SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





Quarterly Report Under Section 13 or 15(d)

Of the Securities Exchange Act of 1934



For Quarter Ended March 31, 2004



Commission File Number  33-16531-D



INTERNATIONAL AUTOMATED SYSTEMS, INC.

(Exact name of registrant as specified in its charter)



UTAH

87-0447580

(State or other jurisdiction of

(IRS Employer Identification No.)

incorporation or organization)



326 North Sr. 198 ,

Salem, Utah   84653

(Address of principal executive offices)



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



Not Applicable

Former Address, if changed since last report





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





As of March 31, 2004 Registrant had 24,834,140 shares of common stock, no par value per share, which includes 3,906,300 shares held in escrow accounts.



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







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INTERNATIONAL AUTOMATED SYSTEMS, INC.

(A Development Stage Company)

CONDENSED BALANCE SHEETS

(Unaudited)

|                                                                         | March 31,        |  | June 30,      
|------------------------------------------------------------------------ | ---------------- |  | --------------
|                                                                         | 2004             |  | 2003          
|ASSETS                                                                   |                  | 
|Current Assets                                                           |                  |  |               
|Cash                                                                     | $   1,000,460    |  | $       54,034
|Prepaid sales commissions                                                | 13,000           |  | -             
|Equipment held for distribution                                          | 16,945           |  | 48,793        
|Total Current Assets                                                     | 1,030,405        |  | 102,827       
|Property and Equipment                                                   |                  |  |               
|Computer and electronic equipment                                        | 22,331           |  | 22,331        
|Automobiles                                                              | 51,514           |  | 51,514        
|Mobile office                                                            | 11,764           |  | 11,764        
|Total Property and Equipment                                             | 85,609           |  | 85,609        
|Accumulated depreciation                                                 | (67,433)         |  | (61,277)      
|Net Property and Equipment                                               | 18,176           |  | 24,332        
|Patents, net of $3,659 and $1,154 accumulated amortization, respectively | 112,615          |  | 95,732        
|Total Assets                                                             | $   1,161,196    |  | $      222,891
|                                                                         |                  |  |               
|LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                           |                  | 
|Current Liabilities                                                      |                  |  |               
|Bank overdraft                                                           | $              - |  | $       28,441
|Accounts payable                                                         | 117,946          |  | 138,757       
|Accrued  payroll taxes                                                   | 151,340          |  | 238,000       
|Deposits from customers                                                  | 130,000          |  | -             
|Deposits from related parties                                            | 74,400           |  | 224,400       
|Notes payable-current portion                                            | 5,971            |  | 5,971         
|Obligations under capital leases                                         | -                |  | 15,305        
|Total Current Liabilities                                                | 479,657          |  | 650,874       
|Net Long-Term Liabilities -Notes payable                                 | 4,203            |  | 8,777         
|Total Liabilities                                                        | 483,860          |  | 659,651       
|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, 20,927,840 and 20,326,740 issued and                         |                  |  |               
|outstanding, net 3,906,300 and 4,193,000 shares held in                  |                  |  |               
|escrow account, respectively                                             | 9,560,753        |  | 9,183,678     
|Deficit accumulated during the development stage                         | (9,178,203)      |  | (9,915,224)   
|Total Stockholders' Equity (Deficit)                                     | 677,336          |  | (436,760)     
|Total Liabilities and Stockholders' Equity (Deficit)                     | $   1,161,195    |  | $      222,891
|                                                                         |                  |  |               

See the accompanying notes to the condensed financial statements.

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INTERNATIONAL AUTOMATED SYSTEMS, INC.

