U. S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarter ended October 31, 2001
----------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission File No. 0-21255
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IAS Communications, Inc.
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(Name of Small Business Issuer in its Charter)
Oregon 91-1063549
- ------------------------------- -----------------
(State or Other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No)
#120 - 3011 Viking Way
----------------------
Richmond, BC V6V 1W1 Canada
(Address of Principal Executive Offices)
(604) 278-5996
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Issuer's Telephone Number
#185 - 10751 Shellbridge Way, Richmond, BC V6X 2W8
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(Former Name or Former Address, if changed since last Report)
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Company was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
(1) Yes X No (2) Yes X No
--- --- --- ---
(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Not applicable
(APPLICABLE ONLY TO CORPORATE ISSUERS)
State the number of shares outstanding of each of the Issuer's classes of common
equity, as of the latest practicable date:
December 14, 2001
Common - 11,600,645 shares
DOCUMENTS INCORPORATED BY REFERENCE
A description of any "Documents Incorporated by Reference" is contained in Item
6 of this Report.
Transitional Small Business Issuer Format Yes No X
--- ---
INDEX
Part I - Financial Information
Item 1. Financial Statements Page
----
Balance Sheets . . . . . . . . . . . . . . . . . . . . . F-1
Statements of Operations . . . . . . . . . . . . . . . . F-2
Statements of Cash Flows . . . . . . . . . . . . . . . . F-3
Schedule of Expenses . . . . . . . . . . . . . . . . . . F-4
Notes to the Financial Statements. . . . . . . . . . . . F-5
Item 2. Management's Discussion and Analysis or Plan of Operation . F-12
PART II - Other Information. . . . . . . . . . . . . . . . . . . . . F-13
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-14
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The Financial Statements of the Company required to be filed with this 10-QSB
Quarterly Report were prepared by management and commence on the following page,
together with related Notes. In the opinion of management, the Financial
Statements fairly present the financial condition of the Company.
IAS Communications, Inc.
(A Development Stage Company)
Interim Financial Statements
October 31, 2001
(unaudited)
IAS Communications, Inc.
(A Development Stage Company)
Balance Sheets
(unaudited)
October 31, April 30,
2001 2001
(unaudited) (audited)
$ $
Assets
Current Assets
Inventory 28,615 29,584
Prepaid expenses and other current assets 4,791 66,186
- -------------------------------------------------------------------------------------------------------------
Total Current Assets 33,406 95,770
Property, Plant and Equipment (Note 3) 29,656 28,637
License and Patent Protection Costs (Note 4) 417,378 422,968
- -------------------------------------------------------------------------------------------------------------
Total Assets 480,440 547,375
=============================================================================================================
Liabilities and Stockholders' Deficit
Current Liabilities
Cheques issued in excess of funds on deposit 198 7,878
Accounts payable 435,726 453,564
Accrued liabilities (Note 6(d)) 92,745 82,375
Due to related parties (Note 7) 722,107 650,089
Convertible debentures (Note 5) 25,000 25,000
- -------------------------------------------------------------------------------------------------------------
Total Current Liabilities 1,275,776 1,218,906
- -------------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Notes 1 and 8)
Stockholders' Deficit
Preferred Stock 50,000,000 shares authorized; none issued - -
Common Stock (Note 6)
Class "A" voting - 100,000,000 shares authorized without 4,961,605 4,961,605
par value; 11,600,645 shares issued and
outstanding respectively
- paid for but unissued (776,750 shares) 155,350 155,350
Class "B" non-voting - 100,000,000 shares authorized without - -
par value; none issued
Deficit Accumulated During the Development Stage (5,912,291) (5,788,486)
- -------------------------------------------------------------------------------------------------------------
Total Stockholders' Deficit (795,336) (671,531)
- -------------------------------------------------------------------------------------------------------------
Total Stockholders' Deficit and Liabilities 480,440 547,375
=============================================================================================================
F-1
(The accompanying notes are an integral part of these financial statements)
IAS Communications, Inc.
(A Development Stage Company)
Statements of Operations
(unaudited)
Accumulated from
December 13, 1994 Three months ended Six months ended
(Date of Inception) October 31, October 31,
to October 31, 2001 2001 2000 2001 2000
$ $ $ $ $
Revenue 61,402 754 7,638 3,043 14,625
Cost of Sales 28,787 236 1,054 1,392 2,642
- ----------------------------------------------------------------------------------------------------------------
Gross Profit 32,615 518 6,584 1,651 11,983
- ----------------------------------------------------------------------------------------------------------------
Expenses (Schedule)
General and Administration 3,193,330 46,699 166,020 79,681 353,122
Selling and Marketing 62,972 - - - -
Research and Development 2,688,604 17,169 115,758 45,775 173,598
- ----------------------------------------------------------------------------------------------------------------
5,944,906 63,868 281,778 125,456 526,720
- ----------------------------------------------------------------------------------------------------------------
Net Loss (5,912,291) (63,350) (275,194) (123,805) (514,737)
================================================================================================================
Net Loss Per Share (.01) (.02) (.01) (.05)
================================================================================================================
Weighted Average Shares Outstanding 11,601,000 11,434,000 11,601,000 11,413,000
================================================================================================================
F-2
(The accompanying notes are an integral part of these financial statements)
IAS Communications, Inc.
