Attached files
U.S.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
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[ X
]
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ANNUAL
REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the
fiscal year ended June
30, 2009.
or
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[ ]
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TRANSITION
REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the
transition period from_________________ to __________________
Commission
file number 33-16531-D
INTERNATIONAL AUTOMATED
SYSTEMS, INC.
(Name of
small business issuer in its charter)
Utah
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87-0447580
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State
or other jurisdiction of incorporation or organization
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I.R.S.
Employer Identification No.
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326 North SR 198, Salem,
Utah 84653
(Address
of principal executive offices)
Registrant's
telephone number, including area code: (801)
423-8132
Securities
registered pursuant to Section 12(b) of the Act:
None
Title of each
class
|
Name of each exchange
on which registered
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N/A
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N/A
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Securities
to be registered under section 12(g) of the
Act: None
Check
whether the registrant (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
report(s)), and (2) has been subject to such filing requirements for the past 90
days.
X
Yes ___ No
Check if
disclosure of delinquent filers in response to Item 405 of Regulations S-K 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-K or any amendment to this
Form
10-K.
[ X ]
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
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x Smaller
reporting company
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes |_| No |X|
1
State the
registrant's net revenue for its most recent fiscal year:
$0.00. The aggregate market value of voting stock held by non-affiliates of the
registrant on September 30, 2009, was approximately $16,936,518
State the
number of shares outstanding of each of the issuer's classes of common equity,
as of the latest practicable date:
As of
September 30, 2009, there were 38,846,140 outstanding shares of registrant's
Common stock, no par value per share.
Documents
incorporated by reference: Exhibits
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2
TABLE
OF CONTENTS
PART
I
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ITEM
1
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Description
of Business
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4
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ITEM
1A
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Risk
Factors
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12
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ITEM
2
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Description
of Properties
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15
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ITEM
3
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Legal
Proceedings
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15
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ITEM
4
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Submission
of Matters to a Vote of Security Holders
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16
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PART
II
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ITEM
5
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Market
for Common Equity and Related Stockholder Matters
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16
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ITEM
6
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Selected
Financial Data
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18
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ITEM
7
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Management's
Discussion and Analysis or Plan of Operation
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18
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ITEM
8
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Financial
Statements
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22
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ITEM
9
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Changes
in and Disagreements With Accountants on Accounting and Financial
Disclosure
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22
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ITEM
9A(T)
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Controls
and Procedures
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22
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ITEM
9B
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Other
information
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23
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PART
III
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ITEM
10
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Directors,
Executive Officers and Corporate Governance
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23
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ITEM
11
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Executive
Compensation
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24
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ITEM
12
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Security
Ownership of Certain Beneficial Owners and Management
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26
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ITEM
13
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Certain
Relationships and Related Transactions and Directors
Independence
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26
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ITEM
14
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Principal
Accountant Fees and Services
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27
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ITEM
15
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Exhibits
and Reports on Form 8-K
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28
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SIGNATURES
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29
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3
PART
I
Forward-Looking
Statements
In this
report, references to "International Automated Systems," the "Company," "we,"
"us," and "our" refer to International Automated Systems, Inc.
This
annual report on Form 10-K contains certain forward-looking statements and for
this purpose any statements contained in this annual report that are not
statements of historical fact are intended to
be “forward-looking statements” with the meaning of the
Private Securities Litigation Reform Act of 1995. Without
limiting the foregoing, words such
as “may,” “will,” “expect,” “believe,”
“anticipate,” “estimate” or “continue” or comparable terminology are
intended to
identify forward-looking statements. These
statements by their nature involve substantial risks and uncertainties, and
actual results may differ materially depending on a variety of factors, many of
which are not within our control. These factors include but are not limited to
economic conditions generally and in the markets in which we may participate,
competition within our chosen industry, technological advances and failure by us
to successfully develop business relationships.
We
caution readers not to place undue reliance on any forward-looking statements,
which speak only as of the date made, are based on certain assumptions and
expectations which may or may not be valid or actually occur and which involve
various risks and uncertainties.
Unless
otherwise required by applicable law, we do not undertake, and specifically
disclaim any obligation, to update any forward-looking statements to reflect
occurrences, developments, unanticipated events or circumstances after the date
of such statement.
ITEM
1. DESCRIPTION OF BUSINESS
THE
COMPANY
|
|
Exact
corporate name:
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International
Automated Systems, Inc.
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State
and date of incorporation:
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Utah-
September 26, 1986.
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Street
address of principal office:
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326
North SR 198
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Salem,
Utah 84653
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|
Company
telephone number:
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(801)
423-8132
|
Fiscal
year:
|
June
30
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International
Automated Systems, Inc. (“the Company”, was organized under the laws of the
State of Utah on September 26, 1986. In April 1988 the Company filed a
registration statement for a public offering under the provisions of the
Securities Act of 1933 ("1933 Act") to sell a maximum of 1,074,000 units at a
price of $.50 per unit. Each unit was comprised of one share of common stock and
one common stock purchase warrant. The Company sold approximately 200,000
units at the offering price of $.50 per unit realizing total proceeds of
approximately $100,000. All warrants expired without exercise.
Over
time, the Company, for the most part, has acquired its technologies from its
president.
OVERVIEW
International
Automated Systems, Inc., a Utah corporation (hereinafter "Registrant" or
"Company") based in Salem, Utah, seeks to design, produce and market leading
edge technology products. The Company has a production model of a patented
turbine which uses the expansion of steam to generate a rotational force. This
force can then be used to generate power. The Company feels the turbine
could be used in, but not limited to, the production of electricity, hydrogen or
in the transportation industry. Though some testing has been done using pure
steam and geothermal steam, more testing will be done. There are risks that a
commercial turbine may never be accepted.
The
Company has a solar energy thermal system which can be used in conjunction with
the Company’s bladeless turbine to generate power. The system tracks the sun as
it concentrates the solar energy onto a receiver and this energy is captured and
used to propel the bladeless
turbine. A typical system will use multiple concentrators to supply a single
turbine.
4
The
Company has developed an automated self-service check-out system and management
software. This system allows retail customers to ring up their purchases without
a cashier or clerk. The system is primarily designed for grocery stores,
but may be applicable in other retail establishments.
The
Company has an Automated Fingerprint Identification Machine ("AFIM") which has
the capability of verifying the identity of individuals. Potential AFIM
applications include products for employee time-keeping and security, access
control, and check, debit or credit card verification. Registrant purports that
its identity verification system has a variety of uses and applications for both
commercial and governmental users. The Company also purports that it has
developed technology that transmits information and data using different wave
patterns, configurations and timing in the electromagnetic spectrum. The
Company refers to this technology as digital wave modulation ("DWM"). The
Company believes that if the technology is implemented and applied commercially,
the technology has the capability to significantly increase the amount of
information which can be transmitted. The Company is continuing the
development of this technology and the commercial feasibility of the technology
has not been demonstrated. The Company believes it has many competitors in the
communications, information data transfer and data storage industries which have
greater capital resources, more experienced personnel and technology which is
more established and accepted in the market place.
The first
anticipated product using this technology for commercialization is a high-speed
modem. The modem is projected to be faster than modems currently in use.
Generally modems are used for purposes of transmitting data over telephone
lines, on telecommunications systems and over wireless mediums such as satellite
transmissions and other line- of-sight transmission mediums. The Company
has a modem prototype. Additional development to achieve a commercial product is
on going. In addition, the Company intends to apply the digital wave
modulation technology in other areas. The Company has not established a
plan or order of priorities for any future commercial product development.
Because this technology is sophisticated and new, the Company may not be
successful in its efforts to have commercial exploitable products because of
difficulties and problems associated with development. Possible problems could
be inability to design, construct and manufacture commercial products; and the
Company's lack of funding and financial resources and experienced personnel.
Competitors may develop technologies which are superior and will make the
DWM technology obsolete even before the Company has completed its development of
any commercial products. Cost will also be a factor in both the development and
the commercialization of any new product. It is anticipated that if a
commercially viable modem is developed, the Company will have to expend funds to
develop a marketing plan and introduce the product into the market. Costs to
offer new products and to establish the proper marketing strategy will be
significant. The Company has not made any projections regarding any
anticipated costs. There are risks that no commercially viable products will be
developed from the technology and any products developed may not be accepted or
successful in the marketplace. In addition, the Company may not have
sufficient funds to develop, manufacture and market any products.
Propulsion
Steam Turbine
The
Company has a new patented bladeless turbine production model. It uses the
expansion of steam, through propulsion, to create a rotational
force.
The
production model has been tested using pure steam created by a gas heat
exchanger. The Company feels their propulsion design has many advantages over
current bladed turbines. The Company believes their turbine is at least as
efficient as traditional turbines, is smaller in size, requires less
maintenance, is mass producible and therefore less expensive to manufacture. It
also doesn't require cooling towers, thus making it more mobile, more economical
and water conserving.
The
Company believes that the turbine will be marketable in the utility power
industry, hydrogen production and transportation. There are also risks that the
Company will not be able to manufacture a commercially marketable turbine
because of lack of financing, government interference, industry non-acceptance
or many other conditions not under the Company's control.
The
Company has a model of a solar thermal system which can be used to produce steam
to drive the Company’s bladeless turbine. The Company believes that the possible
advantage over other similar systems is its ability to be mass produced, thus
reducing its overall cost as compared to other systems. The Company has
developed proprietary structural and lens designs in preparation for mass
production of the solar thermal system.
Automated Self-Service
Check-Out System.
In 1988 a
patent was granted for the automated self-service check-out system (hereinafter
referred to as the "Self-Check System" or "System"). In retail operations,
the System allows customers to check-out the items selected for
purchase.
Description of the
Self-Check System.
The
Self-Check System is an automated check-out system for customers of retail
establishments and provides for self-service check-out lines, stations or lanes.
The System has a scanner to read the bar codes of items purchased and a
scale to weigh the items scanned and placed in the receiving basket. As
each item is scanned by the bar code reader, the scale verifies the accuracy of
the item scanned and placed in the basket by comparing the weight of the item
scanned with the weight change recorded in the receiving basket. If the weights
differ or if other problems arise, a clerk is summoned to assist the customer
and resolve any problem.
The
Self-Check System is designed to replace clerk operated cashier registers that
are used in retail and grocery stores. In addition, the Self-Check System, when
fully and completely implemented, is intended to allow a store manager to
maintain accurate inventory on a contemporaneous basis. The
contemporaneous inventory assists in reordering and restocking. It is believed
that the System may simplify price verification and may provide customers with
better and faster service.
Operation
of System.
The
Self-Check System operates as follows. Customers make their selections for
purchase. A customer places the grocery cart at the head of the System,
removes the products from the grocery basket and scans the bar codes on the
products across the reader. The bar code provides, as a data base index,
the product description, weight and price. This information is then relayed on
an item by item basis to the computer and the computer transmits the data in its
memory to the check-out terminal. The product information, item description and
price, are then displayed on the screen. A running subtotal for all items
purchased is also shown. Each item scanned is placed into a receiving
basket or cart on a sensitive scale. The weight of the item scanned and
placed in the receiving basket is compared to the weight for that item as
recorded in the computer. The computer compares the weight of the scanned
item with the weight for that item in the database. If the weight differs,
an error code is displayed and an attendant is summoned to assist the customer
or to override the System. Once all the items are scanned, a final tally is
made. Payment is then made to the attendant either through a debit or
credit card, check or cash. A payment may also be made without an attendant
through the use of the "AFIM" which will verify the identity of the person
making the transaction and automatically debit their account
electronically.
The
Self-Check System interfaces with computers and data is transferred back and
forth between the check-out terminals and the main computer. The interface may
be compatible with various scanners and scales so the Self-Check System may be
adaptable to equipment already from other manufacturers. The System allows
one clerk to handle simultaneously multiple check-out stations or
lanes.
5
Possible
Advantages.
Management
believes the Self-Check System may have several possible advantages over
conventional retail check-out systems to operators and customers. For
operators the advantages are: reduced labor costs, more accurate inventory,
theft reduction, theft deterrence, decreased check fraud, and decreased
transaction costs. Also, the retailer can serve more customers during peak
traffic. For customers the advantages are: faster service, greater convenience,
less time waiting in line and more privacy. A retail establishment may not
need as many cashiers with the Self-Check System.
Management
believes that the market for the Self-Check System may include several types of
retail establishments, including grocery stores, drug stores, discount stores
and fast food restaurants. If operating properly the Self-Check system lessens
the impact of having too many attendants or cashiers available. Customer
traffic volume is difficult to predict and retail operators wanting to reduce
the time customers wait in line must have sufficient clerks or cashiers
available.
The
Self-Check System uses proprietary software developed by the Company. The
System also offers a hand-held unit to be used for price verification and taking
physical inventory counts. The hand-held unit reads the bar codes and
verifies the price in the database. This hand-held unit also is used to
take physical counts for inventory control. The System may also include a
check-in station at the loading dock. Items delivered are checked and the prices
verified against purchase orders allowing greater control. Price verification
can be done using the hand-held unit while the products are on the
shelf.
For the
Self-Check System to operate efficiently at least 95% of the items offered for
sale must have bar codes. In the past few years virtually all packaged
goods have bar codes. Items purchased across the counter, such as bakery,
meat and deli products usually have no bar code. Grocery stores or other
retail operations using the System may have to install scales and labelers to
place barcodes on items with no bar code. As an option the Company offers
scales and labelers for produce and delicatessen items which interface with the
Self-Check System. Management believes that the Self-Check System may help
reduce theft. For instance, one clerk cannot check-out another clerk's or
friend's purchases using incorrect and understated prices. A portion of the
theft in supermarkets is attributable to employees doing what is called "sweet-
hearting" by checking-out the purchases of other employees or friends at reduced
prices.
Another
market being tested is automatic ordering and payment for use in restaurants and
fast-food establishments. Where the customer would use a touch screen, connected
to a computer, to place an order, pay for the order with cash, check, credit, or
debit card using Company's technologies including AFIM and then have the order
automatically sent to the cook for preparation.
Competition
Competitors
offer a similar Self-Check System. The success of these other entities and the
system used may, individually or collectively, significantly affect the
Company's attempt to commercialize its Self-Check System. The Company has no
market studies to determine its relative position with its competitors in the
market place. Some competitors have been in business longer, have more
experienced personnel, have greater financial resources and better name
recognition in the marketplace.
Automatic Fingerprint
Identification Machine.
The
company has an Automated Fingerprint Identification Machine ("AFIM") which
verifies an individual's identity. The AFIM digitizes the unique
characteristics of a person's fingerprint and then stores the information on a
magnetic strip similar to the strip on the back of a credit card or on other
storage medium. The identity verification process is simple, quick, easy,
and reliable. AFIM connects to and operates with a personal computer. AFIM
has unique software. Management believes that AFIM is better than other
bio-metric and fingerprint based identification systems. The Company is
continuing to make modifications to the AFIM technology to increase the speed
and to reduce the cost and size of the units.
6
Operation.
To use
the AFIM the person whose identity will be verified has the fingerprint read by
the AFIM. The finger is placed on the lens and AFIM reads the print,
digitizes, and stores the digitized fingerprint. To verify a person's
identity AFIM reads the fingerprint and compares it to the digitized fingerprint
on the magnetic strip or other storage medium. A match verifies the
person's identity. The AFIM is connected to a personal computer which
processes the information read by the AFIM and makes the comparison to the
digitized fingerprint on the magnetic strip or other storage medium. The Company
believes that it has the ability to connect AFIMs in series so that multiple
stations or readers can be connected and operated by a single personal
computer.
Possible
Commercial Applications.
Different
commercial applications of the AFIM are under development. One application
is a time clock. The digitized fingerprint stored on the magnetic strip on
the back of a card like a credit card must match the person's fingerprint that
is recording his arrival at or departure from the workplace. Because the
AFIM system validates the identity of the person using the time clock, fellow
workers can not make in or out entries for other workers.
Also,
AFIM with appropriate software may be used with a database of fingerprints.
The fingerprint is read by the AFIM and then verified against the database
for identification and, where appropriate or required, for access control
purposes. Searching the database requires additional time to verify the identity
of the individual using the fingerprint stored in the database. To date
the full marketing of the AFIM time clock has been delayed as development of the
product is continuing and modifications to the AFIM are made.
The
Company has no comprehensive study or evaluation to determine the reliability of
the AFIM or the frequency of false positives. A false positive is where a
verification is sought and the person is identified as correct when it is not
the person claimed. Management believes, based on the limited experience
available, that AFIM does not yield false positives or false negatives at
unsatisfactory levels.
Another
application of the AFIM technology is door or entry security. The AFIM
would read a card on which the fingerprint of the person seeking entry would be
encoded. The fingerprint of the person seeking entry as read by the AFIM
would have to match the fingerprint digitized and encoded on the card. To
be successful the Company believes that the door security adaptation must be
compatible with or adaptable to other door entry security systems already in
place.
Another
application of the AFIM technology is a vending machine which will allow items
to be purchased which now require age and identity verification.
Another
product based on AFIM technology is identity verification on computer networks
or identification when data is transmitted or accessed. The AFIM would read the
fingerprint to validate the identity of the user. Depending on the system
protocols the person would then be allowed access to data, files, information or
programs. Also, the identity verification, if development is completed,
may validate the identity of the person either receiving or sending
information.
Another
application of the AFIM technology is fingerprint secured financial
transactions. A card user designates which personal account he/she would
like to use. Upon positive AFIM verification, the Company's software sends the
transaction information via ACH protocols to the Company's bank and the
Company's bank debits the customer's bank account. The funds are then
deposited into the participating retailer's account.
For
future development and possible commercialization of the AFIM technology and the
possible application the Company may attempt to enter into licensing agreements
or joint ventures. Presently the Company is merely considering the
possibility of licensing agreements or joint venture agreement. At this time
there are no agreements to which the Company is a party for licensing, royalties
or joint venture projects.
Competition.
The AFIM
based products compete with a broad spectrum of products which verify identity.
Competitors offer products based on some form of bio-metrics. Some
competitors offer fingerprint based systems. The success of these other entities
and the system used may, individually or collectively, significantly affect the
Company's attempt to commercialize AFIM. The Company has no market studies to
determine its relative position with its competitors in the market place.
Some competitors have been in business longer, have more experienced
personnel, have greater financial resources and better name recognition in the
marketplace.
7
Possible
Advantages.
The
Company believes that the AFIM products will be quicker, more reliable, and more
cost-effective than other identification systems. The Company has no empirical
data or statistics to support its belief.
Digital Wave Modulation
Technology.
Digital
Wave Modulation ("DWM") technology may provide a new way of transmitting data.
Basically different wave patterns are generated on the magnetic spectrum
which may increase flows of data and information transmission and communication.
More data will be transmitted in a shorter time period and speed may be
increased.
