U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 2000
----------------
[_] REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from __________________ to _________________
Commission File No. 0-21255
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IAS COMMUNICATIONS, INC.
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(Exact name of small business issuer as specified in its charter)
Oregon 91-1063549
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
185-10751 Shellbridge Way, Richmond, BC Canada V6X 2W8
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(Address of principal executive offices)
(604) 278-5996
--------------
(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports 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 Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES X NO ___
---
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: As of March 13, 2000 - 10,331,712
shares of common stock, no par value.
Transitional Small Business Disclosure Format (Check One): Yes [_] No [X].
INDEX
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PART I -- Financial Information Page
Item 1. Financial statements........................................................................... 2
- ------ --------------------
Balance Sheets as of January 31, 2000 (unaudited) and April 30, 1999 (audited).......................... 2
Statements of Operations for the nine months ended January 31, 2000 and 1999 (unaudited)................ 3
Statements of Cash Flows for the nine months ended January 31, 2000 and 1999 (unaudited)................ 4
Notes to the financial statements (unaudited)........................................................... 5-9
Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition.......... 10-13
- ------ -------------------------------------------------------------------------------------
PART II-- Other Information............................................................................. 14-15
Signatures.............................................................................................. 16
- 1 -
PART I Financial Information
Item 1. Financial Statements
- ------- --------------------
IAS Communications, Inc.
(A Development Stage Company)
Balance Sheets
January 31, April 30,
2000 1999
(unaudited) (audited)
$ $
Assets
Current Assets
Cash 12,809 -
Accounts receivable 9,677 8,445
Inventory 22,687 6,056
Prepaid expenses 39,615 43,031
- -------------------------------------------------------------------------------------------------------------------
84,788 57,532
Property, Plant and Equipment (Note 3) 45,159 39,860
Licence and Patent Protection Costs (Note 4) 364,878 368,947
- -------------------------------------------------------------------------------------------------------------------
494,825 466,339
===================================================================================================================
Liabilities and Stockholders' Equity
Current Liabilities
Cheques issued in excess of funds on deposit - 26,095
Accounts payable 494,059 472,558
Accrued liabilities 50,634 35,803
Due to related companies 3,763 -
- -------------------------------------------------------------------------------------------------------------------
548,456 534,456
- -------------------------------------------------------------------------------------------------------------------
Convertible Debentures (Note 5) 35,000 210,000
- -------------------------------------------------------------------------------------------------------------------
Stockholders' Equity (Deficit)
Preferred Stock 50,000,000 shares authorized; none issued
Common Stock (Note 6)
Class "A" voting - 100,000,000 shares authorized without par value;
10,331,712 shares and 10,268,858 shares issued
and outstanding respectively 4,221,060 4,182,794
- paid for but unissued (974,904 shares) 487,452 -
Class "B" non-voting - 100,000,000 shares authorized without par value;
none issued
- -------------------------------------------------------------------------------------------------------------------
4,708,512 4,182,794
Deficit Accumulated During The Development Stage (4,797,143) (4,460,911)
- -------------------------------------------------------------------------------------------------------------------
(88,631) (278,117)
- -------------------------------------------------------------------------------------------------------------------
494,825 466,339
===================================================================================================================
Contingency (Note 1)
Legal Proceedings (Note 7)
(See accompanying notes to the financial statements)
- 2 -
IAS Communications, Inc.