(A Development Stage Company)
Statements of Cash Flows
(unaudited)
Six months ended
October 31,
2001 2000
(unaudited) (unaudited)
$ $
Cash Flows to Operating Activities
Net loss (123,805) (514,737)
Adjustments to reconcile net loss to cash
Depreciation and amortization 22,270 20,319
Shares issued/to be issued for services - 56,952
Change in non-cash working capital items
Decrease in prepaid expenses and other current assets 61,395 104,909
Decrease (increase) in inventory 969 (2,917)
Increase (decrease) in accounts payable and accrued liabilities (7,467) 28,500
- ---------------------------------------------------------------------------------------------------
Net Cash Used in Operating Activities (46,638) (306,974)
- ---------------------------------------------------------------------------------------------------
Cash Flows to Investing Activities
Increase in capital assets (10,460) (3,073)
Increase in patent protection costs (7,240) (55,700)
- ---------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (17,700) (58,775)
- ---------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Increase in subscriptions for common shares - 155,350
Advances from related parties 72,018 201,655
- ---------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 72,018 357,005
- ---------------------------------------------------------------------------------------------------
Increase (decrease) in Cash 7,680 (8,742)
Cash Deficiency - Beginning of Period (7,878) (18,446)
- ---------------------------------------------------------------------------------------------------
Cash Deficiency - End of Period (198) (27,188)
===================================================================================================
Non-Cash Financing Activities
Shares issued to settle debt - 117,900
Shares issued for convertible debentures and accrued interest converted - 10,875
- ---------------------------------------------------------------------------------------------------
- 128,775
===================================================================================================
Supplemental disclosures:
Interest paid with cash - -
Income tax paid with cash - -
F-3
(The accompanying notes are an integral part of these financial statements)
IAS Communications, Inc.
(A Development Stage Company)
Schedule of Expenses
(unaudited)
Accumulated from
December 13, 1994 Three months ended Six months ended
(Date of Inception) October 31, October 31,
to October 31, 2001 2001 2000 2001 2000
$ $ $ $ $
Expenses
General and Administration
Bank charges 7,301 235 642 577 1,255
Business plan 55,429 - - - -
Debenture financing fees 49,199 - - - -
Depreciation 14,508 1,305 1,163 2,610 2,326
Foreign exchange 1,403 (352) (452) (200) 1,173
Interest on convertible debentures 43,912 547 824 1,094 1,202
Investor relations - publications 383,127 - 9,068 - 9,438
Investor relations - consulting 585,811 372 68,890 372 163,201
Management fees 322,500 7,500 7,500 15,000 15,000
Office, postage and courier 167,559 3,919 5,541 5,168 12,062
Premium on cash redemption of convertible debentures 29,790 - - - -
Professional fees 899,757 28,839 43,533 42,043 91,924
Rent and secretarial 327,051 4,500 18,199 10,650 41,102
Telephone and utilities 97,564 (290) 1,831 2,023 3,229
Transfer agent and regulatory 75,987 124 8,612 344 9,984
Travel and promotion 148,926 - 671 - 1,294
Less interest income (16,494) - (2) - (68)
- -------------------------------------------------------------------------------------------------------------------
3,193,330 46,699 166,020 79,681 353,122
- -------------------------------------------------------------------------------------------------------------------
Selling and Marketing
Advertising 62,972 - - - -
- -------------------------------------------------------------------------------------------------------------------
Research and Development
Royalty 20,500 750 750 1,500 1,500
Consulting 624,308 6,589 101,865 18,801 146,353
Depreciation and amortization 154,907 9,830 9,267 19,660 17,993
Market awareness and development 60,000 - - - -
Subcontracts 2,396,388 - 3,876 5,814 7,752
Less contributions by a joint venture partner (363,718) - - - -
Less engineering contributions by licensees (203,781) - - - -
- -------------------------------------------------------------------------------------------------------------------
2,688,604 17,169 115,758 45,775 173,598
- -------------------------------------------------------------------------------------------------------------------
5,944,906 63,868 281,778 125,456 526,720
===================================================================================================================
F-4
(The accompanying notes are an integral part of these financial statements)
IAS Communications, Inc.
(A Development Stage Company)
Notes to the Financial Statements
1. Development Stage Company
IAS Communications, Inc., herein "the Company", was incorporated on
December 13, 1994 pursuant to the Laws of the State of Oregon, USA.
The Company is a development stage company engaged in the commercialization
of advanced antenna technology known as the Contrawound Toroidal Helical
Antenna, herein "CTHA", for wireless communications markets including
cellular, meter reading and global positioning services. The CTHA,
developed in conjunction with researchers at West Virginia University, is a
technologically advanced antenna design which can be incorporated into a
wide variety of telecommunications applications. The Company has been
granted worldwide sublicensing rights for commercial applications,
excluding military and governmental applications, for the CTHA pursuant to
an agreement with Integral Concepts Inc. and West Virginia University
Research Corporation. See Note 8(c) for legal proceedings regarding
underlying patents.
In a development stage company, management devotes most of its activities
to establishing a new business. Planned principal activities have not yet
produced significant revenues and the Company has suffered recurring losses
from inception, totalling $5,912,291 and has a working capital deficit of
$1,242,370 which includes a negative cash balance of $198. These factors
raise substantial doubt about the Company's ability to continue as a going
concern. The ability of the Company to emerge from the development stage
with respect to its planned principal business activity is dependent upon
its successful efforts to raise additional equity financing, develop
additional markets for its products, identify additional licensees and
receive ongoing support from the majority of its creditors and affiliates.
