U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED MARCH 27, 2009.
|_| 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.)
In Company)
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
Indicate by check mark if Registrant is a well-known seasoned issuer, as defined
in Rule 405 of the Securities Act. Yes |_| No |X|
Indicate by check mark if the Registrant is not required to file reports
pursuant to Section 13 or 15(d) of the Securities Exchange Act. Yes |_| No |X|
Indicate by check mark whether the Registrant (1) has 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 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
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 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-K
or any amendment to this Form 10-K.|X|
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Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes |_| No |X|
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was last sold, or the average bid and asked price of such common equity, as of
the last business day of the Registrant's most recently completed second fiscal
quarter (September 26, 2008): $3,924,900.60.
--------------------------------------------------------------------------------
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date: On July 10, 2009, the
Registrant had 2,303,468 shares of common stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the Part
of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated: (1) Any annual report to security holders; (2) Any proxy or
information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or
(e) under the Securities Act of 1933.
None
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IEH CORPORATION
INDEX TO FORM 10-K
Page
PART I....................................................................... 5
ITEM 1. DESCRIPTION OF BUSINESS......................................... 5
ITEM 1A. RISK FACTORS.................................................... 10
ITEM 1B. UNRESOLVED STAFF COMMENTS....................................... 10
ITEM 2. DESCRIPTION OF PROPERTY......................................... 10
ITEM 3. LEGAL PROCEEDINGS............................................... 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS......... 11
PART II...................................................................... 12
ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER'S PURCHASES OF EQUITY SECURITIES.................. 12
ITEM 6. SELECTED FINANCIAL DATA......................................... 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 13
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK ...... 20
ITEM 8. FINANCIAL STATEMENTS............................................ 20
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE........... 20
ITEM 9A. CONTROLS AND PROCEDURES......................................... 20
ITEM 9B. OTHER INFORMATION............................................... 22
PART III..................................................................... 22
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE ........ 22
ITEM 11. EXECUTIVE COMPENSATION.......................................... 24
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS...................... 26
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ................. 26
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.......................... 27
PART IV ................................................................ 28
ITEM 15. EXHIBITS........................................................ 28
SIGNATURES
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.
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IEH CORPORATION
PART I
Item 1. Description of 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 ISO 9001. 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 30%
and 69%, respectively, of the Company's net sales for the year ended
March 27, 2009.
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 for which such customer has
contracts.
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IEH CORPORATION
PART I
Item 1. Description of Business (continued)
New Product Development (continued)
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.
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 $101,695 for the year ended March 27,
2009 and $80,667 for the year ended March 28, 2008.
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 assessed amount for the years 2002 through 2006 was $101,362. The
assessed amount for each year is detailed as follows:
2002 $ 16,826
2003 24,934
2004 31,785
2005 14,748
2006 13,069
------
$101,362
========
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IEH CORPORATION
PART I
Item 1. Description of Business (continued)
Commitments (continued)
The Company did 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 is making monthly payments of
$1,689 for 59 months, and $1,711 for the 60th and final month. The
Company had recorded this assessment as a charge to Cost of Sales in the
quarter ended December 26, 2008. As of March 27, 2009, the current
portion of this assessment liability was $20,268 and the long-term
portion was $67,579.
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% of the Company's net sales for the years ended March 27, 2009 and
March 28, 2008, 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.
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IEH CORPORATION
PART I
Item 1. Description of Business (continued)
Marketing and Sales (continued)
Three of the Company's customers accounted for 26% of the Company's net
sales for the year ended March 27, 2009. Each of those customers
accounted for approximately 9% of the Company's sales. Three of the
Company's customers accounted for 30% of the Company's net sales for the
year ended March 28, 2008. The Company currently employs 15 independent
sales representatives to market its products in all regions in the
United States.
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 27, 2009.
International sales accounted for less than 1% of sales for the years
ended March 27, 2009 and March 28, 2008, respectively.
Backlog of Orders/Capital Requirements
The backlog of orders for the Company's products amounted to
approximately $4,554,000 at March 27, 2009, as compared to $3,650,000 at
March 28, 2008. 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.
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IEH CORPORATION
PART I
Item 1. Description of Business (continued)
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.
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 $0 and $15,000 for the years ended March 27, 2009
and March 28, 2008, 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 107 people, two (2) of whom
are executive officers; three (3) are engaged in management activities;
three (3) provide general and administrative services and approximately
99 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 expired on March 31, 2009 and was
renegotiated and extended until March 31, 2012. 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.
