U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 THE FISCAL YEAR ENDED MARCH 28, 2008.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from _________ to _______
Commission File Number 0-5278
IEH CORPORATION
(Name of Small Business Issuer in Its Charter)
NEW YORK 13-5549348
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation)
140 58th Street, Suite 8E
Brooklyn, NY 11220 (718) 492-9673
(Address of Principal Executive Offices) (Issuer's Telephone Number,
Including Area Code)
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Act: Common Stock, $.01 Par
Value Per Share
Check whether the Registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") during the past 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 |_|
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form and no disclosure will be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes|_| No [X]
The Registrant's revenues for the fiscal year ended March 28, 2008 were
$7,805,443.
The number of shares of Common Stock of the Registrant issued and outstanding as
of June 30, 2008 was 2,303,468.
The aggregate market value of the Registrant's voting stock (consisting of
Common Stock, $1.00 par value held by non-affiliates, computed by reference to
the closing price ($1.92) at which stock was sold on June 24, 2008, the last
trading day on which stock was reported to be sold, was $2,598,554.88.
DOCUMENTS INCORPORATED BY REFERENCE: None
Transitional Small Business Disclosure Format: Yes|_| No [X]
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IEH CORPORATION
INDEX TO FORM 10-KSB
Page
PART I
ITEM 1. DESCRIPTION OF BUSINESS......................................4
ITEM 2. DESCRIPTION OF PROPERTY......................................9
ITEM 3. LEGAL PROCEEDINGS............................................9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS......9
PART II
ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER'S PURCHASES OF EQUITY SECURITIES..............10
ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS..11
ITEM 7. FINANCIAL STATEMENTS........................................18
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.......18
ITEM 8A(T). CONTROLS AND PROCEDURES.....................................18
ITEM 8B. OTHER INFORMATION...........................................19
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT...........................20
ITEM 10. EXECUTIVE COMPENSATION......................................22
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS, AND DIRECTOR
INDEPENDENCE................................................24
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,
AND DIRECTOR INDEPENDENCE................................25
ITEM 13. EXHIBITS....................................................25
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES......................26
SIGNATURES 46
References in this Annual Report to, the terms "Company", "IEH", "we", "us" and
"our" refer to IEH Corporation, unless otherwise stated or the context clearly
indicates otherwise.
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Forward Looking Statements
This report contains forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended (the "1934 Act") and
Section 27A of the Securities Act of 1933 (the "1933 Act"). Any statements
contained in this report that are not statements of historical fact may be
forward-looking statements. When we use the words "anticipates," "plans,"
"expects," "believes," "should," "could," "may," "will" and similar expressions,
we are identifying forward-looking statements. Further, all statements that
express expectations, estimates, forecasts or projections are forward-looking
statements within the meaning of the 1933 Act and 1934 Act, respectively.
Forward-looking statements involve risks and uncertainties, which may cause our
actual results, performance or achievements to be materially different from
those expressed or implied by forward-looking statements. These factors include
our limited experience with our business plan; pricing pressures on our product
caused by competition; the risk that our products will not gain market
acceptance; our ability to obtain additional financing; our ability to protect
intellectual property; and our ability to attract and retain key employees.
Except as may be required by applicable law, we do not undertake or intend to
update or revise our forward-looking statements, and we assume no obligation to
update any forward-looking statements contained in this report as a result of
new information or future events or developments. Thus, you should not assume
that our silence over time means that actual events are bearing out as expressed
or implied in such forward-looking statements. You should carefully review and
consider the various disclosures we make in this report and our other reports
filed with the Securities and Exchange Commission ("SEC") that attempt to advise
interested parties of the risks, uncertainties and other factors that may affect
our business.
-3-
IEH CORPORATION
PART I
Item 1. Business
IEH Corporation (hereinafter referred to as the "Company") was
organized under the laws of the State of New York on March 22, 1943
under the name Industrial Heat Treating Company, Inc. On March 15,
1989, the Company changed its name to its current name. The Company's
executive offices and manufacturing facilities are located at 140 58th
Street, Suite 8E, Brooklyn, New York 11220. The Company's telephone
number is (718) 492-4448; Fax: 718-492-9898; its email address is
ieh@iehcorp.com.
The Company has been approved by the federal government as a "Hub-zone
small business Company". This classification is monitored, and while
the Company must remain competitive, it is taken into account by large
business concerns when awarding specific contracts.
The majority of the Company's customers require that the Company
maintain a quality system in strict accordance with ISO9001. This is
an International Standard Organization (ISO)specification for which
the Company has been audited and has received certification to ISO
9001:2000. The Company's quality policy is: "Listening to our
Customers and meeting their needs, while continuously improving our
processes and services."
The Company has developed a web site that reflects the standard
catalog items we produce. The web site is an ongoing project and we
will continue to add special items and newsworthy information to it.
The Company's web site can be viewed by going to:
http://www.iehcorp.com.
The Company designs, develops and manufactures printed circuit
connectors for high performance applications. Our customers consist of
OEM's (Original Equipment Manufacturers), and Distributors who sell
our products to OEMs. We sell our products directly and through
regional representatives located in the United States and Canada.
The customers we service are in the government, aerospace, medical,
automotive, test equipment and commercial electronics markets. We
appear on the Military Qualified Product Listing "QPL" to
MIL-DTL-55302 and supply customer requested modifications to this
specification. Sales to the commercial electronic market and military
defense market were 28% and 71% of the Company's net sales for the
year ended March 28, 2008.
In order to remain competitive, the Company has an internal program to
upgrade and maintain machinery (to increase production), review
material costs and increase labor force productivity.
New Product Development
The Company is sought after by many of its customers to design and
manufacture custom connectors for them. This environment has resulted
in the development of many new products and technologies.
The Company has developed a new technology for a high speed connector
module for one of its customers. Because it has been so well received,
it will be used in five (5) other programs the customer has contracts
for.
A circular plastic line of connectors has been developed for the
medical industry. We have received production orders for various
sizes. We expect this product line to gain acceptance going forward.
-4-
IEH CORPORATION
PART I
Item 1. Business (continued)
New Product Development (continued)
In addition to the many standard products we manufacture, it is in the
area of custom connector design and manufacture that the Company faces
its biggest challenge. To meet this challenge, we are able to draw
upon our dedicated staff of engineers. We work with many designs and
will continue to support our customers in all their requirements.
Commitments
The Company has a collective bargaining multi-employer pension plan
("Multi-Employer Plan") with the United Auto Workers of America, Local
259. Contributions are made in accordance with a negotiated labor
contract and are based on the number of covered employees employed per
month. With the passage of the Multi-Employer Pension Plan Amendments
Act of 1990 (the "1990 Act"), the Company may become subject to
liabilities in excess of contributions made under the collective
bargaining agreement. Generally, these liabilities are contingent upon
the termination, withdrawal, or partial withdrawal from the
Multi-Employer Plan. The Company has not taken any action to
terminate, withdraw or partially withdraw from the Multi-Employer Plan
nor does it intend to do so in the future. Under the 1990 Act,
liabilities would be based upon the Company's proportional share of
the Multi-Employer Plan's unfunded vested benefits, which is currently
not available. The amount of accumulated benefits and net assets of
such Plan also is not currently available to the Company. The total
contributions charged to operations under such Plan were $80,667 for
the year ended March 28, 2008 and $69,122 for the year ended March 30,
2007.
On June 30, 1995, the Company applied to the Pension Benefit Guaranty
Corporation ("PBGC") to have the PBGC assume all of the Company's
responsibilities and liabilities under its Salaried Pension Plan. On
April 26, 1996, the PBGC determined that the Salaried Pension Plan did
not have sufficient assets available to pay benefits, which were and
are currently due under the terms of such Plan.
The PBGC further determined that pursuant to the provisions of the
Employment Retirement Income Security Act of 1974, as amended
("ERISA") that the Salaried Pension Plan must be terminated in order
to protect the interests of such Plan's participants. Accordingly, the
PBGC proceeded pursuant to ERISA to have the Salaried Pension Plan
terminated and the PBGC appointed as statutory trustee, and to have
July 31, 1995 established as the such Plan's termination date.
The Company and the PBGC negotiated a settlement of the entire matter
effective July 2, 2001. Under the settlement agreement, the Company's
liability to the PBGC was reduced to $244,000. The Company agreed to
make payments as follows:
September 1, 2003 to August 1, 2004 $2,000 per month
September 1, 2004 to August 1, 2006 $3,000 per month
September 1, 2006 to August 1, 2007 $4,000 per month
Additionally, the Company has made balloon payments of $25,000 each on
January 1, 2004, May 1, 2004, May 1, 2005 and January 1, 2006.
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IEH CORPORATION
PART I
Item 1. Business (continued)
Commitments (continued)
The Company also granted the PBGC a lien on the Company's machinery and
equipment.
As of August 31, 2007, the Company had satisfied its obligation to the
PBGC and the resultant lien was removed.
Marketing and Sales
The market for connectors and interconnection devices, domestic and
worldwide, is highly fragmented as a result of the manufacture by many
companies of a multitude of different types and varieties of
connectors. For example, connectors include: printed circuit,
rectangular I/O, circular, planar (IOC) RF coax, IC socket and fiber
optic. The Company has been servicing a niche in the market by
manufacturing HYPERTAC (TM) connectors and innovative Company-designed
printed circuit connectors such as the COMTAC connectors. Previously,
the Company was one of only three licensed manufacturers of the
HYPERTAC (TM) design in the United States. In the fiscal year 1996, the
Company learned that the other two licensees had merged. Moreover, the
Company, based upon advice of counsel, determined that the HYPERTAC
technology was no longer protected by a patent, and therefore was in
the public domain. As a result, the Company notified the licensor that
it would no longer be bound by the terms of its license agreement and
the Company ceased making license payments. The Company has received a
brief notice from the licensor that it disputed the Company's
interpretations and demanded return of certain equipment. No legal
proceedings have been instituted by the licensor and the Company has
not received any further notices. The Company does not anticipate
manufacturing other types of connectors in the immediate future. The
Company is continuously experimenting with innovative connection
designs, which may cause it to alter its marketing plans in the future
if a market should develop for any of its current or future innovative
designs.
The Company's products are marketed to original equipment manufacturers
directly and through distributors serving primarily the government,
military, aerospace and commercial electronics markets. The Company is
also involved in developing new connectors for specific uses, which
result from changes in technology. This includes the COMTAC connectors.