The Company previously reported plans to raise $210,000 ($188,350 raised to
date) and issue 600,000 units at $0.35 per unit. The Company has amended
this private placement whereby the total proceeds of the offering shall be
$400,000 with 2,000,000 units to be issued at a price of $0.20 per unit.
Each unit, when issued, will consist of one common share and one share
purchase warrant exercisable within one year from receipt of subscription
proceeds at $0.25 per share. The Company may also raise additional funds
through the exercise of warrants and stock options, if exercised. These
warrants and options are currently not in-the-money and are unlikely to be
currently exercised.
The Company will continue to require significant additional capital to
provide sufficient working capital to carry out their business plan for the
next twelve months.
2. Summary of Significant Accounting Policies
(a) Estimates and Assumptions
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the periods. Actual results could differ from
those estimates.
(b) Interim Financial Statements
These interim unaudited financial statements have been prepared on the
same basis as the annual financial statements and in the opinion of
management, reflect all adjustments, which include only normal
recurring adjustments, necessary to present fairly the Company's
financial position, results of operations and cash flows for the
periods shown. The results of operations for such periods are not
necessarily indicative of the results expected for a full year or for
any future period.
F-5
IAS Communications, Inc.
(A Development Stage Company)
Notes to the Financial Statements
3. Property, Plant and Equipment
October 31, April 30,
2001 2001
Accumulated Net Book Net Book
Cost Amortization Value Value
(unaudited) (audited)
$ $ $ $
Computer and office equipment 22,356 14,290 8,066 10,302
Research and development equipment 73,532 54,438 19,094 15,465
Vehicle 3,739 1,243 2,496 2,870
- -----------------------------------------------------------------------------------------------
99,627 69,971 29,656 28,637
==============================================================================================
Depreciation per class of capital asset:
Computer and office equipment 2,236 4,314
Research and development equipment 6,831 12,557
Vehicle 374 497
4. License and Patent Protection Costs
October 31, April 30,
2001 2001
Accumulated Net Book Net Book
Cost Amortization Value Value
(unaudited) (audited)
$ $ $ $
Licence 250,001 60,417 189,584 195,834
Patent protection costs (Note 9(c)) 266,822 39,027 227,795 227,134
- ----------------------------------------------------------------------------------------------
516,823 99,444 417,379 422,968
==============================================================================================
Amortization per class of intangible asset:
Licence 6,250 12,500
Patent protection costs 6,579 11,249
Pursuant to the terms of an option agreement dated November 18, 1994 as
amended, between SMR Investments Ltd. ("SMR") and Integral Concepts Inc.
("ICI") and an assignment of this option agreement dated December 13, 1994,
the Company acquired a sublicence to the CTHA, subject to entering into a
formal sublicence agreement. Pursuant to the terms of the option agreement,
the Company paid $250,000 to ICI, which owns the exclusive licence obtained
from West Virginia University Research Corporation ("WVURC") in an
agreement dated April 12, 1994. SMR, ICI and WVURC are not related to each
other. Pursuant to the assignment agreement, the Company issued 3,000,000
shares to each of Access Information Systems Inc. (A company controlled by
SMR) and a director of the Company (principal of ICI) for a total fair
value of $1 for 6,000,000 shares issued.
Pursuant to the original licence agreement between WVURC and ICI, ICI was
granted the exclusive licence to manufacture the CTHA or sublicence others
to manufacture, market, sell copies of, licence and distribute the CTHA. On
July 10, 1995, the Company and ICI entered into a sublicence agreement,
which incorporates the terms and conditions of the original licence
agreement between WVURC and ICI. The sublicence is exclusive, covering any
and all international markets but excludes all military and governmental
applications and resulting procurement interests which are retained by ICI
and WVURC for development purposes. All improvements and embodiments that
are created as a result of these military applications and additional
research and development efforts by ICI and WVURC will be transferred
directly to the Company. The terms of the sublicence agreement, which
incorporates the financial obligations that ICI owes WVURC pursuant to the
original licence agreement, are as follows:
(i) The Company will pay WVURC a minimum annual royalty of $3,000 on or
before December 31 of each year.
F-6
IAS Communications, Inc.
(A Development Stage Company)
Notes to the Financial Statements
4. License and Patent Protection Costs (continued)
(ii) The Company will pay WVURC an earned royalty on sales, leases or
sublicences of the CTHA of 10% of net revenues less a credit for the
minimum annual royalty. Revenues below that of the minimum annual
royalty have been earned to April 30, 2001.
(iii) The Company will pay ICI an earned royalty on sales, leases or
sublicenses of the CTHA of 3% of gross revenues. As amended on March
4, 1997, ICI agreed to reduce the amount of royalties to be paid by
50% in an amount not to exceed $5,000,000 for up to three years.
All royalties are payable within 30 days of each calendar quarter. The term
of the original licence agreement and the sublicence agreement, subject to
compliance with the terms thereof, is perpetual and renewable annually.
5. Convertible Debentures
The Company offered three year, 8 % interest, convertible debentures.
