<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter Ended May 31, 2000
--------------------------------------------------------------
Commission File Number 2-91218-B
----------------------------------------------------------
International Electronics, Inc.
--------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Massachusetts 04-2654231
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
427 Turnpike Street, Canton, Massachusetts 02021
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(Address of principal executive offices) (Zip Code)
(781) 821-5566
--------------------------------------------------------------------------------
(Issuer's telephone number, including area code)
Not applicable
--------------------------------------------------------------------------------
(former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Exchange Act during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. YES X NO_____
-----
1,524,968 common shares were outstanding at July 6, 2000.
<PAGE>
INTERNATIONAL ELECTRONICS, INC. AND SUBSIDIARIES
------------------------------------------------
Index
-----
<TABLE>
<CAPTION>
Part I. Financial Information: Page No.
--------
<S> <C>
Item 1: Financial Statements (unaudited)
Condensed Consolidated Balance Sheets, May 31, 2000
and August 31, 1999 2
Condensed Consolidated Statements of Income, three and nine
months ended May 31, 2000 and 1999 3
Condensed Consolidated Statement of Shareholders' Equity,
nine months ended May 31, 2000 4
Condensed Consolidated Statements of Cash Flows, nine
months ended May 31, 2000 and 1999 5
Notes to Condensed Consolidated Financial Statements 6-9
Item 2: Management's Discussion and Analysis of
---------------------------------------
Financial Condition and Results of Operations 10-15
---------------------------------------------
Part II. Other Information:
Item 6: Exhibits and Reports on Form 8-K 16
--------------------------------
Signature 16
---------
</TABLE>
-1-
<PAGE>
INTERNATIONAL ELECTRONICS, INC. AND SUBSIDIARIES
------------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(unaudited)
<TABLE>
<CAPTION>
May 31, 2000 August 31, 1999
------------- ----------------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and equivalents $ 1,554,348 $ 1,327,032
Accounts receivable, net 1,289,117 724,332
Inventories 937,718 1,033,097
Deferred income taxes 201,000 260,000
Other current assets 258,934 182,171
----------- -----------
Total current assets 4,241,117 3,526,632
Equipment, furniture and improvements, net 554,214 494,463
Other assets:
Deferred income taxes 69,000 69,000
Goodwill and other intangibles, net 3,945 63,108
Other 11,950 11,950
----------- -----------
84,895 144,058
----------- -----------
$ 4,880,226 $ 4,165,153
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 783,087 $ 378,034
Accrued expenses 1,003,890 1,040,705
Income taxes 86,436 62,000
Current portion of long-term obligations 183,796 107,458
----------- -----------
Total current liabilities 2,057,209 1,588,197
Long-term obligations 227,231 117,668
Commitments
Shareholders' equity:
Common stock, $.01 par value:
Authorized 5,984,375 shares
Issued 1,559,968 and 1,533,301
shares, respectively 15,600 15,333
Capital in excess of par value 4,838,113 4,806,955
Accumulated deficit (2,219,283) (2,324,356)
Less treasury stock, at cost:
35,000 shares (38,644) (38,644)
----------- -----------
Total shareholders' equity 2,595,786 2,459,288
----------- -----------
$ 4,880,226 $ 4,165,153
=========== ===========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
-2-
<PAGE>
INTERNATIONAL ELECTRONICS, INC. AND SUBSIDIARIES
------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
-------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
---------------------------- ----------------------------
May 31, 2000 May 31, 1999 May 31, 2000 May 31, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $2,934,495 $2,416,590 $8,385,146 $6,950,862
Cost of sales 1,641,666 1,298,016 4,577,404 3,697,865
---------- ---------- ---------- ----------
Gross profit 1,292,829 1,118,574 3,807,742 3,252,997
Research and development costs 328,303 176,491 907,774 502,098
Selling, general and
administrative expenses 924,198 870,071 2,743,033 2,481,161
---------- ---------- ---------- ----------
Income from operations 40,328 72,012 156,935 269,738
Interest expense (8,549) (3,973) (19,233) (11,354)
Other income 28,412 16,979 63,371 46,438
---------- ---------- ---------- ----------
Income before taxes 60,191 85,018 201,073 304,822
Provision for income taxes:
Current 10,000 19,800 37,000 63,800
Deferred 30,000 - 59,000 -
