----

----

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

|   | Yes | X | No |   |
|--------|-----|---|----|--------|

|   | Yes | X | No |   |
|--------|-----|---|----|--------|

**EXPLANATORY      NOTE:**

|   | · | a                decrease in common stock of                $183,000, |
|--------|--------|-----------------------------------------------------------------------|

|   | · | a                decrease in the deficit accumulated during the development stage                of                $183,000, |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------|

|   | · | an                increase in shares issued and outstanding of                50,000 |
|--------|--------|--------------------------------------------------------------------------------------|

|   | · | a                decrease in general and administrative expense of                $612,000, |
|--------|--------|---------------------------------------------------------------------------------------------|

|   | · | a                decrease in net loss of $612,000, |
|--------|--------|----------------------------------------------------|

|   | · | a                decrease in basic and diluted loss per share of                $(0.03) |
|--------|--------|-----------------------------------------------------------------------------------------|

----

**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       |

----

**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 $86,170accumulated 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, 23,768,290 and                22,995,790 shares issued and outstanding, net 2,347,250 and 3,069,750                shares held in escrow account, respectively |   |   | 10,869,677 |   |   | 10,446,859 |   |
| Deficit                accumulated during the development stage                                                                                                                                                                         |   |   | (11,130,454 | ) |   | (10,914,921 | ) |
|                                                                                                                                                                                                                                    |   |   |   |   |   |   |   |
|  **Total                Stockholders' Equity (Deficit)**                                                                                                                                                                           |   |   | 34,009 |   |   | (173,276 | ) |
|                                                                                                                                                                                                                                    |   |   |   |   |   |   |   |
|  **TOTAL                LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)**                                                                                                                                                           |   | $ | 546,996 |   | $ | 279,042 |   |

----

**INTERNATIONAL      AUTOMATED SYSTEMS, INC.**

|                                                               |   |                                |       |                          |   | For                the Period     |   |
|--------------------------------------------------------------------|--------|-------------------------------------|------------|-------------------------------|--------|-----------------------------------|--------|
|                                                               |   |                                |       | From                Inception |   |
|                                                               |   | For                the Three Months |       | (September                26, |   |
|                                                               |   | Ended                September 30,  |       | 1986)                Through  |   |
|                                                               |   | 2005                                |       | 2004                          |   | September                30, 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                          |   |                                | 141,796    |                          |   | 171,637                           |   |   | 6,721,516 |   |
| Research                and development                            |   |                                | 73,737     |                          |   | 103,536                           |   |   | 4,977,651 |   |
| Impairment                of patents                               |   |                                | -          |                          |   | -                                 |   |   | 110,082 |   |
| License                fees                                        |   |                                | -          |                          |   | -                                 |   |   | 270,634 |   |
|  **Total                Operating Expenses**                  |   |                                | 215,533    |                          |   | 275,173                           |   |   | 12,079,883 |   |
|                                                               |   |                                |       |                          |   |                              |   |   |   |   |
| **LOSS                FROM OPERATIONS**                            |   |                                | (215,533   | )                             |   | (275,173                          | )      |   | (12,251,367 | ) |
|                                                               |   |                                |       |                          |   |                              |   |   |   |   |
| **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**                  |   |                                | (215,533   | )                             |   | (275,173                          | )      |   | (12,512,477 | ) |
|                                                               |   |                                |       |                          |   |                              |   |   |   |   |
| **Extraordinary                Gain on Sale of Patents**           |   |                                | -          |                          |   | -                                 |   |   | 1,382,023 |   |
|                                                               |   |                                |       |                          |   |                              |   |   |   |   |
| **NET                INCOME (LOSS)**                               |   | $                                   | (215,533   | )                             | $      | (275,173                          | )      | $ | (11,130,454 | ) |
|                                                               |   |                                |       |                          |   |                              |   |   |   |   |
| Basic                and Diluted Income (Loss) Per Share           |   |                                |       |                          |   |                              |   |   |   |   |
|  Loss                before extraordinary gain                |   | $                                   | (0.01      | )                             | $      | (0.01                             | )      |   |   |   |
|  Extraordinary                gain                            |   |                                | -          |                          |   | -                                 |   |   |   |   |
| Net                Income (Loss) Applicable to Common Shareholders |   | $                                   | (0.01      | )                             | $      | (0.01                             | )      |   |   |   |
|                                                               |   |                                |       |                          |   |                              |   |   |   |   |
| Weighted                Shares Used in Per Share Calculation       |   |                                | 21,561,928 |                          |   | 24,558,136                        |   |   |   |   |

----

**INTERNATIONAL      AUTOMATED SYSTEMS, INC.**

|                                                                                                   |   |                                |     |                          |   | For                the Period     |   |
|--------------------------------------------------------------------------------------------------------|--------|-------------------------------------|----------|-------------------------------|--------|-----------------------------------|--------|
|                                                                                                   |   |                                |     | From                Inception |   |
|                                                                                                   |   | For                the Three Months |     | (September                26, |   |
|                                                                                                   |   | Ended                September 30,  |     | 1986)                Through  |   |
|                                                                                                   |   | 2005                                |     | 2004                          |   | September                30, 2005 |   |
| **CASH                FLOWS FROM OPERATING ACTIVITIES**                                                |   |                                |     |                          |   |                              |   |
| Net                income (loss)                                                                       |   | $                                   | (215,533 | )                             | $      | (275,173                          | )      | $ | (11,130,454 | ) |
| Adjustments                to reconcile net loss to net cash from operating                activities: |   |                                |     |                          |   |                              |   |   |   |   |
| Depreciation                and amortization                                                           |   |                                | 4,828    |                          |   | 4,564                             |   |   | 338,946 |   |
| Stock                based compensation                                                                |   |                                | 15,000   |                          |   | -                                 |   |   | 2,665,407 |   |
| 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 |   |

----

**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**

----

**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                                   |   | $                                 | (215,533   | ) | $ | (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**                                  |   | $                                 | (2,254,325 | ) | $ | (3,062,985 | ) |
|                                                                   |   |                              |       |   |   |   |   |
| **Basic                and diluted loss per common share as reported** |   | $                                 | (0.01      | ) | $ | (0.01 | ) |
|                                                                   |   |                              |       |   |   |   |   |
| **Basic                and diluted loss per common share pro forma**   |   | $                                 | (0.10      | ) | $ | (0.12 | ) |

**NOTE      4 - LEGAL CONTINGENCIES**

*Legal      Contingencies*

*Payroll      Tax Contingency*

----

**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***

----

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

----

----

|   | 31.1   | Certification                by the Chief Executive Officer Pursuant to Section 302 of the                Sarbanes-Oxley Act of 2002                                                                          |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                          |
|   | 31.2   | Certification                by the Chief Financial Officer Pursuant to Section 302 of the                Sarbanes-Oxley Act of 2002                                                                          |
|   |   |                                                                                                                                                                                                          |
|   | 32.1   | Certification                by the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350                Adopted                Pursuant to Section 906 of the Sarbanes-Oxley Act of                2002 |
|   |   |                                                                                                                                                                                                          |
|   | 32.2   | Certification                by the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350                Adopted                Pursuant to Section 906 of the Sarbanes-Oxley Act of                2002 |

**International      Automated Systems, Inc.**

----