SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 25, 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 No. 0-5278
IEH CORPORATION
(Exact name of registrant as specified in its charter)
New York 13-5549348
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
140 58th Street, Suite 8E, Brooklyn, New York 11220
(Address of principal executive office)
Registrant's telephone number, including area code: (718) 492-4440
--------------------------------------------
Former name, former address and former fiscal year,
if changed since last report.
Check whether the Issuer: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes |X| No |_|
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer," "accelerated filer"
and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer |_| Accelerated filer |_|
Non-accelerated filer |_|
(Do not check if a smaller reporting company) Smaller Reporting Company |X|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). YES |_| NO |X|
2,303,468 shares of Common Shares, par value $.01 per share, were outstanding as
of September 25, 2009.
IEH CORPORATION
CONTENTS
Page
Number
------
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Balance Sheets as of September 25, 2009 (Unaudited) and March 27, 2009 3
Statement of Operations (Unaudited) for the six months and three months ended
September 25, 2009 and September 26, 2008 5
Statement of Cash Flows (Unaudited) for the six months ended
September 25, 2009 and September 26, 2008 6
Notes to Financial Statements (Unaudited) 8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 20
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 27
ITEM 4 - CONTROLS AND PROCEDURES 27
PART II- OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS 28
ITEM 1A- RISK FACTORS 28
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND
USE OF PROCEEDS 30
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES 30
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 30
ITEM 5 - OTHER MATTERS 30
ITEM 6 - EXHIBITS 30
-1-
SIGNATURES 31
EXHIBITS
Exhibit 31.1 Certification Pursuant to Section 302 of the Sarbanes Oxley Act 32
Exhibit 31.2 Certification Pursuant to Section 302 of the Sarbanes Oxley Act 33
Exhibit 32.1 Certification Pursuant to Section 906 of the Sarbanes Oxley Act 34
Exhibit 32.2 Certification Pursuant to Section 906 of the Sarbanes Oxley Act 35
-2-
IEH CORPORATION
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
IEH CORPORATION
BALANCE SHEETS
As of September 25, 2009 and March 27, 2009
Sept. 25, March 27,
2009 2009
------------ ----------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 175,154 $ 169,316
Accounts receivable, less allowances for doubtful accounts of $11,562 at
September 25, 2009 and March 27, 2009 1,551,127 1,830,668
Inventories (Note 3) 2,452,700 2,248,140
Prepaid expenses and other current assets (Note 4) 348,876 25,920
---------- ----------
Total Current Assets 4,527,857 4,274,044
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, less accumulated
depreciation and amortization of $7,015,983 at September 25, 2009
and $6,927,669 at March 27, 2009 (Note 5) 1,221,266 1,183,427
---------- ----------
1,221,266 1,183,427
---------- ----------
OTHER ASSETS:
Other assets 24,993 24,968
---------- ----------
24,993 24,968
---------- ----------
Total Assets $5,774,116 $5,482,439
========== ==========
The accompanying notes should be read in conjunction with the financial
statements.
-3-
IEH CORPORATION
BALANCE SHEETS
As of September 25, 2009 and March 27, 2009
Sept. 25, March 27,
2009 2009
---------- ---------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts receivable financing (Note 6) $ 117,732 $ 454,723
Accrued corporate income taxes 315,600 257,294
Accounts payable 483,672 548,948
Workers compensation insurance assessments-
current portion (Note 8) 20,268 20,268
Other current liabilities (Note 7) 202,480 277,739
---------- ----------
Total Current Liabilities 1,139,752 1,558,972
---------- ----------
LONG-TERM LIABILITIES:
Workers compensation insurance assessments- net of
current portion (Note 8) 57,443 67,579
---------- ----------
Total Long-Term Liabilities 57,443 67,579
---------- ----------
Total Liabilities 1,197,195 1,626,551
---------- ----------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 10,000,000 shares authorized;
2,303,468 shares issued and outstanding at September 25, 2009
and March 27, 2009 23,035 23,035
Capital in excess of par value 2,744,573 2,744,573
Retained earnings (Note 9) 1,809,313 1,088,280
---------- ----------
Total Stockholders' Equity 4,576,921 3,855,888
---------- ----------
Total Liabilities and Stockholders' Equity $5,774,116 $5,482,439
========== ==========
The accompanying notes should be read in conjunction with the financial
statements.