---------- ---------- ---------- ----------
40,000 19,800 96,000 63,800
---------- ---------- ---------- ----------
Net income $ 20,191 $ 65,218 $ 105,073 $ 241,022
========== ========== ========== ==========
Net income per share:
Basic $ .01 $ .04 $ .07 $ .16
Diluted .01 .04 .06 .15
========== ========== ========== ==========
Shares used in computing
net income per share:
Basic 1,524,968 1,493,301 1,524,019 1,493,301
Diluted 1,703,837 1,569,074 1,689,982 1,570,300
========== ========== ========== ==========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
-3-
<PAGE>
INTERNATIONAL ELECTRONICS, INC. AND SUBSIDIARIES
------------------------------------------------
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
--------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
Common Stock Capital in Treasury Stock
---------------- excess of Accumulated --------------
Shares Amount par value Deficit Shares Cost Total
------ ------ --------- ------- ------ ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balances,
September 1, 1999 1,533,301 $15,333 $4,806,955 ($2,324,356) 35,000 ($38,644) $2,459,288
Issuance of
stock options - - 7,075 - - - 7,075
Exercise of
stock warrants
and options 26,667 267 24,083 - - - 24,350
Net income - - - 105,073 - - 105,073
--------- ------- ---------- ----------- ------ -------- ----------
Balances,
May 31, 2000 1,559,968 $15,600 $4,838,113 ($2,219,283) 35,000 ($38,644) $2,595,786
========= ======= ========== =========== ====== ======== ==========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
-4-
<PAGE>
INTERNATIONAL ELECTRONICS, INC. AND SUBSIDIARIES
------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
Nine months ended
----------------------------
May 31, 2000 May 31, 1999
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 105,073 $ 241,022
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 267,734 211,703
Stock options issued for professional
services 7,075 10,670
Deferred income taxes 59,000 -
Changes in operating assets and liabilities:
Accounts receivable (564,785) 105,142
Inventories 95,379 (284,354)
Other current assets (76,763) (46,480)
Income taxes 24,436 19,836
Accounts payable and accrued
expenses 368,238 346,073
---------- ----------
Net cash provided by
operating activities 285,387 603,612
CASH FLOWS FROM INVESTING ACTIVITIES:
Net purchase of equipment,
furniture and improvements (268,322) (229,670)
---------- ----------
Net cash used in investing
activities and other (268,322) (229,670)
CASH FLOWS FROM FINANCING ACTIVITIES:
Addition to notes payable and
debt obligations 280,727 77,342
Issuance of common stock 24,350 -
Reduction of notes payable and debt
obligations (94,826) (54,136)
---------- ----------
Net cash provided by financing activities 210,251 23,206
CASH AND EQUIVALENTS:
Net increase during period 227,316 397,148
Balances, beginning of period 1,327,032 895,876
---------- ----------
Balances, end of period $1,554,348 $1,293,024
========== ==========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
-5-
<PAGE>
INTERNATIONAL ELECTRONICS, INC. AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(unaudited)
A. Financial Statements:
---------------------
In the opinion of the Company, the unaudited condensed consolidated financial
statements contain all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the financial position as of May 31,
2000 and the results of operations for the three and nine months then ended.
Certain disclosures normally included have been condensed or omitted pursuant
to the rules and regulations of the Securities and Exchange Commission,
although the Company believes the disclosures are adequate to make the
information presented not misleading. It is suggested that these financial
statements be read in conjunction with the financial statements and notes
thereto included in the Company's annual report on Form 10-KSB for the year
ended August 31, 1999.
B. Principles of Consolidation:
----------------------------
The accompanying condensed consolidated financial statements include the
accounts of the Company, its majority owned subsidiary, Ecco Industries, Inc.
and its wholly owned subsidiary, International Electronics Europe Limited.
All material intercompany transactions, balances and profits have been
eliminated.
C. Income Taxes:
-------------
The Company provides for income taxes at the end of each interim period based
on the estimated effective tax rate for the full fiscal year. Cumulative
adjustments to the tax provision are recorded in the interim period in which
a change in the estimated annual effective rate is determined.
