----

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

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**INTERNATIONAL        AUTOMATED SYSTEMS, INC.**

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

**TABLE        OF CONTENTS**

|                                                                                                                                                                                                                                                                                                   |                                                                               | **Page** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------|----------|
|                                                                                                                                                                                                                                                                                                   |                                                                               |     |
| **PART                    I - FINANCIAL INFORMATION**                                                                                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                                   |                                                                               |     |
| Item                    1.                                                                                                                                                                                                                                                                             | Financial                    Statements                                            | 3        |
|                                                                                                                                                                                                                                                                                                   |                                                                               |
| Unaudited                      Condensed Balance Sheets as of September 30, 2007 and June                      30,                      2007                                                                                                                                                           | 3                                                                                  |
|                                                                                                                                                                                                                                                                                                   |                                                                               |
| Unaudited                      Condensed Statements of Operations for the Three Months Ended                      September                      30, 2007 and 2006 and for the Period from September 26, 1986                      (Date of                      Inception) through September 30, 2007 | 4                                                                                  |
|                                                                                                                                                                                                                                                                                                   |                                                                               |
| Unaudited                      Condensed Statements of Cash Flows for the Three Months Ended                      September                      30, 2007 and 2006 and for the Period from September 26, 1986                      (Date of                      Inception) through September 30, 2007 | 5                                                                                  |
|                                                                                                                                                                                                                                                                                                   |                                                                               |
| Notes                      to Unaudited Condensed Financial Statements                                                                                                                                                                                                                                 | 7                                                                                  |
|                                                                                                                                                                                                                                                                                                   |                                                                               |     |
| Item                    2.                                                                                                                                                                                                                                                                             | Management’s                    Discussion and Analysis or Plan of Operation | 12       |
|                                                                                                                                                                                                                                                                                                   |                                                                               |     |
| Item                    3.                                                                                                                                                                                                                                                                             | Controls                    and Procedures                                         | 13       |
|                                                                                                                                                                                                                                                                                                   |                                                                               |     |
| **PART                    II - OTHER INFORMATION**                                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                   |                                                                               |     |
| Item                    1.                                                                                                                                                                                                                                                                             | Legal                    Proceedings                                               | 14       |
|                                                                                                                                                                                                                                                                                                   |                                                                               |     |
| Item                    2.                                                                                                                                                                                                                                                                             | Changes                    in Securities                                           | 15       |
|                                                                                                                                                                                                                                                                                                   |                                                                               |     |
| Item                    3.                                                                                                                                                                                                                                                                             | Commitments                    and Contingencies                                   | 15       |
|                                                                                                                                                                                                                                                                                                   |                                                                               |     |
| Item                    4.                                                                                                                                                                                                                                                                             | Defaults                    Upon Senior Securities                                 | 16       |
|                                                                                                                                                                                                                                                                                                   |                                                                               |     |
| Item                    5.                                                                                                                                                                                                                                                                             | Submission                    of Matters to a Vote of Security Holders             | 16       |
|                                                                                                                                                                                                                                                                                                   |                                                                               |     |
| Item                    6.                                                                                                                                                                                                                                                                             | Other                    Information                                               | 16       |
|                                                                                                                                                                                                                                                                                                   |                                                                               |     |
| Item                    7.                                                                                                                                                                                                                                                                             | Exhibits                    and Reports on Form 8-K                                | 16       |

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**INTERNATIONAL        AUTOMATED SYSTEMS, INC.**