-4-
IEH CORPORATION
STATEMENT OF OPERATIONS
(Unaudited)
Six Months Ended Three Months Ended
----------------------- -----------------------
Sept. 25, Sept. 26, Sept. 25, Sept. 26,
2009 2008 2009 2008
---------- ---------- ---------- ----------
REVENUE, net sales $5,864,724 $5,230,328 $2,987,024 $2,652,855
---------- ---------- ---------- ----------
COSTS AND EXPENSES
Cost of products sold 3,870,207 3,611,750 1,976,674 1,907,359
Selling, general and administrative 843,517 745,294 425,628 378,464
Interest expense 26,175 38,486 14,595 17,277
Depreciation and amortization 88,314 90,160 42,600 44,280
---------- ---------- ---------- ----------
4,828,213 4,485,690 2,459,497 2,347,380
---------- ---------- ---------- ----------
OPERATING INCOME 1,036,511 744,638 527,527 305,475
OTHER INCOME 122 276 32 219
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 1,036,633 744,914 527,559 305,694
PROVISION FOR INCOME TAXES 315,600 42,000 157,800 18,000
---------- ---------- ---------- ----------
NET INCOME $ 721,033 $ 702,914 $ 369,759 $ 287,694
========== ========== ========== ==========
BASIC AND DILUTED EARNINGS PER SHARE $ .31 $ .31 $ .16 $ .13
========== ========== ========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING (in thousands) 2,303 2,303 2,303 2,303
========== ========== ========== ==========
The accompanying notes should be read in conjunction with the financial
statements.
-5-
IEH CORPORATION
STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash
(Unaudited)
Six Months Ended
------------ ----------
Sept. 25, Sept. 26,
2009 2008
---------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 721,033 $ 702,914
--------- ---------
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation 88,314 90,160
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 279,541 (68,558)
(Increase) in inventories (204,560) (132,333)
(Increase) in prepaid expenses and other current assets (322,956) (16,804)
(Increase) in other assets (24) (62)
(Decrease) in accounts payable (65,277) (137,879)
(Decrease) in other current liabilities (75,259) (15,988)
Increase (decrease) in accrued corporate income taxes 58,306 (10,869)
Increase (decrease) in workers compensation assessment (10,136) 101,362
--------- ---------
Total adjustments (252,051) (190,971)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 468,982 511,943
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of fixed assets (126,153) (64,437)
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES $(126,153) $ (64,437)
========= =========
The accompanying notes should be read in conjunction with the financial
statements.
-6-
IEH CORPORATION
STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash
(Unaudited)
Six Months Ended
-----------------------
Sept. 25, Sept. 26,
2009 2008
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Payment) of accounts receivable financing $(336,991) $(317,442)
(Repayment) of loan payable - officer -- (17,000)
--------- ---------
NET CASH (USED) BY FINANCING ACTIVITIES (336,991) (334,442)
--------- ---------
INCREASE IN CASH 5,838 113,064
CASH, beginning of period 169,316 29,136
--------- ---------
CASH, end of period $ 175,154 $ 142,200
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the six months for:
Interest $ 21,787 $ 32,752
========= =========
Income Taxes $ 317,587 $ 36,440
========= =========
The accompanying should be read in conjunction with the financial statements.
-7-
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 1- INTERIM RESULTS AND BASIS OF PRESENTATION:
The accompanying unaudited financial statements as of
September 25, 2009 and September 26, 2008 and for the six
months then ended have been prepared in accordance with
generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q. In the
opinion of management, the unaudited financial statements have
been prepared on the same basis as the annual financial
statements and reflect all adjustments, which include only
normal recurring adjustments, necessary to present fairly the
financial position as of September 25, 2009 and September 26,
2008 and the results of operations for the six months and
three months then ended and cash flows for the six months then
ended. The financial data and other information disclosed in
these notes to the interim financial statements related to
these periods are unaudited. The results for the six months
ended September 25, 2009, are not necessarily indicative of
the results to be expected for any subsequent quarter or the
entire fiscal year. The balance sheet at March 27, 2009 has
been derived from the audited financial statements at that
date.
Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to the rules and regulations of the Securities and
Exchange Commission (the "SEC"). The Company believes,
however, that the disclosures in this report are adequate to
make the information presented not misleading in any material
respect. The accompanying financial statements should be read
in conjunction with the audited financial statements and notes
thereto of IEH Corporation for the fiscal year ended March 27,
2009 included in the Company's Annual Report on Form 10-K as
filed with the SEC and the attached Management's Discussion
and Analysis of Financial Condition and Results of Operation.