DWM
technology is based on the transmission of symmetrical, asymmetrical, and
reference waves that are combined and separated. The Company has a modem
prototype that has the capability of sending and separating combined multiple
waves. Depending upon frequencies and other factors, the Company believes
it can achieve transmission rates in excess of modems currently in use.
Data transmission speed will depend on such factors as the transmission
medium, frequencies used and wave combinations. The rate of data
transmission varies significantly depending on the communication medium used.
When using plain old telephone system commonly known as "POTS",
transmission rates will be slower. DWM is not compatible with the
technology used in other modems.
DWM can
be used to transmit over any analog media including wireless. Because wave
frequencies may be higher when sent through the air, wireless data transmission
using DWM technology may transmit information at higher rates.
Preliminary
evaluations indicate that DWM technology may be used for data storage media
which are magnetic based, such as floppy disks, hard drives, video cassettes,
tapes etc. Because various forms of magnetic media store in analog format,
DWM may increase the storage capacity of some magnetic based devices. DWM
storage enhancement applications have not been fully developed and tested and
may ultimately prove infeasible and impractical.
DWM must
be developed from a prototype to a commercially viable product. Even
though the Company has a prototype, the Company makes no assurance that the DWM
technology can be developed into a commercially viable product or
products.
If the
research and development of the modem is successful and the Company then has a
commercially viable product, the Company will consider various alternatives.
It may seek a joint venture partner or it may license the technology to
another company and attempt to structure a royalty payment to the Company in the
licensing agreement. No plan has been adopted regarding the manufacturing,
marketing, or distributing of the modem, when and if commercialization is
achieved. No assurance can be given that the commercialization efforts for the
modem will be successful or that the Company will be able to effectively
penetrate and capture a share of the modem market. Any possible ventures
are predicated on the Company developing a commercially viable product.
Presently, the Company's efforts regarding DWM are directed primarily toward the
DWM modem.
Management
believes that because of the increased amount of information that can be
transmitted, other applications in the telecommunications industry may be
feasible and beneficial. Again because of the sophisticated and high technology
nature of this technology other applications may not ultimately be
successful.
8
The
Company is a development stage company and its business is subject to
considerable risks. The Company’s activities have not developed sufficient
cash flows from business operations to sustain itself. The Company is small and
has an extremely limited capitalization. Many of its actual and potential
competitors have greater financial strength, more experienced personnel and
extensive resources available. Also, the Company is engaged in
technological development. It is expensive to do research and development
on new products or applications of new or existing technology. Resources
can be used and depleted without achieving the desired or expected results.
Also, because of the rapid development of technology, the Company's
products may become obsolete. Some of the Company's technology is
revolutionary in that it is based on unconventional technological theories. The
Company's business activities are subject to a number of risks, some of which
are beyond the Company's control. The Company's future is dependent upon
the Company developing technologically complex and innovative products. The
Company's future depends on its ability to gain a competitive advantage.
Product development based on new technology is complex and uncertain.
New technology must be applied to products that can be developed and then
successfully introduced into and accepted in the market. The Company's results
could be adversely affected by delay in the development or manufacture,
production cost overruns and delays in the marketing process.
To the
extent that this report contains forward-looking statements actual results could
vary because of difficulties in developing commercially viable products based on
the Company's technologies. The Company undertakes no obligation to release
publicly the revisions of any forward-looking statements or circumstances or to
report the non-occurrence of any anticipated events.
Management
of the Company has had limited experience in the operation of a public company
and the management of a commercial enterprise large in scope.
The
Company's business, if its technological development is successful, will require
the Company to enter new fields of endeavor and even new industries. Entry into
new markets will have many risks and require significant capital resources.
If the Company seeks funds from other sources, such funds may not be
available to the Company on acceptable terms. Success will be dependent on the
judgment and skill of management and the success of the development of any new
products.
The
Company's success depends, and is expected to continue to depend, to a large
extent, upon the efforts and abilities of its managerial employees, particularly
Neldon Johnson, President of the Company. The loss of Mr. Johnson would
have a substantial, material adverse effect on the Company. The Company has
entered into an agreement with Neldon Johnson to act as President and Chief
Executive Officer for a period of ten years beginning in July 2000.
The
Company is not insured against all risks or potential losses which may arise
from the Company's activities because insurance for such risks is unavailable or
because insurance premiums, in the judgment of management, would be too high in
relation to the risk. If the Company experiences an uninsured loss or suffers
liabilities, the Company's operating funds would be reduced and may even be
depleted causing financial difficulties for the Company.
Patents and Trade
Secrets.
The
Company has been assigned or will be assigned the rights to several U.S.
patents. One patent granted in November 1988 deals with the Self-Check
System. The patent pertains to an apparatus attached to a computer which
has in its database the weights and prices of all items for sale. Four
patents pertaining to the AFIM technology granted January 1997, February 2001,
July 2001, and September 2002, seven patents relate to the DWM technology
granted May 1996, June 1997, November 1997, July 2000, September 2000, October
2000, and May 2001, one patent pertaining to shelf tag granted September 2003,
and four patents relating to the turbine granted March 2003, January 2004,
February 2006 and November 2007. One patent pertaining to the solar
energy technology granted in October 2007.
The
Company has not sought or received an opinion from an independent patent
attorney regarding the strength of the patents or patents pending and the
ability of the Company to withstand any challenge to the patent or any future
efforts by the Company to enforce its rights under a patent or patents against
others. One of the AFIM patents was deemed invalid per a court
decision in January 2008. See further discussion in Item
3.
9
The
Company believes that it has trade secrets and it has made efforts to safeguard
and secure its trade secrets. There can be no assurance that these
safeguards will enable the Company to prevent competitors from gaining knowledge
of these trade secrets and using them to their advantage and to the detriment of
the Company.
The
Company relies heavily on its proprietary technology in the development of its
products. There can be no assurance that others may not develop technology which
competes with the Company's products and technology.
Future
Funding
Because
the Company is a development stage company and currently has no revenue, it will
continue to need additional operating capital either from borrowing or the sale
of additional equities. The Company has no present plans to borrow money
or issue additional shares for money. In the past, the Company has
received funds from its president and his relatives in the form of cash
advances. The Company received $557,101 in cash advances from its president
during the year ended June 30, 2009. The cash advances are unsecured, payable on
demand and non-interest bearing. No assurance can be given that the Company will
continue to receive funds from its president. No agreements or
understandings exist regarding any future contributions. In addition, during the
year ended June 30, 2009, the Company settled $630,000 of the cash advances by
issuing 1,575,000 shares of common stock to the officer upon the exercise of
options; and the Company paid $173,744 of the cash advances. As of
June 30, 2009 and 2008, the cash advances, included in the related party payable
balance, was $440,382 and $774,001, respectively.
General
From its
inception the Company's primary activity has been the Development of different
technologies. Since its formation, the Company has developed technologies which
are in different stages of development. To date the Company has not marketed a
commercially acceptable product.
Employees
The
Company has thirteen full-time employees. Our employees are not represented by
any labor union, and we believe our relations with employees are
good.
Company
Headquarters
The
Company's office is located at 326 North SR 198, Salem, Utah
84653. The Company's office costs $12,200 per month and is rented
from the Company’s president and a third party. The monthly rent includes a 200
square foot office space.
Warranty
The
Company warrants that it’s Alternate Solar Energy Systems (“System”) will remain
in good operating condition for a thirty-five year period commencing on the
installation date and that it will be responsible for all material, equipment
and labor costs incurred to complete such maintenance and repair work during
that period.
Marketing
The
Company has not finalized its marketing strategy for all its products at this
time.
The
Company has received deposits of $1,676,250 from unrelated parties toward the
purchase of approximately 200 Systems.
For the
marketing of the Self-Check System, the Company has developed a product named
OrderXCEL which had been installed in a restaurant in Orem, Utah and since
closed.
For the
DWM technology the Company has not determined any definite marketing plan.
The
Company may seek joint venture partners, may license the product to others, or
may seek to establish distribution channels. It is anticipated that any
marketing efforts will require time and capital to develop.
10
Competition
Because
the Company's products are distinct, its products will face different
competitive forces.
The
Bladeless Turbine and System has competition from larger well-established
companies that already have a history and name recognition. Though the turbine
has many potential uses, especially in the area of electrical generation, there
is no assurance that the marketing strategies will be successful.
AFIM
competes with all forms and systems of identity verification. End users
have different needs including cost, sophistication, degree of security,
operational requirements, time for individual verification and convenience. The
Company believes that no firm dominates the identity verification
market.
If the
Company successfully completes the development of a commercially viable modem,
the Company will face competition from large, well-established firms.
These firms offer products with immediate name recognition and are
established in the market place and are compatible with other modems. The
Company believes because of the speed at which its modem may operate it may have
a competitive advantage. The Company has no marketing studies or market
research reports to determine the acceptance of the modem in the market place or
the best marketing strategy to follow. Further, no assurance can be given that
the Company will be successful in its further development of the DWM
products.
The
Company has no market share for any products at this time.
In
marketing the Self-Check System the Company faces competition from major
companies with established systems in the point of sale terminal market some of
which are also developing and testing self checkout systems. Overcoming
reluctance to change may be difficult. In addition, the System may not be
compatible with or applicable to all types of retail operations.
The
Company may rely on prospects known to management or developed by word of mouth.
The Company may develop a franchise program as a means to market and
distribute the Self-Check System or OrderXCEL system.
Manufacturing and Raw
Materials
The
manufacturing of the turbine has been done mostly by the Company up to this
point but if needed, the design could be easily outsourced. The solar thermal
technology will be mostly manufactured by established companies in their fields,
with much of the assembling done on site.
For
production of the initial AFIM units the Company did the assembly. If the
Company was successful in its marketing efforts and demand for the AFIM was to
increase, the Company intends to use independent contract assemblers. AFIM
is comprised of off the shelf components and proprietary components developed by
the Company which are then assembled. The Company's proprietary software
controls AFIM's operations. The Company has no agreement with any
independent contract assemblers. The Company has entered into agreements
regarding the AFIM technology, but these agreements have been inactive pending
further AFIM development.
Management
believes that the supplies and parts are readily available from sources
presently used by the Company or from alternative sources which can be used as
needed. The Company has no backlog.
The
Self-Check and OrderXCEL Systems are comprised mostly of off-the-shelf parts and
components. These parts are assembled into the systems. The Company's
proprietary software ties together the individual components and operates the
System. Scanners, video display terminals, and computers are available from
several sources. The software used in the System is proprietary developed
by the Company.
Research and
Development
The
Company's primary activity is the development of its technologies. The
industries may be subject to rapid and significant technological change.
Future growth for the Company may be dependent on its ability to innovate
and adapt its technologies to the changing needs of a marketplace. In the past
the Company's activities have primarily consisted of its efforts in research and
development. During fiscal years ended June 30, 2009 and 2008, research and
development expenses were $704,889 and $760,798, respectively. Although no
precise dollar amount has been determined, the Company will continue to allocate
resources to product development. The Company expenses development costs
as they occur. The Company intends to work closely with prospective customers to
determine design, possible enhancements and modifications.
11
Immediate
Plans
Over the
next twelve months the Company intends to continue the research and development
of its technologies, primarily focusing on its Bladeless Turbine and solar
thermal energy technology. The Company intends to have its solar
thermal energy technology, which utilizes the Bladeless Turbine, operational in
the next twelve months. The Company plans to broadly market the
technology to companies seeking alternative energy sources.
Renewable Energy Development
Corporation (“REDCO”), pursuant to an executed twenty year Power Purchase
Agreement (“PPA”) with the Needles Public Utility Authority, will develop and
operate a 5-megawatt solar thermal power plant in Needles, CA to provide the
city with power and the required Renewable Energy Certificates. REDCO plans to purchase the Company’s
solar thermal equipment, including turbines, to build and operate the 5-megawatt
solar thermal power plant. REDCO is in the planning stages of a
49-megawatt solar project in Needles and plans to add an additional 150-200
megawatts over the next 3-5 years; REDCO is currently in discussions with
several potential power purchasers for these projects. REDCO plans to utilize
the Company’s solar thermal technology on all of its planned solar projects in
Needles.
Acquisition of
Technology
In May
2004, the Company entered into an agreement with its president, in which the
Company acquired from the president patents, patents pending, designs and
contracts related to the bladeless turbine, solar and chemical thermal
technologies and electronic shelf tag technology developed by the president.
As consideration for these patents, patents pending, designs and
contracts, the Company issued warrants to purchase 100,000,000 shares of common
stock and agreed to pay the president a 10% royalty of total gross sales of
products related to the patents.
Government
Regulation
The
Company's activities may be subject to government regulation. Depending on the
nature of its activities in data transmission and power production, the Company
may need approval or authorization from Federal, State, or Local
authorities.
ITEM 1A. RISK FACTORS
You
should carefully consider the risks, uncertainties and other factors described
below, in addition to the other information set forth in this Annual Report on
Form 10-K, because they could materially and adversely affect our business,
operating results, financial condition, cash flows and prospects, as well as
adversely affect the value of an investment in our Common Stock. Also, you
should be aware that the risks and uncertainties described below are not the
only ones facing us. Additional risks and uncertainties that we do not yet know
of, or that we currently think are immaterial, may also impair our business
operations. You should also refer to the other information contained in and
incorporated by reference into this Annual Report on Form 10-K, including our
financial statements and the related notes. The Company's business operations
are highly speculative and involve substantial risks. Only investors
who can bear the risk of losing their entire investment should consider buying
our shares. Some of the risk factors that you should consider are the
following:
The Company is in the
Development Stage
The
Company is a development stage company. The Company has limited
assets and has had limited operations since inception. The Company
can provide no assurance that its current and proposed business will produce any
material revenues or that it will ever operate on a profitable
basis.
We Have a History of
Significant Losses, and We May Never Achieve or Sustain
Profitability
We are
focused on product development and have generated minimal revenues of $111,226.
Since inception, we have incurred operating losses each year of our operations
and we expect to continue to incur operating losses for the next several years.
We may never become profitable. The process of developing our products requires
significant development. In addition, commercialization of our targeted products
will require the establishment of sales, marketing and manufacturing
capabilities, either through internal hiring or through contractual
relationships with others. We expect our research and development and general
and administrative expenses will increase over the next several years and, as a
result, we expect our losses will increase. As of June 30, 2009, our cumulative
net loss was $35,334,617. Our net loss was $6,637,337 for the fiscal year ended
June 30, 2009. Our continued operational loss may lower the value of our common
stock and may jeopardize our ability to continue our
operations.
12
The Company May Experience
Fluctuations in Operating Results
The
Company's operating results are likely to fluctuate in the future as a result of
a variety of factors. Some of these factors may include economic
conditions; the amount and timing of the receipt of sale of the Company's
current developments such as the solar lens; the success of the Company's
development projects; the success of the Company's marketing strategy; capital
expenditures and other costs relating to the development of the Company’s
products; and the cost of advertising and related media. Due to all of the
foregoing factors, the Company's operating results in any given quarter may fall
below expectations. In such an event, any future trading price of the
Company's common stock would likely be materially and adversely
affected.
The Company’s Business Model
May Change or Evolve
The
Company and its prospects must be considered in light of the risks, as
identified in the Risk Factors section of this filing, expenses and difficulties
frequently encountered by companies in the development stage. Such risks for the
Company include, but are not limited to, an evolving business model. To address
these risks the Company must, among other things, develop strong business
development and management activities, develop the strength and quality of its
operations, develop and produce high quality products that can be marketed and
distributed. There can be no assurance that the Company will be
successful in meeting these challenges and addressing such risks, and the
failure to do so could have a material adverse effect on the Company's business,
financial condition and result of operations.
The Company’s Auditors
Opinion Expresses Doubt About the Company’s Ability to Continue as a Going
Concern
The independent auditor's report
issued in connection with the audited financial statements of the Company for
the period ended June 30, 2009,
expresses "substantial doubt about its ability to continue as a going
concern," due to the Company's status as
a development stage company and its
lack of significant operations. If
the Company is unable to get its solar thermal energy
technology operational, the Company
may have to cease to exist, which would be
detrimental to the value of the Company's common stock. The Company
can make no assurances that its business operations will develop and provide the
Company with significant cash to continue operations.
Customers with Deposits May
Request a Return of Their Deposits
The
Company has received deposits from customers to purchase its alternate solar
energy technology system totaling $1,757,250. The agreements
provide that the Company will deliver, install and startup the solar energy
technology system on or prior to June 30, 2009. The Company has
delivered, installed and started up the alternate solar energy system, but the
energy output has not been verified. Therefore, for these agreements, the
customers could request a return of their deposits since the Company has not
verified the energy output. If many of the customers request a return
of their deposits, the Company may not have sufficient funds to return the
deposits.
The Company May Need Future
Capital and May Not be Able to Obtain Additional Financing
The Company may need future capital and
may not be able to obtain
additional financing. If additional funds are needed,
funds may be raised as either debt or equity. There can be no assurance that
such additional funding will be available on terms acceptable to the Company, or
at all. The Company may be required to raise additional funds through
public or private financing, strategic relationships or other arrangements.
There can be no assurance that such additional funding, if needed, will be
available on terms acceptable to the Company, or at all. If adequate funds are
not available on acceptable terms, the Company may be unable to develop or
enhance its services and products, take advantage of future opportunities or
respond to competitive pressures, any of which could have a material adverse
effect on its business, financial condition, results of operations and
prospects.
Future Capital Raised
Through Equity Financing May be Dilutive to Stockholders
Any
additional equity financing may be dilutive to stockholders. If additional funds
are raised through the issuance of equity securities, the percentage ownership
of the stockholders of the Company will be reduced, stockholders may experience
additional dilution in net book value per share and such equity securities may
have rights, preferences or privileges senior to those of the holder of the
Company's common stock.
13
Future Debt Financing May
Involve Restrictive Covenants that May Limit the Company’s Operating
Flexibility
Furthermore,
a debt financing transaction, if available, may involve restrictive covenants,
which may limit the Company's operating flexibility with respect to certain
business matters. If additional funds are raised through debt financing, the
debt holders may require the Company to make certain agreements, covenants,
which could limit or prohibit the Company from taking specific actions, such as
establishing a limit on further debt, a limit on dividends, limit on sale of
assets, or specific collateral requirements. Furthermore, if the
Company raises funds through debt financing, the Company would also become
subject to increased interest and principal payment obligations. In either case,
if the Company was unable to fulfill either the covenants or the financial
obligations, the Company may risk defaulting on the loan, whereby ownership of
the firm's assets could be transferred from the shareholders to the debt
holders.
Executive Management has
Limited Management Experience of an Operating Company
The
Company's officers have limited experience in managing an operating company. If
the Company develops a marketable product, this lack of experience may make it
more difficult to establish the contacts and relationships and implement
operating procedures necessary to successfully operate the Company.
