<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended OCTOBER 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 0-21255
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IAS COMMUNICATIONS, INC.
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(Exact name of small business issuer as specified in its charter)
OREGON 91-1063549
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
185-10751 SHELLBRIDGE WAY, RICHMOND, BC CANADA V6X 2W8
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(Address of principal executive offices)
(604) 278-5996
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(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for 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 _________
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State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: As of December 7, 1998 - 9,559,785
shares of common stock, no par value.
<PAGE>
INDEX
<TABLE>
<CAPTION>
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PART I -- Financial Information Page
<S> <C>
Item 1. Financial statements .......................................................................... 2
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Consolidated Balance Sheets as of October 31, 1998 and 1997 (Unaudited) ................................. 3
Consolidated Statements of Operations for the six months ended October 31, 1998 and 1997 (Unaudited) .... 4
Consolidated Statements of Cash Flows for the six months ended October 31, 1998 and 1997 (Unaudited) .... 5
Consolidated Statement of Stockholders' Equity for the six months ended October 31, 1998................. 6
Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations .......... 7
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PART II -- Other Information ............................................................................ 8
Signatures .............................................................................................. 9
</TABLE>
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<PAGE>
PART I Financial Information
Item 1. Consolidated Financial Statements (Unaudited)
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<PAGE>
IAS Communications, Inc.
(A Development Stage Company)
Consolidated Balance Sheets
October 31, 1998 and 1997
(expressed in U.S. dollars)
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
$ $
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<S> <C> <C>
Assets
Current Assets
Cash and equivalents 24,059 128,624
Loan receivable 4,861 -
Prepaid expenses 43,802 14,550
Due from related companies 21,887 -
---------- ----------
94,609 143,174
Capital Assets 43,252 43,567
Licence and Patent Protection Costs 360,314 285,889
---------- ----------
498,175 472,630
========== ==========
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable 452,101 86,730
Accrued liabilities 64,806 4,000
Due to related companies 6,500 11,697
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523,407 102,427
Convertible Debentures 535,000 40,000
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Total Liabilities 1,058,407 142,427
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Minority Interest - 1,893
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Stockholders' Equity (Deficit)
Common Stock
Class "A" voting - 100,000,000 shares authorized without
par value; 9,549,350 shares and
8,733,500 shares issued
and outstanding respectively 3,578,274 2,194,959
- paid for but unissued - 487,550
Class "B" non-voting - 100,000,000 shares authorized without
par value; none issued - -
---------- ----------
3,578,274 2,682,509
Preferred Stock 50,000,000 shares authorized; none issued - -
Deficit Accumulated During The Development Stage (4,138,506) (2,354,199)
---------- ----------
(560,232) 328,310
---------- ----------
498,715 472,630
========== ==========
</TABLE>
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<PAGE>
IAS Communications, Inc.
(A Development Stage Company)
Consolidated Statements of Operations
For the six months ended October 31, 1998 and 1997
(expressed in U.S. dollars)
(Unaudited)
1998 1997
$ $
--------- ---------
Revenue - -
--------- ---------
Administration Expenses
Bank charges 478 611
Business plan 11,910 -
Depreciation 1,242 400
Financing commission and legal fees 47,500 -
Interest on convertible debentures 13,340 970
Investor relations - publications 23,998 104,078
Investor relations - consulting 190,045 100,484
Management fees 30,000 30,000
Office, postage and courier 34,460 20,730
Professional fees 82,233 15,862
Rent and secretarial 22,841 22,358
Telephone 6,987 12,180
Transfer agent and regulatory 6,216 8,424
Travel and promotion 56,451 3,455
Less interest (2,414) (946)
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525,287 318,606
--------- ---------
Research and Development Expenses
Royalty 1,500 1,500
Depreciation and amortization 14,582 12,066
Consulting 36,000 20,000
Market awareness and development - 60,000
Subcontracts
Others 7,181 -
West Virginia University Research Corporation 165,771 87,381
Emergent Technologies Corporation 227,490 246,217
Less engineering contribution by a third party (80,781) -
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371,743 427,164
--------- ---------
Net Loss 897,030 745,770
========= =========
Net Loss Per Share .10 .09
========= =========
Weighted Average Shares Outstanding 9,458,000 8,605,500
========= =========
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<PAGE>
IAS Communications, Inc.
