ias10ksb063007.htm

U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-KSB

[ X ]

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

For the fiscal year ended June 30, 2007.

[ ]

TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from_________________ to __________________

Commission file number 33-16531-D

INTERNATIONAL AUTOMATED SYSTEMS, INC.

(Name of small business issuer in its charter)

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

326 North SR 198, Salem, Utah 84653

(Address of principal executive offices)

Registrant's telephone number, including area code: (801) 423-8132

Securities registered pursuant to Section 12(b) of the Act: None

Title of each class		Name of each exchange on which registered
N/A		N/A

Securities to be registered under section 12(g) of the Act: None

Check whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report(s)), and (2) has been subject to such filing requirements for the past 90 days.

X Yes ___ No

Check if disclosure of delinquent filers in response to Item 405 of Regulations S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ X ]

State the registrant's net revenue (loss) for its most recent fiscal year: $(8,493,400).

The aggregate market value of voting stock held by non-affiliates of the registrant on September 30, 2007, was approximately $25,450,000

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date:

As of September 30, 2007, there were outstanding 28,344,622 shares of registrant's Common stock, no par value per share.

Documents incorporated by reference: Exhibits

TABLE OF CONTENTS


PART I

ITEM 1	Description of Business	1

ITEM 2	Description of Properties	1

ITEM 3	Legal Proceedings	13

ITEM 4	Submission of Matters to a Vote of Security Holders	14

PART II

ITEM 5	Market for Common Equity and Related Stockholder Matters	15

ITEM 6	Management's Discussion and Analysis or Plan of Operation	16

ITEM 7	Financial Statements	19

ITEM 8	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	19

ITEM 8A	Controls and Procedures	20

ITEM 8B	Other information	21

PART III

ITEM 9	Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of the Exchange Act	21

ITEM 10	Executive Compensation	23

ITEM 11	Security Ownership of Certain Beneficial Owners and Management	23

ITEM 12	Certain Relationships and Related Transactions	25

ITEM 13	Exhibits and Reports on Form 8-K	25

ITEM 14	Principal Accountant Fees and Services	26

SIGNATURES		27

PART I

ITEM 1. DESCRIPTION OF BUSINESS

		THE COMPANY

Exact corporate name:		International Automated Systems, Inc.
State and date of incorporation:		Utah- September 26, 1986.
Street address of principal office:		326 North SR 198
		Salem, Utah 84653
Company telephone number:		(801) 423-8132
Fiscal year:		June 30

The Company, was organized under the laws of the State of Utah on September 26, 1986. In April 1988 the Company filed a registration statement for a public offering under the provisions of the Securities Act of 1933 ("1933 Act") to sell a maximum of 1,074,000 units at a price of $.50 per unit. Each unit was comprised of one share of common stock and one common stock purchase warrant. The Company sold approximately 200,000 units at the offering price of $.50 per unit realizing total proceeds of approximately $100,000. All warrants expired without exercise.

Over time the Company for the most part acquired its different technologies from its president.

ITEM 2. DESCRIPTION OF PROPERTIES

A. OVERVIEW

International Automated Systems, Inc., a Utah corporation (hereinafter "Registrant" or "Company") based in Salem, Utah, seeks to design, produce and market products based on high technology. The Company has developed and is currently offering an automated self-service check-out system and management software. This system allows retail customers to ring up their purchases without a cashier or clerk. The system is primarily designed for grocery stores, but may be applicable in other retail establishments.

The Company has an Automated Fingerprint Identification Machine("AFIM") which has the capability of verifying the identity of individuals. Potential AFIM applications include products for employee time-keeping and security, access control, and check, debit or credit card verification. Registrant purports that its identity verification system has a variety of uses and applications for both commercial and governmental users. The Company also purports that it has developed technology that transmits information and data using different wave patterns, configurations, and timing in the electromagnetic spectrum. The Company refers to this technology as digital wave modulation ("DWM"). The Company believes that if the technology is implemented and applied commercially, the technology has the capability to increase significantly the amount of information which can be transmitted. The Company is continuing the development of this technology and the commercial feasibility of the technology has not been demonstrated. Registrant believes that it has many competitors in the communications, information data transfer, and data storage industries which have greater capital resources, more experienced personnel, and technology which is more established and accepted in the market place.

The first anticipated product using this technology for commercialization is a high speed modem. The modem is projected to be faster than modems currently in use. Generally modems are used for purposes of transmitting data over telephone lines, on telecommunications systems, and over wireless mediums such as satellite transmissions and other line- of-sight transmission mediums. The Company has a modem prototype. Additional development to achieve a commercial product is on going. In addition, the Company intends to apply the digital wave modulation technology in other areas. The Company has not established a plan or order of priorities for any future commercial product development. Because this technology is sophisticated and new, the Company may not be successful in its efforts to have commercial exploitable products because of difficulties and problems associated with development. Possible problems could be inability to design, construct and manufacture commercial products; and the Company's lack of funding and financial resources and experienced personnel. Competitors may develop technologies which are superior and will make obsolete the DWM technology even before the Company has completed its development of any commercial products. Further, cost will 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 introduce the product into the market and to formulate and place into action any marketing plan. Costs to offer new products and to establish the proper marketing strategy will be significant. The Company has not made any projections regarding any anticipated costs. There are risks that no commercially viable products will be developed from the technology and any products developed may not be accepted or successful in the marketplace. Further, the Company may not have sufficient funds to develop, manufacture, and market any products.

The Company has a production model of a patented turbine which uses the expansion of steam to generate a rotational force. This force can then be used to generate power. The Company feels the turbine could be used in, but not limited to, the production of electricity, hydrogen, or in the transportation industry. Though some testing has been done using pure steam and geothermal steam, more testing will be done. There are risks that a commercial turbine may never be accepted.

The Company has a prototype solar thermal system and has begun the production model which can be used in conjunction with the Company’s bladeless turbine to generate power.

Automated Self-Service Check-Out System.

In 1988 a patent was granted for the automated self-service check-out system (hereinafter referred to as "Self-Check System" or "System"). In retail operations customers using the System check-out the items selected for purchase.

Description of the Self-Check System.

The Self-Check System is an automated check-out system for customers of retail establishments and provides for self-service check-out lines, stations or lanes. The System has a scanner to read the bar codes of items purchased and a scale to weigh the items scanned and placed in the receiving basket. As each item is scanned by the bar code reader, the scale verifies the accuracy of the item scanned and placed in the basket by comparing the weight of the item scanned with the weight change recorded in the receiving basket. If the weights differ or if other problems arise, a clerk is summoned to assist the customer and resolve any problem.

The Self-Check System is designed to replace clerk operated cashier registers that are used in retail and grocery stores. In addition, the Self-Check System, when fully and completely implemented, is intended to allow a store manager to maintain accurate inventory on a contemporaneous basis. The contemporaneous inventory assists in reordering and restocking. It is believed that the System may simplify price verification and may provide customers with better and faster service.

Operation of System.

The Self-Check System operates as follows. Customers make their selections for purchase. A customer places the grocery cart at the head of the System, removes the products from the grocery basket and scans the bar codes on the products across the reader. The bar code provides, as a data base index, the product description, weight and price. This information is then relayed on an item by item basis to the computer and the computer transmits the data in its memory to the check-out terminal. The product information, item description and price, are then displayed on the screen. A running subtotal for all items purchased is also shown. Each item scanned is placed into a receiving basket or cart on a sensitive scale. The weight of the item scanned and placed in the receiving basket is compared to the weight for that item as recorded in the computer. The computer compares the weight of the scanned item with the weight for that item in the database. If the weight differs, an error code is displayed and an attendant is summoned to assist the customer or to override the System. Once all the items are scanned, a final tally is made. Payment is then made to the attendant either through a debit or credit card, check or cash. A payment may also be made without an attendant through the use of the "AFIM" which will verify the identity of the person making the transaction and automatically debit their account electronically.

The Self-Check System interfaces with computers and data is transferred back and forth between the check-out terminals and the main computer. The interface may be compatible with various scanners and scales so the Self-Check System may be adaptable to equipment already from other manufacturers. The System allows one clerk to handle simultaneously multiple check-out stations or lanes.

Possible Advantages.

Management believes the Self-Check System may have several possible advantages over conventional retail check-out systems to operators and customers. For operators the advantages are: reduced labor costs, more accurate inventory, theft reduction, theft deterrence, decreased check fraud, and decreased transaction costs. Also, the retailer can serve more customers during peak traffic. For customers the advantages are: faster service, greater convenience, less time waiting in line and more privacy. A retail establishment may not need as many cashiers with the Self-Check System.

Management believes that the market for the Self-Check System may include several types of retail establishments, including grocery stores, drug stores, discount stores, and fast food restaurants. If operating properly the Self-Check system lessens the impact of having too many attendants or cashiers available. Customer traffic volume is difficult to predict and retail operators wanting to reduce the time customers wait in line must have sufficient clerks or cashiers available.

The Self-Check System uses proprietary software developed by the Company. The System also offers a hand-held unit to be used for price verification and taking physical inventory counts. The hand-held unit reads the bar codes and verifies the price in the database. This hand-held unit also is used to take physical counts for inventory control. The System may also include a check-in station at the loading dock. Items delivered are checked and the prices verified against purchase orders allowing greater control. Price verification can be done using the hand-held unit while the products are on the shelf.

For the Self-Check System to operate efficiently at least 95% of the items offered for sale must have bar codes. In the past few years virtually all packaged goods have bar codes. Items purchased across the counter, such as bakery, meat and deli products usually have no bar code. Grocery stores or other retail operations using the System may have to install scales and labelers to place barcodes on items with no bar code. As an option the Company offers scales and labelers for produce and delicatessen items which interface with the Self-Check System. Management believes that the Self-Check System may help reduce theft. For instance, one clerk cannot check-out another clerk's or friend's purchases using incorrect and understated prices. A portion of the theft in supermarkets is attributable to employees doing what is called "sweet- hearting" by checking-out the purchases of other employees or friends at reduced prices.

Another market being tested is automatic ordering and payment for use in restaurants and fast-food establishments. Where the customer would use a touch screen, connected to a computer, to place an order, pay for the order with cash, check, credit, or debit card using Company's technologies including AFIM and then have the order automatically sent to the cook for preparation.

Automatic Fingerprint Identification Machine.

The company has an Automated Fingerprint Identification Machine ("AFIM") which verifies an individual's identity. The AFIM digitizes the unique characteristics of a person's fingerprint and then stores the information on a magnetic strip similar to the strip on the back of a credit card or on other storage medium. The identity verification process is simple, quick, easy, and reliable. AFIM connects to and operates with a personal computer. AFIM has unique software. Management believes that AFIM is better than other bio-metric and fingerprint based identification systems. The Company is continuing to make modifications to the AFIM technology to increase the speed and to reduce the cost and size of the units.

Operation.

To use the AFIM the person whose identity will be verified has the fingerprint read by the AFIM. The finger is placed on the lens and AFIM reads the print, digitizes, and stores the digitized fingerprint. To verify a person's identity AFIM reads the fingerprint and compares it to the digitized fingerprint on the magnetic strip or other storage medium. A match verifies the person's identity. The AFIM is connected to a personal computer which processes the information read by the AFIM and makes the comparison to the digitized fingerprint on the magnetic strip or other storage medium. The Company believes that it has the ability to connect AFIMs in series so that multiple stations or readers can be connected and operated by a single personal computer.

Possible Commercial Applications.

Different commercial applications of the AFIM are under development. One application is a time clock. The digitized fingerprint stored on the magnetic strip on the back of a card like a credit card must match the person's fingerprint that is recording his arrival at or departure from the workplace. Because the AFIM system validates the identity of the person using the time clock, fellow workers can not make in or out entries for other workers.

Also, AFIM with appropriate software may be used with a database of fingerprints. The fingerprint is read by the AFIM and then verified against the database for identification and, where appropriate or required, for access control purposes. Searching the database requires additional time to verify the identity of the individual using the fingerprint stored in the database. To date the full marketing of the AFIM time clock has been delayed as development of the product is continuing and modifications to the AFIM are made.

