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| UTAH                                                                              | 87-0447580                                           |
|-----------------------------------------------------------------------------------|------------------------------------------------------|
| (State                    or other jurisdiction of incorporation or organization) | (IRS                    Employer Identification No.) |

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**INTERNATIONAL        AUTOMATED SYSTEMS, INC.**

***(A        Development Stage Company)***

| **TABLE                  OF CONTENTS**                                                                                                                                                                                                        |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                          |   | **Page** |
|                                                                                                                                                                                                                                          |   |   |
| PART                  I - FINANCIAL INFORMATION                                                                                                                                                                                               |
|                                                                                                                                                                                                                                          |   |   |
| Item 1.    Financial                Statements                                                                                                                                                                            |   | 3 |
| Balance                  Sheets as of September 30, 2005 and June 30, 2005                                                                                                                                                                    |   | 3 |
| Statements                  of Operations for the Years Three Months September 30, 2005 and                  2004 and                  for the Period from September 26, 1986 (Date of Inception) through                  September 30, 2005 |   | 4 |
| Statements                  of Cash Flows for the Three Months Ended September 30, 2005 and                  2004 and                  for the Period from September 26, 1986 (Date of Inception) through                  September 30, 2005 |   | 5 |
| Notes                  to the Financial Statements                                                                                                                                                                                            |   | 6 |
| Item 2.    Management’s                Discussion and Analysis or Plan of Operation                                                                                                                                 |   | 9 |
| Item 3.    Controls                and                Procedures                                                                                                                                                          |   | 10 |
|                                                                                                                                                                                                                                          |   |   |
| PART                  II - OTHER INFORMATION                                                                                                                                                                                                  |
|                                                                                                                                                                                                                                          |   |   |
| Item                  1.    Legal                  Proceedings                                                                                                                                                            |   | 10 |
| Item                  2.    Changes                  in Securities                                                                                                                                                        |   | 11 |
| Item                  3.    Defaults                  Upon Senior Securities                                                                                                                                              |   | 11 |
| Item                  4.    Submission                  of Matters to a Vote of Security Holders                                                                                                                          |   | 11 |
| Item                  5.    Other                  Information                                                                                                                                                            |   | 11 |
| Item                  6.    Exhibits and                  Reports on Form 8-K                                                                                                                                        |   | 11 |

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**INTERNATIONAL        AUTOMATED SYSTEMS, INC.**

| **ASSETS**                                                                                                                                                                                                                                    |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                                                                                          |   | September                  30, |   | June                  30, |   |
|                                                                                                                                                                                                                                          |   | 2005 |   | 2005 |   |
| **CURRENT                  ASSETS**                                                                                                                                                                                                           |   |   |   |   |   |
|                                                                                                                                                                                                                                          |   |   |   |   |   |
| Cash                                                                                                                                                                                                                                          |   | $ | 323,548 |   | $ | 40,885 |   |
| Prepaid                  sales commissions                                                                                                                                                                                                    |   |   | 4,000 |   |   | 4,000 |   |
|                                                                                                                                                                                                                                          |   |   |   |   |   |   |   |
|  **Total                  Current Assets**                                                                                                                                                                                               |   |   | 327,548 |   |   | 44,885 |   |
|                                                                                                                                                                                                                                          |   |   |   |   |   |   |   |
| Property                  and Equipment, net of $90,161 and $86,170 accumulated depreciation,                  respectively                                                                                                                   |   |   | 45,261 |   |   | 60,491 |   |
| Patents,                  net of $8,669 and $7,834 accumulated amortization,                  respectively                                                                                                                                    |   |   | 174,187 |   |   | 173,666 |   |
|                                                                                                                                                                                                                                          |   |   |   |   |   |   |   |
|  **TOTAL                  ASSETS**                                                                                                                                                                                                       |   | $ | 546,996 |   | $ | 279,042 |   |
|                                                                                                                                                                                                                                          |   |   |   |   |   |   |   |
| **LIABILITIES                  AND STOCKHOLDERS' EQUITY (DEFICIT)**                                                                                                                                                                           |
|                                                                                                                                                                                                                                          |   |   |   |   |   |   |   |
| **CURRENT                  LIABILITIES**                                                                                                                                                                                                      |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                          |   |   |   |   |   |   |   |
| Accounts                  payable                                                                                                                                                                                                             |   | $ | 48,187 |   | $ | 132,661 |   |
| Accrued                  payroll taxes                                                                                                                                                                                                        |   |   | 155,073 |   |   | 154,600 |   |
| Related                  party payable                                                                                                                                                                                                        |   |   | 193,808 |   |   | 48,588 |   |
| Deposits                  from customers                                                                                                                                                                                                      |   |   | 40,000 |   |   | 40,000 |   |
| Deposits                  from related parties                                                                                                                                                                                                |   |   | 74,400 |   |   | 74,400 |   |
| Notes                  payable-current portion                                                                                                                                                                                                |   |   | 1,519 |   |   | 2,069 |   |
|                                                                                                                                                                                                                                          |   |   |   |   |   |   |   |
|  **Total                  Current Liabilities**                                                                                                                                                                                          |   |   | 512,987 |   |   | 452,318 |   |
|                                                                                                                                                                                                                                          |   |   |   |   |   |   |   |
| **TOTAL                  LIABILITIES**                                                                                                                                                                                                        |   |   | 512,987 |   |   | 452,318 |   |
|                                                                                                                                                                                                                                          |   |   |   |   |   |   |   |
| **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, 23,718,290 and                  21,895,790 shares issued and outstanding, net 2,347,250 and 3,069,750                  shares held in escrow account, respectively |   |   | 11,052,677 |   |   | 10,017,859 |   |
| Deficit                  accumulated during the development stage                                                                                                                                                                             |   |   | (11,313,454 | ) |   | (10,485,921 | ) |
|                                                                                                                                                                                                                                          |   |   |   |   |   |   |   |
|  **Total                  Stockholders' Equity (Deficit)**                                                                                                                                                                               |   |   | 34,009 |   |   | (173,276 | ) |
|                                                                                                                                                                                                                                          |   |   |   |   |   |   |   |
|  **TOTAL                  LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)**                                                                                                                                                               |   | $ | 546,996 |   | $ | 279,042 |   |

