SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 26, 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 No. 0-5278
IEH CORPORATION
(Exact name of registrant as specified in its charter)
New York 13-5549348
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
140 58th Street, Suite 8E, Brooklyn, New York 11220
(Address of principal executive office)
Registrant's telephone number, including area code: (718) 492-4440
--------------------------------------------
Former name, former address and former fiscal year,
if changed since last report.
Check whether the Issuer: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes |X| No |_|
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer," "accelerated filer"
and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer |_| Accelerated filer |_|
Non-accelerated filer |_| Smaller Reporting Company |X|
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). YES |_| NO |X|
2,303,468 shares of Common Shares, par value $.01 per share, were outstanding as
of December 26, 2008.
IEH CORPORATION
CONTENTS
Page
Number
------
Part I - FINANCIAL INFORMATION
ITEM 1- FINANCIAL STATEMENTS
Balance Sheets as of December 26, 2008 (Unaudited) and
March 28, 2008 3
Statement of Operations (Unaudited) for the nine and the three
months ended December 26, 2008 and December 28, 2007. 5
Statement of Cash Flows (Unaudited) for the nine months ended
December 26, 2008 and December 28, 2007. 6
Notes to Financial Statements (Unaudited) 8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 19
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT 27
MARKET RISK
ITEM 4 - CONTROLS AND PROCEDURES 27
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS 28
ITEM 1A - RISK FACTORS
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 30
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES 30
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 30
ITEM 5 - OTHER INFORMATION 30
ITEM 6 - EXHIBITS 30
SIGNATURES 31
-1-
EXHIBITS
Exhibit 31.1 Certification Pursuant to Section 302 of the Sarbanes Oxley Act 32
Exhibit 31.2 Certification Pursuant to Section 302 of the Sarbanes Oxley Act 33
Exhibit 32.1 Certification Pursuant to Section 906 of the Sarbanes Oxley Act 34
Exhibit 32.2 Certification Pursuant to Section 906 of the Sarbanes Oxley Act 35
-2-
IEH CORPORATION
BALANCE SHEETS
As of December 26, 2008 and March 28, 2008
Dec. 26, March 28,
2008 2008
---------- ----------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 271,279 $ 29,136
Accounts receivable, less allowance for doubtful accounts
of $11,562 at December 26, 2008 and March 28, 2008 1,492,529 1,180,220
Inventories (Note 3) 2,223,000 1,986,367
Prepaid expenses and other current assets (Note 4) 78,256 24,137
---------- ----------
Total Current Assets 4,065,064 3,219,860
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, less accumulated
depreciation and amortization of $6,889,529 December 26, 2008
and $6,756,178 at March 28, 2008 (Note 5) 1,142,384 1,172,379
---------- ----------
1,142,384 1,172,379
---------- ----------
OTHER ASSETS:
Other assets 24,909 24,784
---------- ----------
24,909 24,784
---------- ----------
Total Assets $5,232,357 $4,417,023
========== ==========
The accompanying notes should be read in conjunction with the
financial statements.
-3-
IEH CORPORATION
BALANCE SHEETS
As of December 26, 2008 and March 28, 2008
Dec. 26, March 28,
2008 2008
---------- ----------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts receivable financing (Note 6) $ 403,211 $ 513,378
Loans payable- officers (Note 8) -- 17,000
Accrued corporate income taxes 397,235 22,103
Accounts payable 225,711 584,938
Workers compensation insurance assessment-
current portion (Note 13) 20,268 --
Other current liabilities (Note 7) 262,829 191,719
---------- ----------
Total Current Liabilities 1,309,254 1,329,138
---------- ----------
LONG TERM LIABILITIES:
Workers compensation insurance assessment less-
current portion (Note 13) 74,337 --
---------- ----------
Total Long Term Liabilities 74,337 --
---------- ----------
Total Liabilities 1,383,591 1,329,138
---------- ----------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 10,000,000 shares authorized;
2,303,468 shares issued and outstanding at December 26, 2008
and March 28, 2008 23,035 23,035
Capital in excess of par value 2,744,573 2,744,573
Retained earnings (Note 10) 1,081,158 320,277
---------- ----------
Total Stockholders' Equity 3,848,766 3,087,885
---------- ----------
Total Liabilities and Stockholders' Equity $5,232,357 $4,417,023
========== ==========
The accompanying notes should be read in conjunction with the
financial statements.