The Company has no comprehensive study or evaluation to determine the reliability of the AFIM or the frequency of false positives. A false positive is where a verification is sought and the person is identified as correct when it is not the person claimed. Management believes, based on the limited experience available, that AFIM does not yield false positives or false negatives at unsatisfactory levels.

Another application of the AFIM technology is door or entry security. The AFIM would read a card on which the fingerprint of the person seeking entry would be encoded. The fingerprint of the person seeking entry as read by the AFIM would have to match the fingerprint digitized and encoded on the card. To be successful the Company believes that the door security adaptation must be compatible with or adaptable to other door entry security systems already in place.

Another application of the AFIM technology is a vending machine which will allow items to be purchased which now require age and identity verification.

Another product based on AFIM technology is identity verification on computer networks or identification when data is transmitted or accessed. The AFIM would read the fingerprint to validate the identity of the user. Depending on the system protocols the person would then be allowed access to data, files, information or programs. Also, the identity verification, if development is completed, may validate the identity of the person either receiving or sending information.

Another application of the AFIM technology is fingerprint secured financial transactions. A card user designates which personal account he/she would like to use. Upon positive AFIM verification, the Company's software sends the transaction information via ACH protocols to the Company's bank and the Company's bank debits the customer's bank account. The funds are then deposited into the participating retailer's account.

For future development and possible commercialization of the AFIM technology and the possible application the Company may attempt to enter into licensing agreements or joint ventures. Presently the Company is merely considering the possibility of licensing agreements or joint venture agreement. At this time there are no agreements to which the Company is a party for licensing, royalties, or joint venture projects.

Competition.

The AFIM based products compete with a broad spectrum of products which verify identity. Competitors offer products based on some form of bio-metrics. Some competitors offer fingerprint based systems. The success of these other entities and the system used may, individually or collectively, significantly affect the Company's attempt to commercialize AFIM. The Company has no market studies to determine its relative position with its competitors in the market place. Some competitors have been in business longer, have more experienced personnel, have greater financial resources, and better name recognition in the marketplace.

Possible Advantages.

The Company believes that the AFIM products will be quicker, more reliable, and more cost-effective than other identification systems. The Company has no empirical data or statistics to support its belief.

Digital Wave Modulation Technology.

Digital Wave Modulation ("DWM") technology may provide a new way of transmitting data. Basically different wave patterns are generated on the magnetic spectrum which may increase flows of data and information transmission and communication. More data will be transmitted in a shorter time period and speed may be increased.

DWM technology is based on the transmission of symmetrical, asymmetrical, and reference waves that are combined and separated. The Company has a modem prototype that has the capability of sending and separating combined multiple waves. Depending upon frequencies and other factors the Company believes it can achieve transmission rates in excess of modems currently in use. Data transmission speed will depend on such factors as the transmission medium, frequencies used, and wave combinations. The rate of data transmission varies significantly depending on the communications medium used. When using plain old telephone system commonly known as "POTS" transmission rates will be slower. DWM is not compatible with the technology used in other modems.

DWM can be used to transmit over any analog media including wireless. Because wave frequencies may be higher when sent through the air, wireless data transmission using DWM technology may transmit information at higher rates.

Preliminary evaluations indicate that DWM technology may be used for data storage media which are magnetic based, such as floppy disks, hard drives, video cassettes, tapes etc. Because various forms of magnetic media store in analog format, DWM may increase the storage capacity of some magnetic based devices. DWM storage enhancement applications have not been fully developed and tested and may ultimately prove infeasible and impractical.

DWM must be developed from a prototype to a commercially viable product. Even though the Company has a prototype, the Company makes no assurance that the DWM technology can be developed into a commercially viable product or products.

If the research and development of the modem is successful and the Company then has a commercially viable product, the Company will consider various alternatives. It may seek a joint venture partner or it may license the technology to another company and attempt to structure a royalty payment to the Company in the licensing agreement. No plan has been adopted regarding the manufacturing, marketing, or distributing of the modem, when and if commercialization is achieved. No assurance can be given that the commercialization efforts for the modem will be successful or that the Company will be able to effectively penetrate and capture a share of the modem market. Any possible ventures are predicated on the Company developing a commercially viable product. Presently, the Company's efforts regarding DWM are directed primarily toward the DWM modem.

Management believes that because of the increased amount of information that can be transmitted, other applications in the telecommunications industry may be feasible and beneficial. Again because of the sophisticated and high technology nature of this technology other applications may not ultimately be successful.

Propulsion Steam Turbine

The Company has a new patented bladeless turbine production model. It uses the expansion of steam, through propulsion, to create a rotational force.

The production model has been tested using pure steam created by a gas heat exchanger. The Company feels their propulsion design has many advantages over current bladed turbines. The Company believes their turbine is at least as efficient as traditional turbines, is smaller in size, requires less maintenance, is mass producible and therefore less expensive to manufacture. It also doesn't require cooling towers, thus making it more mobile, more economical and water conserving.

The Company believes that the turbine will be marketable in the utility power industry, hydrogen production, and transportation. There are also risks that the Company will not be able to manufacture a commercially marketable turbine because of lack of financing, government interference, industry non-acceptance, or many other conditions not under the Company's control.

The Company has a production model of a solar thermal system which can be used to produce steam to drive the Company’s bladeless turbine. The Company believes that the possible advantage over other similar systems is its ability to be mass produced thus reducing its overall cost as compared to other systems. The Company has developed proprietary structural and lens designs in preparation for mass production of the solar thermal system.

The Company is a development stage company and its business is subject to considerable risks. The Company activities have not developed sufficient cash flows from business operations to sustain itself. The Company is small and has an extremely limited capitalization. Many of its actual and potential competitors have greater financial strength, more experienced personnel, and extensive resources available. Also, the Company is engaged in technological development. It is expensive to do research and development on new products or applications of new or existing technology. Resources can be used and depleted without achieving the desired or expected results. Also, because of the rapid development of technology the Company's products may become obsolete. Some of the Company's technology is revolutionary in that it is based on unconventional technological theories. The Company's business activities are subject to a number of risks, some of which are beyond the Company's control. The Company's future is dependent upon the Company developing technologically complex and innovative products. The Company's future depends on its ability to gain a competitive advantage. Product development based on new technology is complex and uncertain. New technology must be applied to products that can be developed and then successfully introduced into and accepted in the market. The Company's results could be adversely affected by delay in the development or manufacture, production cost overruns, and delays in the marketing process.

To the extent that this report contains forward-looking statements actual results could vary because of difficulties in developing commercially viable products based on the Company's technologies. The Company undertakes no obligation to release publicly the revisions of any forward-looking statements or circumstances or to report the non-occurrence of any anticipated events.

Management of the Company has had limited experience in the operation of a public company and the management of a commercial enterprise large in scope.

The Company's business, if its technological development is successful, will require the Company to enter new fields of endeavor and even new industries. Entry into new markets will have many risks and require significant capital resources. If the Company seeks funds from other sources, such funds may not be available to the Company on acceptable terms. Success will be dependent on the judgment and skill of management and the success of the development of any new products.

The Company's success depends, and is expected to continue to depend, to a large extent, upon the efforts and abilities of its managerial employees, particularly Neldon Johnson, President of the Company. The loss of Mr. Johnson would have a substantial, material adverse effect on the Company. The Company has entered into an agreement with Neldon Johnson to act as President and Chief Executive Officer for a period of ten years as of 2001.

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 sixteen U.S. patents. One patent granted in November 1988 deals with the Self-Check System. The patent pertains to an apparatus attached to a computer which has in its database the weights and prices of all items for sale. Four patents pertaining to the AFIM technology granted January 1997, February 2001, July 2001, and September 2002, seven patents relate to the DWM technology granted May 1996, June 1997, November 1997, July 2000, September 2000, October 2000, and May 2001, one patent pertaining to shelf tag granted September 2003, and three patents relating to the turbine granted March 2003, January 2004, and February 2006.

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.

The Company believes that it has trade secrets and it has made efforts to safeguard and secure its trade secrets. There can be no assurance that these safeguards will enable the Company to prevent competitors from gaining knowledge of these trade secrets and using them to their advantage and to the detriment of the Company.

The Company relies heavily on its proprietary technology in the development of its products. There can be no assurance that others may not develop technology which competes with the Company's products and technology.

Future Funding

Because the Company is a development stage company it will continue to need additional operating capital either from borrowing or the sale of additional equities. The Company has no present plans to borrow money or issue additional shares for money. In the past the Company has received funds from Neldon Johnson and his relatives in the form of related party loans. The Company was loaned $643,816 by Neldon during the year ended June 30, 2007. The loan is unsecured, payable on demand, and non-interest bearing. No assurance can be given that these loans will occur in the future. No agreements or understandings exist regarding any future contributions. Also during the year ended June 30, 2007, the Company settled $690,000 of the debt by issuing 1,725,000 share of common stock to the officer; and the Company received 1,125,000 shares of treasury stock from the officer in exchange for $643,750 in debt. As of June 30, 2007 and 2006, the loan balance was $942,733 and $389,298, respectively.

General

Registrant's principal executive offices are located at 326 North SR 198, Salem, Utah 84653 and its telephone number is (801) 423-8132.

From its inception the Company's primary activity has been the Development of different technologies. Since its formation the Company has developed technologies which are in different stages of development. To date the Company has not marketed a commercially acceptable product.

Employees

The Company has ten (10) full-time employees.

Warranty

The Company's products do not currently have any warranty provisions but it is anticipated that the Company's warranties will be similar to warranties for competitive products in the market or industry. Typically warranties for electronics products are limited.

Marketing

The Company has not finalized its marketing strategy for all its products at this time.

For the marketing of the Self-Check System the Company has developed a product named OrderXCEL which had been installed in a restaurant in Orem, Utah and since closed. Though the Company has received deposits from unrelated parties for the OrderXCEL technology Market potential may depend on the success of these being installed and customer satisfaction.

The Company has also received deposits of $713,250 from unrelated parties toward the purchase or lease and installation of solar thermal lens systems.

For the DWM technology the Company has not determined any definite marketing plan.

The Company may seek joint venture partners, may license the product to others, or may seek to establish distribution channels. It is anticipated that any marketing efforts will require time and capital to develop.

Competition

Because the Company's products are distinct, its products will face different competitive forces. AFIM competes with all forms and systems of identity verification. End users have different needs including cost, sophistication, degree of security, operational requirements, time for individual verification and convenience. The Company believes that no firm dominates the identity verification market.

If the Company successfully completes the development of a commercially viable modem, the Company will face competition from large, well-established firms. These firms offer products with immediate name recognition and are established in the market place and are compatible with other modems. The Company believes because of the speed at which its modem may operate it may have a competitive advantage. The Company has no marketing studies or market research reports to determine the acceptance of the modem in the market place or the best marketing strategy to follow. Further, no assurance can be given that the Company will be successful in its further development of the DWM products.

The Company has no market share for any products at this time.

In marketing the Self-Check System the Company faces competition from major companies with established systems in the point of sale terminal market some of which are also developing and testing self checkout systems. Overcoming reluctance to change may be difficult. In addition, the System may not be compatible with or applicable to all types of retail operations.

The Company may rely on prospects known to management or developed by word of mouth. The Company may develop a franchise program as a means to market and distribute the Self-Check System or OrderXCEL system.

The Bladeless turbine and solar thermal energy system has competition from larger well-established companies that already have a history and name recognition. Though the turbine has many potential uses, especially in the area of electrical generation, there is no assurance that the marketing strategies will be successful.

Manufacturing and Raw Materials

For production of the initial AFIM units the Company did the assembly. If the Company were successful in its marketing efforts and demand for the AFIM were to increase, the Company intends to use independent contract assemblers. AFIM is comprised of off the shelf components and proprietary components developed by the Company which are then assembled. The Company's proprietary software controls AFIM's operations. The Company has no agreement with any independent contract assemblers. The Company has entered into agreements regarding the AFIM technology, but these agreements have been inactive pending further AFIM development.

