This annual report on Form 10-K contains certain forward-looking statements and for this purpose any statements contained in this annual report that are not statements of historical fact are intended to be
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forward-looking statements
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with the meaning of the Private Securities Litigation Reform Act of 1995. Without limiting the foregoing, words such as
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may,
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will,
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expect,
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believe,
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anticipate,
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estimate
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or
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continue
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or comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, and actual results may differ materially depending on a variety of factors, many of which are not within our control. These factors include but are not limited to economic conditions generally and in the markets in which we may participate, competition within our chosen industry, technological advances and failure by us to successfully develop business relationships.
We caution readers not to place undue reliance on any forward-looking statements, which speak only as of the date made, are based on certain assumptions and expectations which may or may not be valid or actually occur and which involve various risks and uncertainties.
Unless otherwise required by applicable law, we do not undertake, and specifically disclaim any obligation, to update any forward-looking statements to reflect occurrences, developments, unanticipated events or circumstances after the date of such statement.
ITEM 1. DESCRIPTION OF BUSINESS
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THE COMPANY
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Exact corporate name:
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International Automated Systems, Inc.
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State and date of incorporation:
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Utah- September 26, 1986.
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Street address of principal office:
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2730 West 4000 South
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Oasis, Utah 84624
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Company telephone number:
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(801) 423-8132
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Fiscal year:
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June 30
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International Automated Systems, Inc. (
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the Company
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), was organized under the laws of the State of Utah on September 26, 1986. In April 1988 the Company filed a registration statement for a public offering under the provisions of the Securities Act of 1933 ("1933 Act") to sell a maximum of 1,074,000 units at a price of $.50 per unit. Each unit was comprised of one share of common stock and one common stock purchase warrant. The Company sold approximately 200,000 units at the offering price of $.50 per unit realizing total proceeds of approximately $100,000. All warrants expired without exercise.
Over time, the Company, for the most part, has been engaged in the investigation, design and development of technology based upon the exclusive rights to patents or exclusive rights to patented technologies obtained from the president of the Company or from entities controlled by the president of the Company.
OVERVIEW
International Automated Systems, Inc., a Utah corporation (hereinafter "Registrant" or "Company") based in American Fork, Utah, seeks to design, produce and develop plans for the marketing of leading edge technology products.
The Company has production models of a patented turbine which uses the expansion of steam to generate a rotational force and a patented solar lens which may be included in systems which generate alternative solar energy.
The Company feels the turbine could be used in, but not limited to, the production of electricity, hydrogen or in the transportation industry. Though some testing has been done using pure steam and geothermal steam, more testing will be done. There are risks that the turbine may never be accepted.
The Company previously had an Alternate Solar Energy Thermal System (
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System
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) which was developed in conjunction with the Company
’
s bladeless turbine and solar lens to generate to provide solar electricity in commercial quantities. The system was designed to track the sun, efficiently concentrating the solar energy onto a receiver. The energy produced would propell the bladeless turbine, generating electricity.
The Company developed an automated self-service check-out system and management software. This system allows retail customers to ring up their purchases without a cashier or clerk. The system is primarily designed for grocery stores, but may be applicable in other retail establishments.
The Company has developed an Automated Fingerprint Identification Machine ("AFIM") designed to verify the identity of individuals. Potential AFIM applications include products for both commercial and governmental users, including employee time-keeping and security-access control and check, debit or credit card verification. .
The Company has developed technology that transmits information and data using different wave patterns, configurations and timing in the electromagnetic spectrum. The Company refers to this technology as digital wave modulation ("DWM"). The Company believes that when the technology is implemented and applied commercially, the technology will have the capability to increase the amount of information which can be transmitted.
The Company is continuing the development of the DWM technology.The commercial feasibility of the technology has not been demonstrated. The Company believes it has many competitors in the communications, information data transfer and data storage industries which have greater capital resources, more experienced personnel and technologies which are currently more established and accepted in the market place.
The first anticipated product using DWM technology is a high-speed modem. The modem is projected to be faster than modems currently in use. Generally modems are used for purposes of transmitting data over telephone lines, on telecommunications systems and over wireless mediums such as satellite transmissions and line- of-sight transmission mediums. The Company has a modem prototype. Additional development is required to achieve a commercial product.