-4-
IEH CORPORATION
STATEMENT OF OPERATIONS
(Unaudited)
Nine Months Ended Three Months Ended
----------------- ------------------
Dec. 26, Dec. 28, Dec. 26, Dec. 28,
2008 2007 2008 2007
---------- ---------- ---------- ----------
REVENUE, net sales $7,932,098 $5,511,577 $2,701,770 $1,935,092
---------- ---------- ---------- ----------
COSTS AND EXPENSES
Cost of products sold 5,390,593 4,009,085 1,778,843 1,371,164
Selling, general and administrative 1,145,487 920,290 400,193 318,592
Interest expense 52,643 151,541 14,157 36,397
Depreciation and amortization 135,040 150,660 44,880 49,980
---------- ---------- ---------- ----------
6,723,763 5,231,576 2,238,073 1,776,133
---------- ---------- ---------- ----------
OPERATING INCOME 1,208,335 280,001 463,697 158,959
OTHER INCOME 546 383 270 231
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 1,208,881 280,384 463,967 159,190
PROVISION FOR INCOME TAXES 448,000 30,807 406,000 9,600
---------- ---------- ---------- ----------
NET INCOME $ 760,881 $ 249,577 $ 57,967 $ 149,590
========== ========== ========== ==========
BASIC AND DILUTED EARNINGS PER SHARE $ .33 $ .11 $ .03 $ .06
========== ========== ========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING (in thousands) 2,303 2,303 2,303 2,303
========== ========== ========== ==========
The accompanying notes should be read in conjunction with the
financial statements.
-5-
IEH CORPORATION
STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash
(Unaudited)
Nine Months Ended
----------------------
Dec. 26, Dec. 28,
2008 2007
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 760,881 $ 249,577
--------- ---------
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation 135,040 150,660
Changes in assets and liabilities:
(Increase) in accounts receivable (312,309) (136,450)
(Increase) in inventories (236,633) (253,868)
(Increase) in prepaid expenses and other current assets (54,119) (60,925)
(Increase) in other assets (125) (314)
(Decrease) in accounts payable (360,915) (80,582)
Increase in other current liabilities 71,110 77,024
Increase in accrued corporate income taxes 375,131 29,406
Increase in workers compensation assessment payable 94,605 --
(Decrease) in due to pension plan payable -- (20,000)
--------- ---------
Total adjustments (288,215) (295,049)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 472,666 (45,472)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of fixed assets (103,356) (148,418)
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES $(103,356) $(148,418)
========= =========
The accompanying notes should be read in conjunction with the
financial statements.
-6-
IEH CORPORATION
STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash
(Unaudited)
Nine Months Ended
----------------------
Dec. 26, Dec. 28,
2008 2007
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes payable $ -- $ (2,352)
(Payment) from accounts receivable financing (110,167) 220,106
(Repayment) of loans payable - officers (17,000) (44,000)
--------- ---------
NET CASH (USED) BY FINANCING ACTIVITIES (127,167) 173,754
--------- ---------
INCREASE (DECREASE) IN CASH 242,143 (20,136)
CASH, beginning of period 29,136 34,908
--------- ---------
CASH, end of period $ 271,279 $ 14,772
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the nine months for:
Interest $ 48,218 $ 66,488
========= =========
Income Taxes $ 51,954 $ 11,812
========= =========
The accompanying notes should be read in conjunction with the
financial statements.
-7-
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 1- INTERIM RESULTS AND BASIS OF PRESENTATION:
The accompanying unaudited financial statements as of December 26, 2008
and December 28, 2007 and for the nine months then ended have been
prepared in conformity with U.S. generally accepted accounting
principles ("GAAP") for interim financial information and with the
instructions to Form 10-Q. In the opinion of management, the unaudited
financial statements have been prepared on the same basis as the annual
financial statements and reflect all adjustments, which include only
normal recurring adjustments, necessary to present fairly the financial
position as of December 26, 2008 and December 28, 2007 and the results
of operations and cash flows for the nine months then ended. The
financial data and other information disclosed in these notes to the
interim financial statements related to these periods are unaudited.
The results for the nine months ended December 26, 2008, are not
necessarily indicative of the results to be expected for any subsequent
quarter or the entire fiscal year. The balance sheet at March 28, 2008
has been derived from the audited financial statements at that date.
Certain information and footnote disclosures normally included in
financial statements prepared in conformity with GAAP have been
condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission (the "SEC"). The Company believes,
however, that the disclosures in this report are adequate to make the
information presented not misleading in any material respect. The
accompanying financial statements should be read in conjunction with
the audited financial statements of IEH Corporation as of March 28,
2008 and the notes thereto included in the Company's report on Form
10-KSB as filed with the SEC.
Note 2 - 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.
-8-
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued)
Revenue Recognition:
Revenues are recognized at the shipping date of the Company's products.
The Company has historically adopted the shipping terms that title to
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 product. The Company's experience has been that a
loss from returns is extremely remote. Accordingly, the Company's
management does not believe that an allowance for loss from returns is
necessary.
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.
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.
-9-
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued)
Concentration of Credit Risk:
The Company maintains cash balances at one financial institution.