Interest is paid annually. The remaining $35,000 of such debentures were
convertible into Class "A" shares at $3.50 on June 15, 2000. In the event
the shares traded below $4.00 per share over a ten-day average prior to
exercising into shares of the Company during November 16, 2000 to December
16, 2000, the convertible debentures were to be exercisable at 20% below
the said ten-day average. The original maturity date was June 15, 2000
which was extended to December 15, 2000. Debentures totalling $10,000 were
converted during the fiscal 2001 by issuing 12,358 shares at $0.81 per
share. The Company plans to offer the debenture holder an additional
extension on the maturity date or convert the debenture into shares.
6. Common Stock
(a) Stock Option Plan
The Company has a Stock Option Plan to issue up to 2,500,000 Class "A"
common shares to certain key directors and employees, approved and
registered October 2, 1996, as amended. Pursuant to the Stock Option
Plan the Company has granted stock options to certain directors and
employees. On May 28, 1999 the Company granted stock options to
certain employees to acquire up to 205,000 shares exercisable at $1.00
per share expiring May 28, 2004. On November 15, 1999 the Company
granted stock options to an employee to acquire up to 25,000 shares
exercisable at $1.00 per share expiring December 15, 2004. On October
11, 2000 the Company granted stock options to an employee to acquire
up to 25,000 shares exercisable at $0.50 per share expiring October
11, 2005. On December 15, 2000 the Company granted stock options to an
employee to acquire up to 25,000 shares exercisable at $1.00 per share
expiring December 15, 2005.
The options are granted for current services provided to the Company.
Statement of Financial Accounting Standards No. 123 ("SFAS 123")
requires that an enterprise recognize, or at its option, disclose the
impact of the fair value of stock options and other forms of stock
based compensation in the determination of income. The Company has
elected under SFAS 123 to continue to measure compensation costs on
the intrinsic value basis set out in APB Opinion No. 25. As stock
options are granted at exercise prices based on the market price of
the Company's shares at the date of grant, no compensation cost is
recognized. However, under SFAS 123, the impact on net income and
income per share of the fair value of stock options must be measured
and disclosed on a fair value based method on a pro forma basis. As
performance stock for non-employees is issued for services rendered,
the fair value of the shares issued is recorded as compensation cost,
at the date the shares are issued, based on a discounted average
trading price of the Company's stock as quoted on the Over The Counter
Bulletin Board.
The fair value of the employee's purchase rights, pursuant to stock
options, under SFAS 123, was estimated using the Black-Scholes model.
F-7
IAS Communications, Inc.
(A Development Stage Company)
Notes to the Financial Statements
6. Common Stock (continued)
(a) Stock Option Plan (continued)
The weighted average number of shares under option and option price
for the period ended October 31, 2001 is as follows:
Weighted
Weighted Average
Shares Average Remaining
Under Option Life of
Option Price Options
# $ (Months)
Beginning of period 885,000 .25
Granted - -
Exercised - -
Cancelled - -
Lapsed - -
End of period 885,000 .25 20
======= ========= ==========
If compensation expense had been determined pursuant to SFAS 123, the
Company's net loss and net loss per share for the six months ended October
31, 2001 would have been as follows:
2001 2000
$ $
Net loss
As reported (60,455) (336,231)
Pro forma (61,265) (349,293)
Basic net loss per share
As reported (.01) (.03)
Pro forma (.01) (.03)
(b) Performance Stock Plan
The Company has allotted 1,000,000 Class "A" Common shares to be
issued pursuant to a Performance Stock Plan. Compensation is recorded
when criteria to issue shares are met.
The Company is committed to issue up to 400,000 Class "A" shares which
shall be earned as to 100,000 shares for every 1,000,000 CTHA's sold
through a joint venture called TEAM. This joint venture has been
dormant since inception and no CTHA's have been sold to date through
TEAM.
(c) Warrants outstanding
(i) 617,600 warrants, pursuant to a private placement and foreign
units offering, are exercisable at $2.25 per share with the
expiry date extended to January 1, 2002.
(ii) During fiscal 1999 the Company issued 200,000 units at $1.00 per
unit for proceeds of $200,000. Each unit contained one share and
one warrant to acquire one additional share at $1.50 per share
expiring April 8, 2000. A total of 13,125 warrants were exercised
during fiscal 2000 for proceeds of $19,687. The remaining
warrants expiry date was extended to April 9, 2002. The units
offering was increased and the price reduced to $0.50 per unit
during fiscal 2000. A total of 968,902 units were issued for
proceeds of $484,451. Each unit contained one share and one
warrant to acquire one additional share at $1.00 per share. The
remaining warrants expiry date was extended to April 1, 2002.
These warrants are currently unexercised.
(iii) 30,000 warrants are exercisable at $2.85 per share and the
expiry date was extended to January 13, 2002.
F-8
IAS Communications, Inc.
(A Development Stage Company)
Notes to the Financial Statements
6. Common Stock (continued)
(d) Other stock commitment
The Company is committed, pursuant to two financial consulting
contracts to issue 75,000 restricted shares. The value of the
services, being $57,000 has been accrued as at October 31, 2001.
7. Due to Related Parties
The amounts due to related parties are non-interest bearing, unsecured and
without specific terms of repayment.
8. Commitments and Contingencies
(a) Contractual Commitments
(i) The Company is committed to issue up to 400,000 Class "A" shares
to the President of ETC and President of TEAM which shall be
earned as to 100,000 shares for every 1,000,000 CTHA's sold.