Management believes that the supplies and parts are readily available from sources presently used by the Company or from alternative sources which can be used as needed. The Company has no backlog.

The Self-Check and OrderXCEL Systems are comprised mostly of off-the-shelf parts and components. These parts are assembled into the systems. The Company's proprietary software ties together the individual components and operates the System. Scanners, video display terminals, and computers are available from several sources. The software used in the System is proprietary developed by the Company.

The manufacturing of the turbine has been done mostly by the Company up to this point but if needed, the design could be easily outsourced. The solar thermal technology will be mostly manufactured by established companies in their fields, with much of the assembling done on site.

Research and Development

The Company's primary activity is the development of its technologies. The industries may be subject to rapid and significant technological change. Future growth for the Company may be dependent on its ability to innovate and adapt its technologies to the changing needs of a marketplace. In the past the Company's activities have primarily consisted of its efforts in research and development. During fiscal years ended June 30, 2007 and 2006, research and development expenses were $660,852 and $592,386, respectively. Although no precise dollar amount has been determined, the Company will continue to allocate resources to product development. The Company expenses development costs as they occur. The Company intends to work closely with prospective customers to determine design, possible enhancements and modifications.

Immediate Plans

Over the next twelve months the Company intends to continue the research and development of its technologies.

For the Bladeless Turbine, the company plans to have installations into electrical generating plants which could utilize all forms of energy that produce high temperature heat, but primarily in the areas of solar thermal and biomass combustion.

For the Self-check System and the AFIM product the Company plans to have installations in the restaurant and fast-food industry. The Company at this time cannot project the impact, to the Company, of the installation. The Company has no immediate plans to increase or decrease the number of employees.

Acquisition of Technology

In May 2004, the Company entered into an agreement with Neldon Johnson, the Company’s president, in which the Company acquired from Mr. Johnson patents, patents pending, designs and contracts related to the bladeless turbine, solar and chemical thermal technologies, and electronic shelf tag technology developed by Mr. Johnson. As consideration for these patents, patents pending, designs and contracts, the Company issued 10,000,000 shares of series A preferred stock, warrants to purchase 100,000,000 shares of common stock and 10% of total gross sales in royalties of the Company. During July 2004, the Company and Mr. Johnson amended the agreement to rescind the 10,000,000 shares of series A preferred stock.

As of June 30, 2007, the Company does not have sufficient common shares authorized to satisfy this agreement. The Company will need to amending their articles of incorporation to increase the number of common shares they are authorized to issue.

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 3. LEGAL PROCEEDINGS

On September 23, 1998, the Company was notified by the U.S. Securities and Exchange Commission (SEC) of formal action against the Company, its president, and members of his family for possible securities violations. The action stems from alleged material misrepresentations by the Company and the Company's employees regarding new technology developed by the Company. The Company reached a settlement agreement with the SEC in the amount of $50,000 which has been finalized, paid, and signed by the Court as of January 2005.

The Company has filed a patent infringement lawsuit against Digital Persona, Inc and Microsoft Corporation which has been consolidated into the case of International Automated Systems, Inc. v. Digital Persona, Inc. and John Does 1-20. This lawsuit is based upon an alleged infringement, by the above mentioned parties, of United States Patent No. 5,598,474 for certain fingerprint technology invented by Neldon P. Johnson and assigned to Company. A routine counterclaim alleging patent invalidity and non-infringement has been asserted against Company. A routine request for an award of court costs and attorney fees against Company has also been made, based upon assertions that the case is an “exceptional case” under 35 U.S.C. §285. Management intends to vigorously prosecute its patent infringement claims against the above mentioned parties, which also inherently includes a vigorous defense to the counterclaims against Company. This case is in the early stage of litigation and no discovery has been completed. Therefore, no reliable estimate can be made of the amount or likelihood of an affirmative recovery by Company against the above mentioned parties.

The Company has filed a patent infringement lawsuit against IBM; IBM Corporation; IBM Personal Computing Division; Lenovo (United States) Inc.; Lenovo Group Ltd; UPEK, Inc.; and John Does 1-20. This lawsuit is based upon an alleged infringement, by the above mentioned parties, of United States Patent No. 5,598,474 for certain fingerprint technology invented by Neldon P. Johnson and assigned to Company. A routine counterclaim alleging patent invalidity and non-infringement has been asserted against Company. A routine request for an award of court costs and attorney fees against Company has also been made, based upon assertions that the case is an “exceptional case” under 35 U.S.C. §285. Management intends to vigorously prosecute its patent infringement claims against the above mentioned parties, which also inherently includes a vigorous defense to the counterclaims against Company. This case is in the early stage of litigation and discovery has not been completed. Therefore, no reliable estimate can be made of the amount or likelihood of an affirmative recovery by Company against the above mentioned parties.

UPEK has filed a declaratory judgment action in California, seeking a judgment declaring the United States Patent No. 5,598,474 of Company invalid or non-infringed by UPEK and IBM/Lenovo. IAS filed a Motion to Dismiss or Transfer the case to the United States District Court, for the District of Utah, Central Division, on the basis that the pending case in Utah was the earlier filed case. The motion to transfer was granted and the case has been transferred to the United States District Court, for the District of Utah, Central Division.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders.

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Presently Registrant's common stock is traded on the NASD Electronic Bulletin Board under the symbol "IAUS". The table below sets forth the closing high and low bid prices at which the Company's shares of common stock were quoted during the quarter identified. The trades are in U. S. dollars but may be inter-dealer prices without retail mark-up, mark-down or commission and may not even represent actual transactions.

Fiscal 2007	High	Low
June 30, 2007	0.74	0.73
March 31, 2007	0.83	0.70
December 31, 2006	0.48	0.45
September 30, 2006	0.75	0.70

Fiscal 2006	High	Low
June 30, 2006	0.60	0.60
March 31, 2006	0.82	0.78
December 31, 2005	0.38	0.34
September 30, 2005	0.55	0.53

Fiscal 2005	High	Low
June 30, 2005	0.39	0.39
March 31, 2005	0.67	0.63
December 31, 2004	0.35	0.32
September 30, 2004	0.32	0.30

The Company's shares are significantly volatile and subject to broad price movements and fluctuations. The Company's shares should be considered speculative and volatile securities. On June 30, 2007, the Company had approximately 1007 shareholders of record. The stock price may also be affected by broader market trends unrelated to the Company's activities.

As of June 30, 2007, Registrant had 28,344,622 issued and outstanding of which 705,918 were held in an escrow account. Of these shares approximately 21,873,885 shares were free trading shares. There were approximately 6,606,255 shares of restricted common stock but most of these shares may be available for resale pursuant to the provisions of Rule 144 promulgated under the 1933 Act. As of June 30, 2007, at least 100 shareholders hold not less than 1,000 restricted shares of common stock and have held the shares for not less than two years. At least twenty-five shareholders own not less than 10,000 or more restricted shares of common stock and have held the shares for not less than one year. These shareholders satisfy the one year holding period under Rule 144 promulgated under the 1933 Act. Rule 144(k) allows a restricted legend to be removed after two years have elapsed from the date of purchase and provides that certain provisions of Rule 144 are not applicable.

Sales pursuant to the provisions of Rule 144 sold into the trading market could adversely affect the market price. The Company's shares trade on the NASD Electronic Bulletin Board. The per share price in an auction market is based in part on supply and demand. If more shares are available for sale into the market by holders of restricted shares who satisfy the conditions of Rule 144 and in particular subsection 144(k), the market price of the shares of common stock of the Company will be adversely affected.

Dividends

Registrant has not declared or paid any dividends to holders of its common stock. In the future it is unlikely that the Company will pay any dividends.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

General

Historically, the Company's activities have been dominated by its research and development. As a result there have not been revenues and costs associated with operations. The Company has limited experience regarding profit margins or costs associated with operating a business.

Results of Operations Fiscal year ended June 30, 2007

Operations during the year ended June 30, 2007, pertained to research and development and other activities. Research and development expenses were $660,852 increasing by $68,466. General and administrative expenses increased from $880,287 to $7,825,416 during fiscal 2007. The increase in research and development expenses are attributed mostly to the solar thermal and bladeless turbine developments. The increase in general and administrative expenses is primarily due to adopting the following change in accounting principle. Prior to July 1, 2006, we accounted for share-based payments to employees using Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees" and, as a result, we measured stock-based compensation using the intrinsic value method. On December 19, 2004, the Financial Accounting Standards Board issued SFAS No. 123(R), "Share-Based Payments", which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. For public companies that file as small business issuers, the reporting requirements under SFAS No. 123(R) became effective January 1, 2006 or at the beginning of their new fiscal year.

For fiscal year 2007, total revenue was $0; cost of sales was $0; operating expenses were $8,493,791 and other income (expense) was $391 resulting in a net loss of $8,493,400. Net loss increased by $7,020,144. The majority of this difference can be attributed to an increase in general and administrative expenses, which is primarily due to adopting the following change in accounting principle. Prior to July 1, 2006, we accounted for share-based payments to employees using Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees" and, as a result, we measured stock-based compensation using the intrinsic value method. On December 19, 2004, the Financial Accounting Standards Board issued SFAS No. 123(R), "Share-Based Payments", which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. For public companies that file as small business issuers, the reporting requirements under SFAS No. 123(R) became effective January 1, 2006 or at the beginning of their new fiscal year. For fiscal 2007 the loss per share was $(0.35) compared to a loss per share of $(0.06) for the same period a year earlier.

Results of Operations Fiscal year ended June 30, 2006

Operations during the year ended June 30, 2006, pertained to research and development and other activities. Research and development expenses were $592,386 increasing by $121,197. General and administrative expenses decreased from $960,869 to $880,287 during fiscal 2006. The increase in research and development expenses are attributed mostly to the solar thermal and bladeless turbine developments.

For fiscal year 2006, total revenue was $0; cost of sales was $0; operating expenses were $1,472,673 and other income (expense) was ($583) resulting in a net loss of $1,473,256. Net loss increased by $30,376. The majority of this difference can be attributed to an increase in research and development expenses. For fiscal 2006 the loss per share was $(0.06) compared to a loss per share of $(0.07) for the same period a year earlier.

Liquidity and Capital Resources

The Company's liquidity is substantially limited given the current rate of expenditures. More funds will be required to support ongoing product development, finance any marketing programs, and establish any distribution networks. As of June 30, 2007, the Company has current assets of $682,288 and total assets of $1,303,074. Current liabilities were $2,048,347 and total liabilities of $2,162,981. The ratio of current assets to current liabilities is approximately 0.33. If the Company continues to have a negative cash flow or if the Company is unable to generate sufficient revenues to meet its operation expenses, the Company will experience liquidity difficulties.

In the past the Company's president and others advanced funds to the Company to fund its operations. Mr. Johnson and the Company have no formal agreement as to any future loans or advances. The Company has no line of credit with any financial institution. The Company believes that until it has operations and revenues consistently, it will be unable to establish a line of credit from conventional sources.

Stock issuance

At July 1, 2002, the Company had 5,000,000 shares of common stock in escrow to be sold at trustee’s and Company’s discretion. During the year ended June 30, 2007 the Company received 1,125,000 shares of treasury stock from an officer of the company in exchange for $643,750 of debt. For the year ended June 30, 2007, 1,262,000 shares were sold for proceeds of $425,033 respectively. At June 30, 2007, there was a balance of 705,918 shares left in escrow.

During the year ended June 30, 2007, the Company issued 400,000 shares of common stock to an individual in exchange for $160,000 in cash at $0.40 per share.

During June the year ended June 2006, the Company issued 110,000 shares of common stock to individuals for services performed. The shares had a fair value of $35,400 or between $0.30 and $0.34 per share.

During the year ended June 30, 2007, the Company issued 1,725,000 share of stock, at $0.40 per share, to an officer in settlement of debt.

