UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities
Exchange Act of 1934
Date of Report (Date of earliest event reported) July
10, 1996
INTERNATIONAL AUTOMATED SYSTEMS, INC.
(Exact name of registrant as specified in its
charter)
Utah 33-16531-D 87-0447580
(State or other jurisdiction (Commission
(IRS Employer
of incorporation) File Number)
Identification
No.)
512 South 860 East, American Fork, Utah 84003
(Address of principal executive offices) (Zip
Code)
Registrant's telephone number, including area
code (801) 763-9965
N/A
(Former name or former address, if changed since
last report.)
Item 1. Changes in Control of Registrant.
N/A
Item 2. Acquisition or Disposition of Assets.
N/A
Item 3. Bankruptcy or Receivership.
N\A
Item 4. Changes in Registrant's Certifying
Accountants.
N/A
Item 5. Other Events.
On July 3, 1996, the Company and its
president were served with a complaint alleging
violations of the Federal securities laws and
seeking damages in an unspecified amount. The
Complaint is filed as a class action on behalf of
purchasers of the Company's stock from the period of
May 13, 1996, through June 28, 1996.
The Complaint if filed in the United States
District Court, District of Utah, and is captioned
Edouard Sefarty v. International Automated Systems,
Inc., and Neldon Johnson, Civil No. 2:96CV 0583 C.
The Company and its President intend to vigorously
defend against the lawsuit.
Item 6. Resignations of Registrant's Directors.
N/A
Item 7. Financial Statements and Exhibits.
N/A
Item 8. Change in Fiscal Year.
N/A
EXHIBITS:
1. Copy of Complaint captioned Edouard
Sefarty v. International Automated Systems,
Inc., and Neldon Johnson, Civil No. 2:96CV 0583
C (United States District Court, District of
Utah)
SIGNATURE
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant had duly caused
this report to be signed on its behalf by the
undersigned hereunto duly authorized.
International Automated Systems, Inc.
(Registrant)
Neldon Johnson- President
Date: July 10, 1996
*Print name and title of the signing officer under his
signature.
Brent D. Ward, Esq. (No. 3377)
Brad W. Merrill, Esq. (No. 6932)
PARRY MURRAY & WARD
1270 Eagle Gate Tower
60 Last South Temple
Salt Lake City, Utah 84111
Telephone: (801) 521-3434
Richard Bemporad, Esq,
Neil L Selinger, Esq.
Jeanne F. D'Esposito, Esq.
LOWEY DANNENBERG BEMPORAD & SELINGER, P.C.
One North Lexington Avenue
White Plains, NY 10601
Telephone: (914) 997-0500
Attorneys for Plaintiff
IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF
UTAH
CENTRAL DIVISION
EDOUARD SERFATY, )
Plaintiff, ) CLASS ACTION
COMPLAINT
) JURY TRIAL DEMANDED
v. )
)
INTERNATIONAL AUTOMATED )
SYSTEMS, INC., and NELDON)
JOHNSON, ) Case No. 2.96CV 0583C
)
Defendants. )
) Judge
<PAGE>
Plaintiff, by his undersigned attorneys, for his
complaint alleges, upon personal knowledge as to
himself and his own acts and upon information and
belief as to all other matters, as follows:
1. This is a securities class action against
International Automated Systems, Inc. ("IAS" or the
"Company") and its President, Neldon Johnson
("Johnson").
During the class period of May 13, 1996 through June
28, 1996 (the "Class Period"), defendants disseminated
numerous statements through company press releases and
advertisements in publications such as Investor's
Business Daily touting that they had developed an
allegedly revolutionary communications technology
called Digital Wave Modulation ("DWM") that, among
other things, would allow tile transmittal of
information at speeds 200 times taster than current
modems. Defendants also made several published
statements specifically promising to unveil a working
prototype of DWM on June 27, 1996, notwithstanding the
fact that defendants did not have a working prototype
of DwM in existence or anywhere near completion.
2. On June 27, 1996, at a two-hour multimedia
presentation, Johnson and lAS failed to unveil a
working prototype of the new technology as defendants
had promised to do in numerous public statements. As a
result, the market price of lAS stock, which, based on
defendants' repeated representations concerning lAS's
purportedly revolutionary new product, had traded as
high as $57 during the Class Per'iod described
2<PAGE>
herein, plunged from a closing price of $40 per share
on June 26, 1996, to as low as $10 per share and closed
at $20 per share on June 28, 1996, on extraordinarily
heavy volume.
