**UNITED
STATES**


**SECURITIES
AND EXCHANGE COMMISSION**


Washington,
D.C. 20549





**FORM
10-QSB**





(Mark
One)





**[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934**





For the
quarterly period ended March 31, 2005





OR





**[_]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934**





For the
transition period from ________ to ________





*Commission
File No.* *33-16531-D*





**INTERNATIONAL****AUTOMATED****SYSTEMS, INC.**


(Exact
name of registrant as specified in its charter)





Utah
    87-0447580(State
      or other jurisdiction of incorporation or organization)
    (I.R.S.
      Employer Identification Number)326
      North Sr. 198 ,Salem,
      Utah
    84653(Address
      of principal executive offices)
    (Zip/Postal
      Code)








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 March 31, 2005 Registrant had 24,966,140 shares of common stock, no par
value per share, which includes 3,240,250 shares held in escrow accounts.





Transitional
Small Business Disclosure Format (Check One)





Yes
    X
    No









TABLE OF
CONTENTS
  PART
      I.
    FINANCIAL
      INFORMATION
    3Item
      1
    Financial
      Statements
    3Unaudited
      Condensed Balance Sheets as of March 31, 2005 and June 30, 2004
    3Unaudited
      Condensed Statements of Operations for the Three and Nine Months
      Ended March 31, 2005 and 2004, and for the Period from September 26, 1986
      (Date of Inception) through March 31, 2005
    4Unaudited
      Condensed Statements of Cashflow for Nine Months Ended March 31, 2005 and
      2004 and for the Period from September 26, 1986 (Date of Inception)
      through March 31, 2005
    5Notes
      to Financial Statements
    6Item
      2
    Management's
      Discussion and Analysis or Plan of Operation
    8Item
      3
    Controls
      and Procedures
    10PART
      II
    OTHER
      INFORMATION
    10Item
      1
    Legal
      Proceedings
    10Item
      2
    Changes
      in Securities
    10Item
      3
    Defaults
      Upon Senior Securities
    11Item
      4
    Submission
      of Matters to a Vote of Security Holders
    11Item
      5
    Other
      Information
    11Item
      6
    Exhibits
      and Reports on Form 8-K
    11Signatures
    
    11










2


******
**PART
I**
**Item
1 Financial Statements**

**INTERNATIONAL
AUTOMATED SYSTEMS, INC.**
***(A
Development Stage Company)***
**UNAUDITED
CONDENSED BALANCE SHEETS**

**March
      31,**
    
    **June
      30,****2005**
    
    **2004****ASSETS****Current
      Assets**Cash
    
    $
    57,087
    
    $
    702,366Equipment
      held for distribution
    
    
    -
    
    
    16,945**Total
      Current Assets**
    
    
    57,087
    
    
    719,311Property
      and Equipment, net of $82,177 and $70,845 accumulated
      depreciation,respectively
    
    
    86,896
    
    
    81,932Patents,
      net of $6,999 and $4,494 accumulated amortization,
      respectively
    
    
    162,580
    
    
    120,291Prepaid
      sales commissions
    
    
    4,000
    
    
    4,000**Total
      Assets**
    
    $
    310,563
    
    $
    925,534**LIABILITIES
      AND STOCKHOLDERS' EQUITY (DEFICIT)****Current
      Liabilities**Accounts
      payable
    
    $
    75,277
    
    $
    92,460Accrued
      payroll taxes
    
    
    154,830
    
    
    156,772Accrued
      liabilities
    
    
    100,000
    
    
    130,000Deposits
      from customers
    
    
    40,000
    
    
    40,000Deposits
      from related parties
    
    
    74,400
    
    
    74,400Notes
      payable-current portion
    
    
    3,885
    
    
    5,588**Total
      Current Liabilities**
    
    
    448,392
    
    
    499,220**Net
      Long-Term Liabilities -**Notes
      payable
    
    
    -
    
    
    2,479**Total
      Liabilities**
    
    
    448,392
    
    
    501,699**Stockholders'
      Equity (Deficit)**Preferred
      stock, Class A, no par value, 4,400,000 shares authorized, 3,400,000shares issued and outstanding
    
    
    294,786
    
    
    294,786Preferred
      stock, Class B, no par value, 600,000 shares authorized,
      300,000shares issued and outstanding
    
    
    -
    
    
    -Common
      stock, no par value, 45,000,000 shares authorized, 21,725,890 and21,032,640 issued and outstanding,
      net 3,240,250 and 3,801,500 shares held inescrow account,
      respectively
    
    
    9,857,090
    
    
    9,601,090Deficit
      accumulated during the development stage
    
    
    (10,289,705)
    
    
    (9,472,041
    )**Total
      Stockholders' Equity (Deficit)**
    
    
    (137,829)
    
