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, 2000
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.)
326 North SR 198
Salem, Utah 84653
(Address of principal executive offices)
Registrant's telephone number including area code (801) 423-8132
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 November 10, 2000 Registrant had 16,251,361 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
INTERNATIONAL AUTOMATED SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED BALANCE SHEETS
ASSETS
September 30, June 30,
2000 2000
---------- -----------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 3,724 $ 8,915
Net investment in direct financing leases -
related party - current portion 23,814 27,118
---------- -----------
TOTAL CURRENT ASSETS 27,538 36,033
---------- -----------
PROPERTY AND EQUIPMENT
Computer and electronic equipment 148,864 148,864
Furniture and fixtures 20,982 20,982
Automobiles 21,657 21,657
Mobile office 11,764 11,764
Leasehold improvements 18,238 18,238
---------- -----------
TOTAL PROPERTY AND EQUIPMENT 221,505 221,505
Accumulated depreciation (181,918) (176,621)
---------- -----------
NET PROPERTY AND EQUIPMENT 39,587 44,884
---------- -----------
OTHER ASSETS
Related party receivable 957,241 819,050
Net investment in direct financing
leases - related party 60,291 62,845
Patents, net of accumulated
amortization of $58,989 288,583 291,230
Prepaid Legal Fees 844,371 -
Deposits 6,000 6,000
---------- ------------
TOTAL OTHER ASSETS 2,156,486 1,179,125
---------- ------------
TOTAL ASSETS $ 2,223,611 $ 1,260,042
=========== ============
See the accompanying notes to the condensed financial statements.
<PAGE> 2
INTERNATIONAL AUTOMATED SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED BALANCE SHEETS (CONTINUED)
September 30, June 30,
2000 2000
---------- -----------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 56,446 $ 120,987
Current portion of long term debt 3,023 4,424
Accrued payroll expenses 90,612 82,877
Obligation under capital leases -
current portion 23,814 27,118
---------- -----------
TOTAL CURRENT LIABILITIES 173,895 235,406
---------- -----------
LONG TERM LIABILITIES
Obligation under capital leases - long term 60,291 62,845
---------- -----------
TOTAL LIABILITIES 234,186 298,251
---------- -----------
STOCKHOLDERS' EQUITY
Preferred stock, Class A, no par value,
4,400,000 shares authorized, 3,300,000
and 1,000,000 shares issued and
outstanding, respectively 294,786 292,786
Preferred stock, Class B, no par value,
600,000 shares authorized, 600,000
shares issued and outstanding,
respectively - -
Common stock, no par value, 45,000,000
shares authorized, 16,251,361 and
15,596,361shares issued
and outstanding , respectively 8,069,365 6,367,725
Deficit accumulated during the
development stage (6,374,726) (5,698,720)
---------- -----------
TOTAL STOCKHOLDERS' EQUITY 1,989,425 961,791
---------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,223,611 $1,260,042
========== ==========
See the accompanying notes to the condensed financial statements.
<PAGE> 3
INTERNATIONAL AUTOMATED SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Period
(September 26,
For the Three Months 1986)
Ended September 30, Through
--------------------------- September 30,
2000 1999 2000
------------ ------------ ------------
REVENUE
Sales $ - $ - $ 111,226
Income from related party - - 32,348
----------- ----------- -----------
TOTAL REVENUE - - 143,574
----------- ----------- -----------
COST OF SALES
Cost of sales - 5,740 81,927
Write down of carrying
value of inventories of
$108,093 during 1998 and
1997 - - 216,186
----------- ----------- -----------
TOTAL COST OF SALES - 5,740 298,113
----------- ----------- -----------
GROSS PROFIT (LOSS) - (5,740) (154,539)
----------- ----------- ----------
OPERATING EXPENSES
General and administrative 614,881 51,635 3,280,426
Research and development
expense 58,211 124,291 2,707,533
Amortization expense 2,647 1,184 60,869
Stockholder class action
settlement expense - - 170,634
----------- ----------- -----------
TOTAL OPERATING EXPENSES 675,739 177,110 6,219,462
----------- ----------- -----------
OTHER INCOME AND (EXPENSE)
Other income - - -
Interest income - 46 22,227
Interest expense (267) (323) (22,952)
----------- ----------- ----------
NET OTHER INCOME (EXPENSE) (267) (277) (725)
----------- ----------- -----------
NET LOSS $ (676,006) $ (183,127) $(6,374,726)
BASIC AND DILUTED LOSS PER SHARE $ (0.04) $ (0.01) $ (0.43)
=========== =========== ===========
COMMON AND PREFERRED SHARES USED
IN PER SHARE CALCULATION 18,729,658 16,546,361 14,955,651
=========== =========== ===========
See the accompanying notes to the condensed financial statements.