The Company’s Success is
Dependent on Management
The
Company's success is dependent, in large part, on the active participation of
its Executive Officers. The loss of their services would materially and
adversely affect the Company's development activities and future business
success.
The Company’s Success is
Dependent on our Patents and Proprietary Rights
The
Company’s future success depends in part on our ability to protect our
intellectual property and maintain the proprietary nature of our technologies
through a combination of patents and other intellectual property
arrangements. The protection provided by our patents and patent
applications, if issued, may not be broad enough to prevent competitors from
introducing similar products. In addition, our patents, if
challenged, may not be upheld by the courts of any
jurisdiction. Patent infringement litigation, either to enforce our
patents or to defend us from infringement suits, would be expensive and, if it
occurs, could divert our resources from other planned uses. Any
adverse outcome in such litigation could have a material adverse effect on our
ability to market, sell or license the related products. Patent
applications filed in foreign countries and patents in such countries are
subject to laws and procedures that differ from those in the
U.S. Patent protection in such countries may be different from patent
protection under U.S. laws and may not be as favorable to us. We also
attempt to protect our proprietary information through the use of
confidentiality agreements and by limiting access to our
facilities. There can be no assurance that our program of patents,
confidentiality agreements and restricted access to our facilities will be
sufficient to protect our proprietary technology.
Executive Officers Maintain
Significant Control Over the Company and its Assets
Our
executive officers maintain control over the Company's board of directors and
also control the Company's business operations and policies. In
addition, Neldon Johnson, the Company's President, and two of his sons, Randale
Johnson and LaGrand Johnson, control approximately 82% of the voting rights of
the Company. As a result, these three individuals will be able to exercise
significant influence over all matters requiring stockholder approval, including
the election of directors and approval of significant corporate
transactions.
The Company is Unlikely to
Pay Dividends in the Foreseeable Future
It is
unlikely that the Company will pay dividends on its common stock in the
foreseeable future, resulting in an investor's only return on an investment in
the Company's common stock being the appreciation of the per share price. The
Company can make no assurances that the Company's common stock will ever
appreciate.
Risks of “Penny
Stock”
Our
common stock may be deemed to be "penny stock" as that term is defined in Rule
3a51-1 of the SEC. Penny stocks are stocks (i) with a price of less than
five dollars per share; (ii) that are not
traded on a "recognized" national
exchange; (iii) whose prices are not quoted on the
NASDAQ automated quotation system (NASDAQ- listed stocks
must still meet requirement (i) above); or (iv) in issuers with net tangible
assets less than $2,000,000 (if the issuer has been in
continuous operation for at least three years); or $5,000,000 (if in
continuous operation for less than
three years); or
with average revenues of less than $6,000,000 for the last
three years.
14
Section
15(g) of the Exchange Act and Rule 15g-2 of the SEC require broker dealers
dealing in penny stocks to provide potential investors
with a document disclosing the risks of penny stocks and to obtain a
manually signed and dated written receipt of the
document before effecting
any transaction in a penny stock for the
investor's account. Potential investors in our common
stock are urged to obtain and read such disclosure carefully before purchasing
any shares that are deemed to be "penny stock."
Moreover, Rule
15g-9 of the SEC requires broker dealers in penny stocks to approve
the account of
any investor for transactions in
such stocks before
selling any "penny stock" to
that investor. This procedure requires the broker-dealer to (i)
obtain from the investor information concerning his, her or its financial
situation, investment experience and investment
objectives; (ii) reasonably determine, based on
that information, that transactions in penny
stocks are suitable for the investor, and that
the investor has sufficient knowledge and
experience as to be reasonably capable of evaluating the risks of
penny stock transactions; (iii) provide the investor with
a written statement setting forth the basis on which
the broker-dealer made
the determination in (ii) above; and (iv)
receive a signed and dated copy of such statement from the
investor, confirming that
it accurately reflects the investor's
financial situation, investment experience and
investment objectives. Compliance with these requirements
may make it more difficult for investors in our common stock to resell their
shares to third parties or to otherwise dispose of them.
No Assurance of a Liquid
Public Market for our Common Stock.
There can
be no assurance as to the depth or liquidity of any market for our common stock
or the prices at which holders may be able to sell their shares. As a
result, an investment in our common stock may not be totally liquid, and
investors may not be able to liquidate their investment readily or at all when
they need or desire to sell.
ITEM
2. DESCRIPTION OF PROPERTIES
The
Company’s principal executive offices are located at 326 North SR 198, Salem,
Utah 84653. The Company rents the office space from its president at
a cost of $6,000 per month and from a third party at a cost of $6,200 per
month. The monthly rent includes a 200 square foot office space, plus
additional store front and warehouse space. Our primary use of this
the space is for offices.
The
Company owns approximately 600 acres of land in Delta, Utah which was purchased
in August 2006. The Company is currently building a solar energy
plant on the land utilizing its solar energy technology system. The
Company also entered into a lease agreement in November 2006 for research and
development space in Delta, Utah, to be close to where it is building its solar
energy technology system. The lease expires in November 2016 and
requires annual lease payments of $7,500.
The
Company also owns approximately 6 acres of land in California. This
land is currently not being used, but the Company plans to build a small energy
plant utilizing the alternate solar energy technology system. Permits
will need to be obtained prior to utilizing this land for this
purpose.
The
Company believes that its current office and research and development space will
be adequate to meet current needs. The Company may, however, require additional
facilities in the future depending upon being able to produce and market its
solar energy technology system.
ITEM 3. LEGAL PROCEEDINGS
The
Company filed a patent infringement lawsuit against Digital Persona, Inc and
Microsoft Corporation in January 2006. This lawsuit was based upon an alleged
infringement, by the above mentioned parties, of United States Patent No.
5,598,474 (“the 474 patent”) for certain fingerprint technology invented by
Neldon P. Johnson and assigned to Company. Each defendant responded to the
complaint denying all counts, raising affirmative defenses and asserting
counterclaims of non-infringement and invalidity. In January 2008, the court
entered an order declaring the 474 patent invalid. Subsequent to the order, all
claims and counter claims were settled between the Company and Digital Persona,
Inc and Microsoft Corporation.
The
Company filed a patent infringement lawsuit against IBM; IBM Corporation; IBM
Personal Computing Division; Lenovo (United States) Inc.; Lenovo Group Ltd; and
John Does 1-20 in February 2006. UPEK, Inc. was subsequently added as a
defendant. This lawsuit was also based upon an alleged infringement,
by the above mentioned parties, of the 474 patent. In January 2008,
this case was consolidated with the above mentioned Digital Persona and
Microsoft Corporation case. In June 2008 UPEK filed a motion for
further declaration of patent invalidity. UPEK also filed a separate
motion for attorneys’ fees and costs based upon assertions that the case is an
“exceptional case” under 35 U.S.C. §285.
15
The
Company filed a motion to dismiss in August 2008. The Court issued a
Memorandum Decision and Order denying the defendant’s motion for summary
judgment and denying the motion for an award of attorney fees. The
Court made a limited award of $45,000 for reasonable attorney fees incurred by
the defendant, which was paid by the Company in April 2009.
Additional
litigation to enforce patents, to protect proprietary information, or to defend
the Company against alleged infringement of the rights of others may occur. Such
litigation would be costly, could divert our resources from other planned
activities, and could have a material adverse effect on our results of
operations and financial condition.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No
matters were submitted to a vote of security holders.
PART
II
ITEM
5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Presently
Registrant's common stock is traded on the NASD Electronic Bulletin Board under
the symbol "IAUS". The table below sets forth the closing high and low bid
prices at which the Company's shares of common stock were quoted during the
quarters indicated. The trades are in U. S. dollars but may be inter-dealer
prices without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions in the common stock.
Fiscal
2009
|
High
|
Low
|
||
June
30, 2009
|
$0.69
|
$0.38
|
||
March
31, 2009
|
$0.67
|
$0.22
|
||
December
31, 2008
|
$0.40
|
$0.18
|
||
September
30, 2008
|
$0.50
|
$0.34
|
||
Fiscal
2008
|
High
|
Low
|
||
June
30, 2008
|
$0.65
|
$0.40
|
||
March
31, 2008
|
$0.63
|
$0.34
|
||
December
31, 2007
|
$1.06
|
$0.35
|
||
September
30, 2007
|
$1.08
|
$0.62
|
The
Company's shares are significantly volatile and subject to broad price movements
and fluctuations. The Company's shares should be considered speculative and
volatile securities. The stock price may also be affected by broader market
trends unrelated to the Company's activities.
At June
30, 2009, the Company had approximately 995 shareholders of record.
As of
June 30, 2009, Registrant had 34,501,322 issued and outstanding, net of
4,344,818 held in an escrow account. Of these shares, approximately 29,003,000
shares were free trading shares. There were approximately 5,497,000 shares
of restricted common stock but most of these shares may be available for resale
pursuant to the provisions of Rule 144 promulgated under the 1933 Act. As
of June 30, 2009, at least 100 shareholders hold not less than 1,000 restricted
shares of common stock and have held the shares for not less than two years.
At least twenty-five shareholders own not less than 10,000 or more
restricted shares of common stock and have held the shares for not less than one
year. These shareholders satisfy the one year holding period under Rule 144
promulgated under the 1933 Act. Rule 144(k) allows a restricted legend to be
removed after two years have elapsed from the date of purchase and provides that
certain provisions of Rule 144 are not applicable.
Sales
pursuant to the provisions of Rule 144 sold into the trading market could
adversely affect the market price. The Company's shares trade on the NASD
Electronic Bulletin Board. The per share price in an auction market is based in
part on supply and demand. If more shares are available for sale into the
market by holders of restricted shares who satisfy the conditions of Rule 144
and in particular subsection 144(k), the market price of the shares of common
stock of the Company will be adversely affected.
16
Dividend
Policy
To date,
registrant has not declared or paid any dividends to holders of its common
stock. In the future it is unlikely that the Company will pay any
dividends.
Recent Sales of Unregistered
Securities
During
the period covered by this report the Company issued 1,575,000 shares of common
stock to the Company’s president upon the exercise of options in exchange for
settlement of $630,000 in related party payables.
We issued
all of these securities to persons who were “accredited investors” as those
terms are defined in Rule 501 of Regulation D of the Securities and Exchange
Commission; and each such person had prior access to all material information
about us. We believe that the offer and sale of these securities were exempt
from the registration requirements of the Securities Act, pursuant to Sections
4(2) and 4(6) thereof, and Rule 506 of Regulation D of the Securities and
Exchange Commission. Registration of sales to “accredited investors”
are preempted from state regulation, though states may require the filing
of notices, a fee and other administrative documentation like
consents to service of process and the like.
Resales
of the shares noted above must be made through an available exemption such as
Rule 144 or Section 4(1) of the Securities Act in "routine trading
transactions." Any person who acquires any of these securities in a private
transaction may be subject to the same resale requirements. (See
below for a general discussion on Rule 144).
Rule 144
The
following is a summary of the current requirements of Rule 144:
Affiliate
or Person Selling on Behalf of an Affiliate
|
Non-Affiliate
(and has not been an Affiliate During the Prior Three
Months)
|
|
Restricted
Securities of Reporting Issuers
|
During six-month
holding period – no resales under Rule 144 Permitted.
After Six-month
holding period – may resell in accordance with all Rule 144
requirements including:
·Current public
information,
·Volume
limitations,
·Manner of sale
requirements for equity securities, and
·Filing of Form
144.
|
During six- month
holding period – no resales under Rule 144 permitted.
After six-month
holding period but before one year – unlimited public resales under
Rule 144 except that the current public information requirement still
applies.
After one-year holding
period – unlimited public resales under Rule 144; need not comply
with any other Rule 144 requirements.
|
Restricted
Securities of Non-Reporting Issuers
|
During one-year
holding period – no resales under Rule 144 permitted.
After one-year holding
period – may resell in accordance with all Rule 144 requirements
including:
·Current public
information,
·Volume
limitations,
·Manner of sale
requirements for equity securities, and
·Filing of Form
144.
|
During one-year
holding period – no resales under Rule 144 permitted.
After one-year holding
period – unlimited public resales under Rule 144; need not comply
with any other Rule 144
requirements.
|
17
ITEM
6. SELECTED FINANCIAL DATA
The
following selected financial data should be read in conjunction with
“Item 7 - Management’s Discussion and Analysis of Financial Condition and
Results of Operations” and “Item 8 - Financial Statements and Supplementary
Data.”
June
30, 2009
|
June
30, 2008
|
|||||||
Results
of Operations:
|
||||||||
Revenue
|
$ | - | $ | - | ||||
Loss
from operations
|
(6,627,114 | ) | (7,804,599 | ) | ||||
Other
income (expenses)
|
(10,223 | ) | (11,104 | ) | ||||
Net
loss
|
(6,637,337 | ) | (7,815,703 | ) | ||||
Basic
and diluted net loss per share
|
(0.20 | ) | (0.27 | ) | ||||
Cash
Flow and Balance Sheet Data:
|
||||||||
Net
cash used in operating activities
|
$ | (843,908 | ) | $ | (1,525,399 | ) | ||
Cash
|
47,537 | 144,429 | ||||||
Total
Assets
|
1,029,603 | 935,729 | ||||||
Total
Current Liabilities
|
2,913,638 | 2,104,145 | ||||||
Accumulated
deficit
|
(35,334,617 | ) | (28,697,280 | ) | ||||
Total
Stockholders' deficit
|
(1,980,717 | ) | (1,277,071 | ) |
ITEM
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
General
The
following discussion and analysis provides information which management believes
is relevant to an assessment and understanding of the Company’s results of
operations and financial condition. The discussion should be read in
conjunction with the financial statements and notes thereto. This
discussion contains forward looking statements regarding the Company's plans,
objectives, expectations and intentions. All forward looking statements
are subject to risks and uncertainties that could cause the Company's actual
results and experience to differ materially from such projections.
Historically,
the Company's activities have been dominated by its research and development
activities. As a result, there have not been revenues associated with
operations. The Company has limited experience regarding profit margins or costs
associated with operating a business.
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 saleable energy; (ii) market and sell the alternate solar energy
system to entities who desire to produce solar energy; 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.
The
Company does not expect a significant change in the number of employees during
the next 12 months. However, if the Company is successful in getting
the alternate solar energy system operational, additional employees may be
necessary depending on the demand for the system and how the Company determines
to produce the system. The Company plans to evaluate the possibility
of contracting with suppliers to produce and install the
systems.
18
Results of
Operations
Fiscal
year ended June 30, 2009 compared to fiscal year ended June 30,
2008
The
Company has not generated a profit since inception. Operations during
the years ended June 30, 2009 and 2008, primarily pertained to research and
development and other activities. Research and development expenses
decreased by $55,909 or 7% from $760,798 in fiscal year 2008 to $704,889
primarily due to purchasing less research and development materials for the
solar thermal and bladeless turbine during the fiscal year 2009 as compared to
fiscal year 2008.
General
and administrative expenses decreased by $1,099,062 or 16% from $7,021,287 in
fiscal year 2008 to $5,922,225 in fiscal year 2009. The decrease in general and
administrative expenses is primarily due to many options fully vesting in fiscal
year 2008 resulting in a decrease in stock-based compensation for fiscal year
2009.
Total
revenue and cost of sales were $0 for fiscal years 2009 and 2008. Other expenses
remained relatively constant in fiscal years 2009 and 2008. Net loss
decreased by $1,178,366 from $7,815,703 in fiscal year 2008 to $6,637,337 in
fiscal year 2009 primarily related to the decrease in stock-based
compensation.
Liquidity and Capital
Resources
Historically,
our principal use of cash has been to fund ongoing research and development
activities. To date, we have primarily financed our operations by the
receipt of loan advances from the Company’s president and through the private
placement of equity securities. The president and the Company have no formal
agreement as to any future loans or advances. The Company has no line of credit
with any financial institution. The Company believes that until it has
consistent operations and revenues, it will be unable to establish a line of
credit from conventional sources.
The
Company's liquidity is substantially limited given the current rate of
expenditures. More funds will be required to support ongoing product
development, finance any marketing programs and establish any distribution
networks. The Company had $47,537 in cash as of June 30, 2009,
representing a decrease of $96,892 from June 30, 2008. The decrease
relates to net cash used in operations and investing of $843,908 and $23,358,
respectively, offset by net cash provided by financing activities of
$770,374.
As of
June 30, 2009, the Company has current assets of $59,370 and total assets of
$1,029,603. Current liabilities were $2,913,638 and total liabilities of
$3,010,320. The ratio of current assets to current liabilities is approximately
0.02. If the Company continues to have a negative cash flow or if the Company is
unable to generate sufficient revenues to meet its operating expenses, the
Company will continue to experience liquidity difficulties.
Stock
issuance
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 year ended June
30, 2009, 1,245,000 shares were sold for proceeds of $432,502 at prices ranging
from $0.16 to $0.67 per share. During the year ended June 30, 2008,
1,116,100 shares were sold for proceeds of $529,676 at prices ranging from $0.34
to $0.92 per share. The proceeds were used to pay professional fees,
rent, operating expenses and accrued liabilities. At June 30, 2009
and 2008, there was a balance of 4,344,818 and 5,589,818 shares, respectively,
in the escrow accounts.
During
the year ended June 30, 2009, the Company issued 50,000 shares of common stock
to a company in exchange for services valued at $29,500 and issued 505,000
shares of common stock, valued at $126,250, to employees for
compensation. During the year ended June 30, 2008, the Company issued
150,000 shares of common stock to an individual in exchange for $45,000 in cash
at $0.30 per share.
Critical Accounting
Policies
The
Company’s significant accounting policies are discussed in Note 1 to the
Financial Statements. The application of certain policies requires significant
judgments or an estimation process that can affect our results of operations,
financial position and cash flows, as well as the related footnote disclosures.
We base our estimates on historical experience and other assumptions, as
discussed below, that we believe is reasonable. If actual amounts are ultimately
different from previous estimates, the revisions are included in our results of
operations for the period in which the actual amounts become known. The
accounting policies and estimates with the greatest potential to have a
significant impact on our operating results, financial position, cash flows and
footnote disclosures are as follows.
19
Long-Lived
Assets
The
Company regularly evaluates whether events or circumstances have occurred that
indicate the carrying value of its long-lived assets may not be
recoverable. When factors indicate the asset may not be recoverable,
we compare the related undiscounted future net cash flows to the carrying value
of the asset to determine if impairment exists. If the expected
future net cash flows are less than the carrying value, an impairment charge is
recognized based on the fair value of the asset. The estimates of
future cash flows involve considerable management judgment and are based upon
assumptions about expected future operating performance. The actual cash flows
could differ from management’s estimates due to changes in business conditions,
operating performance and economic conditions. Furthermore, the Company makes
periodic assessments about each patent and related technology to determine if it
plans to continue to pursue the technology and if the patent has value. As a
result of these assessments, the Company wrote off $0 and $22,972 of patents
during the years ended June 30, 2009 and 2008, respectively.
