<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter Ended February 29, 1996
--------------------------------------------------------------
Commission File Number 2-91218-B
---------------------------------------------------------
International Electronics, Inc.
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Massachusetts 04-2654231
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
427 Turnpike Street, Canton, Massachusetts 02021
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(617) 821-5566
- --------------------------------------------------------------------------------
(Issuer's telephone number, including area code)
Not applicable
- --------------------------------------------------------------------------------
(former name, former address and former fiscal year, 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 Exchange Act during the
preceding 12 months (or for 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
------ ______
1,475,851 common shares were outstanding at April 2, 1996.
<PAGE>
INTERNATIONAL ELECTRONICS, INC.
---------------------------------
Index
-----
<TABLE>
<CAPTION>
Part I. Financial Statements (unaudited)
--------------------------------
<S> <C> <C>
Condensed Consolidated Balance Sheets, February 29, 1996
and August 31, 1995 2
Condensed Consolidated Statements of Operations, three and six
months ended February 29, 1996 and February 28, 1995 3
Condensed Consolidated Statement of Shareholders' Equity,
six months ended February 29, 1996 4
Condensed Consolidated Statements of Cash Flows, six
months ended February 29, 1996 and February 28, 1995 5
Notes to Condensed Consolidated Financial Statements 6-8
Item 2: Management's Discussion and Analysis of
---------------------------------------
Financial Condition and Results of Operations 9-11
---------------------------------------------
Part II. Other Information:
Item 4: Submission of Matters to a Vote of 12
----------------------------------
Security Holders
----------------
Item 6: Exhibits and Reports on Form 8-K 12
--------------------------------
Signatures 12
----------
</TABLE>
-1-
<PAGE>
INTERNATIONAL ELECTRONICS, INC.
---------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
----------------------------------------
(unaudited)
<TABLE>
<CAPTION>
Feb. 29, 1996 August 31, 1995
------------- ---------------
ASSETS
- ------
<S> <C> <C>
Current assets:
Cash and equivalents $ 528,629 $ 327,812
Accounts receivable, net 942,159 836,705
Inventories 705,352 623,913
Other current assets 86,427 104,451
----------- -----------
Total current assets 2,262,567 1,892,881
Equipment, furniture and
improvements, net 291,675 280,326
Other assets:
Goodwill and other intangibles, net 370,455 415,597
Other 15,027 17,285
----------- -----------
385,482 432,882
----------- -----------
$ 2,939,724 $ 2,606,089
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 674,679 $ 651,176
Accrued expenses 547,716 431,389
Income taxes 21,000 -
Current portion of long-term
obligations 99,107 69,095
----------- -----------
Total current liabilities 1,342,502 1,151,660
Long-term obligations 425,872 452,685
Commitments
Shareholders' equity:
Common stock, $.01 par value:
Authorized 5,984,375 shares
Issued 1,510,851 and 1,442,669
shares 15,109 14,427
Capital in excess of par value 4,756,425 4,668,050
Accumulated deficit (3,561,540) (3,642,089)
Less treasury stock, at cost:
35,000 shares (38,644) (38,644)
----------- -----------
Total shareholders' equity 1,171,350 1,001,744
----------- -----------
$ 2,939,724 $ 2,606,089
=========== ===========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
-2-
<PAGE>
INTERNATIONAL ELECTRONICS, INC.
---------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
---------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
------------------------------- --------------------------------
Feb. 29, 1996 Feb. 28, 1995 Feb. 29, 1996 Feb. 28, 1995
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales $2,045,554 $1,530,526 $3,990,877 $3,125,807
Cost of sales 1,192,180 870,792 2,325,552 1,800,266
---------- ---------- ---------- ----------
Gross profit 853,374 659,734 1,665,325 1,325,541
Research and development costs 87,694 82,175 160,459 153,894
Selling, general and
administrative expenses 693,556 668,863 1,388,395 1,261,705
---------- ---------- ---------- ----------
Income (loss) from operations 72,124 (91,304) 116,471 (90,058)
Interest expense (13,062) (14,781) (27,088) (28,591)
Other income 7,218 4,448 12,166 29,969
---------- ---------- ---------- ----------
Income (loss) before taxes 66,280 (101,637) 101,549 (88,680)
Provision for taxes 16,000 1,000 21,000 2,000
---------- ---------- ---------- ----------
Net income (loss) $ 50,280 ($102,637) $ 80,549 ($90,680)
========== ========== ========== ==========
Net income (loss)
per common share $.03 ($.07) $.05 ($.06)
========== ========== ========== ==========
Weighted average number
of common shares outstanding 1,564,751 1,417,058 1,543,506 1,420,382
========== ========== ========== ==========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
-3-
<PAGE>
INTERNATIONAL ELECTRONICS, INC.
