INTERNATIONAL AUTOMATED SYSTEMS INC - FORM 10-Q

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EX-31.2 - CERTIFICATION BY THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - INTERNATIONAL AUTOMATED SYSTEMS INC	iaus10q20101231ex31-2.htm
EX-32.2 - CERTIFICATION BY THE CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - INTERNATIONAL AUTOMATED SYSTEMS INC	iaus10q20101231ex32-2.htm
EX-32.1 - CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - INTERNATIONAL AUTOMATED SYSTEMS INC	iaus10q20101231ex32-1.htm
EX-31.1 - CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - INTERNATIONAL AUTOMATED SYSTEMS INC	iaus10q20101231ex31-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

______________________

Quarterly Report Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

For the Quarterly Period Ended December 31, 2010

Commission File Number 33-16531-D

INTERNATIONAL AUTOMATED SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

Utah	87-0447580
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

326 North SR 198, Salem, Utah 84653

(Address of principal executive offices, including zip code)

(801) 423-8132

(Registrant’s telephone number, including area code)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Check one:

o Large accelerated filer

o Accelerated filer

o Non-accelerated filer

x Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date.

Class	Outstanding as of January 28, 2011
Common Stock, no par value	44,528,251 shares

INTERNATIONAL AUTOMATED SYSTEMS, INC.

(A Development Stage Company)

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

Item 1: Financial Statements

Condensed Balance Sheets
As of December 31, 2010 (unaudited) and June 30, 2010 (audited)	1

Unaudited Condensed Statements of Operations
For the three and six months ended December 31, 2010 and 2009 and for the Period from
September 26, 1986 (Date of Inception) through December 31, 2010	2

Unaudited Condensed Statements of Cash Flows
For the six months ended December 31, 2010 and 2009 and for the Period from
September 26, 1986 (Date of Inception) through December 31, 2010	3

Notes to Unaudited Condensed Financial Statements	4

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations	7

Item 4: Controls and Procedures	9

PART II – OTHER INFORMATION

Item 1: Legal Proceedings	9

Item 2: Unregistered Sales of Securities and Use of Proceeds	9

Item 3: Defaults Upon Senior Securities	9

Item 4: Reserved	9

Item 5: Other Information	9

Item 6: Exhibits	9

Signatures	10

-i-

INTERNATIONAL AUTOMATED SYSTEMS, INC.

(A Development Stage Company)

Condensed Balance Sheets

	December 31,			June 30,
	2010			2010
	(unaudited)			(audited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	10,037		$	6,865
Prepaid expenses		2,000			2,000

Total Current Assets		12,037			8,865

Alternate solar energy systems		600,741			537,825
Property and Equipment, net of accumulated depreciation of $415,715 and $372,457, respectively		358,799			402,057
Patents, net of accumulated amortization of $29,298 and $26,474, respectively		66,728			69,553

TOTAL ASSETS	$	1,038,305		$	1,018,300

LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES
Accounts payable	$	327,311		$	94,525
Accrued liabilities		376,587			350,622
Related party payable		97,182			507,532
Customer deposits		2,360,250			2,360,250
Notes payable-current portion		16,185			30,881

Total Current Liabilities		3,177,515			3,343,810

Long-term notes payable		70,231			83,834

TOTAL LIABILITIES		3,247,746			3,427,644

Commitments and contingencies

STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, Class A, no par value; 22,000,000 shares authorized, 5,400,000 and 4,400,000 shares issued and outstanding, respectively		470,264			417,264
Preferred stock, Class B, no par value, 3,000,000 shares authorized, 300,000 shares issued and outstanding		-			-
Common stock, no par value, 225,000,000 shares authorized, 40,083,579 and 37,037,153 issued and outstanding, net of 4,444,672 and 3,538,118 shares held in escrow account, respectively		36,750,935			36,032,789
Deficit accumulated during the development stage		(39,430,640	)		(38,859,397	)
Total Stockholders' Deficit		(2,209,441	)		(2,409,344	)

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	1,038,305		$	1,018,300

See accompanying notes to condensed financial statements.

INTERNATIONAL AUTOMATED SYSTEMS, INC.