The Company assists customers in the development and design of
connectors for specific customer applications. This service is marketed
to customers who require the development of connectors and
interconnection devices specially designed to accommodate the customers
own products.
The Company is primarily a manufacturer and its products are
essentially basic components of larger assemblies of finished goods.
Approximately 96% and 91% of the Company's net sales for the years
ended March 28, 2008 and March 30, 2007, were made directly to
manufacturers of finished products with the balance of the Company's
products sold to distributors. Distributors often purchase connectors
for customers who do not require large quantities of connectors over a
short period of time but rather require small allotments of connectors
over an extended period of time.
Three of the Company's customers accounted for 30% of the Company's net
sales for the year ended March 28, 2008. Each of those customers
accounted for approximately 10% of the Company's sales. Two of the
Company's customers accounted for 23% of the Company's net sales for
the year ended March 30, 2007. The Company currently employs 15
independent sales representatives to market its products in all regions
in the United States.
-6-
IEH CORPORATION
PART I
Item 1. Business (continued)
Marketing and Sales (continued)
These independent sales representatives also promote the product lines
of other electronics manufacturers; however, they do not promote the
product lines of competitors, which compete directly with the Company's
products. These sales representatives accounted for approximately 94%
of Company sales (with the balance of Company sales being generated via
direct customer contact) for the year ended March 28, 2008.
International sales accounted for less than 1% of sales for the years
ended March 28, 2008 and March 30, 2007, respectively.
Backlog of Orders/Capital Requirements
The backlog of orders for the Company's products amounted to
approximately $3,650,000 at March 28, 2008, as compared to $2,864,000
at March 30, 2007. A portion of these orders are subject to
cancellation or postponement of delivery dates and, therefore, no
assurance can be given that actual sales will result from these orders.
The Company does not foresee any problems, which would prevent it from
fulfilling its orders.
Competition
The design, development, manufacture and distribution of electrical
connectors and interconnection devices is a highly competitive field.
The Company principally competes with companies who produce high
performance connectors in printed circuits and wireboards for high
technology application. The Company competes with respect to their
abilities to adapt certain technologies to meet specific product
applications; in producing connectors cost-effectively; and in
production capabilities. In addition, there are many companies who
offer connectors with designs similar to those utilized by the Company
and are direct competitors of the Company.
The primary basis upon which the Company competes is product
performance and production capabilities. The Company usually receives
job orders after submitting bids pursuant to customer-issued
specifications. The Company also offers engineering services to its
customers in designing and developing connectors for specialized
products and specific customer applications. This enables the Company
to receive a competitive advantage over those companies who basically
manufacture connectors based solely or primarily on cataloged
specifications. Many of the Company's competitors have greater
financial resources, market penetration and experience than the Company
and no assurances can be given that the Company will be able to compete
effectively with these companies in the future.
Suppliers of Raw Materials and Component Parts
The Company utilizes a variety of raw materials and manufactured
component parts, which it purchases from various suppliers. These
materials and components are available from numerous sources and the
Company does not believe that it will have a problem obtaining such
materials in the future.
-7-
IEH CORPORATION
PART I
Item 1. Business (continued)
Suppliers of Raw Materials and Component Parts (continued)
However, any delay in the Company's ability to obtain necessary raw
materials and component parts may affect its ability to meet customer
production needs. In anticipation of such delays, the Company carries
an inventory of raw materials and component parts to avoid shortages
and to insure continued production.
Research & Development
The Company provides personalized engineering services to its customers
by designing connectors for specific customer applications. The
employment of electromechanical engineers is the anticipated
cornerstone of the Company's future growth. The Company maintains a
testing laboratory where its engineers experiment with new connector
designs based on changes in technology and in an attempt to create
innovative, more efficient connector designs.
The Company expended $15,000 and $10,000 for the years ended March 28,
2008 and March 30, 2007, respectively, on customer sponsored research
and development activities relating to the development of new designs,
techniques and the improvement of existing designs. The Company was
fully reimbursed by its customers for this research.
Employees
The Company presently employs approximately 85 people, two (2) of whom
are executive officers; four (4) are engaged in management activities;
five (5) provide general and administrative services and approximately
74 are employed in manufacturing and testing activities. The employees
engaged in manufacturing and testing activities are covered by a
collective bargaining agreement with the United Auto Workers of
America, Local 259 (the "Union"), which originally expired on March
31, 2006 and was renegotiated and extended until March 31, 2009. The
Company believes that it has a good relationship with its employees
and the Union.
Patents and Licenses
Electrical connectors and interconnection devices are usually the
subject of standard designs; therefore, only innovations of standards
designs or the discovery of a new form of connector are patentable. The
Company is continuously attempting to develop new forms of connectors
or adaptations of current connector designs in an attempt to increase
performance and decrease per unit costs. The Company has developed and
designed the COMTAC connector, which was patented on January 19, 1988,
at which time the patent was assigned to the Company.
Governmental Regulations
The Company is subject to federal regulations under the Occupational
Safety and Health Act ("OSHA") and the Defense Electrical Supply
Command ("DESC"). OSHA provides federal guidelines and specifications
to companies in order to insure the health and safety of employees.
-8-
IEH CORPORATION
PART I
Item 1. Business (continued)
Governmental Regulations (continued)
DESC oversees the quality and specifications of products and components
manufactured and sold to the government and the defense industry.
Although DESC continuously requires suppliers to meet changing
specifications, the Company has not encountered any significant
problems meeting such specifications and its products have, in the
past, been approved. The Company is unaware of any changes in the
government's regulations, which are expected to materially affect the
Company's business.
Item 2. Properties
The Company is obligated under its lease for its facility through
August 23, 2011, at minimum annual rentals as follows:
Fiscal year ending March:
2009 $168,384
2010 168,384
2011 112,256
--------
$449,024
========
The Company leases approximately 20,400 feet of space, of which it
estimates; 6,000 square feet are used as executive, sales and
administrative offices and 14,400 square feet are used for its
manufacturing and plating operations.
The rental expense for the year ended March 28, 2008 and March 30, 2007
was $145,068 and $142,369, respectively. In addition to the base rent,
the Company pays real estate taxes, insurance premiums and utility
charges relating to the use of the premises. The Company considers its
present facilities to be adequate for its present and anticipated
future needs.
Item 3. Legal Proceedings
The Company is not a party to or aware of any pending or threatened
legal proceedings which would result in any material adverse effect on
its operations or its financial condition.
Item 4. Submission of Matters to Vote of Security Holders
No matters were submitted to shareholders during the fourth quarter for
the fiscal year ended March 28, 2008.
-9-
IEH CORPORATION
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Principal Market
The common stock of the Company (the "common stock") is traded in the
Over-The-Counter Market and is quoted on the National Association of
Securities Dealers Automated Quotation ("NASDAQ") System Bulletin Board
under the symbol "IEHC.OB"). On January 11, 1993, the Company's common
stock was deleted from listing on the NASDAQ SmallCap Market System
because of the Company's failure to maintain the minimum asset and
shareholders equity requirements. On January 12, 1993, the Company's
common stock was first quoted over the Electronic Bulletin Board
(OTCBB).
Market Information
The range of high and low bid prices for the Company's common stock,
for the periods indicated as set forth below. For the period to October
29, 1991, the Company was listed on the NASDAQ National Market System.
On October 29, 1991, the Company's common stock was delisted from the
NASDAQ National Market System and from October 29, 1991 to January 11,
1993, the Company's common stock was listed on the NASDAQ SmallCap
Market System. On January 11, 1993, the Company's common stock was
delisted from the NASDAQ SmallCap Market System and on January 13,
1993, the Company's common stock was first quoted over the Electronic
Bulletin Board (OTCBB). Set forth below is a table indicating the high
and low bid prices of the common stock during the periods indicated.
Year High Bid Low Bid
Fiscal Year ended March 28, 2008(*)
1st Quarter $2.90 $1.60
2nd Quarter $2.75 $2.15
3rd Quarter $2.50 $1.85
4th Quarter $2.10 $1.30
Fiscal Year ended March 30, 2007(*)
1st Quarter $2.17 $1.90
2nd Quarter $4.45 $2.00
3rd Quarter $2.45 $1.73
4th Quarter $1.95 $1.80
(*) As reported by the OTCBB.
The above quotations, as reported, represent prices between dealers
and do not include retail mark-ups, mark-downs or commissions. Such
quotations do not necessarily represent actual transactions. On June
24, 2008 the high bid for the common stock was $1.92 and the low bid
was $1.92.
-10-
IEH CORPORATION
PART II
Item 5. Market for Common Equity and Related Stockholder Matters (continued)
Dividends
The Company has not paid any cash dividends on its common stock during
the last five (5) fiscal years. At present, the Company does not
anticipate issuing any cash dividends on its common stock in the
foreseeable future by reason of its contemplated future financial
requirements and business plans. The Company will retain earnings, to
the extent that there are any, to finance the development of its
business.
Approximated Number of Equity Security Holders
The number of record holders of the Company's common stock as of June
27, 2008 was approximately 557. Such number of record owners was
determined from the Company's stockholder records, and does not include
the beneficial owners of the Company's common stock whose shares are
held in the names of various security holders, dealers and clearing
agencies.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Statements contained in this report, which are not historical facts may
be considered forward looking information with respect to plans,
projections, or future performance of the Company as defined under the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements are subject to risks and uncertainties, which could cause
actual results to differ materially form those projected. The words
"anticipate," "believe", "estimate", "expect," "objective," and "think"
or similar expressions used herein are intended to identify
forward-looking statements. The forward-looking statements are based on
the Company's current views and assumptions and involve risks and
uncertainties that include, among other things, the effects of the
Company's business, actions of competitors, changes in laws and
regulations, including accounting standards, employee relations,
customer demand, prices of purchased raw material and parts, domestic
economic conditions, including housing starts and changes in consumer
disposable income, and foreign economic conditions, including currency
rate fluctuations. Some or all of the facts are beyond the Company's
control.
The following discussion and analysis should be read in conjunction
with the financial statements and related footnotes, which provide
additional information concerning the Company's financial activities
and condition.
Critical Accounting Policies
The Financial Statements have been prepared in accordance with
accounting principles generally accepted in the United States of
America, which require the Company to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date
of the Financial Statements, and revenues and expenses during the
periods reported. Actual results could differ from those estimates. The
Company believes the following are the critical accounting policies,
which could have the most significant effect on the Company's reported
results and require the most difficult, subjective or complex judgments
by management.