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Description of Business:
The Company is engaged in the design, development, manufacture
and distribution of high performance electronic printed
circuit connectors and specialized interconnection devices.
Electronic connectors and interconnection devices are used in
providing electrical connections between electronic component
assemblies. The Company develops and manufactures connectors,
which are designed for a variety of high technology and high
performance applications, and are primarily utilized by those
users who require highly efficient and dense (the space
between connection pins with the connector) electrical
connections.
The Company is continuously redesigning and adapting its
connectors to meet and keep pace with developments in the
electronics industry and has, for example, developed
connectors for use with flex-circuits now being used in
aerospace programs, computers, air-borne communications
systems, testing systems and other areas. The Company also
services its connectors to meet specified product
requirements.
-8-
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued)
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 31. The year ended March 27, 2009 was 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 to merchandise passes to the customer at the
shipping point (FOB Shipping Point). At this juncture, title
has passed, the Company has recognized the sale, inventory has
been relieved, and the customer has been invoiced. The Company
does not offer any discounts, credits or other sales
incentives.
The Company's policy with respect to customer returns and
allowances as well as product warranty is as follows:
The Company will accept a return of defective product within
one year from shipment for repair or replacement at the
Company's option. If the product is repairable, the Company at
its own cost, will repair and return it to the customer. If
unrepairable, the Company will either offer an allowance
against payment or will reimburse the customer for the total
cost of product. The Company's experience has been that a loss
from returns is extremely remote. Accordingly, the Company's
management does not believe that an allowance for loss from
returns is necessary.
Most of the Company's products are custom ordered by customers
for a specific use. The Company provides engineering services
as part of the relationship with its customers in developing
the custom product. The Company is not obligated to provide
such engineering service to its customers. The Company does
not invoice its customers separately for these services.
Inventories:
Inventories are stated at cost, on a first-in, first-out
basis, which does not exceed market value.
The Company manufactures products pursuant to specific
technical and contractual requirements. The Company
historically purchases material in excess of its requirements
to avail itself of favorable pricing as well as the
possibility of receiving additional orders from customers.
This excess may result in material not being used in
subsequent periods, which may result in this material being
deemed obsolete.
The Company annually reviews its purchase and usage activity
of its inventory of parts as well as work in process and
finished goods to determine which items of inventory have
become obsolete within the framework of current and
anticipated orders. The Company based upon historical
experience has determined that if a part has not been used and
purchased or an item of finished goods has not been sold in
three years, it is deemed to be obsolete.
-9-
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued)
Inventories (continued):
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 ("ES Act"), 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 ES 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 September 25, 2009, the Company had funds on deposit in
the amount of $175,154 in one participating financial
institution comprised of the following:
Non-interest bearing accounts $ 64,982
Interest bearing account 110,172
--------
$175,154
=========
The Company has not experienced any losses in such accounts
and believes its cash balances are not exposed to any
significant risk.
Property, Plant and Equipment:
Property, plant and equipment is stated at cost less
accumulated depreciation and amortization. The Company
provides for depreciation and amortization using the Double
Declining Balance method over the estimated useful lives (5-7
years) of the related assets.
Maintenance and repair expenditures are charged to operations,
and renewals and betterments are capitalized. Items of
property, plant and equipment, which are sold, retired or
otherwise disposed of, are removed from the asset and
accumulated depreciation or amortization accounts. Any gain or
loss thereon is either credited or charged to operations.
-10-
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued)
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 the
Financial Accounting Standards Board ("FASB") Accounting
Standards Codification ("ASC") Topic 740, "Income Taxes",
which includes the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes".
Net Income Per Share:
The Company has adopted the provisions of ASC Topic 260,
"Earnings per Share", which includes 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 six months ended September 25, 2009 and September 26,
2008, respectively, 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 (six months) of these instruments.
Use of Estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities, revenues and expenses, and
disclosure of contingent assets and liabilities at the date of
the financial statements. Actual amounts could differ from
those estimates.
Impairment of Long-Lived Assets:
The Company has adopted the provisions of ASC Topic, 360,
"Property, Plant and Equipment-Impairment or Disposal of
Long-Lived Assets" which includes the provisions of SFAS No.
144, "Accounting for The Impairment or Disposal of Long-Lived
Assets", which 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 six months ended September 25,
-11-
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued)
Impairment of Long-Lived Assets (continued):
2009 and September 26, 2008, respectively.