(ii) See Note 6 for commitments to issue shares upon the exercise of
stock options and warrants.
(iii) The Company has negotiated an agreement to purchase a 60%
interest in Imaging Technologies, Inc. for 1,000,000 shares of
the Company, subject to a 30 day due diligence period. Refer also
to Note 10, Subsequent Events.
(b) Contingent liability - Development Stage Company (See Note 1).
(c) Legal Proceedings
(i) The Company was sued in April 1998 in a civil action filed in
U.S. District Court for the District of Oregon (the "Oregon
Litigation"). The Plaintiff, Kirk VanVoorhies, ("Plaintiff")
sought money damages and equitable relief against the Company
alleging patent infringement by the Company for the CTHA. The
Company notified West Virginia University ("WVU") of this claim
and contacted WVU to assist in the defence. WVU owns the patent
rights to the CTHA technology which was licensed to the Company.
Two patents were granted for the CTHA to WVU; one in August 1995,
and another in August 1997. The Plaintiff's patent was approved
on March 31, 1998.
The Plaintiff in the Oregon Litigation is also a defendant in a
pending civil action in the U.S. District Court for the Northern
District of West Virginia brought by WVU (the "West Virginia
Litigation") claiming that the CTHA invention is owned by WVU. As
alleged in the West Virginia Litigation, the Company believes
that the patent rights for the CTHA technology belongs to WVU and
therefore based on the license, the Company owns the world wide
rights to the CTHA commercial applications. Dr. James Smith, the
former Chairman of the Board of the Company, has been sued by
Plaintiff in a third party complaint in the West Virginia
Litigation together with WVU and Integral Concepts, Inc.
A decision by the United States District Court for the Northern
District of West Virginia will, if upheld on appeal, signal the
end to patent litigation brought by VorteKx, Inc. against the
Company.
VorteKx, Inc. brought a patent infringement action against IAS in
the United States District Court for the District of Oregon on a
patent issued to a former graduate student at WVU, Kurt L.
VanVoorhies, and subsequently assigned to VorteKx. On the
Company's motion, the case was transferred to the Northern
District of West Virginia and consolidated with a
previously-pending action filed by WVU against VanVoorhies,
discussed above. The Company and WVU both claimed that the
technology covered by the patent is actually owned by WVU. The
Company is the sublicensee of commercial applications of the CTHA
technology.
F-9
IAS Communications, Inc.
(A Development Stage Company)
Notes to the Financial Statements
8. Commitments and Contingencies (continued)
(c) Legal Proceedings (continued)
(i) (continued)
In a Memorandum Opinion and Order entered February 17, 2000, the
West Virginia federal court granted summary judgment for WVU in
its claims against VanVoorhies. The Court also dismissed
VanVoorhies' claims against WVU and third-party defendants West
Virginia University Research Corporation, Dr. James E. Smith and
Integral Concepts, Inc. Because the Court's holding establishes
that WVU owns the technology, it should bring an end to the
litigation against the Company, which was stayed pending
resolution of the case against VanVoorhies.
The dispute in the WVU action concerned inventions conceived
during VanVoorhies' time at WVU as a graduate student and later
as a graduate research assistant, particularly two inventions
relating to the CTHA technology. The Court found that VanVoorhies
validly assigned all rights in the first invention to WVU,
including all future technology derived from the technology
underlying that invention. VanVoorhies subsequently declined to
assign to WVU any interest in a second invention. The Court found
that the second invention constituted future technology derived
from the first invention. Therefore, VanVoorhies' assignment of
the first invention to WVU also effectively assigned the second
invention to WVU, and WVU is the rightful owner of the patent
applications filed by VanVoorhies on the CTHA technology.
Because one of these patent applications led to the issuance of
the patent underlying VorteKx's infringement suit against the
Company, VorteKx no longer has standing to pursue that
infringement case. The case has been stayed pending VanVoorhies'
appeal from the Court's order.
(ii) On May 16, 2000 the Company filed suit in the United States
District Court for Northern District of West Virginia against
Integral Technologies, Inc., Next Antennas.Com, Inc., Emergent
Technologies Corporation and Jack Parsons (collectively, "the
Defendants"), alleging breach of contract, misappropriation of
trade secrets, interference with economic relations, and breach
of fiduciary duty.
Integral Technologies, Inc. is the exclusive commercial
sublicensee of certain proprietary antenna technology developed
by West Virginia University, including any improvements,
modifications or enhancements thereto ("the Technology"). The
Company established a joint venture (TEAM) with Emergent
Technologies Corporation, exclusive military sublicensee of the
Technology, to develop antennas based on the Technology. Emergent
was subsequently acquired by Integral Technologies, Inc., which
recently announced it is selling antennas to the commercial
market through its wholly-owned subsidiary, Next Antennas.Com,
Inc. Jack Parsons has been the president of Emergent, and a
director of Integral. The Company believes that the defendants
are selling antennas in contravention of their obligations under
the sublicense agreements and otherwise, and in violation of the
Company's exclusive rights.
