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 JULY 31, 1998
[ ] TRANSITION REPORT PURSUANT TO 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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(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
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(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
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State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: As of September 8, 1998 - 9,491,350
shares of common stock, no par value.
INDEX
PART I -- Financial Information
Page
Item 1. Financial statements.......................................... 2
Consolidated Balance Sheets as of July 31, 1998 and 1997 (Unaudited)... 3
Consolidated Statements of Operations for the three months ended
July 31, 1998 and 1997 (Unaudited).................................... 4
Consolidated Statements of Cash Flows for the three months ended
July 31, 1998 and 1997 (Unaudited).................................... 5
Consolidated Statement of Stockholders' Equity......................... 6
Item 2. Management's Discussion and Analysis of Financial Conditions
and Results of Operations..................................... 7 and 8
PART II -- Other Information........................................... 9
Signatures............................................................. 10
1
PART I Financial Information
Item 1. Consolidated Financial Statements (Unaudited)
2
IAS Communications, Inc.
(A Development Stage Company)
Consolidated Balance Sheets
July 31, 1998 and 1997
(expressed in U.S. dollars)
(Unaudited)
1998 1997
$ $
Assets
Current Assets
Cash and equivalents 420,748 155,397
Prepaid expenses 54,508 10,336
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475,256 165,733
Capital Assets 37,638 44,357
Licence and Patent Protection Costs 363,952 282,262
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876,846 492,352
========== ==========
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable 441,248 232,642
Accrued liabilities 132,003 5,250
Due to related companies 8,440 21,725
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581,691 259,617
Convertible Debentures 535,000 25,000
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Total Liabilities 1,116,691 284,617
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Redeemable Class "A" Shares - 197,750
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Stockholders' Equity (Deficit)
Common Stock
Class "A" voting - 100,000,000 shares authorized
without par value; 9,491,350
shares and 8,602,500 shares
issued and outstanding
respectively 3,474,824 1,784,459
- paid for but unissued - 37,500
Class "B"
non-voting - 100,000,000 shares authorized
without par value; none issued - -
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3,474,824 1,821,959
Preferred Stock 50,000,000 shares authorized;
none issued - -
Deficit Accumulated During The Development Stage (3,714,669) (1,811,974)
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(239,845) 9,985
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876,846 492,352
========== ==========
3
IAS Communications, Inc.
(A Development Stage Company)
Consolidated Statements of Operations
For the three months ended July 31, 1998 and 1997
(expressed in U.S. dollars)
(Unaudited)
1998 1997
$ $
Revenue - -
--------- ---------
Administration Expenses
Bank charges 353 537
Business plan 11,910 -
Depreciation 400 166
Financing commission and legal fees 47,500 -
Interest on convertible debentures 2,287 -
Investor relations - advertising 14,800 31,042
Investor relations - consulting 145,167 18,495
Management fees 15,000 15,000
Office, postage and courier 6,755 5,196
Professional fees 50,043 2,006
Rent and secretarial 8,009 13,500
Telephone 9,985 6,000
Transfer agent and regulatory 3,240 2,762
Travel and promotion 19,146 3,312
Less interest (762) (635)
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333,833 97,381
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Research and Development Expenses
Royalty 750 750
Depreciation and amortization 7,283 6,033
Consulting 6,000 12,000
Subcontracts
Others 6,147 -
West Virginia University Research Corporation 73,740 87,381
Emergent Technologies Corporation 112,440 -
Less engineering contribution by a third party (67,000) -
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139,360 106,164
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Net Loss 473,193 203,545
========= =========
Net Loss Per Share (.05) (.02)
========= =========
Weighted Average Shares Outstanding 9,389,000 8,595,000
========= =========
4
IAS Communications, Inc.