Reporting Comprehensive Income:
The Company has adopted the provisions of ASC Topic, 220,
"Comprehensive Income" which includes the provisions of SFAS
No. 130, "Reporting Comprehensive Income". This Statement
established standards for reporting and display of
comprehensive income and its components (revenues, expenses,
gains and losses) in an entity's financial statements. This
Statement requires an entity to classify items of other
comprehensive income by their nature in a financial statement
and display the accumulated balance of other comprehensive
income separately from retained earnings and additional
paid-in capital in the equity section of a statement of
balance sheet. There were no material items of comprehensive
income to report for the six months ended September 25, 2009
and September 26, 2008, respectively.
Segment Information:
The Company has adopted the provisions of ASC Topic, 280,
"Segment Reporting" which includes the provisions of SFAS No.
131, "Disclosures About Segment of An Enterprise and Related
Information." This Statement requires public enterprises to
report financial and descriptive information about its
reportable operating segments and establishes standards for
related disclosures about product and services, geographic
areas, and major customers. The adoption of SFAS No. 131 did
not affect the Company's presentation of its results of
operations or financial position.
Research and Development:
The Company provides personalized engineering services to its
customers by designing connectors for specific customer
applications. The employment of electromechanical engineers is
the anticipated cornerstone of the Company's future growth.
The Company maintains a testing laboratory where its engineers
experiment with new connector designs based on changes in
technology and in an attempt to create innovative, more
efficient connector designs.
The Company did not expend any funds on customer sponsored
research and development during the six months ended September
25, 2009 and September 26, 2008, respectively. In addition,
the Company did not receive any revenues related to customer
sponsored research and development activities during the six
months ended September 25, 2009 and September 26, 2008,
respectively.
Effect of New Accounting Pronouncements:
In June 2009, the FASB issued SFAS No. 168, "The FASB
Accounting Standards Codification and Hierarchy of Generally
Accepted Principles- a Replacement of FASB Statement No. 162".
SFAS No. 168 establishes the ASC as the source of
authoritative accounting
-12-
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued)
Effect of New Accounting Pronouncements: (continued)
principles recognized by the FASB to be applied in the
preparation of financial statements in conformity with U.S.
GAAP.
Rules and interpretive releases of the SEC under the authority
of Federal securities laws are also sources of authoritative
U.S. GAAP for SEC registrants. All guidance contained in the
ASC carries an equal level of authority.
The ASC superseded all existing non-SEC accounting and
reporting standards. The FASB will not issue new standards in
the form of any SFAS, FASB Staff Positions or Emerging Issues
Task Force Abstracts. Instead, the FASB will issue Accounting
Standards Updates ("ASU") that will serve to update the ASC,
provide background information about the guidance and provide
the bases for conclusions on the change(s) in the ASC. The
adoption of SFAS No. 168 did not have an impact upon the
Company's financial position, results of operations or cash
flows.
In May 2009, the FASB issued guidance now codified as ASC
Topic 855, "Subsequent Events", which provides authoritative
accounting literature related to evaluating subsequent events.
ASC 855 is similar to current guidance with some exceptions
that are not intended to result in significant change to
current practice. ASC 855 defines subsequent events and also
requires the disclosure of the date through which an entity
has evaluated subsequent events and the basis for that date.
The provisions of ASC 855 are effective for interim or annual
financial periods ending after June 15, 2009. The Company has
adopted the provisions of ASC 855 effective as of September
30, 2009 and its adoption did not have a material impact on
the Company's financial position, results of operations, cash
flows or its required disclosures in its Form 10-Q. The
Company has evaluated subsequent events through October 30,
2009.
In April 2009, the FASB issued FSP FAS No. 107-1 and
Accounting Principles Board ("APB") Opinion No. 28-1, "Interim
Disclosures about Fair Value of Financial Instruments", which
amends SFAS No. 107, "Disclosures about Fair Value of
Financial Instruments" and requires disclosures about the fair
value of financial instruments for interim reporting periods
as well as in annual financial statements. FSP FAS No. 107-1
and APB No. 28-1 also amend APB Opinion No. 28, "Interim
Financial Reporting," to require these disclosures in all
interim financial statements. FSP FAS No. 107-1 and APB No.
28-1 are effective for interim reporting periods ending after
June 15, 2009. The guidance of FSP FAS No. 107-1 and APB No.
28-1 is now included in ASC Topic 825, Financial Statements.
The adoption of FSP FAS No. 107-1 and APB No. 28-1 did not
have a material impact on the Company's financial position,
results of operations or cash flows.
The Company has adopted the provisions of ASC Topic, 740,
"Income Taxes" which includes 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".