    
    423,835**Total
      Liabilities and Stockholders' Equity (Deficit)**
    
    $
    310,563
    
    $
    925,534


See the accompanying notes to the condensed financial
statements.
3

INTERNATIONAL
AUTOMATED SYSTEMS, INC.*(A
Development Stage Company)*
UNAUDITED
CONDENSED STATEMENTS OF OPERATIONS

For
      the Three Months Ended
    
    For
      the Nine Months Ended
    
    For
      the Period From Inception (September 26, 1986) ThroughMarch
      31,
    
    March
      31,
    
    March
      31,2005
    
    2004
    
    2005
    
    2004
    
    2005**Revenue**Sales
    
    $
    -
    
    $
    -
    
    $
    -
    
    $
    -
    
    $
    111,226Income
      from related party
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    32,348**Total
      Revenue**
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    143,574**Cost
      of Sales**Cost
      of sales
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    81,927Write
      down of carrying value of inventories
    
    
    16,945
    
    
    -
    
    
    16,945
    
    
    -
    
    
    233,131**Total
      Cost of Sales**
    
    
    16,945
    
    
    -
    
    
    16,945
    
    
    -
    
    
    315,058**Gross
      Loss**
    
    
    (16,945)
    
    
    -
    
    
    (16,945)
    
    
    -
    
    
    (171,484
    )**Operating
      Expenses**General
      and administrative
    
    
    102,927
    
    
    82,310
    
    
    420,140
    
    
    385,592
    
    
    6,038,990Research
      and development expense
    
    
    134,161
    
    
    76,813
    
    
    380,580
    
    
    191,457
    
    
    4,813,305Impairment
      of patents
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    110,082Litigation
      settlement expense
    
    
    -
    
    
    100,000
    
    
    -
    
    
    100,000
    
    
    270,634**Total
      Operating Expenses**
    
    
    237,088
    
    
    259,123
    
    
    800,720
    
    
    677,049
    
    
    11,233,011**Operating
      Loss**
    
    
    (254,033
    )
    
    (259,123
    )
    
    (817,665
    )
    
    (677,049
    )
    
    (11,404,495
    )**Other
      Income and (Expenses)**Loss
      on disposal of property and equipment
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (17,359
    )Forfeiture
      of deposits
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (236,803
    )Interest
      income
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    22,444Interest
      expense
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (35,515
    )Net
      Other Income and (Expense)
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (267,233
    )**Loss
      Before Extraordinary Gain**
    
    
    (254,033
    )
    
    (259,123
    )
    
    (817,665
    )
    
    (677,049
    )
    
    (11,671,728
    )**Extraordinary
      Gain on Sale of Patents**
    
    
    -
    
    
    1,414,070
    
    
    -
    
    
    1,414,070
    
    
    1,382,023**Net
      Income (Loss)**
    
    $
    (254,033
    )
    $
    1,154,947
    
    $
    (817,665
    )
    $
    737,021
    
    $
    (10,289,705
    )**Basic
      and Diluted Loss Per Share**Loss
      before extraordinary gain
    
    $
    (0.01
    )
    $
    (0.01
    )
    $
    (0.04
    )
    $
    (0.03
    )Extraordinary
      gain
    
    
    -
    
    
    0.06
    
    
    -
    
    
    0.06**Net
      Income (Loss)**
    
    $
    (0.01
    )
    $
    0.05
    
    $
    (0.04
    )
    $
    0.03**Weighted
      Shares Used inPer Share Calculation**
    
    $
    21,241,974
    
    
    24,559,298
    
    $
    21,073,092
    
    
    24,403,671


See the accompanying notes to the condensed financial
statements.

4

INTERNATIONAL
AUTOMATED SYSTEMS, INC.
*(A
Development Stage Company)*
UNAUDITED
CONDENSED STATEMENTS OF CASHFLOW


**For
      the Nine Months Ended**
    
    **For
      the Period From Inception (September 26, 1986)
      Through****March
      31,**
    
    **March
      31,****2005**
    
    **2004**
    
    **2005****Cash
      Flows From Operating Activities**Net
      loss
    
    $
    (817,665
    )
    $
    737,021
    
    $
    (10,289,705
    )Adjustments
      to reconcile net loss to net cash
      from operating activities:Depreciation
      and amortization
    
    
    13,837
    
    
    8,661
    
    
    329,290Stock
      based compensation
    
    
    -
    
    
    -
    
    
    2,221,407Forfeiture
      of deposits
    
    
    -
    
    
    -
    
    
    236,803Gain
      on sale of patents
    
    
    -
    
    
    (1,414,070
    )
    
