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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
THE SECURITIES ACT OF 1934
For the Fiscal Year Ended April 30, 2000
COMMISSION FILE NO. 0-21255
IAS COMMUNICATIONS, INC.
(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 Number)
185 - 10751 SHELLBRIDGE WAY
RICHMOND, BRITISH COLUMBIA V6X 2W8, CANADA
(Address, including postal code, of registrant's principal executive offices)
(604) 278-5996
(Telephone number including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act: NONE
Securities registered pursuant to Section 12(g) of the Exchange Act: CLASS A
COMMON STOCK
Indicate by check mark whether the issuer (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months,
and (2) has been subject to such filing requirements for the past 90 days.
Yes X
-
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-B is not contained herein and will not be contained, to the
best of registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB.
The registrant's revenues for its most recent fiscal year were: $35,277.
The Aggregate market value of the voting stock held by non-affiliates of
the registrant on July 31, 2000, computed by reference to the price at which the
stock was sold on that date was $5,139,762.38.
The number of shares outstanding of the registrant's Class A voting Common
Stock, no par value, as of July 31, 2000 was 11,433,593.
Documents incorporated by reference: None.
Transitional Small Business Disclosure Format (Check one): Yes ( ) No (X)
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IAS COMMUNICATIONS, INC.
FORM 10-KSB
TABLE OF CONTENTS
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PART I Page
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Item 1. Description of Business........................................ 2
Item 2. Property....................................................... 8
Item 3. Legal Proceedings.............................................. 8
Item 4. Submission of Matters to a Vote of Security Holders............ 10
PART II
Item 5. Market for Common Equity and Related Stockholder Matters....... 10
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................... 11
Item 7. Financial Statements........................................... 15
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.............. 31
Item 10. Executive Compensation......................................... 33
Item 11. Security Ownership of Certain Beneficial Owners and
Management..................................................... 34
Item 12. Certain Relationships and Related Transaction.................. 35
Item 13. Exhibits and Reports on Form 8-K............................... 36
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
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BUSINESS DEVELOPMENT
IAS Communications, Inc. (the "Company") is a development stage company
incorporated in the state of Oregon in 1994. Its principal business operations
are conducted in Indiana and B.C. Canada. The Company is engaged in the
commercialization of advanced antenna technology known as the Contrawound
Toroidal Helical Antenna, (the "CTHA"), for wireless communications markets
including cellular, meter reading and global positioning services. The CTHA,
developed in conjunction with researchers at West Virginia University, is a
technologically advanced antenna design which can be incorporated into a wide
variety of telecommunications applications. The Company has been granted world-
wide sublicensing rights for commercial applications, excluding military and
governmental applications, for the antenna. Emergent Technologies Corporation
("ETC") has the sublicense for military and governmental applications for the
CTHA technology.
INDUSTRY BACKGROUND
Antennas are one of the most important components of all Radio Frequency ("RF")
communication systems. RF engineering and Integrated Circuit Technology
("RFIC") are synonymous with today's antenna technology. The business of the
Company involves RF and its integration into electronic circuitry. Many experts
consider RF engineering more of an art than a science. This is especially true
today due to ever increasing demands on a finite resource - the Radio Frequency
Spectrum.
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Companies that have made large up front investments for expanding their wireless
and mobile networks are demanding better technical solutions to problems in
signal transmission and reception. The wireless communications market includes
PCS and cellular (analog and digital) as well as numerous newer applications,
some of which have not yet made it to the drawing boards.
THE PRODUCT
The CTHA is a low profile antenna that can be as small as a postage stamp. The
size is dependent on the frequency for the application. Each application has an
assigned frequency according to the FCC (Federal Communications Commission),
which controls the frequencies assigned to all wireless applications in the USA.
For example the PCS cellular frequency is 1.9 gegahertz and the CTHA for the PCS
applications is 1/2" square and 1/100th of an inch tall, whereas the 5" TV CTHA
antenna for VHF and UHF frequency is as low as 54 megahertz, therefore requiring
a larger CTHA design. The CTHA was initially designed as a contrawound antenna
using two copper wires wrapped in opposite directions to each other on donut
shaped devices, creating an electromagnetic current. The current CTHA can now be
manufactured on a circuit board that will enable the antennas to be mass-
produced inexpensively, therefore having an advantage over existing antennas
used in the market place today. The CTHA can be placed on the ground, in a boat
or embedded into a variety of items such as cellular phones, pagers, 2 way
radios, and numerous other wireless applications.
Compared to traditional dipole and monopole antennas, the CTHA is much shorter
in height, yet its toroidal magnetic field is equivalent to the linear electric
field produced by other taller antennas. This makes CTHAs particularly excellent
candidates for low frequency broadcast transmission that otherwise require
prohibitively tall monopole structures above the earth ground plane. For higher
frequency applications, for example, the Company believes that the CTHA could
replace a car antenna with a structure that could be made part of the rear view
mirror or similarly sized object. Resonant operations of the CTHA provide
improved efficiency.
ADVANTAGES/DISADVANTAGES
The principal advantages of this antenna are: (1) low physical profile; (2)
resonant operation providing improved efficiency; and, (3) low susceptibility to
electrostatic disturbances. The CTHA is well suited to long distance
communication applications that require vertical polarization for improved
efficiency. The low physical profile is conducive to flush mounted applications
for reducing aerodynamic drag on vehicles. For low frequency fixed applications,
the significantly shorter structures can be made lighter, more economical, more
aesthetic, and less hazardous to aircraft than the tall antenna structures that
are presently used. The CTHA can be constructed on rectangular or polygonal
frames which can be folded and stored for portable applications.
APPLICATIONS
There are many applications that can exploit the advantages of the CTHA. The
small size and especially low profile make it well suited to both commercial and
military applications that would benefit from an inconspicuous antenna package.
These would include both land, air and sea vehicles. The low profile and
magnetic principle of operation enable the antenna to be concealed in the
fuselage of the body of an airplane, car, truck, train or boat so as to reduce
drag. The CTHA can also be applied in commercial applications, including AM, FM
and TV broadcasting and reception, and cellular phone communications.
Several applications of the CTHA are being developed through licenses and
professional service agreements with third parties. In addition, the following
consists of some of the specific applications of the CTHA currently in the
testing or production stage:
HAWKS TV ANTENNA
The HAWKS TV Antenna is a 5" antenna that replaces the need for existing
rabbit ears and unsightly fishbone antennas. It can be mounted on a TV or
rooftop, inside an attic or recreational vehicle, or behind a satellite
dish. It can be connected to a VCR and will pull in all local (VHF/UHF)
stations with clarity equal to a log periodic antenna. The Company believes
it is ideal for homes, apartments, mobile homes, condos and offices.
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The 5" antenna replaces the Company's previous 14" dish antenna. The 5"
antenna can be placed at many locations such as on roofs, behind a
satellite dish, or on a trailer/mobile home. In addition, it is not
affected by surrounding interference.
RADIO ANTENNA
The IAS Amateur Radio Antenna receives and transmits a wide range of
broadband frequencies (from 0.5 to 30 MHz), while measuring a mere 36
inches in diameter with a height of only two inches. The CTHA technology
tuned at 7.2 MHz or 14.213 MHz replaced dipoles of 66 ft and 33 ft long,
respectively. In addition, a miniature 2-inch tall antenna succeeds the
invasive six-foot antenna used on towers today. This antenna can be placed
on the ground, on top of buildings, in a boat or concealed in the fuselage
of a plane.
HAWKS HAM HF ANTENNA
The Ham type Hawks Antenna receives from .5 to 54 MHz and transmits a wide
range of broadband frequencies (from 3.0 to 54 MHz), while measuring a mere
39 inches in diameter with a height of only two inches. The Hawks Ham
antenna requires a transmatch and when tuned at Ham frequencies will
compete with dipoles. The Ham antenna was primarily designed for portable
applications such as apartment and Condo dwellers that have antenna
restrictions.
HAM VHF/UHF ANTENNA
The VHF/UHF version antenna measures 5 1/4 x 6 5/8 x 3/4 inches high that
eliminates garage door and tree limb problems. The antenna transmit and
receive range is 144 MHz through 149 MHz on VHF (2-meter band) and 430 MHz
through 450 MHz (70 cm band) VSWR is tunable below 1:2.1 in both bands.
The antenna is supplied with double backed 3M tape for mounting to almost
any surface. It contains 4 blind screw holes for permanent mounting if
required. The antenna is fed with 16 feet of RG-58/a/u (50 ohm) military
grade coaxial cable terminated with a BNC connector. The antenna requires
a duplexer if operated as a dual band antenna. The radiating pattern is
near iso-tropic, which allows operation without any nulls. A gain of 3 dBi
is nominal on both bands. The plastic case that houses the antenna is
molded from Hi Impac, UV stabilized ABS that is gray in color and will
accept any non-metallic paint.
MARINE ANTENNA
The marine antenna can be used for ship to shore communications and may
additionally have a GPS antenna installed in it. The marine antenna is
currently in the final stage of development.
LEO SATELLITE ANTENNA
The LEO Satellite Antenna is optimized to operate with any earth-based
Orbcomm Satellite Transceiver unit. The antenna is passive in nature and
comes standard with 16.5 feet of RG-58/U coaxial cable. The cable is of
sufficient length to be mounted physically far from the RF transceiver
front end. The cable length can be adjusted to fit any system installation
with minimal to no degradation in antenna performance. This system
application is intended for use in the transportation tracking industry.
The system can be installed in any semi freight trailer shipping containers
and can be utilized to prevent their theft and loss. IAS Systems has been
testing this antenna for practical system application. The Company has
performed field tests for the last two years that indicate that the IAS
LEO Satellite Antenna has an overall Communications Efficiency between 95%
and 98%.
The specific markets targeted for this antenna are the untethered trailer
tracking, intermodal shipping container, and military transportation
segments, which markets require a simple, low-cost tracking device and
covert installation that includes an unobtrusive antenna.
GPS ANTENNA
The GPS antenna is a global positioning satellite antenna that is used for
such things as locating ships, airplanes, trucks, cars and people. It can
be installed in several other of the CTHA applications.
AIRCRAFT ANTENNA
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The aircraft antenna can be used for air to ground communications and may
additionally have a GPS antenna installed in it. The aircraft antenna is
currently in the development stage and under testing by the Cadence Design
Group.
PCS ANTENNA
The PCS Antenna was successfully tested by the Cadence Design Group for
tracking applications for lost children, pets and cattle. It can
additionally be used for cellular phones. The size of the PCS antenna is
1/2" by 1/100/th/ of an inch tall.
COMPETITION
The market for antennas is highly competitive. There are numerous manufacturers
of antennas in the United States with substantially greater financial,
technical, marketing and other resources than the Company. Patent research does
not reveal any competing technology.
MARKETING STRATEGY AND SALES NETWORK
The Company markets the CTHA through licensing with third party users,
advertising over the Internet, advertising in local newspapers, and in some
cases, through the manufacture and sale of the antenna using third party
manufacturers.
Through an exclusive licensing agreement with Information Highway, Inc., a web
content developer and Internet service provider, the Company markets its
television and amateur radio antennas on Information Highway's Executive Club
virtual mall web site at www.theexecutive.com. Pursuant to the agreement,
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entered into on October 1, 1999, Information Highway maintains World Wide Web
rights for the sale of the antennas for a five-year period, starting October 1,
1999, based on minimum sales as follows:
. 50,000 antennas in the first year;
. 100,000 antennas in the second year;
. 150,000 antennas in the third year;
. 250,000 antennas in the fourth year;
. 450,000 antennas in the fifth year; or
. a minimum of 1,000,000 antennas over the five-year period.