(A Development Stage Company)
Statements of Operations
Nine months ended
January 31,
-------------------------
2000 1999
(unaudited) (unaudited)
$ $
Revenue 31,088 -
Cost of Sales (21,652) -
- ------------------------------------------------------------------------------------------------------------------
Gross Profit 9,436 -
- ------------------------------------------------------------------------------------------------------------------
Administration Expenses
Advertising 12,400 -
Bank charges 1,075 970
Business plan - 11,910
Depreciation 3,136 2,454
Financing commission and legal fees - 49,199
Foreign exchange 1,916 -
Interest on convertible debentures 8,690 23,705
Premium on cash redemption of convertible debentures 29,790 -
Investor relations - consulting 16,000 174,378
Investor relations - publications 12,289 33,666
Management fees 22,500 32,500
Office, postage and courier 16,238 36,026
Professional fees 90,834 129,846
Rent and secretarial 77,140 35,434
Telephone 5,415 23,083
Transfer agent and regulatory 11,793 18,999
Travel and promotion 15,124 67,219
Less interest (257) (2,414)
- -----------------------------------------------------------------------------------------------------------------
324,083 636,975
- -----------------------------------------------------------------------------------------------------------------
Research and Development Expenses
Royalty 2,250 3,250
Depreciation and amortization 23,909 22,772
Consulting 80,344 49,295
Prototype and design subcontracts
West Virginia University Research Corporation - 227,490
Emergent Technologies Corporation - 165,771
Others 13,081 20,417
Less engineering contributions (98,000) (80,781)
- -----------------------------------------------------------------------------------------------------------------
21,584 408,214
- -----------------------------------------------------------------------------------------------------------------
Net Loss (336,231) 1,045,189
=================================================================================================================
Net Loss Per Share (.03) (.11)
=================================================================================================================
Weighted Average Shares Outstanding 10,300,000 9,460,000
=================================================================================================================
(See accompanying notes to the financial statements)
- 3 -
IAS Communications, Inc.
(A Development Stage Company)
Statements of Cash Flows
Nine months ended
January 31,
-----------------------------
2000 1999
(unaudited) (unaudited)
$ $
Cash Flows to Operating Activities
Net loss (336,231) (1,045,189)
Adjustments to reconcile net loss to cash
Depreciation and amortization 27,045 25,226
Shares issued for services - 104,867
Shares issued for convertible debenture interest 3,266 -
Change in non-cash working capital items
Increase in accounts receivable (1,232) -
Increase in inventory (16,631) -
(Increase) decrease in prepaid expenses 3,416 (15,795)
Increase in accounts payable and accrued liabilities 36,332 150,244
- -------------------------------------------------------------------------------------------------------------------
Net Cash Used in Operating Activities (284,035) (780,647)
- -------------------------------------------------------------------------------------------------------------------
Cash Flows to Investing Activities
Increase in property, plant and equipment (16,723) (21,742)
Increase in patent protection costs (11,553) (8,157)
Increase in loan receivable - (4,975)
- -------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (28,276) (34,874)
- -------------------------------------------------------------------------------------------------------------------
Cash Flows from (to) Financing Activities
Proceeds from (redemption of) convertible debentures (140,000) 440,000
Increase in common stock - 277,829
Increase in subscriptions for common stock 487,452 39,875
Proceeds from (repayment to) related companies 3,763 39,873
- -------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 351,215 797,577
- -------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Cash 38,904 (17,944)
Cash (Deficiency) - Beginning of Period (26,095) 15,882
- -------------------------------------------------------------------------------------------------------------------
Cash (Deficiency) - End of Period 12,809 (2,062)
===================================================================================================================
Non-Cash Financing Activities
Shares issued for services - 166,640
Convertible debentures with a face value of
$35,000 plus accrued interest of $3,266
were converted into 62,854 shares 38,266 -
- -------------------------------------------------------------------------------------------------------------------
38,266 166,640
===================================================================================================================
Supplemental disclosures:
Interest 8,690 23,705
Income tax - -
===================================================================================================================
(See accompanying notes to the financial statements)
- 4 -
IAS Communications, Inc.
(A Development Stage Company)
Notes to the Consolidated 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 Torroidal 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 9(c) for legal proceedings regarding those
rights.
In a development stage company, management devotes most of its activities
to establishing a new business. Planned principal activities have not yet
begun and preliminary start-up operations have produced insignificant
revenues. The Company has suffered recurring operating losses from
inception, totalling $4,797,143 and has a working capital deficit, at
January 31, 2000, of $463,668. These factors raise doubt about the
Company's ability to continue as a going concern. The ability of the
Company to emerge from the development stage with respect to its planned
principal business activities is dependent upon its successful efforts to
raise additional equity or debt financing and develop additional markets
for its products, identify additional licensees and receive ongoing support
from the majority of its creditors. In addition to potential funds being
received from warrants and options being exercised, which is not in the
Company's control but are all currently "in-the-money", the Company can
exercise its option to receive an additional $500,000 from the $5,000,000
convertible debenture facility discussed in Note 6.