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IEH CORPORATION
PART I
Item 1. Description of Business (continued)
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. 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 1A. Risk Factors
We are a "smaller reporting company" as defined by Regulation S-K and as
such, are not required to provide the information contained in this item
pursuant to Regulation S-K.
Item 1B. Unresolved Staff Comments
We are a "smaller reporting company" as defined by Regulation S-K and as
such, are not required to provide the information contained in this item
pursuant to Regulation S-K.
Item 2. Description of Property
The Company is obligated under its lease for its facility through August
23, 2011, at minimum annual rentals as follows:
Fiscal year ending March:
2010 $ 168,384
2011 112,256
-----------
$ 280,640
===========
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 years ended March 27, 2009 and March 28, 2008
was $145,068, 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
Except as described below, the Company is not a party to or aware of any
pending or threatened legal proceedings which, in the opinion of the
Company's management, would result in any material adverse effect on its
results of operations or its financial condition.
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IEH CORPORATION
PART I
Item 3. Legal Proceedings (continued)
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.
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 27, 2009.
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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 27, 2009 (*)
1st Quarter $1.98 $1.65
2nd Quarter $4.30 $1.92
3rd Quarter $2.90 $2.20
4th Quarter $2.90 $2.00
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
(*) 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 July 7, 2009 the high bid for the common stock was $3.18 and the low
bid was $3.18
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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 July 8,
2009 was approximately 534. 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.
Transfer Agent
The transfer agent for our common stock is Registrar & Transfer Company
located in Cranford, NJ.
Item 6. Selected Financial Data
We are a "smaller reporting company" as defined by Regulation S-K and as
such, are not required to provide the information contained in this item
pursuant to Regulation S-K.
Item 7. 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
our audited financial statements and related footnotes included
elsewhere in this report, 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
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IEH CORPORATION
PART II
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
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 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.
-14-
IEH CORPORATION
PART II
Item 7. 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 $0 and $15,000 for the years ended March 27, 2009
and March 28, 2008, 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 27, March 28,
2009 2008
--------- ---------
Operating Revenues (in thousands) $ 10,718 $ 7,805
--------- ---------
Operating Expenses:
(as a percentage of Operating Revenues)
Costs of Products Sold 69.3% 70.8%
Selling, General and Administrative 15.3% 16.4%
Interest Expense .6% 2.3%
Depreciation and amortization 1.6% 2.5%
--------- ---------
TOTAL COSTS AND EXPENSES 86.8% 92.0%
--------- ---------
Operating Income (loss) 13.2% 8.0%
Other Income -- --
--------- ---------
Income (loss) before Income Taxes 13.2% 8.0%
Income Taxes (6.0%) (.3%)
--------- ---------
Net Income (loss) 7.2% 7.7%
========= =========
-15-
IEH CORPORATION
PART II
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Results of Operations (continued)
Year End Results: March 27, 2009 vs. March 28, 2008
Operating revenues for the year ended March 27, 2009 amounted to
$10,717,543 reflecting a 37.3% increase versus the year ended March 28,
2008 revenues of $7,805,443. 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% of the Company's net sales for the fiscal years ended March 27, 2009
and March 28, 2008, 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 27, 2009, three of the Company's
customers accounted for approximately 26% of total sales. Each of those
customer accounted for approximately 9% 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 27, 2009, 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 30%
and 69%, respectively, of the Company's net sales for the year ended
March 27, 2009 and 28% and 71% for the year ended March 28, 2008
respectively. Approximately 1% of net sales were made to international
customers.
Cost of products sold amounted to $7,425,771 for the fiscal year ended
March 27, 2009, or 69.3% of operating revenues. This reflected a
$1,899,296 or 34.4% increase in the cost of products sold from
$5,526,475 or 70.8% of operating revenues for the fiscal year ended
March 28, 2008. 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 $1,643,083 and
$1,277,924 or 15.3% and 16.4% of operating revenues for the fiscal years
ended March 27, 2009 and March 28, 2008, respectively. This category of
expense increased by $365,159 or 28.6% from the prior year. The increase
can be attributed to an increase in salaries, commissions and travel.
Additionally a workers compensation assessment of $101,362 was recorded
during the current fiscal year.
Interest expense was $66,681 for the fiscal year ended March 27, 2009 or
.6% of operating revenues. For the fiscal year ended March 28, 2008,
interest expense was $177,675 or 2.3% of operating revenues. The
decrease of $110,994 or 62.5% reflects the interest payments made during
the year ended March 28, 2008, as part of the settlement with the UAW
Local 259 pension fund which amounted to $85,052.