| ASSETS                                                                                                                                                                                                                                                |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                                                                                                  |   | Unaudited |   |   | Audited |   |
|                                                                                                                                                                                                                                                  |   | September                  30, |   |   | June                  30, |   |
|                                                                                                                                                                                                                                                  |   | 2007 |   |   | 2007 |   |
| CURRENT                  ASSETS                                                                                                                                                                                                                       |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                  |   |   |   |   |   |   |
| Cash                                                                                                                                                                                                                                                  |   | $ | 130,735 |   |   | $ | 595,381 |   |
| Prepaid                  expenses                                                                                                                                                                                                                     |   |   | 320 |   |   |   | 320 |   |
| Inventory                                                                                                                                                                                                                                             |   |   | 139,714 |   |   |   | 86,587 |   |
|                                                                                                                                                                                                                                                  |   |   |   |   |   |   |   |   |
| Total                  Current Assets                                                                                                                                                                                                                 |   |   | 270,769 |   |   |   | 682,288 |   |
|                                                                                                                                                                                                                                                  |   |   |   |   |   |   |   |   |
| Property                  and Equipment, net of $142,564 and $125,558 accumulated depreciation,                  respectively                                                                                                                         |   |   | 514,761 |   |   |   | 435,623 |   |
| Patents,                  net of $17,028 and $15,857 accumulated amortization,                  respectively                                                                                                                                          |   |   | 187,970 |   |   |   | 185,163 |   |
|                                                                                                                                                                                                                                                  |   |   |   |   |   |   |   |   |
| TOTAL                  ASSETS                                                                                                                                                                                                                         |   | $ | 973,500 |   |   | $ | 1,303,074 |   |
|                                                                                                                                                                                                                                                  |   |   |   |   |   |   |   |   |
| LIABILITIES                  AND STOCKHOLDERS' DEFICIT                                                                                                                                                                                                |   |
|                                                                                                                                                                                                                                                  |   |   |   |   |   |   |   |   |
| CURRENT                  LIABILITIES                                                                                                                                                                                                                  |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                  |   |   |   |   |   |   |   |   |
| Accounts                  payable                                                                                                                                                                                                                     |   | $ | 70,774 |   |   | $ | 286,426 |   |
| Accrued                  payroll taxes                                                                                                                                                                                                                |   |   | 63,511 |   |   |   | 58,262 |   |
| Related                  party payable                                                                                                                                                                                                                |   |   | 1,105,321 |   |   |   | 980,081 |   |
| Deposits                  from customers                                                                                                                                                                                                              |   |   | 713,250 |   |   |   | 713,250 |   |
| Notes                  payable-current portion                                                                                                                                                                                                        |   |   | 11,015 |   |   |   | 10,328 |   |
|                                                                                                                                                                                                                                                  |   |   |   |   |   |   |   |   |
| Total                  Current Liabilities                                                                                                                                                                                                            |   |   | 1,963,871 |   |   |   | 2,048,347 |   |
|                                                                                                                                                                                                                                                  |   |   |   |   |   |   |   |   |
| Net                  Long-Term Liabilities - Notes payable                                                                                                                                                                                            |   |   | 108,730 |   |   |   | 114,634 |   |
|                                                                                                                                                                                                                                                  |   |   |   |   |   |   |   |   |
| TOTAL                  LIABILITIES                                                                                                                                                                                                                    |   |   | 2,072,601 |   |   |   | 2,162,981 |   |
|                                                                                                                                                                                                                                                  |   |   |   |   |   |   |   |   |
| STOCKHOLDERS'                  EQUITY (DEFICIT)                                                                                                                                                                                                       |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                  |   |   |   |   |   |   |   |   |
| Preferred                  stock, Class A, no par value; 4,400,000 shares authorized, 3,400,000                  shares issued and outstanding                                                                                                        |   |   | 294,786 |   |   |   | 294,786 |   |
| Preferred                  stock, Class B, no par value, 600,000 shares authorized, 300,000                  shares                  issued and outstanding                                                                                           |   |   | - |   |   |   | - |   |
| Common                  stock, no par value, 45,000,000 shares authorized, 28,369,222 and                  28,344,622 issued and outstanding, net 5,681,318 and 705,918 shares                  held                  in escrow account, respectively |   |   | 21,652,165 |   |   |   | 20,077,384 |   |
| Deficit                  accumulated during the development stage                                                                                                                                                                                     |   |   | (22,695,552 | ) |   |   | (20,881,577 | ) |
| Less:                  Treasury stock, 550,000 shares at cost                                                                                                                                                                                         |   |   | (350,500 | ) |   |   | (350,500 | ) |
| Total                  Stockholders' Deficit                                                                                                                                                                                                          |   |   | (1,099,101 | ) |   |   | (859,907 | ) |
|                                                                                                                                                                                                                                                  |   |   |   |   |   |   |   |   |
| TOTAL                  LIABILITIES AND STOCKHOLDERS' DEFICIT                                                                                                                                                                                          |   | $ | 973,500 |   |   | $ | 1,303,074 |   |