(A Development Stage Company)
Consolidated Statement of Cash Flows
For the six months ended October 31, 1998 and 1997
(expressed in U.S. dollars)
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
$ $
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<S> <C> <C>
Cash Flows to Operating Activities
Net loss (897,030) (745,770)
Adjustment to reconcile net loss to cash
Depreciation 15,824 12,466
Shares issued for services 104,867 120,000
Minority interest adjustment - 1,893
Change in non-cash working capital items
Increase in prepaid expenses (28,877) (2,600)
Increase (decrease) in accounts payable and accrued liabilities 128,008 (33,130)
-------- --------
Net Cash Used in Operating Activities (677,208) (647,141)
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Cash Flows to Investing Activities
Increase in capital assets (8,857) (3,386)
Increase in patent protection costs (1,260) (7,260)
Increase in loan receivable (4,861) -
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Net Cash Used in Investing Activities (14,978) (10,646)
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Cash Flows from Financing Activities
Increase in convertible debentures 500,000 40,000
Increase in common stock 215,750 112,300
Increase in subscriptions - 487,375
Increase (decrease) in due to related companies (15,387) 11,697
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Net Cash Provided by Financing Activities 700,363 651,372
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Increase (Decrease) in Cash and Equivalents 8,177 (6,415)
Cash and Equivalents - Beginning of Period 15,882 135,039
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Cash and Equivalents - End of Period 24,059 128,624
======== ========
Non-Cash Financing Activity
Shares issued pursuant to performance stock
agreements for services 166,640 237,000
======= =======
Supplemental disclosures:
Interest paid 2,287 -
Income tax paid - -
</TABLE>
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<PAGE>
IAS Communications, Inc.
(A Development Stage Company)
Consolidated Statement of Stockholders' Equity (Deficit)
For the six months ended October 31, 1998 and 1997
(expressed in U.S. dollars)
(Unaudited)
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Common During the
Stock Stock Development
Shares Class "A" Class "B" Stage
# $ $ $
--------- --------- ------- ----------
<S> <C> <C> <C> <C>
Balance - April 30, 1998 9,320,350 3,155,884 - (3,241,476)
Shares issued for cash pursuant to a private
placement at $1.75 per share 100,000 175,000 - -
Shares issued for cash pursuant to warrants
exercised at $1.75 per share 43,000 75,250 - -
Shares issued for cash pursuant to options
exercised at $0.25 per share 2,000 500 - -
Shares issued for services pursuant to a performance
stock agreement at deemed values between $1.88
and $2.37 82,000 166,640 - -
Shares issued for conversion of convertible debentures
at $2.50 per share 2,000 5,000 - -
Net loss for the period - - - (897,030)
--------- --------- ------- ----------
Balance - October 31, 1998 9,549,350 3,578,274 - (4,138,506)
========= ========= ======= ==========
</TABLE>
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
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of Operations
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Management's Discussion
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By News Release dated October 27th, 1998, the Company announced that Larry
Hawks, the Company's Chief Engineer and Vice-President of Research and
Development, had designed and tested a new technology antenna that is 14" in
diameter and 2" thick that will receive in an omni pattern or can be directional
to receive in 35 degree segments. The new antenna requires no amplifier and is
easy to connect as it is simply bolted in place with the mounting provided. The
Company's low profile, environmentally friendly television antenna will receive
all local VHF/UHF stations and will replace the unsightly existing beam antennas
used today. They can be attached to a satellite dish mounted on a recreational
vehicle, placed in the attic of a house or condominium, on top of a roof or
placed on a television set to receive local television statements within a 60
mile radius. A new amateur radio antenna was also designed and tested, which new
design is portable on 10 through 80 meters with an antenna tuner or operates as
a monoband on 20 and 40 meters. With its unique properties, the antenna can be
laid on the ground, in an attic, on a roof or awning, or placed on a tree or on
top of a motorhome and even transmits and receives in the trunk of an
automobile. The antenna is approximately 36" in diameter and is 2" high. It can
use a 50-OHM coax of choice and will load to the full legal limit and is
broadbanded to receive signals from .5 MHz to 30 MHz. It has been field tested
by Larry Hawks for one year, with logged contacts from California to New York,
north central Indiana to Mexico, all of South America, Spain, England, Russia,
Norway, Switzerland and many other European countries.
Results of operations for the six months ended October 31, 1998 ("current
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period") compared to the six months ended October 31, 1997 ("comparative
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period")
- --------
There were no revenues from the sale or licensing of the CTHA during the current
and comparative periods.
The net loss for the current period was $897,000 compared to $746,000 for the
comparative period. The increase of $141,000 was due to a $30,000 financing
commission paid and $65,000 of professional fees paid in connection with the
$5,000,000 convertible redeemable debenture unit offering. The Company also
issued shares to two financial consulting firms for investor relation activities
during the current period. The total non-cash expense was $105,200 and an amount
of $30,000 was accrued which will be settled by issuing 15,000 shares in the
next quarter. None of the above activities took place during the comparative
period. The Company continued contracting out to West Virginia University which
totalled $166,000 in the current period compared to $87,000 in the comparative
period. The Company contracted Emergent Technologies Corporation through TEAM to
develop the 20 prototypes to be delivered to ARINC Incorporated. A total of
$227,000 has been paid to Emergent and a total of $67,000 has been received by
ARINC Incorporated to offset the costs incurred to build the proof-of-concept
antennas.