Information Highway has sold only a limited number of the antennas to date. The
Company does not believe that 50,000 will be sold this year.
The Company's antennas are also available on its website at www.iascom.com. The
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Company receives orders on a daily basis through its website. The Company
anticipates strong interest from potential customers and end users from its
website.
INTELLECTUAL PROPERTY
The Company obtained the rights to the CTHA through a series of transactions.
Dr. James E. Smith ("Dr. Smith"), a tenured professor at West Virginia
University ("WVU"), directed the research and development of CTHA utilizing
WVU's facilities and funding. Under Dr. Smith's employment agreement with WVU,
the patentable ideas for the CTHA were assigned to West Virginia University
Research Corporation ("WVURC") and became its property on April 12, 1994. An
exclusive worldwide license was granted by WVURC to Integral Concepts, Inc.
(ICI"), a corporation owned and controlled by Dr. Smith, to: (1) manufacture
the CTHA and, (2) sublicense others to manufacture, market, sell copies of,
license and distribute the CTHA (the "ICI License").
ICI entered into an option agreement with SMR Investment Ltd., ("SMR") a
corporation owned by Sue Robertson, the wife of John Robertson, the Company's
President, Chief Executive Officer and a member of the Board of Directors
("Robertson"), dated November 18, 1994, and amended December 16, 1994 (the
'Option Agreement"). The Option Agreement provided that ICI would issue a
sublicense to SMR for the CTHA subject to the payment of $250,000; a 3% royalty
from gross sales; and shares in a subsequent public entity. SMR and Robertson
organized the Company as a result. ICI retained all military and governmental
applications and resulting procurement interests. The contract period relating
to the three- percent royalty to be paid to ICI commences when sales are made by
the Company and continues during the life of the Option Agreement. The term of
the Option Agreement is perpetual as is the ICI License.
On December 13, 1994, SMR assigned the rights to the Option Agreement to the
Company in consideration for $50,000 advanced by Access Information Services,
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Inc. (the "Option Assignment"). Access Information Services, Inc. is a
corporation owned and controlled by Robertson.
On December 14, 1994, the Company issued 3,000,000 shares to Dr. Smith and
3,000,000 shares to Access Information Services Ltd. pursuant to the Option
Assignment. The value assigned to the 3,000,000 shares issued to Dr. Smith was a
total of $0.50 and the value assigned to the 3,000,000 shares issued to Access
Information Systems, Inc. was $0.50. These valuations of the 3,000,000 shares
issued to Dr. Smith and Access Information Systems, Inc. were arbitrarily
determined by the Company's Board of Directors. The $250,000 paid to ICI was a
one-time payment.
On July 10, 1995, ICI granted an exclusive worldwide sublicense to the Company
to: (1) manufacture, sell copies of, sublicense and distribute the process and
equipment related to the design, construction and operation of the CTHA; and,
(2) to sublicense others to manufacture, sell copies of, license and distribute
the same, excluding all military and governmental applications and resulting
procurement interests (the "Sublicense"). The Sublicense was the culmination of
the agreements between ICI and SMR, and SMR and the Company. On December 27,
1995, SMR assigned all of its rights and duties in the CTHA technology to the
Company pursuant to the Option Assignment. The term of the Sublicense, subject
to compliance of the terms thereof, is perpetual and requires the payment of a
minimum annual royalty of $3,000. Further, the Company will pay a royalty of l0%
of the net revenues derived from sales, leases or sublicenses of the CTHA
technology less a credit for the minimum royalty. In addition, the Company shall
pay a royalty of 3% of the gross revenues derived from the sales, leases or
sublicenses of the CTHA technology.
The Sublicense was amended effective March 4, 1997, to (i) reduce the amount of
the royalty payable by the Company by 50% over the next 3 years, (ii) clarify
that the Company's rights pertain to commercial applications, excluding military
and governmental applications, and (iii) enlarge the definition of Technology to
include all future enhancements to the CTHA technology developed by ICI, ETC, or
the Company.
The Company entered into a Joint Venture Agreement ("JVA") with Emergent
Technologies Corporation (ETC) on March 4, 1997. The JVA required a new company
to be incorporated (TEAM) whereby the Company owns 50% and ETC owns 50% of TEAM.
Pursuant to a voting agreement the Company can vote 100% of the shares of TEAM.
The President of ETC is the President of TEAM. TEAM was organized on June 4,
1997 under the laws of the State of West Virginia. The Company retains the
worldwide commercial sublicense rights to the CTHA excluding all military and
governmental applications.
The business purpose of TEAM was to cooperate in the research and development of
certain applications for the CTHA and to assemble and manufacture certain
products relating thereto. IAS was to buy product from TEAM at cost to
manufacture plus 30% for all commercial applications and ETC was to buy product
from TEAM at cost to manufacture plus 30% for all military applications. ETC
acquired the worldwide sublicense from ICI for all military and governmental
applications on January 2, 1997.
TEAM entered into a contract with ETC to carry out combined research and
development activities to December 31, 1997. This contract was renewable on a
monthly basis at the option of TEAM. ETC and the Company have each funded TEAM
$250,000 as required in the JVA.
TEAM does not have any assets or operations and the Company's contributions for
joint research and development has been paid directly to ETC for the Company's
specific applications, which has been expensed as incurred.
WVURC received a patent for the CTHA in August 1995. Dr. Smith is a tenured
professor at WVU and conducts his research and development regarding the CTHA at
WVU's facilities. As a result, WVURC owns the patent rights to the CTHA that it
licensed to ICI. The ICI License provides that ICI can grant sublicenses of the
technology covered by the patent to third parties. On July 10, 1995, ICI issued
the Sublicense to the Company, which was amended in March 1997.
On July 29, 1997, the Company announced that the second US patent had been
granted on the CTHA. This patent broadened the protection it already had for
the CTHA by encompassing several different geometry's not specifically covered
by the first patent.
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RECENT LICENSES AND PROFESSIONAL SERVICE AGREEMENTS
On September 23, 1999, the Company entered an agreement with ARINC Incorporated
("ARINC") to grant ARINC an exclusive worldwide license to import, export, have
made, use, allow its customers to use, lease, rent and sell the Hawks/ARINC
antenna (LEO Antenna) for the Orbcomm frequencies. The ARINC antenna is the
newly developed circuit board CTHA. The license, in part, gives ARINC the
exclusive right for three years to use the Hawks/ARINC antenna in monitoring and
tracking trailers, refrigeration monitoring, in-cab tracking, messaging and for
long haul trailers using the Orbcomm Satellite frequency. Pursuant to the
license, ARINC shall purchase from the Company 10,000 Hawks antennas in the
first year with an option to purchase a minimum of 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. 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. 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. The new antenna is a compact, low profile 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 of this technology and Emergent Technologies Corp. owns the
Military/Government rights.
Pursuant to this agreement with ARINC, the Company also granted to ARINC an
exclusive license to manufacture and resell antenna units. This license granted
to ARINC is to remain exclusive as long as the following minimum royalty
payments are met:
. One million dollars during the first year
. Five million dollars during the second year
. Seven million five hundred thousand dollars in the third year.
The Company has not yet received any royalty payments.
Pursuant to a license agreement with World Tracking Technologies, Inc. ("World
Tracking") dated January 31, 2000, as amended on February 24, 2000, the Company
agreed to grant a license to manufacture, use and resell a customized antenna
for a wireless system for tracking lost children, animals and electronic
components. If World Tracking begins commercial production of the antennas
within six months of a two-month testing period ("testing period"), the license
is exclusive. If World Tracking begins production within this time period, the
Company will be paid royalties for the antennas based on the following minimum
quotas:
. Year One - 100,000 antennas
. Year Two - 150,000 antennas
. Year Three - 200,000 antennas
. Year Four - 250,000 antennas
. Year Five - 300,000 antennas
The royalties shall be $2.50 per antenna for the first 100,000 antennas
purchased; $2.25 per antenna for 100,001 to 200,000 antennas purchased; $2.00
per antenna for 200,001 to 300,000 antennas purchased; $1.75 per antenna for
300,001 to 400,000 antennas purchased; $1.50 per antenna for 400,001 to 500,000
antennas purchased; and $1.00 per antenna for over 500,000 antennas purchased.
If World Tracking does not begin production of the antennas within six months of
the completion of the two-month testing period, then exclusive rights terminate,
unless World Tracking pays a minimum royalty of $250,000 within the first year.
If the minimum royalty payment is made, then the Company will extend the
deadline date for commencement of commercial production for up to one year.
Pursuant to the terms of the license, the Company has been paid a non-
reoccurring engineering fee in the sum of $15,000. World Tracking notified the
Company that it had completed testing in February 2000, but as of the date of
this 10-KSB, World Tracking has not yet commenced production. The Company
anticipates that it will receive the minimum royalty payment of $250,000 from
World Tracking by the end of the year 2000.
On March 24, 2000, the Company entered a professional service agreement with
Cadence Design Systems, Inc. (NYSE: CDN), to provide the Company with a
comprehensive wireless development engineering service for the CTHA. This
agreement with Cadence(R) will enable the Company to complete an independent
analysis of its CTHA technology for several wireless applications as follows:
. The LEO/GPS CTHA for the Orbcomm Satellite used for tracking trucks, trailers
and valuable merchandise
. Cellular phones
. Walkie talkies
. Two way pagers
. PC's
. Cordless phones
. Several Bluetooth applications.
Cadence is the largest supplier of electronic design automation products,
methodology services and design services used to accelerate and manage the
design of semiconductors,
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computer systems, networking and telecommunications equipment, consumer
electronics and a variety of other electronics-based products. Cadence has sales
offices, design centers and research facilities around the world. The advantage
of this agreement to the Company in having Cadence complete comprehensive
independent analysis of the CTHA technology is to have the said information
available to potential end users on the Company's website at www.iascom.com. The
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majority of the potential end users require detailed specifications of the
Company's antennas before committing to a purchase order or entering into a
joint venture agreement with the Company.
GOVERNMENTAL REGULATION
The Company believes there are no existing governmental guidelines for the
antennas currently being developed by the Company.
NEED FOR GOVERNMENTAL APPROVAL
No governmental approval is necessary for the antenna other than meeting certain
frequency guidelines for the end users. The end user is required to meet
certain government specification for several wireless applications.
RAW MATERIALS
All materials necessary to make the antenna are readily available in the
marketplace from a variety of suppliers.
DEPENDENCE ON A FEW MAJOR CUSTOMERS
Since the Company is just beginning to receive orders, it will be dependent on a
few major customers for the near future. Such customers currently include ARINC
and World Tracking. The Company also receives orders from customers through the
World Wide Web and other advertising sources.
RESEARCH AND DEVELOPMENT
The company has spent approximately $470,488 on research and development over
the past two years. Research and development was initially jointly funded with
ETC through TEAM. Additional research and development of both a scientific and
practical nature is required to complete the commercialization of the CTHA. The
cost of some future research and development will be borne by customers for
specific applications. The antenna is currently being developed jointly by
Cadence Design Systems, Inc. and our engineer, Larry Hawks.
EMPLOYEES
In addition to its Officers, the Company currently employs three full-time
employees. The Company anticipates adding employees as needed in the future.
YEAR 2000 ISSUES
The Year 2000 risk for information systems, computers, equipment and products
using date sensitive software has passed without any problems whatsoever. The
Company will continue to monitor the Year 2000 issue but does not anticipate any
problems. It is not expected that any additional material costs will be
incurred in addressing the Year 2000 compliance for the Company.