2. Summary of Significant Accounting Policies
(a) Research and Development
Research and development costs are expensed in the period in which they
are incurred.
(b) Property, Plant and Equipment
Property, plant and equipment is recorded at cost and depreciated on a
straight-line basis over estimated useful life of five years.
(c) License and patent protection costs
Costs to register and protect patents and to acquire rights are
capitalized as incurred. These costs are being amortized on a straight
line basis over 20 years. Intangible assets are evaluated in each
reporting period to determine if there were events or circumstances
which would indicate a possible inability to recover the carrying
amount. Such evaluation is based on various analyses including
assessing the Company's ability to bring the commercial applications to
market, related profitability projections and undiscounted cash flows
relating to each application which necessarily involves significant
management judgment.
(d) Foreign Currency Transactions/Balances
Transactions in currencies other than the U.S. dollar are translated at
the rate in effect on the transaction date. Any balance sheet items
denominated in foreign currencies are translated into U.S. dollars
using the rate in effect on the balance sheet date.
(e) Cash and Cash Equivalents
The Company considers all highly liquid instruments with a maturity of
three months or less at the time of issuance to be cash equivalents.
(f) Use of Estimates
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.
- 5 -
2. Summary of Significant Accounting Policies (continued)
(g) Adjustments
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.
3. Property, Plant and Equipment
2000 1999
Accumulated Net Book Net Book
Cost Amortization Value Value
(unaudited) (audited)
$ $ $ $
Computer and office equipment 20,775 6,758 14,017 14,745
Research and development equipment 62,500 32,287 30,213 24,000
Vehicle 1,239 310 929 1,115
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84,514 39,355 45,159 39,860
=============================================================================================================
4. License and Patent Protection Costs
2000 1999
Accumulated Net Book Net Book
Cost Amortization Value Value
(unaudited) (audited)
$ $ $ $
Licence 250,001 38,542 211,459 220,834
Patent protection costs 172,355 18,936 153,419 148,113
-------------------------------------------------------------------------------------------------------------
422,356 57,478 364,878 368,947
=============================================================================================================
Pursuant to the terms of an option agreement dated November 18, 1994 and
amended December 16, 1994 between SMR Investments Ltd. ("SMR") and
Integral Concepts Inc. ("ICI") and an assignment of this option agreement
dated December 13, 1994, the Company acquired a 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 all 6,000,000 shares
issued.
Pursuant to the original licence agreement between WVURC and ICI, ICI was
granted the exclusive licence to manufacture the CTHA or 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 pays WVURC a minimum annual royalty of $3,000 on or
before December 31 of each year.
- 6 -
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 January 31, 2000.
(iii) The Company will pay ICI an earned royalty on sales, leases or
sublicenses of the CTHA of 3% of gross revenues. As amended on
March 4, 1997, ICI agreed to reduce the amount of royalties to be
paid by 50% in an amount not to exceed $5,000,000 for up to three
years.
All royalties are payable within 30 days of each calendar quarter. The term
of the original licence agreement and the sublicence agreement, subject to
compliance with the terms thereof, is perpetual and renewable annually.
5. Convertible Debentures
(i) The Company offered three year, 8 3/4% interest, convertible
debentures to raise $500,000, of which $40,000 was sold. Interest is
paid annually. During the year, $5,000 of such debentures were
converted into 2,000 Class "A" shares at $2.50 per share. The
remaining $35,000 of such debentures are convertible into Class "A"
shares at $3.50 on June 15, 2000. In the event the shares are trading
below $4.00 per share over a ten-day average prior to exercising into
shares of the Company during May 16, 2000 to June 16, 2000, the
convertible debentures will be exercisable at 20% below the said ten-
day average. The maturity date is June 15, 2000.