----

**INTERNATIONAL        AUTOMATED SYSTEMS, INC.**

|                                                         |   | For                  the Three Months Ended September                  30, |       |   | For                  the Period From                  Inception (September                  26,1986)                  Through June                  30, |   |
|--------------------------------------------------------------|--------|----------------------------------------------------------------------------|------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                         |   | 2007                                                                       |       |   | 2006                                                                                                                                                    |   |   | 2007 |   |
| **REVENUES**                                                 |   |                                                                       |       |   |                                                                                                                                                    |   |   |   |   |
| Sales                                                        |   | $                                                                          | -          |   |                                                                                                                                                    | $      | - |   |   | $ | 111,226 |   |
| Income                  from related party                   |   |                                                                       | -          |   |                                                                                                                                                    |   | - |   |   |   | 32,348 |   |
| **Total                  Revenue**                           |   |                                                                       |       |   |                                                                                                                                                    |   |   |   |   |   | 143,574 |   |
|                                                         |   |                                                                       |       |   |                                                                                                                                                    |   |   |   |   |   |   |   |
| **COST                  OF GOODS SOLD**                      |   |                                                                       |       |   |                                                                                                                                                    |   |   |   |   |   |   |   |
| Cost                  of sales                               |   |                                                                       | -          |   |                                                                                                                                                    |   | - |   |   |   | 81,927 |   |
| Write                  down of carrying value of inventories |   |                                                                       | -          |   |                                                                                                                                                    |   | - |   |   |   | 233,131 |   |
| **Total                  Costs of Sales**                    |   |                                                                       | -          |   |                                                                                                                                                    |   | - |   |   |   | 315,058 |   |
|                                                         |   |                                                                       |       |   |                                                                                                                                                    |   |   |   |   |   |   |   |
| **GROSS                  LOSS**                              |   |                                                                       | -          |   |                                                                                                                                                    |   | - |   |   |   | (171,484 | ) |
|                                                         |   |                                                                       |       |   |                                                                                                                                                    |   |   |   |   |   |   |   |
| **OPERATING                  EXPENSES**                      |   |                                                                       |       |   |                                                                                                                                                    |   |   |   |   |   |   |   |
| General                  and administrative                  |   |                                                                       | 1,734,984  |   |                                                                                                                                                    |   | 1,924,965 |   |   |   | 17,020,407 |   |
| Research                  and development                    |   |                                                                       | 75,139     |   |                                                                                                                                                    |   | 145,674 |   |   |   | 6,232,291 |   |
| Impairment                  of patents                       |   |                                                                       | -          |   |                                                                                                                                                    |   | - |   |   |   | 117,605 |   |
| License                  fees                                |   |                                                                       | -          |   |                                                                                                                                                    |   | - |   |   |   | 270,634 |   |
| Loss                  on disposal of property and equipment  |   |                                                                       | -          |   |                                                                                                                                                    |   | - |   |   |   | 17,359 |   |
| **Total                  Operating Expenses**                |   |                                                                       | 1,810,123  |   |                                                                                                                                                    |   | 2,070,639 |   |   |   | 23,658,286 |   |
|                                                         |   |                                                                       |       |   |                                                                                                                                                    |   |   |   |   |   |   |   |
| **LOSS                  FROM OPERATIONS**                    |   |                                                                       | (1,810,123 | )      |                                                                                                                                                    |   | (2,070,639 | ) |   |   | (23,829,780 | ) |
|                                                         |   |                                                                       |       |   |                                                                                                                                                    |   |   |   |   |   |   |   |
| **OTHER                  INCOME (EXPENSES)**                 |   |                                                                       |       |   |                                                                                                                                                    |   |   |   |   |   |   |   |
| Loss                  on impairment of assets                |   |                                                                       | -          |   |                                                                                                                                                    |   | - |   |   |   | (583 | ) |
| Forfeiture                  of deposits                      |   |                                                                       | -          |   |                                                                                                                                                    |   | - |   |   |   | (236,803 | ) |
| Interest                  income                             |   |                                                                       | 1,068      |   |                                                                                                                                                    |   | - |   |   |   | 25,860 |   |
| Interest                  expense                            |   |                                                                       | (4,920     | )      |                                                                                                                                                    |   | (707 | ) |   |   | (6,877 | ) |
| Other                  income                                |   |                                                                       | -          |   |                                                                                                                                                    |   | - |   |   |   | (29,392 | ) |
| **Total                  Other Income (Expenses)**           |   |                                                                       | (3,850     | )      |                                                                                                                                                    |   | (707 | ) |   |   | (247,795 | ) |
|                                                         |   |                                                                       |       |   |                                                                                                                                                    |   |   |   |   |   |   |   |
| **LOSS                  BEFORE EXTRAORDINARY GAIN**          |   |                                                                       | (1,813,975 | )      |                                                                                                                                                    |   | (2,071,346 | ) |   |   | (24,077,575 | ) |
|                                                         |   |                                                                       |       |   |                                                                                                                                                    |   |   |   |   |   |   |   |
| **Extraordinary                  Gain on Sale of Patents**   |   |                                                                       | -          |   |                                                                                                                                                    |   | - |   |   |   | 1,382,023 |   |
|                                                         |   |                                                                       |       |   |                                                                                                                                                    |   |   |   |   |   |   |   |
| **NET                  LOSS**                                |   | $                                                                          | (1,813,975 | )      |                                                                                                                                                    | $      | (2,071,346 | ) |   | $ | (22,695,552 | ) |