The Company
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s objective is to apply the DWM technology in other areas. The Company has not established a plan or order of priorities for any future commercial product development. The Company may not be successful in its efforts to have commercially exploitable products due to difficulties and problems which may interfere with the future development efforts. Problems may arise, such as inability to design, construct and/or manufacture commercial products, the Company's lack of funding and financial resources and availability of experienced personnel. Competitors may develop technologies which are superior and will make the DWM technology obsolete even before the Company can complete its development of any commercial products. Cost will also be a factor in both the development and the commercialization of any new product. It is anticipated that if a commercially viable modem is developed, the Company will have to expend funds to develop a marketing plan and introduce the product into the market. Costs to offer new products and to establish the proper marketing strategy will be significant. The Company has not made any projections regarding any anticipated costs.
There are risks that no commercially viable products will be developed from the technologies and any products developed may not be accepted or successful in the marketplace. In addition, the Company may not have sufficient funds to develop, manufacture, and market any products when developed.
Propulsion Steam Turbine
The Company has a patented bladeless turbine production model. It uses the expansion of steam, through propulsion, to create a rotational force.
The production model has been tested using pure steam created by a gas heat exchanger. The Company believes its propulsion design has several advantages over current bladed turbines. The Company believes its turbine is at least as efficient as traditional turbines, is smaller in size, requires less maintenance, is mass producible and may be less expensive to manufacture. It also doesn't require cooling towers, making it more mobile, more economical and water conserving.
The Company believes that the turbine may be marketable in the utility power industry as well as for hydrogen production and transportation. There are risks that the Company will not be able to manufacture a commercially marketable turbine because of lack of financing, government interference, industry non-acceptance and/or many other conditions not under the Company's control.
The Company believes that the possible advantage over other similar systems is the System
’
s ability to be mass produced. The Company has developed proprietary structural designs in anticipation of mass production of the System. Although the specific cost and production design has not been completed, the Company believes that the anticipated designs may significantly reduce the cost of manufacturing and marketing the turbine.
Automated Self-Service Check-Out System.
The proposed Automated Self-Check-Out System is an integrated, automated check-out system for customers of retail establishments and provides for self-service check-out lines, stations or lanes. The Self-Check-Out System has a scanner to read bar codes of items purchased and a scale to weigh the items scanned and placed in a receiving basket. As each item is scanned by the bar code reader, the scale verifies the accuracy of the item scanned and placed in the basket by comparing the weight of the item scanned with the weight change recorded in the receiving basket. If the weights differ or if other problems arise, a clerk is summoned to assist the customer and resolve any problem.
The Self-Check-Out System is designed to replace clerk operated cashier registers that are used in retail and grocery stores. In addition, the Self-Check-Out System, when fully and completely implemented, is intended to allow a store manager to maintain accurate inventory on a contemporaneous basis. The contemporaneous inventory assists in reordering and restocking. The Company believes that the Self-Check-Out System may simplify price verification and may provide customers with better and faster service.
Operation of Self-Check-Out System
The Self-Check-Out System operates as follows:
Customers make their selections for purchase. A customer places the grocery cart at the head of the System, removes the products from the grocery basket and scans the bar codes on the products across the reader. The bar code provides, as a data base index, the product description, weight and price. This information is then relayed on an item by item basis to the computer and the computer transmits the data in its memory to the check-out terminal. The product information, item description and price, are then displayed on the screen. A running subtotal for all items purchased is also shown. Each item scanned is placed into a receiving basket or cart with a sensitive scale. The computer compares the weight of the scanned item with the weight for that item in the database. If the weight differs, an error code is displayed and an attendant is summoned to assist the customer or to override the Self-Check-Out System. Once all items are scanned, a final tally is made. Payment is then made to the attendant either through a debit or credit card, check or cash. A payment may also be made without an attendant through the use of the "AFIM" which will verify the identity of the person making the transaction and automatically debit their account electronically.
The Self-Check-Out System interfaces with computers and data is transferred back and forth between the check-out terminals and the main computer. The interface may be compatible with various scanners and scales so the Self-Check-Out System may be adaptable to equipment already from other manufacturers. The Self-Check-Out System may allow a clerk to handle simultaneously multiple check-out stations or lanes.
Possible Advantages.