(ii) The Company entered into an agreement with an investment banker to
place up to $5,000,000 of units, each unit consisting of one $500,000,
three year, 8% interest, convertible debenture and one warrant to
purchase 25,000 Class "A" shares exercisable into 25,000 shares at
$2.85 per share expiring July 22, 2001. One unit was sold on July 22,
1998. The Company received $452,500 after paying to the Agent a 6%, or
$30,000, financing fee, legal costs of $17,500 and a warrant to
acquire 5,000 Class "A" shares at $2.85 per share expiring July 22,
2001. The debenture holder can convert its debenture into common
shares based on the face value plus accrued interest divided by 75% of
the average five day average trading price prior to conversion.
Convertible debentures with a face value of $360,000 plus accrued
interest of $18,786 were converted into 534,362 shares at an average
price of $0.71 per share.
Convertible debentures with a face value of $140,000 plus accrued
interest of $12,736 were redeemed with cash. The Company had to pay an
additional $29,790 as a premium paid for the cash redemption option,
which was expensed to operations.
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 and amended May 28, 1999. Pursuant to the
Plan the Company has granted stock options to certain directors and
employees which vest on grant date.
The options are granted for current services provided to the Company.
Statement of Financial Accounting Standards No. 123 ("SFAS 123")
requires that an enterprise recognize, or at its option, disclose the
impact of the fair value of stock options and other forms of stock
based compensation in the determination of income. The Company has
elected under SFAS 123 to continue to measure compensation costs on
the intrinsic value basis set out in APB Opinion No. 25. As stock
options are granted at exercise prices based on the market price of
the Company's shares at the date of grant, no compensation cost is
recognized. However, under SFAS 123, the impact on net income and
income per share of the fair value of stock options must be measured
and disclosed on a fair value based method on a pro forma basis. As
performance stock is issued for services rendered the fair value of
the shares issued is recorded as compensation expense or capitalized,
at the date the criteria for share issuance is met, based on a
discounted average trading price of the Company's stock as quoted on
the Over The Counter Bulletin Board.
- 7 -
6. Common Stock (continued)
(a) Stock Option Plan (continued)
For periods up to April 30, 1999 the fair value of the employee's
purchase rights, pursuant to stock options, under SFAS 123, was
estimated using the Black-Scholes model with the following
assumptions: risk free interest rate was 5%, expected volatility of
20%, an expected option life of two years and no expected dividends
on stock options granted November 12, 1998 and prior. On May 28, 1999
options to acquire 205,000 shares at $1.00 per share were granted to
certain directors and employees expiring November 28, 2004. The only
variable changing was the risk free interest rate changed to 5.6%.
The weighted average number of shares under option and option price
for the nine months ended January 31, 2000 is as follows:
Shares Option
under option price
# $
Beginning of period 1,015,500 1.15
Granted 205,000 1.00
Exercised - -
Cancelled - -
Lapsed (85,000) (.25)
---------
End of period 1,135,500 1.19
=========
If compensation expense had been determined pursuant to SFAS 123, the
Company's net loss and net loss per share for fiscal 2000 and 1999
would have been as follows:
2000 1999
$ $
Net loss
As reported (336,231) (1,045,189)
Pro forma (349,293) (1,127,957)
Basic net loss per share
As reported (.03) (.11)
Pro forma (.03) (.12)
(b) Performance Stock Plan
The Company has allotted 1,000,000 Class "A" Common shares to be
issued pursuant to a Performance Stock Plan. Compensation is recorded
when criteria to issue shares are met.
The Company is committed to issue up to 400,000 Class "A" shares
which shall be earned as to 100,000 shares for every 1,000,000 CTHA's
sold through a joint venture called TEAM. This joint venture has been
dormant since inception and no CTHA's have been sold to date through
TEAM.
(c) Private Placements/Warrants
(i) On November 1, 1999 we increased our current private placement
from 500,000 units to 1,000,000 units and the price per unit was
reduced from $1.00 per unit to $0.50 per unit. Each unit will
contain one share and one warrant to acquire one additional
share at $0.75 per share if exercised in year one. As at April
30, 1999 $200,000 was raised and 200,000 shares were issued
(200,000 shares are to be issued as a result of the price
reduction to $0.50 per share). As at March 14, 2000 an
additional $537,952 has been raised and 1,1075,903 shares have
been allotted and are to be issued.