(A Development Stage Company)

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)



|                                            |                 |                            |                 |                           |                 |                   |                 |                   |  | For the Period   
|------------------------------------------- | --------------- | -------------------------- | --------------- | ------------------------- | --------------- | ----------------- | --------------- | ----------------- |  | -----------------
|                                            |                 |                            |                 |                           |                 |                   |                 |                   |  | From Inception   
|                                            |                 |                            |                 |                           |                 |                   |                 |                   |  | (September 26,   
|                                            |                 | For the Three Months Ended |                 | For the Nine Months Ended |                 | 1986) Through    
|                                            |                 | March 31,                  |                 | March 31,                 |                 | March 31,        
|                                            |                 | 2004                       |                 | 2003                      |                 | 2004              |                 | 2003              |  | 2004             
|Revenue                                     |                 |                            |                 |                           |                 |                   |                 |                   |  |                  
|Sales                                       |                 | $               -          |                 | $               -         |                 | $               - |                 | $               - |  | $         111,226
|Income from related party                   |                 | -                          |                 | -                         |                 | -                 |                 | -                 |  | 32,348           
|Total Revenue                               |                 | -                          |                 | -                         |                 | -                 |                 | -                 |  | 143,574          
|                                            |                 |                            |                 |                           |                 |                   |                 |                   |  |                  
|Cost of Sales                               |                 |                            |                 |                           |                 |                   |                 |                   |  |                  
|Cost of sales                               |                 | -                          |                 | -                         |                 | -                 |                 | -                 |  | 81,927           
|Write down of carrying value of inventories |                 | -                          |                 | -                         |                 | -                 |                 | -                 |  | 216,186          
|Total Cost of Sales                         |                 | -                          |                 | -                         |                 | -                 |                 | -                 |  | 298,113          
|                                            |                 |                            |                 |                           |                 |                   |                 |                   |  |                  
|Gross Loss                                  |                 | -                          |                 | -                         |                 | -                 |                 | -                 |  | (154,539)        
|                                            |                 |                            |                 |                           |                 |                   |                 |                   |  |                  
|Operating Expenses                          |                 |                            |                 |                           |                 |                   |                 |                   |  |                  
|General and administrative                  |                 | 81,475                     |                 | 60,307                    |                 | 383,087           |                 | 611,079           |  | 5,372,729        
|Research and development expense            |                 | 76,813                     |                 | 40,785                    |                 | 191,457           |                 | 156,261           |  | 4,326,061        
|Impairment of patents                       |                 | -                          |                 | -                         |                 | -                 |                 | -                 |  | 110,082          
|Amortization expense                        |                 | 835                        |                 | 2,936                     |                 | 2,505             |                 | 8,806             |  | 90,995           
|Litigation settlement expense               |                 | 100,000                    |                 | -                         |                 | 100,000           |                 | -                 |  | 270,634          
|Total Operating Expenses                    |                 | 259,123                    |                 | 104,028                   |                 | 677,049           |                 | 776,146           |  | 10,170,501       
|                                            |                 |                            |                 |                           |                 |                   |                 |                   |  |                  
|Operating Loss                              |                 | (259,123)                  |                 | (104,028)                 |                 | (677,049)         |                 | (776,146)         |  | (10,325,040)     
|                                            |                 |                            |                 |                           |                 |                   |                 |                   |  |                  
|Other Income and (Expenses)                 |                 |                            |                 |                           |                 |                   |                 |                   |  |                  
|Sale of Technology                          |                 | 1,414,070                  |                 | -                         |                 | 1,414,070         |                 | -                 |  | 1,414,070        
|Loss on disposal of property and equipment  |                 | -                          |                 | -                         |                 | -                 |                 | -                 |  | (17,359)         
|Forfeiture of deposits                      |                 | -                          |                 | -                         |                 | -                 |                 | -                 |  | (236,803)        
|Interest income                             |                 | -                          |                 | -                         |                 | -                 |                 | -                 |  | 22,444           
|Interest expense                            |                 | -                          |                 | (2,852)                   |                 | -                 |                 | (7,727)           |  | (35,515)         
|Net Other Income (Expense)                  |                 | 1,414,070                  |                 | (2,852)                   |                 | 1,414,070         |                 | (7,727)           |  | 1,146,837        
|                                            |                 |                            |                 |                           |                 |                   |                 |                   |  |                  
|Net Income (Loss)                           |                 | $  1,154,947               |                 | $   (106,880)             |                 | $     737,021     |                 | $   (783,873)     |  | $     (9,178,203)
|                                            |                 |                            |                 |                           |                 |                   |                 |                   |  |                  
|Basic and Diluted Earnings (Loss) Per Share | $          0.05 |                            | $        (0.00) |                           | $          0.03 |                   | $        (0.03) |                   | 
|Common and Preferred Shares Used In         |                 |                            |                 |                           |                 |                   |                 |                   |  |                  
|Per Share Calculation                       |                 | 24,559,298                 |                 | 23,510,740                |                 | 24,403,671        |                 | 22,751,138        |  |                  
|                                            |                 |                            |                 |                           |                 |                   |                 |                   |  |                  

See the accompanying notes to the condensed financial statements.