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**INTERNATIONAL        AUTOMATED SYSTEMS, INC.**

|                                                                 |   | For                    the Three MonthsEnded                    September 30, |       | For                        the PeriodFrom Inception(September 26, 1986)                    ThroughSeptember                  30, |   |
|----------------------------------------------------------------------|--------|-------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                 |   | 2005                                                                          |       | 2004                                                                                                                             |   | 2005 |   |
| **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                          |   |                                                                          | 753,796    |                                                                                                                             |   | 171,637 |   |   | 6,904,516 |   |
| Research                  and development                            |   |                                                                          | 73,737     |                                                                                                                             |   | 103,536 |   |   | 4,977,651 |   |
| Impairment                  of patents                               |   |                                                                          | -          |                                                                                                                             |   | - |   |   | 110,082 |   |
| License                  fees                                        |   |                                                                          | -          |                                                                                                                             |   | - |   |   | 270,634 |   |
|  **Total                  Operating Expenses**                  |   |                                                                          | 827,533    |                                                                                                                             |   | 275,173 |   |   | 12,262,883 |   |
|                                                                 |   |                                                                          |       |                                                                                                                             |   |   |   |   |   |   |
| **LOSS                  FROM OPERATIONS**                            |   |                                                                          | (827,533   | )                                                                                                                                |   | (275,173 | ) |   | (12,434,367 | ) |
|                                                                 |   |                                                                          |       |                                                                                                                             |   |   |   |   |   |   |
| **OTHER                  INCOME (EXPENSES)**                         |   |                                                                          |       |                                                                                                                             |   |   |   |   |   |   |
| Loss                  on disposal of property and equipment          |   |                                                                          | -          |                                                                                                                             |   | - |   |   | (17,359 | ) |
| Forfeiture                  of deposits                              |   |                                                                          | -          |                                                                                                                             |   | - |   |   | (236,803 | ) |
| Interest                  income                                     |   |                                                                          | -          |                                                                                                                             |   | - |   |   | 22,444 |   |
| Other                                                                |   |                                                                          | -          |                                                                                                                             |   | - |   |   | (29,392 | ) |
|  **Total                  Other Income (Expenses)**             |   |                                                                          | -          |                                                                                                                             |   | - |   |   | (261,110 | ) |
|                                                                 |   |                                                                          |       |                                                                                                                             |   |   |   |   |   |   |
| **LOSS                  BEFORE EXTRAORDINARY GAIN**                  |   |                                                                          | (827,533   | )                                                                                                                                |   | (275,173 | ) |   | (12,695,477 | ) |
|                                                                 |   |                                                                          |       |                                                                                                                             |   |   |   |   |   |   |
| **Extraordinary                  Gain on Sale of Patents**           |   |                                                                          | -          |                                                                                                                             |   | - |   |   | 1,382,023 |   |
|                                                                 |   |                                                                          |       |                                                                                                                             |   |   |   |   |   |   |
| **NET                  INCOME (LOSS)**                               |   | $                                                                             | (827,533   | )                                                                                                                                | $      | (275,173 | ) | $ | (11,313,454 | ) |
|                                                                 |   |                                                                          |       |                                                                                                                             |   |   |   |   |   |   |
| Basic                  and Diluted Income (Loss) Per Share           |   |                                                                          |       |                                                                                                                             |   |   |   |   |   |   |
| Loss                  before extraordinary gain                      |   | $                                                                             | (0.04      | )                                                                                                                                | $      | (0.01 | ) |   |   |   |
| Extraordinary                  gain                                  |   |                                                                          | -          |                                                                                                                             |   | - |   |   |   |   |
| Net                  Income (Loss) Applicable to Common Shareholders |   | $                                                                             | (0.04      | )                                                                                                                                | $      | (0.01 | ) |   |   |   |
|                                                                 |   |                                                                          |       |                                                                                                                             |   |   |   |   |   |   |
| Weighted                  Shares Used in Per Share Calculation       |   |                                                                          | 22,275,201 |                                                                                                                             |   | 24,558,136 |   |   |   |   |