Amounts on deposit are insured by the Federal Deposit Insurance
Corporation ("FDIC") up to $250,000 in the aggregate. The Company had
$271,279 on deposit as of December 26, 2008 which exceeded the
temporary FDIC insured limits at the time. On October 3, 2008, the
Emergency Economic Stabilization Act of 2008 (the "2008 Act") was
enacted. The 2008 Act temporarily raised the deposit insurance coverage
to $250,000 until December 31, 2009. Pursuant to the 2008 Act,
subsequent to December 31, 2009, the FDIC insurance limits will return
to $100,000. As of March 28, 2008, the Company had no uninsured
balances.
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
accounts. 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".
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 nine months
ended December 26, 2008 and December 28, 2007, respectively, there were
no items of potential dilution that would impact on the computation of
diluted earnings or loss per share.
-10-
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued)
Fair Value of Financial Instruments:
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," requires that an entity recognize all derivatives as
either assets or liabilities in the statements of financial position
and measure those instruments at fair value.
The respective carrying value of certain on-balance-sheet financial
instruments approximates their fair values. These financial instruments
include cash, accounts receivable, accounts payable and borrowings.
Fair values were assumed to approximate carrying values for these
financial instruments since they are short-term in nature and their
carrying amounts approximate fair value or they were receivable or
payable on December 26, 2008.
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 or Disposal of Long-Lived
Assets," 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 nine months ended December 26, 2008 and December 28,
2007, respectively.
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 balance sheet. There were no material
items of comprehensive income to report for the nine months ended
December 26, 2008 and December 28, 2007, respectively.
-11-
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 2 - 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 did not expend any funds on customer sponsored research and
development during the three months ended December 26, 2008 and
December 28, 2007. In addition the Company did not receive any revenues
related to customer sponsored research and development activities
during the nine months ended December 26, 2008 and December 28, 2007.
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 nine months ended December 26, 2008.
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.
-12-
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued)
Effect of New Accounting Pronouncements: (continued)
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. This 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 159 will have a material impact on its financial
statements.
In May 2008, the FASB issued SFAS No. 162 ("SFAS 162"), "The Hierarchy
of Generally Accepted Accounting Principles". SFAS 162 is intended to
improve financial reporting by identifying a consistent framework, or
hierarchy, for selecting accounting principles to be used in the
preparation of financial statements of nongovernmental entities that
are presented in conformity with GAAP. SFAS 162 directs the GAAP
hierarchy to the entity, not the independent auditors, as the entity is
responsible for selecting accounting principles for financial
statements that are presented in conformity with GAAP. The Company has
assessed the impact of SFAS 162 and has determined it has no impact on
its financial statements.
Note 3 - 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.
-13-
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 3 - INVENTORIES: (continued)
Inventories are comprised of the following:
Dec. 26, March 28,
2008 2008
---------- ----------
Raw materials $1,038,298 $ 927,774
Work in progress 882,454 788,519
Finished goods 302,248 270,074
---------- ----------
$2,223,000 $1,986,367
========== ==========
Note 4 - PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets are comprised of the
following:
Dec. 26, March 28,
2008 2008
------- -------
Prepaid insurance $19,559 $16,348
Prepaid corporate taxes 7,681 7,681
Other current assets 51,016 108
------- -------
$78,256 $24,137
======= =======
Note 5 - PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are as follows:
Dec. 26, March 28,
2008 2008
---------- ----------
Computers $ 229,676 $ 212,321
Leasehold improvements 585,831 585,831
Machinery and equipment 4,942,654 4,903,733
Tools and dies 2,110,267 2,063,187
Furniture and fixture 155,935 155,935
Website development cost 7,550 7,550
---------- ----------
8,031,913 7,928,557
Less: accumulated depreciation and
amortization 6,889,529 6,756,178
---------- ----------
$1,142,384 $1,172,379
========== ==========
-14-
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 6 - ACCOUNTS RECEIVABLE FINANCING:
The Company entered into an accounts receivable financing agreement
whereby it can borrow up to 80% 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 3.25% at December 26, 2008. However,
the agreement does stipulate that the minimum interest rate is 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 the lender upon receiving 60 days prior notice. The loan
is secured by the Company's accounts receivable and inventories. The
balance due under this agreement as of December 26, 2008 was $403,211.
The balance due as of March 28, 2008 was $513,378.
Note 7 - OTHER CURRENT LIABILITIES:
Other current liabilities are comprised of the following:
Dec. 26, March 28,
2008 2008
-------- --------
Payroll and vacation accruals $203,168 $172,215
Sales commissions 20,905 16,504
Other 38,756 3,000
-------- --------
$262,829 $191,719
======== ========
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 28, 2008, the amount due to this officer was
$17,000. During the nine months ended December 26, 2008, the Company
fully repaid this officer.
Note 9 - 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 (the
"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 the 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 Salaried Pension Plan's termination
date.