The Company seeks injunctive and affirmative relief and punitive
damages as follows:
- An injunction prohibiting the Defendants from using or
disclosing the Company's trade secrets; or manufacturing,
distributing or selling, any device derived from the
Technology for commercial applications;
- An order requiring the Defendants to account to the Company
for all profits obtained as a result of their alleged breach
of contract, breach of duty of good faith and fair dealing,
misappropriation of trade secrets, interference and/or
breach of fiduciary duty; and to return all proprietary
materials and destroy all devices created in violation of
the Company's rights;
F-10
IAS Communications, Inc.
(A Development Stage Company)
Notes to the Financial Statements
8. Commitments and Contingencies (continued)
(c) Legal Proceedings (continued)
(iii) A money judgment against the Defendants in an amount to be
determined at trial; additional exemplary or punitive damages
calculated to deter such conduct, and attorney fees and costs;
and
(iv) An order requiring the Defendants to hold in trust for the
Company all profits the Defendants have made from commercial
sales of antennas derived from the Technology.
By news release dated September 26, 2001, we announced that by court order
of the U.S. District Court for the Northern District of West Virginia, the
civil action between IAS against Integral Technologies, Inc. has been
dismissed.
9. Segmented Information
The Company has adopted SFAS No. 131 Disclosure About Segments of an
Enterprise and related information.
The business of the Company is carried on in one industry segment being the
research, development and sales/licensing of advanced antenna technology.
The Company operates in two geographic segments, one being Canada, located
in Richmond, BC and the other being the United States.
The Company's head office is in Richmond, BC, Canada. The head office does
not conduct any business specifically related to research and development.
Its sole purpose is to provide administration, investor relations services
and services relating to being a public company. Included in general and
administrative expenses and net loss is $32,982 (2000 - $187,102) relating
to such activities. The net loss relating to research and development
activities in the United States amounted to $28,606 (2000 - $57,840).
10. Subsequent Events
(a) On November 20, 2001, the Board of Directors cancelled 500,000 options
to three optionees with expiry dates ranging between December 19, 2001
and May 28, 2004 at $0.25 per share. The Board also issued 1,300,000
options to four optionees at $0.20 per share expiring November 20,
2006, and repriced all outstanding options to $0.20 per share
resulting in a total of 1,585,000 options outstanding as at the date
of this report;
(b) Subsequent to October 31, 2001, the Company received $33,000 in
subscriptions pursuant to the current private placement for 165,000
units to be issued at a price of $0.20 per unit;
(c) On October 19, 2001 the Company successfully negotiated an agreement
to purchase a 60% interest in a private US company which owns a
private Canadian company in the computer resale industry for
consideration of 1,000,000 shares of the Company subject to a due
diligence period ending on May 1, 2002.
F-11
Item 2. Management's Discussion and Analysis of Financial Condition and
- -----------------------------------------------------------------------------
Results of Operations
- -----------------------
Forward Looking Statements
- ----------------------------
This report contains forward-looking statements. The words, "anticipate",
"believe", "expect", "plan", "intend", "estimate", "project", "could", "may",
"foresee", and similar expressions are intended to identify forward-looking
statements. The following discussion and analysis should be read in conjunction
with the Company's Financial Statements and other financial information included
elsewhere in this report which contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed below, as well as those discussed elsewhere
in this report.
Overview
The following discussion and analysis should be read in conjunction with the
enclosed consolidated financial statements and notes thereto appearing elsewhere
in this report.
IAS Communications, Inc. was incorporated on December 13, 1994 pursuant to the
Laws of the State of Oregon, USA.
We are a development stage company engaged in the commercialization of advanced
antenna technology known as the Contrawound Toroidal Helical Antenna, herein
"CTHA", for wireless communications markets including cellular, meter reading
and global positioning services. The CTHA, developed in conjunction with
researchers at West Virginia University, is a technologically advanced antenna
design which can be incorporated into a wide variety of telecommunications
applications. We have been granted worldwide sublicensing rights for commercial
applications, excluding military and governmental applications, for the CTHA
pursuant to an agreement with Integral Concepts Inc. and West Virginia
University Research Corporation.
As a development stage company, we devote most of our activities to establishing
this new business. Planned principal activities have produced insignificant
revenues and we have suffered recurring losses from inception, totalling
$5,912,291 and we have a working capital deficit of $1,242,370 as at October 31,
2001 which includes a negative cash balance of $198. The above factors raise
substantial doubt about our ability to continue as a going concern. Our ability
to emerge from the development stage with respect to our planned principal
business activity is dependent upon our successful efforts to raise additional
equity financing and develop additional markets for our products, identify
additional licensees, and receive ongoing financial support from the majority of
our creditors and affiliates.
The Company previously reported plans to raise $210,000 ($188,350 raised to
date) and issue 600,000 units at $0.35 per unit. The Company has amended this
private placement whereby the total proceeds of the offering shall be $400,000
with 2,000,000 units to be issued at a price of $0.20 per unit. Each unit, when
issued, will consist of one common share and one share purchase warrant
exercisable within one year from receipt of subscription proceeds at $0.25 per
share. The common stock offered will not be registered under the Securities Act
of 1933 and may not be offered or sold in the United States absent registration
or an applicable exemption from registration requirements. This disclosure is
not offer to sell securities and is not a solicitation of an offer to buy
securities. We anticipate that sales will be made only to accredited investors
or to persons that are not U.S. residents. No money or other consideration is
being solicited or will be accepted by way of this disclosure. The common stock
offered has not been registered with or approved by any state securities agency
or the U.S. Securities and Exchange Commission and will be offered and sold
pursuant to exemptions from registration.