As a result, plaintiff and the members of the Class
suffered damages aggregating many millions of dollars,
JURISDICTION AND VENUE
3. Jurisdiction of this Court is founded upon
Section 27 of the Securities Exchange Act of 1934 (the
"Exchange Act'), 15 U.S.C. l8aa, and Section 1331 of
Title 28, U.S.C. 1331-
4. The claims herein arise under Sections 10(b)
and 20(a) of the Exchange Act, 15 U.S.C. 78j(b) and
78t(a), and Rule 10b-3 prorogated thereunder by the
Securities and Exchange Cornnission (the "SEC").
5. Venue is proper in this district pursuant to
Action 27 of the Exchange Act and 28 U.S,C. 1391(b).
Defendants conduct business here or have agents in this
district, and many of We acts comprising the
transactions giving rise to the violations of law
complained of herein occurred in this judicial
district.
6. In connection with the acts, conduct and other
wrongs complained of herein, defendants, directly and
indirectly, used the means and instrumentalities of
interstate commerce and the United States mail, and the
facilities of a national securities exchange.
3
<PAGE>
THE PARTIES
7. Plaintiff Edouard Serfaty is a resident of
Fountain Valley, California, and made the following
purchases of lAS common stock during the Class Period
at prices which were artificially inflated by
defendants' misstatements and misrepresentations:
Date
Quantity Purchased Price
100 5/14/96 $42
100 6/10/96 $40
100 6/18/96 $4l 1\2
8(a) Defendant IAS is incorporated under the laws
of the State of Utah and maintains its principal
executive offices at 321 East 300 North, Suite D,
American Fork, Utah, 84403. lAS is in the business of
developing and marketing communications technology,
including an automated grocery checkout system and a
fingerprint identification system. lAS has not yet
marketed any of its products.
(b) As of June 30, 1996, there were approximately
16.3 million shares of lAS common stock outstanding,
which shares are listed and traded on the OTC Bulletin
Board, an efficient and developed securities market
that is rim by NASDAQ.
9. Defendant Johnson, the Company's founder, has
served as Chairman of the Board and president of lAS
from its inception in 1986.
10. By virtue of his positions at lAS, his ability
to exercise power and influence with respect to lAS's
course of conduct, and his access to material or
nonpublic information about the Company, defendant
Johnson was, at all relevant times, a
4
controlling person at lAS within the meaning of Section
20 (a) of the Exchange Act, and both had and exercised
the power and influence to cause lAS to engage in the
legal practices complained of herein,
CLASS ACTION ALLEGATIONS
11. This action is brought by plaintiff
pursuant to Rules 23(a) and 23(b)(3) of the Federal
Rules of Civil Procedure, individually and on behalf of
a class (the "Class") consisting of all persons and
entities who purchased shares of lAS common
stock from May 13, 1996 through and including June
27,1996. Excluded from the Class are the defendants,
officers and directors of lAS, members of Johnson's
immediate Family, any entity in which either defendant
has a controlling interest, and the heirs, successors
and assigns of any of the excluded persons or entities.
12. The members of the Class are so
numerous that joinder of all members is impracticable.
While the precise number of class members is unknown to
plaintiff at this time and can only be ascertained
through appropriate discovery, plaintiff believes that
mere are thousands of members of the Class.
13. Among the questions of law and facts
involved herein which are common to the Class and which
predominate over questions affecting individual members
of the Class are:
(a) whether the federal securities laws were
violated by defendants' acts as alleged herein;
5<PAGE>
(b) whether documents and information
disseminated to the investing public and the
shareholders of IAS during the Class Period were
materially misleading in claiming that IAS had
successfully completed the development of DWM
technology;
(c) whether defendants acted wilfully or
recklessly in misrepresenting and/or omitting material
facts;
(d) whether the market price of IAS common
stock was inflated artificially during the Class Period
due to the misrepresentations and/or omissions
complained of herein; and
(e) whether the members of the Class sustained
damages and, if so, what is the proper measure thereof.
14. Plaintiff's claims are typical of the claims of
the members of the Class in that he purchased shares of
IAS common stock during the Class period and sustained
injury as a result of the material misrepresentations
alleged herein.
15. Plaintiff will fairly and adequately protect the
interests of the members of the Class. He retained
competent counsel experienced in class action
litigation under the federal securities laws and does
not have interests antagonistic to or in conflict with
those he seeks to represent as a class representative.