Stock-Based
Compensation
The
Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 123(R),
“Share-Based Payment”,
on July 1, 2007, which requires us to measure compensation expense for all
outstanding unvested share-based awards at fair value and recognize compensation
expense over the service period for awards expected to vest. The estimation of
stock awards that will ultimately vest requires judgment, and to the extent
actual results differ from estimates, such amounts will be recorded as an
adjustment in the period estimates are revised. The Company considers
many factors when estimating expected forfeitures, including types of awards,
employee class, and historical experience. Actual results may differ from
these estimates.
Contractual Obligations and
Commitments
The
following table summarizes our contractual obligations as of June 30, 2009 and
the effect such obligations and commitments are expected to have on our
liquidity and cash flow in future periods:
Payments
due by Fiscal Year
|
||||||||||||||||||||||||||||
Contractual
Obligations
|
2010
|
2011
|
2012
|
2013
|
2014
|
Thereafter
|
Total
|
|||||||||||||||||||||
Long-term
debt arrangements (1)
|
$ | 52,543 | $ | 12,704 | $ | 13,594 | $ | 14,545 | $ | 15,564 | $ | 40,275 | $ | 149,225 | ||||||||||||||
Operating
leases (2)
|
7,500 | 7,500 | 7,500 | 7,500 | 7,500 | 17,500 | 55,000 | |||||||||||||||||||||
Total
contractual obligations
|
$ | 60,043 | $ | 20,204 | $ | 21,094 | $ | 22,045 | $ | 23,064 | $ | 57,775 | $ | 204,225 |
(1) The
Company has two notes payable to financing companies due in annual statements
that are collateralized by land and both mature in fiscal year 2017. The Company
also has a note payable maturing in fiscal 2010 for equipment.
(2) The
Company entered into a lease agreement for research and development space in
October 2006. The term of this lease is from November 1, 2006 to November 1,
2016.
The
Company has also entered into several solar lease bonus fee contracts with many
of the customers who made deposits on the alternate solar energy system
discussed further in Note 1 and Note 9 to the financial
statements. As additional consideration for making the deposit and
making the alternate solar energy system available to the Company as a reference
for marketing and sales purposes to show and demonstrate, the Company has agreed
to pay many of the customers a referral fee of .009% on the first one billion
dollars of total gross sales revenue received by the Company for the sale of
power generation equipment. The Company will be obligated to pay this
bonus fee if it is able to produce and then sell its alternate solar energy
system.
Off-Balance Sheet
Arrangements
We do not
have any off-balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition, results of
operations or cash flows.
20
Recent Accounting
Pronouncements
In
December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
141 (revised 2007), “Business Combinations” (“SFAS 141R”) and SFAS No. 160,
“Noncontrolling Interests in Consolidated Financial Statements, an amendment of
Accounting Research Bulletin No. 51" (“SFAS 160”). SFAS 141R will change how
business acquisitions are accounted for and will impact financial statements
both on the acquisition date and in subsequent periods. SFAS 160 will change the
accounting and reporting for minority interests, which will be recharacterized
as noncontrolling interests and classified as a component of equity. SFAS 141R
and SFAS 160 are effective for the Company beginning July 1, 2009. Early
adoption is not permitted. These statements will affect the Company
for combinations after July 1, 2009.
In
June 2008, the FASB issued FASB Staff Position Emerging Issues Task
Force (EITF) No. 03-6-1, “Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities” (“FSP EITF No.
03-6-1”). Under FSP EITF No. 03-6-1, unvested share-based payment
awards that contain rights to receive nonforfeitable dividends (paid or unpaid)
are participating securities, and should be included in the two-class method of
computing EPS. FSP EITF No. 03-6-1 is effective for the Company beginning July
1, 2009, and is not expected to have a significant impact on the Company’s
financial statements.
In April
2009, the FASB released FASB Staff Position (“FSP”) SFAS 107-1 and Accounting
Principles Board (APB) Opinion No. 28-1, “Interim Disclosures about Fair Value
of Financial Instruments” (“SFAS 107-1 and APB 28-1”). This FSP
amends FASB Statement No. 107, “Disclosures about Fair Values of Financial
Instruments,” to require disclosures about fair value of financial instruments
in interim financial statements as well as in annual financial
statements. The FSP also amends APB Opinion No. 28, “Interim
Financial Reporting,” to require those disclosures in all interim financial
statements. This proposal is effective for interim periods ending
after June 15, 2009, but early adoption is permitted for interim periods ending
after March 15, 2009. The Company plans to adopt SFAS 107-1 and APB
28-1 and provide the additional disclosure requirements for the first quarter
for fiscal year end 2010.
In April
2009, the FASB released FSP SFAS 157-4, “Determining Whether a Market Is Not
Active and a Transaction Is Not Distressed” (“SFAS 157-4”). This FSP
provides additional guidance in determining whether a market for a financial
asset is not active and a transaction is not distressed for fair value
measurement purposes as defined in SFAS 157, “Fair Value
Measurements.” SFAS 157-4 is effective for interim periods ending
after June 15, 2009, but early adoption is permitted for interim periods ending
after March 15, 2009. The Company plans to adopt the provisions of
SFAS 157-4 during first quarter 2010, but does not believe this guidance will
have a significant impact on the Company’s financial statements.
In April
2009, the FASB released FSP SFAS 115-2 and SFAS 124-2, “Recognition and
Presentation of Other-Than-Temporary Impairments.” This proposal
provides guidance in determining whether impairments in debt securities are
other than temporary, and modifies the presentation and disclosures surrounding
such instruments. This FSP is effective for interim periods ending
after June 15, 2009, but early adoption is permitted for interim periods ending
after March 15, 2009. The Company plans to adopt the provisions of
this Staff Position during the first quarter 2010, but does not believe this
guidance will have a significant impact on the Company’s financial
statements.
In May
2009, the FASB issued statement No. 165, “Subsequent Events” (“SFAS 165”).
SFAS 165 modifies the definition of what qualifies as a subsequent event—those
events or transactions that occur following the balance sheet date, but before
the financial statements are issued, or are available to be issued—and requires
companies to disclose the date through which it has evaluated subsequent events
and the basis for determining that date. SFAS 165 is effective for
fiscal years and interim periods ending after June 15, 2009. The Company adopted
the provisions of SFAS 165 for the year ended June 30, 2009 and have evaluated
any subsequent events through October 13, 2009. The Company does not
believe there are any material subsequent events which would require further
disclosure as discussed in Note 14.
In June
2009, the FASB issued SFAS No. 166, “Accounting for Transfers of
Financial Assets – an amendment of FASB Statement No. 140” (“SFAS
166”). SFAS 166 amends SFAS 140 by including: the elimination of the
qualifying special-purpose entity (QSPE) concept; a new participating interest
definition that must be met for transfers of portions of financial assets to be
eligible for sale accounting; clarifications and changes to the derecognition
criteria for a transfer to be accounted for as a sale; and a change to the
amount of recognized gain or loss on a transfer of financial assets accounted
for as a sale when beneficial interests are received by the
transferor. Additionally, the standard requires extensive new
disclosures regarding an entity’s involvement in a transfer of financial
assets. Finally, existing QSPEs (prior to the effective date of SFAS
166) must be evaluated for consolidation by reporting entities in accordance
with the applicable consolidation guidance upon the elimination of this
concept. SFAS 166 is effective for the Company beginning on July 1,
2010. The Company has not yet determined the impact that adoption of
SFAS 166 will have on its financial statements.
21
In June
2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No.
46(R)” (“SFAS
167”). Among other items, SFAS 167 responds to concerns about the
application of certain key provisions of FIN 46(R), including those regarding
the transparency of the involvement with variable interest
entities. SFAS 167 is effective for the Company beginning on July 1,
2010. The Company has not yet determined the impact that adoption of
SFAS 167 will have on its financial statements.
In June
2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification™
and the Hierarchy of Generally Accepted Accounting Principles—a replacement of
FASB Statement No. 162”
(“SFAS 168”). SFAS 168 establishes the FASB Accounting
Standards Codification™ (Codification) as the source of authoritative U.S. GAAP
to be applied by nongovernmental entities. While not intended to
change U.S. GAAP, the Codification significantly changes the way in which the
accounting literature is organized. The Company will adopt this new
accounting standard for its financial statements for the quarterly period ending
September 30, 2009. The Company does not expect the adoption of SFAS
168 to have a material impact on its financial statements.
The
Company has reviewed all other recently issued, but not yet adopted, accounting
standards in order to determine their effects, if any, on its results of
operation, financial position or cash flows. Based on that review,
the Company believes that none of these pronouncements will have a significant
effect on its financial statements.
ITEM
8. FINANCIAL STATEMENTS
The
financial statements required by this item are after the signature
pages.
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
ITEM 9A(T). 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) and 15d-15(e) under the Securities Exchange Act of 1934 (the
“Exchange Act”)) as of the end of the period covered by this
report. Based upon that evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that our disclosure controls and procedures as
of the end of the period covered by this report were effective such that the
information required to be disclosed by us in reports filed under the Securities
Exchange Act of 1934 is (i) recorded, processed, summarized and reported
within the time periods specified in the SEC’s rules and forms and
(ii) accumulated and communicated to our management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate to allow timely
decisions regarding disclosure. A controls system cannot provide absolute
assurance, however, that the objectives of the controls system are met, and no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within a company have been
detected.
Management’s Annual Report
on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rule 13a-15(f) under the
Exchange Act). Our internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes of
accounting principles generally accepted in the United
States.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Therefore, even those systems determined to be
effective can provide only reasonable assurance of achieving their control
objectives.
Our
management, with the participation of the Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of the Company’s internal control
over financial reporting as of June 30, 2009. In making this
assessment, our management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control — Integrated Framework. Based on this evaluation, our
management, with the participation of the Chief Executive Officer and Chief
Financial Officer, concluded that, as of June 30, 2009, our internal control
over financial reporting was effective.
22
This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by the
Company’s registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the Company to provide only
management’s report in this annual report.
Changes in Internal Control
Over Financial Reporting
During
the most recent quarter ended June 30, 2009, there has been no change in our
internal control over financial reporting (as defined in Rule 13a-15(f) and
15d-15(f) under the Exchange Act) that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
ITEM
9B. OTHER INFORMATION
None
PART
III
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and
Officers
The
executive officers and directors of the Company are
as follows:
Name
|
Age
|
Position with the
Company
|
||
Neldon
Johnson
|
63
|
Chairman
of the Board of Directors, President and CEO
|
||
Randale
Johnson
|
40
|
Secretary,
Vice President
|
||
LaGrand
Johnson
|
43
|
CFO
|
||
Bruce
Barrett
|
79
|
Director
|
||
Blain
Phillips
|
47
|
Director
|
All
Directors hold office until a successor has been elected. All officers are
appointed by the Board of Directors and serve at the discretion of the Board
until a new officer is appointed.
Directors
will be reimbursed by the Company for any expenses incurred in attending
Directors' meetings. The Company also intends to obtain Officers and Directors
liability insurance, although no assurance can be given that it will be able to
do so.
Background
of Executive Officers and Directors
Neldon
Johnson is the founder of the Company and the primary inventor of the Self-Check
system, AFIM, DWM, and turbine technologies. Mr. Johnson directs the Company's
research and development program. Mr. Johnson studied physics and mathematics at
Brigham Young University in Provo, Utah, and graduated from Utah Technical
College's Electronics Technology Program in 1964. He has taken training
courses and has taught courses in electronics programming, microwave and wave
switch programs. From 1965 to 1968 he worked for American Telephone and
Telegraph, Inc., as an engineer.
23
From 1983
to the present, Mr. Johnson has been developing the Self-Check System, AFIM,
DWM, and turbine technologies. Also, from 1975 to 1990 he worked at a Ream's
Grocery Store and had management responsibilities for operations. Mr. Johnson
has real estate holdings, one of which is a building of approximately 25,000
square feet in Salem, Utah.
Randale
P. Johnson is the son of Neldon Johnson. He has been an officer since June 1996.
His responsibilities include marketing and administration. Mr.
Johnson holds an associate degree in Computer Science and has four years of
experience in the computer industry. He joined the Company in
1996.
LaGrand
T. Johnson is the son of Neldon Johnson. He has worked with the Company since
1987 but started full time in 1996. He graduated with a Bachelor's Degree in
chemistry in 1991. He received his Doctor of Osteopathy degree in 1995 from
Western University of Health Sciences. He works as CFO and General Manager of
the Company and in research and development.
Bruce
Barrett graduated from Brigham Young University with a degree in Marketing and
Business Management in 1958. After graduating he continued to work for BYU. He
was Manager of Married Student Housing, Manager of Material Handling, Director
of Textile Cleaning Services, and Director of Auxiliary Services before retiring
in 1995.
Blain
Phillips has been employed at Union Pacific Railroad since 1991.
None of
the officers or directors of the Company has during the past five years, been
involved in any events such as criminal proceedings or convicted of proceedings
relating to securities violations.
Corporate
Governance
Nominating
Committee
We have not established a Nominating Committee because, due to
our development of operations and the fact that
we only have three directors and executive officers, we believe that we are able
to effectively manage the issues normally considered by a Nominating
Committee. Following the entry into any business or the completion of
any acquisition, merger or reorganization, a further review of this issue will
no doubt be necessitated and undertaken by new management.
If we do
establish a Nominating Committee, we will disclose this change to our procedures
in recommending nominees to our board of directors.
Audit
Committee
We have
not established an Audit Committee because, due to our development
of operations and the fact that we only
have three directors and executive
officers, we believe that we are able to effectively manage the
issues normally considered by an
audit committee. Following the entry into any business or
the completion of any acquisition, merger or reorganization, a further review of
this issue will no doubt be necessitated and undertaken by new
management
ITEM
11. EXECUTIVE COMPENSATION
The table
below summarizes the total compensation paid to or earned by each of the named
executive officers for the fiscal years ended June 30, 2009 and
2008.
24
Name
and Principal Position
|
Fiscal
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
(1)
|
Option
Awards
($)
(2)
|
Non-Equity
Incentive
Plan
Compensation
($)
|
Nonqualified
Deferred
Compensation
Earnings
($)
|
All
Other
Compensation
($)
|
Total
($)
|
||||||||||||||||||||||||||
Neldon
Johnson
|
2009
|
125,000 | - | - | 4,687,007 | - | - | - | 4,812,007 | ||||||||||||||||||||||||||
President,
CEO and Director
|
2008
|
- | - | 122,478 | 5,613,494 | - | - | - | 5,735,972 | ||||||||||||||||||||||||||
Randale
Johnson
|
2009
|
54,600 | - | - | 14,216 | - | - | - | 68,816 | ||||||||||||||||||||||||||
Secretary
and Vice President
|
2008
|
54,667 | - | - | 28,269 | - | - | - | 82,936 | ||||||||||||||||||||||||||
LaGrand
Johnson
|
2009
|
44,100 | - | - | 14,216 | - | - | - | 58,316 | ||||||||||||||||||||||||||
CFO
|
2008
|
31,925 | - | - | 28,269 | - | - | - | 60,194 |
|
(1)
|
The
amount in the stock awards columns represents the value of the 1,000,000
Series 1 Class A Preferred Stock granted as compensation for services
performed in 2008 lieu of cash
compensation.
|
|
(2)
|
The
amounts in the option awards column reflect the dollar amount recognized
for financial statement reporting purposes for the indicated fiscal years
ended June 30, in accordance with SFAS 123(R) and thus include amounts
from options granted in prior years. No options were granted in
the current year.
|
Employment
Agreements
The
Company has entered into an agreement with Neldon Johnson to act as President
and CEO of the Company for a period of ten years starting in July 2000. Per the
agreement, Neldon is to be paid $100,000 per anum and shall increase each
calendar year by the percentage increase in the Consumer Price
Index. Neldon may terminate the agreement, but must give the Company
6 months advance notice. The Company can not voluntarily terminate
Neldon’s employment for any reason. No additional payments are
outlined in the agreement for a change in control.
Outstanding Equity Awards at
Fiscal Year-End
Option
Awards
|
Stock
Awards
|
||||||||
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
(j)
|
Name
|
Number
of Securities Underlying Unexercised Options
(#)Exercisable
|
Number
of Securities Underlying Unexercised Options (#)
Unexercisable
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised
Unearned Options (#)
|
Option
Exercise Price ($)
|
Option
Expiration Date
|
Number
of Shares or Units of Stock That Have Not Vested
|
Market
Value of Shares or Units of Stock That Have Not Vested
|
Equity
Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights
That Have Not Vested
|
Equity
Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or
Other Rights That Have Not Vested
|
Neldon
Johnson
|
29,300,000
|
65,000,000
(1)
|
—
|
$0.40
|
12/31/2034
|
—
|
—
|
—
|
—
|
Randale
Johnson
|
450,000
|
50,000
(2)
|
—
|
$3.00
|
8/22/2010
|
—
|
—
|
—
|
—
|
LaGrand
Johnson
|
450,000
|
50,000
(2)
|
—
|
$3.00
|
8/22/2010
|
—
|
—
|
—
|
—
|
(1)
|
These
options were granted on May 14, 2004 and vest on January 1,
2010.
|
(2)
|
These
options were granted on August 24, 2000 and vest on August 24,
2009.
|
25
Compensation of
Directors
The
Company’s Directors currently are not compensated for their time and there are
no payment arrangements. The Company anticipates that it will need to
compensate Directors at some point in the future.
ITEM. 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth certain information known to the Company regarding
beneficial ownership of the Company's Common Stock as of June 30, 2009, by
(i) each person known by the Company to own, directly or beneficially, more than
5% of the Company's Common Stock, (ii) each of the Company's directors, and
(iii) all officers and directors of the Company as a group. Except as otherwise
indicated, the Company believes that the beneficial owners of the Common Stock
listed below, based on information furnished by such owners, have sole
investment and voting power with respect to such shares, subject to community
property laws, where applicable.
Beneficial
ownership is determined in accordance with the rules of the SEC. In computing
the number of shares beneficially owned by a person or a group and the
percentage ownership of that person or group, shares of our common stock
issuable currently or within 60 days of June 30, 2009, upon exercise of options
or warrants held by that person or group is deemed outstanding. These shares,
however, are not deemed outstanding for computing the percentage ownership of
any other person. Except as indicated by footnote, and subject to community
property laws where applicable, the stockholders named in the table below have
sole voting and investment power with respect to all shares of common stock
shown as beneficially owned by them. Percentage ownership is based on 64,801,322
shares of common stock outstanding as of June 30, 2009, together with applicable
options and warrants for each stockholder. Unless otherwise
indicated, the address of each person listed below is in the care of
International Automated Systems, Inc., 326 North SR 198, Salem, Utah
84653.