We will continue to require significant additional capital to provide sufficient
working capital to carry out our business plan for the next twelve months.
We may also raise significant additional capital through the exercise of
warrants and stock options, if exercised.
F-12
Progress Report from August 1, 2001 to December 14, 2001
- -----------------------------------------------------------------
On September 26, 2001 we announced that by court order of the U.S. District
Court for the Northern District of West Virginia the civil action between IAS
against Integral Technologies, Inc. has been dismissed.
The civil action against Integral Technologies, Inc., NextAntenna.com, Inc.,
Emergent Technologies Corporation, and Jack Parsons commenced in the U.S.
District Court for the Northern District of West Virginia on the 15th day of May
2000 alleging breach of contract, misappropriation of trade secrets,
interference with economic relations, and breach of fiduciary duty.
The basis for the civil action was that IAS is the exclusive commercial
sublicensee of certain proprietary antenna technology developed by West Virginia
University, including any improvements, modifications or enhancements thereto
(the "Technology"). IAS established a joint venture with Emergent Technologies
Corporation, exclusive military sublicensee of the Technology, to develop
antennas based on the Technology. Integral Technologies, Inc., subsequently
acquired Emergent, and announced it was selling antennas to the commercial
market through its wholly-owned subsidiary, NextAntennas.com, Inc. Jack Parsons
has been the president of Emergent and a director of Integral. IAS believed
that the defendants were selling antennas in contravention of their obligations
under the sublicense agreements and otherwise, and in violation of IAS'
exclusive rights.
We are pleased this action is now dismissed because of the significant cost of
legal fees trying to pursue this matter. We can now focus on our CTHA
technology and pursue additional acquisitions.
On October 19, 2001 we announced that an agreement to purchase a 60% interest in
Imaging Technologies, Inc., a private Washington corporation, for 1,000,000
shares of IAS Communications, Inc. has been successfully negotiated subject to a
30 day due diligence time frame. The due diligence period has been extended to
May 1, 2002.
Imaging Technologies, Inc. owns 100% interest in Sovo Computer Center ("SOVO")
http://www.sovo.net, a 20-year-old computer service and supply company located
and doing business in Greater Vancouver, B.C., Canada. SOVO has developed into a
leading supplier of computer hardware and software solutions to the business
community and government institutions. SOVO is an authorized dealer of Xerox,
AST, Novell, Hewlett Packard, Compaq, Cisco, Seanix, Microsoft, Toshiba,
Supercom, IBM and several other companies in the computer business.
Imaging Technologies, Inc. also plans to be involved in the wireless broadband
technology through its recent acquisition of Airstream Communications, Ltd., a
private company incorporated nationally that is in its initial stages of
offering high speed internet services to end users that are not currently
serviced by other broadband mediums such as ADSL or cable.
On December 10, 2001, we announced the appointment of Benjamin A. Culver as our
Vice President of Research & Development for the IAS CTHA antenna. Mr. Culver
has over 10 years experience in the electronics industry, five years experience
in project management, RF microwave engineering project management and research
and development.
Mr. Culver has previously worked with IAS on the company's CTHA antenna design
through a contract with Cadence Design Systems, then the world's largest RF
engineering firm. Currently, Mr. Culver, on behalf of one of IAS's customers, is
assisting in optimizing the IAS CDMA antenna for a wrist locator unit for
locating lost children, pets, automobiles and other valuable merchandise. IAS
will receive a royalty payment for every locator unit sold.
Results of Operations
- -----------------------
Three months ended October 31, 2001 ("2001") compared to the three months ended
- --------------------------------------------------------------------------------
October 31, 2000 ("2000")
- ----------------------------
The net loss for 2001 was $64,000 compared to $282,000 for 2000. The decrease of
$218,000 was due to the decrease in R&D expenses to $17,000 as compared to
$116,000 during 2000, a decrease of $99,000.
F-13
The decrease was due to the completion of our testing and development of our
antennas.
Administrative expenses decreased by $119,000 to $47,000 as compared to $166,000
in 2000. Investor relations activity decreased by $78,000 to nil from $78,000 in
2000 largely as a result of our contract in 2000 with Capital Research Inc., for
issuance of shares for financial services valued at $53,000. Professional fees
decreased by $15,000 to 29,000 from $44,000 since in fiscal 2000 we incurred
costs to file a claim against Integral technologies, Inc. Rent and secretarial
decreased by $ 13,000 to $ 5,000 from $ 18,000 in 2000. This is as a result of
the completion of the development phase of the antennas, allowing the Company to
downsize its operations during 2001. Additional secretarial services of $ 9,000
incurred in 2000 were not required for 2001.
Our net loss per share decreased by $0.01 to $0.01 per share from $0.02 in 2000
as a result of the lower net loss and little change to the outstanding shares.
Liquidity
- ---------
During 2001 we financed our operations by receiving financial support from
companies affiliated with our President in the amount of $28,000. These amounts
are unsecured, non-interest bearing and due on demand.
During 2001 we invested these funds as follows:
1. $26,000 of these funds were spent on operating activities as discussed
above under Results of Operations.
Our cash position has increased by $2,000 from negative $2,000 to zero and our
working capital deficit, as at October 31, 2001, is $1,242,000.