Management believes the Self-Check-Out System may have several possible advantages over conventional retail check-out systems to operators and customers. For operators the advantages are: reduced labor costs, more accurate inventory, theft reduction, theft deterrence, decreased check fraud, and decreased transaction costs. Also, the retailer can serve more customers during peak traffic. For customers the advantages are: faster service, greater convenience, less time waiting in line and more privacy. A retail establishment may not need as many cashiers with the Self-Check-Out System.
Management believes that the market for the Self-Check-Out System may include several types of retail establishments, including grocery stores, drug stores, discount stores and fast food restaurants. If operating properly the Self-Check-Out System may allow the proprietor to more efficiently match the number of attendants or cashiers to the customer needs. Customer traffic volume is difficult to predict and retail operators, wanting to reduce the time customers wait in line, require that sufficient clerks or cashiers are available.
The Self-Check-Out System uses proprietary software developed by the Company. The Self-Check-Out System also offers a hand-held unit to be used for price verification and taking physical inventory counts. The hand-held unit reads the bar codes and verifies the price in the database. This hand-held unit also is used to take physical counts for inventory control. The Self-Check-Out System may also include a check-in station at the loading dock. Items delivered are checked and the prices verified against purchase orders allowing greater control. Price verification can be done using the hand-held unit while the products are on the shelf.
For the Self-Check-Out System to operate efficiently at least 95% of the items offered for sale must have bar codes. In the past few years virtually all packaged goods have bar codes. Items purchased across the counter, such as bakery, meat and deli products usually have no bar code. Grocery stores or other retail operations using the Self-Check-Out System may have to install scales and labelers to place barcodes on items with no bar code. As an option the Company offers scales and labelers for produce and delicatessen items which interface with the Self-Check-Out System.
Management believes that the Self-Check-Out System may help reduce theft. For instance, one clerk cannot check-out another clerk's or friend's purchases using incorrect and understated prices. A portion of the theft in supermarkets is attributable to employees doing what is called "sweet- hearting" by checking-out the purchases of other employees or friends at reduced prices.
A possible market is automatic ordering and payment for use in restaurants and fast-food establishments. Restaurant customers would use a touch screen, connected to a computer, to place an order, pay for the order with cash, check, credit, or debit card using the Company's technologies including AFIM and then have the order automatically sent to the cook for preparation.
Competition
Competitors offer a similar Self-Check-Out System. The success of these other entities and the system used may, individually or collectively, significantly affect the Company's attempt to commercialize its Self-Check-Out System. The Company has no market studies to determine its relative position with its competitors in the market place. Some competitors have been in business longer, have more experienced personnel, have greater financial resources and better name recognition in the marketplace,
Automatic Fingerprint Identification Machine.
The company has an Automated Fingerprint Identification Machine ("AFIM") which verifies an individual's identity. The AFIM digitizes the unique characteristics of a person's fingerprint and then stores the information on a magnetic strip similar to the strip on the back of a credit card or on other storage medium. The identity verification process is simple, quick, easy, and reliable. AFIM connects to and operates with a personal computer. AFIM has unique software. Management believes that AFIM is better than other bio-metric and fingerprint based identification systems.
Operation.
To use the AFIM the person whose identity will be verified has the fingerprint read by the AFIM. The finger is placed on the lens and AFIM reads the print, digitizes, and stores the digitized fingerprint. To verify a person's identity AFIM reads the fingerprint and compares it to the digitized fingerprint on the magnetic strip or other storage medium. A match verifies the person's identity. The AFIM is connected to a personal computer which processes the information read by the AFIM and makes the comparison to the digitized fingerprint on the magnetic strip or other storage medium. The Company believes that it has the ability to connect AFIMs with series ???(parallel processing )[???] , so that multiple stations or readers can be connected and operated by a single computer.
Possible Commercial Applications.
Different commercial applications of the AFIM are under development:
1.
A time clock. The digitized fingerprint stored on the magnetic strip on the back of a card like a credit card must match the fingerprint that is recording his arrival at or departure from the workplace. Because the AFIM system validates the identity of the person individual using the time clock, fellow workers cannot make in or out entries for other workers.
2.
Access control. AFIM with appropriate software may be used with a database of fingerprints. The fingerprint is read by the AFIM and then verified against the database for identification and, where appropriate or required, for access control purposes. Searching the database requires additional time to verify the identity of the individual using the fingerprint stored in the database.
3.
