<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 November 30, 2000
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Commission File Number 2-91218-B
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International Electronics, Inc.
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(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
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(Issuer's telephone number, including area code)
Not applicable
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(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________
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1,539,980 common shares were outstanding at January 5, 2001.
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INTERNATIONAL ELECTRONICS, INC.
---------------------------------
Index
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Part I. Financial Information: Page No.
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Item 1: Financial Statements (unaudited)
--------------------------------
Condensed Consolidated Balance Sheets, November 30, 2000
and August 31, 2000 2
Condensed Consolidated Statements of Operations, three months
ended November 30, 2000 and 1999 3
Condensed Consolidated Statement of Shareholders' Equity,
three months ended November 30, 2000 4
Condensed Consolidated Statements of Cash Flows, three
months ended November 30, 2000 and 1999 5
Notes to Condensed Consolidated Financial Statements 6-8
Item 2: Management's Discussion and Analysis of
---------------------------------------
Financial Condition and Results of Operations 9-13
---------------------------------------------
Part II. Other Information:
Item 6: Exhibits and Reports on Form 8-K 14
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Signature 14
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INTERNATIONAL ELECTRONICS, INC.
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CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(unaudited)
<TABLE>
<CAPTION>
Nov. 30, 2000 August 31, 2000
------------- ---------------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and equivalents $ 1,647,840 $ 1,642,359
Accounts receivable, net 939,509 1,135,128
Inventories 908,781 831,993
Deferred income taxes 337,000 348,000
Other current assets 260,277 250,097
----------- -----------
Total current assets 4,093,407 4,207,577
Equipment, furniture and improvements, net 460,382 505,101
Other assets:
Deferred income taxes 76,000 76,000
Other 11,950 11,950
----------- -----------
87,950 87,950
----------- -----------
$ 4,641,739 $ 4,800,628
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 328,331 $ 444,884
Accrued expenses 1,113,082 1,118,401
Income taxes 34,700 15,000
Current portion of long-term obligations 163,360 172,336
----------- -----------
Total current liabilities 1,639,473 1,750,621
Long-term obligations 150,422 188,543
Commitments
Shareholders' equity:
Common stock, $.01 par value:
Authorized 5,984,375 shares
Issued 1,574,980 and 1,570,813
shares, respectively 15,750 15,708
Capital in excess of par value 4,858,125 4,853,991
Accumulated deficit (1,983,387) (1,969,591)
Less treasury stock, at cost:
35,000 shares (38,644) (38,644)
----------- -----------
Total shareholders' equity 2,851,844 2,861,464
----------- -----------
$ 4,641,739 $ 4,800,628
=========== ===========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
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INTERNATIONAL ELECTRONICS, INC.
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
Three months ended
------------------------------
Nov. 30, 2000 Nov. 30, 1999
-------------- --------------
<S> <C> <C>
Net sales $2,739,452 $2,714,929
Cost of sales 1,471,793 1,476,187
---------- ----------
Gross profit 1,267,659 1,238,742
Research and development costs 288,093 272,744
Selling, general and
administrative expenses 994,662 924,017
---------- ----------
Income (loss) from operations (15,096) 41,981
Interest expense (8,437) (5,275)
Other income 29,437 16,447
---------- ----------
Income before taxes 5,904 53,153
Provision for income taxes:
Current 8,700 9,000
Deferred 11,000 10,000
---------- ----------
19,700 19,000
---------- ----------
Net income (loss) ($13,796) $ 34,153
========== ==========
Net income (loss) per share:
Basic ($.01) $.02
Diluted (.01) .02
========== ==========
Shares used in computing
net income (loss) per share:
Basic 1,536,472 1,522,111
Diluted 1,536,472 1,653,006
========== ==========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
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INTERNATIONAL ELECTRONICS, INC.