---

INTERNATIONAL AUTOMATED SYSTEMS, INC.

(A Development Stage Company)

CONDENSED STATEMENTS OF CASHFLOW

(Unaudited)



|                                                    |        |                           |   |               |   | For the Period           
|--------------------------------------------------- | ------ | ------------------------- | - | ------------- | - | -------------------------
|                                                    |        |                           |   |               |   | From Inception           
|                                                    |        |                           |   |               |   | (September 26,           
|                                                    |        | For the Nine Months Ended |   | 1986) Through
|                                                    |        | March 31,                 |   | March 31,    
|                                                    |        | 2004                      |   | 2003          |   | 2004                     
|Cash Flows From Operating Activities                |        |                           |   |               |   |                          
|Net income (loss)                                   |        | $    737,021              |   | $  (783,873)  |   | $             (9,178,203)
|Adjustments to reconcile net income (loss) to net   |        |                           |   |               |   |                          
|cash from operating activities:                     |        |                           |   |               |   |                          
|Amortization                                        |        | 2,505                     |   | 8,806         |   | 90,995                   
|Depreciation                                        |        | 6,156                     |   | 6,261         |   | 220,211                  
|Stock based compensation                            |        | -                         |   | 422,903       |   | 2,221,407                
|Forfeiture of deposits                              |        | -                         |   | -             |   | 236,803                  
|Loss on disposal of fixed assets                    |        | -                         |   | -             |   | 17,359                   
|Impairment of patents and abandonment of in-process |        |                           |   |              
|rights to technology                                |        | -                         |   | -             |   | 343,238                  
|Gain on sale of technology                          |        | (1,414,070)               |   | -             |   | (1,414,070)              
|Changes in current assets and liabilities:          |        |                           |   |               |   |                          
|Prepaid sales commissions                           |        | (13,000)                  |   | -             |   | (13,000)                 
|Inventory                                           |        | -                         |   | (41,493)      |   | -                        
|Accounts payable                                    |        | (20,811)                  |   | (77,806)      |   | 117,946                  
|Deposits from customers                             |        | 130,000                   |   | -             |   | 130,000                  
|Deposits from related party                         |        | -                         |   | 174,400       |   | -                        
|Accrued liabilities                                 |        | (86,660)                  |   | (22,043)      |   | 151,339                  
|Net Cash From Operating Activities                  |        | (658,859)                 |   | (312,845)     |   | (7,075,975)              
|Cash Flows From Investing Activities                |        |                           |   |               |   |                          
|Purchases of property and equipment                 |        | -                         |   | (3,040)       |   | (242,908)                
|Purchase of rights to technology                    |        | (19,388)                  |   | -             |   | (544,967)                
|Organization costs                                  |        | -                         |   | -             |   | (1,880)                  
|Net cash advanced to related party                  |        | -                         |   | (14,060)      |   | (1,644,988)              
|Proceeds from capital lease receivable              |        | -                         |   | -             |   | 44,220                   
|Repayment of cash loaned to related party           |        | -                         |   | -             |   | 53,254                   
|Net proceeds from sale of technology                |        | 1,414,070                 |   | -             |   | 1,414,070                
|Net Cash From Investing Activities                  |        | 1,394,682                 |   | (17,100)      |   | (923,199)                
|Cash Flows From Financing Activities                |        |                           |   |               |   |                          
|Proceeds from issuance of common stock              |        | 278,871                   |   | 326,828       |   | 2,658,862                
|Cash from controlling shareholder                   |        | -                         |   | 43,164        |   | 6,270,559                
|Payments for treasury stock                         |        | -                         |   | -             |   | (3,325)                  
|Payments for stock offering costs                   |        | -                         |   | -             |   | (56,509)                 
|Increase in bank overdraft                          |        | (28,441)                  |   | (5,084)       |   | -                        
|Proceeds from net borrowings from related party     |        | -                         |   | -             |   | 78,101                   
|Proceeds from notes payable                         |        | -                         |   | -             |   | 29,857                   
|Payments on note payable and obligations under      |        |                           |   |               |   | -                        
|capital lease                                       |        | (19,879)                  |   | (27,588)      |   | (133,570)                
|Proceeds from related party deposits                |        | -                         |   | -             |   | 224,400                  
|Purchases of equipment held for distribution        |        | (19,948)                  |   | -             |   | (68,741)                 
|Net Cash From Financing Activities                  |        | 210,603                   |   | 337,320       |   | 8,999,634                
|Net Increase In Cash and Cash Equivalents           |        | 946,426                   |   | 7,375         |   | 1,000,460                
|Cash and Cash Equivalents at Beginning of Period    | 54,034 |                           | - |               | -
|Cash and Cash Equivalents at End of Period          |        | $ 1,000,460               |   | $       7,375 |   | $              1,000,460 
|                                                    |        |                           |   |               |   |                          

