<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 July 31, 1999
-------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ______________
Commission File No. 0-21255
---------
IAS COMMUNICATIONS, INC.
----------------------------
(Exact name of small business issuer as specified in its charter)
Oregon 91-1063549
------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
185-10751 Shellbridge Way, Richmond, BC Canada V6X 2W8
--------------------------------------------------------
(Address of principal executive offices)
(604) 278-5996
--------------
(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
------- -------
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: As of September 27, 1999 - 10,292,964
shares of common stock, no par value.
<PAGE>
INDEX
<TABLE>
<CAPTION>
PART I -- Financial Information Page
<S> <C>
Item 1. Financial statements....................................................................................... 2
Balance Sheets as of July 31, 1999 and April 30, 1999............................................................... 3
Statements of Operations for the three months ended July 31, 1999 and 1998.......................................... 4
Statements of Cash Flows for the three months ended July 31, 1999 and 1998.......................................... 5
Item 2. Management's Discussion and Analysis of Financial Conditions
and Results of Operations.................................................................................. 6-9
PART II -- Other Information........................................................................................ 10
Signatures.......................................................................................................... 11
</TABLE>
-1-
<PAGE>
PART I Financial Information
Item 1. Financial Statements
-2-
<PAGE>
IAS Communications, Inc.
(A Development Stage Company)
Balance Sheets
<TABLE>
<CAPTION>
July 31, April 30,
1999 1999
(unaudited) (audited)
$ $
Assets
<S> <C> <C>
Current Assets
Accounts receivable 14,853 8,445
Inventory 14,412 6,056
Prepaid expenses 36,531 43,031
- -----------------------------------------------------------------------------------------------------------------------
65,796 57,532
Capital Assets 37,657 39,860
License and Patent Protection Costs 371,715 368,947
- -----------------------------------------------------------------------------------------------------------------------
475,168 466,339
=======================================================================================================================
Liabilities and Stockholders' Equity
Current Liabilities
Cheques issued in excess of funds on deposit 2,670 26,095
Accounts payable 484,365 472,558
Accrued liabilities 41,404 35,803
Due to related companies 30,290 -
- -----------------------------------------------------------------------------------------------------------------------
558,729 534,456
- -----------------------------------------------------------------------------------------------------------------------
Convertible Debentures 210,000 210,000
- -----------------------------------------------------------------------------------------------------------------------
Stockholders' Equity (Deficit)
Common Stock
Class "A" voting - 100,000,000 shares authorized without par value;
10,268,858 shares and 10,268,858 shares issued
and outstanding respectively 4,182,794 4,182,794
- paid for but unissued (120,000 shares) 97,000 -
Class "B" non-voting - 100,000,000 shares authorized without par value;
none issued - -
- -----------------------------------------------------------------------------------------------------------------------
4,279,794 4,182,794
Preferred Stock 50,000,000 shares authorized; none issued - -
Deficit Accumulated During The Development Stage (4,573,355) (4,460,911)
- -----------------------------------------------------------------------------------------------------------------------
(293,561) (278,117)
- -----------------------------------------------------------------------------------------------------------------------
475,168 466,339
=======================================================================================================================
</TABLE>
-3-
<PAGE>
IAS Communications, Inc.
(A Development Stage Company)
Statements of Operations
<TABLE>
<CAPTION>
Three months ended July 31,
---------------------------
1999 1998
(unaudited) (unaudited)
$ $
<S> <C> <C>
Revenue 4,810 -
Cost of Sales 1,854 -
- -----------------------------------------------------------------------------------------------------------------
Gross Profit 2,956 -
- -----------------------------------------------------------------------------------------------------------------
Administration Expenses
Bank charges 355 353
Business plan 1,700 11,910
Depreciation 1,020 400
Financing commission - 47,500
Foreign exchange 296 -
Interest on convertible debentures 4,294 2,287
Investor relations - consulting 4,447 14,800
Investor relations - advertising 7,402 145,167
Management fees 7,500 15,000
Office, postage and courier 14,018 6,755
Professional fees 41,585 50,043
Rent and secretarial 23,713 8,009
Repairs and maintenance 1,132 -
Telephone and utilities 3,098 9,985
Transfer agent and regulatory 1,382 3,240
Travel and promotion 4,123 19,146
Less interest income - (762)
- -----------------------------------------------------------------------------------------------------------------
116,065 333,833
- -----------------------------------------------------------------------------------------------------------------
Research and Development Expenses
Royalty 750 750
Depreciation and amortization 7,585 7,283
Consulting 24,000 6,000
Subcontracts for prototype construction and testing
Emergent Technologies Corporation - 112,440
West Virginia University Research Corporation - 73,740
Less engineering contribution by a third party (33,000) (67,000)
Others - 6,147
- -----------------------------------------------------------------------------------------------------------------
(665) 139,360
- -----------------------------------------------------------------------------------------------------------------
Net Loss 112,444 473,173
=================================================================================================================
Net Loss Per Share (.01) (.05)
=================================================================================================================
Weighted Average Shares Outstanding 10,307,191 9,389,000
=================================================================================================================
</TABLE>
-4-
<PAGE>
IAS Communications, Inc.