(A Development Stage Company)
Consolidated Statement of Cash Flows
For the three months ended July 31, 1998 and 1997
(expressed in U.S. dollars)
(Unaudited)
1998 1997
$ $
Cash Flows to Operating Activities
Net loss (473,193) (203,545)
Adjustment to reconcile net loss to cash
Depreciation 7,683 6,199
Shares issued for services 76,667 -
Change in non-cash working capital items
(Increase) decrease in prepaid expenses (6,250) 1,614
Increase in accounts payable and accrued liabilities 151,019 114,032
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Net Cash Used in Operating Activities (244,074) (81,700)
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Cash Flows to Investing Activities
Increase in capital assets - (1,542)
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Net Cash Used in Investing Activities - (1,542)
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Cash Flows from Financing Activities
Increase in convertible debentures 500,000 25,000
Increase in common stock 140,500 19,375
Increase in subscriptions - 37,500
Increase in due to related companies 8,440 21,725
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Net Cash Provided by Financing Activities 648,940 103,600
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Increase in Cash and Equivalents 404,866 20,358
Cash and Equivalents - Beginning of Period 15,882 135,039
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Cash and Equivalents - End of Period 420,748 155,397
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Non-Cash Financing Activity
Convertible debentures converted into shares 40,000 -
Shares issued pursuant to performance stock
agreements for services 138,440 117,000
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178,440 117,000
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Supplemental disclosures:
Interest paid 2,287 -
Income tax paid - -
5
IAS Communications, Inc.
(A Development Stage Company)
Consolidated Statement of Stockholders' Equity (Deficit)
Accumulated from December 13, 1994 (Inception)
to July 31, 1998
(expressed in U.S. dollars) (Unaudited)
Deficit
Accumulated
Common Common During the
Stock Stock Development
Shares Class "A" Class "B" Stage
# $ $ $
Balance - April 30, 1998 9,320,350 3,155,884 - (3,241,476)
Shares issued for cash pursuant to a private
placement at $1.75 per share 100,000 175,000 - -
Shares issued for cash pursuant to options
exercised at $0.25 per share 2,000 500 - -
Shares issued for services pursuant to a performance
stock agreement at a deemed value of $2.37 per share 12,000 28,440 - -
Shares issued for services pursuant to a performance
stock agreement at a deemed value of $2.00 per share 55,000 110,000 - -
Shares issued for conversion of convertible debentures
at $2.50 per share 2,000 5,000 - -
Net loss for the period - - - (473,193)
--------- --------- --------- ----------
Balance - July 31, 1998 9,491,350 3,474,824 - (3,714,669)
========= ========= ========= ==========
6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Management's Discussion
The Company successfully tested the CTHA for the ham version of the CTHA at the
Dayton Hamvention, which demonstration served to introduce the CTHA to users in
the ham frequency range.
The Company completed a license agreement for the CTHA Antenna with ARINC,
Incorporated, an ORBCOMM value added reseller. ARINC was founded in 1929 and is
headquartered in Annapolis, Maryland. It provides communications and systems
integration engineering to business and industry. ARINC's dominion product line
uses the ORBCOMM low earth orbit 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
communications networks.
An agreement was completed to build and test the CTHA Antenna for receiver sites
in the narrowband personal communications system network of MobileComm
(MobileMedia Communications, Inc.). MobileComm has agreed to assist the Company
in the completion of the design and the building of ten prototypes of the CTHA
by September 11, 1998. Based on successful test results, the Company will make
the CTHA available for purchase by MobileComm by October 30, 1998. MobileComm is
one of the largest providers of paging and personal communications services in
the United States. MobileComm offers local, regional and nationwide coverage in
all 50 states, reaching markets of over 95% of the U.S. population, and in the
Caribbean.
A Financing Agreement was completed with an investment banker to purchase a
total of US$5 Million of the Company's units. Each unit consists of a three year
8% convertible redeemable debenture in the principle amount of $500,000 together
with a warrant to purchase 25,000 Class A common shares at a price not exceeding
$2.85 per share. As of July 22, 1998 the Company received $500,000 from the
exercise of one unit and expects to receive additional funds in increments of
$500,000 as required by the Company.
Results of operations for the three months ended July 31, 1998 ("current
quarter") compared to the three months ended July 31, 1997 ("comparative
quarter")
There were no revenues from the sale or licensing of the CTHA during the current
and comparative quarters.
The net loss for the current quarter was $473,000 compared to $204,000 for the
comparative quarter. The increase of $269,000 was due to a $30,000 financing
commission paid and $65,000 of professional fees paid in connection with the
$5,000,000 convertible redeemable debenture unit offering. The Company also
issued shares to two financial consulting firms for investor relation activities
during the current quarter. The total non-cash expense was $77,000 and an amount
of $60,000 was accrued which will be settled by issuing 30,000 shares in the
next quarter. None of the above activities took place during the comparative
quarter. The Company continued contracting out to West Virginia University which
totalled $74,000 in the current quarter compared to $87,000 in the comparative
quarter. The Company contracted Emergent Technologies Corporation through TEAM
to develop the 20 prototypes to be delivered to ARINC Incorporated. A total of
$112,000 has been paid to Emergent and a total of $67,000 has been received by
ARINC Incorporated to offset the costs incurred to build the proof-of-concept
antennas.