| Basic                  and Diluted Loss Per Share               |   |   |       |   |   |   |
|-----------------------------------------------------------------|--------|--------|------------|--------|--------|--------|
| Loss                  before extraordinary gain                 |   | $      | (0.06      | )      |   | $      | (0.08 | ) |
| Extraordinary                  gain                             |   |   | -          |   |   |   | - |   |
| **NET                  LOSS APPLICABLE TO COMMON SHAREHOLDERS** |   | $      | (0.06      | )      |   | $      | (0.08 | ) |
|                                                            |   |   |       |   |   |   |   |   |
| Weighted                  Shares Used in Per Share Calculation  |   |   | 28,355,897 |   |   |   | 25,623,321 |   |

----

**INTERNATIONAL        AUTOMATED SYSTEMS, INC.**

|                                                                                                       |   | For                  the Three Months Ended September 30, |       |   | For                  the Period From                  Inception (September                  26,1986)                  ThroughSeptember                  30, |   |
|------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------|------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                       |   | 2007                                                      |       |   | 2006                                                                                                                                                             |   |   | 2007 |   |
| **CASH                  FLOWS FROM OPERATING ACTIVITIES**                                                  |   |                                                      |       |   |                                                                                                                                                             |   |   |   |   |
| Net                  loss                                                                                  |   | $                                                         | (1,813,975 | )      |                                                                                                                                                             | $      | (2,071,346 | ) |   | $ | (22,695,552 | ) |
| Adjustments                  to reconcile net loss to net cash from operating                  activities: |   |                                                      |       |   |                                                                                                                                                             |   |   |   |   |   |   |   |
| Depreciation                  and amortization                                                             |   |                                                      | 18,176     |   |                                                                                                                                                             |   | 7,713 |   |   |   | 414,640 |   |
| Stock                  based compensation                                                                  |   |                                                      | 1,556,116  |   |                                                                                                                                                             |   | 1,742,349 |   |   |   | 10,790,762 |   |
| 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                                                             |   |                                                      | -          |   |                                                                                                                                                             |   | - |   |   |   | 17,942 |   |
| Impairment                  of patents and abandonment of in-process rights to                  technology |   |                                                      | -          |   |                                                                                                                                                             |   | - |   |   |   | 364,155 |   |
| Gain                  on sale of patents                                                                   |   |                                                      | -          |   |                                                                                                                                                             |   | - |   |   |   | (1,382,023 | ) |
| (Gain)                  loss on settlement of debt                                                         |   |                                                      | -          |   |                                                                                                                                                             |   | - |   |   |   | (6,123 | ) |
| Stock                  issued for expenses                                                                 |   |                                                      | -          |   |                                                                                                                                                             |   | - |   |   |   | 63,600 |   |
| Changes                  in current assets and liabilities:                                                |   |                                                      |       |   |                                                                                                                                                             |   |   |   |   |   |   |   |
| Prepaid                  sales commissions                                                                 |   |                                                      | -          |   |                                                                                                                                                             |   | - |   |   |   | (320 | ) |
| Inventory                                                                                                  |   |                                                      | (53,127    | )      |                                                                                                                                                             |   | - |   |   |   | (139,714 | ) |
| Deposits                  from customers                                                                   |   |                                                      | -          |   |                                                                                                                                                             |   | 36,000 |   |   |   | 713,250 |   |
| Accounts                  payable                                                                          |   |                                                      | (215,652   | )      |                                                                                                                                                             |   | (77,945 | ) |   |   | 70,774 |   |
| Related                  party payable                                                                     |   |                                                      | 20,240     |   |                                                                                                                                                             |   | 85,109 |   |   |   | 1,090,702 |   |
| Accrued                  liabilities                                                                       |   |                                                      | 5,249      |   |                                                                                                                                                             |   | 1,425 |   |   |   | 163,510 |   |
| **Net                  Cash Used in Operating Activities**                                                 |   |                                                      | (482,973   | )      |                                                                                                                                                             |   | (276,695 | ) |   |   | (10,256,749 | ) |
|                                                                                                       |   |                                                      |       |   |                                                                                                                                                             |   |   |   |   |   |   |   |
| **CASH                  FLOWS FROM INVESTING ACTIVITIES**                                                  |   |                                                      |       |   |                                                                                                                                                             |   |   |   |   |   |   |   |