ITEM 2. PROPERTY
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The Company's executive offices are located at #185-10751 Shellbridge Way,
Richmond, British Columbia V6X2W8, and the telephone number is (604) 278-5996.
The Company leases, on a month-to-month basis, approximately 200 square feet of
space at the aforementioned office from John Robertson. The monthly rent is
$500.00. The Company's research and development facilities are located at 100 E.
Broadway, Kokomo, Indiana 46901, where it leases 7500 square feet of space. The
term of the lease is one year, and the monthly rent of the aforementioned space
is $2500.
ITEM 3. LEGAL PROCEEDINGS
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To the best knowledge of the Officers and Directors of the Company, neither the
Company nor any of its Officers and Directors are parties to any legal
proceeding or litigation other than as described below. Further, the Officers
and Directors know of no threatened or contemplated legal proceedings or
litigation other than as described below. None of the Officers and Directors
has been convicted of a felony and none has been convicted of any criminal
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offense, felony or misdemeanor, relating to securities or performance in
corporate office. To the best of the knowledge of the Officers and Directors, no
investigations of felonies, misfeasance in office or securities investigations
are either pending or threatened at the present time.
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") sought money damages and equitable relief against the
Company alleging patent infringement by the Company for the CTHA. The Company
notified West Virginia University ("WVU") of this claim and 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.
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 belong to WVU and that
based on the license, the Company owns the world wide 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.
A decision by the United States District Court for the Northern District of West
Virginia will, if upheld on appeal, signal the end to patent litigation brought
by VorteKx, Inc. against the Company.
VorteKx, Inc. brought a patent infringement action against IAS in the United
States District Court for the District of Oregon on a patent issued to a former
graduate student at WVU, Kurt L. VanVoorhies, and subsequently assigned to
VorteKx. On the Company's motion, the case was transferred to the Northern
District of West Virginia and consolidated with a previously pending action
filed by WVU against VanVoorhies, discussed above. The Company and WVU both
claimed that the technology covered by the patent is actually owned by WVU. The
Company is the sublicensee of commercial applications of the CTHA technology.
In a Memorandum Opinion and Order entered February 17, 2000, the West Virginia
federal court granted summary judgment for WVU in its claims against
VanVoorhies. The Court also dismissed VanVoorhies' claims against WVU and third-
party defendants West Virginia University Research Corporation, Dr. James E.
Smith and Integral Concepts, Inc. Because the Court's holding establishes that
WVU owns the technology, it should bring an end to the litigation against the
Company, which was stayed pending resolution of the case against VanVoorhies.
The dispute in the WVU action concerned inventions conceived during VanVoorhies'
time at WVU as a graduate student and later as a graduate research assistant,
particularly two inventions relating to the CTHA technology. The Court found
that VanVoorhies validly assigned all rights in the first invention to WVU,
including all future technology derived from the technology underlying that
invention. VanVoorhies subsequently declined to assign to WVU any interest in a
second invention. The Court found that the second invention constituted future
technology derived from the first invention. Therefore, VanVoorhies' assignment
of the first invention to WVU also effectively assigned the second invention to
WVU, and WVU is the rightful owner of the patent applications filed by
VanVoorhies on the CTHA technology.
Because one of these patent applications led to the issuance of the patent
underlying VorteKx's infringement suit against the Company, VorteKx no longer
has standing to pursue that infringement case. The case has been stayed pending
VanVoorhies' appeal from the Court's order.
-9-
<PAGE>
On May 16, 2000 the Company filed suit in the United States District Court for
Northern District of West Virginia against Integral Technologies, Inc., Next
Antennas.Com, Inc., Emergent Technologies Corporation and Jack Parsons
(collectively, "the Defendants"), alleging breach of contract, misappropriation
of trade secrets, interference with economic relations, and breach of fiduciary
duty.
This Company is the exclusive commercial sublicensee of certain proprietary
antenna technology developed by West Virginia University, including any
improvements, modifications or enhancements thereto ("the Technology"). The
Company established a joint venture (TEAM) with Emergent Technologies
Corporation, exclusive military sublicensee of the Technology, to develop
antennas based on the Technology. Emergent was subsequently acquired by Integral
Technologies, Inc., which recently announced it is selling antennas to the
commercial market through its wholly-owned subsidiary, Next Antennas.Com, Inc.
Jack Parsons has been the president of Emergent, and a director of Integral. The
Company believes that the defendants are selling antennas in contravention of
their obligations under the sublicense agreements and otherwise, and in
violation of the Company's exclusive rights.
The Company seeks injunctive and affirmative relief and punitive damages as
follows:
- An injunction prohibiting the Defendants from using or disclosing the
Company's trade secrets; or manufacturing, distributing or selling, any device
derived from the Technology for commercial applications;
- An order requiring the Defendants to account to the Company for all
profits obtained as a result of their alleged breach of contract, breach of duty
of good faith and fair dealing, misappropriation of trade secrets, interference
and/or breach of fiduciary duty; and to return all proprietary materials and
destroy all devices created in violation of the Company's rights;
- A money judgment against the Defendants in an amount to be determined at
trial; additional exemplary or punitive damages calculated to deter such
conduct, and attorney fees and costs; and
- An order requiring the Defendants to hold in trust for the Company all
profits the Defendants have made from commercial sales of antennas derived from
the Technology.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------- ---------------------------------------------------
No matters were submitted to a vote by the Company's security holders during the
fourth quarter of its fiscal year ended April 30, 2000.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
------- --------------------------------------------------------
The Common Stock of the Company trades on the OTC Bulletin Board under the
symbol "IASCA" where it has traded since April 16, 1996. The Company's Common
Stock has traded at between $0.5368 and $4.62 per share since April 16, 1996.
The following table sets forth the high and low prices for the Company's
Common Stock, as reported by Nasdaq Trading & Market Services for the quarters
presented. These quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commissions, and may not reflect actual transactions.
<TABLE>
<CAPTION>
Bid Price Asked Price
High Low High Low
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Quarter ended July 31, 1998 $2.12 $2.12 $2.25 $2.25
Quarter ended October 31, 1998 $1.437 $1.437 $1.75 $1.75
Quarter ended January 31, 1999 $1.218 $1.218 $1.281 $1.281
Quarter ended April 30, 1999 $1.531 $1.531 $1.593 $1.593
Quarter ended July 31, 1999 $1.53 $0.81 $1.59375 $0.8125
Quarter ended October 31, 1999 $1.00 $0.375 $1.125 $0.4375
Quarter ended January 31, 2000 $1.03125 $0.375 $1.0625 $0.46875
Quarter ended April 30, 2000 $3.125 $0.59375 $3.1875 $0.71875
</TABLE>
-10-
<PAGE>
As of July 31, 2000, there were 11,433,593 shares of Common Stock outstanding,
held by 132 shareholders of record.
DIVIDEND POLICY
To date the Company has not paid any dividends on its Common Stock and does not
expect to declare or pay any dividends on such Common Stock in the foreseeable
future. Payment of any dividends will be dependent upon future earnings, if any,
the financial condition of the Company, and other factors as deemed relevant by
the Company's Board of Directors.
RECENT SALES OF UNREGISTERED SECURITIES
Set forth below is information regarding the issuance and sales of the Company's
securities without registration during the past fiscal year. No such sales
involved of an underwriter and no commissions were paid in connection with the
sale of any securities.
During May 1999 - February 2000, the Company sold, in a private placement,
968,902 units at a price of $0.50 (US) per unit to four accredited investors,
all of whom were non-U.S. residents. Each unit contained one share and one
warrant to acquire one additional share at $1.00 per share if exercised during
year one after receipt of the subscription funds. This offering was exempt from
registration under Rule 506 and Section 4(2) of the Securities Act of 1933, as
amended (the "Act"). Each certificate representing securities issued to the
investors in this private placement bears a legend restricting transfer. In
addition, if the exemptions under Rule 506 and Section 4(2) of the Act are not
available, the sales were exempt pursuant to Regulation S under the Act.
During the fiscal year ended April 30, 2000, the Company issued 18,125 shares in
connection with the exercise of warrants at exercise prices varying from $1.50
to $2.25 per share. The warrants were issued in connection with previous exempt
offerings of securities by the Company.
During the fiscal year ended April 30, 2000, the company issued 62,854 shares in
connection with the conversion of $360,000 of a convertible debenture at an
average price of $0.71 per share. The bulk of this conversion (471,508 shares)
was accomplished in the fiscal year ended April 30, 1999. The debentures were
issued in connection with previous exempt offerings of the securities of the
Company.
ITEM 6: Management's Discussion and Analysis of Financial Condition and Results
------- -----------------------------------------------------------------------
of Operations
-------------
Management's Discussion
-----------------------
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. (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 commercialization of
advanced antenna technology known as the Contrawound Toroidal Helical Antenna,
herein "CTHA", for wireless communications markets including cellular, meter
reading and global positioning services. The CTHA, developed in conjunction with
researchers at West Virginia University, is a technologically advanced antenna
design that can 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.
As a development stage company, the Company devotes most of its activities to
establishing this new business. Planned principal activities have produced
insignificant revenues and the Company has suffered recurring losses from
inception, totalling $5,000,000 and the
-11-
<PAGE>
Company has a working capital deficit of $713,000 which includes a negative cash
balance of $18,000. A total of $118,000 of the working capital deficit was
subsequently settled by issuing 100,000 common shares. These factors raise doubt
about the Company's ability to continue as a going concern. The Company's
ability 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 additional markets for the Company's
products, identify additional licensees, and receive ongoing support from the
majority of the Company's creditors.
The Company plans to raise net proceeds of approximately $425,000 through a
private placement. The offering will be a best efforts no minimum offering
consisting of 600,000 units at $0.75 per unit. Each unit consists of one unit of
common stock of the Company and one warrant to purchase an additional unit of
common stock at a price of $1.00 for a period of one year from the date of
issuance. The common stock offered will not be registered under the Securities
Act of 1933 and may not be offered or sold in the United States absent
registration or an applicable exemption from registration requirements. This
disclosure is an not offer to sell securities and is not a solicitation of an
offer to buy securities. The Company anticipates that sales will be made only to
accredited investors or to persons that are not U.S. residents. No money or
other consideration is being solicited or will be accepted by way of this
disclosure. The common stock offered has not been registered with or approved by
any state securities agency or the U.S. Securities and Exchange Commission and
will be offered and sold pursuant to exemptions from registration. If all units
are sold, then net proceeds to the Company will be approximately $425,000.
The Company may also raise additional funds through the exercise of warrants and
stock options, if exercised. Warrants with respect to 1,803,377 shares may be
exercised to net $2,724,000 and options with respect to 1,133,000 shares may be
exercised to net $1,353,000. These warrants and options are currently
not-in-the-money and are unlikely to be currently exercised. The Company has
entered into an agreement and is committed to pay an estimated $204,400 in time
and materials for professional services for testing and developing five antenna
applications. After raising $450,000, the Company will require significant
additional capital to provide sufficient working capital to carry out its
business plan for the next twelve months.
-12-
<PAGE>
Results of Operation for the Year Ended April 30, 2000 ("2000") as compared to
------------------------------------------------------------------------------
the Year Ended April 30, 1999 ("1999")
--------------------------------------
During the latter part of 1999 the Company, through its agreement with
Information-Highway.com, Inc., started selling ham radio antennas and TV
antennas over the Internet. Sales revenue amounted to $35,000 for 2000 as
compared to $3,000 for 1999.