-16-
IEH CORPORATION
PART II
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Results of Operations (continued)
Year End Results: March 27, 2009 vs. March 28, 2008 (continued)
Depreciation and amortization of $172,658 or 1.6% of operating revenues
was reported for the fiscal year ended March 27, 2009. This reflects a
decrease of $25,242 or 12.8% from the prior year ended March 28, 2008 of
$197,900 or 2.5% of operating revenues. The decrease is due primarily to
capital assets being fully depreciated over the current fiscal year.
The Company reported net income of $768,003 for the year ended March 27,
2009 representing basic earnings of $.33 per share as compared to net
income of $603,865 or $.26 per share for the year ended March 28, 2008.
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 $3,115,072 as of March 27, 2009
compared to a working capital of $1,890,722 as of March 28, 2008. The
increase in working capital of $1,224,350 was attributable to the
following items:
Net income $ 768,003
Depreciation and amortization 172,658
Capital expenditures (184,539)
Other transactions 468,228
----------
$1,224,350
==========
As a result of the above, the current ratio (current assets to current
liabilities) was 3.69 to 1 at March 27, 2009 as compared to 2.42 to 1.0
at March 28, 2008. Current liabilities at March 27, 2009 were $1,158,972
compared to $1,329,138 at March 28, 2008.
The Company reported $184,539 in capital expenditures for the year ended
March 27, 2009 and reported depreciation of $172,658 for the year ended
March 27, 2009.
The net income of $768,003 for the year ended March 27, 2009 resulted in
an increase in stockholders' equity to $3,855,888 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 with a minimum of 12%
per annum. At March 27, 2009 the amount outstanding with the factor was
$454,723 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
-17-
IEH CORPORATION
PART II
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Liquidity and Capital Resources (continued)
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 this officer was
$17,000.
During the year ended March 27, 2009 the Company had repaid the
remaining balance due to this officer.
The Company has a collective bargaining multi-employer 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 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 such 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 $101,695 for the year ended March 27, 2009 and
$80,667 for the year ended March 28, 2008.
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 assessed amount for the years 2002 through 2006 was $101,362. The
assessed amount 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 did 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 is 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 March 27, 2009, the current
portion of this assessment liability was $20,268 and the long-term
portion was $67,579.
-18-
IEH CORPORATION
PART II
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Liquidity and Capital Resources (continued)
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.
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 27, 2009, 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 27, 2009, the contribution was $121,000. For the year ended March
28, 2008, the contribution was $59,500.
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.
-19-
IEH CORPORATION
PART II
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
We are a "smaller reporting company" as defined by Regulation S-K and
as such, are not required to provide the information contained in this
item pursuant to Regulation S-K.
Item 8. Financial Statements
See Index to Financial Statements attached hereto appearing at pages 29
to 47.
Item 9. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluations of Disclosure Controls and Procedures
As of the end of the period covered by this report, we carried out an
evaluation, under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial
Officer, of 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 1934 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 Chief Executive Officer and Chief 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 27, 2009.
Management's Report on Internal Control over Financial Reporting
Our management, under the supervision of our Chief Executive Officer
and Chief Financial Officer, is responsible for establishing and
maintaining adequate internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) under the 1934 Act). Our
internal control over financial reporting is designed to provide
reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. The company's
internal control over financial reporting includes those policies and
procedures that:
(i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions
of the assets of the Company;
-20-
IEH CORPORATION
PART II
Item 9A. Controls and Procedures (continued)
Management's Report on Internal Control over Financial Reporting
(continued)
(ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and
(iii) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the
company's assets that could have a material effect on the financial
statements.
Management, including our Chief Executive Officer and Chief Financial
Officer, conducted an evaluation of the effectiveness of our internal
control over financial reporting as of March 27, 2009. In making this
evaluation, management used the framework in Internal
Control--Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Based on our
evaluation under the framework in Internal Control--Integrated
Framework, our management has concluded that our internal control over
financial reporting was effective as of March 27, 2009.
This report does not include an attestation report of our independent
registered public accounting firm regarding our internal control over
financial reporting. Management's report was not subject to attestation
by our registered public accounting firm pursuant to temporary rules of
the SEC that permit us to provide only management's report in this
annual report.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
Changes in Internal Control over Financial Reporting
There was no change in our system of internal control over financial
reporting (as defined in Rule 13a-15(f) under the 1934 Act) during our
fiscal year ended March 27, 2009 that has materially affected, or is
reasonably likely to materially affect, our internal control over
financial reporting.
Inherent Limitations on Effectiveness of Controls
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
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.