See the accompanying notes to the condensed financial statements.



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INTERNATIONAL AUTOMATED SYSTEMS, INC.

(A Development Stage Company)

CONDENSED STATEMENTS OF CASHFLOW (CONTINUED)

(Unaudited)



|                                                     |  | For the Nine Months Ended
|---------------------------------------------------- |  | -------------------------
|                                                     |  | March 31,                
|                                                     |  | 2004                     
|Supplemental Cash Flow Information                   |  |                          
|Cash paid for interest                               |  | $              -         
|Non-Cash Investing and Financing Activities          |  |                          
|Convert equipment held for distribution and deposits |  |                          
|from related parties to contributed capital          |  | $     98,204             
|Payment by U-Check of IAS Lease                      |  | -                        
|Impairment of U-Check receivable treated as a        |  |                          
|distribution to controlling shareholder              |  | -                        
|                                                     |  |                          

See the accompanying notes to the condensed financial statements.



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INTERNATIONAL AUTOMATED SYSTEMS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS



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, 2003. 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, 2004.



Basic earnings per common share are computed by dividing net earnings (loss) available to common stockholders by the weighted-average number of common shares outstanding during the period.  Diluted earnings per share reflects the potential dilution which could occur if all contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock.  Stock options to purchase 1,600,000 shares of common stock at a price of $3.00 per share were outstanding for the three and nine months ended March 31, 2004 and 2003, respectively, but were not included in the computation of diluted net income (loss) because the options exercise prices were greater than the average market price of common shares.



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. During the period ended March 31, 2004 the company recognized a one-time gain from the sale of technology resulting in net income of $737,021.  As of March 31, 2004, the Company had $1,000,460 of cash available.  However, the Company has had no revenue and no operating income for the nine-month periods ended March 31, 2004 and 2003, and net losses of $783,873 were incurred for the nine-month period ended March 31, 2003.  As of March 31, 2004, the Companys losses accumulated from inception totaled $9,178,203. These factors, among others, indicate that the Company may be unable to continue as a going concern for a reasonable period of time. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Companys ability to continue as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis, to obtain additional financing as may be required, and ultimately to attain successful operations. Management is in the process of negotiating various sales agreements and is hopeful these sales will generate sufficient cash flow for the Company to continue as a going concern.



NOTE 3STOCK BASED COMPENSATION



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



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



|                                                 | Three Months Ended March 31, |  | Nine Months Ended March 31,
|------------------------------------------------ | ---------------------------- |  | ---------------------------
|                                                 | 2004                         |  | 2003                       
|Net income (loss), as reported                   | $   1,154,947                |  | $    (106,880)             
|Deduct:  Total stock-based employee compensation |                              |  |                            
|expense determined under fair-value based method |                              |  |                            
|for all awards                                   | (54,328)                     |  | (71,734)                   
|Pro forma net income (loss)                      | $   1,100,619                |  | $    (178,614)             
|                                                 |                              |  |                            
|Basic and diluted earnings (loss) per            |                              |  |                            
|common share as reported                         | $           0.05             |  | $         (0.00)           
|Basic and diluted earnings (loss) per            |                              |  |                            
|common share pro forma                           | $           0.04             |  | $         (0.01)           
|                                                 |                              |  |                            



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 period ended March 31, 2004, the Company paid $100,000 under a tentative settlement agreement with the SEC.  The settlement is pending final approval from the SEC.