The net loss for 2000 was $572,000 compared to $1,219,000 for 1999. The decrease
of $647,000 was due to the decrease in research and development expenses to
$79,000 during 2000 as compared to $392,000 during 1999, a decrease of $313,000.
The decrease was due to the Company using hired consultants to perform all
product development work instead of expensive third party contractors. The
Company has eliminated the need for these subcontractors by setting up a
manufacturing and sales office in Kokomo, Indiana, which is operated by Larry
Hawks. As a result consulting has increased to $120,000 during 2000 from $74,000
in 1999. Potential licensees have defrayed some of the research and development
costs by contributing $98,000 during 2000 as compared to $81,000 in 1999.
Administrative expenses decreased by $384,000. A total of $49,000 was incurred
during 1999 on financing and legal fees relating to a debenture issue as
compared to nil in 2000. Debenture interest decreased to $9,000 from $28,000 as
a result of the $500,000, 8%, convertible debentures being redeemed. The Company
had to pay $30,000 as a premium on cash redemption in 2000. Professional fees
decreased by $59,000 to $144,000 from $203,000 in 1999. Travel and promotion
decreased by $55,000 to $15,000 from $70,000 in 1999 as a result of reduced
travel to Indiana. Rent and secretarial increased by $40,000 as a result of the
Kokomo, Indiana facility operating for twelve months. Investor relations
activity decreased by $219,000 to $70,000 from $289,000 in 1999. Because of
pending litigation throughout the year the Company did not spend money on
investor relations other than basic ongoing costs regarding news releases and
fielding enquiries.
The Company incurred $61,000 of advertising costs related to marketing its
developed products where no costs were incurred in 1999.
-13-
<PAGE>
The Company's net loss per share decreased by $0.07 to $0.06 per share from
$0.13 in 1999 as a result of the lower net loss for the year and the increase in
outstanding shares by 8% during 2000.
Liquidity
---------
During 2000 the Company financed its operations and received $730,000 by:
(i) receiving financial support from companies affiliated with the
President of the Company in the amount of $212,000. These amounts are
unsecured, non-interest bearing and due on demand.
(ii) issuing 968,902 units at $0.50 per unit and receiving $484,451. Each
unit contained one share and one warrant to acquire one additional
share at $1.00 expiring March 1, 2001.
(iii) issuing 20,625 shares and receiving $33,000 pursuant to warrants and
options exercised.
During 2000 the Company invested these funds as follows:
(i) $17,000 of these funds was spent on acquiring capital assets to set
up its Kokomo, Indiana facility.
(ii) $30,000 of these funds was spent on patent protection costs in
various jurisdictions.
(iii) $536,000 of these funds was spent on operating activities as
discussed above under Results of Operation for the Year Ended April
30, 2000 as compared to the Year Ended April 30, 1999.
(iv) The Company repaid $140,000 of outstanding debentures with cash
instead of shares as the Company did in 1999.
The Company's cash position has increased by $7,000 to negative $18,000 and its
working capital deficit, as at April 30, 2000, is $713,000.
-14-
<PAGE>
ITEM 7: Financial Statements
------ --------------------
Independent Auditor's Report
Balance Sheets as of April 30, 2000 and 1999
Statements of Operations accumulated from December 13, 1994 (Inception)
to April 30, 2000 and the years ended April 30, 2000 and 1999
Statements of Cash Flows accumulated from December 13, 1994 (Inception)
to April 30, 2000 and the years ended April 30, 2000 and 1999
Statement of Shareholders' Equity accumulated from December 13, 1994 (Inception)
to April 30, 2000
Notes to the Financial Statements
-15-
<PAGE>
Independent Auditor's Report
----------------------------
To the Board of Directors
IAS Communications, Inc.
(A Development Stage Company)
We have audited the accompanying balance sheets of IAS Communications, Inc. (a
Development Stage Company) as of April 30, 2000 and 1999 and the related
statements of operations, shareholders' deficit and cash flows for the period
from December 13, 1994 (inception) to April 30, 2000 and the years ended April
30, 2000 and 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United States. Those standards require that we plan and perform an audit
to obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the aforementioned financial statements present fairly, in all
material respects, the financial position of the Company as at April 30, 2000
and 1999 and the results of its operations and its cash flows for the period
from December 13, 1994 (inception) to April 30, 2000 and the years ended April
30, 2000 and 1999 in conformity with generally accepted accounting principles in
the United States.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company has not generated significant revenues or profitable
operations since inception and has a working capital deficit. These factors
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also discussed in
Note 1. The financial statements do not include any adjustments which might
result from the outcome of this uncertainty.
"Elliott, Tulk, Pryce, Anderson"
CHARTERED ACCOUNTANTS
Vancouver, Canada
July 20, 2000
-16-
<PAGE>
IAS Communications, Inc.
(A Development Stage Company)
Balance Sheets
April 30, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
$ $
<S> <C> <C>
Assets
Current Assets
Inventory 22,605 6,056
Prepaid expenses and other current assets 153,788 51,476
---------- ---------
176,393 57,532
Property, Plant and Equipment (Note 3) 41,352 39,860
License and Patent Protection Costs (Note 4) 377,872 368,947
---------- ---------
595,617 466,339
========== =========
Liabilities and Shareholders' Deficit
Current Liabilities
Cheques issued in excess of funds on deposit 18,446 26,095
Accounts payable 495,409 472,558
Accrued liabilities (Note 7(d)) 128,928 35,803
Due to related parties (Note 8) 211,965 -
Convertible debentures (Note 6) 35,000 -
---------- ---------
889,748 534,456
Convertible Debentures (Note 6) - 210,000
---------- ---------
889,748 744,456
---------- ---------
Commitments and Contingencies (Notes 1 and 9)
Shareholders' Deficit
Preferred Stock 50,000,000 shares authorized; none issued
Common Stock (Note 7)
Class "A" voting - 100,000,000 shares authorized
without par value; 11,321,239
and 10,268,858 shares issued
and outstanding respectively 4,738,949 4,182,794
Class "B" non-voting - 100,000,000 shares authorized without
par value; none issued
Deficit Accumulated During The Development Stage (5,033,080) (4,460,911)
---------- ---------
(294,131) (278,117)
---------- ---------
595,617 466,339
========== =========
</TABLE>
(The accompanying notes are an integral part of these financial statements)
-17-
<PAGE>
IAS Communications, Inc.
(A Development Stage Company)
Statements of Operations
Accumulated from December 13, 1994 (Inception)
to April 30, 2000 and the years ended April 30, 2000 and 1999
<TABLE>
<CAPTION>
Accumulated from
December 13, 1994 (Inception)
to April 30, 2000 2000 1999
$ $ $
<S> <C> <C> <C>
Revenue 38,090 35,277 2,813
Cost of Sales 23,796 22,843 953
--------- ---------- ---------
Gross Profit 14,294 12,434 1,860
--------- ---------- ---------
Expenses (Schedule)
General and Administration 2,607,565 444,811 829,319
Selling and Marketing 61,280 61,280 -
Research and Development 2,378,529 78,512 391,976
--------- ---------- ---------
5,047,374 584,603 1,221,295
--------- ---------- ---------
Net Loss 5,033,080 572,169 1,219,435
========= ========== =========
Net Loss Per Share (.06) (.13)
========== =========
Weighted Average Shares Outstanding 10,392,000 9,600,000
========== =========
</TABLE>
(The accompanying notes are an integral part of these financial statements)
-18-
<PAGE>
IAS Communications, Inc.
(A Development Stage Company)
Statements of Cash Flows
Accumulated from December 13, 1994 (Inception)
to April 30, 2000 and the years ended April 30, 2000 and 1999
<TABLE>
<CAPTION>
Accumulated from
December 13, 1994 (Inception)
to April 30,
2000 2000 1999
$ $ $
<S> <C> <C> <C>
Cash Flows to Operating Activities
Net loss (5,033,080) (572,169) (1,219,435)
Adjustments to reconcile net loss to cash
Gain on shares cancelled (10) - -
Depreciation and amortization 106,028 36,240 32,414
Shares issued for services 499,098 - 230,640
Shares issued for debenture interest 18,786 3,266 15,520
Change in non-cash working capital items
Increase in prepaid expenses and other current assets (153,788) (102,212) (36,551)
Increase in inventory (22,605) (16,549) (6,056)
Increase in accounts payable 495,409 22,851 102,046
Increase (decrease) in accrued liabilities 128,928 93,125 (44,357)
---------- -------- ----------
Net Cash Used in Operating Activities (3,961,234) (535,548) (925,779)
---------- -------- ----------
Cash Flows to Investing Activities
Increase in capital assets (84,514) (16,722) (11,801)
Increase in licence (250,000) - -
Increase in patent protection costs (190,737) (29,935) (20,147)
---------- -------- ----------
Net Cash Used in Investing Activities (525,251) (46,657) (31,948)
---------- -------- ----------
Cash Flows from Financing Activities
Increase in common stock 3,856,074 517,889 415,750
Convertible debentures proceeds (repayments) 400,000 (140,000) 500,000
Advances from related parties 211,965 211,965 -
---------- -------- ----------
Net Cash Provided by Financing Activities 4,468,039 589,854 915,750
---------- -------- ----------
Increase (Decrease) in Cash (18,446) 7,649 (41,977)
Cash - Beginning of Period - (26,095) 15,882
---------- -------- ----------
Cash - End of Period (18,446) (18,446) (26,095)
========== ======== ==========
Non-Cash Financing Activities
6,000,000 shares issued at a deemed fair value
of $1 in total for property 1 - -
Shares issued to an officer donated back and cancelled (10) - -
Shares issued for services 8,333 - -
Shares issued for convertible debentures converted 383,786 38,266 345,520
Shares issued pursuant to performance
stock agreements for services 490,765 - 230,640
---------- -------- ----------
882,875 38,266 576,160
========== ======== ==========
Supplemental disclosures:
Interest paid with cash 21,736 6,225 12,791
Income tax paid with cash - - -
</TABLE>
(The accompanying notes are an integral part of these financial statements)
-19-
<PAGE>
IAS Communications, Inc.
(A Development Stage Company)
Statement of Shareholders' Equity (Deficit)
Accumulated from December 13, 1994 (Inception)
to April 30, 2000
<TABLE>
<CAPTION>
Deficit
Accumulated
Common During the
Stock Development
Shares Class "A" Stage
# $ $
<S> <C> <C> <C>
Balance - December 13, 1994 (Inception) - - -
Shares issued for cash 100 10 -
Shares issued for property 6,000,000 1 -
Shares issued for cash pursuant to:
a private placement 700,000 70,000 -
a public offering memorandum 336,333 252,250 -
Net loss for the period - - (83,615)
--------- --------- ----------
Balance - April 30, 1995 7,036,433 322,261 (83,615)
Shares issued donated back and cancelled (100) (10) -
Shares issued for cash pursuant to options exercised 210,000 52,500 -
Net loss for the year - - (480,298)
--------- --------- ----------
Balance - April 30, 1996 7,246,333 374,751 (563,913)
Shares issued for cash pursuant to:
a private placement 722,000 1,124,500 -
options exercised 224,000 140,500 -
Shares issued for services 25,000 8,333 -
Net loss for the year - - (1,044,516)
--------- --------- ----------
Balance - April 30, 1997 8,217,333 1,648,084 (1,608,429)
Shares issued for cash pursuant to a public
offering memorandum 263,667 197,750 -
Shares issued for cash pursuant to:
options exercised 87,500 26,875 -
--------- --------- ----------
8,568,500 1,872,709 (1,608,429)
Shares issued for cash pursuant to:
a private placement 7,000 15,750 -
a private placement and foreign units
offering 575,600 1,007,300 -
Shares issued for financial services 169,250 260,125 -
Net loss for the year - - (1,633,047)
--------- --------- ----------
Balance - April 30, 1998 9,320,350 3,155,884 (3,241,476)
--------- --------- ----------
</TABLE>
(The accompanying notes are an integral part of these financial statements)
-20-
<PAGE>
IAS Communications, Inc.