(ii) A total of 30,000 shares are reserved for the exercise of
warrants at $2.85 per share expiring July 22, 2001.
- 8 -
7. Legal Proceedings
The Company was sued in April 1998 in a civil action filed in U.S.
District Court for the District of Oregon (the "Oregon Litigation"). The
Plaintiff, Kirk Vanvoorheis, ("Plaintiff") sought money damages and
equitable relief against the Company alleging patent infringement by the
Company for the CTHA. The Company notified West Virginia University
("WVU") of this claim and contacted WVU to assist in the defence. WVU owns
the patent rights to the CTHA technology which were licensed to the
Company. Two patents were granted for the CTHA to WVU; one in August 1995,
and another in August 1997. The Plaintiff's patent was approved on March
31, 1998.
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 West Virginia University (WVU), Kurt L.
VanVoorhies, and subsequently assigned to VorteKx. On the Company's
motion, the case was transferred to the Northern District of West Virginia
and consolidated with a previously-pending action filed by WVU against
VanVoorhies, discussed above. The Company and WVU both claimed that the
technology covered by the patent is actually owned by WVU. The Company is
the sublicensee of commercial applications of the CTHA technology.
In a 37-page 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, and assuming
his appeal is denied, is expected to be dismissed altogether.
- 9 -
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations
- -------------
Management's Discussion
- -----------------------
This report contains forward-looking statements. The words, "anticipate",
"believe", expect", "plan", "intend", "estimate", "project", "could", "may",
"foresee", and similar expressions are intended to identify forward-looking
statements. The following discussion and analysis should be read in conjunction
with the Company's Financial Statements and other financial information included
elsewhere in this report which contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed below, as well as those discussed elsewhere
in this report.
Overview
- --------
IAS Communications, Inc., 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 development of advanced
antenna technology known as the Contrawound Torroidal Helical Antenna, herein
"CTHA", for wireless communications markets including cellular, meter reading
and global positioning services. The CTHA, previously developed in conjunction
with researchers at West Virginia University, is a technologically advanced
antenna design which could be incorporated into a wide variety of
telecommunications applications. We were 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
$4,797,000 and we have a working capital deficit of $464,000. These factors
raise 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 support from the majority of our creditors.
During fiscal 1999 the Company arranged a $5,000,000 convertible debenture with
an investment banker to be drawn down in $500,000 units (See Note 6 to the
interim financial statements), of which one unit of $500,000 was drawn down in
fiscal 1999. As of January 31, 2000 we have redeemed or the holder has converted
the entire $500,000 of such debentures. We have the option to draw down
additional amounts in $500,000 units but have chosen to issue equity securities
as a cheaper option while our stock was at a depressed level prior to the
favourable outcome of the litigation as discussed below under the heading "Legal
Proceedings".
On November 1, 1999 we increased our current private placement from 500,000
units to 1,000,000 units and the price per unit was reduced from $1.00 per unit
to $0.50 per unit. Each unit will contain one share and one warrant to acquire
one additional share at $0.75 per share in year one. As at April 30, 1999
$200,000 was raised and 200,000 shares were issued (200,000 shares are to be
issued as a result of the price reduction to $0.50 per share). As at March 13,
2000 an additional $537,952 has been raised and 1,1075,903 shares have been
allotted and are to be issued.
Legal Proceedings
- -----------------
See Note 7 to the interim unaudited financial statements.
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 us.
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 West Virginia University (WVU), Kurt L. VanVoorhies, and
subsequently assigned to VorteKx. On IAS' motion, the case was transferred to
the Northern District of West Virginia and consolidated with a
previously-pending action filed by WVU against VanVoorhies. We and WVU both
claimed that the technology covered by the patent is actually owned by WVU. We
are the sublicensee of commercial applications of the CTHA technology.