(A Development Stage Company)

Unaudited Condensed Statements of Operations

													For the Period
													From Inception
	For the Three Months Ended						For the Six Months Ended						(September 26,
	December 31,						December 31,						1986) Through
	2010			2009			2010			2009			December 31, 2010
Revenues
Sales	$	-		$	-		$	-		$	-		$	111,226
Income from related party		-			-			-			-			32,348
Total revenues		-			-			-			-			143,574

Costs of sales
Cost of sales		-			-			-			-			81,927
Write down of carrying value
of inventory		-			-			-			-			233,131
Total costs of sales		-			-			-			-			315,058

Gross loss		-			-			-			-			(171,484	)

Operating expenses
General and administrative		233,780			1,177,066			394,668			2,540,897			31,662,470
Research and development		58,586			101,975			172,247			216,371			8,288,636
Impairment of patents		-			-			-			-			140,577
License fees		-			-			-			-			270,634
Total operating expenses		292,366			1,279,041			566,915			2,757,268			40,362,317

Loss from operations		(292,366	)		(1,279,041	)		(566,915	)		(2,757,268	)		(40,533,801	)

Other income (expenses)
Loss on impairment of assets		-			-			-			-			(583	)
Forfeiture of deposits		-			-			-			-			(236,803	)
Interest income		-			-			-			59			26,580
Interest expense		(1,467	)		(2,078	)		(3,330	)		(4,608	)		(34,808	)
Other income (expenses)		(998	)		416			(998	)		690			(33,248	)
Total other income (expenses)		(2,465	)		(1,662	)		(4,328	)		(3,859	)		(278,862	)

Loss before extraordinary gain		(294,831	)		(1,280,703	)		(571,243	)		(2,761,127	)		(40,812,663	)

Extraordinary gain on sale of patents		-			-			-			-			1,382,023

Net loss	$	(294,831	)	$	(1,280,703	)	$	(571,243	)	$	(2,761,127	)	$	(39,430,640	)

Net loss per common share
Basic and diluted	$	(0.01	)	$	(0.04	)	$	(0.02	)	$	(0.08	)

Weighted average common shares outstanding
Basic and diluted		38,696,160			34,802,711			37,887,610			34,685,256

See accompanying notes to condensed financial statements.

INTERNATIONAL AUTOMATED SYSTEMS, INC.

(A Development Stage Company)

Unaudited Condensed Statements of Cash Flows

							For the Period
							From Inception
	For the Six Months Ended						(September 26,
	December 31,						1986) Through
	2010			2009			December 31, 2010
Cash flows from operating activities
Net loss	$	(571,243	)	$	(2,761,127	)	$	(39,430,640	)
Adjustments to reconcile net loss to net
cash from operating activities:
Depreciation and amortization		46,083			48,384			723,238
Stock-based compensation		55,500			2,161,861			22,426,641
Forfeiture of deposits		-			-			236,803
Write down of carrying value of inventory		-			-			16,945
Write off of equipment to research and development		-			-			23,900
(Gain) / loss on disposal of equipment		-			-			18,679
Impairment of patents and abandonment of in-process
rights to technology		-			-			387,128
Extraordinary gain on sale of patents		-			-			(1,382,023	)
Gain on settlement of debt		-			-			(6,123	)
Operating expenses paid by principal stockholder		36,000			-			36,000
Stock issued for services		-			9,833			120,247
Changes in current assets and liabilities:
(Increase) / decrease in prepaid expenses		-			-			7,833
(Increase) / decrease in alternate solar energy systems		(62,916	)		(97,695	)		(600,741	)
Increase / (decrease) in customer deposits		-			603,000			2,360,250
Increase / (decrease) in accounts payable		232,786			(299,115	)		327,311
Increase / (decrease) in related party payable		(5,500	)		(5,000	)		68,001
Increase / (decrease) in accrued liabilities		25,965			57,958			476,586
Net cash provided by (used in) operating activities		(243,325	)		(281,901	)		(14,189,965	)