    (1,382,023
    )Loss
      on disposal of fixed assets
    
    
    -
    
    
    -
    
    
    17,359Write
      down of carrying value of inventories
    
    
    16,945
    
    
    -
    
    
    16,945Impairment
      of patents and abandonment of in-process rights
      to technology
    
    
    -
    
    
    -
    
    
    356,632Changes
      in current assets and liabilities:Prepaid
      sales commissions
    
    
    -
    
    
    (13,000
    )
    
    (4,000
    )Accounts
      payable
    
    
    (17,182
    )
    
    (20,811
    )
    
    75,276Deposits
      from customers
    
    
    -
    
    
    130,000
    
    
    40,000Accrued
      liabilities
    
    
    (31,942
    )
    
    (86,660
    )
    
    254,830**Net
      Cash From Operating Activities**
    
    
    (836,007
    )
    
    (658,859
    )
    
    (8,127,186
    )**Cash
      Flows From Investing Activities**Purchases
      of property and equipment
    
    
    (16,296
    )
    
    -
    
    
    (326,372
    )Purchase
      of rights to technology
    
    
    (44,794
    )
    
    (19,388
    )
    
    (611,666
    )Organization
      costs
    
    
    -
    
    
    -
    
    
    (1,880
    )Net
      cash advanced to related party
    
    
    -
    
    
    -
    
    
    (1,644,988
    )Proceeds
      from capital lease receivable
    
    
    -
    
    
    -
    
    
    44,220Repayment
      of cash loaned to related party
    
    
    -
    
    
    -
    
    
    53,254Net
      proceeds from sale of patents
    
    
    -
    
    
    1,414,070
    
    
    1,382,023**Net
      Cash From Investing Activities**
    
    
    (61,090
    )
    
    1,394,682
    
    
    (1,105,409
    )**Cash
      Flows From Financing Activities**Proceeds
      from issuance of common stock
    
    
    256,000
    
    
    278,871
    
    
    2,955,199Cash
      from controlling shareholder
    
    
    -
    
    
    -
    
    
    6,270,559Payments
      for treasury stock
    
    
    -
    
    
    -
    
    
    (3,325
    )Payments
      for stock offering costs
    
    
    -
    
    
    -
    
    
    (56,509
    )Decrease
      (increase) in bank overdraft
    
    
    -
    
    
    (28,441
    )
    
    -Proceeds
      from net borrowings from related party
    
    
    -
    
    
    -
    
    
    78,101Proceeds
      from notes payable
    
    
    -
    
    
    -
    
    
    29,857Payments
      on note payable and obligations undercapital
      lease
    
    
    (4,182
    )
    
    (19,879
    )
    
    (139,859
    )Proceeds
      from related party deposits
    
    
    -
    
    
    -
    
    
    224,400Purchases
      of equipment held for distribution
    
    
    -
    
    
    (19,948
    )
    
    (68,741
    )**Net
      Cash From Financing Activities**
    
    
    251,818
    
    
    210,603
    
    
    9,289,682**Net
      Increase (Decrease) In Cash and Cash Equivalents**
    
    
    (645,279
    )
    
    946,426
    
    
    57,087**Cash
      and Cash Equivalents at Beginning of Period**
    
    
    702,366
    
    
    54,034
    
    
    -**Cash
      and Cash Equivalents at End of Period**
    
    $
    57,087
    
    $
    1,000,460
    
    $
    57,087**Supplemental
      Cash Flow Information**Cash
      paid for interest
    
    $
    -
    
    $
    -**Non-Cash
      Investing and Financing Activities**Convert
      equipment held for distribution and deposits from related parties tocontributed capital
    
    $
    -
    
    $
    98,204


See the accompanying notes to the condensed financial
statements.**


5







**INTERNATIONAL
AUTOMATED SYSTEMS, INC.**


**NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS**


**MARCH
31, 2005**





**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 nine-month period ended March 31, 2005, and a net loss
of $817,665 was incurred for the nine-month period ended March 31, 2005. As of
March 31, 2005, the Company’s losses accumulated from inception totaled
$10,289,705. 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”).





