<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For fiscal year ended August 31, 1996
Commission File Number: 2-91218-B
International Electronics, Inc.
- ------------------------------------------------------------------------------
(Name of small business issuer in its charter)
Massachusetts 04-2654231
- ------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
427 Turnpike Street
Canton, Massachusetts 02021
- ------------------------------------------------------------------------------
(Address of principal executive office) (Zip code)
Issuer's telephone number: (617) 821-5566
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
- ------------------------------------------------------------------------------
(Title of class)
Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to item
405 of Regulation S-B is not contained herein, and will not be contained, to the
best of registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. ( )
State issuer's revenues for its most recent fiscal year: $8,610,372
As of November 1, 1996, 1,350,431 shares of the registrant's voting stock
was held by non-affiliates of the registrant. In arriving at this number,
registrant has considered officers and directors to be affiliates. Based on a
price of $3.06 per share, (the average of the closing bid and asked price on
November 1, 1996) the aggregate market value of the non-affiliate shares so held
was approximately $4,135,000.
As of November 1, 1996, 1,492,551 shares of the registrant's common stock
were outstanding.
Documents incorporated by reference: None
1
<PAGE>
PART I
ITEM 1. BUSINESS
International Electronics, Inc. (the "Company") was formed in 1977 as a
Massachusetts corporation. The Company designs, manufactures, markets and sells
electronic products for the security industry and other commercial applications.
The Company manufactures and markets a line of access control and digital
keypad products sold under the trade names Door-Gard/TM/ and Secured Series/TM/.
The Company also manufactures and markets electronic glassbreak detectors sold
under the trade names Tri-Gard/TM/, Glass-Gard/TM/ and Viper.
In June, 1990, the Company acquired Ecco Industries, Inc. ("Ecco"), a
manufacturer of voice verification systems for the security market. During
fiscal 1994, Ecco signed a contract for its voice verification technology for
use in conjunction with substance abuse in the home incarceration market. Ecco's
initial product is sold under the name VoiceKey/TM/. VoiceKey/TM/ is a stand-
alone access control system that grants or denies access to a location based on
verifying a person's voice.
The Company's products are sold principally in the United States to many of
the leading distributors and installation companies servicing the security
industry. The financial information relating to the Company is set forth in
Item 7.
PRODUCTS
ACCESS CONTROL AND DIGITAL KEYPAD PRODUCTS AND TECHNOLOGY
The Company manufactures and markets a line of access control and digital
keypad products sold under the trade names Door-Gard/TM/ and Secured Series/TM/.
These products are sold in a variety of configurations including indoor and
outdoor models, with magnetic card readers, short range proximity readers and
keypads. They are also sold with several different hardware and software
configurations. The Company also sells private label products to OEM customers
containing its access control and keypad based technology.
The command and control software can be used to add programmability by user
and time to any existing switch. This software allows for up to 120 different
users, each with his/her own unique code and can be used to control machinery,
lights, closed circuit TV or doors.
The access control version of the Door-Gard/TM/ software includes features
which apply specifically to electronic door access control. These features
include request to exit input, door ajar and door position monitoring.
In September, 1994, the Company introduced its new Secured Series Door-
Gard/TM/ access control product line. This line of products includes magnetic
card readers and proximity readers as well as digital keypads. New features in
the Secured Series product line include: 500 users, transaction buffer for up to
500 events, hard copy printing via hand held infrared printer, 8 time zones and
the ability to tie up to 8 doors together.
Approximate prices paid by installing dealers for the digital keypads are
$50 to $300 and for the Secured Series product line $150 to $400.
2
<PAGE>
GLASSBREAK DETECTOR PRODUCTS
A detector is the component in an alarm system that is activated by an
intrusion or entry into a protected premises. When activated, it sends a signal
to a central control panel, the portion of the system that triggers the alarm.
The Company's glassbreak products serve only the detection function, but are
compatible with systems made and sold by most major manufacturers of central
control panels, and can be incorporated into both hard wired and certain
wireless systems. These products are used in a system in conjunction with
other forms of detectors such as those which detect the opening of a door or
window.
There are four principal types of glassbreak sensors: foil, piezoelectric,
audio detectors, and shock sensors. The Company markets all of these glassbreak
detectors with the exception of foil. Each has its own advantages and
disadvantages when used in proper installations. See "Tri-Gard"/TM/, "Glass-
Gard"/TM/ and "Viper Vibration Detector". Although foil is inexpensive, it is
expensive in terms of labor cost to install, and is unsightly.
TRI-GARD/TM/
In 1987, the Company began to market an audio glassbreak detector under the
trade name Tri-Gard/TM/. Audio detectors work much like the human ear. All
noises are heard by the detector and then compared to a certain set of criteria.
If the sound made meets certain criteria, then the unit determines the sound is
breaking glass and activates an alarm. Because of the wide variety of noise in
the background which can easily confuse an audio detector, stability is a major
factor if the unit is to be successful. The Tri-Gard/TM/ can be installed on
either a wall or ceiling. Because the Tri-Gard/TM/ detects the sound signals
produced by breaking glass, it can cover a bank of windows or multi-pane
windows. Audio detectors are used in residential, commercial and industrial
applications. The cost of these units to the installing dealers is approximately
$22 to $40 per unit. The Tri-Gard/TM/ models: 550, 552, 510 and 511 have
received Underwriters Laboratories listing.
In November, 1986, the Company signed an agreement with A American
Automatic Alarm Co. ("AAAA") of Westminister, Colorado to act as its exclusive
worldwide sales agent for AAAA's passive audio glassbreak detector. While the
Company did not sell enough units manufactured by AAAA to meet its minimum
purchase obligations under the agreement, the Company believes that it had the
right under the agreement to manufacture and sell the product. The Company in
1988 redesigned the Tri-Gard/TM/ audio detector in order to reduce both the
physical size of the detector and the manufacturing cost. The Company does not
have a royalty agreement with AAAA for the circuit design of this product,
however the Company makes royalty payments to AAAA for all sales of the
redesigned unit. The Company believes its royalty payments to AAAA, which are
based on a percentage of sales, have been reasonable.
In 1992 the Company began selling an additional audio detector which
utilizes microprocessor technology developed by the Company. The Company has
received a utility patent on this new detector. In 1994, the Company introduced
an additional microprocessor-based audio detector.
GLASS-GARD/TM/
The Glass-Gard/TM/ unit, which is based on piezoelectric technology, is
placed on each pane of glass to be protected and is used primarily in industrial
and commercial applications. When glass is broken, it emits particular
distinctive ultrasonic frequencies. The Company's Glass-Gard/TM/ detector
responds to the ultrasonic frequency generated when glass breaks.
3
<PAGE>
The Glass-Gard/TM/ unit contains a piezoelectric crystal which is "tuned"
to a particular frequency of breaking glass. When glass to which the unit is
attached is broken, these frequencies cause the crystal to vibrate, and
therefore to generate tiny electric currents. These currents are then passed to
the central control panel of the alarm system, which detects them and sounds the
alarm. The result is a unit which, while somewhat more expensive to purchase
than units of other types, is inexpensive to install, reliable and not prone to
accidental alarms. Glass-Gard/TM/ costs the installing dealer approximately $8
to $15 per unit. Some other types of competitive glassbreak detectors cost the
installing dealer between $4 to $10 per unit. Most of the Glass-Gard/TM/ models
have received Underwriters Laboratories listing. The Company has a utility
patent on its Glass-Gard units, and a patent on a tester which is an improvement
to the units.
VIPER VIBRATION DETECTOR
A vibration sensor is used to detect vibrations of a set magnitude in
certain materials such as glass, wood, plastic, concrete, or metal. The Viper
has a custom integrated circuit that does internal signal processing so that it
can be adjusted for different materials and shock values. The cost of these
units to the installing dealers is approximately $15 to $20 per unit.
In November, 1992 the Company extended an agreement with Weyrad
Electronics, Ltd. ("Weyrad") of Weymouth, England to act as a distributor for
their Viper vibration detector in North, South and Central America. Weyrad
manufactures the Viper, and its primary market has been the United Kingdom and
Europe. The agreement continues in force unless either the Company or Weyrad
terminate by providing three months written notice.
The Company also has signed an agreement that gives Weyrad the right to
market the Company's glassbreak products in Europe.
VOICE VERIFICATION PRODUCTS AND TECHNOLOGY
In June, 1990, the Company acquired substantially all of the outstanding
common, and all preferred stock of Ecco in exchange for 379,699 unregistered
shares of the Company's common stock. Ecco is engaged in designing,
manufacturing, and selling voice verification systems. Ecco, which was founded
in 1983, financed its operations and development efforts through private sales
of securities resulting in net proceeds of approximately $5,500,000. The
acquisition has been accounted for under the purchase method of accounting.
During fiscal 1994, Ecco signed a contract for its voice verification
technology with BI, Inc. of Boulder, Colorado for use in conjunction with
substance abuse in the home incarceration market. The agreement provided for a
one-time license fee, ongoing royalty payments and an order for the manufacture
of voice verification boards. In September, 1996 BI informed the Company that
effective January, 1997, BI would no longer make royalty payments to the
Company, but would continue to utilize the Company to manufacture its voice
verification boards.
Ecco's initial product is called VoiceKey/TM/, which is a stand-alone
access control system that grants or denies access to a location based on
verifying a person's voice. VoiceKey/TM/ can be configured for stand-alone or
network applications. Typical applications of VoiceKey/TM/ include the control
of or access to locations requiring security such as: offices, apartment and
condominium buildings, banks, computer rooms, and hospital pharmacies. Standard
VoiceKey/TM/ features include access control management functions such as: time
zone programming, door alarm monitoring, and time-stamped audit trail reporting.
Options include expanded user capacity and weatherproofing. Each VoiceKey/TM/
can monitor and provide control for forty people, or up to 225 with expansion
memory.