Cash flows used in investing activities
Purchase of property and equipment		-			(15,937	)		(772,135	)
Purchase of rights to technology		-			-			(706,643	)
Organization costs		-			-			(1,880	)
Net cash advanced to related party		-			-			(1,644,988	)
Commitments and contingencies - Note 6		-			-			44,220
Proceeds from sale of equipment		-			-			2,500
Repayment of cash loaned to related party		-			-			53,254
Net proceeds from sale of patents		-			-			1,382,023
Net cash used in investing activities		-			(15,937	)		(1,643,649	)

Cash flows provided by financing activities
Proceeds from issuance of common stock		279,646			199,464			6,457,107
Proceeds from reissuance of treasury stock		-			-			751,573
Contributed capital		-			-			6,270,559
Payments for treasury stock		-			-			(3,325	)
Payments for stock offering costs		-			-			(56,509	)
Proceeds from cash advances from related party		176,877			278,000			3,074,080
Payments on cash advances from related party		(181,727	)		(56,387	)		(559,440	)
Proceeds from notes payable		-			-			29,857
Payments on notes payable and capital lease obligations		(28,299	)		(14,904	)		(275,910	)
Proceeds from related party deposits		-			-			224,400
Purchases of equipment held for distribution		-			-			(68,741	)
Net cash provided by financing activities		246,497			406,173			15,843,651

Net change in cash		3,172			108,335			10,037
Cash at beginning of period		6,865			47,537			-
Cash at end of period	$	10,037		$	155,872		$	10,037

Supplemental non-cash flow information
Settlement of advances from related party in exchange for exercise of warrants	$	400,000		$	-

See accompanying notes to condensed financial statements.

International Automated Systems, Inc.

(A Development Stage Company)

Notes to Unaudited Condensed Financial Statements

December 31, 2010

NOTE 1 – INTERIM FINANCIAL STATEMENTS

The accompanying condensed financial statements have been prepared without audit. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the Company’s condensed financial position, results of operations and cash flows as of the dates and for the periods presented herein have been made.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the Securities and Exchange Commission’s rules and regulations. These condensed financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s June 30, 2010 Annual Report on Form 10-K. The results of operations for the three and six months ended December 31, 2010 are not necessarily indicative of the operating results that may be expected for the year ending June 30, 2011. The Company’s significant accounting policies are set forth in Note 1 to the financial statements in the June 30, 2010 Annual Report on Form 10-K.

NOTE 2 - BUSINESS CONDITION/GOING CONCERN

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As of December 31, 2010 the Company had $10,037 of cash available and had a working capital deficit of $3,165,478. The Company had no revenue and no operating income for the three and six months ended December 31, 2010 and 2009. As of December 31, 2010 the Company’s losses accumulated from inception and cash used in operating activities from inception totaled $39,430,640 and $14,189,965, respectively. These factors, among others, indicate that the Company may be unable to continue as a going concern for a reasonable period of time. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis, to obtain additional financing as may be required, and ultimately to attain successful operations. Management is in the process of negotiating various sales agreements and is hopeful these sales will generate sufficient cash flow for the Company to continue as a going concern. If the Company is unsuccessful in these efforts and cannot attain sufficient sales to permit profitable operations or if it cannot obtain a source of funding or investment, it may substantially curtail or terminate its operations.

NOTE 3 – ACCOUNTING PRONOUNCEMENTS

Adoption of New Accounting Pronouncements

In October 2009, the FASB revised its accounting guidance related to revenue arrangements with multiple deliverables. The guidance applies to all deliverables in contractual arrangements in which a vendor will perform multiple revenue-generating activities. The guidance addresses how arrangement consideration should be allocated to the separate units of accounting, when applicable. The new guidance retains the criteria when delivered items in a multiple-deliverable arrangement should be considered separate units of accounting, but it removes the previous separation criterion that objective and reliable evidence of fair value of any undelivered items must exist for the delivered items to be considered a separate unit or separate units of accounting. The guidance was effective for us beginning on July 1, 2010. The adoption of this guidance did not have a significant impact on the Company’s financial statements.

NOTE 4 – BASIC AND DILUTED NET LOSS PER COMMON SHARE

The basic earnings per common share is computed by dividing the net loss applicable to common shares by the weighted average number of common shares outstanding. Diluted earnings per share is computed by dividing the net income or loss by the sum of the weighted average number of common shares plus the weighted average common stock equivalents which would arise from the exercise of outstanding stock options, issuance of stock held in trust and conversion of Series B Preferred Shares into options, using the treasury stock method and the average market price per share during the period.

