-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KtKwlpljqbQ0jh84A9OT/ey7ZHG3CSP9gGCSzfJe5OQIx7PkYngboglMK8di49Fm B5vCFMvISm1yI1KbfGEfMQ== 0000927016-00-001265.txt : 20000412 0000927016-00-001265.hdr.sgml : 20000412 ACCESSION NUMBER: 0000927016-00-001265 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000229 FILED AS OF DATE: 20000411 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERNATIONAL ELECTRONICS INC CENTRAL INDEX KEY: 0000717751 STANDARD INDUSTRIAL CLASSIFICATION: COMMUNICATIONS EQUIPMENT, NEC [3669] IRS NUMBER: 042654231 STATE OF INCORPORATION: MA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-16305 FILM NUMBER: 598654 BUSINESS ADDRESS: STREET 1: 427 TURNPIKE ST CITY: CANTON STATE: MA ZIP: 02072 BUSINESS PHONE: 6178215566 MAIL ADDRESS: STREET 1: 427 TURNPIKE STREET CITY: CANTON STATE: MA ZIP: 02021 10QSB 1 FORM 10QSB U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934 For Quarter Ended February 29, 2000 ------------------------------------------------------------- Commission File Number 2-91218-B -------------------------------------------------------- International Electronics, Inc. - -------------------------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) Massachusetts 04-2654231 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 427 Turnpike Street, Canton, Massachusetts 02021 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (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 March 28, 2000. INTERNATIONAL ELECTRONICS, INC. AND SUBSIDIARIES ------------------------------------------------ Index -----
Part I. Financial Information: Page No. -------- Item 1: Financial Statements (unaudited) Condensed Consolidated Balance Sheets, February 29, 2000 and August 31, 1999 2 Condensed Consolidated Statements of Income, three and six months ended February 29, 2000 and February 28, 1999 3 Condensed Consolidated Statement of Shareholders' Equity, six months ended February 29, 2000 4 Condensed Consolidated Statements of Cash Flows, six months ended February 29, 2000 and February 28, 1999 5 Notes to Condensed Consolidated Financial Statements 6-9 Item 2: Management's Discussion and Analysis of --------------------------------------- Financial Condition and Results of Operations 10-16 --------------------------------------------- Part II. Other Information: Item 4: Submission of Matters to a Vote of Security Holders 17 --------------------------------------------------- Item 6: Exhibits and Reports on Form 8-K 17 -------------------------------- Signature 17 ---------
-1- INTERNATIONAL ELECTRONICS, INC. AND SUBSIDIARIES ------------------------------------------------ CONDENSED CONSOLIDATED BALANCE SHEETS ------------------------------------- (unaudited)
Feb. 29, 2000 August 31, 1999 -------------- ---------------- ASSETS - ------ Current assets: Cash and equivalents $ 1,540,797 $ 1,327,032 Accounts receivable, net 1,120,758 724,332 Inventories 999,489 1,033,097 Deferred income taxes 231,000 260,000 Other current assets 259,434 182,171 ----------- ----------- Total current assets 4,151,478 3,526,632 Equipment, furniture and improvements, net 510,721 494,463 Other assets: Deferred income taxes 69,000 69,000 Goodwill and other intangibles, net 23,664 63,108 Other 11,950 11,950 ----------- ----------- 104,614 144,058 ----------- ----------- $ 4,766,813 $ 4,165,153 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Current liabilities: Accounts payable $ 700,949 $ 378,034 Accrued expenses 1,070,673 1,040,705 Income taxes 86,125 62,000 Current portion of long-term obligations 155,580 107,458 ----------- ----------- Total current liabilities 2,013,327 1,588,197 Long-term obligations 184,966 117,668 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 4,831,038 4,806,955 Accumulated deficit (2,239,474) (2,324,356) Less treasury stock, at cost: 35,000 shares (38,644) (38,644) ----------- ----------- Total shareholders' equity 2,568,520 2,459,288 ----------- ----------- $ 4,766,813 $ 4,165,153 =========== ===========
See notes to unaudited condensed consolidated financial statements. -2- INTERNATIONAL ELECTRONICS, INC. AND SUBSIDIARIES ------------------------------------------------ CONDENSED CONSOLIDATED STATEMENTS OF INCOME ------------------------------------------- (unaudited)