4
<PAGE>
The Company manufactures and markets its VoiceKey/TM/ voice verification
access control product. The VoiceKey/TM/ sells to the installing dealer for
approximately $1,000.
SALES AND MARKETING
The principal market for the Company is the United States, where it sells
its products through a network of security equipment distributors and
installation companies. The Company also sells and markets its products in
North and South America, Europe, Asia, South Africa, Middle East and
Australia/New Zealand.
The Company presently employs fifteen full-time people in sales and
marketing. The Company's Director of Sales coordinates the activities of the
outside sales representatives and inside sales personnel. The outside sales
personnel contact dealers and distributors to provide ongoing sales and
technical support for the Company's products. The inside personnel are
responsible for incoming sales calls and telemarketing.
The Company sells its products primarily to installers and distributors of
alarm security equipment. The Company's customers include: ADI, Sprint North
Supply, Ameritech, Wells Fargo and Honeywell. The Company's largest customer
accounted for approximately 33% of net sales for the fiscal year ended August
31, 1996.
While the Company's relationship with large customers provides it with a
substantial market for its products, the dependence on large volume sales to
such large customers creates a vulnerability. The loss of one such customer
could have a serious adverse effect on the Company's sales. In fiscal 1995, the
Company lost a major domestic distributor who filed for bankruptcy with accounts
receivable due the Company of approximately $80,000. See "Item 6 - Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The Company is also aware that manufacturers in Europe and the emerging
markets fabricate products similar to the Company's products. Some of these
manufacturers may produce their units at a lower cost than the Company's cost.
The introduction of such a product to the United States market could have a
substantial adverse effect on the Company's sales.
The Company provides sales support through national advertising, periodic
national mailings, and by participation at national and regional industry trade
shows. The Company presently attends several national trade shows per year, and
complements these shows by displaying its products at regional alarm association
shows. Several visits to Europe are made each year including attending foreign
trade shows. In September, 1996, the Company hired a Director of European Sales
who is located in the United Kingdom. The Company also participates with some
of its distributors in cooperative advertising programs.
OVERSEAS COMPONENTS
The Company sources a significant amount of components and maintains
certain molds for its products in Asia. The Company believes that such sourcing
reduces its cost of sales through lower parts, labor, and tooling costs. There
can be no guarantee that the Asian political or economic environment will remain
sufficiently stable to allow reliable and consistent delivery of product.
5
<PAGE>
PRODUCT SOURCES OF REVENUE
The Company's various products have provided revenues during the last three
fiscal years as follows:
<TABLE>
<CAPTION>
VOICE
ACCESS CONTROL GLASSBREAK VERIFICATION
AND KEYPAD DETECTORS & OTHER TOTAL
----------------------- ----------------------- ------------------------ --------------------------
<S> <C> <C> <C> <C>
1994 $2,527,583 $2,965,748 $230,269 $5,723,600
1995 3,855,202 2,480,703 87,025 6,422,930
1996 6,296,748 2,038,058 275,566 8,610,372
</TABLE>
DOMESTIC AND FOREIGN SALES
The percentage of domestic and foreign sales for the Company's products for
the last three fiscal years are as follows:
<TABLE>
<CAPTION>
DOMESTIC FOREIGN
-------- -------
<S> <C> <C>
1994 90% 10%
1995 88 12
1996 88 12
</TABLE>
MANUFACTURING AND RAW MATERIALS
The Company performs in-house manufacturing for its Access Control, Keypad,
Glass-Gard/TM/, Tri-Gard/TM/ and VoiceKey/TM/ product lines.
The Company is dependent upon sole source suppliers for a number of key
components and parts used in the Company's products. There can be no assurance
that these suppliers will be able to meet the Company's future requirements for
such components or that the components will be available to the Company at
favorable prices. Any extended interruption in the supply of any such
components could have a material adverse effect on the Company's operating
results in any given period.
BACKLOG
The Company's backlog of firm scheduled orders as of August 31, 1996, was
approximately $500,000. Its backlog as of August 31, 1995, was approximately
$87,000. The Company believes that substantially all of the 1996 backlog will
be shipped during fiscal 1997. The increase in backlog is due to additional
demand for the Company's access control and keypad products and blanket purchase
orders for OEM products.
COMPETITION
Other companies in the security and related industries offer products in
competition with those of the Company. Many of the companies with which the
Company competes are substantially larger, have greater resources, and market a
larger line of products. Although the Company has obtained some patent and
copyright protection for certain of its products and software, management
believes that competitors may be able to market certain products similar to
those sold by the Company.
The Company's Glass-Gard/TM/ product line is slightly more expensive than
other similar devices marketed by the Company's competitors. The Company's
other products are competitively priced against the competition. The Company
believes that installing dealers will
6
<PAGE>
use, on a repetitive basis, detectors which can be installed easily, work when
an intrusion occurs, and do not cause false alarms.
There are numerous manufacturers of audio detectors and shock sensors
selling in the United States market. Competitors selling audio detectors
include: Sentrol, Inc., Visonic Ltd., Litton Security Products, Inc.
("Litton"), Detection Systems, Inc., Intellisense, Inc., Ademco Manufacturing,
Inc. ("Ademco"), Fire Burglary Instruments, Inc., DSC and Caddx-Caddi Controls,
Inc. There are several competitors selling vibration detectors including:
Ultrak, Inc., Sentrol, Inc., Ademco, United Security Products, Inc. ("USP") and
Litton.
The Company is aware of two major competitors which market "on glass"
glassbreak detectors in the United States: USP and Sentrol, Inc. There are
several European manufacturers of this type of product, but the Company believes
that they to date have not had any significant impact on the United States
market. The introduction of such products into the United States market could
have a substantial adverse effect on the sale of Glass-Gard/TM/.
There are many manufacturers of access control equipment including
Westinghouse, Casi Rusco Electronics Systems, Inc., Northern Computers, Inc.,
Cardkey, Inc., Software House, Inc., Continental Instruments, Inc., American
Magnetics Corporation, and Corby, Inc.
There are numerous manufacturers of keypads selling in the United States
market including the following competitors: Corby, Inc., Visonic Ltd., USP,
Inc., Crow Electronics Engineering, Inc., Aleph, Inc., Securitron Magnalock
Corp., Locknetrics Security Engineering, Security Door Controls, Alarm Lock,
Inc., Ilco Unican Engineering, Inc., Essex Electronics, Inc., Nel-Tec, Inc. and
Sentrol, Inc.
To the best of the Company's knowledge, the Company's voice verification
product line has competition from: Voice Strategies, Inc., T-Netix, Inc.,
VeriVoice, Inc., Princeton Voice Radar, Veritel Corporation of America,
Electronic Warfare Assoc., Inc. and Technologia Systems Limited in the United
States, and Zetetic International Limited ("Zetetic") in the United Kingdom and
ABS, Inc. in Germany. The Company also faces competition in the positive
identification access control market from other Biometric systems. These other
Biometric systems, and some of the companies that produce them include:
fingerprint (Fingermatrix (U.K.) Limited, Identix, Inc.), hand geometry
(Recognition Systems and Pideac), palm print, optical systems (Eye Dentify
Systems), signature (Autosig Systems, Cadix, Inc. and De La Rue), and wrist
pattern (British Technology Group).
WORKING CAPITAL
During fiscal 1996, the Company depended on its existing cash balances to
provide working capital. The Company expects its working capital requirements
for fiscal 1997, to be provided from its cash reserves plus anticipated cash
from operations. See "Item 6-Management's Discussion and Analysis of Financial
Condition and Results of Operations".
RESEARCH AND DEVELOPMENT
The Company presently employs seven people in research and development.
The Company also utilizes certain consultants on an as-needed basis with the
Company's employees supervising such work. Research and development
expenditures were approximately $381,000, $308,000 and $291,000 during fiscal
1996, 1995 and 1994, respectively.
7
<PAGE>
EMPLOYEES
As of November 1, 1996, the Company had 64 employees, of which 60 were
full-time employees. Of these 64 employees, 15 were engaged in sales and
marketing, 7 were involved in product development, 28 in manufacturing, 4 in
customer service and 10 employees were providing management and administrative
services.
SEASONALITY
The Company is subject to normal business slowdowns during the summertime
and around the Christmas holiday season. In addition, overseas sales,
specifically to Europe slow down in the summer because many European companies
take substantial vacation time in July and August.
GOVERNMENTAL CONTROLS/ENVIRONMENTAL COMPLIANCE
None of the Company's business is subject to renegotiation of profits or
termination of contracts at the election of the Government. The Company has not
been materially affected by compliance with any governmental regulation relating
to protection of the environment, and no material capital expenditures are
expected by the Company for environmental control facilities.
ITEM 2. PROPERTIES
The Company's administrative and manufacturing operations are located at
427 Turnpike Street, Canton, Massachusetts, and currently consist of
approximately 15,540 square feet of space. The Company occupies this facility
under a lease expiring April 14, 1997, at a minimum monthly rental of $7,343
plus utilities, maintenance and certain real estate taxes.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS
Not Applicable
8
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Company's securities have been traded in the over-the-counter market
since July 5, 1983. Since October 30, 1987, the Company's common stock has been
quoted by the National Association of Securities Dealers Automated Quotation
System ("NASDAQ"). The Company's common stock trades on the NASDAQ Small-Cap
Market under the symbol IEIB.
In March, 1992, the National Association of Securities Dealers, Inc.
("NASD") established higher standards for a company's stock to maintain its
listing on NASDAQ. The current standards include maintaining a minimum bid
price of $1.00 per share for ten consecutive trading days and shareholders'
equity with a minimum balance of $1,000,000. Although the Company has maintained
its NASDAQ listing, the Company has, at times, been unable to maintain the $1.00
minimum bid price criteria.