<PAGE> 4
INTERNATIONAL AUTOMATED SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Period
(September 26,
For the Three Months 1986)
Ended September 30, Through
--------------------------- September 30,
2000 1999 2000
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (676,006) $ (183,127) $(6,374,726)
Adjustments to reconcile net income
to net cash provided by operating
activities:
Amortization 2,647 1,184 60,869
Depreciation 5,297 8,221 181,918
Stock based compensation 575,750 - 914,247
Change in assets and liabilities:
Prepaid expenses - (400) -
Accounts payable (8,912) 7,575 112,075
Accrued liabilities 7,735 41,908 90,612
------------ ----------- ----------
NET CASH USED BY OPERATING
ACTIVITIES (93,489) (124,639) (5,015,005)
------------ ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and
equipment - (3,114) (196,384)
Purchase of rights to
technology - 400 (347,572)
Organization costs - - (1,880)
Net cash loaned to related party (138,191) (115,497) (1,010,495)
Proceeds from capital lease
receivable - 3,082 44,220
Repayment of cash loaned to related
party - - 53,254
------------ ----------- ----------
NET CASH USED BY INVESTING
ACTIVITIES (138,191) (115,129) (1,458,857)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of
common stock - - 1,362,346
Cash from controlling shareholder 227,890 261,400 5,169,291
Payments for treasury stock - - (3,325)
Payments for stock offering costs - - (56,509)
Increase (decrease) in bank
overdraft - (7,084) -
Proceeds from net borrowings
from related party - - 78,101
Payments on note payable and
obligations under capital
lease (1,401) (5,537) (72,318)
------------ ----------- ----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 226,489 248,779 6,477,586
------------ ----------- ----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (5,191) 9,011 3,724
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 8,915 - -
------------ ------------ -----------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 3,724 $ 9,011 $ 3,724
============ ============ ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash Paid for Interest $ 267 $ 232 $ 22,952
Value of common stock issued
for current and future legal fees $ 900,000 $ - $ -
See the accompanying notes to the condensed financial statements.
<PAGE> 5
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, 2000. 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, 2001.
NOTE 2--RELATED PARTY TRANSACTIONS
For the three months ending September 30, 2000
and 1999, the controlling shareholder, Neldon Johnson,
contributed $227,890 and $205,000 for research as
additional paid-in capital, respectively. No additional
preferred or common stock was issued.
As of June 30, 2000, the Company loaned U-Check,
Inc. (U-Check), a corporation solely owned by Mr.
Johnson, $819,000. For the three months ended September
30, 2000, the Company has advanced this same corporation
an additional $138,191, resulting in a balance due of
$957,241. These receivables consist of construction and
labor costs paid for by the Company on behalf of
U-Check. No terms for repayment have been established.
NOTE 3--CONTINGENCIES
On September 23, 1998, the Company was notified
by the U.S. Securities and Exchange Commission (SEC) of
formal action against the Company, its president, and
members of his family for possible securities
violations. The action stems from alleged material
misrepresentations by the company regarding new
technology developed by the Company. The SEC is seeking
disgorgement of the proceeds from the sale of stock by
the company and its principles that occurred between
June 1995 and June 1996. This figure is believed to be
in excess of $3,000,000. The SEC is also seeking the
imposition of fines and attorney's fees. The ultimate
outcome of the action cannot presently be determined.
Accordingly, no provision for any liability that may
result has been made in the accompanying financial
statements, and the possible effect that action will
have on future financial statements is unknown.