(A Development Stage Company)
Statement of Shareholders' Equity (Deficit)
Accumulated from December 13, 1994 (Inception)
to April 30, 2000
<TABLE>
<CAPTION>
Deficit
Accumulated
Common During the
Stock Development
Shares Class "A" Stage
# $ $
<S> <C> <C> <C>
Carryforward balance - April 30, 1998 9,320,350 3,155,884 (3,241,476)
Shares issued for cash pursuant to:
options exercised 2,000 500 -
a private placement and foreign units offering 95,000 166,250 -
a private placement 200,000 200,000 -
exercise of warrants 43,000 84,000 -
Shares issued for financial services 132,000 230,640 -
Shares issued pursuant to conversion of convertible
debentures including accrued interest 471,508 345,520 -
Net loss for the year - - (1,219,435)
---------- --------- ----------
Balance - April 30, 1999 10,268,858 4,182,794 (4,460,911)
Shares issued for cash pursuant to
a private placement 968,902 484,451 -
options exercised 2,500 2,500 -
warrants exercised 18,125 30,938 -
Shares issued pursuant to conversion of convertible
debentures including accrued interest 62,854 38,266 -
Net loss for the year - - (572,169)
---------- --------- ----------
Balance - April 30, 2000 11,321,239 4,738,949 (5,033,080)
========== ========= ==========
</TABLE>
(The accompanying notes are an integral part of these financial statements)
-21-
<PAGE>
IAS Communications, Inc.
(A Development Stage Company)
Schedule of Expenses
Accumulated from December 13, 1994 (Inception)
to April 30, 2000 and the years ended April 30, 2000 and 1999
<TABLE>
<CAPTION>
Accumulated from
December 13, 1994 (Inception)
to April 30, 2000 2000 1999
$ $ $
<S> <C> <C> <C>
Expenses
General and Administration
Bank charges 4,556 1,379 1,053
Business plan 55,429 (1,700) 11,910
Debenture financing fees 49,199 - 49,199
Depreciation 7,087 4,181 1,752
Interest on convertible debentures 40,523 9,491 28,312
Investor relations - publications 381,322 23,510 133,674
Investor relations - consulting 408,268 46,575 154,864
Management fees 277,500 30,000 40,000
Office, postage and courier 145,462 21,135 43,882
Premium on cash redemption of convertible debentures 29,790 29,790 -
Professional fees 678,791 143,698 202,876
Rent and secretarial 245,806 101,662 61,921
Telephone 92,473 6,278 10,393
Transfer agent and regulatory 64,046 13,709 22,205
Travel and promotion 143,568 15,497 69,692
Less interest income (16,255) (394) (2,414)
--------- ------- ---------
2,607,565 444,811 829,319
--------- ------- ---------
Selling and Marketing
Advertising 61,280 61,280 -
--------- ------- ---------
Research and Development
Royalty 16,000 3,000 4,000
Consulting 396,663 119,949 74,295
Depreciation and amortization 98,941 32,059 30,662
Market awareness and development 60,000 - -
Subcontract - West Virginia University Research Corporation 942,014 - 115,771
Subcontract - Emergent Technologies Corporation 1,390,427 - 227,550
Subcontract - Others 41,983 21,504 20,479
Less contributions by a joint venture partner (363,718) - -
Less engineering contributions by licensees (203,781) (98,000) (80,781)
--------- ------- ---------
2,378,529 78,512 391,976
--------- ------- ---------
5,047,374 584,603 1,221,295
========= ======= =========
</TABLE>
(The accompanying notes are an integral part of these financial statements)
-22-
<PAGE>
IAS Communications, Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(expressed in U.S. dollars)
1. Development Stage Company
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 commercialization
of advanced antenna technology known as the Contrawound Toroidal Helical
Antenna, herein "CTHA", for wireless communications markets including
cellular, meter reading and global positioning services. The CTHA, developed
in conjunction with researchers at West Virginia University, is a
technologically advanced antenna design that can 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. See Note 9(c) for legal proceedings regarding underlying
patents.
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 suffered recurring losses
from inception, totalling $5,033,080 and has a working capital deficit of
$713,355 which includes a negative cash balance of $18,446. A total of
$117,900 of the working capital deficit was subsequently settled by issuing
100,000 common shares. 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, develop additional markets for its products, identify additional
licensees and receive ongoing support from the majority of its creditors.
The Company plans to raise $450,000 and issue 600,000 units at $0.75 per
unit. The Company may also raise additional funds through the exercise of
warrants and stock options, if exercised. Warrants with respect to 1,803,377
shares may be exercised to net $2,724,315 and options with respect to
1,133,000 shares may be exercised to net $1,353,000. These warrants and
options are currently not in-the-money and are unlikely to be currently
exercised. The Company has entered into an agreement and is committed to pay
an estimated $204,400 in time and materials for professional services in
testing and developing five antenna applications.
The Company, after raising $450,000, will require significant additional
capital to provide sufficient working capital to carry out their business
plan for the next twelve months.
2. Summary of Significant Accounting Policies
(a) Basis of Presentation
These financial statements include only the accounts of the Company.
The Eclipse Antenna Manufacturing Co., herein "TEAM", which is 50%
equity owned and 100% controlled through a voting agreement does not
have any assets or operations and the Company's contributions for
joint research and development has been paid directly to the other 50%
owner of TEAM and expensed as paid.
(b) Research and Development
Research and development costs are expensed in the period in which
they are incurred.
(c) Property, Plant and Equipment
Property, plant and equipment is recorded at cost and is depreciated
on a straight-line basis over their estimated useful lives of five
years.
-23-
<PAGE>
2. Summary of Significant Accounting Policies (continued)
(d) Licenses and Patent Protection Costs
Costs to register and protect patents and to acquire rights are
capitalized as incurred. These costs are being amortized on a straight
line basis over 20 years. Intangible assets are evaluated in each
reporting period to determine if there were events or circumstances
which would indicate a possible inability to recover the carrying
amount. Such evaluation is based on various analyses including
assessing the Company's ability to bring the commercial applications
to market, related profitability projections and undiscounted cash
flows relating to each application which necessarily involves
significant management judgment.
(e) Basic and Diluted Net Income (Loss) per Share
The Company computes net income (loss) per share in accordance with
SFAS No. 128, "Earnings per Share" (SFAS 128). SFAS 128 requires
presentation of both basic and diluted earnings per shares (EPS) on
the face of the income statement. Basic EPS is computed by dividing
net income (loss) available to common shareholders (numerator) by the
weighted average number of common shares outstanding (denominator)
during the period. Diluted EPS gives effect to all dilutive potential
common shares outstanding during the period including stock options,
using the treasury stock method, and convertible preferred stock,
using the if-converted method. In computing Diluted EPS, the average
stock price for the period is used in determining the number of shares
assumed to be purchased from the exercise of stock options or
warrants. Diluted EPS excludes all dilutive potential common shares if
their effect is antidilutive.
Loss per share for 2000 and 1999 does not include the effect of the
potential conversions of stock options, warrants or convertible
debentures, as their effect would be anti-dilutive.
(f) Revenue Recognition
Revenue from sales of antennas will be recorded when goods have been
shipped and collection is reasonably certain. Revenue from licensing
the right to others to sell antennas will be recognized when earned
over time.
(g) Accounting for Stock Based Compensation
The Company uses the intrinsic value based method of accounting
prescribed by Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB Opinion No. 25") in accounting
for its stock based method, compensation cost is the excess, if any,
of the quoted market price of the stock at grant date over the amount
an employee or director must pay to acquire the stock.
(h) Foreign Currency Transactions/Balances
Transactions in currencies other than the U.S. dollar are translated
at the rate in effect on the transaction date. Any balance sheet items
denominated in foreign currencies are translated into U.S. dollars
using the rate in effect on the balance sheet date.
(i) Cash and Cash Equivalents
The Company considers all highly liquid instruments with a maturity of
three months or less at the time of issuance to be cash equivalents.
(j) Estimates and Assumptions
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the periods. Actual results could differ from
those estimates.
(k) Financial Instruments
The fair value of the Company's current assets and current liabilities
were estimated to approximate their carrying values due to the
immediate or short-term maturity of these financial instruments. The
Company operates in Canada and virtually all of its assets and
liabilities are giving rise to significant exposure to market risks
from changes in foreign currency rates. The financial risk is the risk
to the Company's operations that arise from fluctuations in foreign
exchange rates and the degree of volatility of these rates. Currently,
the Company does not use derivative instruments to reduce its exposure
to foreign currency risk.
-24-
<PAGE>
2. Summary of Significant Accounting Policies (continued)
(l) New Accounting Pronouncements
Effective January 1, 1998, the Company adopted Statement of Accounting
Standards No. 131 (SFAS 131), Disclosures about Segments of an
Enterprise and Related Information. This statement requires the
Company to report income/loss, revenue, expense and assets by business
segment including information regarding the revenues derived from
specific products and services and about the countries in which the
Company is operating. The Statement also requires that the Company
report descriptive information about the way that operating segments
were determined, the products and services provided by the operating
segments, differences between the measurements used in reporting
segment information and those used in the Company's general-purpose
financial statements and changes in the measurement of segment amounts
from period to period. As noted above this statement establishes
standards for reporting and display and has no material effect on the
Company's financial condition or results of operations.
(m) Tax Accounting
Potential benefits of income tax losses are not recognized in the
accounts until realization is more likely than not. Research and
development costs are deducted in the year incurred and added to net
operating loss.
The Company has adopted Statement of Financial Accounting Standards
No. 109 ("SFAS 109") as of its inception. The Company has incurred net
operating losses as scheduled below:
Year of Loss Amount Year of
$ Expiration
1995 89,000 2010
1996 497,000 2011
1997 1,057,000 2012
1998 1,096,000 2013
1999 1,809,000 2014
2000 528,000 2015
---------
5,076,000
=========
Pursuant to SFAS 109 the Company is required to compute tax asset benefits
for net operating losses carried forward. Potential benefit of net
operating losses have not been recognized in these financial statements
because the Company cannot be assured it is more likely than not it will
utilize the net operating losses carried forward in future years.