As a result of incurring a net loss for the three and six months ended December 31, 2010 and 2009, no outstanding common stock equivalents are included in the calculation of diluted earnings per share because such effect would be anti-dilutive. The Company had outstanding stock options and warrants to purchase a total of 92,300,000 and 95,900,000 shares of common stock at December 31, 2010 and 2009, respectively, which are not included in the basic earnings per share calculation. The Company had 4,444,672 and 3,861,718 shares of stock held in trust at December 31, 2010 and 2009, respectively, which are not included in the basic earnings per share calculation. The Company had 300,000 Series B Preferred Shares that are convertible into options to purchase 600,000 shares of common stock at December 31, 2010 and 2009, which are not included in the basic earnings per share calculation.

NOTE 5 – STOCK-BASED COMPENSATION

The Company accounts for stock-based compensation in accordance with Accounting Standards Codification (“ASC’) Topic 718. The Company estimated the fair value of options and warrants granted under stock-based compensation arrangements at the grant date using the Black-Scholes model. For the six months ended December 31, 2010 and 2009, total stock-based compensation expense recognized was $55,500 and $2,161,861, respectively. For the three months ended December 31, 2010 and 2009, total stock-based compensation expense recognized was $53,000 and $1,079,096, respectively. Stock-based compensation was included in general and administrative expenses.

During the six months ended December 31, 2010, employees purchased 35,714 shares of restricted stock at a 25% discount from the price of the stock on the date of the sale. The Company recorded the value of the 25% discount of $2,500 as stock-based compensation. During the six months ended December 31, 2010, the Company issued 1,000,000 Series A Preferred Stock entitled to the voting rights of 100 common shares for each preferred share, valued at $53,000, to two of its executives which was recorded as stock-based compensation.

During the six months ended December 31, 2010, 1.0 million warrants were exercised for settlement of cash advances. During the six months ended December 31, 2010 and 2009, there were no stock options or warrants granted and 1.6 million stock options expired during the six months ended December 31, 2010. 100,000 stock options vested during the six months ended December 31, 2009. There was no unrecognized compensation cost at December 31, 2010 related to non-vested stock based compensation awards.

NOTE 6 – COMMITMENTS AND CONTINGENCIES

Sales Commitments - During December 2005, the Company entered into a purchase and installation contract with Solar Renewable Energy-1, LLC for a solar thermal power plant. The contract is contingent on several factors and provides for certain progress payments. As of December 31, 2010, the Company has not provided any services or equipment required under this agreement and has recognized no revenues.

The Company’s board of directors authorized the Company to enter into an agreement dated May 14, 2004 and amended October 13, 2004, with the Company’s president, in which the Company acquired patents, patents pending, designs and contracts related to certain technology developed by the president from the president. As consideration, the Company authorized and issued warrants to purchase 100,000,000 shares of common stock to the president and agreed to pay the president royalties in the future equal to 10% of future sales proceeds from the technology.

The Company’s president has entered into several solar lease bonus fee contracts with many of the customers who made deposits on the alternate solar energy system. As additional consideration for making the deposit and making the solar alternate energy system available to the Company as a reference for marketing and sales purposes to show and demonstrate, the Company’s president has agreed to pay many of the customers a referral fee of .009%, for each System purchased, on the first one billion dollars of total gross sales revenue received by the Company for the sale of power generation equipment. The Company’s president plans to pay this fee from his future royalties mentioned in the above paragraph.

Notes Payable – The Company has entered into two notes payable with financing companies collateralized by a deed of trust covering the underlying property. The principal amount owed for the land notes payable at December 31, 2010 was $83,834. Both notes payable mature in fiscal year 2016.

The Company entered into a note payable with a company to purchase equipment during March 2009. The note payable bears interest at a weighted average interest rate of 4.65% and is payable in monthly installments of $4,000. The total amount owed for the equipment note payable was $2,582 at December 31, 2010.