We plan to raise $400,000 (previously announced as $210,000 of which $188,350
raised to date) and issue 2,000,000 units at $0.20 per unit (increased from
600,000 units at $0.35 per unit). We may also raise additional funds through the
exercise of warrants and stock options, if exercised. Warrants with respect to
1,803,377 shares may be exercised and options with respect to 885,000 shares may
be exercised (1,585,000 at the date of this report). These warrants and options
are currently not-in-the-money and are unlikely to be currently exercised. After
completing our $400,000 offering, we will require significant additional capital
to provide sufficient working capital to carry out our business plan for the
next twelve months.
Six months ended October 31, 2001 ("2001") compared to the six months ended
- --------------------------------------------------------------------------------
October 31, 2000 ("2000")
- ----------------------------
During the latter part of 1999 we, through our agreement with
Information-Highway.com, Inc., started selling ham radio antennas and TV
antennas over the Internet. Sales revenue amounted to $3,043 for 2001 as
compared to $14,625 for 2000.
The net loss for 2001 was $124,000 compared to $515,000 for 2000. The decrease
of $391,000 was due to the decrease in research and development expenses to
$46,000 as compared to $174,000 during 2000, a decrease of $128,000. The
decrease was due to the completion of our testing and development of our
antennas. Administrative expenses decreased by $273,000 to $80,000 as compared
to $353,000 in 2000. Investor relations activity decreased by $173,000 to nil
from $173,000 in 2000 largely as a result of our contract in 2000 with Capital
Research Inc., for issuance of shares for financial services valued at $90,000.
Professional fees decreased by $50,000 to $42,000 from $92,000 since in fiscal
2000 we incurred costs to file a claim against Integral technologies, Inc. Rent
and secretarial decreased by $30,000 to $11,000 from $41,000 in 2000. This is
as a result of the completion of the development phase of the antennas, allowing
the Company to downsize its operations during 2001. Additional secretarial
services of $19,000 incurred in 2000 were not required for 2001.
Our net loss per share decreased by $0.04 to $0.01 per share from $0.05 in 2000
as a result of the lower net loss and little change to the outstanding shares.
F-14
Liquidity
- ---------
During 2001 we financed our operations by receiving financial support from
companies affiliated with our President in the amount of $72,000. These amounts
are unsecured, non-interest bearing and due on demand.
During 2001 we invested these funds as follows:
1. $11,000 of these funds were spent on acquiring capital assets.
2. $7,000 of the funds were spent on patent protection costs in various
jurisdictions.
3. $46,000 of these funds were spent on operating activities as discussed
above under Results of Operations.
Our cash position has increased by $8,000 from negative $8,000 to nil and our
working capital deficit, as at October 31, 2001, is $1,242,000.
We plan to raise $400,000 (previously announced as $210,000 of which $188,350
raised to date) and issue 2,000,000 units at $0.20 per unit (increased from
600,000 units at $0.35 per unit). We may also raise additional funds through the
exercise of warrants and stock options, if exercised. Warrants with respect to
1,803,377 shares may be exercised and options with respect to 885,000 shares may
be exercised (1,585,000 at the date of this report). These warrants and options
are currently not-in-the-money and are unlikely to be currently exercised. After
completing our $400,000 offering, we will require significant additional capital
to provide sufficient working capital to carry out our business plan for the
next twelve months.
PART II Other Information
Item 1. Legal Proceedings
- ------- ------------------
On September 26, 2001 we announced that by court order of the U.S.
District Court for the Northern District of West Virginia the civil
action between IAS against Integral Technologies, Inc. has been
dismissed.
The civil action against Integral Technologies, Inc., NextAntenna.com,
Inc., Emergent Technologies Corporation, and Jack Parsons commenced in
the U.S. District Court for the Northern District of West Virginia on
the 15th day of May 2000 alleging breach of contract, misappropriation
of trade secrets, interference with economic relations, and breach of
fiduciary duty.
The basis for the civil action was that IAS is the exclusive
commercial sublicensee of certain proprietary antenna technology
developed by West Virginia University, including any improvements,
modifications or enhancements thereto (the "Technology"). IAS
established a joint venture with Emergent Technologies Corporation,
exclusive military sublicensee of the Technology, to develop antennas
based on the Technology. Integral Technologies, Inc., subsequently
acquired Emergent, and announced it was selling antennas to the
commercial market through its wholly-owned subsidiary,
NextAntennas.com, Inc. Jack Parsons has been the president of Emergent
and a director of Integral. IAS believed that the defendants were
selling antennas in contravention of their obligations under the
sublicense agreements and otherwise, and in violation of IAS'
exclusive rights.
Item 2. Changes In Securities
- ------- -----------------------
None.
Item 3. Defaults Upon Senior Securities
- ------- ----------------------------------
None.
Item 4. Submissions Of Matters To A Vote Of Security Holders
- ------- ------------------------------------------------------------
None.
F-15
Item 5. Other Information
- ------- ------------------
None.
Item 6. Exhibits and Reports on Form 8K
- ------- ------------------------------------
None.
F-16
Signatures
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: December 14, 2001 IAS Communications, Inc.
By: /s/ John G. Robertson
-----------------------------------
John G. Robertson, President
(Principal Executive Officer)
By: /s/ James Vandeberg
-----------------------------------
James Vandeberg, Chief Operating
Officer and Chief Financial Officer
F-17