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IEH CORPORATION
PART II
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Critical Accounting Policies (continued)
o Impairment of Long-Lived Assets:
The Company reviews its long-lived assets for impairment whenever
events or circumstances indicate that the carrying amount of an
asset may not be recoverable. If the sum of the expected cash flows,
undiscounted and without interest, is less than the carrying amount
of the asset, an impairment loss is recognized as the amount by
which the carrying amount of the asset exceeds its fair value. The
Company makes estimates of its future cash flows related to assets
subject to impairment review.
o Inventory Valuation:
Raw materials and supplies are valued at the lower of first-in,
first-out cost or market. Finished goods and work in process are
valued at the lower of actual cost, determined on a specific
identification basis, or market. The Company estimates which
materials may be obsolete and which products in work in process or
finished goods may be sold at less than cost, and adjusts their
inventory value accordingly. Future periods could include either
income or expense items if estimates change and for differences
between the estimated and actual amount realized from the sale of
inventory.
o Income Taxes:
The Company records a liability for potential tax assessments based
on its estimate of the potential exposure. Due to the subjectivity
and complex nature of the underlying issues, actual payments or
assessments may differ from estimates. Income tax expense in future
periods could be adjusted for the difference between actual payments
and the Company's recorded liability based on its assessments and
estimates.
o Revenue Recognition:
Revenues are recognized at the shipping date of the Company's
products. The Company has historically adopted the shipping terms
that title merchandise passes to the customer at the shipping point
(FOB Shipping Point). At this juncture, title has passed, the
Company has recognized the sale, inventory has been relieved, and
the customer has been invoiced. The Company does not offer any
discounts, credits or other sales incentives.
The Company's policy with respect to customer returns and allowances
as well as product warranty is as follows:
The Company will accept a return of defective product within one
year from shipment for repair or replacement at the Company's
option. If the product is repairable, the Company at its own cost
will repair and return it to the customer. If unrepairable, the
Company will either offer an allowance against payment or will
reimburse the customer for the total cost of the product.
Most of the Company's products are custom ordered by customers for a
specific use. The Company provides engineering services as part of
the relationship with its customers in developing the custom
product. The Company is not obligated to provide such engineering
service to its customers. The Company does not charge separately for
these services.
-12-
IEH CORPORATION
PART II
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
o Research & Development:
The Company provides personalized engineering services to its
customers by designing connectors for specific customer
applications. The employment of electromechanical engineers is the
anticipated cornerstone of the Company's future growth. The Company
maintains a testing laboratory where its engineers experiment with
new connector designs based on changes in technology and in an
attempt to create innovative, more efficient connector designs.
The Company expended $15,000 and $10,000 for the years ended March
28, 2008 and March 30, 2007, respectively, on customer sponsored
research and development activities relating to the development of
new designs, techniques and the improvement of existing designs. The
Company was fully reimbursed by its customers for this research.
Results of Operations
The following table sets forth for the periods indicated, percentages
for certain items reflected in the financial data as such items bear to
the revenues of the Company:
Relationship to Total Revenues
March 28, March 30,
2008 2007
-------- --------
Operating Revenues (in thousands) $ 7,805 $ 6,256
-------- --------
Operating Expenses:
(as a percentage of Operating Revenues)
Costs of Products Sold 70.8% 73.8%
Selling, General and Administrative 16.4% 18.2%
Interest Expense 2.3% 1.2%
Depreciation and amortization 2.5% 3.0%
-------- --------
TOTAL COSTS AND EXPENSES 92.0% 96.2%
-------- --------
Operating Income (loss) 8.0% 3.8%
Other Income -- --
-------- --------
Income (loss) before Income Taxes 8.0% 3.8%
Income Taxes (.3%) (.6%)
-------- --------
Net Income (loss) 7.7% 3.2%
======== ========
-13-
IEH CORPORATION
PART II
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Results of Operations (continued)
Year End Results: March 28, 2008 vs. March 30, 2007
Operating revenues for the year ended March 28, 2008 amounted to
$7,805,443 reflecting a 24.8% increase versus the year ended March 30,
2007 revenues of $6,255,606. The increase in revenues is a direct
result of an increase in defense and commercial sales.
The Company is primarily a manufacturer and its products are
essentially basic components of larger assemblies of finished goods.
Approximately 96% and 91% of the Company's net sales for the fiscal
years ended March 28, 2008 and March 30, 2007, respectively, were made
directly to manufacturers of finished products with the balance of the
Company's products sold to distributors. Distributors often purchase
connectors for customers who do not require large quantities of
connectors over a short period of time but rather require small
allotments of connectors over an extended period of time.
For the fiscal year ended March 28, 2008, three of the Company's
customers accounted for approximately 30% of total sales. Each of those
customer accounted for approximately 10% of sales.
The Company currently employs 15 independent sales representatives to
market its products in all regions of the United States. These sales
representatives accounted for approximately 94% of the Company's sales,
with the balance of sales being generated by direct customer contact.
For the fiscal year ended March 28, 2008, the Company's principal
customers included manufacturers of commercial electronic products,
military defense contractors and distributors who service these
markets. Sales to the commercial electronic and government markets
comprised 28% and 71% of the Company's net sales for the year ended
March 28, 2008 and 27% and 72% for the year ended March 30, 2007
respectively. Approximately 1% of net sales were made to international
customers.
Cost of products sold amounted to $5,526,475 for the fiscal year ended
March 28, 2008, or 70.8% of operating revenues. This reflected a
$907,349 or 19.6% increase in the cost of products sold from $4,619,126
or 73.8% of operating revenues for the fiscal year ended March 30,
2007. This increase is due primarily to the increased cost of
production associated with the increase in defense and commercial
sales.
Selling, general and administrative expenses were $1,277,924 and
$1,138,668 or 16.4% and 18.2% of operating revenues for the fiscal
years ended March 28, 2008 and March 30, 2007, respectively. This
category of expense increased by $139,256 or 12.2% from the prior year.
The increase can be attributed to an increase in commissions and
travel.
Interest expense was $177,675 for the fiscal year ended March 28, 2008
or 2.3% of operating revenues. For the fiscal year ended March 30,
2007, interest expense was $73,506 or 1.2% of operating revenues. The
increase of $104,169 or 141.7% reflects the interest payments made as
part of the settlement with the UAW Local 259 pension fund which
amounted to $85,052.
-14-
IEH CORPORATION
PART II
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Results of Operations (continued)
Year End Results: March 28, 2008 vs. March 30, 2007
Depreciation and amortization of $197,900 or 2.5% of operating revenues
was reported for the fiscal year ended March 28, 2008. This reflects an
increase of $13,143 or 7.1% from the prior year ended March 30, 2007 of
$184,757 or 3.0% of operating revenues. The increase is due primarily
to new capital assets being purchased over the current fiscal year.
The Company reported net income of $603,865 for the year ended March
28, 2008 representing basic earnings of $.26 per share as compared to
net income of $200,693 or $.09 per share for the year ended March 30,
2007. The increase in net income for the current year can be attributed
primarily to the reported increase in defense and commercial sales.
Liquidity and Capital Resources
The Company reported working capital of $1,890,722 as of March 28, 2008
compared to a working capital of $1,267,189 as of March 30, 2007. The
increase in working capital of $623,533 was attributable to the
following items:
Net income $ 603,865
Depreciation and amortization 197,900
Capital expenditures (178,023)
Other transactions (209)
---------
$ 623,533
=========
As a result of the above, the current ratio (current assets to current
liabilities) was 2.42 to 1 at March 28, 2008 as compared to 1.95 to 1.0
at March 30, 2007. Current liabilities at March 28, 2008 were
$1,329,138 compared to $1,334,302 at March 30, 2007.
The Company reported $178,023 in capital expenditures for the year
ended March 28, 2008 and reported depreciation of $197,900 for the year
ended March 28, 2008.
The net income of $603,865 for the year ended March 28, 2008 resulted
in an increase in stockholders' equity to $3,087,885 as compared to
stockholders' equity of $2,484,020 at March 30, 2007.
The Company has an accounts receivable financing agreement with a
factor, which bears interest at 2.5% above prime with a minimum of 12%
per annum. At March 28, 2008 the amount outstanding with the factor was
$513,378 as compared to $477,387 at March 30, 2007. The loan is secured
by the Company's accounts receivables and inventories. The factor
provides discounted funds based upon the Company's accounts
receivables, these funds provide the primary source of working capital
for operations.
-15-
IEH CORPORATION
PART II
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Liquidity and Capital Resources (continued)
In the past two fiscal years, management has been reviewing its
collection practices and policies for outstanding receivables and has
revised its collection procedures to a more aggressive collection
policy. As a consequence of this new policy the Company's experience is
that its customers have been remitting payments on a more consistent
and timely basis. The Company reviews the collectablity of all accounts
receivable on a monthly basis. The reserve is less than 2% of average
gross accounts receivable and is considered to be conservatively
adequate.
One of the Company's officers has periodically loaned the Company money
on a non-interest bearing basis in order to finance working capital
requirements. As of March 30, 2007, the amount due this officer was
$91,000.
During the year ended March 28, 2008 the Company had repaid $74,000,
leaving a remaining balance of $17,000 due to this officer.
The Company has a collective bargaining multi-employer pension plan
with the United Auto Workers of America, Local 259. Contributions are
made in accordance with a negotiated labor contract and are based on
the number of covered employees employed per month. With the passage
of the 1990 Act, the Company may become subject to liabilities in
excess of contributions made under the collective bargaining
agreement. Generally, these liabilities are contingent upon the
termination, withdrawal, or partial withdrawal from the Multi-Employer
Plan. The Company has not taken any action to terminate, withdraw or
partially withdraw from the Multi-Employer Plan nor does it intend to
do so in the future. Under the 1990 Act, liabilities would be based
upon the Company's proportional share of the Multi-Employer Plan's
unfunded vested benefits, which is currently not available. The amount
of accumulated benefits and net assets of such Plan also is not
currently available to the Company. The total contributions charged to
operations under such Plan were $80,667 for the year ended March 28,
2008 and $69,122 for the year ended March 30, 2007.