Door or entry security. The AFIM would read a card on which the fingerprint of the person seeking entry would be encoded. The fingerprint of the person seeking entry as read by the AFIM would have to match the fingerprint digitized and encoded on the card. To be successful the Company believes that the door security adaptation must be compatible with or adaptable to other door entry security systems already in place.
4.
Vending machines. Cards can be integrated for machines stocked with products requiring age and/or identity verification.
5.
Identity verification on computer networks or identification when data is transmitted or accessed. The AFIM would read the fingerprint to validate the identity of the user. Depending on the system protocols the person would then be allowed access to data, files, information or programs. Also, the identity verification, if development is completed, may validate the identity of the person either receiving or sending information.
6.
Another application of the AFIM technology is fingerprint secured financial transactions. A card user designates which personal account he/she would like to use. Upon positive AFIM verification, the Company's software sends the transaction information via ACH protocols to the Company's bank and the Company's bank debits the customer's bank account. The funds are then deposited into the participating retailer's account.
To date the full marketing of the AFIM time clock has been delayed as development of the product is continuing and modifications to the AFIM are being made.
The Company has no comprehensive study or evaluation to determine the reliability of the AFIM or the frequency of false positives. A false positive is when verification is sought and the person is identified as correct when, in fact, it is not the person claimed. Management believes, based on limited experience, that AFIM does not yield false positives or false negatives at unsatisfactory levels.
For future development and possible commercialization of the AFIM technology, the Company may enter into licensing agreements or joint ventures. Presently the Company is merely considering the possibility of licensing agreements or joint venture agreements. At this time there are no agreements to which the Company is a party for licensing, royalties or joint venture projects.
Competition.
The AFIM based products compete with a broad spectrum of products which verify identity. Competitors offer products based on some form of bio-metrics. Some competitors offer fingerprint based systems. The success of these other entities and the system used may individually or collectively, significantly affect the Company's attempt to commercialize AFIM. The Company has no market studies to determine its relative position with its competitors in the market place. Some competitors have been in business longer, have more experienced personnel, have greater financial resources and better name recognition in the marketplace.
Possible Advantages.
The Company believes that the AFIM products may be quicker, more reliable, and more cost-effective than other identification systems. The Company has no empirical data or statistics to support its belief.
Digital Wave Modulation Technology.
Digital Wave Modulation ("DWM") technology may provide a new way of transmitting data. Basically different wave patterns are generated on the magnetic spectrum which may increase flows of data and information transmission and communication. More data will be transmitted in a shorter time period and speed may be increased.
DWM technology is based on the transmission of symmetrical, asymmetrical, and reference waves that are combined and separated. Depending upon frequencies and other factors, the Company believes it can achieve transmission rates in excess of other modems. Data transmission speed will depend on such factors as the transmission medium, frequencies used and wave combinations. The rate of data transmission varies significantly depending on the communication medium used. When using plain old telephone system commonly known as "POTS", transmission rates will be slower. DWM is not compatible with the technology used in other modems.
DWM may be used to transmit over any analog media including wireless. Because wave frequencies may be higher when sent through the air, wireless data transmission using DWM technology may transmit information at higher rates.
Preliminary evaluations indicate that DWM technology may be used for data storage media which are magnetic based, such as hard drives, disks and other storage media. Because various forms of magnetic media store in analog format, DWM may increase the storage capacity of some magnetic based devices. DWM storage enhancement applications have not been fully developed and tested and may ultimately prove infeasible and impractical.
DWM must be developed from a prototype to a commercially viable product. The Company makes no assurance that the DWM technology can be developed into a commercially viable product or products.
If the research and development of the modem is successful and the Company has a commercially viable product, the Company will consider various alternatives. It may seek a joint venture partner or it may license the technology to another company and attempt to structure a royalty payment to the Company in the licensing agreement. No plan has been adopted regarding the manufacture, marketing, or distribution of the technology, when and if commercialization is achieved. No assurance can be given that the commercialization efforts for the technology will be successful or that the Company will be able to effectively penetrate and capture a share of the market. Any possible ventures are predicated on the Company developing commercially viable products.
Management believes that because of the increased amount of information that can be transmitted, other applications in the telecommunications industry may be feasible and beneficial. Again because of the sophisticated and
technological demands
of this technology
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other applications may not ultimately be successful.