---------------------------------
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
-------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
Common Stock Capital in Treasury Stock
------------- excess of Accumulated -----------------
Shares Amount par value Deficit Shares Cost Total
------ ------ -------- ------- ------ ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balances,
September 1, 1995 1,442,669 $14,427 $4,668,050 ($3,642,089) 35,000 ($38,644) $1,001,744
Issuance of stock in
a private placement 68,182 682 88,375 - - - 89,057
Net income - - - 80,549 - - 80,549
Balances, --------- -------- ---------- ----------- ----------- --------- ----------
February 29, 1996 1,510,851 $15,109 $4,756,425 ($3,561,540) 35,000 ($38,644) $1,171,350
========= ======= ========== =========== =========== ========= ==========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
-4-
<PAGE>
INTERNATIONAL ELECTRONICS, INC.
-------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
Six months ended
---------------------------------
Feb. 29, 1996 Feb. 28, 1995
----------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 80,549 ($90,680)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization 116,351 136,570
Changes in operating assets and liabilities:
Accounts receivable (105,454) (31,168)
Inventories (81,439) (157,579)
Other current assets 18,024 1,577
Income taxes 21,000 2,000
Accounts payable and accrued
expenses 139,830 237,772
--------- ---------
Net cash provided by
operating activities 188,861 98,492
CASH FLOWS FROM INVESTING ACTIVITIES
AND OTHER:
Net purchase of equipment,
furniture and improvements (70,342) (27,648)
Goodwill and other intangibles and
other assets 2,258 (4,781)
--------- ---------
Net cash used in investing
activities and other (68,084) (32,429)
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions of notes payable
and debt obligations 29,167 -
Issuance of common stock 89,057 -
Purchase of treasury stock - (19,042)
Reduction of notes payable and debt
obligations (38,184) (91,955)
--------- ---------
Net cash provided by (used in)
financing activities 80,040 (110,997)
--------- ---------
CASH AND EQUIVALENTS:
Net increase (decrease) during period 200,817 (44,934)
Balances, beginning of period 327,812 498,663
--------- ---------
Balances, end of period $ 528,629 $ 453,729
========= =========
SUPPLEMENTAL SCHEDULE OF NONCASH
TRANSACTIONS:
Equipment acquired under capitalized leases $ 12,217 $ 37,258
</TABLE>
See notes to unaudited condensed consolidated financial statements.
-5-
<PAGE>
INTERNATIONAL ELECTRONICS, INC.
---------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------------
(unaudited)
A. Financial Statements:
---------------------
In the opinion of the Company, the unaudited condensed consolidated
financial statements contain all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the financial position
as of February 29, 1996 and the results of operations for the three and six
months then ended.
Certain disclosures normally included have been condensed or omitted
pursuant to the rules and regulations of the Securities and Exchange
Commission, although the Company believes the disclosures are adequate to
make the information presented not misleading. It is suggested that these
financial statements be read in conjunction with the financial statements
and notes thereto included in the Company's annual report on Form 10-KSB
for the year ended August 31, 1995.
B. Net Income (Loss) per Share:
----------------------------
Net income (loss) per share is based on the weighted average common and
dilutive common equivalent shares outstanding during the periods. Common
stock equivalents consist of stock options and warrants. Primary income
(loss) per common share is computed by dividing net income (loss) by the
weighted average number of common and common equivalent shares outstanding
based on the average market price of the Company's common stock (under the
treasury stock method). Income (loss) per common share, on a fully diluted
basis, is computed as described above utilizing the higher of the ending or
average market price of the Company's common stock. Primary and fully
diluted earnings per share are the same for each period.