NOTE 7 - STOCKHOLDERS EQUITY

Common Stock Issued for Cash— The Company has shares of common stock in escrow accounts. Proceeds from the sale of stock from these escrow accounts are placed in separate escrow accounts to be used at the Company’s and the trustee’s discretion. During the six months ended December 31, 2010, 593,446 shares were sold for proceeds of $100,512 at prices ranging from $0.10 to $0.26 per share. During the six months ended December 31, 2009, 483,100 shares were sold for proceeds of $199,464 at prices ranging from $0.31 to $.62 per share. The proceeds were used to pay professional fees, rent, and operating expenses. At December 31, 2010, there was a balance of 4,444,672 shares in the escrow accounts. These shares are not accounted for as issued or outstanding common shares.

The Company entered into an agreement for engineering and consulting services in July 2010. As part of the agreement, the Company agreed to transfer in retainer 1,500,000 shares of the Company’s restricted stock to engineering consulting firm as a retainer. The engineering consulting firm will be entitled to have shares of the restricted stock sold as reasonably needed to generate funds to pay for engineering and consulting costs incurred by the engineering and consulting firm for the Company. The restricted shares transferred were classified as shares held in escrow and are included in the balance of 4,444,672 shares in escrow accounts. As of December 31, 2010, all of the 1,500,000 shares are still held in escrow.

During the six months ended December 31, 2010, the Company also issued 35,714 shares of restricted common stock to employees in exchange for $7,500 in cash at a price of $0.21 per share and issued 1,417,266 shares of restricted common stock to third parties for $171,635 at prices ranging from $0.09 to $0.17 per share.

Common Stock Issued for Settlement of Related Party Payable - As described in Note 8, during the six months ended December 31, 2010, the Company issued 1,000,000 shares of common stock upon the exercise of warrants at $0.40 per share for settlement of cash advances.

Series A Preferred Stock – During the six months ended December 31, 2010, the Company issued 1,000,000 Series A Preferred Stock entitled to the voting rights of 100 common shares for each preferred share, valued at $53,000, to two of its executives for compensation.

NOTE 8 – RELATED PARTY TRANSACTIONS

The Company received cash advances of $176,877 and $278,000 from its president during the six months ended December 31, 2010 and 2009. The advances are non-interest bearing, payable upon demand and included in related party payables. During the six months ended December 31, 2010, the Company settled $400,000 of the cash advances by issuing 1,000,000 shares of common stock upon the exercise of warrants and settled $181,727 of the cash advances by paying the president’s personal legal expenses. During the six months ended December 31, 2009, the Company settled $56,387 of the cash advances by paying the president’s personal legal expenses. As of December 31, 2010 and June 30, 2010, the cash advance balance, included in related party payable, was $29,182 and $434,032, respectively.

During 2003, the Company commenced leasing office and research and development space on a month-to-month basis from the president and a third party. The lease is an operating lease and rent expense was $6,000 per month to the President and $6,200 per month to the third party. Effective July 1, 2010, the president stopped charging the Company rent. However, because the president is principal stockholder, rent expense of $6,000 per month has been recorded and credited to equity as contributed capital. The amount payable to the president for rent at December 31, 2010 and June 30, 2010 was $68,000 and $73,500, respectively, and is included in related party payable. The amount recorded to equity for rent was $36,000 for the six months ended December 31, 2010.

The Company has received deposits from officers of $81,000 for alternate solar energy systems, which are included in customer deposits at December 31, 2010 and June 30, 2010.

The Company's president and two of his sons, who are also officers of the Company, control more than 85% of the voting rights of the Company. As a result, these three individuals control the Company’s business operations and policies and all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions.

NOTE 9 – DEPOSITS FROM CUSTOMERS

During the six months ended December 31, 2010 and 2009, the Company received deposits from customer totaling $0 and $621,000, respectively, and refunded deposits totaling $0 and $18,000, respectively, relating to contract agreements to build, install and maintain alternate solar energy systems.

The total amount of customer deposits at December 31, 2010 was $2,360,250. The agreements provide that the Company will deliver, install and startup the alternate solar energy systems prior to June 30, 2010. The Company has and continues to work toward delivering, installing and starting up the alternate solar energy systems, but the energy output has not been verified. Therefore, for all of these agreements, the customers may request a return of their deposits since the Company has not verified output of the energy.