(A Development Stage Company)
Statement of Cash Flows
<TABLE>
<CAPTION>
Three months ended July 31,
---------------------------
1999 1998
(unaudited) (unaudited)
$ $
<S> <C> <C>
Cash Flows to Operating Activities
Net loss (112,444) (473,193)
Adjustments to reconcile net loss to cash
Depreciation 8,605 7,683
Shares issued for services - 76,667
Change in non-cash working capital items
(Increase) in accounts receivable (6,408) -
(Increase) decrease in prepaid expenses 6,500 (6,250)
Increase in accounts payable and accrued liabilities 18,700 151,019
(Increase) in inventory (8,356) -
- --------------------------------------------------------------------------------------
Net Cash Used in Operating Activities (93,403) (244,074)
- --------------------------------------------------------------------------------------
Cash Flows to Investing Activities
Increase in capital assets (1,217) -
Increase in patent protection costs (7,953) -
- --------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (9,170) -
- --------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Increase in convertible debentures - 500,000
Increase in common stock - 140,500
Increase in subscriptions 97,000 -
Increase in due to related companies 28,998 8,440
- --------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 125,998 648,940
- --------------------------------------------------------------------------------------
Increase in Cash 23,425 404,866
Cash (Deficiency) - Beginning of Period (26,095) 15,882
- --------------------------------------------------------------------------------------
Cash (Deficiency) - End of Period (2,670) 420,748
======================================================================================
Non-Cash Financing Activities
Convertible debentures converted into shares - 40,000
Shares issued pursuant to performance stock
agreements for services - 138,440
- --------------------------------------------------------------------------------------
- 178,440
======================================================================================
Supplemental disclosures:
Interest paid 4,294 2,287
Income tax paid - -
======================================================================================
</TABLE>
-5-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
This report contains forward-looking statements. The words, "anticipate",
"believe", expect", "plan", "intend", "estimate", "project", "could", "may",
"foresee", and similar expressions are intended to identify forward-looking
statements. The following discussion and analysis should be read in conjunction
with the Company's Financial Statements and other financial information included
elsewhere in this report which contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed below, as well as those discussed elsewhere
in this report.
Overview
- --------
IAS Communications, Inc., herein "the Company", was incorporated on December 13,
1994 pursuant to the Laws of the State of Oregon, USA.
The Company is a development stage company engaged in the development of
advanced antenna technology known as the Contrawound Torroidal Helical Antenna,
herein "CTHA", for wireless communications markets including cellular, meter
reading and global positioning services. The CTHA, previously developed in
conjunction with researchers at West Virginia University, is a technologically
advanced antenna design which could be incorporated into a wide variety of
telecommunications applications. The Company has been granted worldwide
sublicensing rights for commercial applications, excluding military and
governmental applications, for the CTHA pursuant to an agreement with Integral
Concepts Inc. and West Virginia University Research Corporation.
The Company entered into an exclusive five year licensing agreement with
Information Highway, Inc., a leading edge web content developer and Internet
service provider (ISP), in January 1999 to sell the Hawks television and amateur
radio antennas on their virtual mall Internet website at www.theexecutive.com.
The new television and amateur radio antennas can also be purchased from the
Company's website at www.iascom.com.
The Company is currently in production with the 14" television and amateur radio
antennas and is receiving orders on a daily basis through its Internet site.
The Company plans to aggressively market its 5" antenna at $29.95.
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,
Vortekx, PC, ("Plaintiff") seeks money damages and equitable relief against the
Company alleging patent infringement by the Company for the CTHA. WVU owns the
patent rights to the CTHA technology which were sublicensed 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.
The plaintiff in the Oregon Litigation, Kurt VanVoorhies, is 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 worldwide rights to the
CTHA commercial applications. Dr. James Smith, the former 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.
Pursuant to various Motions to the U.S. District Court for the District of
Oregon, the Company was successful in having the Oregon Litigation transferred
to the Northern District of West Virginia. A trial date has not been set.
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. However, if the Plaintiff in the Oregon Litigation is successful,
it could seriously jeopardize the Company financially.
