SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-QSB



Quarterly Report Under Section 13 or 15(d)

Of the Securities Exchange Act of 1934



For Quarter Ended December 31, 2004



Commission File Number  33-16531-D



INTERNATIONAL AUTOMATED SYSTEMS, INC.

(Exact name of registrant as specified in its charter)



UTAH    87-0447580

(State or other jurisdiction of (IRS Employer Identification No.)

incorporation or organization)

326 North Sr. 198 ,

Salem, Utah   84653

(Address of principal executive offices)



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



Not Applicable

Former Address, if changed since last report





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the proceeding 12 months (or such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X   No __





As of December 31, 2004 Registrant had 24,966,140 shares of common stock, no par value per share, which includes 3,455,250 shares held in escrow accounts.



Transitional Small Business Disclosure Format (Check One)   Yes X       No ___







---

PART   I

Item 1

Financial Statements



INTERNATIONAL AUTOMATED SYSTEMS, INC.

(A Development Stage Company)

CONDENSED BALANCE SHEETS





|                                                                         | December 31,   |  | June 30,      
|------------------------------------------------------------------------ | -------------- |  | --------------
|                                                                         | 2004           |  | 2004          
|                                                                         | (Unaudited)    |  |               
|ASSETS                                                                   |                |  |               
|Current Assets                                                           |                |  |               
|Cash                                                                     | $      233,336 |  | $      702,366
|Prepaid sales commissions                                                | 4,000          |  | 4,000         
|Equipment held for distribution                                          | 16,945         |  | 16,945        
|Total Current Assets                                                     | 254,281        |  | 723,311       
|Property and Equipment                                                   |                |  |               
|Computers                                                                | 22,936         |  | 22,936        
|Equipment                                                                | 20,306         |  | 20,306        
|Automobiles                                                              | 62,633         |  | 62,633        
|Mobile office                                                            | 11,764         |  | 11,764        
|Deposits on equipment                                                    | 35,138         |  | 35,138        
|Total Property and Equipment                                             | 152,777        |  | 152,777       
|Accumulated depreciation                                                 | (78,303)       |  | (70,845)      
|Net Property and Equipment                                               | 74,474         |  | 81,932        
|Patents, net of $6,164 and $4,494 accumulated amortization, respectively | 141,537        |  | 120,291       
|Total Assets                                                             | $      470,292 |  | $      925,534
|                                                                         |                |  |               
|LIABILITIES AND STOCKHOLDERS' EQUITY                                     |                |  |               
|Current Liabilities                                                      |                |  |               
|Accounts payable                                                         | $       89,417 |  | $       92,460
|Accrued  payroll taxes                                                   | 151,376        |  | 156,772       
|Accrued liabilities                                                      | 100,000        |  | 130,000       
|Deposits from customers                                                  | 40,000         |  | 40,000        
|Deposits from related parties                                            | 74,400         |  | 74,400        
|Notes payable-current portion                                            | 4,985          |  | 5,588         
|Total Current Liabilities                                                | 460,178        |  | 499,220       
|Net Long-Term Liabilities -notes payable                                 | -              |  | 2,479         
|Total Liabilities                                                        | 460,178        |  | 501,699       
|Stockholders' Equity                                                     |                |  |               
|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, 21,510,890 and 20,836,340 issued and                         |                |  |               
|outstanding, net 3,455,250 and 3,801,500 shares held in                  |                |  |               
|escrow account, respectively                                             | 9,751,001      |  | 9,601,090     
|Deficit accumulated during the development stage                         | (10,035,673)   |  | (9,472,041)   
|Total Stockholders' Equity                                               | 10,114         |  | 423,835       
|Total Liabilities and Stockholders' Equity                               | $      470,292 |  | $      925,534
|                                                                         |                |  |               

See the accompanying notes to the condensed financial statements





---

INTERNATIONAL AUTOMATED SYSTEMS, INC.