Options.

On May 14, 2004, the Company entered into an agreement with Neldon Johnson, the Company’s president, in which the Company acquired from Mr. Johnson patents, patents pending, designs and contracts related to the bladeless turbine, solar and chemical thermal technologies, and electronic shelf tag technology developed by Mr. Johnson. As consideration for these patents, patents pending, designs and contracts, the Company issued 10,000,000 shares of series A preferred stock, warrants to purchase 100,000,000 shares of common stock and 10% of total gross sales in royalties of the Company.

The warrants have an exercise price of $0.40 per share and are exercisable over the following periods:

January 1, 2005		5,000,000

January 1, 2006		5,000,000

January 1, 2007		5,000,000

January 1, 2008		10,000,000

January 1, 2009		10,000,000

January 1, 2010		65,000,000

This report contains forward looking statements regarding the Company's plans, objectives, expectations and intentions. All forward looking statements are subject to risks and uncertainties that could cause the Company's actual results and experience to differ materially from such projections. Such risks include delays in product development, the development of marketing and distribution channels, and market acceptance of its products. Other risks may be beyond the control of the Company.

ITEM 7. FINANCIAL STATEMENTS

The financial statements are following the signature pages.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON

ACCOUNTING AND FINANCIAL DISCLOSURE

On or about June 15, 2006, Registrant’s Certifying Public Accountant, Hansen Barnett & Maxwell (“HB&M”) of Salt Lake City, Utah, resigned and advised that it would not continue to serve as the Company’s independent registered public accounting firm.

The reports of HB&M on the financial statements of the Company as of and for the years ended June 30, 2005 did not contain an adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles, except for the addition of an explanatory paragraph expressing substantial doubt about the Company’s ability to continue as a going concern.

During the year ended June 30, 2005 and through June 15, 2006, there were no disagreements with HB&M on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure which disagreements, if not resolved to the satisfaction of HB&M, would have caused HB&M to make reference to the subject matter of the disagreement in its reports on the Company’s financial statements for such periods.

On June 19, 2006, the Registrant engaged Mantyla McReynolds LLC of Salt Lake City, Utah (“Mantyla”) as its independent registered public accounting firm.

No consultations occurred between the Company and Mantyla during the year ended June 30, 2005 and through June 15, 2006 regarding either (I) the application of accounting principles to a specific completed or contemplated transaction, the type of audit opinion that might be rendered on the Company’s financial statements, or other information provided that was an important factor considered by the Company in reaching a decision as to an accounting, auditing or financial reporting issue, or (ii) any matter that was the subject of disagreement or a reportable event requiring disclosure under Item 304 (a) (1) (iv) of Regulation S-B.

During the fiscal 2007 year end audit there were no changes or disagreements with the Company's certified public accountants, Mantyla McReynolds, LLC.

ITEM 8A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of June 30, 2007, the Company made an evaluation, under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures as of June 30, 2007 are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms and ensures that information required to be disclosed by the Company is accumulated and communicated to the Company’s management as appropriate to allow timely decisions regarding required disclosures.

Changes in Internal Control over Financial Reporting

During our last fiscal quarter in connection with the requisite evaluation there has been no change in the Company’s internal control over financial reporting that has materially or is reasonably likely to affect our internal control over financial reporting.

ITEM 8B. OTHER INFORMATION

None

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.

Directors and Officers

The executive officers and directors of the Company are as follows:

Name	Age	Position with the Company

Neldon Johnson	61	Chairman of the Board of Directors and President

Randale Johnson	38	Secretary, Vice President

LaGrand Johnson	41	CFO

Bruce Barrett	77	Director

Blain Phillips	45	Director

All Directors hold office until the next annual meeting of shareholders of the Company or until their successors have been elected. All officers are appointed annually by the Board of Directors and serve at the discretion of the Board.

Directors will be reimbursed by the Company for any expenses incurred in attending Directors' meetings. The Company also intends to obtain Officers and Directors liability insurance, although no assurance can be given that it will be able to do so.

Background of Executive Officers and Directors

Neldon Johnson is the founder of the Company and the primary inventor of the Self-Check system, AFIM, DWM, and turbine technologies. Mr. Johnson directs the Company's research and development program. Mr. Johnson studied physics and mathematics at Brigham Young University in Provo, Utah, and graduated from Utah Technical College's Electronics Technology Program in 1964. He has taken training courses and has taught courses in electronics programming, microwave and wave switch programs. From 1965 to 1968 he worked for American Telephone and Telegraph, Inc., as an engineer.

From 1983 to the present, Mr. Johnson has been developing the Self-Check System, AFIM, DWM, and turbine technologies. Also, from 1975 to 1990 he worked at a Ream's Grocery Store and had management responsibilities for operations. Mr. Johnson has real estate holdings, one of which is a building of approximately 25,000 square feet in Salem, Utah.

Randale P. Johnson is the son of Neldon Johnson. He has been an officer since June 1996. His responsibilities include marketing and administration. Mr. Johnson holds an associate degree in Computer Science and has four years of experience in the computer industry. He joined the Company in 1996.

LaGrand T. Johnson is the son of Neldon Johnson. He has worked with the Company since 1987 but started full time in 1996. He graduated with a Bachelor's Degree in chemistry in 1991. He received his Doctor of Osteopathy degree in 1995 from Western University of Health Sciences. He works as CFO and General Manager of the Company and in research and development.

Bruce Barrett graduated from Brigham Young University with a degree in Marketing and Business Management in 1958. After graduating he continued to work for BYU. He was Manager of Married Student Housing, Manager of Material Handling, Director of Textile Cleaning Services, and Director of Auxiliary Services before retiring in 1995.

Blain Phillips has been employed at Union Pacific Railroad since 1991.

None of the officers or directors of the Company has during the past five years, been involved in any events such as criminal proceedings or convicted of proceedings relating to securities violations.

ITEM 10. EXECUTIVE COMPENSATION

The Company has entered into an agreement with Neldon Johnson to act as President and CEO of the Company for a period of ten years starting in the year 2001.

Employment Agreements

The Company has an employment agreement or contract with the key employees for a period of five years. Each employee will continue to receive an annual salary which is reviewed annually. As part of the employment agreement each employee has received restricted common and preferred shares of stock and options to be purchased at $3.00 per share. Each employee has signed a non-disclosure agreement with the Company.

Name and

Principal Position

Salary

($)

Bonus

($)

Stock Awards

($)

Option Awards

($)

Non-Equity

Incentive Plan Compensation

($)

Nonqualified

Deferred

Compensation

($)

All Other

Compensation

($)

Total

Earnings

($)

(a)

(c)

(d)

(e)

(f)

(g)

(h)

(i)

(j)

Neldon Johnson, President & CEO

$6,460,396

Randale Johnson, Secretary & VP

54,600

$44,221

98,821

LaGrand Johnson, CFO

33,600

$44,221

77,821

Bruce Barrett, Director

Blain Phillips, Director

(f) - Calculated fair value of options vested during period. Refer to Note 4 of the financial statements.

ITEM. 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information known to the Company regarding beneficial ownership of the Company's Common Stock as of June 30, 2007, by (i) each person known by the Company to own, directly or beneficially, more than 5% of the Company's Common Stock, (ii) each of the Company's directors, and (iii) all officers and directors of the Company as a group. Except as otherwise indicated, the Company believes that the beneficial owners of the Common Stock listed below, based on information furnished by such owners, have sole investment and voting power with respect to such shares, subject to community property laws, where applicable.

Name and Address of Beneficial Owner	Number of Shares Owned	Percent (1)
Neldon Johnson 326 N SR 198 Salem, Utah	1,360,000	4.86

LaGrand Johnson 326 N SR 198 Salem, Utah	340,000	1.2

Randale Johnson 326 N SR 198 Salem, Utah	385,000	1.4

Blain Phillips 326 N SR 198 Salem, Utah	0	-

Bruce Barrett 326 N SR 198 Salem, Utah	100,000	-

Directors and Officers as a Group 5 persons	2,185,000	7.80

(1)

Based on 28,344,622 shares of common stock issued, but does not include the 1,000,000 shares of Series 1 Class A Preferred Stock held by Neldon Johnson, the 1,150,000 shares of Series 1 Class A Preferred Stock held by LaGrand Johnson, or the 1,150,000 shares of Series 1 Class A Preferred Stock held by Randale Johnson. Each share of the Series 1 Class A Preferred Stock has ten votes per share and votes with the shares of common stock on all matters. Mr. Neldon Johnson has approximately 19 per cent, LaGrand Johnson 20 percent, and Randale Johnson 20 percent of the voting control of the Company when the voting power of the shares of preferred stock and common stock are taken together.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

During the year ended June 30, 2003, the Company commenced leasing its office and research and development space on a month- to-month basis from Mr. Johnson. During the year ended June 30, 2003, the Company placed 1,000,000 shares of common stock in an escrow account to be sold, the proceeds of which are used to pay the mortgage on the building. During the year ended June 30, 2007, 148,000 shares of stock were sold for proceeds of $106,414. At June 30, 2007 there were 155,918 shares in the escrow account.

During December 2005, the Company entered into a purchase and installation contract with Solar Renewable Energy-1, LLC for a solar thermal power plant. The contract is contingent on several factors and provides for certain progress payments. As of June 30, 2007, the Company has not provided any services or equipment required under this agreement and has recognized no revenues.

The Company was loaned $643,816 by an officer(s) during the year ended June 2007. The loan is unsecured, payable on demand, and non-interest bearing.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

a. Exhibits

31.1	Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2	Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1	Certification by the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2	Certification by the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

b. Reports on Form 8-K.

During the period ended June 30, 2006, Registrant filed two reports on Form 8-K and one report on 8-K/A.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Our financial statements for the year ended June 30, 2007 have been audited by our principal accountant, Mantyla McReynolds, LLC.. Each year the Chief Executive Officer pre-approves all audit and tax related services prior to the performance of services by Mantyla McReynolds, LLC. The percentage of hours expended on the audit by persons other than full time, permanent employees of Mantyla McReynolds, LLC was zero.

Audit Fees

Aggregate fees for the year ended June 30, 2007 for professional services by Mantyla McReynolds, LLC, our principal accountant, for the audit of our annual financial statements and review of our interim financial statements were approximately $26,712.

Aggregate fees for the year ended June 30, 2006 for professional services by Mantyla McReynolds, LLC, our principal accountant, for the audit of our annual financial statements were approximately $15,385.

Audit-Related Fees

There were no fees billed to us in the previous fiscal year for assurance and related services by Mantyla McReynolds, LLC that are reasonably related to the performance of the audit or review of our financial statements and that are not reported in the previous paragraph.

Tax Fees

A firm, other than our principal accountant, prepares all income tax returns. The aggregate fees billed to us for years ended June 30, 2007 and 2006 for professional services by Mantyla McReynolds, LLC for tax compliance, tax advice, and tax planning were $0 and $0, respectively.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	INTERNATIONAL AUTOMATED SYSTEMS, INC.

	/s/ Neldon Johnson
	NELDON JOHNSON
	Title: President,
	Chief Executive Officer

	Date: October 15, 2007

	DIRECTORS

	/s/ Neldon Johnson
	NELDON JOHNSON
	Title: Director

	Date: October 15, 2007

	/s/ Blain Phillips
	BLAIN PHILLIPS
	Title: Director

	Date: October 15, 2007

	/s/ Bruce Barrett
	BRUCE BARRETT
	Title: Director

	Date: October 15, 2007

INTERNATIONAL AUTOMATED SYSTEMS, INC.

(A Development Stage Company)

Table of Contents

		Page

Report of Independent Registered Public Accounting Firm		F-1

Balance Sheets - June 30, 2007 and 2006		F-2

Statements of Operations for the Years Ended June 30, 2007 and 2006 and for the period from Inception [September 26, 1986] through June 30, 2007		F-3

Statements of Stockholders' Equity/ (Deficit) for the Period from Inception through June 30, 2007		F-4

Statements of Cash Flows for the Years Ended June 30, 2007 and 2006 and for the period from Inception [September 26, 1986] through June 30, 2007		F-8

Notes to the Financial Statements		F10

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

International Automated Systems, Inc.