In a development stage company, management devotes most of its activities to
establishing a new business. Planned principal activities have not yet produced
significant revenues and the Company has undergone recurring losses from
inception, totalling $4,574,000 and has a working capital deficit of $493,000
which includes a negative cash balance of $3,000. These factors raise doubt
about the Company's ability to continue as a going concern. The ability of the
Company to emerge from the development stage with respect to its planned
principal business activity is dependent upon its successful efforts to raise
additional equity financing and develop markets for its products and receive
ongoing support from the majority of its creditors. During fiscal 1999 the
Company arranged a $5,000,000 convertible debenture with an investment banker,
of which $500,000 has been drawn down. As of September 27, 1999 the Company has
redeemed or the holder has converted $500,000 of such debentures.
-6-
<PAGE>
The Company plans to raise $500,000 and issue 500,000 units at $1.00 per unit.
Each unit will contain one share and one warrant to acquire one additional share
at $1.50 per share if exercised in year one. A total of $299,000 was raised and
200,000 shares issued (with a further 99,000 shares allotted and to be issued)
as at September 27, 1999.
The Company has allotted 1,013,600 shares for the potential exercise of warrants
at between $1.50 and $2.85 per share, which, if exercised, could raise in excess
of $2,000,000. As at September 17, 1999 the exercise price was substantially
greater than the trading price of the Company's stock.
The Company has allotted 1,220,500 shares for the potential exercise of stock
options at prices between $0.25 and $2.25 per share. If all options are
exercised the Company could raise in excess of $1,300,000. Of these, a total of
1,070,500 have exercise prices at $1.00 or less.
Progress Report from May 1, 1999 to September 27, 1999
- ------------------------------------------------------
The Company successfully tested the CTHA for the ham version of the CTHA at the
Dayton Hamvention, which demonstration served to introduce the CTHA to users in
the ham frequency range.
An agreement was completed to build and test the CTHA Antenna for receiver sites
in the narrowband personal communications system network of MobileComm
(MobileMedia Communications, Inc.). Ten prototypes of the CTHA were completed
for testing by MobileComm. The test results from MobileComm have been
unsuccessful.
Larry Hawks, the Company's Chief Engineer and Vice-President of Research and
Development, has designed 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 broad
banded 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.
The Company granted ARINC an exclusive license to market and sell the new
antennas for ORBCOMM satellite applications under the Dominium(R) product line
to encompass the worldwide inter-modal shipping containers market area for one
year. ARINC, founded in 1929 and headquartered in Annapolis, Maryland, provides
communications and systems integration engineering to business and industry.
ARINC's Dominium(R) product line uses the ORBCOMM low earth orbit (LEO)
satellite communication system, which provides global communications coverage
especially useful in remote areas that are not serviced by conventional or
cellular telephone or other terrestrial communication networks. The
Dominium(R) tracker unit is battery powered and equipped with the Global
Positioning System (GPS). It can be programmed to automatically report its
position and other information like temperature, engine speed or load capacity,
at any desired time interval, or upon reaching a user-determined alarm value.
Dominium(R) also markets a data messaging line of products, which integrates
input/output devices for sending and receiving text messages.
A subscriber installs the tracker unit on the asset to be tracked or monitored
for a variety of applications including trucks, truck tractors, detached truck
trailers, rail cars, ships and containers. Dominium(R) currently provides
service to national and regional trucking companies and to national railroads.
The new antenna is a compact, low profile, donut shaped antenna, flush mounted
on an application at a fraction of the height of the monopole antenna used
today. The Company holds the worldwide rights to all commercial applications for
this technology and ETC owns the Military/Government rights.
By News Release dated September 27, 1999 the Company announced an agreement to
grant ARINC Incorporated exclusive worldwide rights to sell and manufacture the
Hawks/ARINC antenna for the Orbcomm frequency.
The license gives ARINC the exclusive right for three years to use the
Hawks/ARINC antenna for use in monitoring and tracking trailers, refrigeration
monitoring, in-cab tracking, messaging and for long haul trailers using the
Orbcomm Satellite frequency. ARINC shall purchase from IAS 10,000 Hawks antennas
in the first year with an option to purchase a minimum 20,000 antennas in the
second year and 30,000 antennas in the third year. This license is exclusive
only if minimum purchases are met.
-7-
<PAGE>
IAS has also granted to ARINC an exclusive license to manufacture and resell
antenna units. This license granted to ARINC shall remain exclusive as long as
the following minimum royalty payments are met:
. $1 Million during the first year
. $5 Million during the second year
. $7.5 Million in the third year
Y2K issue
- ---------
In recognition of the Year 2000 risk for information systems, computers,
equipment and products using date sensitive software, the Company has retained a
consultant to assess the risk to the Company, both internally and externally.
However, the Company does not anticipate that its operations will be materially
affected. In the unlikely event that the Company's computers are not Year 2000
compliant, the consultant will remedy any deficiencies.