(A Development Stage Company)

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)



|                                              |            |                            |            |                          |            |                    |                      |  | For the Period         
|--------------------------------------------- | ---------- | -------------------------- | ---------- | ------------------------ | ---------- | ------------------ | -------------------- |  | -----------------------
|                                              |            |                            |            |                          |            |                    |                      |  | Since Inception        
|                                              |            | For the Three Months Ended |            | For the Six Months Ended |            | (September 26,    
|                                              |            | December 31,               |            | December 31,             |            | 1986) Through     
|                                              |            | 2004                       |            | 2003                     |            | 2004               | 2003                 |  | December 31, 2004      
|Revenue                                       |            |                            |            |                          |            |                    |                      |  |                        
|Sales                                         |            | $                 -        |            | $                 -      |            | $                - | $                  - |  | $               111,226
|Income from related party                     |            | -                          |            | -                        |            | -                  | -                    |  | 32,348                 
|Total Revenue                                 |            | -                          |            | -                        |            | -                  | -                    |  | 143,574                
|                                              |            |                            |            |                          |            |                    |                      |  |                        
|Cost of Sales                                 |            |                            |            |                          |            |                    |                      |  |                        
|Cost of sales                                 |            | -                          |            | -                        |            | -                  | -                    |  | 81,927                 
|Write down of carrying value of inventories   |            | -                          |            | -                        |            | -                  | -                    |  | 216,186                
|Total Cost of Sales                           |            | -                          |            | -                        |            | -                  | -                    |  | 298,113                
|                                              |            |                            |            |                          |            |                    |                      |  |                        
|Gross Loss                                    |            | -                          |            | -                        |            | -                  | -                    |  | (154,539)              
|                                              |            |                            |            |                          |            |                    |                      |  |                        
|Operating Expenses                            |            |                            |            |                          |            |                    |                      |  |                        
|General and administrative                    |            | 145,576                    |            | 189,847                  |            | 317,213            | 303,282              |  | 5,936,064              
|Research and development expense              |            | 142,883                    |            | 53,520                   |            | 246,419            | 114,643              |  | 4,679,144              
|Impairment of patents                         |            | -                          |            | -                        |            | -                  | -                    |  | 110,082                
|Litigation settlement expense                 |            | -                          |            | -                        |            | -                  | -                    |  | 270,634                
|Total Operating Expenses                      |            | 288,459                    |            | 243,367                  |            | 563,632            | 417,925              |  | 10,995,924             
|                                              |            |                            |            |                          |            |                    |                      |  |                        
|Operating Loss                                |            | (288,459)                  |            | (243,367)                |            | (563,632)          | (417,925)            |  | (11,150,463)           
|                                              |            |                            |            |                          |            |                    |                      |  |                        
|Other Income and (Expenses)                   |            |                            |            |                          |            |                    |                      |  |                        
|Loss on disposal of property and equipment    |            | -                          |            | -                        |            | -                  | -                    |  | (17,359)               
|Forfeiture of deposits                        |            | -                          |            | -                        |            | -                  | -                    |  | (236,803)              
|Interest income                               |            | -                          |            | -                        |            | -                  | -                    |  | 22,444                 
|Interest expense                              |            | -                          |            | -                        |            | -                  | -                    |  | (35,515)               
|Net Other Expense                             |            | -                          |            | -                        |            | -                  | -                    |  | (267,233)              
|                                              |            |                            |            | -                        |            |                    |                      |  |                        
|Loss Before Extraordinary Gain                |            | (288,459)                  |            | (243,367)                |            | (563,632)          | -                    |  | (11,417,696)           
|                                              |            |                            |            |                          |            |                    |                      |  |                        
|Extraordinary gain on sale of patents,        |            |                            |            |                          |            |                    |                      |  |                        
|net of $0 in income taxes                     |            | -                          |            | -                        |            | -                  | -                    |  | 1,382,023              
|                                              |            |                            |            |                          |            |                    |                      |  |                        
|Net Loss                                      |            | $     (288,459)            |            | $     (243,367)          |            | $     (563,632)    | $      (417,925)     |  | $         (10,035,673) 
|                                              |            |                            |            |                          |            |                    |                      |  |                        
|Basic and Diluted Loss Per Share              |            | $          (0.01)          |            | $          (0.01)        |            | $          (0.03)  | $           (0.02)   |  |                        
|Weighted Shares Used in Per Share Calculation | 21,396,825 |                            | 24,428,649 |                          | 21,255,436 | 24,303,744         |                      | 
|                                              |            |                            |            |                          |            |                    |                      |  |                        