Shares
Beneficially Owned
|
||||
Name
and Title
|
Number
(4)
|
Percent
|
||
Neldon
Johnson, President, CEO and Director
|
30,869,920
|
(1)
|
47.6%
|
|
Randale
Johnson, Secretary and Vice President
|
750,000
|
(2)
|
1.2%
|
|
LaGrand
Johnson, CFO
|
650,000
|
(3)
|
1.0%
|
|
Bruce
Barrett, Director
|
100,000
|
0.2%
|
||
Blain
Phillips, Director
|
-
|
0.0%
|
||
All
officers and directors as a group (5 persons)
|
32,369,920
|
50.0%
|
(1)
|
Includes
warrants to purchase 29,300,000 shares of common stock exercisable within
60 days of June 30, 2009.
|
(2)
|
Includes
options to purchase 500,000 shares of common stock exercisable within 60
days of June 30, 2009.
|
(3)
|
Includes
options to purchase 500,000 shares of common stock exercisable within 60
days of June 30, 2009.
|
(4)
|
Does
not include 2,000,000 shares of Series 1 Class A Preferred Stock held by
Neldon Johnson, 1,150,000 shares of Series 1 Class A Preferred Stock held
by LaGrand Johnson, or 1,150,000 shares of Series 1 Class A Preferred
Stock held by Randale Johnson. Each share of the Series 1 Class A
Preferred Stock has ten votes per share and votes with the shares of
common stock on all matters with the exception of 1,000,000 of the Series
1 Class A Preferred Stock held by Neldon Johnson which has 100 votes per
share and votes with the shares of common stock on all matters. Mr. Neldon
Johnson has approximately 70%, LaGrand Johnson 6%, and Randale Johnson 6%
of the voting control of the Company when the voting power of the shares
of preferred stock, common stock and vested options are considered
together.
|
Changes in
Control
There are
no additional present arrangements or pledges of the Company’s securities which
may result in a change in control of the Company. However, there are
no provisions in our Articles of Incorporation or Bylaws that would delay, defer
or prevent a change in control.
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
On May
14, 2004, the Company entered into an agreement with Neldon Johnson, the
Company’s president, in which the Company acquired from Mr. Johnson patents,
patents pending, designs and contracts related to the bladeless turbine, solar
and chemical thermal technologies, and electronic shelf tag technology developed
by Mr. Johnson. As consideration for these patents, patents pending,
designs and contracts, the Company issued warrants to purchase 100,000,000
shares of common stock and 10% of total gross sales in royalties of the Company.
26
During
the year ended June 30, 2003, the Company commenced leasing office and research
and development space on a month- to-month basis from its president, for $6,000
per month. The amount payable to the president for rent at June 30,
2009 was $65,000.
The
Company received cash advances of $557,101 from its president during the year
ended June 30, 2009. The Company settled $630,000 of the cash advances by
issuing 1,575,000 shares of common stock to the officer upon the exercise of
warrants; paid $173,744 of the cash advances; and settled $86,977 of the cash
advances through the transfer of in-process patent rights at cost during the
year ended June 30, 2009. The balance was $440,382 at June 30, 2009 and is
unsecured, payable on demand and non-interest bearing.
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 June 30, 2009, the Company has not provided any services or equipment
required under this agreement and has received no money and recognized no
revenues.
Resolving Conflicts of
Interest
The
Company’s directors must disclose all conflicts of interest and all corporate
opportunities to the entire board of directors. Any transaction
involving a conflict of interest will be conducted on terms not less favorable
than that which could be obtained from an unrelated third party.
Director
Independence
The
Company has two independent directors serving on its board of
directors.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Our
financial statements for the years ended June 30, 2009 and 2008 have been
audited by our principal accountant, Mantyla McReynolds, LLC. Each year the
Chief Executive Officer pre-approves all audit and tax related services prior to
the performance of services by Mantyla McReynolds, LLC. The percentage of hours
expended on the audit by persons other than full time, permanent employees of
Mantyla McReynolds, LLC was zero.
Audit
Fees
Aggregate
fees for the year ended June 30, 2009 for professional services by Mantyla
McReynolds, LLC, our principal accountant, for the audit of our annual financial
statements and review of our interim financial statements were approximately
$48,325.
Aggregate
fees for the year ended June 30, 2008 for professional services by Mantyla
McReynolds, LLC, our principal accountant, for the audit of our annual financial
statements and review of our interim financial statements were approximately
$37,329.
Audit-Related
Fees
Audit-related
fees, not included in the previous paragraphs, for the years ended June 30, 2009
and 2008 for assurance and related services by Mantyla McReynolds, LLC were $655
and $130, respectively.
Tax Fees
$0 and
$728 of fees were billed to us for years ended June 30, 2009 and 2008,
respectively, for professional services by Mantyla McReynolds, LLC for tax
compliance, tax advice, and tax planning. A firm, other than our
principal accountant, prepares all income tax returns.
27
ITEM
15. 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
|
b.
Reports on Form 8-K.
During
the period ended June 30, 2006, Registrant filed two reports on Form 8-K and one
report on 8-K/A.
28
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
INTERNATIONAL
AUTOMATED SYSTEMS, INC.
|
|
/s/ Neldon
Johnson
|
|
NELDON
JOHNSON
|
|
Title:
President,
|
|
Chief
Executive Officer
|
|
Date:
October
13, 2009
|
|
DIRECTORS
|
|
/s/ Neldon
Johnson
|
|
NELDON
JOHNSON
|
|
Title:
Director
|
|
Date:
October 13,
2009
|
|
/s/ Blain
Phillips
|
|
BLAIN
PHILLIPS
|
|
Title:
Director
|
|
Date:
October
13, 2009
|
|
/s/ Bruce
Barrett
|
|
BRUCE
BARRETT
|
|
Title:
Director
|
|
Date:
October
13, 2009
|
|
29
INTERNATIONAL
AUTOMATED SYSTEMS, INC.
(A
Development Stage Company)
Table
of Contents
Page
|
||
Report
of Independent Registered Public Accounting Firm
|
F1
|
|
Balance
Sheets - June 30, 2009 and 2008
|
F2
|
|
Statements
of Operations for the Years Ended June 30, 2009 and 2008 and for the
period from Inception [September 26, 1986] through June 30,
2009
|
F3
|
|
Statements
of Stockholders' Equity/ (Deficit) for the Period from Inception through
June 30, 2009
|
F4
|
|
Statements
of Cash Flows for the Years Ended June 30, 2009 and 2008 and for the
period from Inception [September 26, 1986] through June 30,
2009
|
F8
|
|
Notes
to the Financial Statements
|
F10
|
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of
Directors and Stockholders
International
Automated Systems, Inc.
We have
audited the accompanying balance sheets of International Automated Systems, Inc.
(the Company) as of June 30, 2009 and 2008, and the related statements of
operations and cash flows for the years ended June 30, 2009 and 2008 and for the
period from July 1, 2006 through June 30, 2009, and the statement of
stockholders’ deficit for the period from July 1, 2006 through June 30,
2009. 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. The financial statements of
International Automated Systems, Inc. for the period from inception [September
26, 1986] through June 30, 2005, were audited by other auditors whose report
dated September 28, 2005, except for the Note 1 restatement which was dated
February 20, 2006, expressed an unqualified opinion on those
statements. Others audited the financial statements of the Company
from inception (September 26, 1986) through June 30, 1990, whose reports dated
October 21, 1988 and April 30, 1991, were qualified subject to the effects of
such adjustments, if any, as might have been required had the outcome of certain
uncertainties referred to in the related notes been known. Our opinion, in so
far as it relates to the period from September 26, 1986 through June 30, 2005,
is based solely on the reports of the other auditors.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The
Company has determined that it is not required to have, nor were we engaged to
perform, an audit of its internal control over financial
reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal controls over financial
reporting. Accordingly, we express no such opinion. 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 financial statements referred to above present fairly, in all
material respects, the financial position of the Company as of June 30, 2009 and
2008 and the results of operations and cash flows for the years ended June 30,
2009 and 2008, and for the period from inception (September 26, 1986) through
June 30, 2009, in conformity with accounting principles generally accepted in
the United States of America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has accumulated losses from inception and has
negative working capital as of June 30, 2009. These factors raise substantial
doubt about its ability to continue as a going concern. Management’s plans in
regard to these matters are also described in Note 1. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
Mantyla
McReynolds, LLC
Salt Lake
City, Utah
October
13, 2009
F-1
INTERNATIONAL
AUTOMATED SYSTEMS, INC.
(A
Development Stage Company)
Balance
Sheets
June
30,
|
June
30,
|
||||||||
2009
|
2008
|
||||||||
ASSETS
|
|||||||||
CURRENT
ASSETS
|
|||||||||
Cash
and cash equivalents
|
$ | 47,537 | $ | 144,429 | |||||
Prepaid
expenses
|
11,833 | - | |||||||
Total
Current Assets
|
59,370 | 144,429 | |||||||
Alternate
solar energy systems
|
413,520 | 151,859 | |||||||
Property
and equipment, net of accumulated depreciation of $291,390 and
$202,965, respectively - Note 1
|
481,512 | 471,614 | |||||||
Patents,
net of accumulated amortization of $20,825 and $15,176,
respectively
|
75,201 | 167,827 | |||||||
TOTAL
ASSETS
|
$ | 1,029,603 | $ | 935,729 | |||||
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|||||||||
CURRENT
LIABILITIES
|
|||||||||
Accounts
payable
|
$ | 417,136 | $ | 335,413 | |||||
Accrued
liabilities
|
181,327 | 72,391 | |||||||
Related
party payable - Note 3
|
505,382 | 882,001 | |||||||
Customer
deposits - Note 1 and Note 9
|
1,757,250 | 803,250 | |||||||
Notes
payable-current portion - Note 5
|
52,543 | 11,090 | |||||||
Total
Current Liabilities
|
2,913,638 | 2,104,145 | |||||||
Long-term
notes payable - Note 5
|
96,682 | 108,655 | |||||||
TOTAL
LIABILITIES
|
3,010,320 | 2,212,800 | |||||||
Commitments
and contingencies - Note 11
|
|||||||||
STOCKHOLDERS'
EQUITY (DEFICIT)
|
|||||||||
Preferred
stock, Class A, no par value; 22,000,000 shares authorized,
4,400,000 shares issued and outstanding
|
417,264 | 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, 34,501,322 and
31,146,722 issued and outstanding,net of 4,344,818 and 5,589,818 shares
held in escrow account, respectively - Note 7
|
32,936,636 | 27,002,945 | |||||||
Deficit
accumulated during the development stage
|
(35,334,617 | ) | (28,697,280 | ) | |||||
Total
Stockholders' Deficit
|
(1,980,717 | ) | (1,277,071 | ) | |||||
TOTAL
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
$ | 1,029,603 | $ | 935,729 |
The
accompanying notes are an integral part of these financial
statements
F-2
INTERNATIONAL
AUTOMATED SYSTEMS, INC.
(A
Development Stage Company)
Statements
of Operations
For
the Period
|
||||||||||||
From
Inception
|
||||||||||||
For
the Years Ended
|
(September
26,
|
|||||||||||
June
30,
|
1986)
Through
|
|||||||||||
2009
|
2008
|
June
30, 2009
|
||||||||||
REVENUES
|
||||||||||||
Sales
|
$ | - | $ | - | $ | 111,226 | ||||||
Income
from related party
|
- | - | 32,348 | |||||||||
Total
Revenues
|
- | - | 143,574 | |||||||||
COST
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
|
5,922,225 | 7,021,287 | 28,228,935 | |||||||||
Research
and development
|
704,889 | 760,798 | 7,622,839 | |||||||||
Impairment
of patents
|
- | 22,972 | 140,577 | |||||||||
License
fees
|
- | - | 270,634 | |||||||||
Loss
(gain) on disposal of property and equipment
|
- | (458 | ) | 16,901 | ||||||||
Total
Operating Expenses
|
6,627,114 | 7,804,599 | 36,279,886 | |||||||||
LOSS
FROM OPERATIONS
|
(6,627,114 | ) | (7,804,599 | ) | (36,451,370 | ) | ||||||
OTHER
INCOME (EXPENSES)
|
||||||||||||
Loss
on impairment of assets
|
- | - | (583 | ) | ||||||||
Forfeiture
of deposits
|
- | - | (236,803 | ) | ||||||||
Interest
income
|
127 | 1,570 | 26,489 | |||||||||
Interest
expense
|
(8,371 | ) | (12,769 | ) | (23,097 | ) | ||||||
Other
income (expenses)
|
(1,979 | ) | 95 | (31,276 | ) | |||||||
Total
Other Income (Expenses)
|
(10,223 | ) | (11,104 | ) | (265,270 | ) | ||||||
LOSS
BEFORE EXTRAORDINARY GAIN
|
(6,637,337 | ) | (7,815,703 | ) | (36,716,640 | ) | ||||||
Extraordinary
gain on sale of patents
|
- | - | 1,382,023 | |||||||||
NET
LOSS
|
$ | (6,637,337 | ) | $ | (7,815,703 | ) | $ | (35,334,617 | ) | |||
Net
loss per common share
|
||||||||||||
Basic
and diluted
|
$ | (0.20 | ) | $ | (0.27 | ) | ||||||
Weighted
average common shares outstanding
|
||||||||||||
Basic
and diluted
|
32,733,279 | 29,251,202 |
The
accompanying notes are an integral part of these financial
statements
F-3
INTERNATIONAL
AUTOMATED SYSTEMS, INC.
(A
Development Stage Company)
Statement
of Stockholders Equity / (Deficit)
Preferred
Stock
|
Common
Stock
|
Stock
Purchase
|
Deficit
Accumulated
During
Development
|
Total
Stockholder's
|
||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Rights
|
Stage
|
Deficit
|
||||||||||||||||||||||
Balance
- September 26, 1986
|
||||||||||||||||||||||||||||
(Date
of Inception)
|
- | $ | - | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||||
Common
stock issued for cash
|
||||||||||||||||||||||||||||
September
1986 - $0.002 per share
|
- | - | 5,100,000 | 11,546 | - | - | 11,546 | |||||||||||||||||||||
September
1988 (net of $38,702 offering costs) - $0.32 per share
|
- | - | 213,065 | 67,964 | - | - | 67,964 | |||||||||||||||||||||
December
1988 (net of $6,059 offering costs) - $0.32 per share
|
- | - | 33,358 | 10,641 | - | - | 10,641 | |||||||||||||||||||||
March
1989 (net of $4,944 offering costs) - $0.32 per share
|
- | - | 27,216 | 8,681 | - | - | 8,681 | |||||||||||||||||||||
June
1989 (net of $6,804 offering costs) - $0.32 per share
|
- | - | 37,461 | 11,950 | - | - | 11,950 | |||||||||||||||||||||
Common
stock issued for services
|
||||||||||||||||||||||||||||
September
1986 - $0.002 per share
|
- | - | 300,000 | 679 | - | - | 679 | |||||||||||||||||||||
June
1989 - $0.32 per share
|
- | - | 5,000 | 1,595 | - | - | 1,595 | |||||||||||||||||||||
Net
loss for the period from September 26,1986 through June 30,
1990
|
- | - | - | - | - | (192,978 | ) | (192,978 | ) | |||||||||||||||||||
Balance
- June 30, 1990
|
- | - | 5,716,100 | 113,056 | - | (192,978 | ) | (79,922 | ) | |||||||||||||||||||
Class
A Preferred and Common Stock issued for technology 1990-1996-
$0.02
per share
|
1,000,000 | 292,786 | 6,000,000 | 175,672 | - | - | 468,458 | |||||||||||||||||||||
Class
A Preferred Stock issued for services
|
||||||||||||||||||||||||||||
July
2000 - $0.001 per share
|
2,000,000 | 2,000 | - | - | - | - | 2,000 | |||||||||||||||||||||
August
2000 - $0.00 per share
|
400,000 | - | - | - | - | - | - | |||||||||||||||||||||
Class
B Preferred stock issued for services
|
||||||||||||||||||||||||||||
August
2000 - $0.00 per share
|
300,000 | - | - | - | - | - | - | |||||||||||||||||||||
Common
Stock issued for cash
|
||||||||||||||||||||||||||||
January
1994 - $0.40 per share
|
- | - | 59,856 | 23,942 | - | - | 23,942 | |||||||||||||||||||||
May
1994 - $0.20 per share
|
- | - | 137,500 | 27,500 | - | - | 27,500 | |||||||||||||||||||||
January
1996 (net of $24,387 offering costs) - $3.86 per share
|
- | - | 179,500 | 693,613 | - | - | 693,613 | |||||||||||||||||||||
November
1997 - $1.43 per share
|
- | - | 35,000 | 50,000 | - | - | 50,000 | |||||||||||||||||||||
May
1998 - $1.20 per share
|
- | - | 250,000 | 300,000 | - | - | 300,000 | |||||||||||||||||||||
October
1999 - $2.00 per share
|
- | - | 50,000 | 100,000 | - | - | 100,000 | |||||||||||||||||||||
September
2000 - $1.67 per share
|
- | - | 11,500 | 19,236 | - | - | 19,236 | |||||||||||||||||||||
October
through Dec 2000 - $1.03 per share
|
- | - | 140,100 | 144,546 | - | - | 144,546 | |||||||||||||||||||||
January
through March 2001 - $1.30 per share
|
- | - | 39,900 | 51,920 | - | - | 51,920 | |||||||||||||||||||||
April
through June 2001 - $0.98 per share
|
- | - | 120,100 | 117,684 | - | - | 117,684 | |||||||||||||||||||||
July
through December 2001 - $0.86 per share
|
- | - | 138,400 | 119,287 | - | - | 119,287 | |||||||||||||||||||||
December
2001 - $0.71 per share
|
- | - | 28,000 | 20,000 | - | - | 20,000 | |||||||||||||||||||||
January
2002 - $1.39 per share
|
- | - | 50,000 | 35,910 | - | - | 35,910 | |||||||||||||||||||||
May
through June 2002 - $0.25 per share
|
- | - | 500,000 | 125,000 | - | - | 125,000 | |||||||||||||||||||||
Common
Stock issued for services
|
||||||||||||||||||||||||||||
April
1991 - $0.10 per share
|
- | - | 300,000 | 30,000 | - | - | 30,000 | |||||||||||||||||||||
January
1995 - $1.00 per share
|
- | - | 100,000 | 100,000 | - | - | 100,000 | |||||||||||||||||||||
May
1997 - $4.13 per share
|
- | - | 14,000 | 57,750 | - | - | 57,750 | |||||||||||||||||||||
June
1997 - $2.94 per share
|
- | - | 5,000 | 14,690 | - | - | 14,690 | |||||||||||||||||||||
December
1997 - $1.13 per share
|
- | - | 6,000 | 6,750 | - | - | 6,750 |
The
accompanying notes are an integral part of these financial
statements
F-4
INTERNATIONAL
AUTOMATED SYSTEMS, INC.