In November, 1996, the NASD proposed higher standards for a company to
maintain its stock listing on NASDAQ. If adopted as presently proposed, the new
standards would result in the Company's common stock losing its listing on
NASDAQ, with the consequence that the Company's stock would be more difficult to
trade. The procedure for adopting such standards provides that there will be a
period of public comment and approval by the Securities and Exchange Commission
("SEC"). It is expected that the final standards will be effective during the
first quarter of calendar 1997.
One of the presently proposed standards include maintaining minimum net
tangible shareholders' equity of $2,000,000. As of August 31, 1996, the Company
had net tangible shareholders' equity of approximately $950,000. If this
proposed standard is adopted, the Company would not meet this standard and,
unless the Company increases its net tangible shareholders' equity to
$2,000,000, the Company's common stock would no longer be listed on NASDAQ. At
the present time, it is not possible to determine what the new standards will
be, whether the Company will be able to achieve and/or maintain the proposed
standards, and consequently, it is not possible to know whether the Company will
be able to maintain its common stock listing on NASDAQ.
9
<PAGE>
The prices set forth below are based on information provided to the Company
by NASDAQ. These sales prices reflect interdealer prices, without retail mark-
ups, mark-downs or commissions.
<TABLE>
<CAPTION>
SALES PRICES
--------------
HIGH LOW
---- ---
<S> <C> <C>
FISCAL YEAR 1995:
First Quarter $1.00 $ .50
Second Quarter 2.38 .50
Third Quarter 2.38 1.50
Fourth Quarter 1.69 1.00
FISCAL YEAR 1996:
First Quarter 1.83 1.25
Second Quarter 3.31 1.13
Third Quarter 4.38 2.75
Fourth Quarter 3.63 2.00
</TABLE>
In January, 1996, the Company sold, in a private placement 68,182 shares of
unregistered common stock at $1.32 per share for net proceeds of $89,057 with
issuance costs of $943. There was no underwriter involved in this transaction.
John Waldstein, President and Treasurer and Robert Voosen, Executive Vice
President each purchased 7,576 shares of restricted common stock in this private
placement. The other purchasers were accredited investors or sophisticated
private investors familiar with the affairs of the Company. The Company relied
on Section 4(2) of the Securities Act of 1934 or Regulation D thereof for the
exemption from registration.
As of November 1, 1996 there were approximately 825 shareholders of record
of the Company's common stock. The Company believes that a substantial number
of shares of the Company's common stock are held by nominees and estimates that
there are approximately 1,700 beneficial owners of the Company's shares. The
Company has never paid dividends to its shareholders, and does not anticipate
that it will do so in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
As of August 31, 1996, the Company had $1,044,480 in working capital as
compared to $741,221 at August 31, 1995. The ratio of current assets to current
liabilities as of August 31, 1996 was 1.7, as compared to 1.6 in 1995 and 1.9 in
1994. The debt to equity ratio was 1.4 at August 31, 1996, as compared to 1.6
in 1995 and 1.1 in 1994. The increase in working capital and current ratio and
decrease in the debt to equity ratio in 1996 from 1995 are the result of the
Company's operating cash flow for fiscal 1996 and a private placement of stock
in January, 1996 for net proceeds of approximately $89,000. The decrease in
current ratio and increase in debt to equity ratio in 1995 from 1994 are the
result of the Company's net loss and capital expenditures.
Net capital expenditures were $178,541, $90,429 and $126,024 in fiscal
years ending August 31, 1996, 1995 and 1994, respectively. The Company has no
current commitments for any material capital expenditures, but anticipates
having up to $550,000 in additional capital expenditures for the purchase of
equipment, regulatory testing and tooling costs during the next twelve months.
As of August 31, 1996, the Company had indebtedness of approximately
$385,000 under an agreement with the Federal Deposit Insurance Corporation
("FDIC"). See Note 5 to 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 the liquidating agent of the
bank. In December, 1994, the Company renegotiated this debt with the FDIC. The
revised agreement provides for repayment 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%.
10
<PAGE>
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
FISCAL YEARS ENDED AUGUST 31, 1996, 1995 AND 1994
Net sales in 1996 increased 34% from 1995, while 1995 sales increased 12%
from 1994. The increase in 1996 sales from 1995 is primarily the result of an
increase in access control and keypad product sales of 63%, offset in part by a
reduction in glassbreak detector sales. The increase in 1995 sales from 1994 is
primarily the result of an increase in access control and keypad product sales
of 53%, offset in part by a reduction in glassbreak detector and voice
verification sales.
The ratios of gross profit to sales were 41% in 1996, 43% in 1995 and 41%
in 1994. The decrease in 1996 from 1995 is primarily the result of product mix
and increases in warranty costs. The increase in 1995 from 1994 is primarily
the result of certain price increases and product mix.
Research and development expenses were $381,245 in 1996, as compared to
$308,162 in 1995 and $290,537 in 1994. The increase in costs is primarily due
to the hiring of additional personnel and related expenses.
As a percentage of net sales, selling, general and administrative expenses
were 34% in 1996, as compared with 42% in 1995 and 36% in 1994. The decrease in
expenses in 1996 from 1995 as a percentage of net sales, is the result of
increased productivity from sales personnel and a reduction in bad debts
expense. The increase in expenses in 1995 from 1994 primarily relates to
additions to the Company's work force and related expenses, and increases in
salaries, promotions, bad debts and travel expenses. The increase in bad debts
occurred because a major domestic distributor filed for protection under Chapter
7 of the Bankruptcy Laws in May 1995, with accounts receivable due the Company
of approximately $80,000.
The decrease in other income in 1996 from 1995 is primarily a result of a
reduction in commission revenue. The provision for income taxes for fiscal 1996
represents federal alternative minimum taxes and state income tax expense. The
Company's effective income tax rate for 1996 of 20% was less than the combined
federal and state statutory rate, primarily as a result of the utilization of
available net operating loss carryforwards.
IMPACT OF INFLATION AND CHANGING PRICES
The Company does not believe that inflation or changing prices have had a
significant impact on its operations.
NEW ACCOUNTING STANDARD
The Statement of Financial Accounting Standards ("SFAS") No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" will be effective for fiscal 1997. The Company has not
completed evaluating the impact that the adoption of SFAS No. 121 will have on
its 1997 financial statements.
11
<PAGE>
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 certain risks and uncertainties as factors which
may impact on its operating results which are detailed below. All of these
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.
LIMITED FINANCIAL RESOURCES AND LOSSES FROM OPERATIONS. The Company has
limited financial resources. It is therefore subject to all the risks generally
associated with a small business having limited financial resources. For the
years ended August 31, 1995 and 1994, the Company has experienced losses of
approximately ($231,000) and ($49,000), respectively. For the year ended August
31, 1996 the Company had net income of approximately $162,000. There can be no
assurance that the Company will continue profitable operations. Continued
operations after the expenditure of the Company's existing cash reserves may
require additional working capital to be generated by profitable operations or
additional financing. There can be no assurance that profits will continue or
that external funding will be obtainable, if such a need should arise.
NO ACCESS TO ADDITIONAL FINANCING. In December, 1994 the Company
renegotiated debt with the FDIC which provided for repayment of the then current
balance utilizing a 20-year amortization with payment in full at December 31,
1997. When the FDIC note becomes due in full, if the Company is unable to
replace the debt partially or in full, it may have a substantial adverse effect
on the Company's operations. The Company currently has no access to additional
or replacement financing.
DEPENDENCE ON KEY EMPLOYEES. The business of the Company is dependent upon
the efforts of John Waldstein and certain other key management and technical
employees. The loss or prolonged disability of such personnel could have a
significant adverse effect on the business of the Company. The Company
presently maintains a key man life insurance policy of $1,000,000 on John
Waldstein, President and Treasurer.
LIMITED DESIGN ENGINEERING STAFF. The Company is engaged in an industry
which, as a result of extensive research and development, introduces new
products on a regular basis. Current competitors or new market entrants may
develop new products with features that could adversely effect the competitive
position of the Company's products. There can be no assurance that the Company
will be successful in selecting, developing, manufacturing and marketing new
products or enhancing its existing products or that the Company will be able to
respond effectively to technological changes or product announcements by
competitors. Any failure or delay in these goals could have a material adverse
affect on the Company.
FLUCTUATIONS IN SALES AND OPERATING RESULTS. The quarterly growth rates
recently experienced by the Company are not necessarily indicative of future
quarterly growth rates. Operating results may also fluctuate due to factors
such as the timing of new product announcements and introductions by the
Company, its major customers and its competitors, market acceptance of new or
enhanced versions of the Company's products, changes in the
12
<PAGE>
product mix of sales, changes in the relative proportions of sales among
distribution channels or among customers within each distribution channel,
changes in manufacturing costs, competitive pricing pressures, the gain or loss
of significant customers, increased research and development expenses associated
with new product introductions and general economic conditions. A limited number
of customers have accounted for a significant portion of sales in any particular
quarter. 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. A delay in customer orders, resulting
in a shift of product shipment from one quarter to another, could have a
significant effect on the Company's operating results. In addition, competitive
pressure on pricing in a given quarter could adversely effect the Company's
operating results, or such price pressure over an extended period could
adversely effect the Company's long-term profitability.
The Company establishes its expenditure levels for sales and marketing and
other 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.
CONCENTRATION OF CUSTOMERS. The Company has a substantial number of
customers but principally sells its products to a small number of large
customers. This concentration of customers may cause net sales and operating
results to fluctuate from quarter to quarter based on major customers'
requirements and the timing of their orders and shipments. Sales to the
Company's largest customer accounted for approximately 33% of the Company's
total net sales for the fiscal year ended August 31, 1996. The Company's
agreements with its customers generally do not include minimum purchase
requirements. There can be no assurance that the Company's major customers will
place additional orders, or that the Company will obtain orders of similar
magnitude from other customers. The Company's operating results could be
materially and adversely effected if any present or future major customer were
to choose to reduce its level of orders, were to experience financial,
operational or other difficulties that resulted in such a reduction in orders to
the Company or were to delay paying or fail to pay the Company's receivables
from such customer. In fiscal 1995, the Company lost a major domestic
distributor who filed for bankruptcy with accounts receivable due the Company of
approximately $80,000.