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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, 2000 1,570,813 $15,708 $4,853,991 ($1,969,591) 35,000 ($38,644) $2,861,464
Exercise of
stock options 4,167 42 4,134 - - - 4,176
Net loss - - - (13,796) - - (13,796)
Balances, --------- ------- ---------- ----------- ------ -------- ----------
November 30, 2000 1,574,980 $15,750 $4,858,125 ($1,983,387) 35,000 ($38,644) $2,851,844
========= ======= ========== =========== ====== ======== ==========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
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INTERNATIONAL ELECTRONICS, INC.
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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(unaudited)
<TABLE>
<CAPTION>
Three months ended
-------------------------------------
Nov. 30, 2000 Nov. 30, 1999
-------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($13,796) $ 34,153
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization 70,688 79,221
Deferred income taxes 11,000 10,000
Changes in operating assets and liabilities:
Accounts receivable 195,619 (149,325)
Inventories (76,788) (20,349)
Other current assets (10,180) (3,411)
Income taxes 19,700 9,084
Accounts payable and accrued
expenses (121,872) 215,610
---------- ----------
Net cash provided by
operating activities 74,371 174,983
CASH FLOWS FROM INVESTING ACTIVITIES:
Net purchase of equipment,
furniture and improvements (25,969) (42,765)
---------- ----------
Net cash used in investing activities (25,969) (42,765)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 4,176 24,350
Reduction of notes payable and debt
obligations (47,097) (27,487)
---------- ----------
Net cash used in financing activities (42,921) (3,137)
CASH AND EQUIVALENTS:
Net increase during period 5,481 129,081
Balances, beginning of period 1,642,359 1,327,032
---------- ----------
Balances, end of period $1,647,840 $1,456,113
========== ==========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
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INTERNATIONAL ELECTRONICS, INC.
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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 November 30, 2000 and the results of operations for the three 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, 2000.
B. Principles of Consolidation:
----------------------------
The accompanying condensed consolidated financial statements include the
accounts of the Company, and its majority-owned subsidiary, Ecco
Industries, Inc. ("Ecco") 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
accounting principles generally accepted in the United States of America
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.
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INTERNATIONAL ELECTRONICS, INC.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(continued)
(unaudited)
E. Net Income (Loss) per Share:
----------------------------
Basic net income (loss) per share is computed by dividing net income (loss)
by the weighted-average common shares outstanding during the periods.
Diluted net income (loss) per share is computed by dividing net income
(loss) 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 the weighted-average
number of shares used in calculating basic and diluted net income (loss)
per share:
<TABLE>
<CAPTION>
Three months ended
----------------------------
Nov. 30, 2000 Nov. 30, 1999
------------- -------------
<S> <C> <C>
Shares used in computation:
Weighted-average
shares outstanding for
basic net income
(loss) per share 1,536,472 1,522,111
Effect of dilutive option
and warrant shares - 130,895
------------- -------------
Total shares for diluted net
income (loss) per share 1,536,472 1,653,006
============= =============
</TABLE>
The calculations for diluted net income (loss) per share did not include an
aggregate of options and warrants of 191,295 and 39,871 for the three
months ended November 30, 2000 and 1999, respectively because such options
and warrants are anti-dilutive or are out of the money.
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INTERNATIONAL ELECTRONICS, INC.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(continued)
(unaudited)
F. Long-term Obligations:
----------------------
Long-term obligations are summarized as follows:
Nov. 30, 2000 Aug. 31, 2000
------------- -------------
Capitalized lease obligation, 11.6%
due through April, 2001 $ 4,068 $ 5,728
Equipment line of credit, 8.5%-9.5% (Note G) 303,473 347,424
Collateralized 8% equipment loan,
final payment due Nov., 2001 6,241 7,727
--------- ---------
313,782 360,879
Less current portion (163,360) (172,336)
--------- ---------
$ 150,422 $ 188,543
========= =========
The aggregate principal payments on long-term obligations are $163,360
(2001), $117,757 (2002) and $32,665 (2003).