-15-
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 9 - PENSION PLAN-SALARIED PERSONNEL: (continued)
The Company and the PBGC negotiated a settlement of the entire matter
and on July 2, 2001, an agreement became effective whereby the
Company's liability to the PBGC was reduced to $244,000. Pursuant to
the agreement the Company was required to 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 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 a result of this agreement the amount due the PBGC was restated to
$244,000. As of August 31, 2007, the Company had satisfied its
obligation to the PBGC and the resultant lien was released.
Note 10- CHANGES IN STOCKHOLDERS' EQUITY:
Retained earnings increased by $760,881, which represents the net
income for the nine months ended December 26, 2008.
Note 11- 2002 EMPLOYEE STOCK OPTION PLAN:
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%) 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 December 26, 2008 no options had been granted under
this Plan.
Note 12 - CASH BONUS PLAN:
In 1987, the Company adopted a cash bonus plan (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 or 25% of pre-tax operating profits. The Company
accrued $69,300 for the nine months ended December 26, 2008. For the
year ended March 28, 2008, the contribution was $33,100.
-16-
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 13- WORKERS COMPENSATION INSURANCE ASSESSMENT:
On September 15, 2008, the Company was notified by the State of New
York Workers' Compensation Board (the "Board") that the Trade Industry
Workers' Compensation Trust for Manufacturers (the "Trust") had
defaulted. As a member of this self-insured group, the Company was
assessed on an estimated basis by the Board for its allocable share
necessary to discharge all liabilities of the Trust.
The estimated assessment pertains to the years 2002 through 2006. The
Company was advised that there may be an additional assessment for the
year 2007 and that the estimated assessments for the year 2002 through
2006 are subject to additional review and adjustment.
The amount assessed for the years 2002 thru 2006 was $101,362. The
assessment for each year is detailed as follows:
2002 $ 16,826
2003 24,934
2004 31,785
2005 14,748
2006 13,069
--------
$101,362
========
The Company does have the option of paying this assessment as a lump
sum amount or paying off the assessment over a 60 month period. The
Company has elected the deferral option, and will be making monthly
payments of $1,689 for 59 months, and $1,711 for the 60th and final
month. The Company has recorded this assessment as a charge to Cost of
Sales in the quarter ended December 26, 2008. As of December 26, 2008,
the current portion of this assessment liability was $20,268 and the
long-term portion was $74,337.
Note 14 - COMMITMENTS AND CONTINGENCIES:
The Company leases its facility under a renewed tenure lease agreement,
which expires on August 23, 2011. The Company is obligated under this
lease at minimum annual rentals as follows:
Fiscal year ending March:
2009 $ 42,096
2010 168,384
2011 112,256
----------
$ 322,736
==========
The rental expense for the nine months ended December 26, 2008 and
December 28, 2007, respectively, was $108,801 each.
-17-
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 14 - COMMITMENTS AND CONTINGENCIES: (continued)
The Company has a collective bargaining multi-employer pension plan
(the "Multi-Employer Plan") with the United Auto Workers of America,
Local 259 (the "UAW"). Contributions are made by the Company 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 Amendment 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 are
contingent upon 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 the provisions of the Multi-Employer Plan were $65,830
and $59,127 for the nine months ended December 26, 2008 and December
28, 2007, respectively.
In 1992, the Company had been in arrears with respect to its
contributions to the Multi-Employer Plan in the amount of $186,467. The
Company and the UAW entered into a verbal agreement whereby the Company
would continue making current contributions as well as making periodic
payments to satisfy the outstanding arrears obligation to the
Multi-Employer Plan. The outstanding obligation was satisfied by the
Company on July 12th, 2007. Under the terms of this verbal agreement,
the Company was not obligated to pay interest until the arrears was
satisfied.
The UAW and the Company agreed in October 2007 that the total amount of
interest due would be $85,000. The Company paid the $85,000 to the UAW
in October 2007 and satisfied its indebtedness.
In November 2006, three former employees of the Company filed claims
with the New York State Division of Human Rights ("SDHR") alleging
national origin discrimination The SDHR acts as an investigative and
adjudicative agency. With respect to its adjudicative function, the
SDHR resolves complaints by conducting public hearings before
administrative law judges. The SDHR does not litigate claims in court
on behalf of claimants. On December 27, 2008, the SDHR issued a
determination that probable cause existed that the Company may have
violated applicable law and directed that a public hearing be held
before an administrative law judge with respect to each former
employee's claim. The SDHR has not yet scheduled these matters for
hearing. The SDHR is authorized to award legal and equitable relief,
including, reinstatement, back pay, and compensatory damages. The
Company intends to vigorously defend these claims and believes that
there are meritorious defenses in each case.
The Company is engaged in no other litigation which would be
anticipated to have a material adverse effect on our financial
condition, results of operations or cash flows.
-18-
IEH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forward-Looking Statements
This report contains forward-looking statements within the meaning of Section
21E of the Securities and Exchange Act of 1934, as amended (the "1934 Act") and
Section 27A of the Securities Act of 1933 (the "1933 Act"). Statements contained
in this report which are not statements of 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 from 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.