During the year ended June 30, 2002, the Company was notified of a claim for fees allegedly owed under a written agreement between the Company and a public relations firm for consulting services.  The claim seeks to recover from the Company $60,700 for services rendered.  The Company disputes the claim based on an alleged breach of the agreement due to a failure to perform its service obligations; additionally, the Company had made payments which it had not been given credit for leaving an unpaid balance of $34,656. Through March 31, 2004, the Company made payments totaling $10,100, leaving an accrued balance of $24,556.



The patent infringement lawsuit against Optimal Robotics Corp., PSC Inc., The Kroger Co., and several Kroger subsidiaries has been resolved by the sale of the Companys United States and Canadian patents for its Automated Self-Service Check Out System to Optimal Robotics.  The Company has retained a license for these patents which will allow the Company to manufacture, sell and service their Automated Self-Service Check Out Systems.



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, 2004, the remaining balance assessed by federal and state agencies, including penalties and interest, totaling $151,340 has been reflected in the financial statements as part of accrued payroll and related expenses.



NOTE 5DEPOSITS FROM RELATED PARTIES



During October 2002 and January 2003, the controlling shareholder and certain officers and directors of the Company (controlling members) entered into agreements with two separate individuals (minority members) to form two separate limited liability companies (LLC) for the development and management of restaurant complexes that will use the automated self-service restaurant technology developed by the Company. The controlling members agreed to contribute a business plan utilizing this technology for a 51% interest in the entities.  In consideration for 49% interests in the LLCs, the minority members agreed to loan the respective LLCs $150,000 each.



By September 2003, one LLC had advanced $150,000 and the second LLC advanced $74,400 to the Company.  The company used $51,796 of these funds for the purchase of equipment to be used in the restaurant complexes.  These LLCs are considered related parties due to common ownership and common control.  Accordingly, the funds advanced to the Company were recorded as deposits from related parties and the purchase of the equipment was recorded as equipment held for distribution at the Companys cost.



In September 2003, one of the restaurants opened for business.  The $51,796 of equipment held for distribution was netted against $150,000 of advances and the excess funds advanced of $98,204 were reclassified as contributed capital. At December 31, 2003 the Company has $74,400 of deposits from the remaining related party.  It is currently unknown if  this deposit will be used to purchase equipment of refunded.



Should the LLCs be unable to repay the notes to the minority members, Neldon Johnson, one of the controlling members of the LLCs and controlling shareholder of the Company, has agreed to make the payments.  Historically, Mr. Johnson has contributed capital to the Company with no additional shares being issued to cover the Companys operating costs.  These additional commitments by Mr. Johnson could limit the amount of funds he could contribute to the company in the future.



NOTE 6STOCKHOLDERS EQUITY



Common Stock Issued For Cash  At June 30, 2003 the Company had a total of 4,193,000 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, 2004, 286,700 shares were sold for proceeds of $131,171 at prices ranging from $0.23 to $0.83 per share. The proceeds were used to pay professional fees, operating expenses and accrued liabilities. At March 31, 2004, there was a balance of 3,906,300 shares left in escrow.



During the nine months ended March 31, 2004, the Company issued 314,400 shares of common stock to individuals in exchange for $147,700 in cash at prices between $0.25 and $0.50 per share.



NOTE 7  DEPOSITS FROM CUSTOMERS



During the nine months ended March 31, 2004, the Company received $130,000 in deposits from unrelated individuals to purchase equipment in relation to their automated self-service restaurant technology. The Company was required to remit a 10% commission as part of receiving the funds. The deposit and commission will be reflected in income and expense when the equipment is completed and installed.