We have audited the accompanying balance sheet of International Automated Systems, Inc. as of June 30, 2007 and 2006, and the related statements of stockholders’ deficit, operations, and cash flows for the years ended June 30, 2007 and 2006. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of International Automated Systems, Inc. for the period from inception [September 26, 1986] through June 30, 2005, were audited by other auditors whose report dated September 28, 2005 except for the Note 1 restatement which was dated February 20, 2006, expressed an unqualified opinion on those statements. Others audited the financial statements of the Company from September 26, 1986 through June 30, 1990, whose reports dated October 21, 1988 and April 30, 1991, were qualified subject to the effects of such adjustments, if any, as might have been required had the outcome of the uncertainties referred to in Note 1 been known. Our opinion, in so far as it relates to the period from September 26, 1986 through June 30, 2005, is based solely on the reports of the other auditors.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal controls over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of International Automated Systems, Inc. as of June 30, 2007 and 2006 and the results of operations and cash flows for the years ended June 30, 2007 and 2006, and for the period from September 26, 1986 through June 30, 2007, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company is a development stage enterprise engaged in developing technology related to production of electronic security and communication equipment as well as power generation equipment. As discussed in Note 1 to the financial statements, there is substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Mantyla McReynolds, LLC

Salt Lake City, Utah

October 5, 2007

F-1

INTERNATIONAL AUTOMATED SYSTEMS, INC.

(A Development Stage Company)

Balance Sheets

ASSETS
	June 30,
	2007			2006
CURRENT ASSETS

Cash	$	595,381		$	708,379
Prepaid expenses		320			-
Inventory		86,587			-

Total Current Assets		682,288			708,379

Property and Equipment, net of $125,558 and $98,430 accumulated depreciation, respectively		435,623			196,791
Patents, net of $15,857 and $11,174 accumulated amortization, respectively		185,163			203,473

TOTAL ASSETS	$	1,303,074		$	1,108,643

LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES

Accounts payable	$	286,426		$	128,995
Accrued payroll		58,262			59,829
Related party payable		980,081			392,886
Deposits from customers		713,250			459,000
Notes payable-current portion		10,328			9,330

Total Current Liabilities		2,048,347			1,050,040

Net Long-Term Liabilities - Notes payable		114,634			68,287

TOTAL LIABILITIES		2,162,981			1,118,327

STOCKHOLDERS' EQUITY (DEFICIT)

Preferred stock, Class A, no par value; 4,400,000 shares authorized, 3,400,000 shares issued and outstanding		294,786			294,786
Preferred stock, Class B, no par value, 600,000 shares authorized, 300,000 shares issued and outstanding		-			-
Common stock, no par value, 45,000,000 shares authorized, 28,344,622 and 25,532,622 issued and outstanding, net 705,918 and 842,918 shares held in escrow account, respectively		20,077,384			12,083,707
Deficit accumulated during the development stage		(20,881,577	)		(12,388,177	)
Less: Treasury stock, 550,000 shares at cost		(350,500	)		-
Total Stockholders' Deficit		(859,907	)		(9,684	)

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	1,303,074		$	1,108,643

The accompanying notes are an integral part of these financial statements.

F-2

INTERNATIONAL AUTOMATED SYSTEMS, INC.

(A Development Stage Company)

Statements of Operations

	For the Years Ended June 30,						For the Period From Inception (September 26, 986) Through June 30,
	2007			2006			2007
REVENUES
Sales	$	-		$	-		$	111,226
Income from related party		-			-			32,348
Total Revenue								143,574

COST OF GOODS SOLD
Cost of sales		-			-			81,927
Write down of carrying value of inventories		-			-			233,131
Total Costs of Sales		-			-			315,058

GROSS LOSS		-			-			(171,484	)

OPERATING EXPENSES
General and administrative		7,825,416			880,287			15,285,423
Research and development		660,852			592,386			6,157,152
Impairment of patents		7,523			-			117,605
License fees		-			-			270,634
Loss on disposal of property and equipment		-			-			17,359
Total Operating Expenses		8,493,791			1,472,673			21,848,173

LOSS FROM OPERATIONS		(8,493,791	)		(1,472,673	)		(22,019,657	)

OTHER INCOME (EXPENSES)
Loss on impairment of assets		-			(583	)		(583	)
Forfeiture of deposits		-			-			(236,803	)
Interest income		2,348			-			24,792
Interest expense		(1,957	)					(1,957	)
Other income		-			-			(29,392	)
Total Other Income (Expenses)		391			(583	)		(243,943	)

LOSS BEFORE EXTRAORDINARY GAIN		(8,493,400	)		(1,473,256	)		(22,263,600	)

Extraordinary Gain on Sale of Patents		-			-			1,382,023

NET LOSS	$	(8,493,400	)	$	(1,473,256	)	$	(20,881,577	)

Basic and Diluted Loss Per Share
Loss before extraordinary gain	$	(0.35	)	$	(0.06	)
Extraordinary gain		-			-

NET LOSS APPLICABLE TO COMMON SHAREHOLDERS	$	(0.35	)	$	(0.06	)

The accompanying notes are an integral part of these financial statements.

F-3

INTERNATIONAL AUTOMATED SYSTEMS, INC.

(A Development Stage Company)

Statement of Stockholders Equity

	Preferred Stock				Common Stock				Stock		Deficit Accumulated During Development			Total Stockholder's
	Shares		Amount		Shares		Amount		Rights		Stage			Deficit
Balance - September 30, 1986 (Date of Inception)		-	$	-		-	$	-	$	-	$	-			-
Stock issued for cash
September 1986 - $0.002 per share		-		-		5,100,000		11,546		-		-			11,546
September 1988 (net of $38,702 offering costs) - $0.32 per share		-		-		213,065		67,964		-		-			67,964
December 1988 (net of $6,059 offering costs) - $0.32 per share		-		-		33,358		10,641		-		-			10,641
March 1989 (net of $4,944 offering costs) - $0.32 per share		-		-		27,216		8,681		-		-			8,681
June 1989 (net of $6,804 offering costs) - $0.32 per share		-		-		37,461		11,950		-		-			11,950
Stock issued for services
September 1986 - $0.002 per share		-		-		300,000		679		-		-			679
June 1989 - $0.32 per share		-		-		5,000		1,595		-		-			1,595
Net loss for the period from September 26,1986 through June 30, 1990		-		-		-		-		-		(192,978	)		(192,978	)
Balance - June 30, 1990		-		-		5,716,100		113,056		-		(192,978	)		(79,922	)

Class A Preferred and Common Stock issued for technology 1990-1996- $0.02 per share		1,000,000		292,786		6,000,000		175,672		-		-			468,458
Class A Preferred Stock issued for services
July 2000 - $0.001 per share		2,000,000		2,000		-		-		-		-			2,000
August 2000 - $0.00 per share		400,000		-		-		-		-		-			-
Class B Preferred stock issued for services
August 2000 - $0.00 per share		300,000		-		-		-		-		-			-
Common Stock issued for cash
January 1994 - $0.40 per share		-		-		59,856		23,942		-		-			23,942
May 1994 - $0.20 per share		-		-		137,500		27,500		-		-			27,500
January 1996 (net of $24,387 offering costs) - $3.86 per share		-		-		179,500		693,613		-		-			693,613
November 1997 - $1.43 per share		-		-		35,000		50,000		-		-			50,000
May 1998 - $1.20 per share		-		-		250,000		300,000		-		-			300,000
October 1999 - $2.00 per share		-		-		50,000		100,000		-		-			100,000
September 2000 - $1.67 per share		-		-		11,500		19,236		-		-			19,236
Oct through Dec 2000 - $1.03 per share		-		-		140,100		144,546		-		-			144,546
Jan through March 2001 - $1.30 per share		-		-		39,900		51,920		-		-			51,920
April through June 2001 - $0.98 per share		-		-		120,100		117,684		-		-			117,684
July through Dec 2001 - $0.86 per share		-		-		138,400		119,287		-		-			119,287
December 2001 - $0.71 per share		-		-		28,000		20,000		-		-			20,000
January 2002 - $1.39 per share		-		-		50,000		35,910		-		-			35,910
May through June 2002 - $0.25 per share		-		-		500,000		125,000		-		-			125,000
Common Stock issued for services
April 1991 - $0.10 per share		-		-		300,000		30,000		-		-			30,000

The accompanying notes are an integral part of these financial statements.

F-4

INTERNATIONAL AUTOMATED SYSTEMS, INC.

(A Development Stage Company)

Statement of Stockholders Equity, continued

	Preferred Stock				Common Stock						Stock			Deficit Accumulated During Development			Total Stockholder's
	Shares		Amount		Shares			Amount			Rights			Stage			Deficit
January 1995 - $1.00 per share		-		-		100,000			100,000			-			-			100,000
May 1997 - $4.13 per share		-		-		14,000			57,750			-			-			57,750
June 1997 - $2.94 per share		-		-		5,000			14,690			-			-			14,690
December 1997 - $1.13 per share		-		-		6,000			6,750			-			-			6,750
October 1999 - $1.26 per share		-		-		50,000			63,147			-			-			63,147
August 2000 - $2.25 per share		-		-		268,000			603,000			-			-			603,000
May 2001 - $1.12 per share		-		-		3,000			3,360			-			-			3,360
Feb through March 2001 - $1.55 per share		-		-		350,000			542,500			-			-			542,500
October 2001 - $1.44 per share		-		-		150,000			216,000			-			-			216,000
February 2002 - $1.14 per share		-		-		25,000			28,500			-			-			28,500
Common Stock issued for financing transactions
November 2000 - $0.90 per share		-		-		50,000			45,000			-			-			45,000
December 2000 - $0.90 per share		-		-		10,000			9,000			-			-			9,000
January 2001 - $0.84 per share		-		-		30,000			25,320			-			-			25,320
June 2001 - $1.16 per share		-		-		120,000			139,200			-			-			139,200
Common Stock issued to satisfy liabilities
June 1991 - $0.03 per share		-		-		2,700,000			78,101			-			-			78,101
Grant of stock rights
May 1994 - $0.50 per share		-		-		-			6,750			13,500			-			6,750
June 1995 - $3.00 per share		-		-		-			95,283			31,761			-			95,283
August 1995 - $5.00 per share		-		-		-			25,000			5,000			-			25,000
Stock rights exercised
May 1997		-		-		36,761			-			(36,761	)		-			-
June 1997		-		-		13,500			-			(13,500	)		-			-
Redemption and retirement of treasury stock
December 1991 - $0.49 per share		-		-		(5,000	)		(2,425	)		-			-			(2,425	)
December 1992 - $0.49 per share		-		-		(1,856	)		(900	)		-			-			(900	)
Correction for additional shares issued 1990-2002		-		-		68,973			-			-			-			-
Contributed capital - cash and settlement of liability, no shares issued, 1990-2002		-		-		-			5,762,419			-			-			5,762,419
Capital distribution of related party receivable, 1990-2002		-		-		-			(1,577,674	)		-			-			(1,577,674	)
Net loss for the period from July 1, 1990 through June 30, 2002		-		-		-			-			-			(8,705,191	)		(8,705,191	)
Balance - June 30, 2002		3,700,000		294,786		17,749,334			8,388,137			-			(8,898,169	)		(215,246	)

Common Stock issued for cash
July 2002 - $0.20 per share		-		-		150,000			30,000			-			-			30,000
August 2002 - $0.26 per share		-		-		316,000			82,000			-			-			82,000
January 2003 - $0.32 per share		-		-		80,000			25,600			-			-			25,600
July through Sept 2002 - $0.39 per share		-		-		217,000			84,204			-			-			84,204
Oct through Dec 2002 - $0.33 per share		-		-		200,000			66,407			-			-			66,407
Jan through March 2003 - $0.26 per share		-		-		150,000			38,617			-			-			38,617

The accompanying notes are an integral part of these financial statements.