The components of the net deferred tax asset at the end of April 30, 2000
and 1999, and the statutory tax rate, the effective tax rate and the
elected amount of the valuation allowance are scheduled below:
2000 1999
$ $
Net Operating Loss 528,000 1,808,000
Statutory Tax Rate 113,900 + 34% 113,900 + 34%
in excess of in excess of
$ 335,000 $335,000
Effective Tax Rate - -
Deferred Tax Asset 323,000 730,000
Valuation Allowance (323,000) (730,000)
Net Deferred Tax - -
Asset
-25-
<PAGE>
3. Property, Plant and Equipment
<TABLE>
<CAPTION>
2000 1999
Accumulated Net Book Net Book
Cost Amortization Value Value
$ $ $ $
<S> <C> <C> <C> <C>
Computer and office equipment 20,775 7,740 13,035 14,746
Research and development equipment 62,500 35,050 27,450 24,000
Vehicle 1,239 372 867 1,115
------- -------- ------- -------
84,514 43,162 41,352 39,861
======= ======== ======= =======
Depreciation per class of capital asset:
Computer and office equipment 4,181 2,654
Research and development equipment 11,050 9,600
Vehicle 248 124
<CAPTION>
4. License and Patent Protection Costs
2000 1999
Accumulated Net Book Net Book
Cost Amortization Value Value
$ $ $ $
<S> <C> <C> <C> <C>
Licence 250,001 41,667 208,334 220,834
Patent protection costs (Note 9(c)) 190,736 21,198 169,538 148,113
------- ------ ------- -------
440,737 62,865 377,872 368,947
======= ====== ======= =======
Amortization per class of intangible asset:
Licence 12,500 12,500
Patent protection costs 10,491 7,536
</TABLE>
Pursuant to the terms of an option agreement dated November 18, 1994 and
amended December 16, 1994 between SMR Investments Ltd. ("SMR") and Integral
Concepts Inc. ("ICI") and an assignment of this option agreement dated
December 13, 1994, the Company acquired a sublicense to the CTHA, subject
to entering into a formal sublicense agreement. Pursuant to the terms of
the option agreement, the Company paid $250,000 to ICI, which owns the
exclusive licence obtained from West Virginia University Research
Corporation ("WVURC") in an agreement dated April 12, 1994. SMR, ICI and
WVURC are not related to each other. Pursuant to the assignment agreement,
the Company issued 3,000,000 shares to each of Access Information Systems
Inc. (A company controlled by SMR) and a director of the Company (principal
of ICI) for a total fair value of $1 for all 6,000,000 shares issued.
Pursuant to the original licence agreement between WVURC and ICI, ICI was
granted the exclusive licence to manufacture the CTHA or sublicense others
to manufacture, market, sell copies of, licence and distribute the CTHA. On
July 10, 1995, the Company and ICI entered into a sublicense agreement,
which incorporates the terms and conditions of the original licence
agreement between WVURC and ICI. The sublicense is exclusive, covering any
and all international markets but excludes all military and governmental
applications and resulting procurement interests which are retained by ICI
and WVURC for development purposes. All improvements and embodiments that
are created as a result of these military applications and additional
research and development efforts by ICI and WVURC will be transferred
directly to the Company. The terms of the sublicense agreement, which
incorporates the financial obligations that ICI owes WVURC pursuant to the
original licence agreement, are as follows:
(i) The Company will pay WVURC a minimum annual royalty of $3,000 on or
before December 31 of each year.
-26-
<PAGE>
4. License and Patent Protection Costs (continued)
(ii) The Company will pay WVURC an earned royalty on sales, leases or
sublicenses of the CTHA of 10% of net revenues less a credit for the
minimum annual royalty. Revenues below that of the minimum annual
royalty have been earned to April 30, 2000.
(iii) The Company will pay ICI an earned royalty on sales, leases or
sublicenses of the CTHA of 3% of gross revenues. As amended on March 4,
1997, ICI agreed to reduce the amount of royalties to be paid by 50% in
an amount not to exceed $5,000,000 for up to three years.
All royalties are payable within 30 days of each calendar quarter. The term of
the original licence agreement and the sublicense agreement, subject to
compliance with the terms thereof, is perpetual and renewable annually.
5. Joint Venture
The Company entered into a Joint Venture Agreement ("JVA") with Emergent
Technologies Corporation (ETC) on March 4, 1997. The JVA required a new
company to be incorporated (TEAM) whereby the Company owns 50% and ETC owns
50%. Pursuant to a voting agreement the Company can vote 100% of the shares
of TEAM. The President of ETC is the President of TEAM. TEAM was organized on
June 4, 1997 under the laws of the State of West Virginia. The Company
retains the worldwide commercial sublicense rights to the CTHA excluding all
military and governmental applications.
The business purpose of TEAM was to cooperate in the research and development
of certain applications for the CTHA and to assemble and manufacture certain
products relating thereto. IAS was to buy product from TEAM at cost to
manufacture plus 30% for all commercial applications and ETC was to buy
product from TEAM at cost to manufacture plus 30% for all military
applications. ETC acquired the worldwide sublicense from ICI for all military
and governmental applications on January 2, 1997.
TEAM entered into a contract with ETC to carry out combined research and
development activities to December 31, 1997. This contract was renewable on a
monthly basis at the option of TEAM. ETC and the Company have each funded
TEAM $250,000 as required in the JVA.
TEAM does not have any assets or operations and the Company's contributions
for joint research and development has been paid directly to ETC for the
Company's specific applications which has been expensed as incurred.
6. Convertible Debentures
(i) The Company offered three year, 8 3/4% interest, convertible debentures
in the amount of $40,000. Interest is paid annually. During the prior
year, $5,000 of such debentures were converted into 2,000 Class "A"
shares at $2.50 per share. The remaining $35,000 of such debentures are
convertible into Class "A" shares at $3.50 on June 15, 2000. In the
event the shares are trading below $4.00 per share over a ten-day
average prior to exercising into shares of the Company during May 16,
2000 to June 16, 2000, the convertible debentures will be exercisable at
20% below the said ten-day average. The maturity date is June 15, 2000.
The Company is awaiting replies from the debenture holders to determine
whether the debentures will be settled by shares or cash. A total of
$10,000 was converted by issuing shares.
(ii) The Company entered into an agreement with an investment banker to place
up to $5,000,000 of units, each unit consisting of one $500,000, three
year, 8% interest, convertible debenture and one warrant to purchase
25,000 Class "A" shares exercisable into 25,000 shares at $2.85 per
share expiring July 22, 2001. One unit was sold on July 22, 1998. The
Company received $452,500 after paying to the Agent a 6%, or $30,000
financing fee, legal costs of $17,500 and a warrant to acquire 5,000
Class "A" shares at $2.85 per share expiring July 22, 2001. The
debenture holder can convert its debenture into common shares based on
the face value plus accrued interest divided by 75% of the average five
day average trading price prior to conversion.
The convertible debenture with a face value of $360,000 plus accrued interest
of $18,786 was converted into 534,362 shares at an average price of $0.71 per
share.
The balance of the convertible debenture with a face value of $140,000 plus
accrued interest of $12,736 was redeemed with cash. The Company had to pay an
additional $29,790 as a premium paid for the cash redemption option, which
was expensed to operations.
-27-
<PAGE>
7. Common Stock
(a) Stock Option Plan
The Company has a Stock Option Plan to issue up to 2,500,000 Class "A"
common shares to certain key directors and employees, approved and
registered October 2, 1996 and amended May 28, 1999. Pursuant to the
Plan the Company has granted stock options to certain directors and
employees. On May 28, 1999 the Company granted stock options to certain
employees to acquire up to 205,000 shares exercisable at $1.00 per share
expiring May 28, 2004.
The options are granted for current services provided to the Company.
Statement of Financial Accounting Standards No. 123 ("SFAS 123")
requires that an enterprise recognize, or at its option, disclose the
impact of the fair value of stock options and other forms of stock based
compensation in the determination of income. The Company has elected
under SFAS 123 to continue to measure compensation costs on the
intrinsic value basis set out in APB Opinion No. 25. As stock options
are granted at exercise prices based on the market price of the
Company's shares at the date of grant, no compensation cost is
recognized. However, under SFAS 123, the impact on net income and income
per share of the fair value of stock options must be measured and
disclosed on a fair value based method on a pro forma basis. As
performance stock is issued for services rendered the fair value of the
shares issued is recorded as compensation expense or capitalized, at the
date the shares are issued, based on a discounted average trading price
of the Company's stock as quoted on the Over The Counter Bulletin Board.
The fair value of the employee's purchase rights, pursuant to stock
options, under SFAS 123, was estimated using the Black-Scholes model.
The weighted average number of shares under option and option price for
the year ended April 30, 2000 is as follows:
April 30, 2000
--------------
Weighted
Average
Shares Option
Under Option Price
# $
Beginning of year 1,015,500 1.15
Granted 205,000 1.00
Exercised (2,500)
(1.00)
Cancelled - -
Lapsed (85,000) (.25)
---------
End of year 1,133,000 1.19
=========
If compensation expense had been determined pursuant to SFAS 123, the
Company's net loss and net loss per share for fiscal 2000 and 1999 would
have been as follows:
2000 1999
$ $
Net loss
As reported (572,169) (1,219,435)
Pro forma (623,709) (1,314,785)
Basic net loss per share
As reported (.06) (.13)
Pro forma (.06) (.14)
-28-
<PAGE>
7. Common Stock (continued)
(b) Performance Stock Plan
The Company has allotted 1,000,000 Class "A" Common shares to be issued
pursuant to a Performance Stock Plan. Compensation is recorded when
criteria to issue shares are met.
The Company is committed to issue up to 400,000 Class "A" shares which
shall be earned as to 100,000 shares for every 1,000,000 CTHA's sold
through a joint venture called TEAM. This joint venture has been dormant
since inception and no CTHA's have been sold to date through TEAM.
(c) Private placements/warrants
(i) A total of $1,173,550 was received between November, 1997 and July
9, 1998 (date of closing) pursuant to a private placement and
foreign offering of 670,600 units at $1.75 per unit. Each unit
contained one share and one warrant to acquire one additional share
at $1.75 per share expiring between November, 1998 and July, 1999
being one year after receipt of funds, of which 48,000 warrants
were exercised during the prior year for proceeds of $84,000, and
5,000 warrants were exercised during the year for proceeds of
$11,250 and the remaining 617,600 warrants are currently
exercisable at $2.25 per share expiring July 2000 (extended).
(ii) During fiscal 1999 the Company issued 200,000 units at $1.00 per
unit for proceeds of $200,000. Each unit contained one share and
one warrant to acquire one additional share at $1.50 per share
expiring April 8, 2000. A total of 13,125 warrants were exercised
during fiscal 2000 for proceeds of $19,687. The remaining warrants
expiry date was extended to October 8, 2000. The units offering was
increased and the price reduced to $0.50 per unit during the year.
A total of 968,902 units were issued for proceeds of $484,451. Each
unit contained one share and one warrant to acquire one additional
share at $1.00 per share expiring March 1, 2001. These warrants are
currently unexercised.
(iii) A total of 30,000 shares are reserved for the exercise of warrants
at $2.85 per share expiring July 22, 2001.
(d) Other stock commitment
The Company is committed, pursuant to a financial consulting contract,
to issuing 100,000 restricted shares as at April 30, 2000 to settle an
accrued liability of $117,900 and to issuing 10,000 restricted shares
monthly for the next five months.
8. Due to Related Parties
The amounts due to related parties are non-interest bearing, unsecured and
without specific terms of repayment.
9. Commitments and Contingencies
(a) Contractual Commitments
(i) The Company is committed to issue up to 400,000 Class "A" shares
to the President of ETC and President of TEAM which shall be
earned as to 100,000 shares for every 1,000,000 CTHA's sold.
(ii) See Note 7 for commitments to issue shares upon the exercise of
stock options and warrants.
(b) Contingent liability - Development Stage Company (See Note 1).
(c) Legal Proceedings
(i) 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") sought money damages
and equitable relief against the Company alleging patent infringement
by the Company for the CTHA. The Company notified West Virginia
University ("WVU") of this claim and contacted WVU to assist in the
defence. 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.
-29-
<PAGE>
9. Commitments and Contingencies (continued)
(c) Legal Proceedings (continued)
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. 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.