Liquidity - fiscal 1999
During the three months ended July 31, 1998 the Company financed its operations
by completing a units offering which raised an additional $140,000 during the
quarter. This units offering is now complete and a total of 675,600 units were
issued and a total of $1,182,300 was raised. Each unit contained one share and
one warrant to acquire one additional share at $1.75 expiring one year from
receipt of funds and at $2.25 expiring two years after. The Company completed a
financing agreement during the quarter with an Investment Banker to issue a
total of $5,000,000 in aggregate principal amount of units. Each unit consists
of a three year, 8% Convertible Redeemable Debenture in the amount of $500,000
and a warrant to purchase 25,000 shares at a price not exceeding $2.85 per
share. The Company has received $500,000 from the exercise of one unit and will
receive additional funds in increments of $500,000 as required. A 6% commission
and a warrant for 5,000 shares at $2.85 was paid to Dutchess Capital Partners,
Inc. of New York, New York. The 6% commission and warrant for 5,000 shares will
be paid for each unit sold.
The Company also received $67,000 from ARINC Incorporated which represents two-
thirds of a Fixed Price Agreement for CTHA Development and Prototypes. The
Company is to deliver 20 proof-of-concept antennas for further evaluation. Once
delivered, the final payment of $33,000 will be made.
The Company has allotted 705,600 shares for the potential exercise of warrants
outstanding, which, if exercised, would total $1,267,800. The Company has
granted certain directors and employees options to acquire 821,500 shares
exercisable at prices between $0.25 and $3.00 per share. If all options are
exercised the Company would received approximately $1,600,000.
7
The Company's current working capital deficit is $106,435. A total of $60,000
represents accrued liabilities which are to be settled with the issuance of
performance shares pursuant to a performance share agreement for financial
services. The Company plans to sell Convertible Redeemable Debenture units when
needed to pay liabilities as they become due and to finance ongoing development
of antenna applications.
8
PART II Other Information
Item 1. 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") seeks money damages and
equitable relief against the Company alleging patent infringement by
the Company for the CTHA. The Company has notified West Virginia
University ("WVU") of this claim and has contacted WVU to assist in
the defense. 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. Based upon the information
available to the Company at this time, the Company believes that the
Plaintiff's alleged claim of infringement is without legal or factual
basis.
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. The Company intends to vigorously defend
the Oregon Litigation. Dr. James Smith, the 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.
However if the Plaintiff in the Oregon Litigation is successful, it
could seriously affect the Company financially.
Item 2. Changes in Securities
UNREGISTERED SECURITIES ISSUED OR SOLD DURING THE THREE MONTH PERIOD
ENDED JULY 31, 1998
In July 1998, the Company sold, in a private placement, one unit at a
price of $500,000 to one accredited investor. The unit consists of
$500,000 in aggregate principal amount of Debentures and one Warrant
to purchase 25,000 of Class A Common Stock of the Company. The
Debentures are convertible at any time after the effective date of the
Company's Registration Statement on Form S-3 filed on August 17, 1998.
The purchaser of this unit was, in the opinion of management, fully
informed with respect to the financial position, business and
prospects of the Company. The transaction was exempt from registration
under the Securities Act of 1933, as amended by reason of Section 4(2)
thereof and Rule 506 of Regulation D. Each certificate representing
securities issued to the investor in this private placement bears a
legend restricting transfer.
Item 3. Defaults upon Senior Securities
None
Item 4. Submissions of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
A Form 8-K was filed on behalf of the Company on July 24, 1998 with
respect to Item 9 of Form 8-K; Sales of Equity Securities pursuant to
Regulation S.
9
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: September 9, 1998 IAS COMMUNICATIONS, INC.
By: /s/ John G. Robertson
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John G. Robertson, President
(Principal Executive Officer)
By: /s/ Jennifer Lorette
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Jennifer Lorette, Chief Financial Officer
(Principal Financial Officer)
10