-21-
IEH CORPORATION
PART II
Item 9A. Controls and Procedures (continued)
Management's Report on Internal over Financial Controls (continued)
Other Information Related to Internal Controls 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 9B. Other Information
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governace
The executive officers and directors of the Company are as follows:
Name Age Office
Michael Offerman 68 Chairman of the Board of Directors, President and
Chief Executive Officer
Robert Knoth 67 Chief Financial Officer, Controller, Secretary and Treasurer
Murray Sennet 86 Director
Allen Gottlieb 68 Director
Gerald E. Chafetz 66 Director
IEH's Certificate of Incorporation provides that the directors of the
Company are to be elected in two (2) classes; each class to be elected
to a staggered two (2) year term and until their successors are duly
elected and qualified. Prior to May 26, 2009, the Board of Directors
consisted of three (3) members divided into two classes with two Class
I Members (Messrs. Offerman and Sennet) and one Class II Member (Mr.
Gottlieb). On May 26, 2009, the Board of Directors unanimously voted to
increase the number of directors from three to four directors and
elected Gerald E. Chafetz as a Class II Member. The Class II Members of
the Board of Directors are scheduled to be elected at the Company's
2009 Annual Meeting. Mr. Chafetz will serve on the Board of Directors
for the balance of the term of Class II Members or until his successor
is elected and qualified. All officers serve at the discretion of the
Board of Directors.
-22-
IEH CORPORATION
PART III
Item 10. Directors, Executive Officers and Corporate Governance (continued)
Executive Officers and Directors
Michael Offerman. 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. 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. 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. 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.
Gerald Chafetz. Mr. Chafetz, 66, has been the President of Capitol City
Companies since 1989. Capitol City Companies is a property management
and home improvement business headquartered in Hartford, Connecticut.
Prior to founding Capitol City Companies, he had an extended 22-year
executive career in the textile industry with several knitwear and high
fashion manufacturers, including Arista Knitwear, Berwick Fashion
Knitwear and Beged-or Knitwear. Mr. Chafetz graduated from the
University of Hartford in 1965 with a Bachelor of Science degree in
business.
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, Mark worked as a
materials and purchasing specialist, in manufacturing and distribution
companies. In his last position with an industrial distributor, he 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. David is the son of
Michael Offerman, President and Chief Executive Officer of the Company.
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 joining IEH, Robert worked for more than twenty years in
-23-
IEH CORPORATION
PART III
Item 10. Directors, Executive Officers and Corporate Governance (continued)
Significant Employees (continued)
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.
Compliance with Section 16(a) of 1934 Act
Section 16(a) of the 1934 Act requires the Company's directors and
officers and persons who own, directly or indirectly, more than 10% of
a registered class of the Company's common stock, to file with the SEC
initial reports of ownership and reports of changes in ownership of our
common stock.
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 2008 fiscal year.
Director Independence; Meetings of Directors; Committees of the Board
Our Board of Directors currently consists of four individuals. Three of
our directors (other than Michael Offerman) are "independent" as
defined in the Marketplace Rules of The NASDAQ Stock Market. During the
fiscal year ended March 27, 2009, our Board of Directors held one
meeting and acted by unanimous written consent on two occasions.
Since the Board of Directors has historically and will in the immediate
future consist of only a small number of directors, we have not formed
any Board committees. All matters relating to audit, compensation,
nominations and corporate governance are considered and acted only by
the entire Board of Directors.
The Board did not adopt any modifications to the procedures by which
security holders may recommend nominees to its Board of Directors.
Item 11. Executive Compensation
The following table sets forth below the summary compensation paid or
accrued by the Company during the fiscal years ended March 27, 2009,
March 28, 2008, and March 30, 2007 for the Company's Chief Executive
Officer and Chief Financial Officer:
-24-
IEH CORPORATION
PART III
Item 11. Executive Compensation (continued)
Other Annual
Name and Principal Position Year Salary Bonus Compensation Total
------------------------------------ -------------- --------- -------- --------------- ----------
Michael Offerman, Chief Executive
Officer, President (1) March 27, 2009 $158,500 $35,000 0 $193,500
March 28, 2008 105,000 18,500 0 123,500
Robert Knoth, March 27, 2009 $119,601 $25,000 0 144,601
Chief Financial Officer March 28, 2008 84,002 14,600 0 98,602
(1) During the fiscal years ended March 27, 2009, March 28, 2008 and
March 30, 2007, 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.
Pension/Benefit Incentive Plan
In 1964, the Company's shareholders and Board of Directors adopted
the Salaried Pension Plan, a contributory pension plan effective
April 1, 1964, for salaried employees of the Company. 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.