The Company is monitoring the Year 2000 compliance by external parties to whom
the Company may be dependent, primarily its bank, suppliers and accountants. The
Company is unable to assess the potential damage that may be caused if external
parties are unable to resolve their Year 2000 compliance. If it appears that any
external party to whom the Company is dependent will be unable to resolve its
Year 2000 issue prior to December 31, 1999, the Company has designated personnel
to be responsible for developing a contingency plan to minimize the risk of
business interruption of the Company.
To mitigate any risk to the Company from external parties, the Company has made
every effort to ensure that all current financial, legal and administrative
information on the Company is maintained by the Company, both on paper and on
the Company's computers.
It is not expected that any material costs will be incurred in addressing the
Year 2000 compliance for the Company.
Results of operations for the three months ended July 31, 1999 ("current
- ------------------------------------------------------------------------
period") compared to the three months ended July 31, 1998 ("comparative period")
- --------------------------------------------------------------------------------
The revenues for the current period from the sale or licensing of the CTHA were
$4,810, compared to nil during the comparative period. The majority of these
sales were sales of antennas by way of the Internet through its agreement with
Information-Highway.com, Inc. and the remainder were direct sales from its
Kokomo office direct to end users.
The net loss for the current period was $112,000 compared to $473,000 for the
comparative period. The decrease in net loss, totalling $361,000, was due to the
Company using hired consultants to perform the majority of the development work
instead of expensive large contractors as used throughout the comparative
period. During the comparative period the Company paid for one-time costs;
$138,440 was paid for investor relations publications and advertising; $12,000
for a business plan; $47,500 was paid as a financing commission and $65,000 of
professional fees were paid in connection with the $500,000 convertible
redeemable debenture unit offering. The Company concluded the contract with West
Virginia University at October 31, 1998 which contract totalled $74,000 for the
comparative period. The Company contracted Emergent Technologies Corporation,
through a joint venture, to develop prototypes to be delivered to ARINC
Incorporated. A total of $112,000 was paid to Emergent in the comparative period
and a total of $67,000 was received by ARINC Incorporated to offset the costs
incurred to build the proof-of-concept antennas. No expense has been incurred
during the current period with respect to Emergent or West Virginia University.
Liquidity
- ---------
During the current period the Company financed its operations deficit of $93,000
and its investment in capital assets and patents of $9,000 by receiving
subscription proceeds of $97,000 in connection with a private placement of
97,000 shares. These shares have not been issued as of September 27, 1999. The
Company also received short-term loans from related parties of $29,000 to July
31, 1999.
The Company received $33,000 from ARINC Incorporated which represents a Fixed
Price Agreement for CTHA Development and Prototypes. This amount reduced related
research and development costs incurred. ARINC contributed a further $25,000
subsequent to July 31, 1999.
The Company has allotted 1,013,600 shares for the potential exercise of warrants
at between $1.50 and $2.85 per share, which, if exercised, could raise in excess
of $2,000,000. As at September 17, 1999 the exercise price was substantially
greater than the price the Company's stock is trading at. It is unlikely that
these warrants will be exercised in the short-term.
The Company has allotted 1,220,500 shares for the potential exercise of stock
options at prices between $0.25 and $2.25 per share. If all options are
exercised the Company could raise in excess of $1,300,000. Of these, a total of
1,070,500 have exercise prices at $1.00 or less.
-8-
<PAGE>
The Company's current working capital deficit is $470,000. The Company has
raised additional funds of $184,000 from short-term, non-interest bearing,
unsecured loans from private companies controlled by the President of the
Company.
-9-
<PAGE>
PART II Other Information
Item 1. Legal Proceedings
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, Vortekx, PC, ("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, Kurt VanVoorhies, is 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
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submissions of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
27.1 - Financial Data Schedule
-10-
<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: September 29, 1999 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)
-11-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-START> MAY-01-1999
<PERIOD-END> JUL-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 14,853
<ALLOWANCES> 0
<INVENTORY> 14,412
<CURRENT-ASSETS> 65,796
<PP&E> 487,765
<DEPRECIATION> 78,393
<TOTAL-ASSETS> 475,168
<CURRENT-LIABILITIES> 558,729
<BONDS> 210,000
0
0
<COMMON> 4,279,794
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 475,168
<SALES> 4,810
<TOTAL-REVENUES> 4,810
<CGS> 1,854
<TOTAL-COSTS> 1,854
<OTHER-EXPENSES> 111,106
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,294
<INCOME-PRETAX> (112,444)
<INCOME-TAX> 0
<INCOME-CONTINUING> (112,444)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (112,444)
<EPS-BASIC> .01
<EPS-DILUTED> .01
</TABLE>