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**INTERNATIONAL        AUTOMATED SYSTEMS, INC.**

|                                                                                                       |   |                                  |     |                                  |   | For                  the Period     |   |
|------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|----------|---------------------------------------|--------|-------------------------------------|--------|
|                                                                                                       |   |                                  |     | From                  Inception       |   |
|                                                                                                       |   | For                  the Three Months |     | (September                  26, 1986) |   |
|                                                                                                       |   | Ended                  September 30,  |     | Through                               |   |
|                                                                                                       |   | 2005                                  |     | 2004                                  |   | September                  30, 2005 |   |
| **CASH                  FLOWS FROM OPERATING ACTIVITIES**                                                  |   |                                  |     |                                  |   |                                |   |
| Net                  income (loss)                                                                         |   | $                                     | (827,533 | )                                     | $      | (275,173                            | )      | $ | (11,313,454 | ) |
| Adjustments                  to reconcile net loss to net cash from operating                  activities: |   |                                  |     |                                  |   |                                |   |   |   |   |
| Depreciation                  and amortization                                                             |   |                                  | 4,828    |                                  |   | 4,564                               |   |   | 338,946 |   |
| Stock                  based compensation                                                                  |   |                                  | 627,000  |                                  |   | -                                   |   |   | 2,848,407 |   |
| 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                                                             |   |                                  | -        |                                  |   | -                                   |   |   | 17,359 |   |
| Impairment                  of patents and abandonment of in-process rights to                  technology |   |                                  | -        |                                  |   | -                                   |   |   | 356,632 |   |
| Gain                  on sale of patents                                                                   |   |                                  | -        |                                  |   | -                                   |   |   | (1,382,023 | ) |
| Gain                  on settlement of debt                                                                |   |                                  | -        |                                  |   | -                                   |   |   | (6,123 | ) |
| Changes                  in current assets and liabilities:                                                |   |                                  |     |                                  |   |                                |   |   |   |   |
| Prepaid                  sales commissions                                                                 |   |                                  | -        |                                  |   | -                                   |   |   | (4,000 | ) |
| Deposits                  from customers                                                                   |   |                                  | -        |                                  |   | -                                   |   |   | 40,000 |   |
| Accounts                  payable                                                                          |   |                                  | (84,474  | )                                     |   | (10,725                             | )      |   | 48,186 |   |
| Related                  party payable                                                                     |   |                                  | -        |                                  |   | -                                   |   |   | 48,588 |   |
| Accrued                  liabilities                                                                       |   |                                  | 473      |                                  |   | 903                                 |   |   | 255,072 |   |
| **Net                  Cash From Operating Activities**                                                    |   |                                  | (279,706 | )                                     |   | (280,431                            | )      |   | (8,474,762 | ) |
|                                                                                                       |   |                                  |     |                                  |   |                                |   |   |   |   |
| **CASH                  FLOWS FROM INVESTING ACTIVITIES**                                                  |   |                                  |     |                                  |   |                                |   |   |   |   |
| Purchase                  of property and equipment                                                        |   |                                  | -        |                                  |   | -                                   |   |   | (327,859 | ) |
| Proceeds                  from sale of property and equipment                                              |   |                                  | 11,237   |                                  |   | -                                   |   |   | 11,237 |   |
| Purchase                  of rights to technology                                                          |   |                                  | (1,356   | )                                     |   | (3,506                              | )      |   | (624,943 | ) |
| 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 From Investing Activities**                                              |   |                                  | 9,881    |                                  |   | (3,506                              | )      |   | (1,108,936 | ) |
|                                                                                                       |   |                                  |     |                                  |   |                                |   |   |   |   |
| **CASH                  FLOWS FROM FINANCING ACTIVITIES**                                                  |   |                                  |     |                                  |   |                                |   |   |   |   |
| Proceeds                  from issuance of common stock                                                    |   |                                  | 407,818  |                                  |   | 70,710                              |   |   | 3,429,909 |   |
| Cash                  from controlling shareholder                                                         |   |                                  | -        |                                  |   | -                                   |   |   | 6,270,559 |   |
| Payments                  for treasury stock                                                               |   |                                  | -        |                                  |   | -                                   |   |   | (3,325 | ) |
| Payments                  for stock offering costs                                                         |   |                                  | -        |                                  |   | -                                   |   |   | (56,509 | ) |
| Decrease                  (Increase) in bank overdraft                                                     |   |                                  | -        |                                  |   | -                                   |   |   | - |   |
| Proceeds                  from net borrowings from related party                                           |   |                                  | 145,220  |                                  |   | -                                   |   |   | 223,321 |   |
| Proceeds                  from notes payable                                                               |   |                                  | -        |                                  |   | -                                   |   |   | 29,857 |   |
| Payments                  on note payable and obligations capital lease                                    |   |                                  | (550     | )                                     |   | (1,608                              | )      |   | (142,225 | ) |
| Proceeds                  from related party deposits                                                      |   |                                  | -        |                                  |   | -                                   |   |   | 224,400 |   |
| Purchases                  of equipment held for distribution                                              |   |                                  | -        |                                  |   | -                                   |   |   | (68,741 | ) |
|  **Net                  Cash From Financing Activities**                                              |   |                                  | 552,488  |                                  |   | 69,102                              |   |   | 9,907,246 |   |
|                                                                                                       |   |                                  |     |                                  |   |                                |   |   |   |   |
| **NET                  INCREASE IN CASH**                                                                  |   |                                  | 282,663  |                                  |   | (214,835                            | )      |   | 323,548 |   |
| **CASH                  AT BEGINNING OF PERIOD**                                                           |   |                                  | 40,885   |                                  |   | 702,366                             |   |   | - |   |
| **CASH                  AT END OF PERIOD**                                                                 |   | $                                     | 323,548  |                                  | $      | 487,531                             |   | $ | 323,548 |   |