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.
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
fiscal year ended March 27, 2009 the contribution was $121,000. The
contribution for the fiscal year ended March 28, 2008 was $59,500.
-25-
IEH CORPORATION
PART III
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
The following table sets forth certain information as of June 30,
2009 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, 2009 there were 2,303,468 shares of common
stock issued and outstanding.
---------------------------------------------------------------------------------------------------------
Amount of and Nature
Name and Address of Beneficial of Beneficial
Title of Class Owner Ownership Percentage of Class
---------------------------------------------------------------------------------------------------------
Common Stock Michael Offerman 923,784(1) 40%
$.01 Par Value c/o IEH Corporation
140 58th Street
Brooklyn, NY 11220
---------------------------------------------------------------------------------------------------------
Murray Sennet 24,500 1.1%
c/o IEH Corporation
140 58th Street
Brooklyn, NY 11220
---------------------------------------------------------------------------------------------------------
Allen Gottlieb 0 0
c/o IEH Corporation
140 58th Street
Brooklyn, NY 11220
---------------------------------------------------------------------------------------------------------
Robert Knoth 1,770 *
c/o IEH Corporation
140 58th Street
Brooklyn, NY 11220
---------------------------------------------------------------------------------------------------------
Gerald E. Chafetz 0 0
c/o IEH Corporation
140 58th Street
Brooklyn, NY 11220
---------------------------------------------------------------------------------------------------------
All Officers & Directors as a Group
(5 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 13. Certain Relationships and Related Transactions
Other than the employment terms for its executive officers as
described elsewhere in this Form 10-K, and as described below, there
have been no related transactions between the Company, officers,
-26-
IEH CORPORATION
PART III
Item 13. Certain Relationships and Related Transactions (continued)
directors or shareholders holding in excess of 5% of its securities
within the last three years.
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 this officer was
$17,000. During the year ended March 27, 2009, the Company had repaid
the balance of this loan.
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 27, 2009. 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
Jerome Rosenberg, CPA P.C. 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 27, 2009 and March
28, 2008, IEH paid an aggregate of $36,600 and $31,250,
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 27, 2009 and
March 28, 2008, 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 27, 2009 and March 28,
2008, 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 27, 2009, IEH did
not pay any other fees for services to its independent 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 27, 2009 has not compromised the
independence of Jerome Rosenberg, CPA P.C.
The Board of Directors of the Company is comprised of four 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 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.
-27-
IEH CORPORATION
PART III
Item 14. Principal Accountant Fees and Services (continued)
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.
PART IV
Item 15. Exhibits
Exhibits filed with Form 10-K:
31.1 Certifications of Chief Executive Officer pursuant to Section 17
CFR 240.13a-14(a) or 17 CFR 240.15d-14(a) pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2 Certifications of Chief Accounting Officer pursuant to Section
17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a) pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
32.1 Certifications by Chief Executive Officer and Chief Financial
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
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
-28-
IEH CORPORATION
March 27, 2009 and March 28, 2008
Contents
Page
Number
------
Report of Independent Registered Public Accounting Firm 30
Financial Statements:
Balance Sheets as of March 27, 2009 and March 28, 2008 31
Statement of Operations for the years ended March 27, 2009
and March 28, 2008 33
Statement of Stockholders' Equity for the years ended
March 27, 2009 and March 28, 2008 34
Statement of Cash Flows for the years ended March 27, 2009
and March 28, 2008 35
Notes to Financial Statements 37
-29-
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
27, 2009 and March 28, 2008 and the related statements of operations,
stockholders' equity, and cash flows for each of the two years in the periods
ended March 27, 2009 and March 28, 2008. 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 27,
2009 and March 28, 2008 and the results of its operations and its cash flows for
each of the two years ended March 27, 2009 and March 28, 2008 in conformity with
U.S. generally accepted accounting principles.
/s/Jerome Rosenberg CPA, P.C.
Jerome Rosenberg CPA, P.C.