(A
Development Stage Company)
Statement
of Stockholders Equity / (Deficit), continued
Preferred
Stock
|
Common
Stock
|
Stock
Purchase
|
Deficit
Accumulated
During
Development
|
Total
Stockholder's
|
||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Rights
|
Stage
|
Deficit
|
||||||||||||||||||||||
October
1999 - $1.26 per share
|
- | - | 50,000 | 63,147 | - | - | 63,147 | |||||||||||||||||||||
August
2000 - $2.25 per share
|
- | - | 268,000 | 603,000 | - | - | 603,000 | |||||||||||||||||||||
May
2001 - $1.12 per share
|
- | - | 3,000 | 3,360 | - | - | 3,360 | |||||||||||||||||||||
February
and March 2001 - $1.55 per share
|
- | - | 350,000 | 542,500 | - | - | 542,500 | |||||||||||||||||||||
October
2001 - $1.44 per share
|
- | - | 150,000 | 216,000 | - | - | 216,000 | |||||||||||||||||||||
February
2002 - $1.14 per share
|
- | - | 25,000 | 28,500 | - | - | 28,500 | |||||||||||||||||||||
Common
stock issued for financing transactions
|
||||||||||||||||||||||||||||
November
2000 - $0.90 per share
|
- | - | 50,000 | 45,000 | - | - | 45,000 | |||||||||||||||||||||
December
2000 - $0.90 per share
|
- | - | 10,000 | 9,000 | - | - | 9,000 | |||||||||||||||||||||
January
2001 - $0.84 per share
|
- | - | 30,000 | 25,320 | - | - | 25,320 | |||||||||||||||||||||
June
2001 - $1.16 per share
|
- | - | 120,000 | 139,200 | - | - | 139,200 | |||||||||||||||||||||
Common
stock issued to satisfy liabilities
|
||||||||||||||||||||||||||||
June
1991 - $0.03 per share
|
- | - | 2,700,000 | 78,101 | - | - | 78,101 | |||||||||||||||||||||
Grant
of stock purchase rights
|
||||||||||||||||||||||||||||
May
1994 - $0.50 per share
|
- | - | - | 6,750 | 13,500 | - | 6,750 | |||||||||||||||||||||
June
1995 - $3.00 per share
|
- | - | - | 95,283 | 31,761 | - | 95,283 | |||||||||||||||||||||
August
1995 - $5.00 per share
|
- | - | - | 25,000 | 5,000 | - | 25,000 | |||||||||||||||||||||
Stock
purchase rights exercised
|
||||||||||||||||||||||||||||
May
1997
|
- | - | 36,761 | - | (36,761 | ) | - | - | ||||||||||||||||||||
June
1997
|
- | - | 13,500 | - | (13,500 | ) | - | - | ||||||||||||||||||||
Redemption
and retirement of treasury stock
|
||||||||||||||||||||||||||||
December
1991 - $0.49 per share
|
- | - | (5,000 | ) | (2,425 | ) | - | - | (2,425 | ) | ||||||||||||||||||
December
1992 - $0.49 per share
|
- | - | (1,856 | ) | (900 | ) | - | - | (900 | ) | ||||||||||||||||||
Adjustment
for additional shares issued 1990-2002
|
- | - | 68,973 | - | - | - | - | |||||||||||||||||||||
Contributed
capital - cash and settlement of liability, no shares issued,
1990-2002
|
- | - | - | 5,762,419 | - | - | 5,762,419 | |||||||||||||||||||||
Capital
distribution of related party receivable, 1990-2002
|
- | - | - | (1,577,674 | ) | - | - | (1,577,674 | ) | |||||||||||||||||||
Net
loss for the period from July 1, 1990 through June 30,
2002
|
- | - | - | - | - | (8,705,191 | ) | (8,705,191 | ) | |||||||||||||||||||
Balance
– June 30, 2002
|
3,700,000 | 294,786 | 17,749,334 | 8,388,137 | - | (8,898,169 | ) | (215,246 | ) | |||||||||||||||||||
Common
stock issued for cash
|
||||||||||||||||||||||||||||
July
2002 - $0.20 per share
|
- | - | 150,000 | 30,000 | - | - | 30,000 | |||||||||||||||||||||
August
2002 - $0.26 per share
|
- | - | 316,000 | 82,000 | - | - | 82,000 | |||||||||||||||||||||
January
2003 - $0.32 per share
|
- | - | 80,000 | 25,600 | - | - | 25,600 | |||||||||||||||||||||
July
through September 2002 - $0.39 per share
|
- | - | 217,000 | 84,204 | - | - | 84,204 | |||||||||||||||||||||
October
through December 2002 - $0.33 per share
|
- | - | 200,000 | 66,407 | - | - | 66,407 | |||||||||||||||||||||
January
through March 2003 - $0.26 per share
|
- | - | 150,000 | 38,617 | - | - | 38,617 | |||||||||||||||||||||
April
through June 2003 - $0.24 per share
|
- | - | 240,000 | 57,234 | - | - | 57,234 | |||||||||||||||||||||
Common
stock issued for services
|
||||||||||||||||||||||||||||
July
2002 - $0.50 per share
|
- | - | 3,806 | 1,903 | - | - | 1,903 | |||||||||||||||||||||
October
2002 - $0.45 per share
|
- | - | 885,000 | 398,250 | - | - | 398,250 | |||||||||||||||||||||
November
2002 - $0.35 per share
|
- | - | 65,000 | 22,750 | - | - | 22,750 | |||||||||||||||||||||
May
2003 - $0.15 per share
|
- | - | 10,000 | 1,500 | - | - | 1,500 |
The
accompanying notes are an integral part of these financial
statements
F-5
INTERNATIONAL
AUTOMATED SYSTEMS, INC.
(A
Development Stage Company)
Statement
of Stockholders Equity / (Deficit), continued
Preferred
Stock
|
Common
Stock
|
Stock
Purchase
|
Deficit
Accumulated
During
Development
|
Total
Stockholder's
|
||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Rights
|
Stage
|
Deficit
|
||||||||||||||||||||||
Common
stock issued as part of share value guarantee
|
||||||||||||||||||||||||||||
August
through May 2003
|
- | - | 260,000 | - | - | - | - | |||||||||||||||||||||
Contributed
capital - no shares issued
|
||||||||||||||||||||||||||||
July
through June 2003
|
- | - | - | 39,682 | - | - | 39,682 | |||||||||||||||||||||
Capital
distribution of related party receivable- July through June
2003
|
- | - | - | (52,606 | ) | - | - | (52,606 | ) | |||||||||||||||||||
Net
loss
|
- | - | - | - | - | (1,017,055 | ) | (1,017,055 | ) | |||||||||||||||||||
Balance
– June 30, 2003
|
3,700,000 | 294,786 | 20,326,140 | 9,183,678 | - | (9,915,224 | ) | (436,760 | ) | |||||||||||||||||||
Common
stock issued for cash
|
||||||||||||||||||||||||||||
August
2003- $0.50 per share
|
- | - | 132,400 | 66,200 | - | - | 66,200 | |||||||||||||||||||||
September
2003- $0.50 per share
|
- | - | 148,000 | 73,000 | - | - | 73,000 | |||||||||||||||||||||
December
2003- $0.25 per share
|
- | - | 34,000 | 8,500 | - | - | 8,500 | |||||||||||||||||||||
July
through September 2003 - $0.72 per share
|
- | - | 84,000 | 60,880 | - | - | 60,880 | |||||||||||||||||||||
October
through December 2003 - $0.34 per share
|
- | - | 111,200 | 37,731 | - | - | 37,731 | |||||||||||||||||||||
January
through March 2004 - $0.36 per share
|
- | - | 91,500 | 32,560 | - | - | 32,560 | |||||||||||||||||||||
April
through June 2004 - $0.38 per share
|
- | - | 104,800 | 40,337 | - | - | 40,337 | |||||||||||||||||||||
Contributed
capital - no shares issued
|
||||||||||||||||||||||||||||
July
through June 2004
|
- | - | - | 98,204 | - | - | 98,204 | |||||||||||||||||||||
Net
income
|
- | - | - | - | - | 443,183 | 443,183 | |||||||||||||||||||||
Balance
– June 30, 2004
|
3,700,000 | 294,786 | 21,032,040 | 9,601,090 | - | (9,472,041 | ) | 423,835 | ||||||||||||||||||||
Common
stock issued for cash
|
||||||||||||||||||||||||||||
August
2004 - $0.25 per share
|
- | - | 132,000 | 32,546 | - | - | 32,546 | |||||||||||||||||||||
July
through September 2004 - $0.37 per share
|
- | - | 103,050 | 38,165 | - | - | 38,165 | |||||||||||||||||||||
October
through December 2004 - $0.34 per share
|
- | - | 233,200 | 79,201 | - | - | 79,201 | |||||||||||||||||||||
January
through March 2005 - $0.47 per share
|
- | - | 225,000 | 106,701 | - | - | 106,701 | |||||||||||||||||||||
April
through June 2005 - $0.40 per share
|
- | - | 170,500 | 66,279 | - | - | 66,279 | |||||||||||||||||||||
Contributed
capital - no shares issued
|
- | - | - | 93,877 | - | - | 93,877 | |||||||||||||||||||||
Common
stock issued for services
|
- | - | 1,100,000 | 429,000 | - | 429,000 | ||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | (1,442,880 | ) | (1,442,880 | ) | |||||||||||||||||||
Balance
- June 30, 2005
|
3,700,000 | 294,786 | 22,995,790 | 10,446,859 | - | (10,914,921 | ) | (173,276 | ) | |||||||||||||||||||
Common
stock issued for cash
|
||||||||||||||||||||||||||||
July
through September 2005 - $0.56 per share
|
- | - | 722,500 | 407,817 | - | - | 407,817 | |||||||||||||||||||||
October
through December 2005 - $0.43 per share
|
- | - | 124,000 | 52,761 | - | - | 52,761 | |||||||||||||||||||||
January
through March 2006 - $0.88 per share
|
- | - | 411,900 | 361,140 | - | - | 361,140 | |||||||||||||||||||||
April
through June 2006 - $0.69 per share
|
- | - | 968,432 | 641,730 | - | - | 641,730 | |||||||||||||||||||||
Common
stock issued for services - $0.30 per share
|
- | - | 50,000 | 15,000 | - | - | 15,000 | |||||||||||||||||||||
Common
stock issued for services - $0.34 per share
|
- | - | 60,000 | 20,400 | - | - | 20,400 | |||||||||||||||||||||
Common
stock issued for settlement of debt - $0.69 per share
|
- | - | 200,000 | 138,000 | - | - | 138,000 | |||||||||||||||||||||
Net
loss
|
- | - | - | - | - | (1,473,256 | ) | (1,473,256 | ) | |||||||||||||||||||
Balance
- June 30, 2006
|
3,700,000 | 294,786 | 25,532,622 | 12,083,707 | - | (12,388,177 | ) | (9,684 | ) |
The
accompanying notes are an integral part of these financial
statements
F-6
INTERNATIONAL
AUTOMATED SYSTEMS, INC.
(A
Development Stage Company)
Statement
of Stockholders Equity / (Deficit), continued
Preferred
Stock
|
Common
Stock
|
Stock
Purchase
|
Treasury
Stock
|
Deficit
Accumulated
During
Development
|
Total
Stockholder's
|
|||||||||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Rights
|
Shares
|
Amount
|
Stage
|
Deficit
|
||||||||||||||||||||||||||||
Balance
- June 30, 2006
|
3,700,000 | $ | 294,786 | 25,532,622 | $ | 12,083,707 | $ | - | - | $ | - | $ | (12,388,177 | ) | $ | (9,684 | ) | |||||||||||||||||||
Common
stock issued for cash
|
||||||||||||||||||||||||||||||||||||
July
through September 2006 - $0.63 per share
|
- | - | 143,000 | 89,900 | - | - | - | - | 89,900 | |||||||||||||||||||||||||||
October
through December 2006 - $0.52 per share
|
- | - | 402,580 | 208,252 | - | - | - | - | 208,252 | |||||||||||||||||||||||||||
January
through March 2007 - $0.68 per share
|
- | - | 136,920 | 93,309 | - | - | - | - | 93,309 | |||||||||||||||||||||||||||
April
through June 2007 - $0.74 per share
|
- | - | 4,500 | 3,322 | - | - | - | - | 3,322 | |||||||||||||||||||||||||||
Amortization
of stock-based compensation
|
- | - | - | 6,548,839 | - | - | - | - | 6,548,839 | |||||||||||||||||||||||||||
Common
stock issued for cash - $0.40 per share
|
- | - | 400,000 | 160,000 | - | - | - | - | 160,000 | |||||||||||||||||||||||||||
Options
exercised for settlement of related party borrowings
- $0.40 per share
|
- | - | 1,725,000 | 690,000 | - | - | - | - | 690,000 | |||||||||||||||||||||||||||
Treasury
stock issued for settlement of debt - $0.51 per share
|
- | - | - | - | - | (625,000 | ) | (318,750 | ) | - | (318,750 | ) | ||||||||||||||||||||||||
Treasury
stock issued for settlement of debt - $0.65 per share
|
- | - | - | - | - | (500,000 | ) | (325,000 | ) | - | (325,000 | ) | ||||||||||||||||||||||||
Reissuance
of treasury stock for cash - $0.86 per share
|
- | - | - | 200,055 | - | 575,000 | 293,250 | - | 493,305 | |||||||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | - | (8,493,400 | ) | (8,493,400 | ) | |||||||||||||||||||||||||
Balance
- June 30, 2007
|
3,700,000 | 294,786 | 28,344,622 | 20,077,384 | - | (550,000 | ) | (350,500 | ) | (20,881,577 | ) | (859,907 | ) | |||||||||||||||||||||||
Class
A Preferred Stock issued for compensation- $0.12 per share
|
1,000,000 | 122,478 | - | - | - | - | - | - | 122,478 | |||||||||||||||||||||||||||
Common
stock issued for cash
|
||||||||||||||||||||||||||||||||||||
July
through September 2007 - $0.76 per share
|
- | - | 24,600 | 18,665 | - | - | - | - | 18,665 | |||||||||||||||||||||||||||
October
through December 2007 - $0.59 per share
|
- | - | 22,700 | 31,894 | - | - | - | - | 31,894 | |||||||||||||||||||||||||||
January
through March 2008 - $0.59 per share
|
- | - | 146,600 | 57,667 | - | - | - | - | 57,667 | |||||||||||||||||||||||||||
April
through June 2008 - $0.44 per share
|
- | - | 372,200 | 163,182 | - | - | - | - | 163,182 | |||||||||||||||||||||||||||
Amortization
of stock-based compensation
|
- | - | - | 5,864,405 | - | - | - | - | 5,864,405 | |||||||||||||||||||||||||||
Common
stock issued for cash - $0.30 per share
|
- | - | 150,000 | 45,000 | - | - | - | - | 45,000 | |||||||||||||||||||||||||||
Options
exercised for settlement of related party borrowings
- $0.40 per share
|
- | - | 2,000,000 | 800,000 | - | - | - | - | 800,000 | |||||||||||||||||||||||||||
Common
stock issued for services - $0.43 per share
|
- | - | 86,000 | 36,980 | - | - | - | - | 36,980 | |||||||||||||||||||||||||||
Reissuance
of treasury stock for cash - $0.46 per share
|
- | - | - | (92,232 | ) | - | 550,000 | 350,500 | - | 258,268 | ||||||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | - | (7,815,703 | ) | (7,815,703 | ) | |||||||||||||||||||||||||
Balance
- June 30, 2008
|
4,700,000 | 417,264 | 31,146,722 | 27,002,945 | - | - | - | (28,697,280 | ) | (1,277,071 | ) | |||||||||||||||||||||||||
Common
stock issued for cash
|
||||||||||||||||||||||||||||||||||||
July
through September 2008 - $0.38 per share
|
- | - | 227,000 | 86,173 | - | - | - | - | 86,173 | |||||||||||||||||||||||||||
October
through December 2008 - $0.27 per share
|
- | - | 398,900 | 109,385 | - | - | - | - | 109,385 | |||||||||||||||||||||||||||
January
through March 2009 - $0.27 per share
|
- | - | 316,000 | 86,019 | - | - | - | - | 86,019 | |||||||||||||||||||||||||||
April
through June 2009 - $0.50 per share
|
- | - | 303,100 | 150,925 | - | - | - | - | 150,926 | |||||||||||||||||||||||||||
Common
stock issued for compensation - $0.25 per share
|
- | - | 505,000 | 126,250 | - | - | - | - | 126,250 | |||||||||||||||||||||||||||
Amortization
of stock-based compensation
|
- | - | - | 4,715,439 | - | - | - | - | 4,715,439 | |||||||||||||||||||||||||||
Common
stock issued for services - $0.59 per share
|
- | - | 50,000 | 29,500 | - | - | - | - | 29,500 | |||||||||||||||||||||||||||
Options
exercised for settlement of related party borrowings
- $0.40 per share
|
- | - | 1,575,000 | 630,000 | - | - | - | - | 630,000 | |||||||||||||||||||||||||||
Common
stock retired
|
- | - | (20,400 | ) | - | - | - | - | - | - | ||||||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | - | (6,637,337 | ) | (6,637,337 | ) | |||||||||||||||||||||||||
Balance
- June 30, 2009
|
4,700,000 | $ | 417,264 | 34,501,322 | $ | 32,936,636 | $ | - | - | $ | - | $ | (35,334,617 | ) | $ | (1,980,717 | ) |
The
accompanying notes are an integral part of these financial
statements
F-7
INTERNATIONAL
AUTOMATED SYSTEMS, INC.