6





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 nine months ended March 31,
2005 and 2004:




**Three
      Months Ended March 31,**
    
    **Nine
      Months Ended March 31,****2005**
    
    **2004**
    
    **2005**
    
    **2004**Net
      loss, as reported
    
    $
    (254,033
    )
    $
    1,154,947
    
    $
    (817,665
    )
    $
    737,021Deduct:
      Total stock-based employee compensation expense determined
      under fair-value based method for
      all
      awards
    
    
    (2,006,815
    )
    
    (54,328
    )
    
    (7,574,190
    )
    
    (175,184
    )**Pro
      forma net loss**
    
    $
    (2,260,848
    )
    $
    1,100,619
    
    $
    (8,391,855
    )
    $
    561,837**Basic
      and diluted loss per common share as reported**
    
    $
    (0.01
    )
    $
    0.05
    
    $
    (0.04
    )
    $
    0.03**Basic
      and diluted loss per common share pro forma**
    
    $
    (0.11
    )
    $
    0.04
    
    $
    (0.40
    )
    $
    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 settlement agreement with 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
nine months ended March 31, 2005, 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. Subsequent to
the end of the period these penalties were abated, and have been reflected in
the current period balances. As of March 31, 2005, the remaining balance
assessed by federal and state agencies, including penalties and interest,
totaling $107,398 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 nine months ended
March 31, 2005, the Company issued 561,250 shares of common stock to individuals
in exchange for $223,455 in cash at prices between $0.30 and $0.67 per share.
The proceeds were used to pay professional fees, operating expenses and accrued
liabilities. At March 31, 2005, there was a balance of 3,240,250 shares left in
escrow and a cash balance in escrow of $49,275.





During
the nine months ended March 31, 2005, the Company issued 132,000 shares of
restricted common stock to individuals for $32,545 in cash.






7







**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
March 31, 2005, total current assets were $57,087 and total assets were $310,563
compared to total current assets $719,311 and total assets $925,534 as of June
30, 2004.








As of
March 31, 2005, Registrant had total liabilities of $448,392 and shareholders'
deficit of $(137,829) 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 $10,289,705 as of March 31, 2005, 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 March 31, 2005, the ratio
of current assets to current liabilities was approximately 0.13 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 PeriodContractual
      Obligations
    Total
    Less
      Than
      One
      Year
    One
      To Three
      YearLong-term
      debt
    $
      3,885
    $3,885
    0







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.





8





**RESULTS
OF OPERATIONS**





Three
Months Ended March 31, 2005 compared to Three Months Ended March 31,
2004





For the
quarter ended March 31, 2005 the Registrant had no revenue and $16,945 cost of
sales as compared to 2004, Registrant had no revenues or cost of sales. For the
quarter ended March 31, 2005, registrant had total operating expenses of
$237,088 compared to expenses of $259,123 during the same quarter of a year
earlier. For the quarter, Registrant had a net loss of $254,033 compared to a
net income of $1,154,947 for the same quarter a year earlier. For the quarter,
the net loss per share was $0.01 compared to a net gain of $0.05 for the same
quarter a year earlier. For the quarter ended March 31, 2005, general and
administrative expenses were $102,927 compared to $82,310 and research
development expenses were $134,161 compared to $76,813 a year earlier. The
increase in net loss is primarily due to an increase in research and development
expenses, an increase in general and administrative expenses, and a lack of the
sale of patents.




Nine
Months Ended March 31, 2005 compared to Nine Months Ended March 31,
2004




For the
nine months ended March 31, 2005 the Registrant had no revenue and $16,945 cost
of sales as compared to 2004, the Registrant had no revenues or cost of sales.
For the nine months ended March 31, 2005, registrant had total operating
expenses of $800,720 compared to expenses of $677,049 during the same nine month
period for a year earlier. For the nine months ended March 31, 2005, general and
administrative expenses were $420,140 compared to $385,592 and research and
development expenses were $380,580 compared to $191,457 a year earlier. For the
nine months, the Registrant had a net loss of $817,665 compared to a net gain of
$737,021 for the same nine month period a year earlier. For the nine months
ended March 31, 2005 the net loss per share was $0.04 compared to net gain of
$0.03 for the same period a year earlier. The increase in net loss is primarily
due to an increase in research and development expenses, an increase in general
and administrative expenses, and a lack of the sale of patents.







**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.











9





**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 Company reached a
settlement agreement with the SEC in the amount of $50,000 which has been
finalized, paid and signed by the Court as of January 2005.





As of
June 30, 2004, the company was notified of two claims relating to the deposits
for the Company’s self-service restaurant equipment totaling $130,000. The claim
in the amount of $30,000 has been settled with the remaining claim of $100,000
as of yet unresolved.








**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 March 31, 2005 , there
was a balance of 3,240,250 shares left in escrow and a cash balance of 49,275.
During the nine months ended March 31, 2005 , the company issued 561,250 shares
in exchange for proceeds of $223,455 at prices ranging from $0.30 to $0.67 per
share. These proceeds were used for professional expenses, operating expenses,
and accrued liabilities.








During
the nine months ended March 31, 2005 , the Company issued 132,000 shares of
common restricted stock to individuals in exchange for $256,000 in cash.











10





**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: May
20, 2005








International
Automated Systems, Inc.








By:





*/s/
Neldon Johnson*


Neldon
Johnson


President
and Chief Executive Officer






11