NOTE 8  SUBSEQUENT EVENTS



On May 14, 2004, the Companys board of directors authorized the Company to enter into an agreement with Neldon Johnson, the Companys president, in which the Company will acquire from Mr. Johnson patents, patents pending, designs and contracts related to certain technology developed by Mr. Johnson.  As consideration for these patents, patents pending, designs and contracts, the Company authorized the issuance of 10,000,000 shares of series A preferred stock, warrants to purchase 100,000,000 shares of common stock and 10% of total gross sales in royalties of the Company.



Each share of series A preferred stock has equal dividend rights to the common shares, is not convertible into common shares, has no dividend requirements, and has no liquidation preferences to the common shares. Each preferred share is entitled to the voting rights of ten common shares.



The warrants have an exercise price of $0.40 per share and are exercisable over the following periods:



January 1, 2005

5,000,000

January 1, 2006

5,000,000

January 1, 2007

5,000,000

January 1, 2008

10,000,000

January 1, 2009

10,000,000

January 1, 2010

65,000,000



On the date of this agreement, the Company does not have sufficient series A preferred stock or common stock authorized to satisfy this agreement.  The Company is currently in the process of amending their articles of incorporation to increase the number of preferred and common stock they are authorized to issue.



For accounting purposes, the Company is still evaluating the valuation of the patents transferred and the allocation of the value to the preferred stock and stock warrants.





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, 2004, total current assets were $1,030,405 and total assets were $1,161,196 compared  to  total  current  assets  $102,827  and  total assets $222,891 as of June 30, 2003.



As  of  March 31, 2004, Registrant had total liabilities of $483,860  and shareholders' equity of  $677,336 as compared to total liabilities of $659,651 and  shareholders' deficit of  $436,760  as  of  June  30,  2003. The  deficit accumulated during  the  development stage was $9,178,203 as of March 31, 2004, compared to $9,915,224 as of June 30, 2003.  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, 2004,  the  ratio  of current assets to current liabilities was approximately 2.15 to one.



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





Payments Due By Period



Less Than    One To Three

Contractual Obligations                      Total        One Year         Years

- -------------------------------------------------------------------------------------

Long-term debt                                $  10,174      $   5,971        $   4,203





Management is in the process  of  negotiating  various  sales agreements and is hopeful  these  sales  will generate sufficient cash flow for  the  Company  to continue operations. The Company's  ability  to  continue is dependent upon its ability to generate sufficient cash flow to meet its  obligations,  to  obtain  additional financing as may be required, and ultimately to attain successful operations.



RESULTS OF OPERATIONS



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



For the quarter ended March 31, 2004 and 2003, Registrant had no revenues or cost of sales. For the quarter ended March 31, 2004, registrant had total operating expenses of $259,123 compared to expenses of $104,028 during the same quarter of a year earlier. For the quarter, Registrant had a net income of $1,154,947 compared to a net loss of $106,880 for the same quarter a year earlier. For the quarter, the net earnings per share was $0.05 compared to a net loss of $0.00  for  the same quarter a year earlier.  For the quarter ended March 31, 2004, general and administrative  expenses  were $81,475 compared to $60,307 and research development expenses were $76,813  compared to $40,785  a  year  earlier.  The increase in net earnings is primarily due to sale of technology.



Nine Months Ended March 31, 2004 compared to Nine Months Ended March 31, 2003



For the nine months ended March 31, 2004 and 2003, the Registrant had no revenues or cost of sales.  For  the  nine months ended March 31, 2004,  registrant  had  total operating  expenses of $677,049  compared to expenses of  $776,146  during  the same  nine month period for a year earlier. For the nine months ended March 31, 2004, general and administrative expenses were $383,087 compared to $611,079 and research and  development expenses were $191,457 compared to  $156,261  a  year earlier. For the nine months ended March 31, 2004  months, the Registrant had a net income of $737,021 compared to  a net loss of $783,873 for the same nine month period a year earlier. For the  nine months ended March 31, 2004 the net earnings per share was $0.03 compared to a net loss of $0.03  for  the  same period a year earlier. Net income for the nine months ended March 31, 2004 is a direct result of the sale of technology.