NOTE 10 – FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company’s financial instruments consist of cash and cash equivalents, payables, and notes payable. The carrying amount of cash and cash equivalents and payables approximates fair value because of the short-term nature of these items. The carrying amount of the notes payable approximates fair value as the individual borrowings bear interest at rates that approximate market interest rates for similar debt instruments.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations and other parts of this quarterly report on Form 10-Q contain forward-looking statements that involve risks and uncertainties. Forward-looking statements can also be identified by words such as “intends,” “anticipates,” “expects,” “believes,” “plans,” “predicts,” and similar terms. Forward-looking statements are not guarantees of future performance and our actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to delays in product development, the development of marketing and distribution channel and market acceptance of its products and other risks that may be beyond the control of the Company. The following discussion should be read in conjunction with our unaudited condensed financial statements and notes thereto included in this Form 10-Q and our audited financial statements included in our annual report on Form 10-K for the year ended June 30, 2010 filed with the Securities and Exchange Commission and management’s discussion and analysis contained therein. All information presented herein is based on the three and six months ended December 31, 2010 and 2009. We assume no obligation to revise or update any forward-looking statements for any reason, except as required by law.

LIQUIDITY AND CAPITAL RESOURCES

Historically, the Company’s principal use of cash has been to fund ongoing research and development activities and constructing the alternate solar energy systems. To date, the Company has primarily financed its operations by the receipt of cash advances from its president, through the private placement of equity securities and receipt of customer deposits for the alternate solar energy system. The Company has no formal agreement as to any future loans or advances, but the Company does anticipate receiving additional advances from its president.

The Company has shares of common stock in escrow accounts. Proceeds from the sale of stock from these escrow accounts are placed in separate escrow accounts to be used at the Company’s and the trustee’s discretion. During the six months ended December 31, 2010, 593,446 shares were sold for proceeds of $100,512 at prices ranging from $0.10 to $0.26 per share. At December 31, 2010, there was a balance of 4,444,672 shares in the escrow accounts. The Company anticipates that a portion of these shares will be sold to help fund ongoing operations, but there is no assurance that there will be buyers for the shares.

During the six months ended December 31, 2010, the Company sold 1,452,980 shares of restricted common stock to employees and third parties for proceeds of $179,135 at prices ranging from $0.09 to $0.21 per share. The Company anticipates selling additional restricted shares to help fund ongoing operations, but there is no assurance that there will be buyers for the shares.

The Company has no line of credit with any financial institution and it doesn’t believe it will be able to establish a line of credit from conventional sources until the Company has consistent revenue. Management is in the process of negotiating various sales agreements and is hopeful these sales will generate cash flow to help the Company fund continuing operations.

The Company's liquidity is substantially limited given the current rate of expenditures. More funds will be required to support ongoing building of the alternate solar energy systems, product development, finance any marketing programs and establish any distribution networks. The Company had $10,037 in cash as of December 31, 2010, representing an increase of $3,172 from June 30, 2010. The increase relates to net cash used in operations of $243,325 offset by net cash provided from investing activities of $246,497, primarily related to cash advances received from the Company’s president and proceeds from issuance of restricted common stock.

As of December 31, 2010, the Company had current assets of $12,037 and total assets of $1,038,305. Current liabilities were $3,177,515 and total liabilities of $3,247,746. The ratio of current assets to current liabilities is approximately 0.004 to one. If the Company continues to need advances from its president or if the Company is unable to generate sufficient revenues to meet its operating expenses, the Company will continue to experience liquidity difficulties.

The Company's ability to continue its activities is dependent on it receiving funds from advances or the sale of equity. As noted previously, the Company’s president has provided funds from advances, but there is no formal agreement between the Company and the president to continue providing advances in the future. There is also no assurance that there will be buyers for the sale of equity. If the Company had to seek funds from another source, there is no assurance that funds would be available at all or on terms acceptable to the Company.

PLAN OF OPERATION

The Company’s plan of operation for the next 12 months is to: (i) continue to build its alternate solar energy system and get the system operational to begin producing energy; (ii) market and sell the solar energy technology system once it is operational; and (iii) continue to develop marketable products for its technologies.