16. The Company's shares are traded on an efficient
and developed securities market.<PAGE>
ADDITIONAL SUBSTANTIVE ALLEGATIONS
17 On June 19, 1995 IAS announced a patent pending
for a new communication system. In touting this new
technology, defendants made the following statements in
their press release:
It is called Digital Wave Modulation (DWM) and will
affect approximately every type of communication around
the world. DWM can operate completely wireless without
any signal degradation or interface.
Computer Networking: Current network systems transmit a
approximately 200,000 bytes of information per second.
And, only two computers can communicate with each other
at one time. DWM transmits more than 1.8 billion bytes
of information per second. And, over 1,000 customers
can communicate with each other simultaneously.
Telephone: DWM transmits 1,000 times more efficient
than current cellular phones. Therefore, DWM cellular
phones can be sold at a flat rate - possibly between
$20 and $100 a month. Customers would not have to pay
for any air time. In addition, they would pay very
little for long distance calling.
Also, in order to switch more than 150,000 conventional
telephones, present systems require an area equal to a
building six or seven stories high and a quarter of a
city block square. An equal number of DWM phone can be
switched automatically on a single 586 PC computer.
Television: For each television channel currently
broadcasted, DWM can broadcast over 900.
Radio: DWM sends a signal so precise that it can
transmit each specific sound or instrument to an
individual speaker.
Versatility: DWM is capable of transmitting television,
radio, two-way video conferencing, and computer
communications by way of a single DWM cellular phone.
Also, each of these transmissions can be sent to and<PAGE>
from a DWM phone at a higher digital quality than
currently possible (e.g.(sic) stereo, surround sound,
etc.)
Simple Implementation: DWM is simple to implement. It
can be set up with minor modifications to current
transmitters and receivers.
Potential Market: According to Forbes ASAP, April 10--
this market is potentially worth $2 trillion.
18. lAS lost $199,554 on revenue of $6,000 for
the year ending June 30, 1995. As of that date, assets
totaled $53,226 and lAS had a negative net worth of
$128,558.
19. According to a August 20, 1995 article in
The Salt Lake Tribune,during fiscal 1994, lAS lost more
that $27,000 or a 3 cents per share. Tile article also
reported that "[accountants at H. Sherwood & Company in
1994 said lAS 'may not be able to continue its
existence' unless Johnson can promote new products and
increase his
cash flow."
20. On February 13, 1996, Johnson filed a Form
4 with the SEC stating his intent to sell 15,000 shares
of lAS common stock.
21. On February 27, 1996, Johnson filed a Form
4 with the SEC stating his intent to sell 20,000 shares
of lAS common stock.
22. On March27, 1996, Johnson filed a Foma 4
with the SEC stating his intent to sell 20,000 shares
of lAS common stock,
8
Defendants' Misleading Statements
23. During the spring of 1996, defendants ran
several adertisements in such publications as
Investor's Business Daily, a widely read daily
financial publicaiont, promising to unveil the
Company's DWM technology on June 27, 1996. In such
advertisements, defendants further stated that DWM
technology "will spearhead a revolution" in
comunications and calimed that DWM is nearlyh 200
times faster than today's modems in transmitting
information. Defendants also represented that the
technology "redefines the boundries of science."
24. Following IAS's announcements,
telecommunications analyst Rob Rich of the Yankee
Group in Boston publicly voiced his skepticism with
regarding to IAS's claims about DWM stating,
"Chutzpa is alive and well in American Fork" and
"I'll believe it when I see it."
25. In response to the criticism of Rob Rich and
others, IAS placed advertisements, one of which
appeared in the May 13, 1996 issue of Invesotr's
Business Daily, touting the Company's stock. In
that advertisement, defendants dismissed the
"creative insults directed at us by skeptics," and
stated "[w]e encourage those of you have missed the
opportunity to ridicule us to hurry-- you only have
about two more months."
26. In response to defendants' positive
representations regarding DWM, the market price of
IAS common stock rose dramatically, rising from its
low of $1/4 per
9
<PAGE>
share in July of 1994 to wade as high as $57 per share
on May 28,1996 and closing on
that date at $47 per share.
27. On June 12, 1996, an advertisement appeared in
The Investor's Business Daily in which defendants
proclaimed "Edison Did it, Bell Did it, and We'll Do
it -- on June 27th." Furthermore, defendants
specifically represented that '[o]n June 27th, lAS will
unveil its operational DWM prototype. This prototype
will prove that DWM works and the DWM is entirely
capable of living up to its claims as stated above
(emphasis added). Defendants also claimed:
DWM Wireless: Can transmit 1,000 times more
cellular phones within the same air space as one
current cellular phone . [c)an transmit 1.2
Gigabytes per second . . . [c]an network an unlimited
number of computers . . [and c]an transmit 1,000 times
more channels than current television.