FUTURE BUSINESS



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



ITEM 3: CONTROLS AND PROCEDURES



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



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





PART II - OTHER INFORMATION





ITEM 1.  LEGAL PROCEEDINGS



On September  23,  1998,  the  Company  was notified by the U.S. Securities and Exchange Commission (SEC) of formal action  against the Company, its president, and members of his family for possible securities  violations. The action stems from  alleged  material  misrepresentations by the Company  and  the  Company's employees regarding new technology developed by the Company. The SEC is seeking disgorgement of the proceeds from the sale of stock by the Company's principals that occurred between June 1995 and June 1996.



At the end of July 2001, the  president  of  the  Company,  on  behalf  of  the Company,  approved  a settlement recommendation to be presented to the SEC as a full compromise of the  matter.  During  December  2002,  the  Company received notification  from  the  SEC  that the proposed settlement agreement  had  been rejected.  Another tentative settlement agreement has been reached during the quarter ending March 31, 2004 in which the company paid $100,000. The settlement is awaiting final approval from the SEC. Company is currently unaware of when and how the SEC intends to pursue this action and any possible liability resulting from this action is undeterminable.



During the year  ended  June  30, 2002, the Company was notified of a claim for fees allegedly owed under a written  agreement between the Company and a public relations firm for consulting services.   The  claim  seeks to recover from the Company $60,700 for services rendered.  The Company disputes the claim based on an alleged breach of the agreement due to a failure to  perform  its  service obligations; additionally,  the Company had made payments which it had not been given credit for.



The Company has resolved its patent infringement lawsuit against Optimal Robotics, The Kroger Co., and the Kroger subsidiaries through the sale to Optimal Robotics of its Automated Self Check-Out System patent. The Company has retained the license rights to manufacture, sell, and service their Automated Self Check-Out Systems.





ITEM 2.  CHANGES IN SECURITIES



During the year ended June 30, 2003, the Company had 4,193,000 shares of common stock  in  escrow  with  three entities to be sold. Proceeds of the stock sales from the escrow accounts are  placed  in separate escrow accounts to be used at the Company's and the attorney's discretion. At March 31, 2004, there was a balance  of 3,906,300 shares left in escrow.  During  the  nine months ended March 31, 2004, 286,700 shares were sold for proceeds of $131,171 at prices ranging from $0.23  to  $0.83 per share.



During the nine months ended March 31, 2004, the Company issued 314,400 shares of common stock to individuals in exchange for $147,700 in cash at prices between $0.25 and $0.50 per share.



ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.



None.



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



None.



ITEM 5.  OTHER INFORMATION.



The Controlling Shareholder and certain officers and directors of  the  Company have  formed  agreements with two separate individuals ("minority members")  to form  two  separate  limited  liability  companies  (`LLC"),  which  will  open restaurants utilizing Company's self-service restaurant equipment.



Should  the  LLC's be unable to repay the notes to the minority members, Neldon Johnson,  one  of   the  controlling  members  of  the  LLC's  and  controlling shareholder of the Company, has agreed to make the payments.  Historically, Mr. Johnson has contributed  capital to the Company with no additional shares being issued to cover the Company's operating costs.  These additional commitments by Mr. Johnson could limit the  amount of funds he could contribute to the company in the future.



The Company entered into an Agreement with the Companys President, Neldon Johnson, effective as of May 14, 2004, for the acquisition of patents, patents pending, designs, and contracts related to certain technologies conceived and developed by Mr. Johnson. In exchange Mr. Johnson will receive from the Company 10,000,000 shares of Series A Preferred Stock, Warrants to purchase 100,000,000 shares of common stock at forty cents ($0.40) per share, and 10% of total gross sales in royalties of the Company. The transaction is a related party transaction.  No independent appraisal regarding the value of the exchange is available.



Each share of Series A Preferred Stock has equal dividend rights to the common shares, are not convertible into common shares, have no dividend requirements, and have no liquidation preferences to the common shares. Each preferred share is entitled to the voting rights of ten common shares.



The Company has agreed to increase the number of preferred and common stock they are allowed to issue in order to comply with the Agreement.



ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K



a. Exhibits



10.1    Agreement with Company Officer

10.2    Assignment of Patents and Patents Pending

10.3    Warrant Agreement



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 21, 2004



International Automated Systems, Inc.



By: /s/ Neldon Johnson

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Neldon Johnson

President and Chief Executive Officer