COMPETITION. Other companies in the industry offer products in competition
with those of the Company. Many of the companies with which the Company
competes are substantially larger, have greater resources and market a larger
line of products. The Company expects competition to increase significantly in
the future from existing competitors and new companies that may enter the
Company's existing or future markets. Increased competition could adversely
affect the Company's sales and profitability. There can be no assurance that
the Company will be able to continue to compete successfully with its existing
competitors or with new competitors.
LACK OF PATENT PROTECTION. Although the Company has obtained some patent
and copyright protection for certain of its products and software, management
believes that competitors may be able to market certain products similar to
those sold by the Company.
PRODUCTION IN ASIA. The Company presently maintains certain manufacturing
molds in Asia and has a significant amount of components for some products
manufactured in Asia. There can be no assurance that the Asian political or
economic environment will remain sufficiently stable to allow reliable and
consistent delivery of product.
13
<PAGE>
DEPENDENCE ON SINGLE SOURCE OF SUPPLY. The Company is dependent upon sole
source suppliers for a number of key components and parts used in the Company's
products. There can be no assurance that these suppliers will be able to meet
the Company's future requirements for such components or that the components
will be available to the Company at favorable prices. Any extended interruption
in the supply or significant increase in price of any such components could have
a material adverse effect on the Company's operating results in any given
period.
FOREIGN SALES. During the year ended August 31, 1996, the Company's
foreign sales represented approximately 12% of net sales. There may be a
reduction in the Company's foreign sales in the event of significant changes in
foreign exchange rates or political and economic instability in foreign
countries.
LIMITED MARKET FOR COMMON STOCK. There is a limited market for the
Company's common stock and there can be no assurance that even this limited
market will be sustained. Holders of the Company's common stock may have
difficulty selling their shares or may have difficulty selling them at a
favorable price.
MAINTAIN LISTING ON NASDAQ. In March 1992, the NASD established higher
standards for a company's stock to maintain its listing on NASDAQ. The revised
standards include maintaining a minimum bid price of $1.00 per share for ten
consecutive trading days and shareholders' equity with a minimum balance of
$1,000,000. Although the Company has maintained its NASDAQ listing, the Company
has, at times, been unable to maintain the $1.00 minimum bid price criteria.
In November, 1996, the NASD proposed higher standards for a company to
maintain its stock listing on NASDAQ. If adopted as presently proposed, the new
standards would result in the Company's common stock losing its listing on
NASDAQ. The procedure for adopting such standards provides that there will be a
period of public comment and approval by the the SEC. It is expected that the
final standards will be effective during the first quarter of calendar 1997.
One of the presently proposed standards include maintaining minimum net
tangible shareholders' equity of $2,000,000. As of August 31, 1996, the Company
had net tangible shareholders' equity of approximately $950,000. If this
proposed standard is adopted, the Company would not meet the standard and,
unless the Company increases its net tangible shareholders' equity to
$2,000,000, the Company's common stock would no longer be listed on NASDAQ. At
the present time, it is not possible to determine what the new standards will
be, whether the Company will be able to achieve and/or maintain the proposed
standards, and consequently, it is not possible to know whether the Company will
be able to have its common stock listed on NASDAQ. If the Company is unable to
maintain its listing on NASDAQ, holders of the Company's common stock may have
additional difficulty selling their shares or may have difficulty selling them
at a favorable price.
VOLATILITY OF STOCK PRICE. The Company's stock price is subject to
significant volatility. If revenues or earnings in any quarter fail to meet the
investment community's expectations, announcements of new products by the
Company or its competitors and other events or factors could have an immediate
impact on the Company's stock price. The stock price may also be affected by
broader market trends unrelated to the Company's performance.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of International Electronics, Inc.
and subsidiary filed as a part of this Annual Report on Form 10-KSB begin on
page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable
14
<PAGE>
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
FIRST ELECTED
NAME AGE DIRECTOR POSITION
- ---- --- -------- --------
<S> <C> <C> <C>
John Waldstein 43 1982 President, Chief Executive Officer,
Treasurer and Chairman of the Board
Robert Voosen 48 1982 Executive Vice President and
Director
Christopher Hentschel 52 - Vice President of Engineering
Heath Paley 48 1990 Director
Robert Prager 64 1992 Director
Diane Balcom 54 1989 Director
</TABLE>
The term of office of each director expires on the date of the next meeting
of shareholders. The Company anticipates that an annual meeting of shareholders
will be held in March, 1997.
John Waldstein has been employed by the Company since 1978, has been
Treasurer since March, 1982, was Vice President between January, 1983 and May,
1988, Chief Operating Officer from February, 1988 to May, 1988, President and
Chief Executive Officer since May, 1988, and Chairman of the Board since
November, 1990. Mr. Waldstein is a graduate of Harvard College. See "Item 10-
Executive Compensation."
Robert Voosen had been the Company's Vice President for Product Development
since 1982, and has been Executive Vice President since May, 1988. He received
a B.A. in Architecture from the University of Minnesota. From 1972 through
1983, Mr. Voosen acted as a consultant on the design and installation of
security systems for 3M Alarm Services, Inc.. See "Item 10-Executive
Compensation."
Christopher Hentschel was appointed the Company's Vice President of
Engineering in March, 1995 and had previously been Chief Engineer since 1989.
Before joining the Company, Mr. Hentschel was a founder and Vice President of
Engineering of Guard Aware, Inc. Mr. Hentschel is a graduate of Wentworth
Institute.
Heath Paley is a self-employed computer consultant. He had been the
Company's Director of Management Information Systems from September, 1994 until
May, 1996 and was the Company's Chief Operating Officer and Executive Vice
President from June, 1990 to August, 1994. From 1983 to June, 1990, Mr. Paley
was President and a founder of Ecco Industries, Inc. From 1980 to 1983, he was
President of the Maine Woods Shoe Division of Bennett Industries.
Robert Prager was appointed to the Board of Directors in December, 1992.
Since 1988, Mr. Prager has been a private investor. In 1973, Mr. Prager founded
the Major Glass Company and served as President from its inception until 1986
and Chairman of the Board from 1986 to 1988.
Diane Balcom became a member of the Board of Directors in July, 1989.
Since August, 1994, Ms. Balcom has been the Chapter Director of the Juvenile
Diabetes Foundation of Western Pennsylvania. She has been an adviser to the
Company on corporate and financial matters since 1985. From January, 1989 to
August, 1994, Ms. Balcom operated a consulting practice which provided services
related to private and public financing for small and medium-sized companies.
15
<PAGE>
From March, 1987 to January, 1989, she served as Vice President and Chief
Financial Officer for Environmental Diagnostics, Inc., a publicly-held company.
Prior to that, Ms. Balcom held various senior management positions in Corporate
Finance and Research for 13 years with brokerage firms on the West Coast.
In September, 1995, Ms. Balcom and Mr. Prager, the Company's two non-
employee directors each received fully vested options under the Company's
nonqualified stock option plan to purchase 1,000 shares of common stock at an
exercise price of $1.36 per share.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation for
each of the last three fiscal years ending August 31, 1996, of the Company's
President and Chief Executive Officer, and the only other executive officer of
the Company who received at least $100,000 of compensation during any of these
years (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION(2) ------------
----------------------------------------------- OPTIONS ALL OTHER
NAME YEAR SALARY COMMISSION/BONUS (SHARES) COMPENSATION(1)
- ---- ---- ------ ---------------- -------- ---------------
<S> <C> <C> <C> <C> <C>
John Waldstein 1996 $135,519 $ 4,750(4) - $ 9,180
President, 1995 135,519 - 25,000(3) 9,180
Chief Executive Officer 1994 131,558 - 42,000 10,257
Robert Voosen 1996 100,416 12,349 - -
Executive Vice 1995 100,000 5,889 20,000 -
President 1994 75,000 18,323 2,000 -
</TABLE>
(1) Represents the cost of a split dollar whole life insurance policy with a
face value of $755,000 as of August 31, 1996. The Company is a beneficiary
of such policy to the extent of all premiums paid upon the death of John
Waldstein. Mr. Waldstein may purchase this policy upon termination of his
employment for the then current cash surrender value.
(2) Does not include perquisites which do not exceed 10% of annual salary.
(3) Represents warrants granted to purchase 25,000 shares of common stock at an
exercise price of $.74 per share exercisable for a ten-year period in
exchange for a personal guarantee of debt held by the FDIC.
(4) Amount shown represents bonus earned by Mr. Waldstein in fiscal 1996
payable in fiscal 1997.
The Company did not grant any options, restricted stock awards or stock
appreciation rights, or make any long-term incentive plan payouts during fiscal
1996 to any of the Named Executive Officers.
The Company's Board of Directors commencing in fiscal 1993, established an
annual bonus plan for officers and certain key employees. The available funds
for the plan shall be up to five percent of income before taxes. The final
amount and subsequent distribution to employees shall be determined by the
Company's Compensation Committee.
16
<PAGE>
COMPENSATION ON INVOLUNTARY TERMINATION
John Waldstein and Robert Voosen have employment contracts with the Company
which provide for certain compensation to be paid to them if they are discharged
by the Company without cause before the end of the term of their contracts. Mr.