See the accompanying notes to the condensed financial statements





---

INTERNATIONAL AUTOMATED SYSTEMS, INC.

(A Development Stage Company)

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)



|                                                              |         |                          |          |                     |           | For the Period          
|------------------------------------------------------------- | ------- | ------------------------ | -------- | ------------------- | --------- | ------------------------
|                                                              |         |                          |          |                     |           | From Inception          
|                                                              |         | For the Six Months Ended |          | (September 26,     
|                                                              |         | December 31,             |          | 1986) Through      
|                                                              |         | 2004                     |          | 2003                |           | December 31, 2004       
|Cash Flows From Operating Activities                          |         |                          |          |                     |           |                         
|Net loss                                                      |         | $     (563,632)          |          | $     (417,925)     |           | $           (10,035,673)
|Adjustments to reconcile net income (loss) to net             |         |                          |          |                     |           |                         
|cash from operating activities:                               |         |                          |          |                     |           |                         
|Depreciation and amortization                                 |         | 9,128                    |          | 5,801               |           | 324,581                 
|Stock based compensation                                      |         | -                        |          | -                   |           | 2,221,407               
|Forfeiture of deposits                                        |         | -                        |          | -                   |           | 236,803                 
|Loss on disposal of fixed assets                              |         | -                        |          | -                   |           | 17,359                  
|Impairment of patents and abandonment of in-process           |         |                          |          |                     |           |                         
|rights to technology                                          |         | -                        |          | -                   |           | 356,632                 
|Gain on sale of patents                                       |         | -                        |          | -                   |           | (1,382,023)             
|Changes in current assets and liabilities:                    |         |                          |          |                     |           |                         
|Prepaid sales commissions                                     |         | -                        |          | (13,000)            |           | (4,000)                 
|Deposits from customers                                       |         | -                        |          | 100,384             |           | 40,000                  
|Accounts payable                                              |         | (3,043)                  |          | 130,000             |           | 89,416                  
|Accrued liabilities                                           |         | (35,396)                 |          | (36,172)            |           | 251,376                 
|Net Cash From Operating Activities                            |         | (592,943)                |          | (230,912)           |           | (7,884,122)             
|Cash Flows From Investing Activities                          |         |                          |          |                     |           |                         
|Purchases of property and equipment                           |         | -                        |          | -                   |           | (310,076)               
|Purchase of rights to technology                              |         | (22,916)                 |          | -                   |           | (589,788)               
|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                            |         | (22,916)                 |          | -                   |           | (1,067,235)             
|Cash Flows From Financing Activities                          |         |                          |          |                     |           |                         
|Proceeds from issuance of common stock                        |         | 149,911                  |          | 246,311             |           | 2,849,110               
|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                         |         | -                        |          | (19,385)            |           | -                       
|Proceeds from net borrowings from related party               |         | -                        |          | -                   |           | 78,101                  
|Proceeds from notes payable                                   |         | -                        |          | -                   |           | 29,857                  
|Payments on notes payable and obligations under capital lease | (3,082) |                          | (18,862) |                     | (138,759)
|Proceeds from related party deposits                          |         | -                        |          | -                   |           | 224,400                 
|Purchases of equipment held for distribution                  |         | -                        |          | (3,003)             |           | (68,741)                
|Net Cash From Financing Activities                            |         | 146,829                  |          | 205,061             |           | 9,184,693               
|Net Increase In Cash                                          |         | (469,030)                |          | (25,851)            |           | 233,336                 
|Cash at Beginning of Period                                   |         | 702,366                  |          | 54,034              |           | -                       
|Cash at End of Period                                         |         | $       233,336          |          | $        28,183     |           | $                233,336
|                                                              |         |                          |          |                     |           |                         
|Supplemental Cash Flow Information                            |         |                          |          |                     |           |                         
|Cash paid for interest                                        |         | $                 -      |          | $                 - |           |                         
|Non-Cash Investing and Financing Activities                   |         |                          |          |                     |           |                         
|Convert equipment held for distribution and deposits          |         |                          |          |                     |           |                         
|from related parties to contributed capital                   |         | $                 -      |          | $        98,204     |           |                         
|                                                              |         |                          |          |                     |           |                         

