10QSB 1 0001.txt FORM 10-QSB 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 28, 2001 ----------------------------------------------------------- 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 --- --- 1,539,980 common shares were outstanding at March 29, 2001. INTERNATIONAL ELECTRONICS, INC. AND SUBSIDIARIES ------------------------------------------------ Index -----
Part I. Financial Information: Page No. -------- Item 1: Financial Statements (unaudited) -------------------------------- Condensed Consolidated Balance Sheets, February 28, 2001 and August 31, 2000 2 Condensed Consolidated Statements of Income, three and six months ended February 28, 2001 and February 29, 2000 3 Condensed Consolidated Statement of Shareholders' Equity, six months ended February 28, 2001 4 Condensed Consolidated Statements of Cash Flows, six months ended February 28, 2001 and February 29, 2000 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 4: Submission of Matters to a Vote of Security Holders 14 --------------------------------------------------- Item 6: Exhibits and Reports on Form 8-K 14 -------------------------------- Signature 14 ---------
-1- INTERNATIONAL ELECTRONICS, INC. AND SUBSIDIARIES ------------------------------------------------ CONDENSED CONSOLIDATED BALANCE SHEETS ------------------------------------- (unaudited)
Feb. 28, 2001 August 31, 2000 -------------- ---------------- ASSETS ------ Current assets: Cash and equivalents $ 1,219,085 $ 1,642,359 Accounts receivable, net 1,561,612 1,135,128 Inventories 1,183,486 831,993 Deferred income taxes 364,000 348,000 Other current assets 228,685 250,097 ----------- ----------- Total current assets 4,556,868 4,207,577 Equipment, furniture and improvements, net 550,226 505,101 Other assets: Deferred income taxes 76,000 76,000 Other 11,950 11,950 ----------- ----------- 87,950 87,950 ----------- ----------- $ 5,195,044 $ 4,800,628 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Current liabilities: Accounts payable $ 872,175 $ 444,884 Accrued expenses 1,087,331 1,118,401 Income taxes 26,000 15,000 Current portion of long-term obligations 168,535 172,336 ----------- ----------- Total current liabilities 2,154,041 1,750,621 Long-term obligations, less current portion 142,144 188,543 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 (1,936,372) (1,969,591) Less treasury stock, at cost: 35,000 shares (38,644) (38,644) ----------- ----------- Total shareholders' equity 2,898,859 2,861,464 ----------- ----------- $ 5,195,044 $ 4,800,628 =========== ===========
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. 28, 2001 Feb. 29, 2000 Feb. 28, 2001 Feb. 29, 2000 -------------- -------------- -------------- -------------- Net sales $2,597,690 $2,735,722 $5,337,142 $5,450,651 Cost of sales 1,464,439 1,459,551 2,936,232 2,935,738 ---------- ---------- ---------- ---------- Gross profit 1,133,251 1,276,171 2,400,910 2,514,913 Research and development costs 249,759 306,727 537,852 579,471 Selling, general and administrative expenses 873,795 894,818 1,868,457 1,818,835 ---------- ---------- ---------- ---------- Income (loss) from operations 9,697 74,626 (5,399) 116,607 Interest expense (7,476) (5,409) (15,913) (10,684) Other income 20,094 18,512 49,531 34,959 ---------- ---------- ---------- ---------- Income before taxes 22,315 87,729 28,219 140,882 Benefit (provision) for income taxes: Current (2,300) (18,000) (11,000) (27,000) Deferred 27,000 (19,000) 16,000 (29,000) ---------- ---------- ---------- ---------- 24,700 (37,000) 5,000 (56,000) ---------- ---------- ---------- ---------- Net income $ 47,015 $ 50,729 $ 33,219 $ 84,882 ========== ========== ========== ========== Net income per share: Basic $ .03 $ .03 $ .02 $ .06 Diluted .03 .03 .02 .05 ========== ========== ========== ========== Shares used in computing net income per share: Basic 1,539,980 1,524,968 1,538,217 1,523,539 Diluted 1,662,544 1,713,093 1,672,146 1,683,049 ========== ========== ========== ==========
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, 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 income - - - 33,219 - - 33,219 --------- ------- ---------- ----------- ------ -------- ---------- Balances, February 28, 2001 1,574,980 $15,750 $4,858,125 ($1,936,372) 35,000 ($38,644) $2,898,859 ========= ======= ========== =========== ====== ======== ==========
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. 28, 2001 Feb. 29, 2000 -------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 33,219 $ 84,882 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 154,577 167,292 Deferred income taxes (16,000) 29,000 Changes in operating assets and liabilities: Accounts receivable (426,484) (396,426) Inventories (351,493) 33,608 Other current assets 21,412 (77,263) Income taxes 11,000 24,125 Accounts payable and accrued expenses 396,221 352,883 ---------- ---------- Net cash provided by (used in) operating activities (177,548) 218,101 CASH FLOWS FROM INVESTING ACTIVITIES: Net purchase of equipment, furniture and improvements (199,702) (144,106) ---------- ---------- Net cash used in investing activities (199,702) (144,106) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term obligations 42,268 169,467 Payments on long-term obligations (92,468) (54,047) Issuance of common stock 4,176 24,350 ---------- ---------- Net cash provided by (used in) financing activities (46,024) 139,770 CASH AND EQUIVALENTS: Net increase (decrease) during period (423,274) 213,765 Balances, beginning of period 1,642,359 1,327,032 ---------- ---------- Balances, end of period $1,219,085 $1,540,797 ========== ==========
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 28, 2001 and the results of operations for the three and six months ended February 28, 2001 and February 29, 2000. 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, 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 the weighted average number of shares used in calculating basic and diluted net income per share:
Three months ended Six months ended ---------------------------- ---------------------------- Feb. 28, 2001 Feb. 29, 2000 Feb. 28, 2001 Feb. 29, 2000 ------------- ------------- ------------- ------------- Shares used in computation: Weighted average shares outstanding for basic income per share 1,539,980 1,524,968 1,538,217 1,523,539 Effect of dilutive option and warrant shares 122,564 188,125 133,929 159,510 ------------- ------------- ------------- ------------- Total shares for diluted income per share 1,662,544 1,713,093 1,672,146 1,683,049 ============= ============= ============= =============