Waldstein's contract expires on December 31, 1999 and extends for one additional
year on each January 1 thereafter, while his guaranty of the Company's
outstanding debt to the FDIC is in force. Mr. Voosen's contract expires on
August 31, 1997. John Waldstein's and Robert Voosen's current minimum annual
salary under their contracts are $135,000 and $100,000, respectively. The
salaries of these officers are subject to performance reviews and annual
adjustment by the Board of Directors of the Company. Mr. Waldstein's salary
shall increase for inflation effective January 1, 1998.
If the employment of John Waldstein is terminated by the Company without
cause, (including an involuntary relocation due to an acquisition), the Company
is obligated to pay the greater of an amount equal to one times his annual
salary on the date of termination or the salary to the conclusion of the
contract period. As of November 1, 1996, John Waldstein's salary to the
conclusion of his contract period is approximately $427,500. If the employment
of Robert Voosen is terminated by the Company without cause, as defined, the
Company is obligated to pay an amount equal to 25% of his annual salary plus
certain commissions on the date of termination. In the event the Company is
acquired prior to August 31, 1997, and Mr. Voosen is terminated due to such
acquisition, or after August 31, 1997 he is terminated due to an involuntary
relocation relating to an acquisition, the Company shall pay to Mr. Voosen one
times his annual salary, plus certain commissions on the date of termination.
YEAR END OPTION TABLE
The following table sets forth the number and value of unexercised options held
as of August 31, 1996 by the Named Executive Officers:
AGGREGATED OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT END OF FISCAL 1996 END OF FISCAL 1996 (2)
-------------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
John Waldstein (1) 82,667(3) 21,000 $163,857 $38,503
Robert Voosen (1) 27,667 16,000 51,719 31,240
</TABLE>
(1) There were no options exercised during fiscal 1996.
(2) Difference between the fair market value of the underlying common stock on
November 1, 1996 and the exercise price.
(3) Includes warrants to purchase 25,000 shares of common stock. See "Summary
Compensation Table - Note 3" herein.
OTHER MATTERS
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers, directors, and persons who own more than ten percent of a
registered class of the Company's equity securities to file reports of ownership
with the SEC and NASD. Executive officers, directors, and greater than ten-
percent stockholders are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file.
17
<PAGE>
The Company believes that all filing requirements applicable under Section
16(a) to its executive officers, directors and 10% stockholders were complied
with for fiscal 1996.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Set forth below is information concerning ownership of the Company's common
stock as of November 1, 1996, (i) by all persons known by the Company to own
beneficially 5% or more of the outstanding common stock, (ii) each director and
Named Executive Officer of the Company and (iii) by all directors and executive
officers as a group.
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF COMMON STOCK
NAME SHARES(1) OWNED
---- --------- -----
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS:
John Waldstein 151,471(2) 9.6%
c/o International Electronics, Inc.
427 Turnpike Street
Canton, Massachusetts
Robert Voosen 68,446(3) 4.5%
c/o International Electronics, Inc.
427 Turnpike Street
Canton, Massachusetts
Heath Paley 35,472(4) 2.3%
c/o International Electronics, Inc.
427 Turnpike Street
Canton, Massachusetts
Robert Prager 32,336(5) 2.2%
220 Boylston Street
Boston, Massachusetts
Diane Balcom 14,060(6) .9%
300 6th Avenue
Suite 273
Pittsburgh, Pennsylvania
All directors and executive officers
as a group (6 persons) 325,419(7) 19.4%
5% SHAREHOLDERS:
Agia, Inc. 228,455(8) 15.3%
201 St. Charles Avenue
New Orleans, Louisiana
Warren Paley 217,267 14.6%
3 Mill Street
New Baltimore, New York
CSC Industries, Inc. and Affiliated
Companies Pension Plans Trust 94,625 6.3%
c/o Pacholder Associates, Inc.
8044 Montgomery Road
Suite 382
Cincinnati, OH 45236
</TABLE>
18
<PAGE>
(1) Except as otherwise indicated below, the named owner has sole voting and
investment power with respect to the shares set forth. No arrangements are
known to the Company, which may result in a change in control. The number
of shares shown does include shares which may be acquired through the
exercise of options and warrants which are exercisable currently or within
sixty (60) days after November 1, 1996.
(2) Includes vested options and warrants to purchase an aggregate 89,833 shares
of the Company's common stock granted at prices ranging from $.74-$2.07 per
share. Includes 2,334 shares of common stock held by Mr. Waldstein's wife.
Mr. Waldstein disclaims beneficial ownership of these shares.
(3) Includes vested options to purchase an aggregate 28,167 shares of the
Company's common stock granted at prices ranging from $.75-$2.07 per share.
(4) Includes vested options to purchase an aggregate 26,787 shares of the
Company's common stock granted at prices ranging from $.75 - $6.48 per
share.
(5) Includes vested options to purchase an aggregate of 4,000 shares of the
Company's common stock granted at prices ranging from $.72-$2.12 per share.
(6) Includes vested options and warrants to purchase an aggregate 12,512 shares
of the Company's common stock granted to Diane Balcom and Balcom &
Associates at prices ranging from $.72 - $2.12 per share.
(7) Includes vested options and warrants to purchase an aggregate 183,299 shares
of the Company's common stock granted at prices ranging from $.72 - $6.48
per share.
(8) Includes 168,717 shares owned by Agia, Inc. ("Agia") of record and solely
for the purposes of this table includes 59,738 shares held by Saurer Ltd.
("Saurer"). Agia and Saurer consider themselves to be a "group" within the
meaning of Rule 13d-5 under the Securities Exchange Act of 1934.
PART IV
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K.
(a)1. The following Consolidated Financial Statements are included in
Item 7:
Independent Auditors' Report
Consolidated Balance Sheets as of August 31, 1996 and 1995
Consolidated Statements of Operations for the Years Ended August 31,
1996, 1995 and 1994
Consolidated Statements of Shareholders' Equity for the Years Ended
August 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the Years Ended August 31,
1996, 1995 and 1994
Notes to Consolidated Financial Statements
19
<PAGE>
(a)2. The following schedule is included in Item 7:
Valuation and qualifying accounts
(a)3. Exhibits:
(3) Restated Articles of Organization and By-Laws are incorporated
by reference to Exhibit 3 to the Company's Registration
Statement on Form S-18 (2-91218-B), filed on May 18, 1984
(hereinafter referred to as the Company's S-18).
(3)(a) Amendment to Articles of Organization are incorporated by
reference to Exhibit 3.1(a) of the Company's Registration
Statement on Form S-1 (Registration No. 33-16333 which became
effective on October 8, 1987 (hereinafter referred to as the
Company's S-1).
(4) Instruments defining the rights of securities holders include
the Restated Articles of Organization, By-Laws, Stock
Certificate and Stock Purchase Warrant which are incorporated
by reference to Exhibits 3, 4b and 4c to the Company's S-18.
(10)(a) A American Automatic Alarm Company Supplies Contract and Non-
Competition Agreement is incorporated by reference to Exhibit
(10)(w) of the Company's Annual Report on Form 10-K for the
year ended August 31, 1986.
(10)(b) 1983 Employee Incentive Stock Option Plan of the Registrant is
incorporated by reference to Exhibit 10(w) of the Company's
S-1.
(10)(c) Nonqualified Stock Option Plan is incorporated by reference to
Exhibit 10.1(ll) of Post-Effective Amendment No. 2 of the
Company's S-1.
(10)(d) Stock Purchase Agreement dated as of June 19, 1990 by and
among the Company and Ecco Industries, Inc. is incorporated by
reference to Exhibit (2.1) on Form 8-K dated July 2, 1990.
(10)(e) Lease, Canton, Massachusetts between Turnpike Realty Trust and
the Registrant dated March 6, 1991, is incorporated by
reference to Exhibit 6.1 on Form 10-Q for the quarter ended
February 28, 1991.
(10)(f) Distributor Agreement between the Registrant and Weyrad
Electronics, Limited dated November 3, 1992 is incorporated by
reference to Exhibit 10(V) on Form 10-K for the year ended
August 31, 1992.
(10)(g) Distributor Agreement between the Registrant and Weyrad
Electronics, Limited dated April 1, 1993 is incorporated by
reference to Exhibit 6.1 on Form 10-Q for the quarter ended
February 28, 1993.
(10)(h) Employment, Non-Disclosure and Non-Compete Agreement for John
Waldstein dated June 20, 1994 and amendment dated December 8,
1994 is incorporated by reference to Exhibit 10(t) on Form 10-
KSB for the year ended August 31, 1994.
(10)(i) Workout Agreement, Amended and Restated Loan and Security
Agreement and Promissory Note between the Registrant and
Federal Deposit Insurance Corporation dated December 1, 1994
is incorporated by reference to Exhibit 10(u) on Form 10-KSB
for the year ended August 31, 1994.
20
<PAGE>
(10)(j) Employment, Non-Disclosure and Non-Compete Agreement for
Robert Voosen dated January 15, 1995 is incorporated by
reference to Exhibit 6.1 on Form 10-QSB for the quarter ended
February 28, 1995.
(10)(k) Lease, Canton, Massachusetts between 427 Turnpike Street
Realty Trust and the Registrant dated March 28, 1995 is
incorporated by reference to Exhibit 10(w) on Form 10-KSB for
the year ended August 31, 1995.
(11.1) Statement regarding computation of per share income (loss).
(22) Subsidiaries of the Registrant.
(27) Financial data schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of
the period covered by this report.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
INTERNATIONAL ELECTRONICS, INC.
Date: November 26, 1996 By: /s/ John Waldstein
------------------------------
John Waldstein, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ John Waldstein President and Chief November 26, 1996
- ------------------------------- Executive Officer,
John Waldstein Treasurer and Chief
Financial and Accounting
Officer, and Chairman of
the Board
/s/ Robert Voosen Executive Vice November 26, 1996
- ------------------------------- President and Director
Robert Voosen
/s/ Heath Paley Director November 26, 1996
- -------------------------------
Heath Paley
/s/ Robert Prager Director November 26, 1996
- -------------------------------
Robert Prager
/s/ Diane Balcom Director November 26, 1996
- -------------------------------
Diane Balcom
</TABLE>
22
<PAGE>
INTERNATIONAL ELECTRONICS, INC.