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 SEC that attempt to advise interested parties of the risks,
uncertainties and other factors that m ay affect our business. 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 conformity with GAAP, 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.
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
-19-
IEH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
Critical Accounting Policies (continued)
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.
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.
-20-
IEH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
Results of Operations
Comparative Analysis-Nine Months Ended December 26, 2008 and December 28, 2007
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
Dec. 26, Dec. 28,
2008 2007
--------- ---------
Operating Revenues (in thousands) $ 7,932 $ 5,512
--------- ---------
Operating Expenses:
(as a percentage of Operating Revenues)
Costs of Products Sold 67.96% 72.74%
Selling, General and Administrative 14.44% 16.70%
Interest Expense .66% 2.75%
Depreciation and amortization 1.70% 2.73%
--------- ---------
TOTAL COSTS AND EXPENSES 84.76% 94.92%
--------- ---------
Operating Income (loss) 15.24% 5.08%
Other Income .01% .01%
--------- ---------
Income (loss) before Income Taxes 15.25% 5.09%
Income Taxes 5.65% .56%
--------- ---------
Net Income (loss) 9.60% 4.53%
========= =========
Operating revenues for the nine months ended December 26, 2008 amounted to
$7,932,098 reflecting a 43.92% increase versus the nine months ended December
28, 2007 revenues of $5,511,577. The sharp increase in revenues can be
attributed to a dramatic increase in commercial aerospace spending, new
customers in the medical device manufacturing sector as well as internal
production efficiencies.
Cost of products sold amounted to $5,390,593 for the nine months ended December
26, 2008, or 67.96% of operating revenues. This reflected a $1,381,508 or 34.46%
increase in the cost of products sold from $4,009,085 or 72.74% of operating
revenues for the nine months ended December 28, 2007. The increase in cost of
product sold is due primarily to an assessment for workers compensation from the
State of New York due to the default of the self-insured workers compensation
insurance trust of which the Company was a participant (see Note 13 to our
financial statements) and the increase in costs related to the increase in
revenues recorded during the quarter ended December 26, 2008.
-21-
IEH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
Comparative Analysis-Nine Months Ended December 26, 2008 and December 28, 2007
(continued)
Selling, general and administrative expenses were $1,145,487 or 14.44% of
operating revenues for the nine months ended December 26, 2008 compared to
$920,290 or 16.70% of operating revenues for the nine months ended December 28,
2007. This category of expenses increased by $225,197 or .25% from the prior
year. The increase can be attributed to an increase in salaries to sales
personnel, commissions and travel expenses.
Interest expense was $52,643 or the nine months ended December 26, 2008 or .66%
of operating revenues. For the fiscal nine months ended December 28, 2007,
interest expense was $151,541 or 2.75% of operating revenues. The decrease of
$98,898 or 65.26% reflects primarily management's commitment to apply revenues
to reduce the Company's debt.
Depreciation and amortization of $135,040 or 1.70% of operating revenues was
reported for the nine months ended December 26, 2008. This reflects a decrease
of $15,620 from the comparable six month period ended December 28, 2007 of
$150,660 or 2.73% of operating revenues. The reduction in depreciation is the
result of assets being written off prior to the nine months ended December 26,
2008.
The Company reported net income of $760,881 for the nine months ended December
26, 2008 representing basic earnings of $.33 per share as compared to net income
of $249,577 or $.11 per share for the nine months ended December 28, 2007. The
increase in net income for the current nine month period can be attributed
primarily to the increased revenue recorded during the current quarter.
-22-
IEH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
Comparative Analysis-Three Months Ended December 26, 2008 and December 28, 2007
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
Dec. 26, Dec. 28,
2008 2007
--------- ---------
Operating Revenues (in thousands) $ 2,702 $ 1,935
--------- ---------
Operating Expenses:
(as a percentage of Operating Revenues)
Costs of Products Sold 65.84% 70.86%
Selling, General and Administrative 14.81% 16.46%
Interest Expense .52% 1.88%
Depreciation and amortization 1.66% 2.58%
--------- ---------
TOTAL COSTS AND EXPENSES 82.83% 91.78%
--------- ---------
Operating Income (loss) 17.17% 8.22%
Other Income -- --
--------- ---------
Income (loss) before Income Taxes 17.17% 8.22%
Income Taxes 15.03% .50%
--------- ---------
Net Income (loss) 2.14% 7.72%
========= =========
Operating revenues for the three months ended December 26, 2008 amounted to
$2,701,770 reflecting a 39.62% increase versus the three months ended December
28, 2007 revenues of $1,935,092. The increase in revenues is due to an increase
in commercial sales orders during the current quarter.