Melville, New York
June 9, 2009
-30-
IEH CORPORATION
BALANCE SHEETS
As of March 27, 2009 and March 28, 2008
March 27, March 28,
2009 2008
---------- ----------
ASSETS
CURRENT ASSETS:
Cash $ 169,316 $ 29,136
Accounts receivable, less allowances for doubtful accounts
of $11,562 at March 27, 2009 and March 28, 2008 1,830,668 1,180,220
Inventories (Note 2) 2,248,140 1,986,367
Prepaid expenses and other current assets (Note 3) 25,920 24,137
---------- ----------
Total Current Assets 4,274,044 3,219,860
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, less accumulated depreciation and
amortization of $6,927,669 at March 27, 2009
and $6,756,178 at March 28, 2008 (Note 4) 1,183,427 1,172,379
---------- ----------
1,183,427 1,172,379
---------- ----------
OTHER ASSETS:
Other assets 24,968 24,784
---------- ----------
24,968 24,784
---------- ----------
Total Assets $5,482,439 $4,417,023
========== ==========
The accompanying notes and independent auditors' report should be read in
conjunction with the financial statements.
-31-
IEH CORPORATION
BALANCE SHEETS
As of March 27, 2009 and March 28, 2008
March 27, March 28,
2009 2008
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts receivable financing (Note 5) $ 454,723 $ 513,378
Loans payable- officers (Note 7) -- 17,000
Accrued corporate income taxes 257,294 22,103
Accounts payable 548,948 584,938
Workers compensation insurance assessments- current portion (Note 9) 20,268 --
Other current liabilities (Note 6) 277,739 191,719
---------- ----------
Total Current Liabilities 1,558,972 1,329,138
---------- ----------
LONG-TERM LIABILITIES:
Workers compensation insurance assessments- net of
current portion (Note 9) 67,579 --
---------- ----------
Total Long-Term Liabilities 67,579 --
---------- ----------
Total Liabilities 1,626,551 1,329,138
---------- ----------
STOCKHOLDERS' EQUITY:
Common Stock, $.01 par value; 10,000,000 shares authorized;
2,303,468 shares issued and outstanding at March 27, 2009 and
March 28, 2008 23,035 23,035
Capital in excess of par value 2,744,573 2,744,573
Retained earnings (Deficit) 1,088,280 320,277
---------- ----------
Total Stockholders' Equity 3,855,888 3,087,885
---------- ----------
Total Liabilities and Stockholders' Equity $5,482,439 $4,417,023
========== ==========
The accompanying notes and independent auditors' report should be read in
conjunction with the financial statements.
-32-
IEH CORPORATION
STATEMENT OF OPERATIONS
For the Years Ended March 27, 2009 and March 28, 2008
Years Ended
---------------------------
March 27, March 28,
2009 2008
------------ -----------
REVENUE, net sales (Note 14) $ 10,717,543 $ 7,805,443
------------ -----------
COSTS AND EXPENSES:
Cost of products sold 7,425,771 5,526,475
Selling, general and administrative 1,643,083 1,277,924
Interest expense 66,681 177,675
Depreciation and amortization 172,658 197,900
------------ -----------
9,308,193 7,179,974
------------ -----------
OPERATING INCOME 1,409,350 625,469
OTHER INCOME 753 475
------------ -----------
INCOME BEFORE INCOME TAXES 1,410,103 625,944
PROVISION FOR INCOME TAXES (642,100) (22,079)
------------ -----------
NET INCOME $ 768,003 $ 603,865
============ ===========
BASIC AND DILUTED EARNINGS PER COMMON SHARE
(Note 1)
$ .33 $ .26
============ ===========
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.
-33-
IEH CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
For the Years Ended March 27, 2009 and March 28, 2008
Capital in Retained
Excess of Earnings
Common Stock Par Value (Deficit) Total
------------------------- ----------- ----------- -----------
Shares Amount
----------- -----------
Balances, March 31, 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
Net income: year ended
March 27, 2009 -- -- -- 768,003 768,003
----------- ----------- ----------- ----------- -----------
Balances, March 27, 2009 2,303,468 $ 23,035 $ 2,744,573 $ 1,088,280 $ 3,855,888
The accompanying notes and independent auditors' report should be read in
conjunction with the financial statements.
-34-
IEH CORPORATION
STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash
For the Years Ended March 27, 2009 and March 28, 2008
Years Ended
----------------------
March 27, March 28,
2009 2008
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 768,003 $ 603,865
--------- ---------
Adjustments to reconcile net income to net cash provided (used) by
operating activities
Depreciation and amortization 172,658 197,900
Changes in assets and liabilities:
(Increase) in accounts receivable (650,448) (198,649)
(Increase) in inventories (261,773) (412,735)
(Increase) in prepaid expenses and other current assets (1,783) (12,757)
(Increase) decrease in other assets (184) 314
(Decrease) in accounts payable (35,157) (3,866)
Increase in other current liabilities 86,020 43,544
Increase in accrued corporate income taxes 235,191 16,303
(Decrease) in pension plan payable -- (20,000)
Increase in workers compensation insurance assessment 87,847 --
--------- ---------
Total adjustments (367,629) (389,946)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 400,374 213,919
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (184,539) (178,023)
--------- ---------
NET CASH (USED) BY INVESTING ACTIVITIES $(184,539) $(178,023)
--------- ---------
The accompanying notes and independent auditors' report should be read in
conjunction with the financial statements.