F-5

INTERNATIONAL AUTOMATED SYSTEMS, INC.

(A Development Stage Company)

Statement of Stockholders Equity, continued

	Preferred Stock				Common Stock					Stock		Deficit Accumulated During Development			Total Stockholder's
	Shares		Amount		Shares		Amount			Rights		Stage			Deficit
April through June 2003 - $0.24 per share		-		-		240,000		57,234			-		-			57,234
Stock issued for services
July 2002 - $0.50 per share		-		-		3,806		1,903			-		-			1,903
October 2002 - $0.45 per share		-		-		885,000		398,250			-		-			398,250
November 2002 - $0.35 per share		-		-		65,000		22,750			-		-			22,750
May 2003 - $0.15 per share		-		-		10,000		1,500			-		-			1,500
Shares issued as part of share value guarantee
Aug through May 2003		-		-		260,000		-			-		-			-
Contributed capital - no shares issued
July through June 2003		-		-		-		39,682			-		-			39,682
Capital distribution of related party receivable- July through June 2003		-		-		-		(52,606	)		-		-			(52,606	)
Net loss		-		-		-		-			-		(1,017,055	)		(1,017,055	)
Balance - June 30, 2003		3,700,000		294,786		20,326,140		9,183,678			-		(9,915,224	)		(436,760	)

Stock issued for cash
August 2003- $0.50 per share		-		-		132,400		66,200			-		-			66,200
September 2003- $0.50 per share		-		-		148,000		73,000			-		-			73,000
December 2003- $0.25 per share		-		-		34,000		8,500			-		-			8,500
July through Sept 2003 - $0.72 per share		-		-		84,000		60,880			-		-			60,880
Oct through Dec 2003 - $0.34 per share		-		-		111,200		37,731			-		-			37,731
Jan through March 2004 - $0.36 per share		-		-		91,500		32,560			-		-			32,560
April through June 2004 - $0.38 per share		-		-		104,800		40,337			-		-			40,337
Contributed capital - no shares issued
July through June 2004		-		-		-		98,204			-		-			98,204
Net income		-		-		-		-			-		443,183			443,183
Balance - June 30, 2004		3,700,000		294,786		21,032,040		9,601,090			-		(9,472,041	)		423,835

Stock issued for cash
August 2004- $0.25 per share		-		-		132,000		32,546			-		-			32,546
July through Sept 2004 - $0..37 per share		-		-		103,050		38,165			-		-			38,165
Oct through Dec 2004 - $0.34 per share		-		-		233,200		79,201			-		-			79,201
Jan through March 2005 - $0.47 per share		-		-		225,000		106,701			-		-			106,701
April through June 2005 - $0.40 per share		-		-		170,500		66,279			-		-			66,279
Contributed capital - no shares issued		-		-		-		93,877			-		-			93,877
Stock issued for services		-		-		1,100,000		429,000			-					429,000
Net loss		-		-		-		-			-		(1,442,880	)		(1,442,880	)
Balance - June 30, 2005		3,700,000		294,786		22,995,790		10,446,859			-		(10,914,921	)		(173,276	)

Stock issued for cash
July through Sept 2005 - $0.56 per share		-		-		722,500		407,817			-		-			407,817
Oct through Dec 2005 - $0.43 per share		-		-		124,000		52,761			-		-			52,761
Jan through March 2006 - $0.88 per share		-		-		411,900		361,140			-		-			361,140
April through June 2006 - $0.69 per share		-		-		866,500		641,730			-		-			641,730
Stock issued for services - $0.30 per share		-		-		50,000		15,000			-		-			15,000
Stock issued for services - $0.34 per share		-		-		60,000		20,400			-		-			20,400
Stock issued for settlement of debt - $0.69 per share		-		-		200,000		138,000			-		-			138,000
Net loss		-		-		-					-		(1,473,256	)		(1,473,256	)
Balance - June 30, 2006		3,700,000		294,786		25,430,690		12,083,707			-		(12,388,177	)		(9,684	)

The accompanying notes are an integral part of these financial statements.

F-6

INTERNATIONAL AUTOMATED SYSTEMS, INC.

(A Development Stage Company)

Statement of Stockholders Equity, continued

	Preferred Stock				Common Stock				Stock		Treasury Stock						Deficit Accumulated During Development			Total Stockholder's
	Shares		Amount		Shares		Amount		Rights		Shares			Amount			Stage			Deficit

Balance - June 30, 2006		3,700,000		294,786		25,532,622		12,083,707		-								(12,388,177	)		(9,684	)
Stock issued for cash
July through Sept 2006 - $0.63 per share		-		-		143,000		89,900		-		-			-			-			89,900
Oct through Dec 2006 - $0.52 per share		-		-		402,580		208,252		-		-			-			-			208,252
Jan through March 2007 - $0.68 per share		-		-		136,920		93,309		-		-			-			-			93,309
April through June 2007 - $0.74 per share		-		-		4,500		3,322		-		-			-			-			3,322
Issuance of options		-		-		-		6,548,839		-		-			-			-			6,548,839
Stock issued for cash - $0.40 per share		-		-		400,000		160,000		-		-			-			-			160,000
Stock issued for settlement of debt $0.40 per share		-		-		1,725,000		690,000		-		-			-			-			690,000
Treasury stock acquired at $0.51 per share												(625,000	)		(318,750	)		-			(318,750	)
Treasury stock acquired at $0.65 per share												(500,000	)		(325,000	)		-			(325,000	)
Reissuance of treasury stock for cash		-		-		-		200,055				575,000			293,250			-			493,305
Net loss		-		-		-		-		-		-			-			(8,493,400	)		(8,493,400	)
Balance - June 30, 2007	$	3,700,000	$	294,786	$	28,344,622	$	20,077,384	$	-	$	(550,000	)	$	(350,500	)	$	(20,881,577	)	$	(859,907	)

The accompanying notes are an integral part of these financial statements.

F-7

INTERNATIONAL AUTOMATED SYSTEMS, INC.

(A Development Stage Company)

Statements of Cash Flows

	For the Years Ended June 30,						For the Period From Inception (September 26, 1986) Through June 30,
	2007			2006			2007
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(8,493,400	)	$	(1,473,256	)	$	(20,881,577	)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation and amortization		43,262			19,084			396,464
Stock based compensation		6,548,839			35,400			9,234,646
Forfeiture of deposits		-			-			236,803
Write down of inventory		-			-			16,945
Write off of equipment to research & development		-			-			23,900
Loss on disposal of equipment		-			583			17,942
Impairment of patents and abandonment of in-process rights to technology		7,523			-			364,155
Gain on sale of patents		-			-			(1,382,023	)
(Gain) loss on settlement of debt		-			-			(6,123	)
Stock issued for expenses		-			63,600			63,600
Changes in current assets and liabilities:
Prepaid sales commissions		(320	)		4,000			(320	)
Inventory		(86,587	)		-			(86,587	)
Deposits from customers		254,250			419,000			713,250
Accounts payable		157,431			(3,665	)		286,426
Related party payable		677,576			344,298			1,070,462
Accrued liabilities		(1,567	)		(94,771	)		158,261
Net Cash Used in Operating Activities		(892,993	)		(685,727	)		(9,773,776	)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment		(211,411	)		(75,010	)		(614,280	)
Purchase of rights to technology		(38,027	)		(33,147	)		(694,761	)
Organization costs		-			-			(1,880	)
Net cash advanced to related party		-			-			(1,644,988	)
Proceeds from capital lease receivable		-			-			44,220
Repayment of cash loaned to related party		-			-			53,254
Net proceeds from sale of patents		-			-			1,382,023
Net Cash Used in Investing Activities		(249,438	)		(108,157	)		(1,476,412	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock		754,838			1,463,447			5,240,376
Proceeds from reissuance of treasury stock		293,250			-			293,250
Cash from controlling shareholder		-			-			6,270,559
Payments for treasury stock		-			-			(3,325	)
Payments for stock offering costs		-			-			(56,509	)
Proceeds from net borrowings from related party		-			-			78,101
Proceeds from notes payable		-			-			29,857
Payments on note payable and obligations capital lease		(18,655	)		(2,069	)		(162,399	)
Proceeds from related party deposits		-			-			224,400
Purchases of equipment held for distribution		-			-			(68,741	)
Net Cash Provided by Financing Activities		1,029,433			1,461,378			11,845,569

NET CHANGE IN CASH		(112,998	)		667,494			595,381
CASH AT BEGINNING OF PERIOD		708,379			40,885			-
CASH AT END OF PERIOD	$	595,381		$	708,379		$	595,381

The accompanying notes are an integral part of these financial statements.

F-8

INTERNATIONAL AUTOMATED SYSTEMS, INC.

(A Development Stage Company)

Statements of Cash Flows

(Continued)

	For the Years Ended
	June 30,
	2007		2006

SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest	$	1,885	$	265
Cash paid for Income Taxes	$	0	$	0

NON-CASH INVESTING AND FINANCING ACTIVITIES
Property acquired by long-term debt	$	66,000	$	77,617
Settlement of debt in exchange for common stock	$	690,000	$	74,400
Issuance of debt in exchange for treasury stock	$	643,750	$	-
Issuance of debt in exchange for patent rights	$	44,131	$	-

The accompanying notes are an integral part of these financial statements.

F-9

International Automated Systems, Inc.

(A Development Stage Company)

Notes to the Financial Statements

June 30, 2007 and 2006

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization - International Automated Systems, Inc. (the “Company” or “IAS”) was incorporated in the State of Utah on September 26, 1986. The Company is considered to be a development stage company with its activities to date consisting of obtaining the rights to certain technology involved with an automated self check-out system for retail stores, developing other electronic security and communication equipment, developing power generation equipment and developing a business plan.

The Company is considered to be in the development stage as defined in Financial Accounting Standards Board Statement No. 7. It has yet to commence full-scale operations and it continues to develop its planned principle operations.

Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses during the reporting period. Estimates also affect the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.

Basis of Presentation / Going Concern - The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As of June 30, 2007 the Company had $595,381 of cash available. The Company had no revenue and no operating income for the years ended June 30, 2007 and 2006, and a net loss of $8,493,400 was incurred for the year ended June 30, 2007. As of June 30, 2007 the Company’s losses accumulated from inception totaled $20,881,577. These factors, among others, indicate that the Company may be unable to continue as a going concern for a reasonable period of time. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis, to obtain additional financing as may be required, and ultimately to attain successful operations. Management is in the process of negotiating various sales agreements and is hopeful these sales will generate sufficient cash flow for the Company to continue as a going concern. If the Company is unsuccessful in these efforts and cannot attain sufficient sales to permit profitable operations or if it cannot obtain a source of funding or investment, it may substantially curtail or terminate its operations.

Fair Value of Financial Instruments - The estimated fair value of financial instruments is, in Management’s opinion, equal to the carrying amounts of the financial instruments.

Impairment - The Company records impairment losses on property and equipment, and patents when indicators of impairment are present and undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amount.

F-10

International Automated Systems, Inc.

(A Development Stage Company)

Notes to the Financial Statements

June 30, 2007 and 2006

Inventory – Inventory is stated at the lower of cost or market using the first-in first-out method. As of June 30, 2007, all inventories were raw material.

Property and Equipment - Property and equipment are recorded at cost and are depreciated using the straight-line method based on the expected useful lives of the assets which range from five to ten years. Depreciation expense for the years ended June 30, 2007 and 2006 was $38,579 and $15,744, respectively. The major classes of assets as of the balance sheet are as follows:

	2007			2006

Land	$	216,025		$	120,292
Computer Equipment		47,402			23,357
Machinery & Equipment		185,446			71,175
Trucks & Autos		100,544			68,633
Mobile Office		11,764			11,764
		561,181			295,221
Less accumulated depreciation		(125,558	)		(98,430	)

	$	435,623		$	196,791

Patents - Patent costs are capitalized for legal fees incurred in obtaining patents and franchises in the United States of America and other countries. Costs to develop the technology were recognized as research and development and expensed when incurred. The patents are being amortized, once issued, on a straight-line basis over a 17-year life.