In a 37-page Memorandum Opinion and Order entered February 17, 2000, the West
Virginia federal court granted summary judgment for WVU in its claims against
VanVoorhies (Civil Action No. 1:97-CV-144). The Court also dismissed
VanVoorhies' claims against WVU and third-party defendants West Virginia
University Research Corporation,
- 10 -
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 us, 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 us, VorteKx no longer has
standing to pursue that infringement case. The case has been stayed pending
VanVoorhies' appeal from the Court's order, and assuming his appeal is denied,
is expected to be dismissed altogether.
Progress Report from November 1, 1999 to March 13, 2000
- -------------------------------------------------------
Pursuant to a License Agreement dated January 31, 2000, as amended on February
24, 2000, the Company agreed to grant a license to manufacture, use and resell a
customized antenna for a wireless system for tracking lost children, animals and
electronic components. Pursuant to the terms of the license, the Company is to
be paid a non-reoccurring engineering fee in the sum of $30,000, of which
$15,000 has been paid. Subject to the deliver of twenty prototype antennas and
the successful completion of a two month testing period, the Company will be
paid royalties for the antennas, based on the following minimum quotas:
Year One - 100,000 antennas
Year Two - 150,000 antennas
Year Three - 200,000 antennas
Year Four - 250,000 antennas
Year Five - 300,000 antennas
The royalties shall be $2.50 per antenna for the first 100,000 antennas
purchased; $2.25 per antenna for 100,001 to 200,000 antennas purchased; $2.00
per antenna for 200,001 to 300,000 antennas purchased; $1.75 per antenna for
300,001 to 400,000 antennas purchased; $1.50 per antenna for 400,001 to 500,000
antennas purchased; and $1.00 per antenna for over 500,000 antennas purchased.
We entered into an exclusive five year licensing agreement with Information
Highway, Inc., a leading edge web content developer and Internet service
provider (ISP), in January 1999 to sell the Hawks television and amateur radio
antennas on their virtual mall Internet website at www.theexecutive.com. The new
television and amateur radio antennas can also be purchased from the Company's
website at www.iascom.com.
We are currently in production with the 14" television and amateur radio
antennas and are receiving orders on a daily basis through its Internet site. We
plan to aggressively market our 5" antenna at $29.95.
Larry Hawks, our Chief Engineer and Vice-President of Research and Development,
has designed a new technology antenna that is 14" in diameter and 2" thick that
will receive in an omni pattern or can be directional to receive in 35 degree
segments. The new antenna requires no amplifier and is easy to connect as it is
simply bolted in place with the mounting provided. Our low profile,
environmentally friendly television antenna will receive all local VHF/UHF
stations and will replace the unsightly existing beam antennas used today. They
can be attached to a satellite dish mounted on a recreational vehicle, placed in
the attic of a house or condominium, on top of a roof or placed on a television
set to receive local television statements within a 60 mile radius. A new
amateur radio antenna was also designed and tested, which new design is portable
on 10 through 80 meters with an antenna tuner or operates as a monoband on 20
and 40 meters. With its unique properties, the antenna can be laid on the
ground, in an attic, on a roof or awning, or placed on a tree or on top o a
motorhome and even transmits and receives in the trunk of an automobile. The
antenna is approximately 36" in diameter and is 2" high. It can use a 50-OHM
coax of choice and will load to the full legal limit and is broad banded to
receive signals from .5 MHz to 30 MHz. It has been field tested by Larry Hawks
for one year, with logged contacts from California to New York, north central
Indiana to Mexico, all of South America, Spain, England, Russia, Norway,
Switzerland and many other European countries.
The Company granted ARINC an exclusive license to market and sell the new
antennas for ORBCOMM satellite applications under the Dominium(R) product line
to encompass the worldwide inter-modal shipping containers market area
- 11 -
for one year. ARINC, founded in 1929 and headquartered in Annapolis, Maryland,
provides communications and systems integration engineering to business and
industry. ARINC's Dominium(R) product line uses the ORBCOMM low earth orbit
(LEO) satellite communication system, which provides global communications
coverage especially useful in remote areas that are not serviced by conventional
or cellular telephone or other terrestrial communication networks. The
Dominium(R) tracker unit is battery powered and equipped with the Global
Positioning System (GPS). It can be programmed to automatically report its
position and other information like temperature, engine speed or load capacity,
at any desired time interval, or upon reaching a user-determined alarm value.