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**International              Automated Systems, Inc.**

**(A              Development Stage Company)**

**Notes              to Unaudited Condensed Financial Statements**

**September              30, 2005**

**NOTE        1 - INTERIM FINANCIAL STATEMENTS**

**NOTE        2 - BUSINESS CONDITION**

**NOTE        3 - STOCK BASED COMPENSATION**

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**International              Automated Systems, Inc.**

**(A              Development Stage Company)**

**Notes              to Unaudited Condensed Financial Statements**

**September              30, 2005**

|                                                                                                                                              |   | Three                  Months Ended |       |
|---------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------|------------|
|                                                                                                                                              |   | September                  30,      |       |
|                                                                                                                                              |   | 2005                                |       | 2004 |   |
|                                                                                                                                              |   |                                |       |   |   |
| Net                  loss, as reported                                                                                                            |   | $                                   | (827,533   | ) | $ | (275,173 | ) |
| Deduct:                  Total stock-based employee compensation expense determined under                  fair-value based method for all awards |   |                                | (2,038,792 | ) |   | (2,787,812 | ) |
| **Pro                  forma net loss**                                                                                                           |   | $                                   | (2,866,325 | ) | $ | (3,062,985 | ) |
|                                                                                                                                              |   |                                |       |   |   |   |   |
| **Basic                  and diluted loss per common share as reported**                                                                          |   | $                                   | (0.04      | ) | $ | (0.01 | ) |
|                                                                                                                                              |   |                                |       |   |   |   |   |
| **Basic                  and diluted loss per common share pro forma**                                                                            |   | $                                   | (0.13      | ) | $ | (0.12 | ) |

**NOTE        4 - LEGAL CONTINGENCIES**

*Legal        Contingencies*

*Payroll        Tax Contingency*

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**International              Automated Systems, Inc.**

**(A              Development Stage Company)**

**Notes              to Unaudited Condensed Financial Statements**

**September              30, 2005**

**NOTE        5-STOCKHOLDERS EQUITY**

***Common        Stock Issued for Cash***

***Common        Stock Issued for Cash***

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| Payments                Due By Period  |
|----------------------------------------|
|                                   |   |   |   |
| Contractual                Obligations | Total | Less                Than One Year | One                To Three Years |
| Long-term                debt          | $                1,519 | $1,519 | $0 |

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|   | 31     | Certification                by the Chief Executive and Chief Financial Officer Pursuant to Section                302                of the Sarbanes-Oxley Act of 2002                                                                          |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                             |
|   | 32     | Certification                by the Chief Executive and Chief Financial Officer Pursuant to 18                U.S.C.                Section 1350 Adopted Pursuant to Section 906 of the Sarbanes-Oxley                Act of                2002 |

**International      Automated Systems, Inc.**

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