| Purchase                  of property and equipment                                                        |   |                                                      | (96,143    | )      |                                                                                                                                                             |   | (122,378 | ) |   |   | (710,423 | ) |
| Purchase                  of rights to technology                                                          |   |                                                      | (3,978     | )      |                                                                                                                                                             |   | (25,154 | ) |   |   | (698,739 | ) |
| Organization                  costs                                                                        |   |                                                      | -          |   |                                                                                                                                                             |   | - |   |   |   | (1,880 | ) |
| Net                  cash advanced to related party                                                        |   |                                                      | -          |   |                                                                                                                                                             |   | - |   |   |   | (1,644,988 | ) |
| Proceeds                  from capital lease receivable                                                    |   |                                                      | -          |   |                                                                                                                                                             |   | - |   |   |   | 44,220 |   |
| Repayment                  of cash loaned to related party                                                 |   |                                                      | -          |   |                                                                                                                                                             |   | - |   |   |   | 53,254 |   |
| Net                  proceeds from sale of patents                                                         |   |                                                      | -          |   |                                                                                                                                                             |   | - |   |   |   | 1,382,023 |   |
| **Net                  Cash Used in Investing Activities**                                                 |   |                                                      | (100,121   | )      |                                                                                                                                                             |   | (147,532 | ) |   |   | (1,576,533 | ) |
|                                                                                                       |   |                                                      |       |   |                                                                                                                                                             |   |   |   |   |   |   |   |
| **CASH                  FLOWS FROM FINANCING ACTIVITIES**                                                  |   |                                                      |       |   |                                                                                                                                                             |   |   |   |   |   |   |   |
| Proceeds                  from issuance of common stock                                                    |   |                                                      | 18,665     |   |                                                                                                                                                             |   | 78,897 |   |   |   | 5,259,041 |   |
| Proceeds                  from reissuance of treasury stock                                                |   |                                                      | -          |   |                                                                                                                                                             |   | - |   |   |   | 293,250 |   |
| Cash                  from controlling shareholder                                                         |   |                                                      | -          |   |                                                                                                                                                             |   | - |   |   |   | 6,270,559 |   |
| Payments                  for treasury stock                                                               |   |                                                      | -          |   |                                                                                                                                                             |   | - |   |   |   | (3,325 | ) |
| Payments                  for stock offering costs                                                         |   |                                                      | -          |   |                                                                                                                                                             |   | - |   |   |   | (56,509 | ) |
| Proceeds                  from net borrowings from related party                                           |   |                                                      | 105,000    |   |                                                                                                                                                             |   | - |   |   |   | 183,101 |   |
| Proceeds                  from notes payable                                                               |   |                                                      | -          |   |                                                                                                                                                             |   | - |   |   |   | 29,857 |   |
| Payments                  on note payable and obligations capital lease                                    |   |                                                      | (5,217     | )      |                                                                                                                                                             |   | (9,293 | ) |   |   | (167,616 | ) |
| Proceeds                  from related party deposits                                                      |   |                                                      | -          |   |                                                                                                                                                             |   | - |   |   |   | 224,400 |   |
| Purchases                  of equipment held for distribution                                              |   |                                                      | -          |   |                                                                                                                                                             |   | - |   |   |   | (68,741 | ) |
| **Net                  Cash Provided by Financing Activities**                                             |   |                                                      | 118,448    |   |                                                                                                                                                             |   | 69,604 |   |   |   | 11,964,017 |   |
|                                                                                                       |   |                                                      |       |   |                                                                                                                                                             |   |   |   |   |   |   |   |
| NET                  CHANGE IN CASH                                                                        |   |                                                      | (464,646   | )      |                                                                                                                                                             |   | (354,623 | ) |   |   | 130,735 |   |
| CASH                  AT BEGINNING OF PERIOD                                                               |   |                                                      | 595,381    |   |                                                                                                                                                             |   | 708,379 |   |   |   | - |   |
| CASH                  AT END OF PERIOD                                                                     |   | $                                                         | 130,735    |   |                                                                                                                                                             | $      | 353,756 |   |   | $ | 130,735 |   |