On June 30, 1995, the Company applied to the PBGC to have the PBGC
assume all of the Company's responsibilities and liabilities under its
Salaried Pension Plan. On April 26, 1996, the PBGC determined that the
Salaried Pension Plan did not have sufficient assets available to pay
benefits, which were and are currently due under the terms of such
Plan.
The PBGC further determined pursuant to the provisions of ERISA that
the Salaried Pension Plan must be terminated in order to protect the
interests of the Salaried Pension Plan's participants.
-16-
IEH CORPORATION
PART II
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Liquidity and Capital Resources (continued)
Accordingly, the PBGC proceeded pursuant to ERISA to have the Salaried
Pension Plan terminated and the PBGC appointed as statutory trustee,
and to have July 31, 1995 established as of such Plan's termination
date.
The Company and the PBGC negotiated a settlement on the entire matter
and on July 2, 2001, an agreement was reached whereby the Company's
liability to the PBGC was reduced to $244,000. The Company would make
monthly payments to the PGBC as follows:
September 1, 2003 to August 1, 2004 $2,000 per month
September 1, 2004 to August 1, 2006 $3,000 per month
September 1, 2006 to August 1, 2007 $4,000 per month
Additionally, the Company has made balloon payments of $25,000 each on
January 1, 2004, May 1, 2004, May 1, 2005 and January 1, 2006.
The Company also granted the PBGC a lien on the Company's machinery
and equipment.
As of August 31, 2007, the Company had satisfied its obligation to the
PGBC and the lien on the Company's machinery and equipment was
released.
On September 21, 2001 the Company's shareholders approved the adoption
of the Company's 2002 Employees Stock Option Plan to provide for the
grant of options to purchase up to 750,000 shares of the Company's
common stock to all employees, including senior management. No options
have been granted under the Employee Option Plan to date.
Options granted to employees under this plan may be designated as
options which qualify for incentive stock option treatment under
Section 422A of the Internal Revenue Code, or option which do not so
qualify. Under this plan, the exercise price of an option designated
as an Incentive Stock Option shall not be less than the fair market
value of the Company's common stock on the day the option is granted.
In the event an option designated as an incentive stock option is
granted to a ten percent (10%) share holder, such exercise price shall
be at least 110 Percent (110%) of the fair market value or the
Company's common stock and the option must not be exercisable after
the expiration of five years from the day of the grant. Exercise
prices of non-incentive stock options may be less than the fair market
value of the Company's common stock. The aggregate fair market value
of shares subject to options granted to its participants, which are
designated as incentive stock options, and which become exercisable,
in any calendar year, shall not exceed $100,000. As of March 28, 2008,
no options had been granted under the Employee Option Plan.
In 1987, the Company adopted a cash bonus plan ("Cash Bonus Plan") for
Executive Officers. Contributions to the Cash Bonus Plan are made by
the Company only after pre-tax operating profits exceed $150,000 for a
fiscal year, and then to the extent of 10% of the excess of the
greater of $150,000 or 25% of pre-tax operating profits. For the year
ended March 28, 2008, the contribution was $30,100. For the year ended
March 30, 2007, the contribution was $20,000.
-17-
IEH CORPORATION
PART II
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Effects of Inflation
The Company does not view the effects of inflation to have a material
effect upon its business. Increases in costs of raw materials and labor
costs have been offset by increases in the price of the Company's
products, as well as reductions in costs of production, reflecting
management's efforts in this area. While the Company has in the past
increased its prices to customers, it has maintained its relatively
competitive price position. However, significant decreases in
government and military subcontractor spending, has provided excess
production capacity in the industry, which in turn has tightened
pricing margins.
Off Balance Sheet Arrangements
The Company does not have any off balance sheet arrangements within the
meaning of Item 303 of Regulation S-B.
Item 7. Financial Statements
See Index to Financial Statements attached hereto appearing at pages
27 to 45.
Item 8. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure
Not applicable.
Item 8A(T). Controls and Procedures
Disclosure Controls
Our management, including our Chief Executive Officer and Chief
Financial Officer, has evaluated the effectiveness of our disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) within 90 days of the filing of this report. Based upon
that evaluation, our Chief Executive Officer and our Chief Financial
Officer have concluded that as of the end of the period covered by
this report the disclosure controls and procedures were effective to
provide reasonable assurance that information required to be disclosed
in the reports that we file and submit under the Exchange Act is (i)
recorded, processed, summarized and reported as and when required and
(ii) accumulated and communicated to our management, including our
principal executive officer and principal financial officer, as
appropriate to allow timely discussions regarding disclosure. In
designing and evaluating the disclosure controls and procedures,
management recognized that any controls and procedures, no matter how
well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and management is required
to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.
Under the supervision and with the participation of our management,
including our principal executive officer and principal financial
officer, we conducted an assessment of the effectiveness of our
internal control over financial reporting based upon the framework in
Internal Control - Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based upon
assessment, our management concluded that our internal control over
financial reporting is effective as of March 28, 2008.
Internal Controls
There has not been any change in our internal control over financial
reporting during our quarter ended March 28, 2008, that has materially
affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
We do not expect that internal controls over financial reporting will
prevent all errors or all instances of fraud. A control system, no
matter how well designed and operated, can provide only reasonable, not
absolute, assurance that the control system's objectives will be met.
Further, the design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations
in all control systems, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any,
within its company have been detected. These inherent limitations
include the realities that judgments in decision-making can be faulty,
and that breakdowns can occur because of simple error or mistake.
Controls can also be circumvented by the individual acts of some
-18-
Item 8A(T). Controls and Procedures
persons, by collusion of two or more people, or by management override
of the controls. The design of any system of controls is based in part
upon certain assumptions about the likelihood of future events, and any
design may not succeed in achieving its stated goals under all
potential future conditions. Over time, controls may become inadequate
because of changes in conditions or deterioration in the degree of
compliance with policies or procedures. Because of the inherent
limitation of a cost-effective control system, misstatements due to
error or fraud may occur and not be detected.
Historically, the Company has relied upon the entire Board of Directors
in appointing the Company's independent auditors and reviewing the
financial condition and statements of the Company. Given the relatively
small size of the Company's operations and revenues, the Board has not
believed that appointing an independent committee was a necessity.
Additionally, in response to the passage of the Sarbanes-Oxley Act of
2002, our Board of Directors and management have adopted a Code of
Ethics and have instituted a periodic review by members of our
management team to assist and guide the disclosure process. The Board
has also determined to periodically review and develop policies and
procedures to enhance our disclosure controls and procedures as well as
with reviewing our periodic reports and other public disclosures.
Item 8B. Other Information
None.
Historically, the Company has relied upon the entire Board of
Directors in appointing the Company's independent auditors and
reviewing the financial condition and statements of the Company. Given
the relatively small size of the Company's operations and revenues,
the Board has not believed that appointing an independent committee
was a necessity.
Additionally, in response to the passage of the Sarbanes-Oxley Act of
2002, our Board of Directors and management have adopted a Code of
Ethics and have instituted a periodic review by members of our
management team to assist and guide the disclosure process. The Board
has also determined to periodically review and develop policies and
procedures to enhance our disclosure controls and procedures as well as
with reviewing our periodic reports and other public disclosures.
-19-
IEH CORPORATION
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16 (a) of the Exchange Act
The executive officers and directors of the Company are as follows:
Name Age Office
Michael Offerman 67 Chairman of the Board of Directors,
President and Chief Executive Officer
Robert Knoth 66 Chief Financial Officer, Controller,
Secretary and Treasurer
Murray Sennet 87 Director
Allen Gottlieb 67 Director
All directors serve for a term of two years and until their successors
are duly elected. All officers serve at the discretion of the Board of
Directors.
Since the Board of Directors has historically and will in the
immediate future consist of only a small number of members, we have
not formed any Board Committees. All matters relating to audit,
compensation, nominations and corporate governance are considered and
acted upon by the entire Board of Directors.
Executive Officers and Directors
Michael Offerman has been a member of the Board of Directors since
1973. In May 1987, Mr. Offerman was elected President and Chief
Executive Officer of the Company and has held that position since that
date. Prior to his becoming President, Mr. Offerman served as
Executive Vice-President of the Company.
Robert Knoth joined the Company as Controller in January 1990 and was
elected treasurer of the Company in March 1990. Mr. Knoth was elected
as Secretary of the Company in September 1992 and Mr. Knoth has held
these positions since said dates. From 1986 to January 1990, Mr. Knoth
was employed as controller by G&R Preuss, Inc., a company engaged in
the business of manufacturing truck bodies and accessories.
Murray Sennet has been a member of the Company's Board of Directors
since 1970. Mr. Sennet was the Secretary and the Treasurer of the
Company at the time of his retirement in April 1986.
Allen Gottlieb has been a member of the Company's Board of Directors
since 1992. Mr. Gottlieb has been an attorney in private practice for
over five (5) years.
-20-
IEH CORPORATION
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16 (a) of the Exchange Act (continued)
Significant Employees
Joan Prideaux joined the Company in April 1994, as Director of Sales
and Marketing. Joan has been in the connector business over 30 years
and brings this experience to IEH. Prior to joining us, she was
employed by Automatic Connector as Director of Sales.
Mark Iskin is the Director of Purchasing, a position he has held since
September 2000. Prior to joining the Company, Mr. Iskin worked as a
materials and purchasing specialist, in manufacturing and distribution
companies. In his last position with an industrial distributor, Mr.
Iskin was responsible for purchasing and managing vendors for the
cutting tool section of the catalog. In addition he participated in
setting up and developing the company's forecasting/planning software
related to that department procedures.
David Offerman joined IEH in September 2004 as the National Sales
Manager. Prior to joining IEH, David worked as an account executive
and sales manager in the telecommunication industry.
Robert Romeo serves as Vice President of Engineering for IEH; a post
he has held since October 2005. Robert has corporate responsibility
for engineering products and driving product enhancements to satisfy
the demanding application requirements of IEH customers. In addition,
Robert is tasked with engineering new product developments in the IEH
connector offerings to broaden the market base of potential customers.
These new connectors will introduce the traditional IEH quality and
value to industries that specify exceptional reliability and
performance in electrical and electronic equipment. Before joining
IEH, Robert worked for more than twenty years in positions of
increasing responsibility for major national manufacturers of
electrical and electronic goods for residential, industrial,
government and OEM markets.
