U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter Ended May 31, 2001
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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 ____
---
1,539,980 common shares were outstanding at June 30, 2001.
INTERNATIONAL ELECTRONICS, INC. AND SUBSIDIARIES
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Index
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Part I. Financial Information: Page No.
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Item 1: Financial Statements (unaudited)
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Condensed Consolidated Balance Sheets, May 31, 2001
and August 31, 2000 2
Condensed Consolidated Statements of Operations, three and nine
months ended May 31, 2001 and 2000 3
Condensed Consolidated Statement of Shareholders' Equity,
nine months ended May 31, 2001 4
Condensed Consolidated Statements of Cash Flows, nine
months ended May 31, 2001 and 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
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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. AND SUBSIDIARIES
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CONDENSED CONSOLIDATED BALANCE SHEETS
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(unaudited)
May 31, 2001 August 31, 2000
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ASSETS
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Current assets:
Cash and equivalents $ 1,484,042 $ 1,642,359
Accounts receivable, net 938,986 1,135,128
Inventories 1,077,837 831,993
Deferred income taxes 348,000 348,000
Other current assets 228,770 250,097
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Total current assets 4,077,635 4,207,577
Equipment, furniture and improvements, net 494,533 505,101
Other assets:
Deferred income taxes 76,000 76,000
Other 11,950 11,950
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87,950 87,950
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$ 4,660,118 $ 4,800,628
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LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 356,973 $ 444,884
Accrued expenses 1,031,082 1,118,401
Income taxes 7,000 15,000
Current portion of long-term obligations 206,210 172,336
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Total current liabilities 1,601,265 1,750,621
Long-term obligations, less current portion 200,538 188,543
Shareholders' equity:
Common stock, $.01 par value:
Authorized 5,984,375 shares
Issued 1,574,980 and 1,570,813
shares, respectively 15,750 15,708
Capital in excess of par value 4,858,125 4,853,991
Accumulated deficit (1,976,916) (1,969,591)
Less treasury stock, at cost:
35,000 shares (38,644) (38,644)
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Total shareholders' equity 2,858,315 2,861,464
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$ 4,660,118 $ 4,800,628
=========== ===========
See notes to unaudited condensed consolidated financial statements.
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INTERNATIONAL ELECTRONICS, INC. AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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(unaudited)
Three months ended Nine months ended
---------------------------- ----------------------------
May 31, 2001 May 31, 2000 May 31, 2001 May 31, 2000
------------- ------------- ------------- -------------
Net sales $2,439,740 $2,934,495 $7,776,882 $8,385,146
Cost of sales 1,404,531 1,641,666 4,340,763 4,577,404
---------- ---------- ---------- ----------
Gross profit 1,035,209 1,292,829 3,436,119 3,807,742
Research and development costs 243,160 328,303 781,012 907,774
Selling, general and
administrative expenses 827,449 924,198 2,695,905 2,743,033
---------- ---------- ---------- ----------
Income (loss) from operations (35,400) 40,328 (40,798) 156,935
Interest expense (8,308) (8,549) (24,221) (19,233)
Other income 15,164 28,412 64,694 63,371
---------- ---------- ---------- ----------
Income (loss) before taxes (28,544) 60,191 (325) 201,073
Benefit (provision) for income taxes:
Current 4,000 (10,000) (7,000) (37,000)
Deferred (16,000) (30,000) 0 (59,000)
---------- ---------- ---------- ----------
(12,000) (40,000) (7,000) (96,000)
---------- ---------- ---------- ----------
Net income (loss) ($40,544) $ 20,191 ($7,325) $ 105,073
========== ========== ========== ==========
Net income (loss) per share:
Basic ($.03) $ .01 ($.00) $ .07
Diluted (.03) .01 (.00) .06
========== ========== ========== ==========
Shares used in computing
net income (loss) per share:
Basic 1,539,980 1,524,968 1,538,811 1,524,019
Diluted 1,539,980 1,703,837 1,538,811 1,689,982
========== ========== ========== ==========
See notes to unaudited condensed consolidated financial statements.