Liquidity-fiscal 1999
- ----------------------
During the six months ended October 31, 1998 the Company financed its operations
by completing a units offering which raised an additional $140,000 during the
period. This units offering is now complete and a total of 675,600 units were
issued and a total of $1,182,300 was raised. Each unit contained one share and
one warrant to acquire one additional share at $1.75 expiring one year from
receipt of funds and at $2.25 expiring two years after. The Company completed a
financing agreement during the quarter with an Investment Banker to issue a
total of $5,000,000 in aggregate principal amount of units. Each unit consists
of a three year, 8% Convertible Redeemable Debenture in the amount of $500,000
and a warrant to purchase 25,000 shares at a price not exceeding $2.85 per
share. The Company has received $500,000 from the exercise of one unit and will
receive additional funds in increments of $500,000 as required. A 6% commission
and a warrant for 5,000 shares at $2.85 was paid to Dutchess Capital Partners,
Inc. of New York, New York. The 6% commission and warrant for 5,000 shares will
be paid for each unit sold.
The Company also received $67,000 from ARINC Incorporated which represents two-
thirds of a Fixed Price Agreement for CTHA Development and Prototypes. The
Company is to deliver 20 proof-of-concept antennas for further evaluation. Once
delivered, the final payment of $33,000 will be made.
The Company has received $75,250 and issued 43,000 shares pursuant to warrants
exercised at $1.75 per share.
The Company has allotted 662,600 shares for the potential exercise of warrants
outstanding, which, if exercised, would total $1,192,550. The Company has
granted certain directors and employees options to acquire 821,500 shares
exercisable at prices between $0.25 and $3.00 per share. If all options are
exercised the Company would received approximately $1,600,000.
The Company's current working capital deficit is $429,000. A total of $30,000
represents accrued liabilities which are to be settled with the issuance of
performance shares pursuant to a performance share agreement for financial
services. The Company plans to sell Convertible Redeemable Debenture units, when
needed, to pay liabilities as they become due and to finance ongoing development
of antenna applications. The Company will also offer 200,000 units at $1.25 per
unit to raise a further $250,000. Each unit will contain one share and one
warrant to acquire one additional share at $1.50 in year one.
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<PAGE>
PART II Other Information
Item 1. Legal Proceedings
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The Company was sued in April 1998 in a civil action filed in U.S.
District Court for the District of Oregon (the "Oregon Litigation").
The Plaintiff, Kirk Vanvoorheis, ("Plaintiff") seeks money damages and
equitable relief against the Company alleging patent infringement by
the Company for the CTHA. The Company has notified West Virginia
University ("WVU") of this claim and has contacted WVU to assist in
the defense. WVU owns the patent rights to the CTHA technology which
were licensed to the Company. Two patents were granted for the CTHA to
WVU; one in August 1995, and another in August 1997. The Plaintiff's
patent was approved on March 31, 1998. Based upon the information
available to the Company at this time, the Company believes that the
Plaintiff's alleged claim of infringement is without legal or factual
basis.
The Plaintiff in the Oregon Litigation is also a defendant in a
pending civil action in the U.S. District Court for the Northern
District of West Virginia brought by WVU (the "West Virginia
Litigation") claiming that the CTHA invention is owned by WVU. As
alleged in the West Virginia Litigation, the Company believes that the
patent rights for the CTHA technology belongs to WVU and therefore
based on the license, the Company owns the world wide rights to the
CTHA commercial applications. The Company intends to vigorously defend
the Oregon Litigation. Dr. James Smith, the Chairman of the Board of
the Company, has been sued by Plaintiff in a third party complaint in
the West Virginia Litigation together with WVU and Integral Concepts,
Inc. Dr. Smith resigned as chairman of the board and a director of the
Company on November 9, 1998.
However if the Plaintiff in the Oregon Litigation is successful, it
could seriously affect the Company financially.
Item 2. Changes in Securities
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None
Item 3. Defaults upon Senior Securities
- ------- -------------------------------
None
Item 4. Submissions of Matters to a Vote of Security Holders
- ------- ----------------------------------------------------
None
Item 5. Other Information
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None
Item 6. Exhibits and Reports on Form 8-K
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None
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<PAGE>
Signatures
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: December 7, 1998 IAS COMMUNICATIONS, INC.
By: /s/ John G. Robertson
-----------------------------------------
John G. Robertson, President
(Principal Executive Officer)
By: /s/ Jennifer Lorette
-----------------------------------------
Jennifer Lorette, Chief Financial Officer
(Principal Financial Officer)
-9-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-START> MAY-1-1998
<PERIOD-END> OCT-31-1998
<CASH> 24,059
<SECURITIES> 0
<RECEIVABLES> 11,748
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 94,609
<PP&E> 403,566
<DEPRECIATION> 0
<TOTAL-ASSETS> 498,175
<CURRENT-LIABILITIES> 523,407
<BONDS> 535,000
0
0
<COMMON> 3,578,274
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 498,715
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> (883,690)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (13,340)
<INCOME-PRETAX> (897,030)
<INCOME-TAX> 0
<INCOME-CONTINUING> (897,030)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (897,030)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
</TABLE>