Paul Tzetzos joined IEH in November, 2005 as a Quality Assurance
Director. Paul has over 20 years of experience in the field of Quality
Assurance; with the last 15 years as Director/Manager. A degreed
Engineer; with diversified knowledge in developing, implementing,
maintaining, and improving Quality Systems, such as, ISO 9001:2000,
EECS, MIL-Q-9858A, ETC. A certified Lead and Internal Auditor, Paul
has a great deal of knowledge concerning military and industry
specifications and standards.
Certain Reports
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and officers and persons who own, directly or
indirectly, more than 10% of a registered class of the Corporation's
equity securities, to file with the SEC reports of ownership and
reports of changes in ownership of common stock of the Company.
Officers, directors and greater than 10% shareholders are required to
furnish the Company with copies of all Section 16(a) reports that they
file. Based solely on review of the copies of such reports received by
the Company, the Company believes that filing requirements applicable
to officers, directors and 10% shareholders were complied with during
the fiscal year, except for certain private acquisitions in the amount
of 1,370 shares of common stock purchased by Mr. Knoth, the Company's
Chief Financial Officer, Controller, Secretary and Treasurer, which
purchases were inadvertently not reported on Form 4.
-21-
IEH CORPORATION
PART III
Item 10. Executive Compensation
The following table sets forth below the summary compensation paid or
accrued by the Company during the fiscal years ended March 28,
2008, March 30, 2007, and March 31, 2006 for the Company's Chief
Executive Officer:
Other Annual
Name and Principal Position Year Salary Bonus Compensation
-------------------------------- -------------- ----------- -------- --------------
Michael Offerman, Chief
Executive Officer, President (1) March 28, 2008 $ 105,000 $18,500 0
March 30, 2007 100,000 5,000 0
March 31, 2006 100,000 24,000 0
(1) During the years ended March 28, 2008, March 30, 2007 and
March 31, 2006, the Company provided automobile allowances
to Mr. Offerman. This does not include the aggregate
incremental cost to the Company of such automobile
allowance.
(2) There are no employment agreements between the Company and
members of its senior management, including the President and
Chief Executive Officer, Michael Offerman.
No other officer of the Company received compensation (salary and
bonus) in excess of $100,000 during the fiscal years ended, March 28,
2008, March 30, 2007 and March 31, 2006.
Pension/Benefit Incentive Plan
In 1964, the Company's shareholders and Board of Directors adopted
a contributory pension plan (the "Salaried Pension Plan") effective
April 1, 1964, for salaried employees of the Corporation. The Salaried
Pension Plan as revised on April 1, 1987, provides for retirement
benefits for qualified employees upon or prior to retirement.
For early retirement, employees are eligible to receive a portion of
their retirement benefits, starting 10 years prior to the employees
anticipated normal retirement age (age 65), if the employee has
completed 15 years of service to the Company. The employee is
eligible to receive reduced retirement benefits based on an actuarial
table for a period not exceeding ten (10) years of his lifetime. In no
event would benefits exceed $12,000 per year.
For normal retirement at the age of sixty-five (65) the employee is
entitled to receive full retirement benefits for a period not exceeding
ten (10) years of his lifetime. If the employee should die prior to the
ten-year period, his beneficiaries will continue to receive the full
benefit for the remainder of the ten-year term. In no event will
benefits exceed $12,000 per year.
-22-
IEH CORPORATION
PART III
Item 10. Executive Compensation (continued)
Pension/Benefit Incentive Plan (continued)
If payment is made on the "joint and survivor basis" as elected by the
employee, benefits will be provided to both the employee and spouse on
a reduced basis over the life of both the employee and his spouse. If
the employee should die prior to the guaranteed ten year period, the
spouse will receive the employee benefit for the remainder of the term,
after which, the spouse will received the reduced spousal benefit for
the life of the spouse. In no event will the benefits pursuant to the
joint and survivor basis exceed $12,000 per year.
On June 30, 1995, the Company applied to the PBGC to have the PBGC
assume all of the Company's responsibilities and liabilities under its
Salaried Pension Plan. On April 26, 1996, the PBGC determined that the
Salaried Pension Plan did not have sufficient assets available to pay
benefits, which were and are currently due under the terms of the
Plan.
The PBGC further determined pursuant to the provisions of ERISA that
the Plan must be terminated in order to protect the interests of the
Plan's participants. Accordingly, the PBGC proceeded pursuant to ERISA
to have the Plan terminated and the PBGC appointed as statutory
trustee, and to have July 31, 1995 established as the
Plan'stermination date.
The Company and the PBGC negotiated a settlement on the entire matter
and on July 2, 2001, an agreement was reached whereby the Company's
liability to the PBGC was reduced to $244,000. The Company will make
monthly payments to the PBGC as follows:
September 1, 2003 to August 1, 2004 $2,000 per month
September 1, 2004 to August 1, 2006 $3,000 per month
September 1, 2006 to August 1, 2007 $4,000 per month
Additionally, the Company has made balloon payments of $25,000 each on
January 1, 2004, May 1, 2004, May 1, 2005 and January 1, 2006.
The Company also granted the PBGC a lien on the Company's machinery and
equipment.
-23-
IEH CORPORATION
PART III
Item 10. Executive Compensation (continued)
Pension/Benefit Incentive Plan (continued)
As a result of this agreement the amount due the PBGC was restated to
$244,000. $43,000 was paid during the year ended March 30, 2007,
$86,000 was paid during the year ended March 31, 2006, $56,000 was paid
during the year ended March 25, 2005 and $39,000 was paid during the
year ended March 26, 2004. The remaining balance of $20,000 was paid
during the year ended March 28, 2008.
As of August 31, 2007, the Company had satisfied its obligation to the
PBGC and the lien on the Company's machinery and equipment was removed.
Cash Bonus Plan
In 1987, the Company adopted the Cash Bonus Plan for Executive
Officers. Contributions to the Cash Bonus Plan are made by the Company
only after pre-tax operating profits exceed $150,000 for a fiscal
year, and then to the extent of 10% of the excess of the greater of
$150,000 of 25% of pre-tax operating profits. For the year ended March
28, 2008 the contribution was $30,100. The contribution for the year
ended March 30, 2007 was $20,000.
IEH CORPORATION
PART III
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of June 30, 2008
with respect to (i) the persons (including any "group" as that term is
used in Section 13(d)(3) of the Securities Exchange Act of 1934), known
by the Company to be the beneficial owner of more than five percent
(5%) of any class of the Company's voting securities; (ii) each
Executive Officer and Director who owns common stock in the Company;
and (iii) all Executive Officers and Directors as a group. As of June
30, 2008, there were 2,303,468 shares of common stock issued and
outstanding.
Amount of and Nature
of Beneficial
Name and Address of Beneficial Owner Ownership Percentage of Class
Title of Class
Common Stock Michael Offerman 923,784 40%
$.01 Par Value 140 58th Street
Brooklyn, NY 11220(1)
Murray Sennet 24,500 1.1%
1900 Manor Lane
Plano, TX 75093
Allen Gottlieb 0 0
325 Coral Way
Ft. Lauderdale, FL 33301
Robert Knoth 1,770 *
140 58th Street
Brooklyn, NY 11220
All Officers & Directors as a Group
(4 in number) 950,054 41%
----------------------
* Less than 1%.
1. 43,600 shares of common stock are jointly owned by Mr. Offerman and his
wife, Gail Offerman.
All shares set forth above are owned directly by the named individual unless
otherwise stated.
Item 12. Certain Relationships and Related Transactions
Other than the employment terms for its executive officers as described
elsewhere in this Form 10-KSB, and as described below, there have been
no related transactions between the Company, officers, directors or
shareholders holding in excess of 5% of its securities within the last
three years.
-24-
IEH CORPORATION
PART III
Item 12. Certain Relationships and Related Transactions (continued)
During the year ended March 26, 2004, two of the Company's officers,
(Michael Offerman, President and the Chief Executive Officer and Robert
Knoth, the Chief Financial Officer, Controller and the Principal
Accounting Officer) loaned the Company a total of $52,000 on a
non-interest bearing basis. The Company used these funds as a source of
additional working capital.
During the year ended March 25, 2005, Mr. Robert Knoth loaned the
Company an additional $135,744 on a non-interest bearing basis as well.
These funds were used by the Company for working capital requirements.
Through the period ended March 31, 2006, the Company had repaid
$108,744 of the total funds loaned to it.
During the year ended March 30, 2007 one of the officers loaned the
Company an additional $88,000 on a non-interest bearing basis. During
the same period the Company had repaid $76,000 of the loans made to it.
The balance due to one of these officers at March 30, 2007 was $91,000.
Item 13. Exhibits
Exhibits filed with Form 10-KBS:
31.1 Certification of Principal Executive Officer pursuant to Section17
CFR 240.13a-14(a) or 17 CFR 240.15d-14(a).
31.2 Certification of Principal Accounting Officer pursuant to
Section17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a).
32.1 Certification by Michael Offerman, President and Principal
Executive Officer, pursuant to 17 CFR 240.13a-14(b) or 17 CFR
240.15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United
States Code.
32.2 Certification by Robert Knoth, Chief Financial Officer, Controller
and Principal Accounting Officer, pursuant to 17 CFR 240.13a-14(b) or
17 CFR 240.15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the
United States Code.
Item 14. Principal Accountant Fees and Services
The Board of Directors of IEH has selected Jerome Rosenberg, CPA P.C.
as the independent auditor of IEH for the fiscal year ending March 28,
2008. Shareholders are not asked to approve such selection because such
approval is not required. The audit services provided by Jerome
Rosenberg, CPA P.C. consist of examination of financial statements,
services relative to filings with the SEC, and consultation in regard
to various accounting matters. A member of the firm is expected to be
present at the next meeting of shareholders, will have the opportunity
to make a statement if he so desires, and will be available to respond
to appropriate questions.
Audit Fees. During the fiscal year ended March 28, 2008 and March 30,
2007, IEH paid an aggregate of $31,250 and $30,000, respectively, to
Jerome Rosenberg, CPA P.C. for fees related to the audit of its
financial statements.
Audit Related Fees. During the fiscal years ended March 28, 2008 and
March 30, 2007, no fees were paid to Jerome Rosenberg, CPA P.C. with
respect to financial systems design or implementation.
Tax Fees. During the fiscal years ended March 28, 2008 and March 30,
2007, the Company paid to Jerome Rosenberg CPA P.C. the sums of $3,000
and $3,000 for tax compliance, tax advice and tax planning services.