Cost of products sold amounted to $1,778,843 for the three months ended December
26, 2008, or 65.84% of operating revenues. This reflected a $407,679 or 29.73%
increase in the cost of products sold from $1,371,164 or 70.86% of operating
revenues for the three months ended December 28, 2007. The increase in cost of
products sold is due primarily to the increase in costs related to the increase
in revenues recorded during the quarter ended December 26, 2008.
-23-
IEH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
Comparative Analysis-Three Months Ended December 26, 2008 and December 28, 2007
(continued)
Selling, general and administrative expenses were $400,193 or 14.81% of
operating revenues for the three months ended December 26, 2008 compared to
$318,592 or 16.46% of operating revenues for the three months ended December 28,
2007. This category of expenses increased by $81,601 or 25.61% from the prior
year. The increase can be attributed to an increase in sales salaries,
commissions and travel.
Interest expense was $14,157 for the three months ended December 26, 2008 or
..52% of operating revenues. For the fiscal three months ended December 28, 2007,
interest expense was $36,397 or 1.88% of operating revenues. The decrease of
$22,240 or 61.10% reflects primarily management's commitment to reduce the
Company's debt.
Depreciation and amortization of $44,880 or 1.66% of operating revenues was
reported for the three months ended December 26, 2008. This reflects a decrease
of $5,100 or 10.20% from the prior three months ended December 28, 2007 of
$49,980 or 2.58% of operating revenues.
The Company reported net income of $57,967 for the three months ended December
26, 2008 representing basic earnings of $.03 per share as compared to a net
income of $149,590 or $.06 per share for the three months ended December 28,
2007. The decrease in net income for the current three month period can be
attributed primarily to the additional tax accrued during the current quarter.
Liquidity and Capital Resources
The Company reported working capital of $2,755,810 as of December 26, 2008
compared to a working capital of $1,890,722 as of March 28, 2008. The increase
in working capital of $865,088 was attributable to the following items:
Net income $760,881
Depreciation and amortization 135,040
Capital expenditures (103,356)
Other transactions 72,523
As a result of the above, the current ratio (current assets to current
liabilities) was 3.10 to 1 at December 26, 2008 as compared to 2.42 to 1 at
March 28, 2008. Current liabilities at December 26, 2008 were $1,309,254
compared to $1,329,138 at March 28, 2008.
The Company reported $103,356 in capital expenditures for the nine months ended
December 26, 2008 and reported depreciation of $135,040 for the same nine month
period.
The net income of $760,881 for the nine months ended December 26, 2008 resulted
in an increase in stockholders' equity to $3,848,766 as compared to
stockholders' equity of $3,087,885 at March 28, 2008.
The Company has an accounts receivable financing agreement with a factor, which
bears interest at 2.5% above prime.
-24-
IEH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
Liquidity and Capital Resources (continued)
However, the agreement does stipulate that the minimum interest rate is 12% per
annum. At December 26, 2008 the amount outstanding with the factor was $403,211
as compared to $513,378 at March 28, 2008. 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.
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 collectability 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 28, 2008 the amount due to this officer was $17,000. During the nine
months ended December 26, 2008, the Company fully repaid this officer.
The Company has the Multi-Employer Plan with the UAW. Contributions are made by
the Company in accordance with a negotiated labor contract and are based on the
number of covered employees employed per month. With the passage of the Act, the
Company may become subject to liabilities in excess of contributions made under
the collective bargaining agreement. Generally, these are contingent upon
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 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 the provisions of the Multi-Employer Plan were $65,830 and
$59,127 for the nine months ended December 26, 2008 and December 28, 2007,
respectively.
In 1992, the Company had been in arrears with respect to its contributions to
the Multi-Employer Plan in the amount of $186,467. The Company and the UAW
entered into a verbal agreement whereby the Company would continue making
current contributions as well as making periodic payments to satisfy the
outstanding arrears obligation to the Multi-Employer Plan. The outstanding
obligation was satisfied by the Company on July 12th, 2007. Under the terms of
this verbal agreement, the Company was not obligated to pay interest until the
arrears was satisfied.
The UAW and the Company agreed in October 2007 that the total amount of interest
due would be $85,000. The Company paid the $85,000 to the UAW in October 2007
and satisfied its indebtedness.
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.
-25-
IEH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
Liquidity and Capital Resources (continued)
The PBGC further determined that pursuant to the provisions of the 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 Salaried Pension Plan's
termination date.
The Company and the PBGC negotiated a settlement of the entire matter and on
July 2, 2001, an the agreement became effective whereby the Company's liability
to the PBGC was reduced to $244,000. Pursuant to the agreement the Company was
required to 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 made balloon payments of $25,000 each on January 1,
2004, May 1, 2004, May 1, 2005 and January 1, 2006.
The Company granted the PBGC a lien on the Company's machinery and equipment.
As a result of this agreement the amount due the PBGC was restated to $244,000.
As of August 31, 2007, the Company had satisfied its obligation to the PBGC and
the resultant lien was released.