Dominium(R) also markets a data messaging line of products, which integrates
input/output devices for sending and receiving text messages.
A subscriber installs the tracker unit on the asset to be tracked or monitored
for a variety of applications including trucks, truck tractors, detached truck
trailers, rail cars, ships and containers. Dominium(R) currently provides
service to national and regional trucking companies and to national railroads.
The new antenna is a compact, low profile antenna, flush mounted on an
application at a fraction of the height of the monopole antenna used today. We
hold the worldwide rights to all commercial applications for this technology and
Emergent Technologies Corp. owns the Military/Government rights.
We have granted ARINC Incorporated exclusive worldwide rights to sell and
manufacture the Hawks/ARINC antenna for the Orbcomm frequency.
The license gives ARINC the exclusive right for three years to use the
Hawks/ARINC antenna for use in monitoring and tracking trailers, refrigeration
monitoring, in-cab tracking, messaging and for long haul trailers using the
Orbcomm Satellite frequency. ARINC shall purchase from IAS a minimum of 5,000
Hawks antennas with an option to purchase 60,000 antennas or more.
We have also granted to ARINC an exclusive license to manufacture and resell
antenna units with minimum royalty payments as follows:
. $1 Million during the first year;
. $5 Million during the second year; and
. $7.5 Million in the third year.
The ARINC agreement is subject to successful installation test results by ARINC
prior to March 31, 2000.
Y2K issue
- ---------
The Year 2000 risk for information systems, computers, equipment and products
using date sensitive software has passed without any problems whatsoever.
The Company will continue to monitor the Year 2000 issue but does not anticipate
any problems.
It is not expected that any additional material costs will be incurred in
addressing the Year 2000 compliance for the Company.
Results of operations for the nine months ended January 31, 2000 ("2000")
- -------------------------------------------------------------------------
compared to the nine months ended January 31, 1999 ("1999")
- -----------------------------------------------------------
The revenues in 2000 from the sale of products were $31,088, compared to nil in
1999. The majority of these sales were sales of antennas by way of the Internet
through its agreement with Information-Highway.com, Inc. and the remainder were
sales from our Kokomo office direct to end users. We are awaiting the first
revenues from a licence agreement with ARINC, discussed previously.
The net loss in 2000 was $336,000 compared to $1,045,000 in 1999, a decrease of
$709,000. The decrease in net loss was due to a decrease of $313,000 in
administrative expenses from $637,000 to $324,000. Virtually all expenditure
levels were reduced as a result of our lack of working capital.
Administrative expenses decreased because we used in-house investor relations
consultants and minimized the number of publications we used to send progress
reports to the general investment community and we did not issue shares for
investor relations services in 2000 whereas in 1999 we incurred $167,000 of such
expenditures. Other notable variances were due to one-time charges in 1999;
$12,000 for a business plan; $47,500 was paid as a financing commission and
- 12 -
$65,000 of professional fees were paid in connection with the $5,000,000
convertible redeemable debenture unit offering. Travel and promotion in 2000
decreased by $52,000 to $15,000 as compared to $67,000 in 1999 as a result of
less travel to the Eastern United States from our Canadian head office.
Our net expenditures on research and development decreased significantly from
$408,000 in 2000 to $22,000 in 1999 due to performing the majority of our
development work with in-house consultants instead of expensive large
contractors as used in 1999. We have set up our own facility in Kokomo, Indiana
which is run by Larry Hawks. We received an $83,000 engineering contribution
from ARINC for costs incurred in developing its specific use antenna and we
received $15,000 from a potential licensee, as previously discussed, as an
engineering contribution.
Liquidity
- ---------
During 2000 we financed our operating deficiency of $284,000, our investment in
capital assets and patents of $28,000 and cash redemptions of convertible
debentures of $140,000 by receiving subscription proceeds of $487,000 in
connection with a unit private placement. We also received short-term loans from
related parties of $4,000. These loans are non- interest bearing and due on
demand.
We received $83,000 from ARINC Incorporated which represents a Fixed Price
Agreement for CTHA Development and Prototypes and $15,000 from a potential
licensee as an engineering contribution. These amounts reduced related research
and development costs incurred.