At June 30, 2007 the Company had capitalized patents subject to amortization of $79,619 net of $15,857 in accumulated amortization. Also at June 30, 2007 the Company had capitalized $121,401 of in-process patents that were not subject to amortization. All patent costs were assessed for impairment based on their estimated future cash flows and $7,523 was determined to be impaired during the year ended June 30, 2007. No patent costs were determined to be impaired during the year ended June 30, 2006. Amortization expense was $4,683 and $3,340 for the years ended June 30, 2007 and 2006, respectively. Amortization expense is expected to be $4,683 per year for the next five years.

Revenue Recognition - Sales are recognized when collection is reasonably assured, performance of the service is complete, delivery has been completed, and acceptance has been obtained.

Recent Accounting Pronouncements –

SFAS 156 Accounting for Servicing of Financial Assets (March 2006)

F-11

International Automated Systems, Inc.

(A Development Stage Company)

Notes to the Financial Statements

June 30, 2007 and 2006

This statement is an amendment of SFAS 140. This clarifies when to separately account for servicing rights, requires servicing rights to be separately recognized initially at fair value, and provides the option of subsequent accounting for servicing rights at either fair value or under the amortization method. The standard is effective for fiscal years beginning after September 15, 2006 but can be adopted early. Currently, the Company does not anticipate the adoption of SFAS 156 will have a material impact of its financial statements.

FIN No. 48 Accounting for Uncertainty in Income Taxes (July 2006)

Also known as Interpretation No. 48, this interpretation requires recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach. FIN No. 48 is effective for fiscal years beginning after December 15, 2006. The Company is currently evaluating the impact of adoption of this interpretation.

SFAS 157 Fair Value Measurements (September 2006)

This standard defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosure about fair value measurements. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. Early adoption is encouraged. Currently, the adoption of SFAS 157 is not expected to have a material impact on the financial statements.

SFAS 158 Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans (September 2006)

This statement is an amendment of FASB Statements 87, 88, 106 and 132(R)” (“SFAS 158”). SFAS 158 requires an employer to recognize the over-funded or under-funded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. SFAS 158 also requires the measurement of defined benefit plan assets and obligations as of the date of the employer’s fiscal year-end statement of financial position (with limited exceptions). Management does not expect adoption of SFAS 158 to have a material impact on the Company’s financial statements.

SFAS 159 The Fair Value Option for Financial Assets and Financial Liabilities (February 2007)

SFAS 159 creates a fair value option allowing an entity to irrevocably elect fair value as the initial and subsequent measurement attribute for certain financial assets and financial liabilities, with changes in fair value recognized in earnings as they occur. SFAS 159 also requires an entity to report those financial assets and financial liabilities measured at fair value in a manner that separates those reported fair values from the carrying amounts of assets and liabilities measured using another measurement attribute on the face of the statement of financial position. Lastly, SFAS 159 requires an entity to provide information that would allow users to understand the effect on earnings of changes in the fair value on those instruments selected for the fair value election. SFAS 159 is effective for fiscal years beginning after November 15, 2007 (January 1, 2008 for the Bank), with early adoption permitted. The Company is continuing to evaluate SFAS 159 and to assess the impact on its results of operations and financial condition if an election is made to adopt the standard.

F-12

International Automated Systems, Inc.

(A Development Stage Company)

Notes to the Financial Statements

June 30, 2007 and 2006

Stock Based Compensation - Prior to July 1, 2006, the Company accounted for share-based payments to employees using Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees" and, as a result, measured stock-based compensation using the intrinsic value method. On December 19, 2004, the Financial Accounting Standards Board issued SFAS No. 123(R), "Share-Based Payments", which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. For public companies that file as small business issuers, the reporting requirements under SFAS No. 123(R) became effective January 1, 2006 or at the beginning of their new fiscal year. We adopted the provisions of SFAS No. 123(R) as of July 1, 2006 (See Note 4).

Following the provisions of SFAS No. 123(R), the Company adopted the modified prospective method of accounting and reporting for share-based payments and recognized the related cost of an option over the period during which an employee is required to provide the requisite service. Prior periods have not been restated for stock compensation based on estimates of fair value of options. The fair value of stock options was determined at the grant dates using the Black-Scholes option-pricing model. We use historical data to estimate the expected volatility and expected life.

Assumptions used for the valuation model for the May 14, 2004 agreement are set forth below:

Expected volatility factor 138.76% Average expected life (years) 10

Risk-free interest rate 4.79% Dividend yield 0

Assumptions used for the valuation model for the August 2000 agreement of 1,000,000 shares are set forth below:

Expected volatility factor 137.47% Average expected life (years) 10

Risk-free interest rate 5.73% Dividend yield 0

Assumptions used for the valuation model for the August 2000 agreement of 600,000 shares are set forth below:

Expected volatility factor 137.47% Average expected life (years) 5

Risk-free interest rate 5.73% Dividend yield 0

See Note 4 for additional disclosure regarding the Company’s stock options.

Advertising Costs - Advertising costs are expensed when incurred. Advertising expense was $13,500 and $30,116 for the years ended June 30, 2007 and 2006, respectively.

Research and Development - Research and development has been the principal function of the Company. Expenses in the accompanying financial statements include certain costs which are directly associated with the Company’s research and development of the Automated Fingerprint Identification Machine technology, the Digital Wave Modulation technology, the Self Checkout technology, the Steam Turbine technology, the Solar Power Plant technology and other various projects. These costs, which consist primarily of fees paid to individuals, materials and supplies, amounted to $660,852 and $592,386 for the fiscal years ended June 30, 2007 and 2006, respectively.

F-13

International Automated Systems, Inc.

(A Development Stage Company)

Notes to the Financial Statements

June 30, 2007 and 2006

Income Taxes - The Company recognizes the amount of income taxes payable or refundable for the current year and recognizes deferred tax assets and liabilities for operating loss carryforwards and for the future tax consequences attributable to differences between the financial statement amounts of certain assets and liabilities and their respective tax bases. Deferred tax assets and deferred liabilities are measured using enacted tax rates expected to apply to taxable income in the years those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance to the extent that uncertainty exists as to whether the deferred tax assets will ultimately be realized.

Cash Equivalents - The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

NOTE 2 – BASIC AND DILUTED LOSS PER SHARE

Basic loss per share is calculated by dividing loss available to common shareholders by the weighted-average number of common shares outstanding during the year. Diluted loss per share is calculated by dividing adjusted loss available to common shareholders by the weighted-average number of common shares and additional common shares that would have been outstanding if dilutive potential common shares had been issued. The computations of basic and diluted loss per share were as follows:

For the Years Ended June 30,	2007			2006

Loss before extraordinary gain	$	(8,493,400	)	$	(1,473,256	)
Extraordinary gain		-			-
	$	(8,493,400	)	$	(1,473,256	)

Basic and Diluted Weighted-Average Common Shares Outstanding		26,931,008			24,039,119

Basic and Diluted Income (Loss) Per Share Loss before extraordinary gain	$	(0.32	)	$	(0.06	)
Extraordinary gain	$	-		$	-
Net Income (Loss)	$	(0.32	)	$	(0.06	)

F-14

International Automated Systems, Inc.

(A Development Stage Company)

Notes to the Financial Statements

June 30, 2007 and 2006

For the years ended June 30, 2007 and 2006, the Company had 100,875,000 and 101,900,000 potentially issuable shares, respectively, that were excluded from the calculation of diluted loss per share due to their anti-dilutive effects.

NOTE 3 – RELATED PARTY TRANSACTIONS

Rent – During 2003, the Company commenced leasing its office and research and development space on a month-to-month basis from Mr. Neldon Johnson, president. The lease is an operating lease and rent expense is $6,000 per month.

The Company borrowed $643,816 and $344,298 from an officer during the years ended June 30, 2007 and 2006. This note is non-interest bearing and payable upon demand. Also during the year ended June 30, 2007, the Company settled $690,000 of the debt by issuing 1,725,000 shares of common stock to the officer; and the Company received 1,125,000 shares of treasury stock from the officer in exchange for $643,750 in debt. As of June 30, 2007 and 2006, the loan balance was $942,733 and $389,298, respectively.

As of June 30, 2007 the Company owed a shareholder $37,348. The borrowing is unsecured, payable on demand, and non-interest bearing.

NOTE 4 – STOCK BASED COMPENSATION

The Company’s board of directors authorized the Company to enter into an agreement dated May 14, 2004 and amended October 13, 2004, with Neldon Johnson, the Company’s president, in which the Company acquired from Mr. Johnson patents, patents pending, designs and contracts related to certain technology developed by Mr. Johnson. The direct costs of developing and obtaining the acquired patents, patents pending, designs and contracts have been paid and capitalized by the Company. No additional value has been assigned to these patents as a result of them being acquired from Mr. Johnson. As compensation, the Company authorized and issued to Mr. Johnson warrants to purchase 100,000,000 shares of common stock and agreed to pay Mr. Johnson royalties in the future equal to 10% of future sales proceeds from the technology. The purchase of these patents is accounted for under APB 25, and no compensation expense has been recognized.

The agreement contains an anti-dilution clause that gives Mr. Johnson the right to purchase the same number of shares of common stock, given reclassification, reorganization or change by a stockholder, as were purchasable prior to any such changes, at a total price equal to that payable upon the exercise of the warrant. Appropriate adjustments shall be made to the exercise price so the aggregate purchase price of the shares will remain the same.

F-15

International Automated Systems, Inc.

(A Development Stage Company)

Notes to the Financial Statements

June 30, 2007 and 2006

The warrants have an exercise price of $0.40 per share and are exercisable beginning on the following dates:

January 1, 2005 - 5,000,000 shares

January 1, 2006 - 5,000,000 shares

January 1, 2007 - 5,000,000 shares

January 1, 2008 - 10,000,000 shares

January 1, 2009 - 10,000,000 shares

January 1, 2010 - 65,000,000 shares

As of June 30, 2007, the Company does not have sufficient common shares authorized to satisfy this agreement. Until the Company amends its articles of incorporation to increase the number of common shares, all of the warrants cannot be exercised. However, as of June 30, 2007 only 12,875,000 were exercisable.

In August 2006, Mr. Johnson exercised 625,000 of the warrants in exchange for debt of relief of $250,000. In September 2006 he exercised 500,000 of the warrants in exchange for debt of relief of $200,000. Mr. Johnson gave the 1,125,000 shares back to the Company and in return the Company issued debt for the treasury shares it received.

In June 2007, Mr. Johnson exercised 600,000 of the warrants in exchange for debt relief of $240,000. (See Note 3) In addition Mr. Johnson gave 400,000 of the warrants to another individual who in turn gave the Company $160,000 in cash.

In August 2000, the Company issued options to purchase 1,000,000 shares of restricted common stock over a ten year period at $3.00 per share as part of employment agreements. These options vest 100,000 shares per year over a ten year period and expire ten years from the date of issuance.

In August 2000, the Company issued options to purchase 600,000 shares of restricted common stock over a ten year period at $3.00 per share as part of employment agreements. These options vested on August 24, 2000 and expire ten years from the date of issuance.

Assumptions used for the valuation model for the May 14, 2004 agreement are set forth below:

F-16

International Automated Systems, Inc.

(A Development Stage Company)

Notes to the Financial Statements

June 30, 2007 and 2006

		May 14, 2004
		Agreement
Expected Life (in years) (1)		10
Risk-free interest rate (2)		4.79%
Expected volatility factor (3)		138.76%
Expected dividend yield		0.00%

(1) For the year ended June 30, 2007, the expected lives of options were determined based on the “simplified” method under the provisions of SAB 107. Due to limited history, we believe that we do not have appropriate historical experience to estimate future exercise patterns. As more information becomes available, we may revise this estimate on a prospective basis.