----

**INTERNATIONAL        AUTOMATED SYSTEMS, INC.**

|                                                                      |   | For                  the Three Months Ended September 30, |   |
|---------------------------------------------------------------------------|--------|---------------------------------------------------------------------|--------|
|                                                                      |   | 2007                                                                |   |   | 2006 |   |
| SUPPLEMENTAL                  DISCLOSURES OF CASH FLOW INFORMATION   |   |                                                                |   |   |   |   |
| Purchase                  of land with notes payable                      |   | $                                                                   | -      |   |   | $ | 66,000 |   |
| Issuance                  of common stock in exchange for payment of debt |   | $                                                                   | -      |   |   | $ | 250,000 |   |

----

**International        Automated Systems, Inc.**

**(A        Development Stage Company)**

**Notes        to Unaudited Condensed Financial Statements**

**September        30, 2007**

**NOTE        1 – INTERIM FINANCIAL STATEMENTS**

**NOTE        2 - BUSINESS CONDITION/GOING CONCERN**

**NOTE        3 - STOCK BASED COMPENSATION**

----

**International        Automated Systems, Inc.**

**(A        Development Stage Company)**

**Notes        to Unaudited Condensed Financial Statements**

**September        30, 2007**

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

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

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

----

**International        Automated Systems, Inc.**

**(A        Development Stage Company)**

**Notes        to Unaudited Condensed Financial Statements**

**September        30, 2007**

|  | (3) | During                  May 2004 we estimated the expected volatility based on historical                  share price data. |
|--|-----|-----------------------------------------------------------------------------------------------------------------------------------|

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

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

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

|  | (3) | During                  August 2000 we estimated the expected volatility based on historical                  share price data. |
|--|-----|--------------------------------------------------------------------------------------------------------------------------------------|

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

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

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

|  | (3) | During August                  2000 we estimated the expected volatility based on historical share                  price data. |
|--|-----|-------------------------------------------------------------------------------------------------------------------------------------------|

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**International        Automated Systems, Inc.**