<PAGE> 6
NOTE 4--BUSINESS CONDITION
The accompanying financial statements have been
prepared on a going concern basis, which contemplates
the realization of assets and the satisfaction of
liabilities in the normal course of business. During the
three month periods ended September 30, 2000 and 1999,
the Company incurred net losses of $676,006 and
$183,127, respectively. As of September 30, 2000, the
Company's losses accumulated from inception totaled
$6,374,726. These factors, among others, indicate that
the Company may be unable to continue as a going concern
for a reasonable period of time. The financial
statements do not include any adjustments relating to
the recoverability and classification of recorded asset
amounts or the amount and classification of liabilities
that might be necessary should the Company be unable to
continue as a going concern. The Company's ability to
continue as a going concern is dependent upon its
ability to generate sufficient cash flow to meet its
obligations on a timely basis, to obtain additional
financing as may be required, and ultimately to attain
successful operations. Management is in the process of
negotiating various sales agreements and is hopeful
these sales will generate sufficient cash flow for the
Company to continue as a going concern.
NOTE 5 -EQUITY
SERIES A PREFERRED STOCK- In July 2000, the
Company issued to certain Employees /Directors 2,000,000
shares of preferred stock in leu of a $2,000 bonus. The
preferred shares have equal dividend rights to the
common shares, are not convertible into common shares,
have no dividend requirements, and have no liquidation
preferences to the common shares. Each preferred share
is entitled to the voting rights of ten common shares.
In August 2000, the Company entered into
employment agreements with certain employees. In
connection with these agreements, the Company issued
300,000 shares of preferred stock. The preferred shares
have equal dividend rights to the common shares, are not
convertible into common shares, have no dividend
requirements, and have no liquidation preferences to the
common shares. Each preferred share is entitled to the
voting rights of ten common shares. Due to the shares
having only voting rights, the shares are deemed to have
been issued with no value.;
SERIES B PREFERRED STOCK- In connection with the
employment agreements, the Company issued 300,000 shares
of convertible preferred stock. Each preferred share
has equal dividend rights to the common shares, has no
dividend requirements, has no liquidation preferences to
the common shares, and is entitled to the voting rights
of ten common shares. Each share of the convertible
preferred stock is exchangeable into two options to
purchase common stock at $3.00 per share, exercisable
immediately and the options expire ten years from the
date the preferred stock is exchanged. The Company is
accounting for these shares as though they were an
issuance of a stock option. See below for the Company's
accounting policy for the issuance of stock options.
COMMON STOCK - In August 2000, the Company issued
400,000 shares of common stock to an attorney for prior
fees of $55,629 and $844,371 as a retainer against
future services. The Common shares had a fair value of
$900,000 or $2.25 per share on the date of issuance.
In August 2000, the Company entered into
employment agreements with certain employees. In
connection with these agreements, the Company issued;
250,000 shares of common stock valued at $562,500 or
$2.25 per share.
<PAGE> 7
In August 2000, the Company issued 5,000 shares
of common stock for services rendered valued at $11,250
or $2.25 per share.
OPTIONS - In August 2000, as part of employment
agreements, the Company issued options to purchase
1,000,000 shares of common stock. These options are
exercisable at $3.00 per share, vest 100,000 shares per
year over a ten year period and expire ten years from
the date of issuance. The exercise price of $3.00 per
share was greater than the market value of the shares on
the date of issuance. Accordingly, no compensation
expense will be recognized for the options.
The Company accounts for its stock issued to
directors, officers and employees under Accounting
Principles Board Opinion No. 25 and related
interpretations ("APB 25"). Under APB 25, compensation
expense is recognized if an option's exercise price on
the measurement date is below the fair value of the
Company's common stock. The Company accounts for options
and warrants issued to non-employees in accordance with
SFAS No. 123, Accounting for Stock-Based Compensation"
(SFAS 123) which requires these options and warrants to
be accounted for at their fair value. There will be no
compensation expense recognized for the options under
APB 25.
<PAGE> 8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources. As of September 30, 2000,
Registrant had cash of $3,724 compared to cash of $8,915 as of June
30, 2000. Cash decreased because of continued financial obligations
by the Company. As of September, 2000, total current assets were
$27,538 and total assets were $2,223,611 compared to total current
assets $36,033 and total assets $1,260,042 as of June 30, 2000.
As of September 30, 2000, Registrant had total liabilities of
$234,186 and shareholders' equity of $1,989,425 as compared to total
liabilities of $298,251 and shareholders' equity of $961,791 as of
June 30, 2000. The deficit accumulated during the development stage
was $6,374,726 as of September 30, 2000, compared to $5,698,720 as
of June 30, 2000. 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 September 30,
2000, the ratio of current assets to current liabilities was
approximately .16 to one.