-35-
IEH CORPORATION
STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash
For the Years Ended March 27, 2009 and March 28, 2008
March 27, March 28,
2009 2008
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes payable, equipment $ -- $ (3,659)
Proceeds (repayment) from accounts receivable financing (58,655) 35,991
(Repayment) of loans payable - officers (17,000) (74,000)
--------- ---------
NET CASH (USED) BY FINANCING ACTIVITIES (75,655) (41,668)
--------- ---------
INCREASE (DECREASE) IN CASH 140,180 (5,772)
CASH, beginning of period 29,136 34,908
--------- ---------
CASH, end of period $ 169,316 $ 29,136
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 62,015 $ 169,814
========= =========
Income Taxes $ 407,209 $ 6,966
========= =========
The accompanying notes and independent auditors' report should be read in
conjunction with the financial statements.
-36-
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 27, 2009 and March 28, 2008 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.
-37-
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:
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of cash and cash
equivalents and accounts receivable.
Under the provisions of the Emergency Stabilization Act of 2008, the
Federal Deposit Insurance Corporation (FDIC) will insure interest
bearing accounts at participating financial institutions up to
$250,000 in the aggregate. This insurance coverage limit was
recently extended through December 31, 2013.
An additional provision of the Act provided for the FDIC to
establish the Transaction Account Guarantee Program ("TAGP"). Under
TAGP all non-interest bearing transaction accounts are fully
guaranteed by the FDIC for the entire amount in the account.
Coverage under TAGP is in addition to and separate from the coverage
available under the FDIC's general deposit insurance rules. This
insurance coverage is scheduled to end on December 31, 2009,
whereupon, coverage will be limited to $250,000 in the aggregate.
As of March 27, 2009, the Company had funds on deposit in the amount
of $169,316 in one participating financial institution comprised of
the following:
Non-interest bearing accounts $ 23,640
Interest bearing account 145,676
--------
$169,316
========
The Company has not experienced any losses in such accounts and
believes its cash balances are not exposed to any significant risk.
-38-
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
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".
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 27, 2009 and March 28, 2008, 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.
-39-
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
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 27, 2009 and March 28, 2008.
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 27, 2009 and March 28, 2008.
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 $0 and $15,000 for the years ended March 27,
2009 and March 28, 2008, 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
-40-
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
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 27, 2009.
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.
-41-
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 2 - INVENTORIES: (continued)
Inventories are comprised of the following:
March 27, March 28,
2009 2008
----------- -----------
Raw materials $ 1,049,537 $ 927,774
Work in progress 533,226 788,519
Finished goods 665,377 270,074
----------- -----------
$ 2,248,140 $ 1,986,367
=========== ===========
Note 3 - PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets are comprised of the
following:
March 27, March 28,
2009 2008
----------- -----------
Prepaid insurance $ 13,649 $ 16,348
Prepaid corporate taxes 7,681 7,681
Other current assets 4,590 108
----------- -----------
$ 25,920 $ 24,137
=========== ===========
Note 4 - PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are as follows:
March 27, March 28,
2009 2008
----------- -----------
Computers $ 229,676 $ 212,321
Leasehold improvements 585,831 585,831
Machinery and equipment 4,992,114 4,903,733
Tools and dies 2,139,990 2,063,187
Furniture and fixture 155,935 155,935
Website development cost 7,550 7,550
----------- -----------
8,111,096 7,928,557
Less: accumulated depreciation and
amortization (6,927,669) (6,756,178)
----------- -----------
$ 1,183,427 $ 1,172,379
=========== ===========
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 3.25% at
March 27, 2009, 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 its
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IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 5 - ACCOUNTS RECEIVABLE FINANCING: (continued)
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 March 27, 2009 was $454,723. The balance
due as of March 28, 2008 was $513,378.
Note 6 - OTHER CURRENT LIABILITIES:
Other current liabilities are comprised of the following:
March 27 March 28,
2009 2008
---------- ----------
Payroll and vacation accruals $ 242,188 $ 172,215
Sales commissions 30,543 16,504
Other 5,008 3,000
---------- ----------
$ 277,739 $ 191,719
========== ==========
Note 7 - 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 this
officer was $17,000.
