This is a text version of a news article originally printed in the Salt Lake Tribune.
Utah's Troubled International Automated Systems to Release Financial Report
By Lisa Carricaburu and Steven Oberbeck, The Salt Lake Tribune
Knight-Ridder/Tribune Business News
AMERICAN FORK, Utah--Sep. 30--International Automated Systems does not fit most notions of a company set to lead a worldwide communications
Its office is a tiny, refurbished log cabin off American Fork's beaten path, just down the road from a huge pumpkin patch.
Most of IAS' 18 employees work in a nearby aluminum warehouse, a blue-and-white structure company executives say houses its top-secret "digital wave modulation" technology.
Digital wave modulation is a discovery, they contend, that will allow data to be sent at up to 1.3 gigabytes per second -- a speed many electronics experts consider impossible.
"We are not looking for quick profits," says Neldon Johnson, IAS president and chief executive officer. "We do not want to be like the typical high-tech company -- one that grows quickly and then declines, one like WordPerfect. We are developing a company for the long-term."
IAS' financial statements are as unimpressive as its headquarters. It lost $199,554 on revenue of $6,000 for the year ended June 30, 1995. Its assets were worth just $53,226. The company had a negative net worth of $128,558.
Monty Hamilton, IAS head of investor relations, who was busy last week painting stripes in the company parking lot, says updated financial
figures will be available this week. "They won't show much improvement since we are still a development-stage company," he says.
Johnson, a former grocery-store owner and AT&T electronics technician, says the world is selling short his discovery -- and his company.
"If this technology does not work," he says, simply, "then I'm going to jail."
Such pronouncements, however, have not stopped hundreds of IAS investors from bailing out of the company -- especially following its disastrous
June 27 extravaganza in Orem to unveil DWM.
In the face of widespread doubts and ridicule, IAS took a bold stand. It boasted to the world in national publications directed
toward investors it was near unveiling its breakthrough.
"We have enjoyed creative insults directed at us by skeptics," the company's advertisement in Investor's Business Daily and other
publications said. "We encourage those of you who have missed the opportunity to ridicule us to hurry -- you only have about two more
But when the big day arrived, IAS failed to demonstrate its promised prototype to a packed auditorium at Utah Valley State College. Company
executives said there were last-minute problems with its patent application.
Investors deserted the company in droves. Its stock plummeted 56 percent the next day. Its market value dropped a whopping $367
Three months later, company executives are eager to put a positive spin on the event, even though it was followed by a proposed
shareholder class-action lawsuit and a Securities and Exchange Commission investigation.
"From our standpoint it was a highly successful meeting," Johnson says. "Before, no one would even look at our technology."
Now, IAS management maintains it is entertaining representatives of major high-tech companies worldwide. And dozens of electronics
experts, from Utah and elsewhere, have signed nondisclosure documents to get a peek at DWM technology.
Like its technology, however, the company is keeping secret the names of many of those who have viewed its DWM product.
"We don't want them flooded with telephone calls," Johnson says.
Barry M. Lunt, a professor of electronics engineering technology at Brigham Young University, has seen it though.
He was asked by a worried IAS investor to evaluate the claims.
Lunt says within the electronics field there are widely accepted theorems that establish upper limits on the rate of data transmission,
limits well below those IAS claims are possible.
Nevertheless, he came away convinced DWM has promise.
"They did not convince me through any electronic wizardry," he says. "I asked some pretty tough questions. They were able to resolve
the conflicts I had."
For all of its other products -- IAS also is marketing a fingerprint identification machine and building a self-service grocery store in
Salem set to open in January -- it has been its soaring stock price amid speculation surrounding DWM that has defined the company
IAS stock rose from 14 cents a share in early 1993 to a $52 high on May 31, a few weeks before the promised DWM unveiling.
At $52 a share, the market was valuing IAS at $929 million, a staggering price for a company with a negative net worth.
IAS stock closed this week at $9.25 per share.
Randy Johnson, IAS senior executive vice president and Neldon Johnson's son, says executives, "do not know what made the stock go
up. And we do not know what made it go down."
There are some, however, who think they know.
On July 8, IAS was sued by a shareholder for alleged securities fraud. The lawsuit, which is pending in the U.S. District Court for
Utah, seeks class-action status on behalf of investors who bought the company's stock between May 13 when it was trading for $34 a share and
June 27 when it closed at $37.50.
IAS and its president are accused of artificially inflating the price of IAS stock by issuing false statements about the introduction of the
promised revolutionary technology.
And on July 16, IAS acknowledged it was under investigation by the SEC.
IAS' president pooh-poohs the SEC inquiry. "I've been investigated by the SEC before," Johnson says, indicating that probe also concerned
the price of IAS stock. "I just wish they would not call it an investigation. I wish they would call it an audit."
Johnson is quick to point out IAS is not "a one-product company."
Standing in the corner of the company's warehouse, he quickly scans several items and fills a shopping cart with the precision of an
IAS received a patent for its automated self-service checkout system in 1988. It has spent the past several years perfecting and testing
it, Johnson says.
If the new store in Salem proves successful, IAS hopes to operate a chain of U-CHECK stores and eventually hopes to sell franchises, he
says, adding investors will be attracted by the system's ability to increase store profits by dramatically reducing labor costs.
"It's technology that makes it possible for a 16-year-old kid to operate an entire grocery store with two weeks of training," Johnson
But even that technology is not without its challenges.
At least two other companies -- Optimal Robotics of Montreal, Canada, and Stores Automated Systems Inc. of Bristol, Pa. -- are testing
versions in East Coast stores and promise to soon make them widely available.
Johnson says both are violating IAS patents. His attorney has written them letters.
But spokesmen for each company say IAS has no hold over them.
"There are no patent problems I know of," says Holden Ostrin, Optimal Robotics vice chairman.
SASI spokeswoman Patricia Vekich says her company developed its checkout system as an extension of the point-of-sale systems it has
made since 1983. It did a patent search and found nothing to suggest it would have problems. SASI has a patent pending, she says.
"I know nothing about IAS," she says. "But I do know they are not a player in the market we're talking about."
Meanwhile, IAS says it is negotiating with several companies for the use of its Automated Fingerprint Identification Machine, a product
developed as part of the automated checkout system.
The product digitizes a fingerprint onto a card's magnetic strip. When identification is required, the card holder places a finger on a
reader that compares the print to the digitized one on the card.
IAS last week announced that it has signed a product development and marketing agreement with GIGA-TMS Inc., a Taiwanese company that makes
door locks, mag-stripe readers, time clocks and other security equipment.
James Biorge, IC One chief executive officer, says he also is including IAS fingerprint technology in his bids to gain a smart-card
contract from the Utah Division of Motor Vehicles.
Dave Berger of the Cincinnati-based Emerging Systems Ltd. says he understands why IAS has come under scrutiny.
But he believes its DWM and fingerprint technology have potential. As an agent certified to sell IAS products, he is marketing them to
clients who seek his help improving banking security.
"IAS has had its problems, but its products are good," Berger says. "If they didn't have merit, I wouldn't be adding them to my
Still, there are few sales to speak of, and despite all its problems, IAS' primary message to stockholders still is "Trust us."
"We're not saying we're perfect. We are not a perfect company," Randy Johnson says. "But a lot of our stockholders know us and they know we
have integrity. They are the ones we care about. We know they'll stick with us."