G. Bank Arrangements:
-----------------
As of November 30, 2000, the Company has a bank demand line of credit that
provided for borrowings up to $1,000,000 and an available $390,000
equipment line of credit expiring February 28, 2001. 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, a required minimum debt to tangible net worth ratio, and bi-
annual or annual net income. As of November 30, 2000, no borrowings have
been made under the demand line of credit, and the Company has $303,473 as
equipment debt, which is payable in monthly installments through May 2003.
-8-
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Management's Discussion and Analysis of
---------------------------------------
Financial Condition and Results of Operations
---------------------------------------------
Liquidity and Capital Resources
As of November 30, 2000, the Company had working capital of $2,453,934 compared
to $2,456,956 at August 31, 2000. The ratio of current assets to current
liabilities was 2.5 at November 30, 2000 and 2.4 at August 31, 2000. The debt to
equity ratio was .6 at November 30, 2000 and .7 at August 31, 2000. The increase
in current ratio and decrease in debt to equity ratio is primarily the result of
a decrease in accounts payable.
Net capital expenditures were $25,969 and $42,765 for the three months ended
November 30, 2000 and 1999, respectively. The Company has no current commitments
for any material capital expenditures, but the Company anticipates up to
$420,000 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 liquidity 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 first quarter of fiscal 2001 increased 1% as compared to the
first quarter of fiscal 2000. The increase in sales for the first quarter of
fiscal 2001 reflects increases in OEM custom and keypad sales, partially offset
by a decrease in glassbreak detector, access control, and PowerKey(TM) product
sales. The ratio of gross profit to sales for the three months ended November
30, 2000 and 1999 were both 46%.
Research and development expenses were $288,093 and $272,744 for the three
months ended November 30, 2000 and 1999, respectively. The increase in these
discretionary costs is primarily due to additional development project costs.
As a percentage of net sales, selling, general and administrative expenses were
36% and 34% for the three months ended November 30, 2000 and 1999, respectively.
The increase in costs as a percentage of net sales is the result of additional
personnel and travel costs.
The provision for income taxes for the first quarter of fiscal 2001 represents
expenses for deferred taxes and state income taxes, after utilization of
available federal net operating loss carryforwards.
New Accounting Pronouncements
During 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 was not
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required to be implemented until fiscal year 2000. In June 1999, the FASB issued
SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB No. 133 - an amendment of FASB No. 133."
SFAS No. 137 delayed the original implementation date of SFAS No. 133 by one
year. The Company implemented this statement in the first quarter of fiscal year
2001 and it did not have a material impact on the Company's results of
operations.
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. The Company's revenue
recognition policy complies with this pronouncement and its implementation did
not have a material impact on the Company's results of operations.
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.
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
three months ended November 30, 2000 and the years ended August 31, 2000, 1999
and 1998, the Company had net income (loss) of approximately ($14,000),
$355,000, $555,000, and $530,000, respectively. There can be no assurance that
the Company will return to 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.
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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 affect 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 effect on the
Company.
Fluctuations in Sales and Operating Results. The annual growth rates recently
experienced by the Company are not necessarily indicative of future annual
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. 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 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. The Company has a substantial number of customers
but sells a majority of 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 36% of the Company's total net sales for the fiscal
year ended August 31, 2000. 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,
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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 is currently having some of its finished
products manufactured 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.
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, or at all. 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, 2000, the Company's foreign
sales represented approximately 8% of net sales. There may be a reduction in
the Company's foreign sales from the 2000 level 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 February 1998, the NASD 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 at a favorable price.
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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.
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<PAGE>
Part II. Other Information
---------------------------
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
(27) Financial Data Schedule
(b) There were no reports on Form 8-K filed for the
three months ended November 30, 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 the Chief Financial and Accounting Officer.
International Electronics, Inc.
Date: 1/11/01 /s/ John Waldstein
-------- ------------------------------------
John Waldstein, President,
Treasurer and Chief Financial and Accounting
Officer and duly authorized to sign.
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