The Company has allotted 1,200,000 shares for the potential exercise of warrants
at between $1.00 and $2.85 per share, which, if exercised, could raise in excess
of $1,300,000. The Company has allotted 1,135,000 shares for the potential
exercise of stock options at a weighted average price of $1.19. If all options
are exercised the Company could raise $1,355,000. These options and warrants are
currently "in-the-money" which increases the chance of receiving funds from
their exercise, but does not guarantee that they will be exercised.
Our working capital deficiency as at January 31, 2000 was $464,000 of which
$316,000 of payables are in dispute regarding an old West Virginia University
Research Corporation contract. We continue to finance our operations through
funding from private placement of our equity securities. Our ability to manage
payables and to finance our operations and further our development over the next
twelve months is contingent upon receiving funds from selling our equity
securities and continuing to receive interim loans from related companies on a
non-interest bearing basis. Equity or debt financing may not be available on
terms acceptable to us, or at all. We will need additional funds, which we may
not be able to obtain.
- 13 -
PART II Other Information
Item 1. Legal Proceedings
- ------ -----------------
See Note 7 to the interim unaudited financial statements.
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 us.
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 West Virginia University
(WVU), Kurt L. VanVoorhies, and subsequently assigned to VorteKx. On
IAS' motion, the case was transferred to the Northern District of
West Virginia and consolidated with a previously-pending action filed
by WVU against VanVoorhies. We and WVU both claimed that the
technology covered by the patent is actually owned by WVU. We are the
sublicensee of commercial applications of the CTHA technology.
In a 37-page Memorandum Opinion and Order entered February 17, 2000,
the West Virginia federal court granted summary judgment for WVU in
its claims against VanVoorhies (Civil Action No. 1:97-CV-144). 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 us, 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 us, VorteKx no
longer has standing to pursue that infringement case. The case has
been stayed pending VanVoorhies' appeal from the Court's order, and
assuming his appeal is denied, is expected to be dismissed
altogether.
Item 2. Changes in Securities
- ------ ---------------------
Pursuant to a pending private placement of 500,000 units at a price
of $1.00 per unit, on November 19, 1999, the Board of Directors of
the Company agreed to extend the term of the offering to March 1,
2000, to increase the offering to 1,200,000 units and to reduce the
price from $1.00 per unit to $0.50 per unit, based on the trading
price at that time. The exercise price of the warrants was reduced
from $1.50 per share to $1.00 per share. On April 19, 2000, a total
of 200,000 units were issued at a price of $1.00 per unit, with each
warrant being exercisable at a price of $1.50 per share. As of
January 31, 2000, an additional 969,903 units at a price of $0.50 per
unit had been subscribed for but have not yet been unissued.
On August 12, 1999, a total of 24,106 shares of Class A common stock
were issued to Augustine Fund at a price of $0.44985 upon conversion
of its outstanding debenture and on October 15, 1999, an additional
38,748 shares of Class A common stock were issued to Augustine Fund
at a price of $0.7077 per share.
Item 3. Defaults upon Senior Securities
- ------ -------------------------------
None
Item 4. Submissions of Matters to a Vote of Security Holders
- ------ ----------------------------------------------------
At the annual meeting of the Company held on November 19, 1999, the
shareholders approved the election of John G. Robertson, James
Vandeberg, Jennifer Lorette and Donna Moroney as the directors
- 14 -
of the Company for the ensuing year and the appointment of Elliott
Tulk Pryce Anderson, Chartered Accountants, as the auditors for the
ensuing year.
Item 5. Other Information
- ------ -----------------
None
Item 6. Exhibits and Reports on Form 8-K
- ------ --------------------------------
27.1 - Financial Data Schedule
- 15 -
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: March 13, 2000 IAS COMMUNICATIONS, INC.
By: /s/ John G. Robertson
-----------------------------------------
John G. Robertson, President
(Principal Executive Officer)
By: /s/ Jennifer Lorette
-----------------------------------------
Jennifer Lorette, Chief Financial Officer
(Principal Financial Officer)
- 16 -