Results of Operations. For the quarter ended September 30, 2000
registrant had total revenues of $0 compared to total revenues to $0
for the same period a year earlier. For the quarter ended September
30, 2000, registrant had total operating expenses of $675,739
compared to expenses of $177,110 during the same quarter of a year
earlier. As of September 30, 2000, cost of sales was $0 as compared
to cost of sales of $5,740 during the same quarter a year earlier.
For the quarter registrant had a net loss of $676,006 compared to a
net loss of $183,127 for the same quarter a year earlier. The
increase in net loss is attributable to the increase in general and
administrative expenses. For the quarter, the net loss per share was
$(0.04) compared to $(0.01) for the same quarter a year earlier. For
the quarter ended September 30, 2000, general and administrative
expenses were $614,881 compared to $51,635 and research and
development expenses were $58,211 compared to $124,291 a year
earlier.
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 88.
Part II
Item 1. Legal Proceedings
On September 23, 1998, the Company was notified by the U.S.
Securities and Exchange Commission (SEC) of formal action against
the Company, its president and members of his family for possible
securities violations. The action stems from alleged material
misrepresentations by the Company regarding new technology developed
by the Company. The SEC is seeking disgorgement of the proceeds
from the sale of stock by the Company and its principles that
occurred between June 1995 and June 1996. This figure is believed
to be in excess of $3,000,000. The SEC is also seeking the
imposition of fines and attorney's fees. Though the Company and the
principles named in the complaint deny any wrong doing and intend on
vigorously defending the lawsuit, the ultimate outcome of the
action cannot presently be determined. Accordingly, no provision for
any liability that may result has been made in the accompanying
financial statements, and the possible effect the action will have
on future financial statements is unknown.
The Company has filed a civil action complaint in the United States
District Court for the District of Utah Central Division against
Optimal Robotics Corp. and PSC, Inc. alleging patent infringement
arising under the patent laws of the United States, and more
specifically, under Title 35,U.S.C. Sections 271, 281, 283, 284 and
285. Discovery is presently in progress.
The Company has filed a civil action complaint in the United States
District Court for the district of Utah Central division against The
Kroger Company alleging patent infringement arising under the patent
infringement arising under the patent laws of the United States, and
more specifically, under Title 35, U.S.C., section 271, 281, 283,
284, and 285.
Item 2. Changes in Securities
Common Stock- In August 2000, the Company issued 400,000 shares of
common stock to an attorney for prior fees and as a retainer against
future services.
In August 2000, the Company entered into employment agreements with
certain key employees. In connection with these agreements, the Company
issued 250,000 shares.
In August 2000, the Company issued 5,000 shares of common stock for
services rendered.
Preferred Stock- In July 2000, the Company issued to key Employees/
Directors 2,000,000 shares of preferred stock in leu of a bonus. The
preferred shares have equal dividend rights to the common shares,
are not convertible into common shares, have no dividend
requirements, and have no liquidation preferences to the common
shares. Each preferred share is entitled
to the voting rights of ten common shares.
In August 2000, the Company issued 300,000 shares of preferred
stock, which has no value, as part of an employee agreement with
certain employees. The preferred shares have equal dividend rights
to the common shares, are not convertible into common shares, have
no dividend requirements, and have no liquidation preferences to the
common shares. Each preferred share is
entitled to the voting rights of ten common shares.
In August 2000, the Company issued 300,000 shares of convertible
preferred shares to certain key employees as part of an employee
agreement. Each preferred share has equal dividend rights to the
common shares, have no dividend requirements, and have no
liquidation preferences to the common shares, and is entitled to the
voting rights of ten common shares. Each share can be converted to
two options to purchase common stock at $3.00 per share.
Options - In August 2000, the Company issued options to purchase
1,000,000 shares of restricted common stock over a ten year period
at $3.00 per share as part of employment agreements. This report
contains forward looking statements regarding the Company's plans,
objectives, expectations and intentions. All forward looking
statements are subject to risks and uncertainties that could cause
the Company's actual results and experience to differ materially
from such projections. Such risks include delays in product
development, the development of marketing and distribution channels,
and market acceptance of its products. Other risks may be beyond the
control of the Company.
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: November 13, 2000
International Automated
Systems, Inc.
By: \s\ Neldon Johnson
----------------------------
Neldon Johnson
President and Chief Executive
Officer