AND SUBSIDIARY
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
INDEPENDENT AUDITORS' REPORT F-2
FINANCIAL STATEMENTS FOR THE YEARS ENDED AUGUST 31, 1996,
1995 AND 1994:
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Shareholders' Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7-17
FINANCIAL STATEMENT SCHEDULE FURNISHED PURSUANT TO THE
REQUIREMENTS OF FORM 10-KSB:
Schedule II - Valuation and Qualifying Accounts S-1
All other schedules are omitted because they are inapplicable, not required
under the instructions, or because the information is reflected in the
consolidated financial statements or notes thereto.
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of
International Electronics, Inc.
Canton, Massachusetts
We have audited the accompanying consolidated balance sheets of International
Electronics, Inc. and subsidiary (the "Company") as of August 31, 1996 and 1995,
and the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the three years in the period ended August 31, 1996. Our
audits also included the financial statement schedule listed in the Table of
Contents. These financial statements and the financial statement schedule are
the responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statements and the financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of International Electronics, Inc. and
subsidiary as of August 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended August 31,
1996, in conformity with generally accepted accounting principles. Also, in our
opinion, such financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
As discussed in Notes 1 and 8 to the consolidated financial statements, pursuant
to Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation," the Company changed its method of accounting for
nonemployee stock-based compensation for awards made after December 15, 1995 and
adopted the disclosure provisions of SFAS No. 123 during the fiscal year ending
August 31, 1996.
Deloitte & Touche LLP
October 22, 1996
Boston, Massachusetts
F-2
<PAGE>
INTERNATIONAL ELECTRONICS, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 1996 AND 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1996 1995
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 556,745 $ 327,812
Accounts receivable, net of allowance for
doubtful accounts and returns of $131,000
and $113,000 in 1996 and 1995, respectively 932,255 836,705
Inventories 828,448 623,913
Other current assets 141,818 104,451
---------- ----------
Total current assets 2,459,266 1,892,881
---------- ----------
EQUIPMENT AND FURNITURE, net of
accumulated depreciation and amortization 301,300 280,326
---------- ----------
OTHER ASSETS:
Goodwill and other intangibles, net of
accumulated amortization of $916,000
and $826,000 in 1996 and 1995, respectively 325,313 415,597
Other 14,299 17,285
---------- ----------
Total other assets 339,612 432,882
---------- ----------
$3,100,178 $2,606,089
========== ==========
<CAPTION>
LIABILITIES AND SHAREHOLDERS'
EQUITY 1996 1995
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 592,137 $ 651,176
Accrued expenses 703,133 431,389
Income taxes payable 40,000 -
Current portion of long-term obligations 79,516 69,095
---------- ----------
Total current liabilities 1,414,786 1,151,660
---------- ----------
LONG-TERM OBLIGATIONS, Less
current portion 409,451 452,685
---------- ----------
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value; authorized,
5,984,375 shares; issued, 1,527,051 and
1,442,669 shares in 1996 and 1995,
respectively 15,271 14,427
Capital in excess of par value 4,779,413 4,668,050
Accumulated deficit (3,480,099) (3,642,089)
Less treasury stock, at cost -- 35,000 shares (38,644) (38,644)
---------- ----------
Total shareholders' equity 1,275,941 1,001,744
---------- ----------
$3,100,178 $2,606,089
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
INTERNATIONAL ELECTRONICS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED AUGUST 31, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
NET SALES $8,610,372 $6,422,930 $5,723,600
COST OF SALES 5,051,387 3,659,140 3,391,631
---------- ---------- ----------
GROSS PROFIT 3,558,985 2,763,790 2,331,969
---------- ---------- ----------
OPERATING EXPENSES:
Research and development costs 381,245 308,162 290,537
Selling, general and administrative expenses 2,950,660 2,678,087 2,082,494
---------- ---------- ----------
Total operating expenses 3,331,905 2,986,249 2,373,031
---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS 227,080 (222,459) (41,062)
INTEREST EXPENSE (53,467) (59,313) (51,664)
OTHER INCOME 28,377 50,732 45,798
---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES 201,990 (231,040) (46,928)
PROVISION FOR INCOME TAXES 40,000 - 2,000
---------- ---------- ----------
NET INCOME (LOSS) $ 161,990 $ (231,040) $ (48,928)
========== ========== ==========
NET INCOME (LOSS) PER SHARE $ 0.10 $ (0.16) $ (0.03)
========== ========== ==========
WEIGHTED AVERAGE COMMON AND
EQUIVALENT SHARES 1,659,355 1,413,981 1,401,078
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
INTERNATIONAL ELECTRONICS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED AUGUST 31, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Capital in
Common Stock Excess of Accumulated Treasury Stock
Shares Amount Par Value Deficit Shares Cost Total
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 1, 1993 1,379,985 $ 13,800 $ 4,621,664 $ (3,362,121) - $ - $ 1,273,343
Stock issued upon exercise of
stock warrants 62,684 627 46,386 - - - 47,013
Purchase of treasury stock - - - - 19,000 (19,602) (19,602)
Net loss - - - (48,928) - - (48,928)
--------- -------- ----------- ------------ ------ -------- -----------
BALANCE, AUGUST 31, 1994 1,442,669 14,427 4,668,050 (3,411,049) 19,000 (19,602) 1,251,826
Purchase of treasury stock - - - - 16,000 (19,042) (19,042)
Net loss - - - (231,040) - - (231,040)
--------- -------- ----------- ------------- ------ -------- -----------
BALANCE, AUGUST 31, 1995 1,442,669 14,427 4,668,050 (3,642,089) 35,000 (38,644) 1,001,744
Stock issued upon exercise of
stock warrants 16,200 162 11,988 - - - 12,150
Issuance of stock warrants - - 11,000 - - - 11,000
Stock issued in a private placement 68,182 682 88,375 - - - 89,057
Net income - - - 161,990 - - 161,990
--------- -------- ----------- ------------ ------ -------- -----------
BALANCE, AUGUST 31, 1996 1,527,051 $ 15,271 $ 4,779,413 $ (3,480,099) 35,000 $(38,644) $ 1,275,941
========= ======== =========== ============ ====== ========= ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
INTERNATIONAL ELECTRONICS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED AUGUST 31, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ 161,990 $(231,040) $ (48,928)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Depreciation and amortization 247,851 264,666 266,152
Stock warrants issued for
professional services 11,000 - -
Changes in operating assets
and liabilities:
Accounts receivable (95,550) (148,332) (148,253)
Inventories (204,535) (120,575) 8,724
Other current assets (37,367) (6,877) 1,398
Accounts payable and
accrued expenses 212,705 268,233 69,146
Income taxes payable 40,000 (2,000) 2,000
--------- --------- ---------
Net cash provided
by operating activities 336,094 24,075 150,239
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
AND OTHER:
Net purchase of equipment and
furniture (139,033) (35,429) (78,434)
Other assets 2,986 1,850 25,528
--------- --------- ---------
Net cash used in investing
activities and other (136,047) (33,579) (52,906)
--------- --------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Additions to debt obligations 35,000 - 20,275
Issuance of common stock 101,207 - 47,013
Purchase of treasury stock - (19,042) (19,602)
Payments of debt obligations (107,321) (142,305) (100,191)
--------- --------- ---------
Net cash provided by
(used in) financing
activities 28,886 (161,347) (52,505)
--------- --------- ---------
CASH AND EQUIVALENTS - Increase
(decrease) during the year 228,933 (170,851) 44,828
BALANCES, BEGINNING OF YEAR 327,812 498,663 453,835
--------- --------- ---------
BALANCES, END OF YEAR $ 556,745 $ 327,812 $ 498,663
========= ========= =========
SUPPLEMENTARY DISCLOSURE OF
CASH FLOW
INFORMATION - Interest paid $ 53,467 $ 59,313 $ 51,371
========= ========= =========
SUPPLEMENTAL SCHEDULE OF NONCASH
TRANSACTIONS - Equipment
acquired under capitalized leases $ 39,508 $ 55,000 $ 47,590
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
INTERNATIONAL ELECTRONICS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED AUGUST 31, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Description of the Business - International Electronics, Inc. and subsidiary
(the "Company") designs, manufactures, markets and sells electronic products
for the security industry and other commercial applications.
Principles of Consolidation - The accompanying consolidated financial
statements include the accounts of the Company and its majority owned
subsidiary, Ecco Industries, Inc. ("Ecco"). All material intercompany
transactions, balances and profits have been eliminated.
Cash and Cash Equivalents - The Company considers all highly liquid
instruments purchased with a remaining maturity of three months or less to be
cash equivalents.
Fair Value of Financial Instruments - The fair value of the Company's assets
and liabilities which constitute financial instruments approximate their
recorded value.
Concentration of Credit Risk - Financial instruments that potentially subject
the Company to concentrations of credit risk are cash and accounts
receivable. The majority of the Company's cash is maintained with a large
commercial bank. Concentration of credit risk with respect to accounts
receivable is limited to certain customers to whom the Company makes
substantial sales (see Note 10).
Inventories - Inventories are stated at the lower of cost or market. Cost is
determined on a first-in, first-out basis. Allowances are made for slow-
moving, obsolete, unsalable or unusable items.
Equipment and Furniture - Equipment and furniture are stated at cost.
Expenditures for maintenance and repairs are charged to expense as incurred,
whereas major betterments are capitalized as additions to equipment and
furniture. Depreciation and amortization are provided using the straight-
line method over the estimated useful lives of the applicable assets,
including capital leases.