On September 21, 2001, the Company's shareholders approved the adoption of the
Company's 2002 Employee 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 the 2002 Employee Stock Option 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 December 26, 2008, no options had been granted under the 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 or 25% of pre-tax operating
profits.
-26-
IEH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
Liquidity and Capital Resources (continued)
The Company accrued $69,300 for the nine months ended December 26, 2008. For the
year ended March 28, 2008, the contribution was $33,100.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not believe that any of our financial instruments have significant risk
associated with market sensitivity. For more information on these investments
see Note 2 to our financial statements included in this Form 10-Q. We are not
exposed to significant financial market risks from changes in foreign currency
exchange rates and are only minimally impacted by changes in interest rates. We
have not used, and currently do not contemplate using, any derivative financial
instruments.
Interest Rate Risk
At any time, fluctuations in interest rates could affect interest earnings on
our cash and marketable securities. We believe that the effect, if any, of
reasonably possible near term changes in interest rates on our financial
position, results of operations, and cash flows would not be material.
Currently, we do not hedge these interest rate exposures. The primary objective
of our investment activities is to preserve capital. We have not used derivative
financial instruments in our investment portfolio.
As of December 26, 2008, our unrestricted cash was $271,279 of which $150,628
was in an interest bearing money market account with and the balance of $120,651
was maintained in non-interest bearing checking accounts used to pay operating
expenses.
ITEM 4. CONTROLS AND PROCEDURES
Based on an evaluation of the effectiveness of the Company's "disclosure
controls and procedures" (as defined in Rules 13a-15(e) and 15d-15(e) under the
1934 Act), the Company's President and Chief Financial Officer (who is also our
controller and principal accounting officer) concluded that, as of the end of
the period covered by this Report on Form 10-Q, the Company's disclosure
controls and procedures are effective to ensure that all information required to
be disclosed by the Company in this Report that it files or submits under the
1934 Act is, recorded, processed, and reported within the time periods specified
within the SEC's rules and forms and that such information is accumulated and
communicated to our management, including our President and Chief Financial
Officer, to allow timely decisions regarding required disclosure.
Our management, including our President and Chief Financial Officer, does
not expect that our disclosure controls and procedures or our internal controls
will prevent all errors and all fraud. A control system, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are 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 our company have been detected. Our management, however, believes
our disclosure controls and procedures are in fact effective to provide
reasonable assurance that the objectives of the control system are met.
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IEH CORPORATION
ITEM 4. CONTROLS AND PROCEDURES (continued)
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting (as
defined in Rule 13a-15(f) under the 1934 Act) during the quarter ended December
26, 2008 that have been materially affected, or are reasonably likely to
materially affect our internal controls over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In November 2006, three former employees of the Company filed claims with the
New York State Division of Human Rights ("SDHR") alleging national origin
discrimination The SDHR acts as an investigative and adjudicative agency. With
respect to its adjudicative function, the SDHR resolves complaints by conducting
public hearings before administrative law judges. The SDHR does not litigate
claims in court on behalf of claimants. On December 27, 2008, the SDHR issued a
determination that probable cause existed that the Company may have violated
applicable law and directed that a public hearing be held before an
administrative law judge with respect to each former employee's claim. The SDHR
has not yet scheduled these matters for hearing. The SDHR is authorized to award
legal and equitable relief, including, reinstatement, back pay, and compensatory
damages. The Company intends to vigorously defend these claims and believes that
there are meritorious defenses in each case.
The Company is engaged in no other legal proceedings which would be anticipated
to have a material adverse effect on the Company, its financial condition,
results of operations or cash flows.
ITEM 1A. RISK FACTORS
As provided for under the Private Securities Litigation Reform Act of 1995,
we wish to caution shareholders and investors that the following important
factors, among others discussed throughout this Report on Form 10-Q and a
restated description of the risk factors associated with our business is set
forth below. This description includes any material changes to and supersedes
the description of the risk factors associated with our business previously
disclosed in Part I, Item 1A of our Annual Report on Form 10-KSB for the year
ended March 28, 2008. You should carefully consider the risks described below,
together with all of following risk factors and the other information included
in this report, in considering our business herein as well as the information
included in other reports and prospects. The risks and uncertainties described
below are not the only ones facing our Company. Additional risks and
uncertainties not presently known to us or that we currently deem immaterial
also may impair our business operations, financial condition and/or operating
results. If any of the matters or events described in the following risks
actually occurs, our business, financial condition or results of operations
could be harmed. In such case, the trading price of our common stock could
decline, and you may lose all or part of your investment due to any of these
risks.
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Risks Related to Our Business
Failure to increase our revenue and keep our expenses consistent with revenues
could prevent us from achieving and maintaining profitability.