See the accompanying notes to the condensed financial statements





---

INTERNATIONAL AUTOMATED SYSTEMS, INC.

(A Development State Company)

NOTES TO CONDENSED FINANCIAL STATEMENTS

DECEMBER 31, 2004

(Unaudited)



NOTE 1INTERIM FINANCIAL STATEMENTS



The accompanying financial statements have been prepared by the Company, and are unaudited. In the opinion of management, the accompanying unaudited financial statements contain all necessary adjustments for fair presentation, consisting of normal recurring adjustments except as disclosed herein.



The accompanying unaudited interim financial statements have been condensed pursuant to the rules and regulations of the Securities and Exchange Commission; therefore, certain information and disclosures generally included in financial statements have been condensed or omitted. These financial statements should be read in connection with the Companys annual financial statements included in the Companys annual report on Form 10-KSB as of June 30, 2004. The financial position and results of operations of the interim periods presented are not necessarily indicative of the results to be expected for the year ended June 30, 2005.



Basic loss per common share is computed by dividing net loss available to common stockholders by the weighted-average number of common shares outstanding during the period.  Diluted loss per share reflects the potential dilution which could occur if all contracts to issue common stock were exercised or converted into common stock.  Common stock equivalents and stock options have not been included as they are anti-dilutive.





NOTE 2BUSINESS CONDITION



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.  The Company has had no revenue and no operating income for the six-month period ended December 31, 2004, and a net loss of $568,632 was incurred for the six-month period ended December 31, 2004.  As of December 31, 2004, the Companys losses accumulated from inception totaled $10,035,673. 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.



NOTE 3  STOCK BASED COMPENSATION



The Company accounts for stock options issued to directors, officers and employees under Accounting Principles Board Opinion No. 25 and related interpretations (APB 25).  Under APB 25, compensation expense is recognized if an options exercise price on the measurement date is below the fair value of the Companys common stock.  The Company accounts for options and warrants issued to non-employees at their fair value in accordance with SFAS No. 123, Accounting for Stock-Based Compensation (SFAS 123).



No compensation cost has been recognized for its stock options in the accompanying financial statements.  Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Companys net loss applicable to common shareholders would have been increased to the pro forma amounts indicated below for the three and six months ended December 31, 2004 and 2003:



|                                                 | 2004             |  | 2003             |  | 2004            |  | 2003           
|------------------------------------------------ | ---------------- |  | ---------------- |  | --------------- |  | ---------------
|Net loss                                         | $    (288,459)   |  | $    (243,367)   |  | $   (563,632)   |  | $   (417,925)  
|Deduct:  Total stock-based employee compensation |                  |  |                  |  |                 |  |                
|expense determined under fair value based method |                  |  |                  |  |                 |  |                
|for all awards                                   | (2,779,563)      |  | (54,298)         |  | (5,567,375)     |  | (120,856)      
|Pro forma net loss                               | $  (3,068,022)   |  | $    (297,665)   |  | $ (6,131,007)   |  | $   (538,781)  
|                                                 |                  |  |                  |  |                 |  |                
|Basic and diluted loss per share, as reported    | $         (0.01) |  | $         (0.01) |  | $        (0.29) |  | $        (0.02)
|Basic and diluted loss per share, pro forma      | $         (0.14) |  | $         (0.01) |  | $        (0.29) |  | $        (0.02)
|                                                 |                  |  |                  |  |                 |  |                









---

NOTE 4CONTINGENCIES AND COMMITMENTS



Legal Contingencies  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 is 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, 2004, the Company paid $100,000 under a tentative settlement agreement with the SEC.  The settlement is pending final approval from the SEC.