Three months ended Six months ended ------------------------------ ------------------------------ Feb. 29, 2000 Feb. 28, 1999 Feb. 29, 2000 Feb. 28, 1999 -------------- -------------- -------------- -------------- Net sales $2,735,722 $2,403,159 $5,450,651 $4,534,272 Cost of sales 1,459,551 1,301,546 2,935,738 2,399,849 ---------- ---------- ---------- ---------- Gross profit 1,276,171 1,101,613 2,514,913 2,134,423 Research and development costs 306,727 181,485 579,471 325,607 Selling, general and administrative expenses 894,818 813,890 1,818,835 1,611,090 ---------- ---------- ---------- ---------- Income from operations 74,626 106,238 116,607 197,726 Interest expense (5,409) (3,292) (10,684) (7,381) Other income 18,512 13,830 34,959 29,459 ---------- ---------- ---------- ---------- Income before taxes 87,729 116,776 140,882 219,804 Provision for income taxes: Current 18,000 20,000 27,000 44,000 Deferred 19,000 - 29,000 - ---------- ---------- ---------- ---------- 37,000 20,000 56,000 44,000 ---------- ---------- ---------- ---------- Net income $ 50,729 $ 96,776 $ 84,882 $ 175,804 ========== ========== ========== ========== Net income per share: Basic $ .03 $ .06 $ .06 $ .12 Diluted .03 .06 .05 .11 ========== ========== ========== ========== Shares used in computing net income per share: Basic 1,524,968 1,493,301 1,523,539 1,493,301 Diluted 1,713,093 1,583,585 1,683,049 1,570,914 ========== ========== ========== ==========
See notes to unaudited condensed consolidated financial statements. -3- INTERNATIONAL ELECTRONICS, INC. AND SUBSIDIARIES ------------------------------------------------ CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY -------------------------------------------------------- (unaudited)
Common Stock Capital in Treasury Stock ------------------- excess of Accumulated --------------- Shares Amount par value Deficit Shares Cost Total ------- ------ --------- ------- ------ ---- ----- Balances, September 1, 1999 1,533,301 $15,333 $4,806,955 ($2,324,356) 35,000 ($38,644) $2,459,288 Exercise of stock warrants and options 26,667 267 24,083 - - - 24,350 Net income - - - 84,882 - - 84,882 Balances, --------- ------- ---------- ----------- ------ -------- ---------- February 29, 2000 1,559,968 $15,600 $4,831,038 ($2,239,474) 35,000 ($38,644) $2,568,520 ========= ======= ========== =========== ====== ======== ==========
See notes to unaudited condensed consolidated financial statements. -4- INTERNATIONAL ELECTRONICS, INC. AND SUBSIDIARIES ------------------------------------------------ CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ----------------------------------------------- (unaudited)
Six months ended ------------------------------ Feb. 29, 2000 Feb. 28, 1999 -------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 84,882 $ 175,804 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 167,292 139,762 Stock warrants issued for professional services - 941 Deferred income taxes 29,000 - Changes in operating assets and liabilities: Accounts receivable (396,426) 15,308 Inventories 33,608 (279,884) Other current assets (77,263) (10,587) Income taxes 24,125 42,921 Accounts payable and accrued expenses 352,883 272,924 ---------- ---------- Net cash provided by operating activities 218,101 357,189 CASH FLOWS FROM INVESTING ACTIVITIES: Net purchase of equipment, furniture and improvements (144,106) (120,262) ---------- ---------- Net cash used in investing activities and other (144,106) (120,262) CASH FLOWS FROM FINANCING ACTIVITIES: Addition to notes payable and debt obligations 169,467 - Issuance of common stock 24,350 77,342 Reduction of notes payable and debt obligations (54,047) (31,579) ---------- ---------- Net cash provided by financing activities 139,770 45,763 CASH AND EQUIVALENTS: Net increase during period 213,765 282,690 Balances, beginning of period 1,327,032 895,876 ---------- ---------- Balances, end of period $1,540,797 $1,178,566 ========== ==========
See notes to unaudited condensed consolidated financial statements. -5- 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 February 29, 2000 and the results of operations for the three and six months ended February 29, 2000 and February 28, 1999. 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- 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:
Three months ended Six months ended --------------------------------- ------------------------------- Feb. 29, 2000 Feb. 28, 1999 Feb. 29, 2000 Feb. 28, 1999 ------------------ ------------- ---------------- ------------- Net income $ 50,729 $ 96,776 $ 84,882 $ 175,804 ========== ========== ========== ========== Shares used in computation: Weighted average shares outstanding for basic income per share 1,524,968 1,493,301 1,523,539 1,493,301 Effect of dilutive option and warrant shares 188,125 90,284 159,510 77,613 ---------- ---------- ---------- ---------- Total shares for diluted income per share 1,713,093 1,583,585 1,683,049 1,570,914 ========== ========== ========== ========== Net income per share: Basic $ .03 $ .06 $ .06 $ .12 Diluted .03 .06 .05 .11 ========== ========== ========== ==========