The calculations for diluted net income per share did not include an aggregate out of the money options and warrants of 60,500 and 371 for the three months ended February 28, 2001 and February 29, 2000, 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. 28, 2001 Aug. 31, 2000 -------------- -------------- Capitalized lease obligation, 11.6% due through April, 2001 $ 2,359 $ 5,728 Equipment line of credit, 8.5%-9.5% (Note G) 303,594 347,424 Collateralized 8% equipment loan, final payment due Nov., 2001 4,726 7,727 --------- --------- 310,679 360,879 Less current portion (168,535) (172,336) --------- --------- $ 142,144 $ 188,543 ========= =========
The future principal payments on long-term obligations are $168,535 (2002), $118,783 (2003) and $23,361 (2004). G. Bank Arrangements: ----------------- As of February 28, 2001, the Company has a bank demand line of credit that provides for borrowings up to $1,000,000 and an available $346,000 equipment line of credit. The equipment line of credit is at the bank's prime rate of interest and the demand line of credit is 1/2 percent below the bank's prime rate of interest. 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 February 28, 2001, no borrowings have been made under the demand line of credit, and the Company has $303,594 outstanding as equipment debt, which is payable in monthly installments through February 2004 (Note F). -8- Management's Discussion and Analysis of --------------------------------------- Financial Condition and Results of Operations --------------------------------------------- Liquidity and Capital Resources As of February 28, 2001, the Company had working capital of $2,402,827 compared to $2,456,956 at August 31, 2000. The ratio of current assets to current liabilities was 2.1 at February 28, 2001 and 2.4 at August 31, 2000. The debt to equity ratio was .8 at February 28, 2001 and .7 at August 31, 2000. The decrease in current ratio and increase in debt to equity ratio are primarily due to an increase in accounts payable. Net capital expenditures were $199,702 and $144,106 for the six months February 28, 2001 and February 29, 2000, 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 second quarter of fiscal 2001 decreased 5% as compared to the second quarter of fiscal 2000. Net sales for the first six months of fiscal 2001 decreased 2% as compared to the first six months of fiscal 2000. The decrease in sales for the second quarter and first six months of fiscal 2001 reflects decreases in glassbreak detector and keypad sales, partially offset by an increase in OEM custom and PowerKey(TM) product sales. The ratios of gross profit to sales were 44% and 45% for the second quarter and six months ended February 28, 2001, respectively, compared to 47% and 46% for the comparable periods of fiscal 2000. The decreases in the gross profit percentages in fiscal 2001 are due to lower sales volume combined with changes in product mix. Research and development expenses were $249,759 and $537,852 for the second quarter and six months ended February 28, 2001, respectively, compared to $306,727 and $579,471 for the comparable periods of fiscal 2000. The decrease in these discretionary costs is primarily due to lower development project costs. As a percentage of net sales, selling, general and administrative expenses were 34% and 35% for the second quarter and six months ended February 28, 2001, respectively, as compared to 33% for both the three and six month periods of fiscal 2000. The increase in costs as a percentage of net sales in the second quarter is the result of a decline in sales offset in part by a reduction in discretionary spending. The increase in costs as a percentage of net sales for the first six months of fiscal 2001 is primarily due to an increase in wages and related benefits and a decline in sales. -9- The current provision for income taxes for the second quarter and first six months of fiscal 2001 represents expenses for state and federal income taxes, after utilization of available federal net operating loss carryforwards. Recent 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 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 six months ended February 28, 2001 and the years ended August 31, 2000, 1999 and 1998, the Company had net income of approximately $33,000, $355,000, $555,000, and $530,000, respectively. There can be no assurance that the Company will remain profitable. 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. -10- Dependence on Key Employees. The business of the Company is dependent upon the efforts of John Waldstein and certain other key management and technical employees. The loss or prolonged disability of such personnel could have a significant adverse effect on the business of the Company. The Company presently maintains a key man life insurance policy of $1,000,000 on John Waldstein, President and Treasurer. Limited Design Engineering Staff. The Company is engaged in an industry, which, as a result of extensive research and development, introduces new products on a regular basis. Current competitors or new market entrants may develop new products with features that could adversely 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 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. -11- 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, 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. -12- 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. 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. -13- Part II. Other Information --------------------------- Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- On March 29, 2001, the Company held its Special Meeting in Lieu of the Annual Meeting of Shareholders. At the meeting, shareholders elected the following Director to serve for a three-year term: Heath Paley Class 1 Director - Term expires in 2004 Item 6. Exhibits and Reports on Form 8-K -------------------------------- There were no reports on Form 8-K filed for the three months ended February 28, 2001. 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: 4/13/01 /s/ John Waldstein -------- --------------------------------------- John Waldstein, President, Treasurer and Chief Financial and Accounting Officer and duly authorized to sign. -14-