DEVELOPMENT STAGE COMPANY
The Company is a development stage company and its business is subject to considerable risks. The Company
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s activities have not developed sufficient cash flows from business operations to sustain itself. The Company is small and has an extremely limited capitalization. Many of its actual and potential competitors have greater financial strength, more experienced personnel and extensive resources available. Also, the Company is engaged in technological development. It is expensive to do the research and development required to investigate and commercialize new products or applications of the DWM technology. Resources can be used and depleted without achieving the desired or expected results. Also, because of the rapid development of technology, the Company's products may become obsolete. Some of the Company's technology is revolutionary in that it is based on unconventional technological theories. The Company's business activities are subject to a number of risks, some of which are beyond the Company's control. The Company's future is dependent upon the Company developing technologically complex and innovative products and the ability to gain a competitive advantage. Product development based on new technology is complex and uncertain. Any new technology must identify products that can be developed and successfully introduced into the market. The Company's results may be adversely affected by delays in the development or manufacture, production cost overruns or delays in the marketing process.
FORWARD-LOOKING STATEMENTS
To the extent that this report contains forward-looking statements actual results could vary because of difficulties in developing commercially viable products based on the Company's technologies. The Company undertakes no obligation to release publicly the revisions of any forward-looking statements or circumstances or to report the non-occurrence of any anticipated events.
Management of the Company has had limited experience in the operation of a public company and the management of a commercial enterprise.
The Company's business, if its technological development is successful, will require the Company to enter new fields of endeavor and even new industries. Entry into new markets will have many risks and require significant capital resources. If the Company seeks funds from other sources, such funds may not be available to the Company on acceptable terms. Success will be dependent on the judgment and skill of management and the success of the development of any new products.
The Company's success depends, and is expected to continue to depend, to a large extent, upon the efforts and abilities of its managerial employees (and in some cases entities controlled by the employees) who may have been involved in the historical development of patented technology and trade secrets, particularly Neldon Johnson, President of the Company. The loss of Mr. Johnson would have a substantial, material, adverse effect on the Company. The Company entered into an agreement with Neldon Johnson to act as President and Chief Executive Officer in July 2000 which has expired. No new agreement has been formalized.
The Company is not insured against all risks or potential losses which may arise from the Company's activities because insurance for such risks is unavailable or because insurance premiums, in the judgment of management, would be too high in relation to the risk. If the Company experiences an uninsured loss or suffers liabilities, the Company's operating funds would be reduced and may even be depleted causing financial difficulties for the Company.
Patents and Trade Secrets.
The Company has been assigned or will be assigned the rights to several U.S. patents. Four patents pertaining to the AFIM technology granted January 1997, February 2001, July 2001, and September 2002, seven patents relate to the DWM technology granted May 1996, June 1997, November 1997, July 2000, September 2000, October 2000, and May 2001, one patent pertaining to shelf tag granted September 2003, and four patents relating to the turbine granted March 2003, January 2004, February 2006 and November 2007. One patent pertaining to the solar energy technology was granted in October 2007.
The Company has not sought or received an opinion from an independent patent attorney regarding the strength of the patents or patents pending and the ability of the Company to withstand any challenge to the patent or any future efforts by the Company to enforce its rights under a patent or patents against others. In 2008 a court held that one of the AFIM patents was invalid.
The Company believes that it has trade secrets and it has made efforts to safeguard and secure its trade secrets. There can be no assurance that these safeguards will enable the Company to prevent competitors from gaining knowledge of these trade secrets and/or using them to their advantage and to the detriment of the Company.
The Company relies heavily on its proprietary technology in the development of its products. There can be no assurance that others may not develop technology which competes with the Company's products and technology.
Future Funding
Because the Company is in the development stage, it will continue to need additional operating capital either from borrowing or from the sale of additional equities. The Company has no present plans to borrow money or issue additional shares for money. In the past, the Company has received funds from its president and his relatives in the form of cash advances. The Company repaid cash advances of $14,470, received cash advances of $16,472 from its officers during the years ended June 30, 2016 and 2015. The advances are non-interest bearing, payable upon demand and included in the related party payables. The balance of the related party advances at June 30, 2016 and 2015 were $149,198 and $147,196 respectively.
General
From its inception the Company's primary activity has been the development of different technologies. Since its formation, the Company has worked to develop a variety of technologies which currently are in different stages of development. To date the Company has not marketed any commercially acceptable products.