DWM Modern Transmitting Through Current Telephone
lines (POTS): Can transmit 150,000 to 600,000 BAUD
(apx. 20xs faster than current modems over POTS.
THE BELATED DISCLOSURE OF THE TRUTH CAUSES IAS SHARES
TO PLUNGE
28. On June 27, 1996, lAS conducted a public,
two-hour presentation at The David O. McKay Special
Events Center at Utah Valley State College at which
Johnson and several lAS employees spoke about DWM, but
failed to produce the working prototype of DWM that had
been promised. Johnson admitted that the actual
engineering
10
<PAGE>
for DWM remains to be done. Furthermore, although
Johnson claimed that products using DWM technology
would be available by the end of the year, a company
spokesperson could not say when lAS would be able to
produce a working prototype.
29 The market's reaction to these belated admissions
was immediate and adverse. IAS common stock plunged by
20 points to dose on June 28, 1996 at $20, down from
its close of $40 per share on June 26, 1996, a loss of
50%.
(For Violation of Sections 10(b) and 20(a)
Of the Exchange Act and SEC Rule 10b-5)
30. Plaintiff incorporates Paragraphs 1 through 29
above, as if set forth
hilly herein.
31 During the Class Period, defendants, individually
and in concert, directly and indirectly, engaged and
participated In a continuous course of wrongful
conduct misrepresenting material Information relating
to the development of DWM technology. Defendants
employed devices, schemes and artifices to defraud and
engaged in acts, practices and a course of conduct as
hereinafter alleged in an effort to maintain an
artificially high market price for lAS common stock,
which included the making of or participation in the
making of untrue statements of materials facts and
omitting to state material facts necessary in order to
make the statements made about lAS's DWM technology, in
light of the circumstances under which they were made,
not misleading
11
and engaged in transactions, practices, and a course of
business which operated as a fraud
and deceit upon the purchasers of lAS common stock
during the Class Period.
32. During the Class Period, defendants issued public
statements in the Company's advertisements and press
releases which were materially false and misleading.
Those statements and releases, which are particularized
in paragraphs 23 through 27, supra were materially
false and misleading in representing that lAS had
successfully completed the development of DWM
technology.
33. Each of the defendants acted knowingly or
recklessly in making the foregoing materially false and
misleading statements.
34. Plaintiff and other members of the Class, relying
on the integrity of the market, purchased the Company's
common stock during the Class Period at artificially
inflated prices and were damaged thereby. Had plaintiff
and members of the Class known the true facts,
plaintiff and members of the Class would not have
purchased the common stock of the Company at inflated
prices during the Class Period, if at all.
35. Defendant Johnson, by virtue of his executive
position, had the power and influence, and exercised
same, to cause lAS to engage in the unlawful conduct
and practices complained of herein. As a result,
defendant Johnson is a controlling person of lAS within
the meaning of Section 20(a) of the Exchange Act and is
liable for the wrongful acts of IAS.
12
<PAGE>
36. As a result of defendants' aforesaid wrongful
conduct, plaintiff and members of the Class have been
damaged in an amount to be proved at trial.
WHEREFORE, plaintiff demands judgment as follows:
1. Determining the action to be a proper class action
maintainable pursuant to Rule 23 of the Federal Rules
of Civil procedure;
2.Awarding to plaintiff and the other members of the
Class damages from defendants, together with
appropriate interest;
3.Awarding to plaintiff and the other members of the
Class the costs and disbursements of this action,
including reasonable fees to plaintiffs attorneys and
experts; and
4.Awarding plaintiff and the other members of the Class
such other and further relief as may be just and
property under the circumstances.
13
<PAGE>
JURY DEMAND
Pursuant to Rule 38 of the Federal Rules of Civil
Procedure, plaintiff hereby demands a trial by jury.
DATED this 2nd day of July, 1996.
PARRY MURRAY & WARD
Brent D. Ward, Esq.
Brad W. Merrill, Esq.
LOWEY DANNENBERG BEMPORAD
AND SELINGER P.C.
Richard Bemporad, Esq,
Neil L. Selinger Esq.
Jeanne F. D'Esposito, Esq.
Attorneys for Plaintiff
14
<PAGE>
