (11,041)
----------- ---------- -----------
Net Cash Provided By Financing
Activities 728,081 839,152 4,934,987
----------- ---------- -----------
Net Increase (Decrease) In Cash and
Cash Equivalents (83,726) (2,673) 8,304
Cash and Cash Equivalents at Beginning
of Period 92,030 7,758 -
----------- ---------- -----------
Cash and Cash Equivalents at End of Period $ 8,304 $ 5,085 $ 8,304
=========== ========== ===========
</TABLE>
-6-
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 $81,703 for the period ended March
31, 1999. Total advances are $266,628. No terms for repayment
have been established.
For the nine months ending March 31, 1999, the controlling
shareholder, Neldon Johnson, contributed $731,000 for
research as additional paid-in capital. No additional
preferred or common stock was issued.
In June 1998, the Company entered into capital lease
obligations with a leasing company for various equipment.
Immediately after entering into the obligations, the Company
subleased the equipment to a company related through common
ownership under the same terms as the original leases signed
by the Company. The Company has ultimate responsibility to
make all payments regarding the leases. A total of $134,183
of equipment was acquired and subsequently subleased under
these capital leases. These leases expire in May 2003. As of
March 31, 1999, the Company's total receivable and payable
relating to these lease obligations were $110,432 and
$103,685, respectively.
NOTE 3--CONTINGENCIES
On July 2, 1996, the Company had a class action lawsuit filed
against it by shareholders. The class action was brought on
behalf of all persons and entities who purchased shares of
common stock from May 13, 1996 to June 27, 1996. The trial court
denied class certification on June 2, 1998. In April
1999, the lawsuit was settled for $170,631 without any of the parties
admitting any wrongdoing, and successfully concludes the litigation
against the Company. The settlement has been accrued in the
accompanying financial statements at March 31, 1999.
On August 13, 1996, the Company was served a formal order of
private investigation by the U.S. Securities and Exchange
Commission (SEC). 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. The complaint alledges that the
Company's representation about its DWM Technology were false.
IAS stands by its Digital Wave Modulation (DWM) technology and
its inventor and president Neldon Johnson. IAS and Neldon
Johnson deny the allegations of the complaint 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 March 31, 1999,
Registrant had cash of $8,304 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. As of March
31, 1999, total current assets were $298,259 and total assets were
$732,451 compared to total current assets $303,809 and total
assets of $754,615 as of June 30, 1998.
As of March 31, 1999, Registrant had total liabilities of
$359,336 and stockholders' equity of $373,115 compared to total
liabilities of $151,246 and shareholders' equity of $603,369
as of June 30, 1998. The deficit accumulated during the
development stage was $4,911,410 as of March 31, 1999, compared to
$3,950,156 as of June 30, 1998. For the near term the Company's
ability to continue its operations and activities is dependent
upon the Company's major stockholder providing funds to the
Company. At this time the Company is not generating sufficient
funds to sustain its operations. The decrease in stockholders'
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, 1999, the ratio of current assets to current
liabilities was approximately 1.13 to one.
Results of Operations. For the quarter ended March 31, 1999,
Registrant had total revenues of $1,078 compared to total revenues
of $9,870 for the same period a year earlier. For the quarter
ended March 31, 1999, Registrant had total operating expenses of
$252,340 compared to expenses of $308,699 during the same quarter
a year earlier. As of March 31, 1999, cost of sales was $62
compared to $9,046 a year earlier and gross profit was $1,016
compared to $824 a year earlier. For the quarter, Registrant had
a net loss of $421,934 compared to a net loss of $307,855 for the
same quarter a year earlier. The increase in net loss is
attributable to the settlement of a class action lawsuit. For more
information, see Part II, Item 1, Legal Proceedings. For the
quarter ended March 31, 1999, the net loss per share was $(0.03)
compared to $(0.02) for the quarter ended March 31, 1998. For the
quarter ended March 31, 1999, general and administrative expenses
were $119,394 compared to $131,122 and research and development
expenses were $129,396 compared to $174,026 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 had a class action lawsuit filed
against it by shareholders. The class action was brought on behalf
of all persons and entities who purchased shares of common stock
from May 13, 1996 to June 27, 1996. The trail court denied class
certification on June 2, 1998. In April 1999, the lawsuit was
settled for $170,631 without any of the parties admitting any
wrongdoing, and successfully concludes the litigation against
the Company. The settlement has been accrued in the accompanying
financial statements at March 31, 1999.
On August 13, 1996, the Company was served a formal order of
private investigation by the U.S. Securities and Exchange
Commission (SEC). 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. The complaint aledges that the Company's
representation about its DWM technology were false. IAS
stands by its Digital Wave Modulation (DWM) technology and
its inventor and president Neldon Johnson. IAS and Neldon Johnson
deny the allegations in the complaint and intend to vigorously
defend the lawsuit.
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 May 13, 1999
International Automated Systems, Inc.
By /s/ Neldon Johnson
------------------
Neldon Johnson
President and Chief Executive Officer
By /s/ Neldon Johnson
------------------
Neldon Johnson
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF MARCH 31, 1999, AND STATEMENTS OF OPERATIONS FOR THE NINE MONTHS
ENDED MARCH 31, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1999
<CASH> 8,304
<SECURITIES> 0
<RECEIVABLES> 307,411
<ALLOWANCES> 40,783
<INVENTORY> 0
<CURRENT-ASSETS> 298,259
<PP&E> 221,505
<DEPRECIATION> 136,814
<TOTAL-ASSETS> 732,451
<CURRENT-LIABILITIES> 264,772
<BONDS> 0
0
292,786
<COMMON> 4,991,739
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 732,451
<SALES> 0
<TOTAL-REVENUES> 13,510
<CGS> 62
<TOTAL-COSTS> 803,256
<OTHER-EXPENSES> 170,631
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,713
<INCOME-PRETAX> (961,254)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (961,254)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
