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EX-31.2 - CERTIFICATION BY THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - INTERNATIONAL AUTOMATED SYSTEMS INCiaus10k20090630ex31-2.htm
EX-32.2 - CERTIFICATION BY THE CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - INTERNATIONAL AUTOMATED SYSTEMS INCiaus10k20090630ex32-2.htm
EX-31.1 - CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - INTERNATIONAL AUTOMATED SYSTEMS INCiaus10k20090630ex31-1.htm
EX-32.1 - CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - INTERNATIONAL AUTOMATED SYSTEMS INCiaus10k20090630ex32-1.htm



U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

 
[ X ]
ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 2009.
or
 
 
[    ]
TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

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
87-0447580
State or other jurisdiction of incorporation or organization
I.R.S. Employer Identification No.

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
N/A
N/A

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

 
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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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TABLE OF CONTENTS

     
PART I
   
     
ITEM 1
Description of Business
4
     
ITEM 1A
Risk Factors
12
     
ITEM 2
Description of Properties
15
     
ITEM 3
Legal Proceedings
15
     
ITEM 4
Submission of Matters to a Vote of Security Holders
16
     
PART II
   
     
ITEM 5
Market for Common Equity and Related Stockholder Matters
16
     
ITEM 6
Selected Financial Data
18
     
ITEM 7
Management's Discussion and Analysis or Plan of Operation
18
     
ITEM 8
Financial Statements
22
     
ITEM 9
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
22
     
ITEM 9A(T)
Controls and Procedures
22
     
ITEM 9B
Other information
23
     
PART III
   
     
ITEM 10
Directors, Executive Officers and Corporate Governance
23
     
ITEM 11
Executive Compensation
24
     
ITEM 12
Security Ownership of Certain Beneficial Owners and Management
26
     
ITEM 13
Certain Relationships and Related Transactions and Directors Independence
26
     
ITEM 14
Principal Accountant Fees and Services
27
     
ITEM 15
Exhibits and Reports on Form 8-K
28
     
SIGNATURES
29
 
 
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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:
International Automated Systems, Inc.
State and date of incorporation:
Utah- September 26, 1986.
Street address of principal office:
326 North SR 198
 
Salem, Utah 84653
Company telephone number:
(801) 423-8132
Fiscal year:
June 30
 
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.

 
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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.

 
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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.

 
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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.

 
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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.

 
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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.
 
 
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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.

 
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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.

 
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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 )     -