D. Significant Estimates and Assumptions:
-------------------------------------
The preparation of consolidated 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 revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
-6-
<PAGE>
INTERNATIONAL ELECTRONICS, INC. AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(continued)
(unaudited)
E. Net Income per Share:
---------------------
Basic net income per share is computed by dividing net income by the
weighted average common shares outstanding during the periods. Diluted net
income per share is computed by dividing net income by the weighted average
number of common and dilutive option and warrant shares outstanding based
on the average market price of the Company's common stock (under the
treasury stock method).
The following table sets forth the computation of basic and diluted net
income per share:
<TABLE>
<CAPTION>
Three months ended Nine months ended
----------------------------- ------------------------------
May 31, 2000 May 31, 1999 May 31, 2000 May 31, 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income $ 20,191 $ 65,218 $ 105,073 $ 241,022
========== ========== ========== ==========
Shares used in computation:
Weighted average
shares outstanding for
basic income per share 1,524,968 1,493,301 1,524,019 1,493,301
Effect of dilutive option
and warrant shares 178,869 75,773 165,963 76,999
---------- ---------- ---------- ----------
Total shares for diluted income
per share 1,703,837 1,569,074 1,689,982 1,570,300
========== ========== ========== ==========
Net income per share:
Basic $ .01 $ .04 $ .07 $ .16
Diluted .01 .04 .06 .15
========== ========== ========== ==========
</TABLE>
The calculations for diluted net income per share did not include an aggregate
out of the money options and warrants of 26,371 and 140,104 for the three months
ended May 31, 2000 and 1999, respectively.
-7-
<PAGE>
INTERNATIONAL ELECTRONICS, INC. AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(continued)
(unaudited)
F. Long-term Obligations:
----------------------
Long-term obligations are summarized as follows:
<TABLE>
<CAPTION>
May 31, 2000 Aug. 31, 1999
------------ -------------
<S> <C> <C>
7-18% capitalized lease obligations,
due through June 2001 (Note H) $ 8,438 $ 17,188
Equipment lines of credit, 7.75%-9.50% (Note G) 393,405 194,562
8% equipment loan, collateralized
by equipment, final payment due
November 2001 9,184 13,376
--------- ---------
411,027 225,126
Less current portion (183,796) (107,458)
--------- ---------
$ 227,231 $ 117,668
========= =========
</TABLE>
The aggregate principal payments on long-term obligations, excluding
capital leases are $175,956 (2001), $142,732 (2002) and $83,901 (2003).
G. Bank Arrangements:
-----------------
As of May 31, 2000, the Company has available a bank demand line of credit
which provides for borrowings up to $1,000,000 and an equipment line of
credit for $390,000. Both lines of credit are at the bank's prime rate of
interest and all of the Company's assets are collateralized under these
arrangements. The credit agreements contain certain restrictive covenants
including covenants limiting the payment of dividends, requiring a minimum
debt to tangible net worth ratio and requiring net income. As of May 31,
2000, no borrowings have been made under the demand line of credit, and the
Company has an aggregate of $393,405 outstanding under the equipment line
of credit referred to above as well as another fully utilized equipment
line of credit, payable in monthly installments over periods extending up
to thirty-six months through May 2003.
-8-
<PAGE>
INTERNATIONAL ELECTRONICS, INC. AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(continued)
(unaudited)
H. Capital Lease Commitments:
--------------------------
The Company leases certain equipment under capital leases and, accordingly,
the present value of the net minimum payments has been reflected in
equipment, furniture and improvements and capitalized lease obligations.
Future minimum capital lease payments under non-cancelable lease terms in
excess of one year at May 31, 2000 are as follows:
2001 $ 8,362
2002 604
-------
Total minimum lease payments 8,966
Less interest (528)
-------
Net minimum lease payments 8,438
Less current portion (7,840)
-------
Long-term portion $ 598
=======
-9-
<PAGE>
Management's Discussion and Analysis of
---------------------------------------
Financial Condition and Results of Operations
---------------------------------------------
Liquidity and Capital Resources
As of May 31, 2000, the Company had working capital of $2,183,908 compared to
$1,938,435 at August 31, 1999. The ratio of current assets to current
liabilities was 2.1 at May 31, 2000 and 2.2 at August 31, 1999. The debt to
equity ratio was .9 at May 31, 2000 and .7 at August 31, 1999. The increase in
working capital is primarily the result of the Company's operating cash flow for
the nine months ending May 31, 2000. The decrease in current ratio and increase
in debt to equity ratio is primarily the result of an increase in accounts
payable and additional borrowings under the Company's equipment line of credit.