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INTERNATIONAL ELECTRONICS, INC. AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
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(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 loss - - - (7,325) - - (7,325)
Balances, --------- ------- ---------- ----------- ------ -------- ----------
May 31, 2001 1,574,980 $15,750 $4,858,125 ($1,976,916) 35,000 ($38,644) $2,858,315
========= ======= ========== =========== ====== ======== ==========
See notes to unaudited condensed consolidated financial statements.
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INTERNATIONAL ELECTRONICS, INC. AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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(unaudited)
Nine months ended
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May 31, 2001 May 31, 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (7,325) $ 105,073
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 234,908 267,734
Stock options issued for professional services - 7,075
Deferred income taxes - 59,000
Changes in operating assets and liabilities:
Accounts receivable 196,142 (564,785)
Inventories (245,844) 95,379
Other current assets 21,327 (76,763)
Income taxes (8,000) 24,436
Accounts payable and accrued
expenses (175,230) 368,238
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Net cash provided by
operating activities 15,978 285,387
CASH FLOWS FROM INVESTING ACTIVITIES:
Net purchase of equipment,
furniture and improvements (224,340) (268,322)
---------- ----------
Net cash used in investing
activities (224,340) (268,322)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term obligations 188,640 280,727
Payments on long-term obligations (142,771) (94,826)
Issuance of common stock 4,176 24,350
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Net cash provided by financing activities 50,045 210,251
CASH AND EQUIVALENTS:
Net increase (decrease) during period (158,317) 227,316
Balances, beginning of period 1,642,359 1,327,032
---------- ----------
Balances, end of period $1,484,042 $1,554,348
========== ==========
See notes to unaudited condensed consolidated financial statements.
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INTERNATIONAL ELECTRONICS, INC. AND SUBSIDIARIES
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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(unaudited)
A. Financial Statements:
---------------------
In the opinion of the Company, the unaudited condensed consolidated financial
statements contain all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the financial position as of May 31,
2001 and the results of operations for the three and the nine months then
ended.
Certain disclosures normally included have been condensed or omitted pursuant
to the rules and regulations of the Securities and Exchange Commission,
although the Company believes the disclosures are adequate to make the
information presented not misleading. It is suggested that these financial
statements be read in conjunction with the financial statements and notes
thereto included in the Company's annual report on Form 10-KSB for the year
ended August 31, 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
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. AND SUBSIDIARIES
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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(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:
Three months ended Nine months ended
-------------------------- --------------------------
May 31, 2001 May 31, 2000 May 31, 2001 May 31, 2000
------------ ------------ ------------ ------------
Shares used in computation:
Weighted average
shares outstanding for basic
net income (loss) per share 1,539,980 1,524,968 1,538,811 1,524,019
Effect of dilutive option
and warrant shares - 178,869 - 165,963
------------ ------------ ------------ ------------
Total shares for diluted net
income (loss) per share 1,539,980 1,703,837 1,538,811 1,689,982
============ ============ ============ ============
The calculations for diluted net income (loss) per share did not include an
aggregate options and warrants of 445,326 and 26,371 for the three months ended
May 31, 2001 and 2000, respectively.
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INTERNATIONAL ELECTRONICS, INC. AND SUBSIDIARIES
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(continued)
(unaudited)
F. Long-term Obligations:
----------------------
Long-term obligations are summarized as follows:
May 31, 2001 Aug. 31, 2000
------------- --------------
Capitalized lease obligation, 11.6%
due through June 2001 $ 598 $ 5,728
Equipment loan due bank, 7.0%-9.5% (Note G) 402,968 347,424
Collateralized 8% equipment loan,
final payment due Nov., 2001 3,182 7,727
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406,748 360,879
Less current portion (206,210) (172,336)
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$ 200,538 $ 188,543
========= =========
The future principal payments on long-term obligations are $206,210 (2002),
$146,780 (2003) and $53,758 (2004).