**(A        Development Stage Company)**

**Notes        to Unaudited Condensed Financial Statements**

**September        30, 2007**

|                                               |   | Options |       |   | WeightedAverageExercisePrice |   |   | WeightedAverageRemainingLife                  in Years |   |   | Aggregate                    IntrinsicValue |   |
|----------------------------------------------------|--------|---------|------------|--------|------------------------------|--------|--------|--------------------------------------------------------|--------|--------|---------------------------------------------|--------|
| Outstanding                  at June 30, 2007      |   |    | 99,475,000 |   |                         | $      | 0.44   |                                                   |   |   | 27.2                                        |   |   |   |   |
|                                               |   |    |       |   |                         |   |   |                                                   |   |   |                                        |   |   |   |   |
| Activity                  during the period:       |   |    |       |   |                         |   |   |                                                   |   |   |                                        |   |   |   |   |
| Exercised                                          |   |    | -          |   |                         |   |   |                                                   |   |   |                                        |   |   |   |   |
|                                               |   |    |       |   |                         |   |   |                                                   |   |   |                                        |   |   |   |   |
| Outstanding                  at September 30, 2007 |   |    | 99,475,000 |   |                         | $      | 0.44   |                                                   |   |   | 26.6                                        |   |   | $ | 58,725,000 |   |
| Exercisable                  at September 30, 2007 |   |    | 14,275,000 |   |                         | $      | 0.65   |                                                   |   |   | 24.7                                        |   |   | $ | 7,725,000 |   |

|                                              |   | Warrants/Options |       |   | Weighted                  Average Grant Date Fair Value |   |
|---------------------------------------------------|--------|------------------|------------|--------|---------------------------------------------------------|--------|
|                                              |   |             |       |   |                                                    |   |
| Non-vested                  at June 30, 2007      |   |             | 85,300,000 |   |                                                    | $      | 0.38 |   |
|                                              |   |             |       |   |                                                    |   |   |   |
| Activity                  during the period:      |   |             |       |   |                                                    |   |   |   |
| Vested                                            |   |             | (100,000   | )      |                                                    | $      | 2.19 |   |
|                                              |   |             |       |   |                                                    |   |   |   |
| Non-vested                  at September 30, 2007 |   |             | 85,200,000 |   |                                                    | $      | 0.37 |   |

| OptionsOutstanding                    at09/30/07 |   | Weighted                    AverageRemaining Contractual Life |   | Weighted                    AverageExercise Price |   | NumberExercisable                    at09/30/07                       |   | Weighted                    AverageExercisable Price |
|--------------------------------------------------|--------|---------------------------------------------------------------|--------|---------------------------------------------------|--------|-----------------------------------------------------------------------|--------|------------------------------------------------------|
|                    1,600,000                |   |                      2.9 years                 |   | $      3.00         |   |                          1,400,000 |   | $      3.00            |
| 97,875,000                                       |   | 27.05                  years                                  |   | $      0.40         |   |        12,875,000                  |   | $      0.40            |

----

**International        Automated Systems, Inc.**

**(A        Development Stage Company)**

**Notes        to Unaudited Condensed Financial Statements**

**September        30, 2007**

**NOTE        4 – COMMITMENTS AND CONTINGENCIES**

*Sales        Commitments*

*Legal-*

**NOTE        5 - STOCKHOLDERS EQUITY**

*Common        Stock Issued for Cash*

**NOTE        6 – LOAN FROM SHAREHOLDER**

**NOTE        7 – CUSTOMER DEPOSITS**

----

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

**FORWARD        LOOKING STATEMENTS**

**LIQUIDITY        AND CAPITAL RESOURCES**

**RESULTS        OF OPERATIONS**

**Three        Months Ended September 30, 2007 compared to Three Months Ended September        30,        2006**

----

**FUTURE        BUSINESS**

**ITEM        3: CONTROLS AND PROCEDURES**

**Evaluation        of Disclosure Controls and Procedures**

**Changes        in Internal Control over Financial Reporting**

----

**PART        II - OTHER INFORMATION**

**ITEM        1. LEGAL PROCEEDINGS**

----

**ITEM        2. CHANGES IN SECURITIES**

**ITEM        3. COMMITMENTS AND CONTINGENCIES**

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**ITEM        4. DEFAULTS UPON SENIOR SECURITIES.**

**ITEM        5. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

**ITEM        6. OTHER INFORMATION.**

**ITEM        7. EXHIBITS AND REPORTS ON FORM 8-K**

**a.        Exhibits**

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

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

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

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

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**SIGNATURES**

**International        Automated Systems, Inc.**

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