The calculations for diluted net income per share did not include an aggregate out of the money options and warrants of 371 and 109,037 for the three months ended February 29, 2000 and February 28, 1999, respectively. -7- INTERNATIONAL ELECTRONICS, INC. AND SUBSIDIARIES ------------------------------------------------ NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------------- (continued) (unaudited) F. Long-term Obligations: ---------------------- Long-term obligations are summarized as follows:
Feb. 29, 2000 Aug. 31, 1999 -------------- -------------- 7-18% capitalized lease obligations, due through April, 2001 (Note H) $ 11,081 $ 17,188 Equipment line of credit, 7.75%-8.75% (Note G) 318,855 194,562 8% equipment loan, collateralized by equipment, final payment due Nov., 2001 10,610 13,376 --------- --------- 340,546 225,126 Less current portion (155,580) (107,458) --------- --------- $ 184,966 $ 117,668 ========= =========
The aggregate principal payments on long-term obligations, excluding capital leases are $146,858 (2001), $115,000 (2002) and $67,607 (2003). G. Bank Arrangements: ----------------- As of February 29, 2000, the Company has a bank demand line of credit that provides for borrowings up to $1,000,000. In addition, as of February 29, 2000, the Company has fully utilized its existing bank equipment line of credit (see Note I). 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 net income. As of February 29, 2000, no borrowings have been made under the demand line of credit, and the Company has $318,855 outstanding under the equipment line of credit, payable in monthly installments through February 2003. -8- 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 February 29, 2000 are as follows: 2001 $ 9,473 2002 2,417 ------- Total minimum lease payments 11,890 Less interest (809) ------- Net minimum lease payments 11,081 Less current portion (8,722) ------- Long-term portion $ 2,359 ======= I. Subsequent Event: ---------------- In April 2000, the Company established a new bank equipment line of credit of up to $500,000. This agreement is collateralized by all of the Company's assets and contains certain restrictive covenants (see Note G). -9- Management's Discussion and Analysis of --------------------------------------- Financial Condition and Results of Operations --------------------------------------------- Liquidity and Capital Resources As of February 29, 2000, the Company had working capital of $2,138,151 compared to $1,938,435 at August 31, 1999. The ratio of current assets to current liabilities was 2.1 at February 29, 2000 and 2.2 at August 31, 1999. The debt to equity ratio was .9 at February 29, 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 six months ending February 29, 2000. The decrease in current ratio and increase in debt to equity ratio is primarily the result of an increase in accounts payable and accrued expenses and additional borrowings under the Company's equipment line of credit. Net capital expenditures were $144,106 and $120,262 for the six months ended February 29, 2000 and February 28, 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. 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, 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. -10- Management's Discussion and Analysis of --------------------------------------- Financial Condition and Results of Operations --------------------------------------------- (continued) 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, the Company is not aware of any significant vendor issue that would materially impact the Company's results of operations or financial position. 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. Results of Operations Net sales for the second quarter of fiscal 2000 increased 14% as compared to the second quarter of fiscal 1999. Net sales for the first six months of fiscal 2000 increased 20% as compared to the first six months of fiscal 1999. These increases are due to increases in sales of access control and keypad products, partially offset by decreases in sales of glassbreak detector and voice verification products. The ratios of gross profit to sales for the three months ended February 29, 2000 and February 28, 1998 were 47% and 46%, respectively. The ratio of gross profit to sales for the six months ended February 29, 2000 and February 28, 1999 were 46% and 47%, respectively. The increase in gross profit percentage for the second quarter of fiscal 2000, as compared to the second quarter of fiscal 1999, is primarily the result of product