Employees
Employees will be hired as needed. Our employees are not represented by any labor union, and we believe our relations with employees are good.
Company Headquarters
The Company's address is located at 55 N Merchant St 608 American Fork, Utah 84003.
Marketing
Currently the Company has not finalized its marketing strategy for any products.
Strategies currently being considered include non-exclusive licensing of the solar lenses to companies promoting solar energy.
Development of the AFIM and DWM technologies has not been completed and no definitive marketing plan has been determined.
The Company may seek joint venture partners, may license the products to others or may seek to establish distribution channels. It is anticipated that any marketing efforts will require time and capital to develop.
Competition
Because the Company's products are distinct, its products will face different competitive forces.
The Bladeless Turbine and Alternative Solar Power System have competition from larger well-established companies that already have a history and name recognition. Though the turbine has many potential uses, especially in the area of electrical generation, there is no assurance that marketing strategies will be developed.
AFIM competes with all forms and systems of identity verification. End users have different needs including cost, sophistication, degree of security, operational requirements, time for individual verification and convenience. The Company believes that no firm dominates the identity verification market.
If the Company successfully completes the development of a commercially viable communication device, the Company will face competition from large, well-established firms. These firms offer products with immediate name recognition and are established in the market place and are compatible with other communication devices. The Company is hopeful that because of the speed at which its communication device may operate, it may have a competitive advantage. The Company has no marketing studies or market research reports to determine the commercial acceptance of the communication device in the market place or the best marketing strategy to follow. Further, no assurance can be given that the Company will be successful in its further development of the DWM products.
The Company has no market share for any products.
In marketing the Company faces competition from major companies with established systems in the point of sale terminal market. Overcoming reluctance to change may be difficult. In addition, the Self-Check-Out System may not be compatible with or applicable to all retail operations.
The Company may rely on prospects known to management or developed by word of mouth. The Company may develop a franchise program as a means to market and distribute the Self-Check-Out.
Manufacturing and Raw Materials
The development of the turbine and Self-Check-Out System has been done mostly by the Company, but if needed, the design could be outsourced. If marketing efforts succeed and demand for the turbine and the Self-Check-Out System increase, the Company plans to have them manufactured by established companies in their fields, with much of the assembling done on site.
Management believes that the supplies and parts are readily available from sources presently used by the Company or from alternative sources which can be used as needed.
Research and Development
The Company's primary activity is the development of its technologies. The industries may be subject to rapid and significant technological change. Future growth of the Company may be dependent on its ability to innovate and adapt its technologies to the changing needs of the marketplace. In the past the Company's activities have primarily consisted of its efforts in research and development. During fiscal years ended June 30, 2016 and 2015, research and development expenses were $5,435 and $181,792, respectively. Although no precise dollar amount has been determined, the Company will continue to allocate resources to product development. The Company expenses development costs as they occur. The Company may work with prospective customers to determine design, possible enhancements and modifications.
Immediate Plans
The Company intends to continue the research and development of its technologies, primarily focusing on its Bladeless Turbine and the Solar Lens over the next several months. The Company intends to have its Alternate Solar Energy Thermal System, which utilizes the Bladeless Turbine, fully operational in several months. The Company plans to market the technology to companies currently with specialization, operations and marketing efforts in the alternative energy sector.
Acquisition of Technology
In May 2004, the Company entered into an agreement with its president, in which the Company acquired, from the president, patents, patents pending, designs and contracts related to the bladeless turbine, solar and chemical-thermal technologies as well as electronic shelf tag technology developed by the president. As consideration for these patents, patents pending, designs and contracts, the Company issued warrants to purchase 100,000,000 shares of common stock at $0.40 per share and agreed to pay the president a 10% royalty of total gross sales of products related to the patents. As of June 30, 2016, there were 92,300,000 warrants still outstanding, exercisable through December, 2034 and no royalty has been paid or accrued.
Government Regulation
The Company's activities may be subject to government regulation. Depending on the nature of its activities, in data transmission and power production, the Company may need approval or authorization from Federal, State or Local authorities.