All Other Fees. During the fiscal year ended March 28, 2008, IEH did
not pay any other fees for services to its auditor.
The Board of Directors has determined that the services provided by
Jerome Rosenberg, CPA P.C. and the fees paid to it for such services
during the fiscal year ended March 28, 2008 has not compromised the
independence of Jerome Rosenberg, CPA P.C.
The Board of Directors of the Company is comprised of three persons.
Due to the limited size and scope of the Company's operations which
are limited to one office and the level of revenue and income, the
Board of Directors has not established an Audit Committee. Further, as
the Company's securities are not traded on any exchange or on Nasdaq,
but solely are listed for quotations on the Over the Counter Bulletin
Board, there is no requirement that an Audit Committee be established.
The Board, as an entirety, approves that appointment of its
independent auditor and the related work performed by the auditor
-25-
IEH CORPORATION
PART III
Item 14. Principal Accountant Fees and Services (continued)
for services which are not audit related. In its deliberations
regarding approval of the independent auditor for auditing and other
services, the Board reviews the auditor's history of representing the
Company, the fees to be paid and paid historically, the level of
performance provided by the auditor and the ability of the Company,
given its lack of profits to obtain similar services for similar
costs.
Consistent with SEC policies regarding auditor independence, the Board
of Directors has responsibility for appointing, setting compensation
and overseeing the work of the independent auditor. In recognition of
this responsibility, the Board has established a policy to pre-approve
all audit and permissible non-audit services provided by the
independent auditor. Prior to engagement of the independent auditor
for the next year's audit, management advises the Board of the audit
and permissible non-audit services expected to be rendered during that
year for each of the categories of services which may provided by the
independent auditor to the Board for approval. The primary categories
of services expected to be provided by the independent auditor are as
described in the fee table set forth above. In addition, management
will also provide to the Board for its approval a fee proposal for the
services proposed to be rendered by the independent auditor. Prior to
the engagement of the independent auditor, the Board will approve both
the description of audit and permissible non-audit services proposed
to be rendered by the independent auditor and the budget for all such
services. The fees are budgeted and the Board requires the independent
auditor and management to report actual fees versus the budget
periodically throughout the year by category of service.
During the year, circumstances may arise when it may become
necessary to engage the independent auditor for additional services not
contemplated in the original pre-approval. In those instances, the
Board requires separate pre-approval before engaging the independent
auditor.
-26-
IEH Corporation
Contents
March 28, 2008 and March 30, 2007
Page
Number
------
Report of Independent Registered Public Accounting Firm 28
Financial Statements:
Balance Sheets as of March 28, 2008 and March 30, 2007 29
Statement of Operations for the years ended March 28, 2008
and March 30, 2007 31
Statement of Stockholders' Equity as of March 28, 2008 and March 30, 2007 32
Statement of Cash Flows for the years ended March 28, 2008 and March 30, 2007 33
Notes to Financial Statements 35
-27-
Report of Independent Registered Public Accounting Firm
-------------------------------------------------------
Board of Directors
IEH Corporation
We have audited the accompanying balance sheets of IEH Corporation as of March
28, 2008 and March 30, 2007 and the related statements of operations,
stockholders' equity, and cash flows for each of the two years in the periods
ended March 28, 2008 and March 30, 2007. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based upon our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. Our audit included consideration
of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of IEH Corporation as of March 28,
2008 and March 30, 2007 and the results of its operations and its cash flows for
each of the two years ended March 28, 2008 and March 30, 2007 in conformity with
U.S. generally accepted accounting principles.
Jerome Rosenberg, CPA, P.C.
Melville, New York
June 10, 2008
-28-
IEH CORPORATION
BALANCE SHEETS
As of March 28, 2008 and March 30, 2007
March 28, March 30,
2008 2007
------------ ------------
ASSETS
CURRENT ASSETS:
Cash $ 29,136 $ 34,908
Accounts receivable, less allowances for doubtful accounts
of $11,562 at March 28, 2008 and March 30, 2007 1,180,220 981,571
Inventories (Note 2) 1,986,367 1,573,632
Prepaid expenses and other current assets (Note 3) 24,137 11,380
------------ ------------
Total Current Assets 3,219,860 2,601,491
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, less accumulated depreciation and
amortization of $6,756,178 at March 28, 2008
and $6,558,278 at March 30, 2007 (Note 4) 1,172,379 1,192,256
------------ ------------
1,172,379 1,192,256
------------ ------------
OTHER ASSETS:
Other assets 24,784 25,098
------------ ------------
24,784 25,098
------------ ------------
Total Assets $ 4,417,023 $ 3,818,845
============ ============
The accompanying notes and independent auditors' report should be read in
conjunction with the financial statements.
-29-
IEH CORPORATION
BALANCE SHEETS
As of March 28, 2008 and March 30, 2007
March 28, March 30,
2008 2007
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts receivable financing (Note 5) $ 513,378 $ 477,387
Notes payable, equipment, current portion (Note 7) -- 3,136
Loans payable- officers (Note 8) 17,000 91,000
Accrued corporate income taxes 22,103 5,800
Accounts payable 584,938 588,804
Pension plan payable, current portion (Note 10) -- 20,000
Other current liabilities (Note 6) 191,719 148,175
----------- -----------
Total Current Liabilities 1,329,138 1,334,302
----------- -----------
LONG-TERM LIABILITIES:
Pension Plan payable, less current portion (Note 10) -- --
Notes payable, equipment, less current portion (Note 7) -- 523
----------- -----------
Total long-term Liabilities -- 523
----------- -----------
Total Liabilities 1,329,138 1,334,825
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 10,000,000 shares authorized; 2,303,468
shares issued and outstanding at March 28, 2008 and
March 30, 2007 23,035 23,035
Capital in excess of par value 2,744,573 2,744,573
Retained earnings (Deficit) 320,277 (283,588)
----------- -----------
Total Stockholders' Equity 3,087,885 2,484,020
----------- -----------
Total Liabilities and Stockholders' Equity $ 4,417,023 $ 3,818,845
=========== ===========
The accompanying notes and independent auditors' report should be read
in conjunction with the financial statements.
-30-
IEH CORPORATION
STATEMENT OF OPERATIONS
For the Years Ended March 28, 2008 and March 30, 2007
Years Ended
-------------------------
March 28, March 30,
2008 2007
----------- -----------
REVENUE, net sales (Note 15) $ 7,805,443 $ 6,255,606
----------- -----------
COSTS AND EXPENSES:
Cost of products sold 5,526,475 4,619,126
Selling, general and administrative 1,277,924 1,138,668
Interest expense 177,675 73,506
Depreciation and amortization 197,900 184,757
----------- -----------
7,179,974 6,016,057
----------- -----------
OPERATING INCOME 625,469 239,549
OTHER INCOME 475 1,144
----------- -----------
INCOME BEFORE INCOME TAXES 625,944 240,693
PROVISION FOR INCOME TAXES (22,079) (40,000)
----------- -----------
NET INCOME $ 603,865 $ 200,693
=========== ===========
BASIC AND DILUTED EARNINGS PER COMMON SHARE (Note 1) $ .26 $ .09
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING (IN THOUSANDS) 2,303 2,303
=========== ===========
The accompanying notes and independent auditors' report should be read
in conjunction with the financial statements.
-31-
IEH CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
For the Years Ended March 28, 2008 and March 30, 2007
Capital in Retained
Excess of Earnings
Common Stock Par Value (Deficit) Total
--------------------------- ------------ ------------ ------------
Shares Amount
------------ ------------
Balances, March 31, 2006 2,303,468 $ 23,035 $ 2,744,573 $ (484,281) $ 2,283,327
Net income: year ended
March 30, 2007 -- -- -- 200,693 200,693
------------ ------------ ------------ ------------ ------------
Balances, March 30, 2007 2,303,468 $ 23,035 $ 2,744,573 $ (283,588) $ 2,484,020
Net income: year ended
March 28, 2008 -- -- -- 603,865 603,865
------------ ------------ ------------ ------------ ------------
Balances, March 28, 2008 2,303,468 $ 23,035 $ 2,744,573 $ 320,277 $ 3,087,885
The accompanying notes and independent auditors' report should be read
in conjunction with the financial statements.
-32-
IEH CORPORATION
STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash
For the Years Ended March 28, 2008 and March 30, 2007
Years Ended
----------------------------
March 28, March 30,
2008 2007
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 603,865 $ 200,693
------------ ------------
Adjustments to reconcile net income to net cash provided (used) by
operating activities
Depreciation and amortization 197,900 184,757
Changes in assets and liabilities:
(Increase) in accounts receivable (198,649) (81,224)
(Increase) in inventories (412,735) (33,209)
(Increase) decrease in prepaid expenses and other current assets (12,757) 14,612
(Increase) decrease in other assets 314 (1,921)
(Decrease) in accounts payable (3,866) (187,067)
Increase (decrease) in other current liabilities 43,544 (39,861)
Increase (decrease) in accrued corporate income taxes 16,303 (27,897)
(Decrease) in pension plan payable (20,000) (43,000)
------------ ------------
Total adjustments (389,946) (214,810)
------------ ------------
NET CASH PROVIDED BY (USED) FOR OPERATING ACTIVITIES 213,919 (14,117)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (178,023) (176,869)
------------ ------------
NET CASH USED BY INVESTING ACTIVITIES $ (178,023) $ (176,869)
------------ ------------
The accompanying notes and independent auditors' report should be read
in conjunction with the financial statements.
-33-
IEH CORPORATION
STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash
For the Years Ended March 28, 2008 and March 30, 2007
March 28, March 30,
2008 2007
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes payable, equipment $ (3,659) $ (3,136)
Proceeds from accounts receivable financing 35,991 208,288
Proceeds (repayment) of loans payable - officers (74,000) 12,000
---------- ----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (41,668) 217,152
---------- ----------
INCREASE (DECREASE) IN CASH (5,772) 26,166
CASH, beginning of period 34,908 8,742
---------- ----------
CASH, end of period $ 29,136 $ 34,908
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION,
Cash paid during the year for:
Interest $ 169,814 $ 64,614
========== ==========
Income Taxes $ 6,966 $ 35,613
========== ==========
The accompanying notes and independent auditors' report should be read
in conjunction with the financial statements.
