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, 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 December 31, 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 December 31, 1998, and the results of its
operations and changes in its financial position from June 30, 1998, through
December 31, 1998, and from inception through December 31, 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
December 31, June 30,
1998 1998
--------- --------
(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents $ 13,693 $ 92,030
Receivable from sales representatives,
net of allowance for doubtful
accounts of $40,783 - -
Receivable from related party 260,585 184,925
Net investment in direct
financing leases -
related party - current portion 21,956 24,613
Prepaid expenses - 2,241
--------- --------
Total Current Assets 296,234 303,809
--------- --------
Property and Equipment
Computer and electronic equipment 147,684 147,684
Furniture and fixtures 20,982 20,982
Automobiles 21,657 21,657
Leasehold improvements 18,238 18,238
--------- --------
Total Property and Equipment 208,561 208,561
Accumulated depreciation (128,317) (109,844)
--------- --------
Net Property and Equipment 80,244 98,717
--------- --------
Other Assets
Net investment in direct financing
leases - related party 99,396 109,570
Patents, net of accumulated amortization 250,605 242,519
--------- --------
Total Other Assets 350,001 352,089
--------- --------
Total Assets $ 726,479 $754,615
========= ========
INTERNATIONAL AUTOMATED SYSTEMS, INC.
(A Development Stage Company)
CONDENSED BALANCE SHEETS (CONTINUED)
December 31, June 30,
1998 1998
------------ -----------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 37,083 $ 12,965
Note payable - current portion 4,069 4,387
Accrued liabilities 10,672 4,627
Obligation under capital leases -
current portion 15,210 17,867
------------ -----------
Total Current Liabilities 67,034 39,846
------------ -----------
Long Term Liabilities
Notes payable - 1,830
Obligation under capital leases 99,396 109,570
------------ -----------
Total Long Term Liabilities 99,396 111,400
------------ -----------
Total Liabilities 166,430 151,246
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 4,756,739 4,260,739
Deficit accumulated during the development
stage (4,489,476) (3,950,156)
------------ -----------
Total Stockholders' Equity 560,049 603,369
------------ -----------
Total Liabilities and Stockholders' Equity $ 726,479 $ 754,615
============ ===========
INTERNATIONAL AUTOMATED SYSTEMS, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE> For the Period
From Inception
<CAPTION> (September 26,
For the Three Months For the Six 1986)
Ended December 31, Ended December 31, Through
------------------------- ------------------------- December 31,
1998 1997 1998 1997 1998
----------- ---------- ----------- ---------- -------------
<S>
<C> <C> <C> <C> <C>
Revenue
Sales $ - $ 1,481 $ - $ 1,881 $ 108,144
Equipment lease
income from related
party 694 - 12,432 - 44,780
----------- ---------- ----------- ----------- -------------
Total Revenue 694 1,481 12,432 1,881 152,924
----------- ---------- ----------- ----------- -------------
Cost of Sales
Cost of sales - 703 - 1,053 80,260
Write down of carrying
value of inventories of
$108,093 during 1998
and 1997 - - - - 216,186
----------- ---------- ----------- ----------- -------------
Total Cost of Sales - 703 - 1,053 296,446
----------- ---------- ----------- ----------- -------------
Gross Profit/(Loss) 694 778 12,432 828 (143,522)
----------- ---------- ----------- ----------- -------------
Operating Expenses
General and
administrative 73,310 191,063 224,543 326,540 2,047,726
Research and development
expense 202,556 94,588 319,272 212,694 2,254,077
Amortization expense 3,551 2,593 7,101 5,186 44,150
----------- ---------- ----------- ----------- -------------
Total Operating
Expenses 279,417 288,244 550,916 544,420 4,345,953
----------- ---------- ----------- ------------ -------------
Loss From Operations (278,723) (287,466) (538,484) (543,592) (4,489,475)
Other Income and
(Expense)
Interest income 211 208 705 388 20,860
Interest expense (1,424) (178) (1,541) (446) (20,861)
----------- ---------- ----------- ----------- -------------
Net Other Income
(Expense) (1,213) 30 (836) (58) (1)
----------- ---------- ----------- ----------- -------------
Net Loss $ (279,936) $ (287,436) $ (539,320) $ (543,650) $ (4,489,476)
=========== ========== =========== =========== =============
Per Share $ (0.02) $ (0.02) $ (0.03) $ (0.03) $ (0.31)
=========== ========== =========== =========== =============
Common and Preferred
Shares Used in Per
Share Calculation 16,546,361 16,273,904 16,546,361 16,264,633 14,684,520
=========== =========== =========== =========== =============
</TABLE>
INTERNATIONAL AUTOMATED SYSTEMS, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Period
From Inception
(September 26,
For the Six Months 1986)
Ended December 31, Through
------------------------- December 31,
1998 1997 1998
----------- ----------- -----------
<S>
<C> <C> <C>
Cash Flows From Operating Activities
Net loss $ (539,320) $ (543,650) $(4,489,476)
Adjustments to reconcile net income to