C. Principles of Consolidation:
----------------------------
The accompanying condensed consolidated financial statements include the
accounts of the Company and its majority owned subsidiary, Ecco Industries,
Inc. All material intercompany transactions, balances and profits have been
eliminated.
D. Income Taxes:
-------------
The Company provides for income taxes at the end of each interim period
based on the estimated effective tax rate for the full fiscal year.
Cumulative adjustments to the tax provision are recorded in the interim
period in which a change in the estimated annual effective rate is
determined.
-6-
<PAGE>
INTERNATIONAL ELECTRONICS, INC.
-------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(continued)
(unaudited)
E. Long-term Obligations:
----------------------
Long-term obligations are summarized as follows:
<TABLE>
<CAPTION>
Feb. 29, 1996 Aug. 31, 1995
-------------- --------------
<S> <C> <C>
Federal Deposit Insurance Corporation
Agreement $395,642 $406,192
11-18% capitalized lease obligations,
due through December 1998 (Note F) 69,909 80,740
Other 43,167 14,000
9-13% equipment loans, collateralized
by equipment, final payment due
July, 1998 16,261 20,848
-------- --------
524,979 521,780
Less current portion (99,107) (69,095)
-------- --------
$425,872 $452,685
======== ========
</TABLE>
Federal Deposit Insurance Corporation (FDIC) Agreement - In May 1991, the
------------------------------------------------------
Company's bank, Boston Trade Bank, was declared insolvent and the FDIC
became the holder of the Company's debt to the bank. In December 1994, the
Company renegotiated this debt with the FDIC.
The agreement provided for repayment of $35,000 prior to October 8, 1994,
with payments on the remaining balance of $430,000 utilizing a 20-year
amortization with payment in full after 3 years. The debt is collateralized
by all of the Company's assets with interest at the prime rate plus 1% and
has been personally guaranteed by an officer of the Company.
The aggregate principal payments on long-term obligations, excluding
capital leases are $58,140 (1997), $394,303 (1998) and $2,627 (1999).
-7-
<PAGE>
INTERNATIONAL ELECTRONICS, INC.
-------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(continued)
(unaudited)
F. Capital Lease Commitments:
--------------------------
The Company leases certain equipment under capital leases and, accordingly,
the present value of the net minimum payments has been reflected in
equipment, furniture and improvements and capitalized lease obligations.
Future minimum capital lease payments under lease terms in excess of one
year at February 29, 1996 are as follows:
<TABLE>
<S> <C>
1997 $ 48,903
1998 27,142
1999 3,827
--------
Total minimum lease payments 79,872
Less interest (9,963)
--------
Net minimum lease payments 69,909
Less current portion (40,967)
--------
Long-term portion $ 28,942
========
</TABLE>
G. Capital Transactions:
---------------------
In September, 1995, the Company approved and reserved 70,000 shares of
common stock for an additional non-qualified stock option plan.
In January, 1996, the Company sold in a private placement, 68,182 shares of
restricted common stock for net proceeds of $89,057 with issuance costs of
$943.
In January, 1996, the Company granted warrants to a consulting firm to
purchase 10,000 shares of common stock at an exercise price of $1.65 per
share exercisable until 2006.
-8-
<PAGE>
Management's Discussion and Analysis of
-------------------------------------------
Financial Condition and Results of Operations
---------------------------------------------
Liquidity and Capital Resources
- -------------------------------
As of February 29, 1996, the Company had working capital of $920,065 compared to
$741,221 at August 31, 1995. The ratio of current assets to current liabilities
was 1.7 at February 29, 1996 as compared to 1.6 at August 31, 1995. The debt to
equity ratio was 1.5 at February 29, 1996 and 1.6 at August 31, 1995. The
increase in working capital and current ratio and decrease in the debt to equity
ratio are the result of the Company's operating cash flow for the first six
months of fiscal 1996 and a private placement of stock in January, 1996 for net
proceeds of approximately $89,000.