mix, lower product costs and a reduction in warranty expense. The decrease in gross profit percentage for the first six months of 2000, as compared to the first six months of 1999, is primarily the result of product mix. Research and development expenses were $306,727 and $579,471 for the second quarter and six months ended February 29, 2000, respectively, compared to $181,485 and $325,607 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. As a percentage of net sales, selling, general and administrative expenses were 33% and 34% for the second quarter ended February 29, 2000, and the second quarter ended February 28, 1999, respectively, and were 33% and 36% for the six months ended February 29, 2000 and February 28, 1999, respectively. The decrease for the second -11- Management's Discussion and Analysis of --------------------------------------- Financial Condition and Results of Operations --------------------------------------------- (continued) quarter and first six months ended February 29, 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 second 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 six months ended February 29, 2000 of 40% was less than the combined federal and state statutory income tax rates, primarily as a result of the utilization of available net operating loss carryforwards, partially offset by an increase in deferred taxes. New Accounting Pronouncement 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. 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 years ended August 31, 1997, 1998 and 1999, and the six months ended February 29, 2000, the Company had net income of approximately $70,000, $530,000, $555,000 and $85,000, 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 -12- Management's Discussion and Analysis of --------------------------------------- Financial Condition and Results of Operations --------------------------------------------- (continued) 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 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 -13- Management's Discussion and Analysis of --------------------------------------- Financial Condition and Results of Operations --------------------------------------------- (continued) 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 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 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. -14- Management's Discussion and Analysis of --------------------------------------- Financial Condition and Results of Operations --------------------------------------------- (continued) 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, 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, the Company is not aware of any significant vendor issue that would materially impact the Company's results of operations or financial position. 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. 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. -15- Management's Discussion and Analysis of --------------------------------------- Financial Condition and Results of Operations --------------------------------------------- (continued) 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 at a favorable price. 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. -16- Part II. Other Information: - ---------------------------- Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- On March 30, 2000, the Company held its Special Meeting in Lieu of the Annual Meeting of Shareholders. At the meeting, shareholders elected the following Board of Directors serving for a staggered three-year term: Heath Paley Class 1 Director - Term expires in 2001 Diane Balcom Class 2 Director - Term expires in 2002 Kenneth Moyes Class 2 Director - Term expires in 2002 John Waldstein Class 3 Director - Term expires in 2003 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 February 29, 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: 4/11/00 /s/ John Waldstein ------- ------------------------------------------- John Waldstein, President, Treasurer & Chief Financial and Accounting Officer and duly authorized to sign. -17- EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENT OF FINANCIAL CONDITION AT FEBRUARY 29, 2000 (UNAUDITED) AND THE RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED FEBRUARY 29, 2000 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS AUG-31-2000 SEP-01-1999 FEB-29-2000 1,540,797 0 0 0 999,489 4,151,478 0 0 4,766,813 2,013,327 184,966 0 0 15,600 2,552,920 4,766,813 5,450,651 5,485,610 2,935,738 2,935,738 579,741 0 10,684 140,882 56,000 84,882 0 0 0 84,882 .06 .05
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