(A
Development Stage Company)
Statements
of Cash Flows
For
the Period
|
||||||||||||
From
Inception
|
||||||||||||
For
the Years Ended
|
(September
26,
|
|||||||||||
June
30,
|
1986)
Through
|
|||||||||||
2009
|
2008
|
June
30, 2009
|
||||||||||
Cash
flows used in operating activities
|
||||||||||||
Net
loss
|
$ | (6,637,337 | ) | $ | (7,815,703 | ) | $ | (35,334,617 | ) | |||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||||||
Depreciation
and amortization
|
94,074 | 85,110 | 575,648 | |||||||||
Stock
based compensation
|
4,841,689 | 5,986,883 | 20,063,218 | |||||||||
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
|
- | (458 | ) | 17,484 | ||||||||
Impairment
of patents and abandonment of in-process rights to
technology
|
- | 22,972 | 387,128 | |||||||||
Extraordinary
gain on sale of patents
|
- | - | (1,382,023 | ) | ||||||||
Gain
on settlement of debt
|
- | - | (6,123 | ) | ||||||||
Stock
issued for services
|
19,667 | 36,981 | 120,247 | |||||||||
Changes in current assets and liabilities:
|
||||||||||||
(Increase)
/ decrease in prepaid expenses
|
(2,000 | ) | 320 | (2,000 | ) | |||||||
(Increase)
/ decrease in alternate solar energy systems
|
(261,661 | ) | (65,272 | ) | (413,520 | ) | ||||||
Increase
/ (decrease) in customer deposits
|
954,000 | 90,000 | 1,757,250 | |||||||||
Increase
/ (decrease) in accounts payable
|
81,723 | 48,987 | 417,136 | |||||||||
Increase
/ (decrease) in related party payable
|
(42,999 | ) | 70,652 | 65,001 | ||||||||
Increase
/ (decrease) in accrued liabilities
|
108,936 | 14,129 | 281,326 | |||||||||
Net
cash used in operating activities
|
(843,908 | ) | (1,525,399 | ) | (13,176,197 | ) | ||||||
Cash
flows used in investing activities
|
||||||||||||
Purchase
of property and equipment
|
(23,358 | ) | (116,898 | ) | (754,536 | ) | ||||||
Purchase
of rights to technology
|
- | (11,882 | ) | (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 | 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
|
(23,358 | ) | (126,280 | ) | (1,626,050 | ) | ||||||
Cash
flows provided by financing activities
|
||||||||||||
Proceeds
from issuance of common stock
|
432,502 | 316,408 | 5,789,231 | |||||||||
Proceeds
from reissuance of treasury stock
|
- | 258,268 | 751,573 | |||||||||
Contributed
capital
|
- | - | 6,270,559 | |||||||||
Payments
for treasury stock
|
- | - | (3,325 | ) | ||||||||
Payments
for stock offering costs
|
- | - | (56,509 | ) | ||||||||
Proceeds
from net borrowings from related party
|
557,101 | 730,805 | 2,399,121 | |||||||||
Payments
on borrowings from related party
|
(173,744 | ) | (99,537 | ) | (273,281 | ) | ||||||
Proceeds
from notes payable
|
- | - | 29,857 | |||||||||
Payments
on notes payable and capital lease obligations
|
(45,485 | ) | (5,217 | ) | (213,101 | ) | ||||||
Proceeds
from related party deposits
|
- | - | 224,400 | |||||||||
Purchases
of equipment held for distribution
|
- | - | (68,741 | ) | ||||||||
Net
cash provided by financing activities
|
770,374 | 1,200,727 | 14,849,784 | |||||||||
Net
change in cash
|
(96,892 | ) | (450,952 | ) | 47,537 | |||||||
Cash
at beginning of period
|
144,429 | 595,381 | - | |||||||||
Cash
at end of period
|
$ | 47,537 | $ | 144,429 | $ | 47,537 |
The
accompanying notes are an integral part of these financial
statements
F-8
INTERNATIONAL
AUTOMATED SYSTEMS, INC.
(A
Development Stage Company)
Statements
of Cash Flows
(Continued)
For
the Years Ended
|
||||||||
June
30,
|
||||||||
2009
|
2008
|
|||||||
Supplemental
non-cash flow information
|
||||||||
Acquisition
of property and equipment with note payable
|
$ | 74,965 | $ | - | ||||
Settlement
of borrowings from related party in exchange for
exercise of options
|
$ | 630,000 | $ | 800,000 | ||||
Settlement
of related party borrowings in exchange for patent
rights
|
$ | 86,977 | $ | - | ||||
Stock
issued for services and included in prepaids
|
$ | 9,833 | $ | - | ||||
Supplemental
cash flow information
|
||||||||
Cash
payments for interest
|
$ | 9,105 | $ | 4,920 | ||||
Cash
payments for income taxes
|
$ | 100 | $ | 100 |
The
accompanying notes are an integral part of these financial
statements
F-9
International
Automated Systems, Inc.
(A
Development Stage Company)
Notes to
the Financial Statements
June 30,
2009 and 2008
NOTE
1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - International Automated
Systems, Inc. (the “Company” or “IAS”) was incorporated in the State of Utah on
September 26, 1986. The Company’s activities to date have consisted of
developing a business plan, raising capital through the issuance of debt and
equity instruments, obtaining the rights to certain technology related to an
automated self check-out system for retail stores, developing other electronic
security and communication equipment and developing power generation
equipment.
The
Company is considered to be in the development stage as defined in Financial
Accounting Standards Board Statement No. 7. It has yet to commence full-scale
operations and continues to develop its planned principle
operations.
Use of
Estimates - The
preparation of the financial statements in conformity with accounting principles
generally accepted in the United States of America 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 balance sheet and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
Basis of
Presentation / 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 June 30, 2009, the Company
had $47,537 of available cash and a working capital deficit of $2,854,268.
For the years ended June 30, 2009 and 2008, the Company had no revenue, no
operating income, used net cash for operating activities of $843,908 and
$1,525,399, respectively. As of June 30, 2009 the Company’s losses accumulated
from inception totaled $35,334,617. These factors, among others, indicate
that the Company may be unable to continue as a going concern for the next
twelve months. 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 obtain additional financing as
may be required, and ultimately to attain sufficient cash flow from operations
to meet its obligations on a timely basis. Management is in the process of
negotiating various sales agreements and believes 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 does not attain sufficient sales to
permit profitable operations or if it cannot obtain sufficient additional
financing, it may be required to substantially curtail or terminate its
operations.
Concentration
Risks - The Federal Deposit Insurance Corporation (FDIC) insures cash
deposits in most general bank accounts for up to $250,000 per
institution. The Company had no cash deposits that exceeded insured
amounts for the years ended June 30, 2009 and 2008, respectively.
Cash Equivalents
- The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
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.
Impairment
- The Company records impairment losses on property and equipment and patents
when indicators of impairment are present and undiscounted cash flows estimated
to be generated by those assets are less than the assets’ carrying
amount. Furthermore, the Company makes periodic assessments about
each patent and the related technology to determine if it plans to continue to
pursue the technology and if the patent has value.
Property and
Equipment -
Property and equipment are recorded at cost and are depreciated using the
straight-line method based on the expected useful lives of the assets which
range from five to ten years. Depreciation expense for the years ended June 30,
2009 and 2008 was $88,425 and $78,865, respectively. The major classes of assets
are as follows:
F-10
June
30, 2009
|
June
30, 2008
|
|||||||
Land
|
$ | 216,025 | $ | 216,025 | ||||
Computer
equipment
|
59,956 | 49,089 | ||||||
Machinery
and equipment
|
388,113 | 300,657 | ||||||
Trucks
and autos
|
97,044 | 97,044 | ||||||
Mobile
office
|
11,764 | 11,764 | ||||||
Total
property and equipment
|
772,902 | 674,579 | ||||||
Less
accumulated depreciation and amortization
|
(291,390 | ) | (202,965 | ) | ||||
Total
property and equipment, net
|
$ | 481,512 | $ | 471,614 |
Patents -
Legal fees incurred in obtaining patents and franchises in the United States of
America and other countries are capitalized. Costs to develop the technology are
recognized as research and development and expensed when incurred. The patents
are being amortized, once issued, on a straight-line basis over a 17-year
life.
At June
30, 2009 and 2008, the Company had capitalized patents subject to amortization
of $75,201 and $80,850, net of $20,825 and $15,176 in accumulated amortization,
respectively. Also at June 30, 2008, the Company had capitalized $86,977 of
in-process patents that were not subject to amortization. During the
year ended June 30, 2009, the Company determined that the in-process patent’s
rights should be transferred to the Company’s president and offset the $86,977
previously paid with the related party payable.
All
patent costs were assessed for impairment and $0 and $22,972 was determined to
be impaired during the years ended June 30, 2009 and 2008,
respectively. Amortization expense was $5,649 and $6,245 for the
years ended June 30, 2009 and 2008, respectively. Amortization expense is
expected to be $5,649 per year for the next five years.
Alternate Solar
Energy Systems - The Company’s principal product is its Alternative Solar
Energy System (“System”). Each individual system is designed to
generate 250,000,000 British Thermal Units (“BTU’s”) per year. The
principal component of the system is the solar lenses in the collection
platform. The solar lenses are purchased from a third
party. The System also includes towers and pipelines, which are
constructed by the Company.
Capitalized Costs - Similar
to a multi-unit condominium project with both unit-specific and common area
costs, the Company capitalizes all costs associated with constructing the
System. Costs are allocated equally to each unit (based on their
common size) and will be recognized as cost of sales at the same rate revenue is
recognized, as discussed below. Capitalized System costs at June 30,
2009 include labor costs and materials for the Systems sold through June 30,
2009 and materials that will be used to produce additional Systems that will be
sold in the future.
Customer Deposits and Revenue
Recognition - The terms of sale of a System provides for an initial cash
deposit of $9,000 at the date the agreement is signed and thirty annual payments
of $700 (with no stated interest), totaling $21,000, commencing five years
following the installation date. As of June 30, 2009, the Company had
entered into contracts and received deposits to build, install and maintain
approximately 200 Systems.
Under the
terms of sale, the Company warrants that the Systems will remain in good
operating condition for a thirty-five year period commencing on the installation
date and that it will be responsible for all material, equipment and labor costs
incurred to complete such maintenance and repair work. In addition,
the Company warrants a production rate of 95% of the target production rate of
250,000,000 BTU’s per year for the first five years. If the energy
produced during the first five years is less than five times the warranted
production rate, the purchaser may elect to terminate the agreement and will
have no further obligation other than to return the System to the
Company. The initial cash deposit will not be returned.
The
deposits received have been recorded as customer deposits and included as
current liabilities in the financial statements since the Company has not
verified the energy output and has not yet delivered electricity from the
Systems to a third party as of June 30, 2009. 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. The Company will begin
to recognize revenue once the Systems energy output has been verified (saleable
energy is produced) and once it is able to estimate its costs associated with
the warranty.
Stock Based
Compensation – As of July 1,
2006, the Company adopted SFAS No. 123(R), “Share-based Payment”
(“SFAS No. 123(R)”), which requires the Company to measure
compensation expense for all outstanding unvested share-based awards at fair
value and recognize compensation expense over the service period for awards
expected to vest. The fair value of stock options was determined at the grant
dates using the Black-Scholes option-pricing model. The Company uses historical
data to estimate the expected volatility and expected life. The estimation of
stock awards that will ultimately vest requires judgment, and to the extent
actual results differ from estimates, such amounts will be recorded as an
adjustment in the period estimates are revised. The Company considers many
factors when estimating expected forfeitures, including types of awards,
employee class, and historical experience. Actual results may differ
substantially from these estimates (see Note 4).
F-11
Advertising
Costs - Advertising costs are expensed when incurred. Advertising expense
was $12,884 and $8,700 for the years ended June 30, 2009 and 2008,
respectively.
Research and
Development - Research and development has been the principal function of
the Company. Research and development costs are expensed as
incurred. Expenses in the accompanying financial statements include
certain costs which are directly associated with the Company’s research and
development of the Solar Power Plant technology, Steam Turbine technology,
Automated Fingerprint Identification Machine technology, Digital Wave Modulation
Technology and other various projects. These costs, which consist primarily of
monies paid for consulting expenses, materials and supplies and compensation
costs amounted to $704,889 and $760,798 for the fiscal years ended June 30, 2009
and 2008, respectively.
Income
Taxes - The Company recognizes
the amount of income taxes payable or refundable for the current year and
recognizes deferred tax assets and liabilities for operating loss carryforwards
and for the future tax consequences attributable to differences between the
financial statement amounts of certain assets and liabilities and their
respective tax basis. Deferred tax assets and deferred liabilities are measured
using enacted tax rates expected to apply to taxable income in the years those
temporary differences are expected to be recovered or settled. Deferred tax
assets are reduced by a valuation allowance to the extent that uncertainty
exists as to whether the deferred tax assets will ultimately be
realized.
Recent Accounting
Pronouncements – In December 2007, the Financial Accounting Standards
Board (“FASB”) issued SFAS No. 141 (revised 2007), “Business Combinations”
(“SFAS 141R”) and SFAS No. 160, “Noncontrolling Interests in Consolidated
Financial Statements, an amendment of Accounting Research Bulletin No. 51"
(“SFAS 160”). SFAS 141R will change how business acquisitions are accounted for
and will impact financial statements both on the acquisition date and in
subsequent periods. SFAS 160 will change the accounting and reporting for
minority interests, which will be recharacterized as noncontrolling interests
and classified as a component of equity. SFAS 141R and SFAS 160 are effective
for the Company beginning July 1, 2009. Early adoption is not
permitted. These statements will affect the Company for combinations
after July 1, 2009.
In
June 2008, the FASB issued FASB Staff Position Emerging Issues Task
Force (EITF) No. 03-6-1, “Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities” (“FSP EITF No.
03-6-1”). Under FSP EITF No. 03-6-1, unvested share-based payment
awards that contain rights to receive nonforfeitable dividends (paid or unpaid)
are participating securities, and should be included in the two-class method of
computing EPS. FSP EITF No. 03-6-1 is effective for the Company beginning July
1, 2009, and is not expected to have a significant impact on the Company’s
financial statements.
In April
2009, the FASB released FASB Staff Position (“FSP”) SFAS 107-1 and Accounting
Principles Board (APB) Opinion No. 28-1, “Interim Disclosures about Fair Value
of Financial Instruments” (“SFAS 107-1 and APB 28-1”). This FSP
amends FASB Statement No. 107, “Disclosures about Fair Values of Financial
Instruments,” to require disclosures about fair value of financial instruments
in interim financial statements as well as in annual financial
statements. The FSP also amends APB Opinion No. 28, “Interim
Financial Reporting,” to require those disclosures in all interim financial
statements. This proposal is effective for interim periods ending
after June 15, 2009, but early adoption is permitted for interim periods ending
after March 15, 2009. The Company plans to adopt SFAS 107-1 and APB
28-1 and provide the additional disclosure requirements for the first quarter
for fiscal year end 2010.
In April
2009, the FASB released FSP SFAS 157-4, “Determining Whether a Market Is Not
Active and a Transaction Is Not Distressed” (“SFAS 157-4”). This FSP
provides additional guidance in determining whether a market for a financial
asset is not active and a transaction is not distressed for fair value
measurement purposes as defined in SFAS 157, “Fair Value
Measurements.” SFAS 157-4 is effective for interim periods ending
after June 15, 2009, but early adoption is permitted for interim periods ending
after March 15, 2009. The Company plans to adopt the provisions of
SFAS 157-4 during first quarter 2010, but does not believe this guidance will
have a significant impact on the Company’s financial statements.
In April
2009, the FASB released FSP SFAS 115-2 and SFAS 124-2, “Recognition and
Presentation of Other-Than-Temporary Impairments.” This proposal
provides guidance in determining whether impairments in debt securities are
other than temporary, and modifies the presentation and disclosures surrounding
such instruments. This FSP is effective for interim periods ending
after June 15, 2009, but early adoption is permitted for interim periods ending
after March 15, 2009. The Company plans to adopt the provisions of
this Staff Position during the first quarter 2010, but does not believe this
guidance will have a significant impact on the Company’s financial
statements.
In May
2009, the FASB issued statement No. 165, “Subsequent Events” (“SFAS 165”). SFAS 165
modifies the definition of what qualifies as a subsequent event—those events or
transactions that occur following the balance sheet date, but before the
financial statements are issued, or are available to be issued—and requires
companies to disclose the date through which it has evaluated subsequent events
and the basis for determining that date. SFAS 165 is effective for
fiscal years and interim periods ending after June 15, 2009. The Company adopted
the provisions of SFAS 165 for the year ended June 30, 2009 and have evaluated
any subsequent events through October 13, 2009. The Company does not
believe there are any material subsequent events which would require further
disclosure as discussed in Note 14.
F-12
In June
2009, the FASB issued SFAS No. 166, “Accounting for Transfers of
Financial Assets – an amendment of FASB Statement No. 140” (“SFAS
166”). SFAS 166 amends SFAS 140 by including: the elimination of the
qualifying special-purpose entity (QSPE) concept; a new participating interest
definition that must be met for transfers of portions of financial assets to be
eligible for sale accounting; clarifications and changes to the derecognition
criteria for a transfer to be accounted for as a sale; and a change to the
amount of recognized gain or loss on a transfer of financial assets accounted
for as a sale when beneficial interests are received by the
transferor. Additionally, the standard requires extensive new
disclosures regarding an entity’s involvement in a transfer of financial
assets. Finally, existing QSPEs (prior to the effective date of SFAS
166) must be evaluated for consolidation by reporting entities in accordance
with the applicable consolidation guidance upon the elimination of this
concept. SFAS 166 is effective for the Company beginning on July 1,
2010. The Company has not yet determined the impact that adoption of
SFAS 166 will have on its financial statements.
In June
2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No.
46(R)” (“SFAS
167”). Among other items, SFAS 167 responds to concerns about the
application of certain key provisions of FIN 46(R), including those regarding
the transparency of the involvement with variable interest
entities. SFAS 167 is effective for the Company beginning on July 1,
2010. The Company has not yet determined the impact that adoption of
SFAS 167 will have on its financial statements.
In June
2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification™
and the Hierarchy of Generally Accepted Accounting Principles—a replacement of
FASB Statement No. 162”
(“SFAS 168”). SFAS 168 establishes the FASB Accounting
Standards Codification™ (Codification) as the source of authoritative U.S. GAAP
to be applied by nongovernmental entities. While not intended to
change U.S. GAAP, the Codification significantly changes the way in which the
accounting literature is organized. The Company will adopt this new
accounting standard for its financial statements for the quarterly period ending
September 30, 2009. The Company does not expect the adoption of SFAS
168 to have a material impact on its financial statements.
The
Company has reviewed all other recently issued, but not yet adopted, accounting
standards in order to determine their effects, if any, on its results of
operation, financial position or cash flows. Based on that review,
the Company believes that none of these pronouncements will have a significant
effect on its financial statements.
NOTE
2 – BASIC AND DILUTED NET LOSS PER COMMON SHARE
Basic
earnings per share is computed by dividing the net income or 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 to purchase shares of common stock, 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 years ended June 30, 2009 and 2008, 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 95,900,000 and
97,475,000 shares of common stock at June 30, 2009 and 2008, respectively, which
are not included in the basic earnings per share calculation. The
Company had 4,344,818 and 5,589,818 shares of common stock held in trust at June
30, 2009 and 2008, 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 June 30, 2009 and 2008, which are not included in the basic earnings
per share calculation.
NOTE
3 – RELATED PARTY TRANSACTIONS
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 is $6,000 per month payable to the
president and $6,200 per month payable to the third party. The amount
payable to the president for rent at June 30, 2009 and 2008 was $65,000 and
$108,000, respectively, and is included in related party payables.