Capital expenditures were $82,559 and $64,906 for the six months ended February
29, 1996 and February 28, 1995, respectively. The Company has no current
commitments for any material capital expenditures, but the Company anticipates
up to $290,000 in capital expenditures for the purchase of office and
manufacturing equipment, regulatory testing and tooling costs over the next
twelve months.
As of February 29, 1996, the Company had indebtedness of approximately $396,000
under an agreement with the Federal Deposit Insurance Corporation ("FDIC"). See
Note E to Unaudited Condensed Consolidated Financial Statements. In May, 1991
the Commissioner of Banks of the Commonwealth of Massachusetts declared the
Company's bank insolvent, and appointed the FDIC as liquidating agent of the
bank. In December, 1994, the Company renegotiated this debt with the FDIC. The
revised agreement provided for repayments of the then current balance utilizing
a 20-year amortization with payment in full at December 31, 1997 and interest at
the prime rate plus 1%.
Management believes that its current cash position, together with internally
generated funds at present sales levels, will provide adequate cash reserves to
satisfy its cash requirements for the next twelve months. Depending upon
whether or not sufficient revenue and working capital is generated from
profitable operations, the Company may require external funding. There is no
assurance that profits will be generated, or that external funding will be
obtainable, if such a need should arise.
Results of Operations
- ---------------------
Net sales for the second quarter of fiscal 1996 increased 34% as compared to the
second quarter of fiscal 1995. Net sales for the first six months of fiscal
1996 increased 28% as compared to the comparable period of fiscal 1995. The
increase in sales for the second quarter and first half of fiscal 1996 primarily
reflects increases in access control and keypad and voice verification product
sales, offset in part by a reduction in glassbreak detector sales.
-9-
<PAGE>
Management's Discussion and Analysis
----------------------------------------
of Financial Condition and Results of Operations
-------------------------------------------------
(continued)
Results of Operations (continued)
- ---------------------
The ratio of gross profit to sales for the three months ended February 29, 1996
and February 28, 1995 was 42% and 43%, respectively. The ratio of gross profit
to sales for the six months ended February 29, 1996 and February 28, 1995 were
both 42%. The decrease in gross profit for the second quarter of 1996 as
compared to the comparable period of fiscal 1995 is primarily the result of
product mix.
The increase in research and development costs for the second quarter and first
half of fiscal 1996 as compared to the comparable periods of fiscal 1995 reflect
the hiring of additional employees and related expenses.
As a percentage of net sales, selling, general and administrative expenses were
34% and 44% for the three months ended February 29, 1996 and February 28, 1995,
respectively and 35% and 40% for the six months ended February 29, 1996 and
February 28, 1995, respectively. The increase in selling, general and
administrative expenses in absolute dollars for the three and six months ended
February 29, 1996, as compared to the corresponding periods of the prior year
primarily relates to additions in the Company's work force and related expenses,
salary increases and promotional expenses.
The increase in other income for the three months ended February 29, 1996 as
compared to the comparable period of fiscal 1995, primarily relates to an
increase in commission revenue. The provision for taxes for the first half of
fiscal 1996 represents federal alternative minimum taxes and state income tax
expense. The Company's effective income tax rate for the six months ended
February 29, 1996 of 21% was less than the combined federal and state statutory
rate, primarily as a result of the utilization of available net operating loss
carryforwards.
Factors that May Affect Future Results
- --------------------------------------
Information provided by the Company in writing and orally, from time to time may
contain certain "forward-looking" information as this term is defined by: (1)
the Private Securities Litigation Reform Act of 1995 (the "Act") and (2) in
releases made by the Securities and Exchange Commission. These Cautionary
Statements are being made pursuant to the provisions of the Act and with the
intention of obtaining the benefits of the "safe harbor" provisions of the Act.
The Company cautions investors that any forward-looking statements made by the
Company involve risks and uncertainties, which could cause actual results to
differ materially from those projected.