G. Bank Arrangements:
-----------------
As of May 31, 2001, the Company has available a bank demand line of credit
which provides for borrowings of up to $1,000,000 and an equipment line of
credit of up to $200,000. Both lines of credit are at the bank's prime rate
of interest and all of the Company's assets are collateralized under these
arrangements. The credit agreements contain certain restrictive covenants
including covenants limiting the payment of dividends, requiring a minimum
debt to tangible net worth ratio and requiring annual net income. The
equipment line of credit up to $200,000 is available through February 28,
2002. As of May 31, 2001, no borrowings have been made under the demand
line of credit, and the Company has an aggregate of $402,968 outstanding
under equipment loans due the bank, payable in monthly installments over
periods extending up to thirty-six months through May 2004 (Note F).
-8-
Management's Discussion and Analysis of
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Financial Condition and Results of Operations
---------------------------------------------
Liquidity and Capital Resources
As of May 31, 2001, the Company had working capital of $2,476,370 compared to
$2,456,956 at August 31, 2000. The ratio of current assets to current
liabilities was 2.5 at May 31, 2001 and 2.4 at August 31, 2000. The debt to
equity ratio was .6 at May 31, 2001 and .7 at August 31, 2000. The increase in
current ratio and decrease in debt to equity ratio are primarily due to a
decrease in accounts payable and accrued expenses.
Net capital expenditures were $224,340 and $268,322 for the nine months ended
May 31, 2001 and 2000, 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 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 third quarter of fiscal 2001 decreased 17% as compared to the
third quarter of fiscal 2000. Net sales for the first nine months of fiscal
2001 decreased 7% as compared to the first nine months of fiscal 2000. The
decrease in sales for the third quarter of fiscal 2001 reflects decreases in OEM
and glassbreak detector product lines, partially offset by increases in the
keypad and access control product line. The decrease in sales for the nine
month period of fiscal 2001, compared to the same period of fiscal 2000, is due
to decreases in all of the Company's product lines. The ratios of gross profit
to sales were 42% and 44% for the third quarter and nine months ended May 31,
2001, respectively, compared to 44% and 45% for the comparable periods of fiscal
2000. The decreases in the gross profit percentages for the 2001 periods
compared to the comparable periods in the preceding year are due to lower sales
volume combined with changes in product mix.
Research and development expenses were $243,160 and $781,012 for the third
quarter and nine months ended May 31, 2001, respectively, compared to $328,303
and $907,774 for the comparable periods of fiscal 2000. The decrease in these
discretionary costs is primarily due to lower outside development costs.
As a percentage of net sales, selling, general and administrative expenses were
34% and 35% for the third quarter and nine months ended May 31, 2001,
respectively, as compared to 31% and 33% for the three and nine month periods of
fiscal 2000. The increase in costs as a percentage of net sales for the third
quarter and first nine months of
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2001 compared to the comparable period of fiscal 2000 is the result of a decline
in sales. The decrease in actual costs for the three and nine months ended May
31, 2001 compared to the comparable periods of fiscal 2000 are primarily the
result of a reduction in amortization of goodwill and other intangibles and
advertising expenses.
The current provision for income taxes for the first nine 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 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
nine months ended May 31, 2001 and the years ended August 31, 2000, 1999 and
1998, the Company had net income or (losses) of approximately ($7,000),
$355,000, $555,000, and $530,000, respectively. There can be no assurance that
the Company will return to profitability. Continued operations after the
expenditure of the Company's existing cash reserves may require
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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 occur 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.
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 in certain years 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.
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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, 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
-12-
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.
Volatility of Stock Price. The Company's stock price is subject to significant
volatility. If revenues or operating results 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 6. Exhibits and Reports on Form 8-K
--------------------------------
There were no reports on Form 8-K filed for the
three months ended May 31, 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: 7/13/01 /s/ John Waldstein
------- -------------------------------
John Waldstein, President,
Treasurer and Chief Financial and Accounting
Officer and duly authorized to sign.
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