-34-
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Description of Business:
The Company is engaged in the design, development, manufacture and
distribution of high performance electronic printed circuit connectors
and specialized interconnection devices. Electronic connectors and
interconnection devices are used in providing electrical connections
between electronic component assemblies. The Company develops and
manufactures connectors, which are designed for a variety of high
technology and high performance applications, and are primarily
utilized by those users who require highly efficient and dense (the
space between connection pins with the connector) electrical
connections.
The Company is continuously redesigning and adapting its connectors to
meet and keep pace with developments in the electronics industry and
has, for example, developed connectors for use with flex-circuits now
being used in aerospace programs, computers, air-borne communications
systems, testing systems and other areas. The Company also services
its connectors to meet specified product requirements.
Accounting Period:
The Company maintains an accounting period based upon a 52-53 week
year, which ends on the nearest Friday in business days to March 31st.
The years ended March 28, 2008 and March 30, 2007 were comprised of 52
weeks.
Revenue Recognition:
Revenues are recognized at the shipping date of the Company's
products. The Company has historically adopted the shipping terms that
title merchandise passes to the customer at the shipping point (FOB
Shipping Point). At this juncture, title has passed, the Company has
recognized the sale, inventory has been relieved, and the customer has
been invoiced. The Company does not offer any discounts, credits or
other sales incentives.
The Company's policy with respect to customer returns and allowances
as well as product warranty is as follows:
The Company will accept a return of defective product within one year
from shipment for repair or replacement at the Company's option. If
the product is repairable, the Company at its own cost will repair and
return to the customer. If unrepairable, the Company will either offer
an allowance against payment or will reimburse the customer for the
total cost of product.
Most of the Company's products are custom ordered by customers for a
specific use. The Company provides engineering services as part of the
relationship with its customers in developing the custom product. The
Company is not obligated to provide such engineering service to its
customers. The Company does not charge separately for these services.
-35-
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
Inventories:
Inventories are stated at cost, on a first-in, first-out basis, which
does not exceed market value.
The Company manufactures products pursuant to specific technical and
contractual requirements. The Company historically purchases material
in excess of its requirements to avail itself of favorable pricing as
well as the possibility of receiving additional orders from customers.
This excess may result in material not being used in subsequent
periods, which may result in this material being deemed obsolete.
The Company annually reviews its purchase and usage activity of its
inventory of parts as well as work in process and finished goods to
determine which items of inventory have become obsolete within the
framework of current and anticipated orders. The Company based upon
historical experience has determined that if a part has not been used
and purchased or an item of finished goods has not been sold in three
years, it is deemed to be obsolete. The Company estimates which
materials may be obsolete and which products in work in process or
finished goods may be sold at less than cost. A periodic adjustment,
based upon historical experience is made to inventory in recognition
of this impairment.
Concentration of Credit Risk:
The Company maintains cash balances at one bank. Amounts on deposit
are insured by the Federal Deposit Insurance Corporation up to
$100,000 in the aggregate. Financial instruments, which potentially
subject the Corporation to concentrations of credit risk consist
primarily of cash, cash equivalents and accounts receivable.
Property, Plant and Equipment:
Property, plant and equipment is stated at cost less accumulated
depreciation and amortization. The Company provides for depreciation
and amortization using the Double Declining Balance method over the
estimated useful lives (5-7 years) of the related assets.
Maintenance and repair expenditures are charged to operations, and
renewals and betterments are capitalized. Items of property, plant and
equipment, which are sold, retired or otherwise disposed of, are
removed from the asset and accumulated depreciation or amortization
account. Any gain or loss thereon is either credited or charged to
operations.
Income Taxes:
The Company follows the policy of treating investment tax credits as a
reduction in the provision for federal income tax in the year in which
the credit arises or may be utilized. Deferred income taxes arise from
temporary differences resulting from different depreciation methods
used for financial and income tax purposes. The Company has adopted
Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes".
-36-
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
Net Income Per Share:
The Company has adopted the provisions of SFAS No. 128, "Earnings Per
Share", which requires the disclosure of "basic" and "diluted"
earnings (loss) per share. Basic earnings per share is computed by
dividing net income by the weighted average number of common shares
outstanding during each period. Diluted earnings per share is similar
to basic earnings per share except that the weighted average number of
common shares outstanding is increased to reflect the dilutive effect
of potential common shares, such as those issuable upon the exercise
of stock or warrants, as if they had been issued. For the years ended
March 28, 2008 and March 30, 2007, there were no items of potential
dilution that would impact on the computation of diluted earnings or
loss per share.
Fair Value of Financial Instruments:
The carrying value of the Company's financial instruments, consisting
of accounts receivable, accounts payable, and borrowings, approximate
their fair value due to the relatively short maturity (three months)
of these instruments.
Use of Estimates:
The preparation of 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, revenues and expenses, and disclosure of contingent
assets and liabilities at the date of the financial statements. Actual
amounts could differ from those estimates.
Impairment of Long-Lived Assets:
SFAS No. 144, "Accounting For The Impairment of Long-Lived Assets And
Long-Lived Assets To Be Disposed Of", requires that long-lived assets
and certain identifiable intangibles to be held and used by an entity
be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
The Company has adopted SFAS No. 144. There were no long-lived asset
impairments recognized by the Company for the years ended March 28,
2008 and March 30, 2007.
Reporting Comprehensive Income:
The Company has adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income". This statement established standards for
reporting and display of comprehensive income and its components
(revenues, expenses, gains and losses) in an entity's financial
statements. This Statement requires an entity to classify items of
other comprehensive income by their nature in a financial statement
and display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in
the equity section of a statement of financial position. There were no
material items of comprehensive income to report for the years ended
March 28, 2008 and March 30, 2007.
-37-
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
Segment Information:
The Company has adopted the provisions of SFAS No. 131, "Disclosures
About Segment of An Enterprise and Related Information." This
Statement requires public enterprises to report financial and
descriptive information about its reportable operating segments and
establishes standards for related disclosures about product and
services, geographic areas, and major customers. The adoption of SFAS
No. 131 did not affect the Company's presentation of its results of
operations or financial position.
Research and Development:
The Company provides personalized engineering services to its
customers by designing connectors for specific customer applications.
The employment of electromechanical engineers is the anticipated
cornerstone of the Company's future growth. The Company maintains a
testing laboratory where its engineers experiment with new connector
designs based on changes in technology and in an attempt to create
innovative, more efficient connector designs.
The Company expended $15,000 and $10,000 for the years ended March 28,
2008 and March 30, 2007, respectively, on customer sponsored research
and development activities relating to the development of new designs,
techniques and the improvement of existing designs. The Company was
fully reimbursed by its customers for this research.
Effect of New Accounting Pronouncements:
Effective April 1, 2007, the Company adopted the provisions of
Financial Accounting Standards Board Interpretation No.48 ("FIN 48"),
"Accounting for Uncertainty in Income Taxes- an interpretation of FASB
Statement No. 109", which clarifies the accounting for uncertainty in
income taxes recognized in an entity's financial statements in
accordance with FASB Statement No.109, "Accounting for Income Taxes".
FIN 48 prescribes a recognition threshold and measurement attribute
for the financial statement disclosures of tax positions taken or
expected to be taken in an income tax filing. The evaluation of a tax
position is a two step process. The first step requires an entity to
determine whether it is more likely than not that a tax position will
be sustained upon examination based upon the technical merits of the
position. The second step requires an entity to recognize in the
financial statements each tax position that meets the more likely than
not criteria, measured at the largest amount of benefit that has a
greater than fifty percent likelihood of being recognized. FIN 48 also
provides guidance on de-recognition, classification, interest and
penalties, accounting for interim periods, disclosure and transition.
The Company believes that with its adoption of FIN 48, that the income
tax positions taken by it did not have a material effect on the
financial statements for the year ended March 28, 2008.
-38-
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
Effect of New Accounting Pronouncements: (continued)
In December 2006, the FASB issued SFAS No. 157, "Fair Value
Measurements", which enhances existing guidance for measuring assets
and liabilities using fair value. This Standard provides a single
definition of fair value, together with a framework for measuring it,
and requires additional disclosure about the use of fair value to
measure assets and liabilities. SFAS No. 157 is effective for
financial statements issued for fiscal years beginning after November
15, 2007, and interim periods within those fiscal years. The Company
does not believe that SFAS No. 157 will have a material impact on its
financial statements.
In February 2007, the FASB issued SFAS No. 159 ("SFAS 159") "The Fair
Value Option for Financial Assets and Financial Liabilities",
providing companies with an option to report selected financial assets
and liabilities at fair value. The Standard's objective is to reduce
both complexity in accounting for financial instruments and the
volatility in earnings caused by measuring related assets and
liabilities differently. It also requires entities to display the fair
value of those assets and liabilities for which the Company has chosen
to use fair value on the face of the balance sheet. SFAS 159 is
effective for fiscal years beginning after November 15, 2007. The
Company does not believe that SFAS No. 159 will have a material impact
on its financial statements.
Note 2 - INVENTORIES:
Inventories are stated at cost, on a first-in, first-out basis, which
does not exceed market value.
The Company manufactures products pursuant to specific technical and
contractual requirements. The Company historically purchases material
in excess of its requirements to avail itself of favorable pricing as
well as the possibility of receiving additional orders from customers.
This excess may result in material not being used in subsequent
periods, which may result in this material being deemed obsolete.
The Company annually reviews its purchase and usage activity of its
inventory of parts as well as work in process and finished goods to
determine which items of inventory have become obsolete within the
framework of current and anticipated orders. The Company based upon
historical experience has determined that if a part has not been used
and purchased or an item of finished goods has not been sold in three
years, it is deemed to be obsolete. The Company estimates which
materials may be obsolete and which products in work in process or
finished goods may be sold at less than cost. A periodic adjustment,
based upon historical experience is made to inventory in recognition
of this impairment.