Estimated
Lives
Machinery and equipment 3-5 years
Office furniture and equipment 3-7 years
F-7
<PAGE>
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Goodwill and Other Intangibles - Goodwill and other intangibles are
amortized over five- to ten-year periods.
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," which will be effective for the fiscal year ending August 31, 1997.
SFAS No. 121 requires that long-lived assets, certain identifiable
intangibles, and goodwill to be held and used by an entity be reviewed for
impairment whenever circumstances indicate that the carrying amount of an
asset may not be recoverable. The Company has not completed evaluating the
impact that the adoption of this standard will have on its 1997 financial
statements.
Significant Estimates and Assumptions - The preparation of financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements, and the
reported amounts of sales and expenses during the reporting period. Actual
results could differ from those estimates.
Revenue Recognition - Revenue from product sales is recognized upon
shipment. An allowance for estimated future returns is recorded at the time
revenue is recognized based on the Company's historical experience.
Estimated product warranty costs are also provided for at the time of sale.
Research and Development Costs - All research and development costs are
charged to operations as incurred.
Net Income (Loss) Per Share - Net income (loss) per share is computed based
on the weighted average common and dilutive common equivalent shares
outstanding during the year. Common equivalent shares consist of stock
options and warrants. Primary income (loss) per 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 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 income (loss) per share are the same
for each year.
Employee Stock-Based Compensation - The Company uses the intrinsic value-
based method of Accounting Principles Board Opinion No. 25, as allowed under
SFAS No. 123, "Accounting for Stock-Based Compensation," to account for all
of its employee stock-based compensation plans.
Nonemployee Stock-Based Compensation - During the year ended August 31,
1996, the Company adopted the provisions of SFAS No. 123 relating to the
accounting for awards of stock-based compensation to nonemployees.
Accordingly, stock-based compensation awarded to nonemployees subsequent to
December 15, 1995 is accounted for using the "fair value" method. Stock-
based compensation awarded to nonemployees on or prior to December 15, 1995
was accounted for using the "intrinsic value" method. The effect of adopting
SFAS No. 123, was to reduce income before income taxes for the year ended
August 31, 1996 by $11,000.
Reclassifications - Certain reclassifications have been made to prior year's
financial statements to conform to the 1996 presentation.
F-8
<PAGE>
2. INVENTORIES
Inventories at August 31 consist of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Raw materials and subassemblies $645,275 $430,428
Work in process 76,821 54,083
Finished goods 106,352 139,402
--------- ---------
$828,448 $623,913
========= =========
</TABLE>
3. EQUIPMENT AND FURNITURE
Equipment and furniture at August 31 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Machinery and equipment $620,619 $532,023
Office furniture and equipment 494,160 407,241
---------- ---------
1,114,779 939,264
Less accumulated depreciation and amortization (813,479) (658,938)
---------- ---------
$301,300 $280,326
========== =========
</TABLE>
4. ACCRUED EXPENSES
Accrued expenses at August 31 consist of:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Payroll and related amounts $168,172 $130,421
Warranty 386,199 118,820
Professional fees 113,048 91,801
Other 35,714 90,347
---------- ---------
$703,133 $431,389
========== =========
</TABLE>
F-9
<PAGE>
5. LONG-TERM OBLIGATIONS
Long-term obligations at August 31 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Federal Deposit Insurance Corporation agreement $385,091 $406,192
Capitalized lease obligations, 11 - 18%, due through
April 2001 (Note 6) 66,793 80,740
Collateralized 9 - 13% equipment loans, final payments
through July 1998 23,083 20,848
Other 14,000 14,000
-------- --------
488,967 521,780
Less current portion (79,516) (69,095)
-------- --------
$409,451 $452,685
======== ========
</TABLE>
Federal Deposit Insurance Corporation ("FDIC") Agreement - The renegotiated
agreement with the FDIC in December 1994 provided for repayment of $35,000
prior to October 1994, with payments on the remaining balance of $430,000,
utilizing a 20-year amortization with payment in full at December 31, 1997.
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 (see Note 8).
The aggregate principal payments on long-term obligations, excluding
capital leases, are $38,583 in 1997 and $383,591 in 1998.
Capital lease and equipment loans are collateralized by the related
equipment with a carrying value of approximately $78,000.
6. COMMITMENTS
Leases - The Company leases an administrative and production facility under
an operating lease which expires in April 1997. The Company is responsible
for certain real estate taxes, utilities and maintenance costs. Total
rental expense for operating leases for the years ended August 31, 1996,
1995 and 1994 amounted to $102,198, $81,235 and $78,245, respectively.
The Company leases certain equipment under capital leases and, accordingly,
the present value of the net minimum payments has been reflected in
equipment and furniture and capitalized lease obligations.
F-10
<PAGE>
6. COMMITMENTS (CONTINUED)
Future minimum lease payments, under noncancelable lease terms in excess of
one year at August 31, 1996, are as follows:
<TABLE>
<S> <C>
1997 $ 45,711
1998 9,800
1999 7,250
2000 7,250
2001 4,229
--------
Total minimum lease payments 74,240
Less interest (7,447)
--------
Net minimum lease payments 66,793
Less current portion (40,933)
--------
Long-term portion $ 25,860
========
</TABLE>
Employment Agreements - The Company has employment agreements with two
officers of the Company providing minimum annual aggregate compensation of
$235,000 in 1997, $135,000 in 1998 and 1999, and $45,000 in 2000.
7. INCOME TAXES
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Current:
Federal $ 4,000 $ - $ -
State 36,000 - 2,000
------- ------- ------
$40,000 $ - $2,000
======= ======= ======
</TABLE>
F-11
<PAGE>
7. INCOME TAXES (CONTINUED)
The Company's effective tax rate differs from the statutory federal income
tax rate due to the following:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Statutory income tax rate 34.0 % (34.0)% (34.0)%
State income taxes, net of federal benefit 11.8 - 2.8
Effect of graduated federal rates - (5.1) (19.4)
Differences between financial reporting and tax return:
Depreciation and amortization 5.2 3.0 (2.2)
Amortization of goodwill 14.6 18.7 103.8
Cash basis adjustment (11.1) 6.2 (4.7)
Differences between book and tax reserves 59.4 17.8 44.9
Federal alternative minimum tax 1.3 - -
Utilization of federal net operating loss carryforwards and tax
credits (100.5) (9.4) (91.6)
Other 5.1 2.8 4.7
------- ------- -------
Effective tax rate 19.8 % - % 4.3 %
======= ======= =======
</TABLE>
As of August 31, 1996, the Company, has net operating loss carryforwards
for financial reporting and income tax purposes of approximately
$2,249,000, expiring in varying amounts from 1998 to 2008 (primarily 1998
to 2005). Aggregate investment and research and development credit
carryforwards of $48,000 at August 31, 1996 expire in varying amounts
through the year 2004. The Company also has $597,000 of federal net
operating loss carryforwards and $76,000 of tax credits which are limited
to use against income of Ecco.
Net operating loss carryforwards are limited in the event of certain
circumstances, including significant changes in ownership interests. Upon
completion of the Company's 1987 public offering and 1990 acquisition of
Ecco, the maximum net operating loss carryforward that may be used in any
year for losses incurred prior to the aforementioned events is
approximately $212,000. However, use of the Company's net operating loss
carryforwards, incurred since the completion of the 1987 offering and 1990
acquisition, approximating $1,010,000, will not be limited in any year.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts for income tax purposes. Valuation
allowances have been recorded to offset net deferred tax assets due to the
uncertainty of realizing the benefit of these assets.
F-12
<PAGE>
7. INCOME TAXES (CONTINUED)
The following is a summary of the significant components of the Company's
deferred tax assets and liabilities:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Deferred tax assets (liabilities):
Net operating loss carryforwards $ 975,000 $ 1,174,000
Tax credits 124,000 124,000
Accounts receivable reserves 37,000 28,000
Inventory and related reserves 205,000 91,000
Other (28,000) 19,000
Depreciation 5,000 (5,000)
Valuation allowance (1,318,000) (1,431,000)
----------- -----------
$ - $ -
=========== ===========
</TABLE>
8. CAPITAL TRANSACTIONS
Common Stock - 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.
Stock Options - In 1983, the Company approved and reserved 9,524 shares of
common stock for an incentive stock option plan for key employees. No
option may be granted to any employee who owns in excess of 10% of the
total outstanding voting stock. No option granted under the plan shall
have a term in excess of ten years. The purchase price per share for the
stock options shall not be less than the fair market value of the common
stock at the time of grant.
Since 1988, the Company has approved and reserved shares of common stock
for nonqualified stock option plans for the benefit of certain employees,
nonemployee directors, and key advisors. The option plans are administered
by a committee appointed by the Board of Directors (the "Committee"), which
determines the terms of options including the exercise price, expiration
date (no longer than 10 years), number of shares and vesting provisions.
All employee options vest at the rate of 25% per year with the exception of
options issued to certain officers and nonemployee directors with vesting
provisions established by the Committee. At August 31, 1996, 32,905 shares
remain available for future grants.