We have generated net income of $ 603,865, $200,693 and $ 1,137,622,
respectively, for the fiscal years ended March 28, 2008, March 30, 2007 and
March 31, 2006 and $760,881 for the nine months ended December 26, 2008. We have
expended, and will continue to be required to expend, substantial funds to
pursue product development projects, enhance our marketing and sales efforts and
to effectively maintain business operations. Therefore, we will need to generate
higher revenues to achieve and maintain profitability and cannot assure you that
we will be profitable in any future period.
Our capital requirements are significant and we have historically partially
funded our operations through the financing of our accounts receivable.
We have an existing accounts receivable financing agreement with a factor
whereby we can borrow up to 80% of our eligible receivables at an interest rate
of 2 1/2 % above JP Morgan Chase's publicly announced interest rate. No
assurances can be given that this financing agreement will continue into the
future. If we unable to continue with this agreement, our cash flow might
adversely be affected.
Our success is dependent on the performance of our management and the
cooperation, performance and retention of our executive officers and key
employees.
Our business and operations are substantially dependent on the performance of
our senior management team and executive officers. If our management team is
unable to perform it may adversely impact our results of operations and
financial condition. We do not maintain "key person" life insurance on any of
our executive officers. The loss of one or several key employees could seriously
harm our business. Any reorganization or reduction in the size of our employee
base could harm our ability to attract and retain other valuable employees
critical to the success of our business.
If we lose key personnel or fail to integrate replacement personnel
successfully, our ability to manage our business could be impaired.
Our future success depends upon the continued service of our key management,
technical, sales, finance, and other critical personnel. We cannot assure you
that we will be able to retain them. Key personnel have left our Company in the
past and there likely will be additional departures of key personnel from time
to time in the future. The loss of any key employee could result in significant
disruptions to our operations, including adversely affecting the timeliness of
product releases, the successful implementation and completion of Company
initiatives, the effectiveness of our disclosure controls and procedures and our
internal control over financial reporting, and the results of our operations. In
addition, hiring, training, and successfully integrating replacement sales and
other personnel could be time consuming, may cause additional disruptions to our
operations, and may be unsuccessful, which could negatively impact future
revenues.
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IEH CORPORATION
ITEM 1A. RISK FACTORS (continued)
Our reported financial results could be adversely affected by changes in
financial accounting standards or by the application of existing or future
accounting standards to our business as it evolves.
As a result of the enactment of the Sarbanes-Oxley Act and the review of
accounting policies by the SEC and national and international accounting
standards bodies, the frequency of accounting policy changes may accelerate.
Possible future changes to accounting standards, could adversely affect our
reported results of operations.
Risks Related to Our Common Stock
Our stock price is volatile and could decline.
The price of our common stock has been, and is likely to continue to be,
volatile. For example, our stock price during the fiscal year ended March 28,
2008 traded as low as $1.60 per share and as high as $2.90 per share. During the
nine month period ended December 26, 2008, our stock traded in the range of
$1.65 per share to $6.96 per share. We cannot assure you that your initial
investment in our common stock will not fluctuate significantly. The market
price of our common stock may fluctuate significantly in response to a number of
factors, some of which are beyond our control, including:
o quarterly variations in our operating results;
o announcements we make regarding significant contracts, acquisitions,
dispositions, strategic partnerships, or joint ventures;
o additions or departures of key personnel;
o the introduction of competitive offerings by existing or new
competitors;
o uncertainty about and customer confidence in the current economic
conditions and outlook;
o reduced demand for any of our products; and o sales of our common
stock.
In addition, the stock market in general, and companies whose stock is
listed on The NASDAQ Global Market, have experienced extreme price and volume
fluctuations that have often been disproportionate to the operating performance
of these companies. Broad market and industry factors may negatively affect the
market price of our common stock, regardless of our actual operating
performance.
Since we have not paid dividends on our common stock, you may not receive income
from this investment.
We have not paid any dividends on our common stock since our inception and
do not contemplate or anticipate paying any dividends on our common stock in the
foreseeable future. Earnings, if any, will be used to finance the development
and expansion of our business
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IEH CORPORATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS;
PURCHASES OF EQUITY SECURITIES
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER MATTERS.
None
ITEM 6. EXHIBITS.
(a) Exhibits
Exhibit 31.1 Certification Pursuant to Section 302 of the Sarbanes Oxley Act
Exhibit 31.2 Certification Pursuant to Section 302 of the Sarbanes Oxley Act
Exhibit 32.1 Certification Pursuant to Section 906 of the Sarbanes Oxley Act
Exhibit 32.2 Certification Pursuant to Section 906 of the Sarbanes Oxley Act
(b) Reports on Form 8-K during Quarter
None
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
has duly caused this Report on Form 10-Q to be signed on its behalf by the
undersigned, thereunto duly authorized.
IEH CORPORATION
(Registrant)
February 9, 2009 /s/ Michael Offerman
--------------------
Michael Offerman
President (Principal Executive Officer)
February 9, 2009 /s/ Robert Knoth
----------------
Robert Knoth
Chief Financial Officer/Controller
(Principal Accounting Officer)
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