-39-
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 2 - INVENTORIES: (continued)
Inventories are comprised of the following:
March 28, March 30,
2008 2007
---------- ----------
Raw materials $ 927,774 $ 873,958
Work in progress 788,519 368,675
Finished goods 270,074 330,999
---------- ----------
$1,986,367 $1,573,632
========== ==========
Note 3 - PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets are comprised of the
following:
March 28, March 30,
2008 2007
-------- --------
Prepaid insurance $ 16,348 $ 1,636
Prepaid corporate taxes 7,681 9,744
Other current assets 108 --
-------- --------
$ 24,137 $ 11,380
======== ========
Note 4 - PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are as follows:
March 28, March 30,
2008 2007
---------- ----------
Computers $ 212,321 $ 210,321
Leasehold improvements 585,831 585,831
Machinery and equipment 4,903,733 4,810,708
Tools and dies 2,063,187 1,980,189
Furniture and fixture 155,935 155,935
Website development cost 7,550 7,550
---------- ----------
7,928,557 7,750,534
Less: accumulated depreciation and
amortization 6,756,178 6,558,278
---------- ----------
$1,172,379 $1,192,256
========== ==========
-40-
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 5 - ACCOUNTS RECEIVABLE FINANCING:
The Company entered into an accounts receivable financing agreement
whereby it can borrow up to eighty percent of its eligible receivables
(as defined in the agreement) at an interest rate of 2 1/2 % above JP
Morgan Chase's publicly announced rate of 5.25% at March 28, 2008,
with a minimum of 12% per annum. The agreement has an initial term of
one year and will automatically renew for successive one-year terms,
unless terminated by the Company or Lender upon receiving sixty days
prior notice. The loan is secured by the Company's accounts receivable
and inventories. The balance due under this agreement as of March 28,
2008 was $513,378. The balance due as of March 30, 2007 was $477,387.
Note 6 - OTHER CURRENT LIABILITIES:
Other current liabilities are comprised of the following:
March 28 March 30,
2008 2007
---------- ----------
Payroll and vacation accruals $ 172,215 $ 124,044
Sales commissions 16,504 21,381
Other 3,000 2,750
---------- ----------
$ 191,719 $ 148,175
========== ==========
Note 7 - NOTES PAYABLE EQUIPMENT:
The Company financed the acquisition of new equipment with the
issuance of notes payable. The notes were payable over a sixty
month period. During the year ended March 28, 2008, the
Company had paid down the remaining balance of $3,659.
Note 8 - RELATED PARTIES TRANSACTIONS:
One of the Company's officers has periodically loaned the
Company money on a non-interest bearing basis in order to
finance working capital requirements. As of March 30, 2007,
the amount due this officer was $91,000.
During the year ended March 28, 2008 the Company had repaid
$74,000, leaving a remaining balance of $17,000 due to this
officer.
-41-
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 9 - INCOME TAXES:
Income taxes are provided for the tax effects of transactions reported
in the financial statements, and consist of taxes currently due as
well as deferred taxes related to differences between financial
statement and tax basis of assets and liabilities for financial
statement and income tax reporting purposes. Deferred tax assets and
liabilities represent the future tax consequences of these temporary
differences, which will either be taxable or deductible in the year in
which the assets or liabilities are recovered or settled. Accordingly,
measurement of the deferred tax assets and liabilities attributable to
the book-tax basis differentials are computed at a rate of 34% for
federal and l2% for state and local tax purposes.
As of March 28, 2008, the Company had utilized all of its net
operating loss carryforwards, and accordingly as of that date, the
Company no longer recorded any deferred tax assets.
The components of the deferred tax assets and liabilities as of March
30, 2007 were as follows:
March 30,
2007
---------
Deferred tax assets:
Net operating loss carryforwards $ 802,684
---------
Gross deferred assets tax assets 802,684
Deferred tax liabilities:
State income taxes (32,750)
---------
Net deferred tax assets before valuation allowance 769,934
Valuation allowance (769,934)
---------
Net deferred tax assets $ 0
=========
SFAS No. 109 requires that a valuation allowance be recorded when it
is more likely than not that some or all of the deferred tax assets
will not be realized.
-42-
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 9 - INCOME TAXES: (continued)
A reconciliation of income taxes computed at the Federal statutory
rate as compared to income tax expense at the effective income tax is
as follows:
March 30,
2007
---------
Federal statutory income tax (benefit) rate (34.0)%
State tax benefit, net of Federal liability (21.0)%
Net change in valuation allowance 55.0%
Effective income tax (benefit) rate ( - )%
Note 10 - PENSION PLAN-SALARIED PERSONNEL:
On June 30, 1995, the Company applied to the Pension Benefit Guaranty
Corporation ("PBGC") to have the PBGC assume all of the Company's
responsibilities and liabilities under its Salaried Pension Plan. On
April 26, 1996, the PBGC determined that the Salaried Pension Plan did
not have sufficient assets available to pay benefits, which were and
are currently due under the terms of the Plan.
The PBGC further determined that pursuant to the provisions of the
Employment Retirement Income Security Act of 1974, as amended
("ERISA"), that the Plan must be terminated in order to protect the
interests of the Plan's participants. Accordingly, the PBGC proceeded
pursuant to ERISA to have the Plan terminated and the PBGC appointed
as statutory trustee, and to have July 31, 1995 established as the
Plan's termination date.
The Company and the PBGC negotiated a settlement on the entire matter
and on July 2, 2001, an agreement was reached whereby the Company's
liability to the PBGC was reduced to $244,000. The Company would make
monthly payments to the PBGC as follows:
September 1, 2003 to August 1, 2004 $2,000 per month
September 1, 2004 to August 1, 2006 $3,000 per month
September 1, 2006 to August 1, 2007 $4,000 per month
Additionally, the Company has made balloon payments of $25,000 each on
January 1, 2004, May 1, 2004, May 1, 2005 and January 1, 2006.
The Company also granted the PBGC a lien on the Company's machinery
and equipment.
As of August 31, 2007, the Company had satisfied its obligation to the
PBGC and the lien on the Company's machinery and equipment was
released.
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IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 10 - PENSION PLAN-SALARIED PERSONNEL: (continued)
As a result of this agreement the amount due the PBGC was restated to
$244,000. $43,000 was paid during the year ended March 30, 2007,
$86,000 was paid during the year ended March 31, 2006, $56,000 was
paid during the year ended March 25, 2005 and $39,000 was paid during
the year ended March 26, 2004. The remaining balance of $20,000 was
paid during the year ended March 28, 2008.
Note 11 - CHANGES IN STOCKHOLDERS' EQUITY:
The accumulated deficit decreased by $603,865, which represents the
net income for the fiscal year ended March 28, 2008. As a result, the
Company reported retained earnings of $320,277.
Note 12- 2001 EMPLOYEE STOCK OPTION PLAN:
On September 21, 2001 the Company's shareholders approved the adoption
of the Company's 2002 Employees Stock Option Plan ("2002 Plan") to
provide for the grant of options to purchase up to 750,000 shares of
the Company's common stock to all employees, including senior
management.
Options granted to employees under the 2002 Plan may be designated as
options which qualify for incentive stock option treatment under
Section 422A of the Internal Revenue Code, or options which do not so
qualify.
Under the 2002 Plan, the exercise price of an option designated as an
Incentive Stock Option shall not be less than the fair market value of
the Company's common stock on the day the option is granted. In the
event an option designated as an incentive stock option is granted to
a ten percent (10%) shareholder, such exercise price shall be at least
110 Percent (110%) of the fair market value or the Company's common
stock and the option must not be exercisable after the expiration of
five years from the day of the grant.
Exercise prices of non-incentive stock options may be less than the
fair market value of the Company's common stock.
The aggregate fair market value of shares subject to options granted
to a participant(s), which are designated as incentive stock options,
and which become exercisable in any calendar year, shall not exceed
$100,000. As of March 28, 2008 no options had been granted under the
2002 Plan.
Note 13 - CASH BONUS PLAN:
In 1987, the Company adopted a cash bonus plan ("Cash Bonus Plan") for
Executive Officers. Contributions to the Bonus Plan are made by the
Company only after pre-tax operating profits exceed $150,000 for a
fiscal year, and then to the extent of 10% of the excess of the
greater of $150,000 or 25% of pre-tax operating profits. For the year
ended March 28, 2008, the Company's contribution was $33,100. For the
year ended March 30, 2007 the contribution was $20,000.
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IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 14 - COMMITMENTS:
The Company is obligated under its lease for its facility through
August 23, 2011, at minimum annual rentals as follows:
Fiscal year ending March:
2009 $ 168,384
2010 168,384
2011 112,256
---------
$ 449,024
=========
The rental expense for the years ended March 28, 2008 and March 30,
2007 was $145,068 and $142,369, respectively.
The Company has a collective bargaining multi-employer pension plan
("Multi-Employer Plan") with the United Auto Workers of America, Local
259. Contributions are made in accordance with a negotiated labor
contract and are based on the number of covered employees employed per
month. With the passage of the Multi-Employer Pension Plan Amendments
Act of 1990 (the "1990 Act"), the Company may become subject to
liabilities in excess of contributions made under the collective
bargaining agreement. Generally, these liabilities are contingent upon
the termination, withdrawal, or partial withdrawal from the
Multi-Employer Plan.
The Company has not taken any action to terminate, withdraw or
partially withdraw from the Multi-Employer Plan nor does it intend to
do so in the future. Under the 1990 Act, liabilities would be based
upon the Company's proportional share of the Multi-Employer Plan's
unfunded vested benefits, which is currently not available. The amount
of accumulated benefits and net assets of such Plan also is not
currently available to the Company. The total contributions charged to
operations under such Plan were $80,667 for the year ended March 28,
2008 and $69,122 for the year ended March 30, 2007.
Note 15 - REVENUES FROM MAJOR CUSTOMERS:
In the fiscal years ended March 28, 2008 three customers accounted for
approximately 30% of revenues. During the year ended March 30, 2007
approximately 23% of the Company's total revenues were earned from two
customers. Total sales to these customers were approximately
$2,340,000 and $1,428,000, respectively. No other customer accounted
for over 10% of the Company's sales. Accounts receivable as of March
28, 2008, included receivables from three customers, which amounted to
54% of the total accounts receivable.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
IEH CORPORATION
By: /s/ Michael Offerman
--------------------------
Michael Offerman
President and Chief Executive Officer
Dated: July 15, 2008
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Michael Offerman July 15, 2008
--------------------------------------------------
Michael Offerman, Chairman of the
Board, Chief Executive Officer and President
/s/ Robert Knoth July 15, 2008
-----------------------------------------------------
Robert Knoth, Secretary and
Treasurer; Chief Financial Officer,
Controller and Principal Accounting Officer
/s/ Murray Sennet July 15, 2008
----------------------------------------------------
Murray Sennet, Director
/s/ Alan Gottlieb July 15, 2008
-------------------------------------------
Alan Gottlieb, Director
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