ITEM 1A. RISK FACTORS
You should carefully consider the risks, uncertainties and other factors described below, in addition to the other information set forth in this Annual Report on Form 10-K, because they could materially and adversely affect our business, operating results, financial condition, cash flows and prospects, as well as adversely affect the value of an investment in our Common Stock. Also, you should be aware that the risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties that we do not yet know of, or that we currently think are immaterial, may also impair our business operations. You should also refer to the other information contained in and incorporated by reference into this Annual Report on Form 10-K, including our financial statements and the related notes. The Company's business operations are highly speculative and involve substantial risks. Only investors who can bear the risk of losing their entire investment should consider buying our shares. Some of the risk factors that you should consider are the following:
The Company is in the Development Stage
The Company is at the development stage, and is currently focused upon demonstration of the capabilities of the technology being developed and exploring non-exclusive royalty arrangements with companies (some of which are related) operating in the alternative power industry. The Company has limited assets and has had limited operations since inception. The Company can provide no assurance that its current and proposed business will produce any material revenues or that it will ever operate on a profitable basis.
We Have a History of Significant Losses, and We May Never Achieve or Sustain Profitability
Since inception, we have incurred operating losses each year of our operations and we expect to continue to incur operating losses for the next several years. We may never become profitable. The process of developing our products requires significant investment in research. In addition, commercialization of our products will require the establishment of sales, marketing and manufacturing capabilities, either through internal hiring or through contractual relationships with others. We expect our research and development and general and administrative expenses will increase over the next several years and, as a result, our losses may increase. Our net loss was $(121,404) for the fiscal year ended June 30, 2016, and our net loss for the fiscal year ended June 30, 2015 was $(71,022). Our operating losses may lower the value of our common stock and deplete our resources which may jeopardize our ability to continue our operations.
The Company May Experience Fluctuations in Operating Results
The Company's operating results are likely to fluctuate in the future as a result of a variety of factors. Some of these factors may include economic conditions:
a.
the amount and timing of the receipts from sales or royalties of the Company's current developments, such as the solar lens;
b.
the success of the Company's development projects;
c.
the success of the Company's marketing strategy;
d.
the success in raising the necessary capital required for the expenditures and other costs relating to the development of the Company
’
s products; and
e.
the cost of advertising and related media.
Due to all of the foregoing factors, the Company's operating results in any given quarter, or for several quarters, may be negative. In such an event, any future trading price of the Company's common stock will likely be materially and adversely affected.
The Company
’
s Business Model May Change or Evolve
The Company and its prospects must be considered in light of the risks (as identified in the Risk Factors section of this filing), expenses and difficulties frequently encountered by companies operating in the research and development stage. Such risks for the Company include, but are not limited to, an evolving business model. To address these risks the Company must, among other things, develop strong business development and management activities, develop the strength and quality of its operations, develop and produce high quality products that can be marketed and distributed either by the Company or by independent third party contractors. There can be no assurance that the Company will be successful in meeting these challenges and addressing such risks, and the failure to do so could have a material adverse effect on the Company's business, financial condition and result of operations.
The Company May Need Future Capital and May Not be Able to Obtain Additional Financing
The Company may need future capital and may not be able to obtain additional financing. If additional funds are needed, funds may be raised as either debt or equity. There can be no assurance that such additional funding will be available on terms acceptable to the Company, or at all. The Company may be required to raise additional funds through public or private financing, strategic relationships or other arrangements. There can be no assurance that such additional funding, if needed, will be available on terms acceptable to the Company, or at all. If adequate funds are not available on acceptable terms, the Company may be unable to develop or enhance its services and products, take advantage of future opportunities or respond to competitive pressures, any of which could have a material adverse effect on its business, financial condition, results of operations and prospects.
Future Capital Raised Through Equity Financing May be Dilutive to Stockholders
Additional equity financing may be dilutive to stockholders. If additional funds are raised through the issuance of equity securities, the percentage ownership of the stockholders of the Company will be reduced, stockholders may experience additional dilution in net book value per share and such equity securities may have rights, preferences or privileges senior to those of the holders of the Company's common stock.
Future Debt Financing May Involve Restrictive Covenants that May Limit the Company
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s Operating Flexibility
Furthermore, a debt financing transaction, if available, may involve restrictive covenants, which may limit the Company's operating flexibility with respect to certain business matters. If additional funds are raised through debt financing, the debt holders may require the Company to make certain agreements, covenants, which could limit or prohibit the Company from taking specific actions, such as establishing a limit on further debt, a limit on dividends, limit on sale of assets, or specific collateral requirements. If the Company raises funds through debt financing, the Company would also become subject to increased interest and principal payment obligations. In either case, if the Company was unable to fulfill either the covenants or the financial obligations, the Company may risk defaulting on the loan, whereby ownership of the firm's assets could be transferred from the Company or the shareholders to the debt holders.