F-13
<PAGE>
8. CAPITAL TRANSACTIONS (CONTINUED)
A summary of activity of the stock option plans is as follows:
<TABLE>
<CAPTION>
Shares Price
<S> <C> <C>
Outstanding, September 1, 1993 155,909 $ .75 - $13.13
Granted 119,700 .72 - 1.25
Canceled (14,936) .75 - 13.13
--------
Outstanding, August 31, 1994 260,673 .72 - 6.48
Granted 26,500 .90 - 1.13
Canceled (15,600) .75 - 2.07
--------
Outstanding, August 31, 1995 271,573 .72 - 6.48
Granted 84,200 1.36 - 1.83
Canceled (41,739) .72 - 6.48
--------
Outstanding, August 31, 1996 314,034 $ .72 - $ 6.48
======== ==============
</TABLE>
The following table summarizes information concerning outstanding and
exercisable options as of August 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------ -------------------------------
Weighted
Average
Remaining
Contractual Weighted Weighted
Range of Number Life Average Number Average
Exercise Price(s) Outstanding (Years) Exercise Price Exercisable Exercise Price
<S> <C> <C> <C> <C> <C>
$ .72 - $1.00 102,250 5.66 $ .82 82,375 $ .81
1.01 - 2.00 167,913 7.82 1.38 61,250 1.39
2.07 43,500 5.85 2.07 43,500 2.07
6.48 371 3.79 6.48 371 6.48
------- -------
314,034 187,496
======= =======
</TABLE>
Stock Warrants - In November 1993 and August 1994, the Company granted
aggregate warrants to a financial consultant to purchase 2,000 shares of
common stock at exercise prices ranging from $.72 to $.88 per share,
exercisable for a ten-year period.
In December 1994, the Company granted warrants to an officer of the Company
to purchase 25,000 shares of common stock at an exercise price of $.74 per
share, exercisable for a ten-year period, in exchange for a personal
guarantee of certain debt. In September 1995, the Company granted warrants
to a financial consultant to purchase 1,000 shares of common stock at an
exercise price of $1.36 per share, exercisable for a ten-year period.
F-14
<PAGE>
8. CAPITAL TRANSACTIONS (CONTINUED)
Stock Warrants (Continued) - In January 1996, the Company granted warrants
to a public relations firm to purchase 10,000 shares of common stock at an
exercise price of $1.65 per share exercisable for a ten-year period.
Pursuant to SFAS No. 123, the Company recorded an expense of $11,000 for
the year ending August 31, 1996 in connection with the issuance of these
warrants.
All of the Company's outstanding warrants are currently exercisable. The
Company has granted rights to certain warrant holders with respect to the
registration of such shares underlying the warrants with the Securities and
Exchange Commission.
The following is a summary of transactions relating to the Company's
outstanding common stock warrants:
<TABLE>
<CAPTION>
Private
Consultants Debt Placements Total
<S> <C> <C> <C> <C>
Outstanding, September 1, 1993 49,850 2,512 85,584 137,946
Exercised - - (62,684) (62,684)
Expired (11,612) - - (11,612)
Granted 2,000 - - 2,000
------- ------- ------- -------
Outstanding, August 31, 1994 40,238 2,512 22,900 65,650
Expired - - (6,700) (6,700)
Granted - 25,000 - 25,000
------- ------- ------- -------
Outstanding, August 31, 1995 40,238 27,512 16,200 83,950
Exercised - - (16,200) (16,200)
Granted (weighted average
fair value of $1.12) 11,000 - - 11,000
------- ------- ------- -------
Outstanding, August 31, 1996
(weighted average exercise
price of $1.13) 51,238 27,512 - 78,750
======= ======= ======= =======
Exercise price(s) $.72 - $2.07 $.74 - $.99 $ - $.72 - $2.07
============ =========== ======= ============
</TABLE>
F-15
<PAGE>
8. CAPITAL TRANSACTIONS (CONTINUED)
Employee Stock-Based Compensation - With respect to employee stock-based
compensation the Company has adopted the disclosure only requirements of
SFAS No. 123. Accordingly, no compensation cost has been recognized in the
accompanying financial statements for employee stock-based compensation
awarded under employee stock option plans. If compensation cost had been
determined for awards granted commencing September 1, 1995 under the
Company's employee stock option plans based on the fair value of the awards
at the date of grant in accordance with the provisions of SFAS No. 123, the
Company's net income and net income per share for the year ending
August 31, 1996 would have decreased to the pro forma amounts indicated
below:
<TABLE>
<S> <C>
Net income - as reported $161,990
Net income - pro forma 141,458
Net income per share - as reported 0.10
Net income per share - pro forma 0.09
</TABLE>
The pro forma amounts do not include any adjustment for compensation
expense that would have been recorded in the current fiscal year for
employee stock-based awards made prior to September 1, 1995 or for
nonemployee stock-based awards made on or prior to December 15, 1995.
Accordingly, the pro forma disclosures are not likely to be representative
of the effects on reported net income for future years.
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option-pricing model with an assumed risk-free
interest rate of seven percent, an expected life of five years, an expected
volatility of eighty percent, and assumes no dividends will be paid.
Common Stock Reserved:
<TABLE>
<CAPTION>
Shares
<S> <C>
Stock warrants 78,750
Stock options 346,939
-------
425,689
=======
</TABLE>
9. BENEFIT PLAN
Commencing in 1996, the Company began sponsoring a savings plan for its
employees which has been qualified under Section 401(k) of the Internal
Revenue Code. Eligible employees are permitted to contribute to the 401(k)
plan through payroll deductions within statutory and plan limits.
Contributions from the Company are made at the discretion of the Board of
Directors. The Company has made no contributions to the 401(k) plan.
10. VENDORS, CUSTOMER AND INTERNATIONAL SALES
The Company is dependent upon sole source suppliers for a number of key
components of its products. There can be no assurance that these suppliers
will be able to meet the Company's future requirements for such components
or that the components will be available at favorable terms. Any extended
interruption in the supply of any such components or any significant price
increase could have a material adverse effect on the Company's operating
results in any given period.
F-16
<PAGE>
10. VENDORS, CUSTOMER AND INTERNATIONAL SALES (CONTINUED)
Sales to one customer accounted for 33%, 30% and 26% of total net sales in
1996, 1995 and 1994, respectively. The accounts receivable from this
customer amounted to approximately $207,000 and $291,000 at August 31, 1996
and 1995, respectively.
The Company sources a significant amount of components and maintains
certain molds for its products in Asia. The Company believes that such
sourcing reduces its cost of sales through lower parts, labor and tooling
costs. There can be no guarantee that the Asian political or economic
environment will remain sufficiently stable to allow reliable and
consistent delivery of product. International sales, primarily to Canada,
Europe and Asia were approximately $1,057,000 in 1996, $763,000 in 1995 and
$597,000 in 1994.
11. OTHER INCOME
<TABLE>
<CAPTION>
Other income consists of the following:
1996 1995 1994
<S> <C> <C> <C>
Interest $ 6,641 $ 6,454 $ 6,667
Commissions 21,736 31,713 33,931
Other - 12,565 5,200
------- ------- -------
$28,377 $50,732 $45,798
======= ======= =======
</TABLE>
* * * * * *
F-17
<PAGE>
SCHEDULE II
INTERNATIONAL ELECTRONICS, INC.
AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED AUGUST 31, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additions
Balance at Charged to Charged to Balance at
Beginning Costs and Other Deductions End of
Description of Year Expenses Accounts (A) Year
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts and returns:
August 31, 1996 $113,000 $ 44,000 $ - $(26,000) $131,000
August 31, 1995 59,000 132,000 - (78,000) 113,000
August 31, 1994 57,000 14,000 - (12,000) 59,000
</TABLE>
(A) Net write-offs of bad debts (net of recoveries).
S-1
<PAGE>
EXHIBIT 11.1
International Electronics, Inc.
Calculation of Net Income (Loss) Per Share
<TABLE>
<CAPTION>
Year Ended August 31
--------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
PRIMARY NET INCOME (LOSS) PER SHARE
- -----------------------------------
Weighted average common and
equivalent shares:
Common stock 1,451,609 1,413,981 1,401,078
Common equivalent shares
resulting from dilutive stock
options and warrants (treasury
stock method using the average
market price) 207,746 - -
---------- --------- ----------
Total 1,659,355 1,413,981 1,401,078
========== ========= ==========
Net income (loss) $ 161,990 ($231,040) ($48,928)
========== ========= ==========
Net income (loss)
per share $ .10 ($.16) ($.03)
========== ========= ==========
FULLY DILUTED NET INCOME (LOSS) PER SHARE
- -----------------------------------------
Weighted average common and
equivalent shares:
Common stock 1,451,609 1,413,981 1,401,078
Common equivalent shares
resulting from dilutive stock
options and warrants (treasury
stock method using the higher
of the ending or average
market price) 207,746 - -
---------- --------- ----------
Total 1,659,355 1,413,981 1,401,078
========== ========= ==========
Net income (loss) $ 161,990 ($231,040) ($48,928)
========== ========= ==========
Net income (loss)
per share $ .10 ($.16) ($.03)
========== ========= ==========
</TABLE>
<PAGE>
EXHIBIT 22
Subsidiaries of the Registrant
The Company has a 99.3% owned subsidiary, Ecco Industries, Inc., a Delaware
Corporation.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENT OF FINANCIAL CONDITION AT AUGUST 31, 1996 AND
THE RESULTS OF OPERATIONS FOR THE YEAR ENDED AUGUST 31, 1996 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> AUG-31-1996
<CASH> 556,745
<SECURITIES> 0
<RECEIVABLES> 1,063,255
<ALLOWANCES> 131,000
<INVENTORY> 828,448
<CURRENT-ASSETS> 2,459,266
<PP&E> 1,114,779
<DEPRECIATION> (813,479)
<TOTAL-ASSETS> 3,100,178
<CURRENT-LIABILITIES> 1,414,786
<BONDS> 409,451
0
0
<COMMON> 15,271
<OTHER-SE> 1,260,670
<TOTAL-LIABILITY-AND-EQUITY> 3,100,178
<SALES> 8,610,372
<TOTAL-REVENUES> 8,638,749
<CGS> 5,051,387
<TOTAL-COSTS> 5,051,387
<OTHER-EXPENSES> 381,245
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 53,467
<INCOME-PRETAX> 201,990
<INCOME-TAX> 40,000
<INCOME-CONTINUING> 161,990
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 161,990
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