A decision by the United States District Court for the Northern
District of West Virginia will, if upheld on appeal, signal the end to
patent litigation brought by VorteKx, Inc. against the Company.
VorteKx, Inc. brought a patent infringement action against IAS in the
United States District Court for the District of Oregon on a patent
issued to a former graduate student at WVU, Kurt L. VanVoorhies, and
subsequently assigned to VorteKx. On the Company's motion, the case
was transferred to the Northern District of West Virginia and
consolidated with a previously-pending action filed by WVU against
VanVoorhies, discussed above. The Company and WVU both claimed that
the technology covered by the patent is actually owned by WVU. The
Company is the sublicensee of commercial applications of the CTHA
technology.
In a Memorandum Opinion and Order entered February 17, 2000, the West
Virginia federal court granted summary judgment for WVU in its claims
against VanVoorhies. The Court also dismissed VanVoorhies' claims
against WVU and third-party defendants West Virginia University
Research Corporation, Dr. James E. Smith and Integral Concepts, Inc.
Because the Court's holding establishes that WVU owns the technology,
it should bring an end to the litigation against the Company, which
was stayed pending resolution of the case against VanVoorhies.
The dispute in the WVU action concerned inventions conceived during
VanVoorhies' time at WVU as a graduate student and later as a graduate
research assistant, particularly two inventions relating to the CTHA
technology. The Court found that VanVoorhies validly assigned all
rights in the first invention to WVU, including all future technology
derived from the technology underlying that invention. VanVoorhies
subsequently declined to assign to WVU any interest in a second
invention. The Court found that the second invention constituted
future technology derived from the first invention. Therefore,
VanVoorhies' assignment of the first invention to WVU also effectively
assigned the second invention to WVU, and WVU is the rightful owner of
the patent applications filed by VanVoorhies on the CTHA technology.
Because one of these patent applications led to the issuance of the
patent underlying VorteKx's infringement suit against the Company,
VorteKx no longer has standing to pursue that infringement case. The
case has been stayed pending VanVoorhies' appeal from the Court's
order.
(ii) On May 16, 2000 the Company filed suit in the United States District
Court for Northern District of West Virginia against Integral
Technologies, Inc., Next Antennas.Com, Inc., Emergent Technologies
Corporation and Jack Parsons (collectively, "the Defendants"),
alleging breach of contract, misappropriation of trade secrets,
interference with economic relations, and breach of fiduciary duty.
This Company is the exclusive commercial sublicensee of certain
proprietary antenna technology developed by West Virginia University,
including any improvements, modifications or enhancements thereto
("the Technology"). The Company established a joint venture (TEAM)
with Emergent Technologies Corporation, exclusive military sublicensee
of the Technology, to develop antennas based on the Technology.
Emergent was subsequently acquired by Integral Technologies, Inc.,
which recently announced it is selling antennas to the commercial
market through its wholly-owned subsidiary, Next Antennas.Com, Inc.
Jack Parsons has been the president of Emergent, and a director of
Integral. The Company believes that the defendants are selling
antennas in contravention of their obligations under the sublicense
agreements and otherwise, and in violation of the Company's exclusive
rights.
The Company seeks injunctive and affirmative relief and punitive
damages as follows:
- An injunction prohibiting the Defendants from using or disclosing the
Company's trade secrets; or manufacturing, distributing or selling,
any device derived from the Technology for commercial applications;
-30-
<PAGE>
9. Commitments and Contingencies (continued)
(c) Legal Proceedings (continued)
- An order requiring the Defendants to account to the Company for
all profits obtained as a result of their alleged breach of
contract, breach of duty of good faith and fair dealing,
misappropriation of trade secrets, interference and/or breach of
fiduciary duty; and to return all proprietary materials and
destroy all devices created in violation of the Company's rights;
(iii) A money judgment against the Defendants in an amount to be
determined at trial; additional exemplary or punitive damages
calculated to deter such conduct, and attorney fees and costs; and
(iv) An order requiring the Defendants to hold in trust for the Company
all profits the Defendants have made from commercial sales of
antennas derived from the Technology.
10. Segmented Information
The Company has adopted SFAS No. 131 Disclosure About Segments of an
Enterprise and related information.
The business of the Company is carried on in one industry segment being the
research and development of advanced antenna technology.
The Company operates in two geographic segments, one being Canada, located
in Vancouver, BC and the other being the United States, located in Kokomo,
Indiana.
The Company's head office is in Richmond, BC, Canada. The head office does
not conduct any business specifically related to research and development.
Its sole purpose is to provide administration, investor relations services
and services relating to being a public company. Included in general and
administrative expenses and net loss is $444,811 (1999 - $829,319) relating
to such activities. The net loss relating to research and development
activities in Canada amounted to $78,512 (1999 - $391,976).
11. Subsequent Events
Subsequent to April 30, 2000 the Company has:
(i) arranged a private placement offering of 600,000 units at $0.75 per
unit.
(ii) entered into an agreement with Cadence Design Systems, Inc. for an
estimated $204,400 in time and materials for professional services in
testing and developing antenna applications.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following table sets forth the name, age and position of each Executive
Officer, Director and Significant Employee of the Company:
-31-
<PAGE>
NAME AGE POSITION
John G. Robertson 59 President, Principal Executive Officer and Member of
the Board of Directors
James L. Vandeberg 57 Chief Operating Officer and a member of the Board of
Directors
Jennifer Lorette 28 Secretary/Treasurer, Principal Financial Officer and
Principal Accounting Officer
Donna M. Maroney 40 Legal and Administration, and Member of the Board of
Directors
Larry Hawks 64 Vice President of Research and Development
All Directors of the Company have served since the formation of the Company in
December, 1994, except for James L. Vandeberg, who was appointed to the Board of
Directors in November, 1998 and Donna Moroney, who was appointed to the Board of
Directors in November 1999. The Executive Officers were elected on February 4,
1995, except for James L. Vandeberg, who was appointed as Chief Operating
Officer on August 1st, 1999. All officers currently devote part-time to the
operation of the Company.
There are no family relationships between any director or executive officer and
any other director or executive officer.
John G. Robertson - President, Principal Executive Officer and a Member of
the Board of Directors
Mr. Robertson has been the President and Principal Executive Officer and a
Director of the Company since its formation. Mr. Robertson has been the
Chairman, President and Chief Executive Officer of REGI, U.S., Inc., an Oregon
corporation traded on the OTC bulletin board, since July 1992. Since October
1984 Mr. Robertson has been President and a Director of Reg Technologies Inc., a
British Columbia corporation listed on the Vancouver Stock Exchange that has
financed the research on the Rand Cam Engine since 1986. REGI U.S. is ultimately
controlled by Reg Technologies Inc. Since June 1997 Mr. Robertson has been
President, Principal Executive Officer and a Director of Information-
Highway.com, Inc., a Florida corporation traded on the OTC bulletin board, and
its predecessor. Mr. Robertson is also the President and Founder of Teryl
Resources Corp., a public company trading on the Vancouver Stock Exchange
involved in gold, diamond, and oil and gas exploration. He is also President of
Flame Petro Minerals Corp., a public company trading on the Alberta stock
Exchange with interests in oil and gas and gold prospects. Since May 1977 Mr.
Robertson has been President and a member of the Board of Directors of SMR
Investments Ltd., a British Columbia corporation engaged in the business of
management and investment consulting.
James L. Vandeberg - Chief Operating Officer and a Member of the Board of
Directors
Mr. Vandeberg became a Director of the Company in November 1998 and its Chief
Operating Officer in August 1999. Mr. Vandeberg is of counsel in the Seattle,
Washington law firm of Ogden Murphy Wallace, P.L.L.C. Mr. Vandeberg's practice
focuses on the corporate finance area, with an emphasis on securities and
acquisitions. Mr. Vandeberg was previously general counsel and secretary of two
NYSE companies and is a director of Information-Highway.com, Inc., a Florida
corporation traded on the OTC bulletin board. He is a member and former director
of the American Society of Corporate Secretaries. He became a member of the
Washington Bar Association in 1969 and of the California Bar Association in
1973. Mr. Vandeberg graduated cum laude from the University of Washington with
a Bachelor of Arts degree in accounting in 1966, and from New York University
School of Law in 1969, where he was a Root-Tilden Scholar.
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Jennifer Lorette - Secretary/Treasurer, Principal Financial Officer and
Principal Accounting Officer
Ms. Lorette is a founder, and has been Secretary/Treasurer, Principal Financial
Officer and Principal Accounting Officer of the Company since February 1995.
Since June 1994 Ms. Lorette has been Vice President and Chief Financial Officer
of REGI U.S., Inc., an Oregon corporation traded on the OTC bulletin board.
Since April 1994 she has also been Vice President of Administration for Reg
Technologies, Inc., a British Columbia corporation listed on the Vancouver Stock
Exchange. REGI U.S. is ultimately controlled by Reg Technologies Inc. Since June
1997 Ms. Lorette has been Secretary/Treasurer, Principal Financial Officer,
Principal Accounting Officer and a Director of Information-Highway.com, Inc., a
Florida corporation traded on the OTC bulletin board, and its predecessor. Since
June 1994 Ms. Lorette has also been Chief Financial Officer and Vice President
of Flame Petro-Minerals Corp.
Donna M. Moroney - Legal and Administration, and a member of the Board of
Directors
Ms. Moroney has been a consultant to public companies since 1992. She has been
an officer of Information Highway.com, Inc. since January 1998 and a Director of
the Company since November 1999. She has been a director of Linux Wizardry
Systems Inc., an OTCBB company, since 1998. She is an officer of Teryl Resources
Corp., a Canadian Venture Exchange Company, a director and officer of Teryl,
Inc. Ms. Moroney has also been an instructor of corporate/securities law for
legal assistants.
Larry Hawks - Vice President of Research and Development
Mr. Hawks serves as Vice President of Research and Development for the Company
on a consulting basis. He has three years of development and research experience
with the Company and has manufactured antennas for the Company. Prior to that,
Mr. Hawks was a consultant for Hebrew University in Jeruselum, Israel as
engineer of developing and teaching.
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely upon a review of Forms 3, 4 and 5 furnished to the Company, other
than Dr. James Smith, who furnished no Forms to the Company during the year, no
officer, director or beneficial owner of more than ten percent of the Common
Stock of the Company failed to file on a timely basis reports required to be
filed by Section 16(a) of the Exchange Act during the most recent fiscal year.
ITEM 10. EXECUTIVE COMPENSATION
No executive officer had an annual salary and bonus in excess of $100,000 during
the past fiscal year. Mr. Robertson received options to purchase 200,000 and
150,000 shares of the Company's common stock in fiscal years 1999 and 1997,
respectively.
A management fee of $2,500.00 per month is accrued for payment to Access
Information Services, Inc., a corporation controlled by the Robertson Family
Trust, the beneficiary of which is Kelly Robertson, daughter of John G.
Robertson. Further, the sum of $1,500.00 is accrued for payment to Access
Information Services, Inc. for rent and secretarial services.
No other compensation is paid to any of the Executive Officers or Directors of
the Company. The Company may in the future create retirement, pension, profit
sharing, insurance and medical reimbursement plans covering its Officers and
Directors. At the present time, no such plans exist. No advances have been made
or are contemplated by the Company to any of its Officers or Directors.
The 200,000 options granted to Mr. Robertson during fiscal year 1999 were
exercisable at a price of $1.50 per share upon grant, expire on November 12,
2003, and represent 40% of all options granted to employees during fiscal year
1999. On May 28, 1999, the Company repriced the options so that they are now
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exercisable for $1.00 per share.