Executive Management has Limited Management Experience of an Operating Company
The Company's officers have limited experience in managing an operating company. If the Company develops a marketable product, this lack of experience may make it more difficult to establish the contacts and relationships and implement operating procedures necessary to successfully operate the Company.
The Company
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s Success is Dependent on Management
The Company's success is dependent, in large part, on the active participation of its Executive Officers. The loss of their services would materially and adversely affect the Company's development activities and future business success.
The Company
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s Success is Dependent on our Patents, Trade Secrets and Proprietary Rights
The Company
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s future success depends in part on our ability to protect our intellectual property and maintain the proprietary nature of our technologies through a combination of patents and other intellectual property arrangements. The protection provided by our patents and patent applications, if issued, may not be broad enough to prevent competitors from introducing similar products. In addition, our patents, if challenged, may not be upheld by the courts of any jurisdiction. Patent infringement litigation, either to enforce our patents or to defend our patents from infringement suits, would be expensive and, if it occurs, could divert our resources from other uses. Any adverse outcome in such litigation could have a material adverse effect on our ability to market, sell or license the related products. Patent applications filed in foreign countries and patents in such countries are subject to laws and procedures that differ from those in the U.S. Patent protection in such countries may be different from patent protection under U.S. laws and may not be as favorable to us. We also attempt to protect our proprietary information through the use of confidentiality agreements and by limiting access to our facilities. There can be no assurance that our program of patents, confidentiality agreements and restricted access to our facilities and trade secrets will be sufficient to protect our proprietary technology.
Executive Officers Maintain Significant Control Over the Company and its Assets
Our executive officers maintain control over the Company's board of directors and also control the Company's business operations and policies. In addition, Neldon Johnson, the Company's President, and two of his sons, Randale Johnson and LaGrand Johnson, control approximately 85% of the voting rights of the Company. As a result, these three individuals will be able to exercise significant influence over all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions.
The Company is Unlikely to Pay Dividends in the Foreseeable Future
It is unlikely that the Company will pay dividends on its common stock in the foreseeable future, resulting in an investor's only return on an investment in the Company's common stock being the appreciation of the per share price. The Company makes no assurances that the Company's common stock will ever appreciate.
Risks of
“
Penny Stock
”
Our common stock may be deemed to be "penny stock" as that term is defined in Rule 3a51-1 of the SEC. Penny stocks are stocks (i) with a price of less than five dollars per share; (ii) that are not traded on a "recognized" national exchange; (iii) whose prices are not quoted on the NASDAQ automated quotation system (NASDAQ- listed stocks must still meet requirement (i) above); or (iv) in issuers with net tangible assets less than $2,000,000 (if the issuer has been in continuous operation for at least three years); or $5,000,000 (if in continuous operation for less than three years); or with average revenues of less than $6,000,000 for the last three years.
Section 15(g) of the Exchange Act and Rule 15g-2 of the SEC require broker dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the document before effecting any transaction in a penny stock for the investor's account. Potential investors in our common stock are urged to obtain and read such disclosure carefully before purchasing any shares that are deemed to be a "penny stock."
Moreover, Rule 15g-9 of the SEC requires broker dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any "penny stock" to that investor. This procedure requires the broker-dealer to (i) obtain from the investor information concerning his, her or its financial situation, investment experience and investment objectives; (ii) reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor, and that the investor has sufficient knowledge and experience as to be reasonably capable of evaluating the risks of penny stock transactions; (iii) provide the investor with a written statement setting forth the basis on which the broker-dealer made the determination in (ii) above; and (iv) receive a signed and dated copy of such statement from the investor, confirming that it accurately reflects the investor's financial situation, investment experience and investment objectives. Compliance with these requirements may make it more difficult for investors in our common stock to resell their shares to third parties or to otherwise dispose of them.
No Assurance of a Liquid Public Market for our Common Stock.
There can be no assurance as to the depth or liquidity of any market for our common stock or the prices at which holders may be able to sell their shares. As a result, an investment in our common stock may not be totally liquid, and investors may not be able to liquidate their investment readily or at all when they need or desire to sell.