During the next 12 months, additional financing will be required to fund the building of the alternate solar energy system and the development of marketable products. To date, the Company has primarily financed operations by the receipt of advances from the Company’s president, deposits from customers for the alternate solar energy system and through the private placement of equity securities. The president and the Company have no formal agreement as to any future advances. However, it is anticipated that the Company will continue to receive additional financing from receipt of advances from its president to help fund continuing operations. The Company also anticipates receiving additional financing through the private placement of equity securities.

RESULTS OF OPERATIONS

Three Months Ended December 31, 2010 compared to the Three Months Ended December 31, 2009

For the three months ended December 31, 2010 and 2009, the Company had no revenue and no cost of sales. Operations during the three months ended December 31, 2010 and 2009, primarily pertained to research and development and other activities. Research and development expenses decreased by $43,389 or 43% to $58,586 for the three months ended December 31, 2010 from $101,975 for the three months ended December 31, 2009. The decrease is primarily due to purchasing less research and development materials for the alternate solar energy system and bladeless turbine.

General and administrative expenses decreased by $943,286 or 80% from $1,177,066 for the three months ended December 31, 2009 to $233,780 for the three months ended December 31, 2010. The decrease in general and administrative expenses is primarily due to a decrease in stock-based compensation since all of the options fully vested in fiscal year 2010.

Net loss decreased by $985,872 from $1,280,703 for the three months ended December 31, 2009 to $294,831 for the three months ended December 31, 2010 due to the items noted above. Net loss per common share was $0.01 and $0.04 for three months ended December 31, 2010 and 2009, respectively.

Six Months Ended December 31, 2010 compared to the Six Months Ended December 31, 2009

For the six months ended December 31, 2010 and 2009, the Company had no revenue and no cost of sales. Operations during the six months ended September 30, 2010 and 2009, primarily pertained to research and development and other activities. Research and development expenses decreased by $44,124 or 20% to $172,247 for the six months ended December 31, 2010 from $216,371 for the six months ended December 31, 2009. The decrease is primarily due to purchasing less research and development materials for the alternate solar energy system and bladeless turbine.

General and administrative expenses decreased by $2,146,229 or 87% from $2,540,897 for the six months ended December 31, 2009 to $394,668 for the six months ended December 31, 2010. The decrease in general and administrative expenses is primarily due to a decrease in stock-based compensation since all of the options fully vested in fiscal year 2010.

Net loss decreased by $2,189,884 from $2,761,127 for the six months ended December 31, 2009 to $571,243 for the six months ended December 31, 2010 due to the items noted above. Net loss per common share was $0.02 and $0.08 for six months ended December 31, 2010 and 2009, respectively.

CONTRACTUAL OBLIGATIONS AND CONTINGENT LIABILITIES AND COMMITMENTS

ITEM 4: CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting. During the most recent fiscal quarter covered by this report, there has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is a party to one law suit that the company believes the result will have an immaterial effect on our operations, even if the Company does not prevail.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The Company has shares of common stock in escrow accounts. Proceeds from the sale of stock from these escrow accounts are placed in separate escrow accounts to be used at the Company’s and the trustee’s discretion. During the three months ended December 31, 2010, 552,821, shares were sold for proceeds of $91,120 at prices ranging from $0.10 to $0.24 per share. The Company also sold 1,417,266 shares of restricted common stock to third parties for $171,635 at prices ranging from $0.09 to $0.17 per share. The proceeds were used to pay professional fees, operating expenses and accounts payable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. RESERVED

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

a. Exhibits

31.1

Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

Certification by the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2

Certification by the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

INTERNATIONAL AUTOMATED SYSTEMS, INC.

Date: February 18, 2011	By	/s/ Neldon Johnson
		Neldon Johnson
		President, Chief Executive Officer, Director

Date: February 18, 2011	By	/s/ LaGrand Johnson
		LaGrand Johnson
		Chief Financial Officer

INTERNATIONAL AUTOMATED SYSTEMS INC - FORM 10-Q - February 18, 2011

Attached files

INTERNATIONAL AUTOMATED SYSTEMS INC Reports