(2) The risk-free rate for periods within the contractual life of the options is based on the Federal risk free rate on a ten year t-bill in effect at the time of grant.

(3) For year ended June 30, 2007, we estimated the expected volatility based on historical share price data.

Assumptions used for the valuation model for the August 2000 agreement of 1,000,000 shares are set forth below:

		August 1, 2000
		Agreement
Expected Life (in years) (1)		10
Risk-free interest rate (2)		5.73%
Expected volatility factor (3)		137.47%
Expected dividend yield		0.00%

(2) The risk-free rate for periods within the contractual life of the options is based on the Federal risk free rate on a ten year t-bill in effect at the time of grant.

(3) For year ended June 30, 2007, we estimated the expected volatility based on historical share price data.

Assumptions used for the valuation model for the August 2000 agreement of 600,000 shares are set forth below:

F-17

International Automated Systems, Inc.

(A Development Stage Company)

Notes to the Financial Statements

June 30, 2007 and 2006

		August 1, 2000
		Agreement
Expected Life (in years) (1)		5
Risk-free interest rate (2)		5.73%
Expected volatility factor (3)		137.47%
Expected dividend yield		0.00%

(2) The risk-free rate for periods within the contractual life of the options is based on the Federal risk free rate on a ten year t-bill in effect at the time of grant.

(3) For year ended June 30, 2007, we estimated the expected volatility based on historical share price data.

The following table summarizes stock warrant/option activity of the plan:

	Options			Weighted Average Exercise Price		Weighted Average Remaining Life in Years		Aggregate Intrinsic Value
Outstanding at July 1, 2005		101,600,000		$	0.44

Outstanding at June 30, 2006		101,600,000		$	0.44		27.9

Activity during the period:
Exercised		(2,125,000	)	$	0.40

Outstanding at June 30, 2007		99,475,000		$	0.44		27.2	$	33,277,500
Exercisable at June 30, 2007		14,175,000		$	0.64		25.1	$	4,377,500

The total intrinsic value of options exercised during the year ended June 30, 2007 and 2006 was $683,750 and $0, respectively.

A summary of the status of non-vested options as of June 30, 2007, and changes during the year ended June 30, 2007, is presented below:

F-18

International Automated Systems, Inc.

(A Development Stage Company)

Notes to the Financial Statements

June 30, 2007 and 2006

	Warrants/ Options			Weighted Average Grant Date Fair Value

Non-vested at June 30, 2006		90,400,000		$	0.38

Activity during the period:
Vested		(5,100,000	)	$	0.41

Non-vested at June 30, 2007		85,300,000		$	0.38

The following table summarizes information about the stock options and warrants outstanding at June 30, 2007:

Warrants/ Options Outstanding at June 30, 2007	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price	Number Exercisable at June 30, 2007	Weighted Average Exercisable Price
1,600,000	3.2 years	$ 3.00	1,300,000	$ 3.00
97,875,000	27.3 years	$ 0.40	12,875,000	$ 0.40

For the year ended June 30, 2007, total stock-based employee compensation expense recognized was $6,548,839. There was no expense for this in prior periods. As of June 30, 2007, there was approximately $12,559,061 of unrecognized compensation cost related to non-vested stock options, which is expected to be recognized over a weighted-average period of 3.2 years.

The following summarizes the stock-based employee compensation expense for the year ended June 30, 2006, had we adopted the provisions of SFAS No. 123(R):

For the Year Ended June 30, 2006

Net loss, as reported	$	(1,473,256	)
Deduct:
Total stock-based employee compensation expense determined under fair value based method for all awards		(7,509,261	)
Pro forma net loss	$	(8,982,517	)

Basic and diluted loss per share, as reported	$	(0.06	)
Basic and diluted loss per share, pro forma	$	(0.37	)

Reduction in debt received from the exercise of stock options during the year ended June 30, 2007 was $690,000. Cash received from exercise of stock options during the year ended June 30, 2007 was $160,000, No tax benefit was realized from the exercise of the options.

F-19

International Automated Systems, Inc.

(A Development Stage Company)

Notes to the Financial Statements

June 30, 2007 and 2006

NOTE 5 – NOTES PAYABLE

Notes payable at June 30, 2007 and 2006, consisted of the following:

	2007			2006
Note payable to a financing company; 7% per annum; secured by land; due in annual installments of $10,000	$	68,324		$	77,617

Note payable to a financing company; 7% per annum; secured by land; due in annual installments of $9,397		56,638			-
		124,962			77,617
Less: Current portion		(10,328	)		(9,330	)

Net Long-Term Debt	$	114,634		$	68,287

The scheduled maturities of the notes payable are as follows:

2008	$	5,217
2009		11,015
2010		11,786
2011		12,611
2012		13,493
Thereafter		70,840
	$	124,962

NOTE 6 – PREFERRED STOCK

Series A Preferred Stock– The Series A Preferred Stock has equal dividend rights to the common shares, is not convertible into common shares, has no cumulative dividend requirements, and has liquidation preferences equivalent to the common shares. Each preferred share is entitled to the voting rights of ten common shares. At June 30, 2007 and 2006, there were 3,400,000 Series A Preferred shares issued and outstanding.

Series B Preferred Stock – The Series B Preferred Stock has equal dividend rights to the common shares, has no cumulative dividend requirements, has liquidation preferences equivalent to the common shares, and each preferred share is entitled to the voting rights of ten common shares.

Each share is convertible into options to purchase two shares of common stock at $3.00 per share, exercisable immediately and the options expire ten years from the date the preferred stock is exchanged. The Series B Preferred stock was issued to employees for services and has been accounted for as the issuance of stock options. At June 30, 2007 and 2006, there were 300,000, series B Preferred shares issued and outstanding.

F-20

International Automated Systems, Inc.

(A Development Stage Company)

Notes to the Financial Statements

June 30, 2007 and 2006

NOTE 7 – COMMON STOCK

Common Stock Issued for Cash— At July 1, 2002, the Company had 5,000,000 shares of common stock in escrow accounts to be sold. Proceeds of the stock sales from these escrow accounts are placed in separate escrow accounts to be used at the Company’s and the trustee’s discretion. During the year ended June 30, 2007, 1,262,000 shares were sold for proceeds of $425,033 at prices ranging from $0.45 to $1.12 per share. During the year ended June 30, 2006, 2,226,832 shares were sold for proceeds of $1,463,448 at prices ranging from $0.27 to $1.06 per share. The proceeds were used to pay professional fees, rent, operating expenses and accrued liabilities. At June 30, 2007 and 2006, there was a balance of 705,918 and 842,918 shares left in escrow. These shares are not accounted for as issued or outstanding common shares.

During the year ended June 30, 2007, the Company issued 400,000 shares of common stock to an individual in exchange for $160,000 in cash at $0.40 per share.

Common Stock Issued for Services - During the year ended June 30, 2006, the Company issued 110,000 shares of common stock to individuals in exchange for services performed. The shares where valued at $35,400 or between $0.30 and $0.34 per share.

Common Stock Issued for Settlement of Debt— As described in Note 3, during the year ended June 30, 2007, the Company issued 1,725,000 share of stock, at $0.40 per share, to an officer in settlement of debt.

NOTE 8 – TREASURY STOCK

As discussed in Note 3, during the year ended June 30, 2007 the Company received 1,125,000 shares of treasury stock from an officer of the Company in exchange for $643,750 of debt. The treasury shares were valued on the cost basis and placed in the escrow accounts discussed in Note 7. During the year ended June 30, 2007, 575,000 shares were reissued for proceeds of $483,908.

NOTE 9 – DEPOSITS FROM CUSTOMERS

During the years ended June 30, 2007 and 2006, the Company received deposits from customers totaling $254,250 and $419,000 relating to the solar lens sub-lease agreement. According to the terms of the agreement, the customer purchases a six-year lease from the Company for $9,000 and then sublets the lens to a third-party power company that uses the lenses to generate energy. The Company has not yet completed production of the solar plant and the deposits are recorded as a liability under the line item “Deposits from Customers.”

F-21

International Automated Systems, Inc.

(A Development Stage Company)

Notes to the Financial Statements

June 30, 2007 and 2006

NOTE 10 – INCOME TAXES

The Company did not have a current or deferred provision for income taxes for the years ended June 30, 2007 and 2006. The valuation allowance for deferred tax assets, increased by $3,159,995 from a balance of $2,074,716 as of June 30, 2006. Deferred tax assets recognized for deductible temporary difference and loss carry forwards total $0, net of a valuation allowance of $5,234,711, as detailed below at a combined federal and state tax rate of 37.3%.

For the Years Ended June 30,	2007			2006

Operating loss carryforwards	$	2,187,678		$	2,083,551
Stock option compensation expense		3,071,543			-
Accumulated depreciation/amortization		(24,510	)		(8,835	)

Net Deferred Tax Assets Before Valuation Allowance		5,234,711			2,074,716

Less: Valuation Allowance		(5,234,711	)		(2,074,716	)

Net Deferred Tax Asset	$	-		$	-

At June 30, 2007, the Company has operating loss carryforwards of $8,234,701 that, if unused, begin to expire June 30, 2012.

The following is a reconciliation of the income tax benefit from the loss before extraordinary gain computed at the federal statutory tax rate with the provision for income taxes for the years ended June 30, 2007 and 2006:

For the Years Ended June 30,	2007			2006
Income tax provision (benefit) at statutory rate (34%)	$	(2,887,756	)	$	(500,907	)
Deferred tax valuation allowance change		3,159,995			548,147
Non-deduductible expenses/taxable income		1,599			1,377
State taxes net of federal provision (benefit		(273,839	)		(48,617	)

Provision for Income Taxes	$	-		$	-

F-22

International Automated Systems, Inc.

(A Development Stage Company)

Notes to the Financial Statements

June 30, 2007 and 2006

NOTE 11 – COMMITMENTS AND CONTINGENCIES

Sales Commitments— During December 2005, the Company entered into a purchase and installation contract with Solar Renewable Energy-1, LLC for a solar thermal power plant. The contract is contingent on several factors and provides for certain progress payments. As of June 30, 2007, the Company has not provided any services or equipment required under this agreement and has recognized no revenues.

Legal - On September 23, 1998, the Company was notified by the U.S. Securities and Exchange Commission (SEC) of formal action against the Company, its president, and members of his family for possible securities violations. The action stems from alleged material misrepresentations by the Company and the Company’s employees regarding new technology developed by the Company. The SEC was seeking disgorgement of the proceeds from the sale of stock by the Company’s principals that occurred between June 1995 and June 1996. During the year ended June 30, 2005, the Company settled this action by paying $50,000 under a settlement agreement with the SEC.

During the year ended June 30, 2007, the Company was involved in various lawsuits in the ordinary course of business for the benefit of patent protection. Counterclaims exist requesting an award for attorney fees and court costs. The Company believes that at this point the chance of any losses resulting from these requests is remote.

NOTE 12 – LEASE OBLIGATIONS

The Company entered into an operating lease during February 2006 for research and development (R&D) space for $1,100 per month. This lease was not renewed upon expiration.

In October 2006, the Company entered into a new lease agreement for research and development space that was closer to the Company’s R&D base of operations. The term of this lease is from November 1, 2006 to November 1, 2016. The following is a minimum lease payment schedule for this lease:

Year Ending June 30;	Amount
2008	$	7,200
2009		7,500
2010		7,500
2011		7,500
2012		7,500
Total	$	37,200

Total rent expense for these leases and the related-party lease described in Note 3 for the years ended June 30, 2007 and 2006 was $187,865 and $205,052.

NOTE 13 – CONCENTRATIONS

The Federal Deposit Insurance Corporation (FDIC) insures cash deposits in most general bank accounts for up to $100,000 per institution. The Company had cash deposits that exceeded insured amounts by $483,878 and $657,570 for the years ended June 30, 2007 and 2006, respectively.

F-23