Net capital expenditures were $268,322 and $229,670 for the nine months ended
May 31, 2000 and 1999, respectively. The Company has no current commitments for
any material capital expenditures, but the Company anticipates up to $400,000 in
capital expenditures for the purchase of office and manufacturing equipment,
regulatory testing and tooling costs over the next twelve months.
Management believes that its current cash position, together with internally
generated funds at present sales levels and its available bank financing, 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
additional external funding. There is no assurance that profits will be
generated, or that additional external funding will be obtainable, if such a
need should arise.
Results of Operations
Net sales for the third quarter and the first nine months of fiscal 2000
increased 21% as compared to the comparable periods of fiscal 1999. These
increases are due to increases in sales of access control, OEM, and keypad
products, partially offset by decreases in sales of glassbreak detector
products.
The ratios of gross profit to sales were 44% and 45% for the third quarter and
nine months ended May 31, 2000, respectively, compared to 46% and 47% for the
comparable periods of fiscal 1999. The decrease in gross profit percentage for
the third quarter and the first nine months of fiscal 2000, as compared to the
third quarter and the first nine months of fiscal 1999, is primarily the result
of product mix and increased product costs, partially offset by a reduction in
warranty expense.
Research and development expenses were $328,303 and $907,774 for the third
quarter and nine months ended May 31, 2000, respectively, compared to $176,491
and $502,098 for the comparable periods of fiscal 1999. The increases in this
discretionary expense are primarily due to the hiring of additional personnel
and outside consultants. The Company anticipates that future research and
development costs will be comparable to the amounts incurred during this most
recent fiscal quarter.
-10-
<PAGE>
Management's Discussion and Analysis of
---------------------------------------
Financial Condition and Results of Operations
---------------------------------------------
(continued)
As a percentage of net sales, selling, general and administrative expenses were
31% and 36% for the third quarter ended May 31, 2000, and the third quarter
ended May 31, 1999, respectively, and were 33% and 36% for the nine months ended
May 31, 2000 and 1999, respectively. The decrease for the third quarter and
first nine months ended May 31, 2000, as compared to the comparable periods of
the preceding year, is primarily due to increased sales productivity.
The provision for income taxes for the third quarter of fiscal 2000 represents a
charge for deferred taxes and current charges for foreign, federal alternative
minimum taxes and state income tax expenses. The Company's effective income tax
rate for the nine months ended May 31, 2000 of 66% was more than the combined
federal and state statutory income tax rates, primarily as a result of an
increase in deferred taxes, offset in part by the utilization of available net
operating loss carryforwards.
New Accounting Pronouncements
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities" establishes accounting and
reporting standards for derivative instruments. Pursuant to SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB No. 133," SFAS No. 133 will be effective in fiscal year
2001. The Company has not completed its evaluation of the impact of this
standard on its consolidated financial statements.
In December 1999 the Securities and Exchange Commission issued Staff Accounting
Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements". This
bulletin established guidelines for revenue recognition. SAB 101 will be
effective in fiscal year 2001. The Company has not completed its evaluation of
the impact of this bulletin on its consolidated financial statements.
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 that 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.
-11-
<PAGE>
Management's Discussion and Analysis of
---------------------------------------
Financial Condition and Results of Operations
---------------------------------------------
(continued)
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, 1997, 1998 and 1999, and the nine months ended May 31,
2000, the Company had net income of approximately $70,000, $530,000, $555,000
and $105,000, respectively. 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 use of the bank lines of credit and/or
additional financing. There can be no assurance that profits will continue or
that additional external funding will be obtainable, if such a need should
arise.
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.
Failure to Complete New Products. 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 affect the competitive position of
the Company's products. The Company is in the process of working on a number of
new development projects. 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 effect 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 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.