The following table sets forth certain information concerning exercises of stock
options pursuant to stock option plans by the named Executive Officers during
the year ended April 30, 2000, and stock options held at year end.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Number of Value of
Unexercised Unexercised Options at
Shares Options at Year End Year End
Acquired on Value -------------------------- ----------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
John G. Robertson -0- -0- 350,000 -0- $131,250 -0-
</TABLE>
On April 30, 2000, the closing price of Common Stock was $1.375. For purposes of
the foregoing table, stock options with an exercise price less than that amount
are considered to be "in-the-money" and are considered to have a value equal to
the difference between this amount and the exercise price of the stock option
multiplied by the number of shares covered by the stock option. On May 28, 1999
the exercise prices of the outstanding stock options, originally ranging from
$1.50 up to $2.50 per share, were reduced to $1.00 per share.
The Company does not have any long term incentive plans.
The Company does not have any employment contracts, termination of employment
and change of control arrangements.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of June 30, 2000, the outstanding Class A
Common Stock of the Company owned of record or beneficially by each person who
owned of record, or was known by the Company to own beneficially, more than 5%
of the Company's Common Stock, and the name and shareholdings of each Executive
Officer and Director and all Executive Officers and Directors as a group. A
person is deemed to be the beneficial owner of securities that can be acquired
by such person within 60 days from the date of this report upon the exercise of
warrants or options. Each beneficial owner's percentage ownership is determined
by assuming that options that are held by such person and which are exercisable
within 60 days from the date are exercised.
<TABLE>
<CAPTION>
CLASS A PERCENTAGE OF CLASS A
SHARES OWNED SHARES OWNED
<S> <C> <C>
John G. Robertson[1][2] President and member of the Board of
Directors 3,686,575 32.24%
Dr. James Smith[3] 2,787,680 24.38%
Access Information Services, Inc. [4] 3,289,375 28.76%
Robertson Family Trust [5] 3,289,375 28.76%
James L. Vandeberg [6], Chief Operating Officer
and Member of the Board of Directors 100,000 *
Jennifer Lorette[1] [7]
Secretary/Treasurer, Chief Financial Officer and Principal
Accounting Officer 121,000 1.05%
Donna Moroney [8] 50,000 *
ALL EXECUTIVE OFFICERS & DIRECTORS AS A GROUP (FOUR
INDIVIDUALS) [9] 3,957,575 34.61%
</TABLE>
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Except as noted below, all shares are held beneficially and of record and each
record shareholder has sole voting and investment power.
* Less than one percent
[1] These individuals are the Executive Officers and Directors of the Company
and may be deemed to be "parents or founders" of the Company as that term
is defined in the Rules and Regulations promulgated under the Securities
Act of 1933, as amended.
[2] Includes 3,000,000 shares registered in the name of Access Information
Services, Inc., a corporation controlled by the Robertson Family Trust, and
350,000 options that are currently exercisable. Mr. Robertson is one of
three trustees of the Robertson Family Trust, which acts by the majority
vote of the three trustees. Mr. Robertson disclaims beneficial ownership of
the shares owned or controlled by the Robertson Family Trust. Mr.
Robertson's address is the same as the Company's.
[3] Dr. Smith's address is Route 4, Box E36, Bruceton Mills, WV 26525.
[4] Access Information Services is a corporation owned by the Robertson Family
Trust. Its address is 185 - 10751 Shellbridge Way, Richmond, British
Columbia V6X 2W8, Canada.
[5] Includes 3,000,000 shares owned of record by Access Information Services, a
corporation owned by the trust. The address of the Robertson Family Trust
is 185 - 10751 Shellbridge Way, Richmond, British Columbia V6X 2W8, Canada.
[6] Includes 75,000 options that are currently exercisable. Mr. Vandeberg's
address is Ogden Murphy Wallace, P.L.L.C., 1601 Fifth Avenue, Suite 2100,
Seattle, Washington 98101-1686.
[7] Includes 75,000 options that are currently exercisable. Ms. Lorette's
address is the same as the Company's.
[8] Includes 50,000 that are currently exercisable. Ms. Moroney's address is
the same as the Company's
[9] Includes 3,000,000 shares registered in the name of Access Information
Services, Inc., a corporation controlled by the Robertson Family Trust, and
675,000 options that are currently exercisable. Mr. Robertson is one of
three trustees of the Robertson Family Trust, which acts by the majority
vote of the three trustees. Mr. Robertson disclaims beneficial ownership of
the shares owned or controlled by the Robertson Family Trust.
CHANGES IN CONTROL
There are no arrangements known to the Company the operation of which may result
in a change of control of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH DIRECTORS
Certain Transactions
The Company issued 100 shares of Class A Voting Common Stock to its directors on
December 13, 1994. On July 12, 1995, these shares were donated back to the
Company and canceled.
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<PAGE>
Integral Concepts, Inc. ("ICI"), holder of the exclusive worldwide license to
the CTHA technology, entered into an option agreement with SMR Investments Ltd.
("SMR"), a corporation owned by Sue Robertson, the wife of Mr. Robertson, dated
November 18, 1994, and amended December 16, 1994 (the "Option Agreement"). The
Option Agreement provided that ICI would issue a sublicense to SMR for the CTHA
subject to the payment of $250,000; a 3% royalty from gross sales; and a
subsequent public entity to be established. The Company was organized by SMR and
Robertson as a result. ICI retained all military applications and resulting
procurement interests. The contract period relating to the three percent royalty
to be paid to ICI commences when sales are made by SMR/the Company and continue
during the life of the Option Agreement. The term of the Option Agreement is
perpetual as is the ICI License.
On December 13, 1994, SMR assigned the rights to the Option Agreement to the
Company in consideration of $50,000 advanced by Access Information Services,
Inc. (the "Option Assignment"). Access Information Services, Inc. is a
corporation owned and controlled by the Robertson Family Trust.
On December 14, 1994, the Company issued 3,000,000 Class A Shares to Access
Information Services, Inc., pursuant to the Option Assignment. The value
assigned to the 3,000,000 Class A common shares issued to Access Information
Services Inc. was $0.50. The valuation of the 3,000,000 shares issued to Access
Information Services, Inc. was arbitrarily determined by the Company's Board of
Directors. The $250,000 has been paid to ICI and was a one time payment.
On July 10, 1995, ICI entered into the Sublicense wherein ICI granted to the
Company the exclusive worldwide right to manufacture, sell copies of, sublicense
and distribute the process and equipment related to the design, construction and
operation of the CTHA and to further sublicense others the rights to
manufacture, sell copies of, license and distribute the same, excluding all
military applications and procurement interests. The Sublicense was the
culmination of the agreement between ICI and SMR, and SMR and the Company. On
December 27, 1995, SMR assigned all of its rights and duties in the CTHA
technology to the Company. The purpose of this assignment was to assign any and
all rights or duties which may have been held by SMR as a result of the Option
Agreement, it being understood that the Option Agreement was nothing more than
an agreement in principle. The term of the Sublicense is perpetual and requires
the payment of a minimum annual royalty of $3,000. Further, the Company will pay
a royalty of 10% of the net revenues derived from sales, licenses or sublicenses
of the CTHA technology with a credit for the minimum royalty. In addition the
Company shall pay a royalty of 3% of the gross revenues derived from the sales,
licenses or sublicenses of the CTHA technology.
The Company and ICI amended the Sublicense in March 1997 to clarify the
applications of CTHA technology subject to the Company's sublicense. As amended,
the Company has exclusive rights to all commercial applications. Emergent
Technologies Corporation ("ETC") has the exclusive rights to all governmental
and military applications for the CTHA antenna. In consideration for the
amendment, the Company received a 50% reduction in royalties to be paid to ICI
over a three year period plus an enlarged definition of Technology to include
all future enhancements to the CTHA technology.
To date, there have not been any transactions between the Company and its
officers, directors, principal shareholders or affiliates other than as set
forth above. The Company believes that the transactions described here were on
terms more favorable to the Company's officers, and directors, than otherwise
could be obtained if such transactions were with non-related parties.
ITEM 13(a). Exhibits.
Number Description Page No.
------ ----------- -------
3.1 Articles of Incorporation (1)
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<PAGE>
3.2 Article of Amendment (1)
3.3 By-Laws (1)
4.1 Specimen Share Certificate for Class A Shares (1)
4.2 Specimen Share Certificate for Class B Shares (1)
4.3 Specimen Warrant (2)
4.4 Specimen Debenture (2)
10.1 Marketing Agreement between IAS and Information
Highway.com, Inc.
10.2 Professional Service Agreement between IAS and
Cadence Design Systems, Inc.
10.3 Consulting Agreement between IAS and Capital Research
Group Inc.
10.4 License Agreement between IAS and World Tracking
Technologies, Inc.
10.5 Amendment to License Agreement between IAS and World
Tracking Technologies, Inc.
10.6 License Agreement between IAS and ARINC Incorporated
10.7 Renewal Lease Agreement for Kokomo, Indiana Facilities
23.1 Consent of Elliott Tulk Pryce Anderson
27.1 Financial Data Schedule
____________
(1) Incorporated by reference from Form S-1 Registration Statement (33-92592).
(2) Incorporated by reference from Form 10-KSB for Fiscal Year 1998.
ITEM 13(b). Reports on Form 8-K.
None. In lieu of filing the form 8-K called for by Rule 135c(d) with respect to
the private offering disclosed in Item 6 of this form 10-KSB, the Company has
made the disclosures in Item 6 of this Form 10-KSB. If filed on Form 8-K, such
disclosures would be presented in Item 5, Other Items.
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<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this report or amendment to be signed on its
behalf by the undersigned, thereunto duly authorized.
IAS COMMUNICATIONS, INC.
By: /s/ John G. Robertson
---------------------------------------
John G. Robertson, President
Chief Executive Officer and Director
Dated: September 7, 2000
In accordance with the Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of the Registrant and in the
capacities indicated as of September 7, 2000.
Signature Title
--------- -----
/s/ John G. Robertson President, Chief Executive
----------------------------------------- Officer and Director
John G. Robertson
/s/ James Vandeberg Director
-----------------------------------------
James Vandeberg
/s/ Jennifer Lorette Chief Financial Officer
----------------------------------------- and Principal Accounting
Jennifer Lorette Officer
Vice-President, Legal and
----------------------------------------- Administration and Director
Donna Moroney
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<PAGE>
EXHIBIT INDEX
Number Description Page No.
------ ----------- -------
3.1 Articles of Incorporation (1)
3.2 Article of Amendment (1)
3.3 By-Laws (1)
4.1 Specimen Share Certificate for Class A Shares (1)
4.2 Specimen Share Certificate for Class B Shares (1)
4.3 Specimen Warrant (2)
4.4 Specimen Debenture (2)
10.1 Marketing Agreement between IAS and Information
Highway.com, Inc.
10.2 Professional Service Agreement between IAS and
Cadence Design Systems, Inc.
10.3 Consulting Agreement between IAS and Capital Research
Group Inc.
10.4 License Agreement between IAS and World Tracking
Technologies, Inc.
10.5 Amendment to License Agreement between IAS and World
Tracking Technologies, Inc.
10.6 License Agreement between IAS and ARINC Incorporated
10.7 Renewal Lease Agreement for Kokomo, Indiana Facilities
23.1 Consent of Elliott Tulk Pryce Anderson
27.1 Financial Data Schedule
____________
(1) Incorporated by reference from Form S-1 Registration Statement (33-92592).
(2) Incorporated by reference from Form 10-KSB for Fiscal Year 1998.