During the year ended March 27, 2009 the Company had repaid the
balance of this loan.
Note 8 - INCOME TAXES:
The Company accounts for income taxes under the provisions of SFAS
No. 109 ("SFAS 109"). Under SFAS 109, deferred income tax assets or
liabilities are computed based upon the temporary differences
between the financial statement and income tax bases of assets and
liabilities using the currently enacted marginal income tax rates.
Deferred income tax expenses or credits are based on the changes in
the deferred income tax assets or liabilities from period to period.
The provision for income taxes consists of the following:
March 27,
2009
---------
Current:
Federal $ 342,000
State and local 124,000
---------
Total current tax provision 466,000
---------
Deferred:
Federal 132,238
State and local 43,862
---------
Total deferred tax benefit 176,100
---------
Total provision (benefit) $ 642,100
=========
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IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 8 - INCOME TAXES: (continued)
The components of the Company's deferred taxes at March
27, 2009 are as follows:
Deferred tax assets:
Accounts receivable reserves $ 11,562
State tax credit 5,534
Accrued expenses 445,172
Prepaid expenses (25,920)
---------
436,348
Deferred tax liabilities:
Depreciation (47,414)
---------
Net deferred tax assets before valuation allowance 388,934
Valuation allowance (388,934)
--------
Net deferred tax assets $ 0
=========
The Company has fully utilized its net operating loss carryovers in
prior years.
The foregoing amounts are management's estimates and the actual
results could differ from those estimates. Future profitability in
this competitive industry depends on continually obtaining and
fulfilling net profitable contracts or the failure of the Company's
engineering development efforts could reduce estimates of future
profitability, which could affect the Company's ability to realize
the deferred tax assets.
A reconciliation of the income tax benefit at the statutory Federal
tax rate of 34 % to the income tax benefit recognized in the
financial statements are as follows:
March 27,
2009
---------
Income tax expense (benefit) - statutory rate 34.0%
Income tax expenses - state and local, net of federal benefit 12.0%
---------
Income tax expense (benefit) 46.0%
=========
Note 9 - 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 the Trust, which is a 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.
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IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 9 - WORKERS COMPENSATION INSURANCE ASSESSMENT: (continued)
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 total assessed amount for the years 2002 through 2006 was
$101,362. The assessed amount 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 did 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 is 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 March 27,
2009, the current portion of this assessment liability was $20,268
and the long-term portion was $67,579.
Note 10 - CHANGES IN STOCKHOLDERS' EQUITY:
The accumulated retained earnings increased by $768,003, which
represents the net income for the fiscal year ended March 27, 2009.
As a result, the Company reported retained earnings of $1,088,280.
Note 11- 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.
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IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 11- 2001 EMPLOYEE STOCK OPTION PLAN: (continued)
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 27, 2009 no options had been
granted under the 2002 Plan.
Note 12 - 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 27, 2009, the Company's contribution was $121,000.
For the year ended March 28, 2008 the contribution was $59,500.
Note 13 - 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:
2010 $ 168,384
2011 112,256
---------
$ 280,640
=========
The rental expense for the years ended March 27, 2009 and March 28,
2008, respectively, was $145,068.
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 this pension plan were $101,695 for the
year ended March 27, 2009 and $80,667 for the year ended March 28,
2008.
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IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 13 - COMMITMENTS: (continued)
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.
Note 14 - REVENUES FROM MAJOR CUSTOMERS:
In the fiscal year ended March 27, 2009 three customers accounted
for approximately 26% of revenues. During the year ended March 28,
2008 approximately 30% of the Company's total revenues were earned
from three customers. Total sales to these customers were
approximately $2,800,000 and $2,340,000, respectively. No other
customer accounted for over 10% of the Company's sales. Accounts
receivable as of March 27, 2009 included receivables from three
customers, which amounted to 32% of the total accounts receivable.
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IEH CORPORATION
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 10, 2009
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 10, 2009
---------------------------------------------
Michael Offerman, Chairman of the
Board, Chief Executive Officer and President
/s/ Robert Knoth July 10, 2009
---------------------------------------------
Robert Knoth, Secretary and
Treasurer; Chief Financial Officer,
Controller and Principal Accounting Officer
/s/ Murray Sennet July 10, 2009
---------------------------------------------
Murray Sennet, Director
/s/ Alan Gottlieb July 10, 2009
---------------------------------------------
Alan Gottlieb, Director
/s/ Gerald E. Chafetz July 10, 2009
---------------------------------------------
Gerald E. Chafetz
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