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
-12-
<PAGE>
Management's Discussion and Analysis of
---------------------------------------
Financial Condition and Results of Operations
---------------------------------------------
(continued)
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 affect the Company's operating results, or
such price pressure over an extended period could adversely affect 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. Although the Company has a substantial number of
customers, a significant portion of the Company's sales are 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 40% of the Company's
total net sales for the fiscal year ended August 31, 1999. 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 affected 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.
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.
Offshore Production. The Company presently maintains certain manufacturing
molds in Asia, purchases a significant amount of raw materials offshore, and
also has some products manufactured offshore. There can be no assurance that
the Asian, or worldwide, political or economic environment will remain
sufficiently stable to allow reliable and consistent delivery of product. Any
disruption in the supply or significant increase in
-13-
<PAGE>
Management's Discussion and Analysis of
---------------------------------------
Financial Condition and Results of Operations
---------------------------------------------
(continued)
price of any such components could have a material adverse effect on the
Company's operating results in any given period.
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 requirement 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, 1999, the Company's foreign
sales represented approximately 10% of net sales. There could 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.
Year 2000 Compliance. There were issues associated with the programming code in
existing computer systems as the year 2000 approached. The "year 2000 problem"
was and continues to be pervasive and complex, as virtually every computer
operation was affected in some way by the rollover of the two-digit year value
to 00. The issue is whether computer systems will properly recognize date
sensitive information after the year changed to 2000. Systems that do not
properly recognize such information could generate erroneous data or cause a
system to fail. The Company considers its products to be Year 2000 compliant.
The Company's products do not perform any date calculations requiring the year
digits, nor do they have any report generating software that would present a
problem with the Year 2000.
The Company has addressed the Year 2000 problem regarding its internal systems
which include the manufacturing and inventory control system, internal reporting
and the Company's existing manufacturing equipment. The Company relies on
commercially distributed software and has installed and tested upgrades to these
systems to comply with any Year 2000 requirements. Based on its review of these
systems and the fact that the Company has experienced no problems with its
internal systems relating to the Year 2000 issues, the Company does not believe
there will be any Year 2000 issues related to its manufacturing systems or
equipment, or other non-information technology systems which would have a
material impact on the Company's results of operations.
During this past year, the Company surveyed its largest vendors to determine
their state of readiness regarding this issue and to estimate the impact, if
any, on the Company's financial position or results of operations if any of its
vendors should fail due to their noncompliance with Year 2000 requirements.
Based upon the results of this survey and the fact that the Company has
experienced no problems with its vendors relating to the Year 2000 issues, the
Company is not aware of any significant vendor Year 2000 issue that would
materially impact the Company's results of operations or financial position.
-14-
<PAGE>
Management's Discussion and Analysis of
---------------------------------------
Financial Condition and Results of Operations
---------------------------------------------
(continued)
The Company believes that the greatest potential risk is the failure of its
external business partners to achieve Year 2000 compliance in a timely manner.
Any Year 2000 compliance problem of either the Company or its users, customers,
vendors or advertisers could have a material, adverse effect on the Company's
business, results of operations and financial condition. In addition, the
Company could be affected by the failure of any global infrastructure including
national banking systems, communications and governmental activities. To date,
the Company has experienced no problems with its external business partners
relating to the Year 2000 issues.
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 February 1998, the National Association of
Securities Dealers adopted new more stringent standards for a company to
maintain its stock listing on NASDAQ. The Company believes that it is in
compliance with all NASDAQ SmallCap listing requirements. However, there can be
no assurance that the Company will continue to meet the NASDAQ standards to
maintain its listing on NASDAQ. If the Company is unable to maintain its
listing on NASDAQ, holders of the Company's common stock may have difficulty
selling their shares.
Volatility of Stock Price. The Company's stock price is subject to significant
volatility. Revenues or earnings in any quarter which 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.
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<PAGE>
Part II. Other Information:
----------------------------
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
None
(b) There were no reports on Form 8-K filed for the three
months ended May 31, 2000.
SIGNATURE
---------
Pursuant to the requirements of the Exchange Act, the Registrant has duly caused
this report to be signed on its behalf by the undersigned, who is duly
authorized to sign and is Chief Financial and Accounting Officer.
International Electronics, Inc.
Date: 7/13/00 /s/ John Waldstein
------- ------------------------------------------
John Waldstein, President,
Treasurer & Chief Financial and Accounting
Officer and duly authorized to sign.
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