The Company has identified risks and uncertainties as factors which may impact
on its operating results including the following: the Company's limited
financial resources and history of operating losses, no access to additional
financing, needs for developing, introducing, and shipping new products, lack of
significant research and development expenditures to provide new and enhanced
versions of the Company's products, its mix of products sold, price reductions
for the Company's products, the mix of distribution channels employed, the
availability and cost of key components including those obtained from Asia,
-10-
<PAGE>
Management's Discussion and Analysis
----------------------------------------
of Financial Condition and Results of Operations
-------------------------------------------------
(continued)
Factors that May Affect Future Results (continued)
- --------------------------------------
dependence on suppliers, concentration of customers, gain or loss of significant
customers, the timing of orders from and shipments to customers, competition
including those from substantially larger companies, lack of patent protection
and general economic conditions. All of the above factors are difficult for the
Company to forecast, and these or other factors can materially adversely affect
the Company's business and operating results for one quarter or a series of
quarters. The Company establishes its expenditure levels for sales and marketing
and other operating expenses based, in large part, on its expected future
results. As a result, if sales fall below expectations, there would likely be a
material adverse effect on operating results because only a small portion of the
Company's expenses vary with its sales in the short-term.
A limited number of customers have accounted for a significant portion of sales
in a particular quarter, and future sales therefore may fluctuate depending on
the timing of orders from and shipments to those or other customers. In
addition, the Company typically operates with a relatively small backlog. As a
result, quarterly sales and operating results generally depend on the volume,
timing of, and ability to fulfill orders received within the quarter which are
difficult to forecast. In this regard, the Company may recognize a substantial
portion of its sales in a given quarter from sales booked and shipped in the
last weeks of that quarter.
-11-
<PAGE>
EXHIBIT 11.1
International Electronics, Inc.
Calculation of Net Income (Loss) Per Common Share
<TABLE>
<CAPTION>
Three months ended Six months ended
----------------------------- -----------------------------
Feb. 29, 1996 Feb. 28, 1995 Feb. 29, 1996 Feb. 28, 1995
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
PRIMARY NET INCOME (LOSS) PER SHARE
- -------------------------------------
Weighted Average Number of
Shares Outstanding:
Common Stock 1,433,892 1,417,058 1,420,780 1,420,382
Common equivalent shares
resulting from dilutive stock
options and warrants (treasury
stock method using the
average market price) 130,859 - 122,726 -
---------- ------------- ---------- -------------
Total 1,564,751 1,417,058 1,543,506 1,420,382
========== ============= ========== =============
Net Income (Loss) $ 50,280 ($102,637) $ 80,549 ($90,680)
========== ============= ========== =============
Net Income (Loss)
Per Common Share $ .03 ($.07) $ .05 ($.06)
========== ============= ========== =============
FULLY DILUTED NET INCOME (LOSS) PER SHARE
- -----------------------------------------
Weighted Average Number of
Shares Outstanding:
Common Stock 1,433,892 1,417,058 1,420,780 1,420,382
Common equivalent shares
resulting from dilutive stock
options and warrants (treasury
stock method using the higher
of the ending or average
market price) 258,338 - 260,143 -
---------- --------- ---------- ---------
Total 1,692,230 1,417,058 1,680,923 1,420,382
========== ========= ========== =========
Net Income (Loss) $ 50,280 ($102,637) $ 80,549 ($90,680)
========== ========= ========== =========
Net Income (Loss)
Per Common Share $.03 ($.07) $.05 ($.06)
========== ========= ========== =========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENT OF FINANCIAL CONDITION AT FEBRUARY
29, 1996 (UNAUDITED) AND THE RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED
FEBRUARY 29, 1996 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> FEB-29-1996
<CASH> 528,629
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 705,352
<CURRENT-ASSETS> 2,262,567
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,939,724
<CURRENT-LIABILITIES> 1,342,502
<BONDS> 425,872
0
0
<COMMON> 15,109
<OTHER-SE> 1,156,241
<TOTAL-LIABILITY-AND-EQUITY> 2,939,724
<SALES> 3,990,877
<TOTAL-REVENUES> 4,003,043
<CGS> 2,325,552
<TOTAL-COSTS> 2,325,552
<OTHER-EXPENSES> 160,459
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,088
<INCOME-PRETAX> 101,549
<INCOME-TAX> 21,000
<INCOME-CONTINUING> 80,549
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 80,549
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