The
Company received cash advances of $557,101 and $730,805 from its president
during the years ended June 30, 2009 and 2008. The advances are
non-interest bearing, payable upon demand and included in related party
payables. During the year ended June 30, 2009, the Company settled
$630,000 of the cash advances by issuing 1,575,000 shares of common stock to the
president upon the exercise of warrants; paid $173,744 of the cash advances; and
settled $86,977 of the cash advances through the transfer of in-process patent
rights at cost. During the year ended June 30, 2008, the Company settled
$800,000 of the cash advances by issuing 2,000,000 shares of common stock to the
president upon the exercise of warrants; and paid $99,537 of the cash
advances. As of June 30, 2009 and 2008, the balance was $440,382 and
$774,001, respectively.
F-13
During
the year ended June 30, 2008, the Company issued 1,000,000 Series A Preferred
Stock valued at $122,478 to the president as compensation for services rendered
during the year.
During
the year ended June 30, 2009 and 2008, the Company received deposits from
officers totaling $0 and $81,000, respectively, for alternate solar energy
systems. The deposits are included in customer deposits.
The
Company's president and two of his sons, who are also officers of the Company,
control approximately 82% 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
4 – STOCK BASED COMPENSATION
Options and Warrants - 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.
The direct costs of developing and obtaining the acquired patents, patents
pending, designs and contracts were paid and capitalized by the Company.
No additional value has been assigned to these patents as a result of them
being acquired 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 warrants, which were considered stock-based
compensation for services to be rendered, had no intrinsic value on the grant
date. The fair value of the warrants was $37,136,781, calculated on
the grant date using the Black-Scholes model. The following assumptions were
used for this grant: Average risk-free interest rate of 4.79%; expected lives of
10 years; expected dividend yield of zero percent; and expected volatility of
138.76%. In accordance with SFAS 123(R), starting on July 1, 2006, the Company
began recognizing stock-based compensation expense over the graded
exercisability period of the options using the straight-line basis over the
requisite service period for each separately exercisability portion of the
award as if the award was, in-substance, multiple
awards.
The
agreement contains an anti-dilution clause that gives the president the right to
purchase the same number of shares of common stock, given reclassification,
reorganization or change by a stockholder, as were purchasable prior to any such
changes, at a total price equal to that payable upon the exercise of the
options. Appropriate adjustments shall be made to the exercise price so
the aggregate purchase price of the shares will remain the same.
The
warrants have an exercise price of $0.40 per share and are exercisable beginning
on the following dates:
January
1, 2005 - 5,000,000 shares
January
1, 2006 - 5,000,000 shares
January
1, 2007 - 5,000,000 shares
January
1, 2008 - 10,000,000 shares
January
1, 2009 - 10,000,000 shares
January
1, 2010 - 65,000,000 shares
During
the year ended June 30, 2008, the president exercised 2,000,000 of the warrants
in exchange for satisfaction of a related party payable of
$800,000.
During
the year ended June 30, 2009, the president exercised 1,575,000 of the warrants
in exchange for satisfaction of related party payable of $630,000.
In August
2000, the Company issued options to purchase 1,000,000 shares of restricted
common stock over a ten year period at $3.00 per share as part of employment
agreements. These options vest 100,000 shares per year over a ten year period
and expire ten years from the date of issuance.
In August
2000, the Company issued options to purchase 600,000 shares of restricted common
stock over a ten year period at $3.00 per share as part of employment
agreements. These options vested on August 24, 2000 and expire ten years from
the date of issuance.
The following table summarizes the stock option/warrant activity as of and for the years ended June 30, 2009 and 2008:
F-14
Wtd.
Avg.
|
||||||||||||||||
Wtd.
Avg.
|
Remaining
|
Aggregate
|
||||||||||||||
Exercise
|
Life
in
|
Intrinsic
|
||||||||||||||
Options/Warrants
|
Prices
|
Years
|
Value
|
|||||||||||||
Outstanding
at July 1, 2007
|
99,475,000 | $ | 0.44 | 27.2 | $ | 33,277,500 | ||||||||||
Exercised
|
(2,000,000 | ) | 0.40 | 70,000 | ||||||||||||
Outstanding
at June 30, 2008
|
97,475,000 | 0.44 | 26.1 | 33,277,500 | ||||||||||||
Exercised
|
(1,575,000 | ) | 0.40 | (236,250 | ) | |||||||||||
Outstanding
at June 30, 2009
|
95,900,000 | $ | 0.44 | 25.1 | $ | 17,917,000 | ||||||||||
Exercisable
at June 30, 2009
|
30,800,000 | $ | 0.53 | 24.3 | $ | 5,567,000 |
The
following table summarizes information about the stock options/warrants as of
June 30, 2009:
Options/Warrants
Outstanding
|
Options/Warrants
Exercisable
|
|||||||||||||||||||||||||||||||||
Wtd.
Avg.
|
Wtd.
Avg.
|
|||||||||||||||||||||||||||||||||
Range
of
|
Remaining
|
Wtd.
Avg.
|
Aggregate
|
Remaining
|
Wtd.
Avg.
|
Aggregate
|
||||||||||||||||||||||||||||
Exercise
|
Contractual
|
Exercise
|
Intrinsic
|
Contractual
|
Exercise
|
Intrinsic
|
||||||||||||||||||||||||||||
Prices
|
Shares
|
Life
(years)
|
Price
|
Value
|
Shares
|
Life
(years)
|
Price
|
Value
|
||||||||||||||||||||||||||
$ | 3.00 | 1,600,000 | 1.15 | $ | 3.00 | $ | - | 1,500,000 | 1.15 | $ | 3.00 | $ | - | |||||||||||||||||||||
$ | 0.40 | 94,300,000 | 25.52 | 0.40 | 17,917,000 | 29,300,000 | 25.52 | 0.40 | 5,567,000 | |||||||||||||||||||||||||
95,900,000 | 25.11 | $ | 0.44 | $ | 17,917,000 | 30,800,000 | 24.33 | $ | 0.53 | $ | 5,567,000 |
The
following table summarizes information about non-vested options/warrants as of
and for the year ended June 30, 2009:
Wtd.
Avg.
|
||||||||
Grant
Date
|
||||||||
Warrants/Options
|
Fair
Value
|
|||||||
Non-vested
at June 30, 2008
|
75,200,000 | $ | 0.37 | |||||
Vested
during the year ended June 30, 2009
|
(10,100,000 | ) | 0.39 | |||||
Non-vested
at June 30, 2009
|
65,100,000 | $ | 0.37 |
The total
fair values of options/warrants vested during each of the years ended June 30,
2009 and 2008 was $3,919,000.
Restricted Stock - During the
year ended June 30, 2009, the Company granted 505,000 shares of restricted stock
to employees, which vested immediately. The grant date fair
value of the restricted stock awards, which totaled $126,250, was based on the
effective date of the restricted stock awards using the $0.25 closing market
price of the Company’s common stock on the grant date, with the compensation
expense being recognized immediately.
For the
years ended June 30, 2009 and 2008, total stock-based compensation expense
recognized was $4,841,689 and $5,986,883, respectively. Stock-based
compensation for the year ended June 30, 2009 includes the issuance of 505,000
shares of restricted common stock valued at $126,250. Stock-based
compensation for the year ended June 30, 2008 includes the issuance of Series A
Preferred Shares to the president valued at $122,478. As of June 30,
2009, there was approximately $2,173,590 of unrecognized compensation cost
related to non-vested stock-based compensation awards granted. The compensation
cost is expected to be recognized over a weighted average period of 0.38
years.
At March
31, 2008, the Company determined that approximately 6.5 million common shares
reserved for issuance under the options/warrants were in excess of authorized
shares on a fully diluted basis (the “Excess Options”). In accordance
with SFAS 123(R), the Company classified the fair value of $2,591,649,
calculated using the Black-Scholes model, of these Excess Options as a liability
at March 31, 2008. The Company also recorded stock-based compensation
expense of $194,227 because the new calculated fair value of the Excess Options
exceeded the grant date fair value by $194,227. In June 2008, the Company’s
Board of Directors amended the Company’s articles of incorporation authorizing
225,000,000 shares of common stock. As a result of the additional
shares being authorized, the classification of the Excess Options was changed
from a liability to equity in accordance with SFAS 123(R). The fair
value of the Excess Options was recalculated on the date of the amendment of the
articles of incorporation. Since the recalculated fair value
approximated the fair value calculated at March 31, 2008, the Company
reclassified the liability to common stock at June 30, 2008 and recorded no
additional stock-based compensation expense.
Reduction
in related party payables received from the exercise of stock options/warrants
during the years ended June 30, 2009 and 2008 was $630,000 and $800,000,
respectively. No tax benefit was realized from the exercise of these options due
to the Company’s current loss position.
F-15
NOTE
5 – NOTES PAYABLE
Notes
payable consist of the following:
June
30, 2009
|
June
30, 2008
|
|||||||
Note
payable to a financing company; 7% per annum; secured by land; due in
annual installments of $10,000; maturing on August 1, 2016; collateralized
by a deed of trust covering the underlying real property
|
$ | 57,387 | $ | 63,107 | ||||
Note
payable to a financing company; 7% per annum; secured by land; due in
annual installments of $9,397; maturing on July 15, 2016; collateralized
by a deed of trust covering the underlying real property
|
51,168 | 56,638 | ||||||
Note
payable to a company; 4.65% per annum; due in monthly installments of
$4,000; maturing in May 2010
|
40,670 | - | ||||||
149,225 | 119,745 | |||||||
Less
current portion
|
(52,543 | ) | (11,090 | ) | ||||
Long-term
debt
|
$ | 96,682 | $ | 108,655 |
The
scheduled maturities of the notes payable are as follows:
2010
|
$ | 52,543 | ||
2011
|
12,704 | |||
2012
|
13,594 | |||
2013
|
14,545 | |||
2014
|
15,564 | |||
Thereafter
|
40,275 | |||
$ | 149,225 |
NOTE
6 – PREFERRED STOCK
Series A Preferred Stock –
The Series A Preferred Stock has equal dividend rights to the common shares, is
not convertible into common shares, has no cumulative dividend requirements and
has liquidation preferences equivalent to the common shares. 3,400,000 of the
Series A Preferred Stock are entitled to the voting rights of ten common shares,
and 1,000,000 of the Series A Preferred Stock are entitled to the voting rights
of 100 common shares.
During
the year ended June 30, 2008, the Company issued 1,000,000 Series A Preferred
Stock entitled to the voting rights of 100 common shares, valued at $122,478, to
the president as compensation during the year ended June 30, 2008. At June 30,
2009 and 2008, there were 4,400,000 Series A Preferred Stock issued and
outstanding.
Series B Preferred Stock
– The
Series B Preferred Stock has equal dividend rights to the common shares, has no
cumulative dividend requirements, has liquidation preferences equivalent to the
common shares and each preferred share is entitled to the voting rights of ten
common shares. Each share is convertible into options to purchase two
shares of common stock at $3.00 per share, exercisable immediately and the
options expire ten years from the date the preferred stock is exchanged.
At June 30, 2009 and 2008, there were 300,000, series B Preferred shares
issued and outstanding.
F-16
NOTE
7 – COMMON STOCK
Common Stock Held in Escrow -
The Company has shares of common stock held 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
year ended June 30, 2009, 1,245,000 shares were sold for proceeds of $432,502 at
prices ranging from $0.16 to $0.67 per share. During the year ended June 30,
2008, 1,116,100 shares were sold for proceeds of $529,676, including shares sold
from treasury, at prices ranging from $0.34 to $.92 per share. The proceeds were
used to pay professional fees, rent, operating expenses and accrued liabilities.
At June 30, 2009 and 2008, there was a balance of 4,344,818 and
5,589,818 shares, respectively, in the escrow accounts. These shares are
not accounted for as issued or outstanding common shares.
During
the year ended June 30, 2008, the Company also issued 150,000 shares of common
stock to an accredited investor in exchange for $45,000 in cash at $0.30 per
share.
Common Stock Issued for
Services – During the year ended June 30, 2009, the Company issued 50,000
shares of common stock valued at $29,500 or $0.59 per share in exchange for
services performed. At June 30, 2009, $9,833 was included in prepaid
expenses and $19,667 was expensed since only a portion of the shares had been
earned. During the year ended June 30, 2008, the Company issued 86,000 shares of
common stock in exchange for services performed. The shares were valued at
$36,980 or $0.43 per share.
Retirement of Common Stock
– The Company retired 20,400 shares of common stock during the year ended
June 30, 2009.
NOTE
8 – TREASURY STOCK
During
the year ended June 30, 2008, 550,000 treasury shares were reissued for proceeds
of $258,268. The Company recorded the difference between the cost and
proceeds of $92,232 as a reduction of common stock.
NOTE
9 – CUSTOMER DEPOSITS
During
the years ended June 30, 2009 and 2008, the Company received customer deposits
totaling $954,000 and $99,000, respectively, and refunded deposits totaling $0
and $9,000, respectively, relating to contract agreements to build, install and
maintain alternate solar energy systems.
The total
amount of customer deposits at June 30, 2009 and 2008 was $1,757,250 and
$803,250, respectively. The agreements provide that the Company will
deliver, install and startup the alternate solar energy system prior to June 30,
2009. The Company has and continues to work toward delivering,
installing and starting up the alternate solar energy system, 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 – INCOME TAXES
Because
of its net losses, the Company did not have a current or deferred provision for
income taxes for the years ended June 30, 2009 and 2008. Significant components
of the Company’s net deferred income tax assets using a combined federal and
state tax rate of 37.3% as of June 30, 2009 and 2008 are as
follows.
June
30, 2009
|
June
30, 2008
|
|||||||
Net
operating loss carryforwards
|
$ | 4,116,481 | $ | 3,425,078 | ||||
Accrued
wages
|
47,332 | - | ||||||
Depreciation
and amortization
|
(21,990 | ) | 2,283 | |||||
Total
gross deferred income tax asset
|
4,141,823 | 3,427,361 | ||||||
Less
valuation allowance
|
(4,141,823 | ) | (3,427,361 | ) | ||||
Net
deferred income taxes
|
$ | - | $ | - |
The net
change in the valuation allowance for the years ended June 30, 2009 and 2008 was
an increase of $714,462 and a decrease of $1,807,350, respectively.
SFAS No.
109 (“SFAS 109”) requires that a valuation allowance be provided if it is more
likely than not that some portion or all of a deferred tax asset will not be
realized. Because the Company has a history of operating losses, the
Company’s ability to realize the benefit of its deferred tax asset will depend
on the generation of future taxable income. The Company has recorded
a full valuation allowance as of June 30, 2009 and 2008.
F-17
At June
30, 2009, the Company had total tax net operating loss carryforwards of
$11,036,142 that will expire in the years 2012 through 2029.
The
following is a reconciliation of the income tax benefit from the loss before
extraordinary gain computed at the federal statutory tax rate with the provision
for income taxes for the years ended June 30, 2009 and 2008:
June
30, 2009
|
June
30, 2008
|
|||||||
US
Federal income tax benefit at statutory rate of 34%
|
$ | (2,256,695 | ) | $ | (2,657,339 | ) | ||
Nondeductible
expenses
|
1,761,265 | 2,316,909 | ||||||
State
income tax benefit, net of federal expense
|
(219,032 | ) | (257,918 | ) | ||||
Change
in valuation allowance
|
714,462 | 598,348 | ||||||
Total
income tax provision
|
$ | - | $ | - |
In
accordance with FASB Interpretation No. 48, “Accounting for Uncertainty in Income
Taxes — an interpretation of FASB Statement No. 109”
(“FIN 48“), the Company has analyzed filing positions in all of the federal
and state jurisdictions where it is required to file income tax
returns. The Company believes that its income tax filing positions
and deductions will be sustained on audit and does not anticipate any material
adjustments. Therefore, no reserves for uncertain income tax positions have been
recorded pursuant to FIN 48. The Company is subject to audit by
the IRS and various states for the prior 3 years.
The
Company’s policy for recording interest and penalties associated with taxes is
to recognize it as a component of income tax expense. The Company
recorded no interest and penalties for the years ended June 30, 2009 and
2008.
NOTE
11 – 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 to
the Company. As of June 30, 2009, the Company has not provided any services or
equipment required under this agreement and has recognized no
revenues.
The
Company has entered into several solar lease bonus fee contracts with many of
the customers who made deposits on the alternate solar energy system discussed
in Note 9. 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 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.
Legal - During the years
ended June 30, 2009 and 2008, the Company was involved in various lawsuits to
protect its patents. One counterclaim was filed by a defendant
against the Company in June 2008, requesting an award for attorney fees and
court costs, which could have exceeded $1,000,000. The Company filed a motion to
dismiss in August 2008. The Court issued a Memorandum Decision and
Order denying the defendant’s motion for summary judgment and denying the motion
for an award of attorney fees. The Court made a limited award of
$45,000 for reasonable attorney fees incurred by the defendant, which was paid
by the Company in April 2009.
Employment Agreement - The
Company has entered into an agreement with its president and CEO for a period of
ten years starting in July 2000. Per the agreement, the president is to be paid
$100,000 per anum and shall increase each calendar year by the percentage
increase in the Consumer Price Index. The president may terminate the
agreement, but must give the Company six months advance notice. The
Company can not voluntarily terminate its president’s employment for any
reason. No additional payments are outlined in the agreement for a
change in control. The president agreed to waive his salary from July 2000 to
June 30, 2006. The Company issued 1,000,000 Series A Preferred Stock,
entitled to the voting rights of 100 common shares, valued at $122,478, to its
president in lieu of cash compensation for services rendered during fiscal year
2008. The Company accrued $125,000 for services rendered by its
president during fiscal year 2009, which are included accrued liabilities at
June 30, 2009.
F-18
NOTE
12 – LEASE OBLIGATIONS
In
October 2006, the Company entered into a lease agreement for research and
development space. The term of this lease is from November 1, 2006 to November
1, 2016. The following summarizes future minimum lease payments under
this lease at June 30, 2009:
2010
|
$ | 7,500 | ||
2011
|
7,500 | |||
2012
|
7,500 | |||
2013
|
7,500 | |||
2014
|
7,500 | |||
Thereafter
|
17,500 | |||
$ | 55,000 |
Total
rent expense for this lease and the leases described in Note 3 for the years
ended June 30, 2009 and 2008 was $169,870 and $152,551,
respectively.
NOTE
13 – RECLASSIFICATION
Certain
prior year amounts have been reclassified to conform to the current year
presentation. Alternate solar energy system was moved from current assets
to non-current assets.
NOTE
14 – SUBSEQUENT EVENTS
In
preparing the accompanying audited financial statements, the Company has
reviewed, as determined necessary by the Company’s management, events that have
occurred after June 30, 2009, up until the issuance of the financial statements,
which occurred on October 13, 2009.
F-19