net cash provided by operating activities:
Allowance for doubtful accounts - - 40,783
Amortization 7,101 5,186 44,150
Depreciation 18,473 17,235 128,317
Stock based compensation - - 338,497
Change in assets and liabilities:
Sales representatives receivable - - (40,783)
Prepaid expenses 2,241 14,813 -
Accounts payable 24,118 25,770 37,083
Accrued liabilities 6,045 (946) 10,672
----------- ----------- -----------
Net Cash Used In Operating Activities (481,342) (481,592) (3,930,757)
----------- ----------- -----------
Cash Flows From Investing Activities
Purchase of property and equipment - (811) (189,204)
Purchase of rights to technology (15,187) (9,280) (292,875)
Organization costs - - (1,880)
Net cash loaned to related party (75,660) 2,473 (260,585)
----------- ----------- -----------
Net Cash Used In Investing Activities (90,847) (7,618) (744,544)
----------- ----------- -----------
Cash Flows From Financing Activities
Proceeds from issuance of common stock - 50,000 1,262,346
Cash from controlling shareholder 496,000 447,121 3,430,415
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 (2,148) (1,985) (22,034)
----------- ----------- ------------
Net Cash Provided By Financing
Activities 493,852 495,136 4,688,994
----------- ----------- ------------
Net Increase (Decrease) In Cash and
Cash Equivalents (78,337) 5,926 13,693
Cash and Cash Equivalents
at Beginning of Period 92,030 7,758 -
----------- ----------- ------------
Cash and Cash Equivalents at
End of Period $ 13,693 $ 13,684 $ 13,693
=========== =========== ============
</TABLE>
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 $75,660 for the period ended December 31, 1998. Total
advances are $260,585. No terms for repayment have been established.
For the six months ending December 31, 1998, the controlling
shareholder, Neldon Johnson, contributed $496,000 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 December 31, 1998, the
Company's total receivable and payable relating to these lease
obligations were $121,352 and $114,606, respectively.
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 denial 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).
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 December 31, 1998, Registrant had
cash of $13,693 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 December 31, 1998, total current assets were
$296,234 and total assets were $726,479 compared to total current assets
$303,809 and total assets of $754,615 as of June 30, 1998.
As of December 31, 1998, Registrant had total liabilities of $166,430
and shareholders' equity of $560,049 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 $4,489,476 as of
December 31, 1998, 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 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 December 31, 1998, the ratio of current assets to current
liabilities was approximately 4.42 to one.
Results of Operations. For the quarter ended December 31, 1998, Registrant
had total revenues of $694 compared to total revenues of $1,481 for the same
period a year earlier. For the quarter ended December 31, 1998, Registrant
had total operating expenses of $279,417 compared to expenses of $288,244
during the same quarter a year earlier. As of December 31, 1998, cost of
sales was $0 compared to $703 a year earlier and gross profit was $694
compared to $778 a year earlier. For the quarter Registrant had a net loss
of $ 279,936 compared to a net loss of $ 287,436 for the same quarter a
year earlier. The decrease in net loss is attributable to the fact that
general and administrative expenses decreased by a higher amount than the
increase in research and development expenses. For the quarter ended
December 31, 1998, the net loss per share was $(0.02) compared to $(0.02)
for the quarter ended December 31, 1997. For the quarter ended December 31,
1998, general and administrative expenses were $73,310 compared to $191,063
and research and development expenses were $202,556 compared to $94,588 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 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 denial 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). 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.
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 February 12, 1999
International Automated Systems, Inc.
By
Neldon Johnson
President and Chief Executive Officer
By
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, 1998, and statements of operations for the six months
ended Decmeber 31, 1998, and is qualifed in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-30-1998
<CASH> 13,693
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 296,234
<PP&E> 208,562
<DEPRECIATION> 128,317
<TOTAL-ASSETS> 726,479
<CURRENT-LIABILITIES> 67,034
<BONDS> 0
0
292,786
<COMMON> 4,756,739
<OTHER-SE> (4,489,476)
<TOTAL-LIABILITY-AND-EQUITY> 726,479
<SALES> 0
<TOTAL-REVENUES> 12,432
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 550,916
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,541
<INCOME-PRETAX> (539,320)
<INCOME-TAX> 0
<INCOME-CONTINUING> (539,320)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (539,320)
<EPS-PRIMARY> (0.31)
<EPS-DILUTED> (0.31)
</TABLE>