During the year ended June 30, 2004, the Company was notified of two claims related to deposits for equipment and the Companys automated self-service restaurant technology.  The claims request that $130,000 of deposits be refunded and that liquidating damages be paid.  The probable outcome of these claims is unknown, and may result in the incurrence of a liability of up to $210,000.  During the six months ended December 31, 2004, the Company settled one of these claims with a cash payment of $30,000. The remaining $100,000 of disputed deposits is included in accrued expenses.



Payroll Tax Contingency The Company has unpaid federal and state withholding tax liabilities from prior periods which are substantially past due.  The Company was also assessed penalties by the IRS related to the filing of their 1999 W-2s. As of December 31, 2004, the remaining balance assessed by federal and state agencies, including penalties and interest, totaling $114,898 has been reflected in the financial statements as part of accrued payroll and related expenses.



NOTE 5STOCKHOLDERS EQUITY



Common Stock Issued for Cash  At June 30, 2004 the Company had a total of 3,801,500 shares held in escrow with three different entities. Proceeds of the stock sales from these escrow accounts are placed in separate escrow accounts to be used at the Companys and the trustees discretion. During the six months ended December 31, 2004, the Company issued 346,250 shares of common stock from the trust in exchange for $117,366 in cash at prices between $0.25 and $0.37 per share.  The proceeds were used to pay professional fees, operating expenses and accrued liabilities. At December, 2004, there was a balance of 3,455,250 shares left in escrow and a cash balance of $234,627.



During the six months ended December 31, 2004, the Company issued 132,000 shares of restricted common stock to individuals for $32,545 in cash.









---

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION



FORWARD LOOKING STATEMENTS



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.



LIQUIDITY AND CAPITAL RESOURCES



As of December 31, 2004, total current assets were $254,281 and total assets were $470,292 compared to total current assets $723,311 and total assets $925,534 as of June 30, 2004.



As  of  December 31, 2004, Registrant had total liabilities of $460,178 and shareholders' equity of  $10,114 as compared to total liabilities of $501,699 and  shareholders' equity of  $423,835  as  of  June  30,  2004. The deficit accumulated during the development stage was $10,035,673 as of December 31, 2004, compared to $9,472,041 as of June 30, 2004.  At this time the Company is not generating sufficient funds to sustain its operations.  The Company's operations involve significant risks regarding the development of technology and products that may not be commercially acceptable and profitable. As of December 31, 2004, the ratio of current assets to current liabilities was approximately 0.55 to one.



The Registrant's contractual obligations include a note payable to a financing company that is due in September 2005.  The following is a schedule by year of the payments on these contractual obligations.



|Payments Due By Period 
|-----------------------
|                       
|Contractual Obligations
|Long-term debt         



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 operations. The Company's  ability  to  continue is dependent upon its ability to generate sufficient cash flow to meet its  obligations,  to  obtain  additional financing as may be required, and ultimately to attain successful operations.





RESULTS OF OPERATIONS

Three Months Ended December 31, 2004 compared to Three Months Ended December 31, 2003



For the quarter ended December 31, 2004 and 2003, Registrant had no revenues or cost of sales. For the quarter ended December 31, 2004, registrant had total operating expenses of $288,459 compared to expenses of $243,367 during the same quarter of a year earlier. For the quarter, Registrant had a net loss of $288,459 compared to a net loss of $243,367 for the same quarter a year earlier. For the quarter, the net loss per share was $0.01 compared to a net loss of $0.01 for the same quarter a year earlier.  For the quarter ended December 31, 2004, general and administrative expenses were $145,576 compared to $189,847 and research development expenses were $142,883 compared to $53,520 a year earlier.  The increase in net loss is primarily due to an increase in research and development expenses.



Six Months Ended December 31, 2004 compared to Six Months Ended December 31, 2003



For the six months ended December 31, 2004 and 2003, the Registrant had no revenues or cost of sales.  For  the  six  months ended December 31, 2004,  registrant  had  total operating  expenses of $563,632  compared to expenses of $417,925 during  the same  six month period for a year earlier. For the six months ended December 31, 2004, general and administrative expenses were $317,213 compared to $303,282 and research and development expenses were $246,419 compared to $114,643 a year earlier. For the six months, the Registrant had a net loss of $563,632 compared to a net loss of $417,925 for the same six month period a year earlier. For the six months ended December 31, 2004 the net loss per share was $0.03 compared to $0.02 for the same period a year earlier. The increase in net loss is primarily due to an increase in research and development expenses.



FUTURE BUSINESS



The Company's ability to continue its activities is dependent on it receiving funds either as loans, advances, or sale of equity. Previously, the major shareholder has provided funds, but there is no formal agreement between the Company and the majority shareholder to continue providing funds in the future. If the Company had to seek funds from another source, there  is no assurance that funds would be available at all or on terms acceptable to the Company.







---



ITEM 3: CONTROLS AND PROCEDURES



(a) Evaluation of disclosure controls and procedures- Based on their  evaluation of  the Company's disclosure controls and procedures (as defined in Rule  13a-15(e) under  the Securities Exchange  Act  of 1934 (the "Exchange Act")), the Company's  principal  executive officer and principal financial officer have concluded that as of the end of the period covered by this Quarterly Report of Form  10-QSB such disclosure controls and procedures are  effective to ensure that information  required  to  be  disclosed by the Company in reports that it files or submits under the Exchange Act  is recorded, processed, summarized and reported  within  the time  periods  specified   in  Securities  and  Exchange Commission rules and forms.



(b)  Changes  in internal control over financial reporting- During  the  quarter under report, there  was  no  change  in  the  Company's  internal control over financial  reporting that has materially affected, or is reasonably  likely  to materially affect, the Company's internal control over financial reporting.





PART II - OTHER INFORMATION





ITEM 1.  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 SEC is seeking disgorgement of the proceeds from the sale of stock by the Company's principals that occurred between June 1995 and June 1996.



At the end of July 2001, the  president  of  the  Company,  on  behalf  of  the Company,  approved a settlement recommendation to be presented to the SEC as a full compromise of the  matter. During  December  2002,  the  Company received notification  from  the  SEC  that the proposed settlement agreement  had  been rejected.  Another settlement agreement has been reached during the year ending June 30, 2004 in which the company paid $100,000. The settlement is awaiting final approval from the SEC. Company is currently unaware of when and how the SEC intends to pursue this action and any possible liability resulting from this action is undeterminable.



ITEM 2.  CHANGES IN SECURITIES



During the year ended June 30, 2004, the Company had, for purposes of selling, 3,801,500 shares of common stock in escrow with three entities. Proceeds of the stock sales from the escrow accounts are placed in separate escrow accounts to be used at the Company's and the trustees discretion. At December 31, 2004, there was a balance of 3,455,250 shares left in escrow and a cash balance of 131,828.  During the six months ended December 31, 2004, the company issued 478,250 shares in exchange for proceeds of $149,912 at prices ranging from $0.25 to $0.37 per share. These proceeds were used for professional expenses, operating expenses, and accrued liabilities.



During the six months ended December 31, 2004, the Company issued 132,000 shares of common restricted stock to individuals in exchange for $32,546 in cash.









---



ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.



None.





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



None.





ITEM 5.  OTHER INFORMATION.



None





ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K



a. Exhibits



|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





SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.





Date: February 18, 2005



|International Automated Systems, Inc.
|-------------------------------------
|                                     
|By:                                  
|                                     
|