-13-
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued)
Effect of New Accounting Pronouncements: (continued)
FIN 48 prescribes a recognition threshold and measurement
attribute for the financial statement disclosures of tax
positions taken or expected to be taken in an income tax
filing. The evaluation of a tax position is a two step
process. The first step requires an entity to determine
whether it is more likely than not that a tax position will be
sustained upon examination based upon the technical merits of
the position.
The second step requires an entity to recognize in the
financial statements each tax position that meets the more
likely than not criteria, measured at the largest amount of
benefit that has a greater than fifty percent likelihood of
being recognized. FIN 48 also provides guidance on
de-recognition, classification, interest and penalties,
accounting for interim periods, disclosure and transition.
The Company believes that, with its adoption of ASC Topic 740,
the income tax positions taken by it did not have a material
effect on the financial statements for the six months ended
September 25, 2009.
The Company has adopted the provisions of ASC Topic 820, "Fair
Value Measurements and Disclosures" which includes the
provisions of 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. The Company
does not believe that ASC Topic 820 will have a material
impact on its financial statements.
The Company has adopted the provisions of ASC Topic 825,
"Financial Instruments," which includes the provisions of 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
objective of ASC Topic 825 and SFAS 159 is to reduce both
complexity in accounting for financial instruments and the
volatility in earnings caused by measuring related assets and
liabilities differently. They also require entities to display
the fair value of those assets and liabilities. The Company
has chosen to use fair value on the face of the balance sheet.
The Company does not believe that ASC Topic 825 will have a
material impact on its financial statements.
-14-
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 3 - INVENTORIES:
Inventories are stated at cost, on a first-in, first-out
basis, which does not exceed market value.
The Company manufactures products pursuant to specific
technical and contractual requirements. The Company
historically purchases material in excess of its requirements
to avail itself of favorable pricing as well as the
possibility of receiving additional orders from customers.
This excess may result in material not being used in
subsequent periods, which may result in this material being
deemed obsolete.
The Company annually reviews its purchase and usage activity
of its inventory of parts as well as work in process and
finished goods to determine which items of inventory have
become obsolete within the framework of current and
anticipated orders. The Company based upon historical
experience has determined that if a part has not been used and
purchased or an item of finished goods has not been sold in
three years, it is deemed to be obsolete.
The Company estimates which materials may be obsolete and
which products in work in process or finished goods may be
sold at less than cost. A periodic adjustment, based upon
historical experience is made to inventory in recognition of
this impairment.
Inventories are comprised of the following:
Sept. 25, March27,
2009 2009
----------- ----------
Raw materials $1,145,035 $1,049,537
Work in progress 581,745 533,226
Finished goods 725,920 665,377
---------- ----------
$2,452,700 $2,248,140
========== ==========
Note 4 - PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets are comprised of the
following:
Sept. 25, March 27,
2009 2009
-------- -------
Prepaid insurance $ 5,324 $13,649
Prepaid corporate taxes 332,937 7,681
Other current assets 10,615 4,590
-------- -------
$348,876 $25,920
======== =======
-15-
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 5 - PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are comprised of the following:
Sept. 25, March 27,
2009 2009
----------- -----------
Computers $ 236,330 $ 229,676
Leasehold improvements 588,685 585,831
Machinery and equipment 5,036,142 4,992,114
Tools and dies 2,212,607 2,139,990
Furniture and fixture 155,935 155,935
Website development cost 7,550 7,550
----------- -----------
8,237,249 8,111,096
Less: accumulated depreciation and
amortization (7,015,983) (6,927,669)
----------- -----------
$ 1,221,266 $ 1,183,427
=========== ===========
Note 6 - ACCOUNTS RECEIVABLE FINANCING:
The Company entered into an accounts receivable financing
agreement whereby it can borrow up to 80% of its eligible
receivables (as defined in the agreement) at an interest rate
of 2 1/2 % above JP Morgan Chase's publicly announced rate of
3.25% at September 25, 2009. However, the agreement does
stipulate that the minimum interest rate is 12% per annum. The
agreement has an initial term of one year and will
automatically renew for successive one-year terms, unless
terminated by the Company or 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 September 25, 2009 was $117,732. The balance
due as of March 27, 2009 was $454,723.
Note 7 - OTHER CURRENT LIABILITIES:
Other current liabilities are comprised of the following:
Sept. 25, March 27,
2009 2009
--------- --------
Payroll and vacation accruals $150,992 $242,188
Sales commissions 26,392 30,543
Other 25,096 5,008
-------- --------
$202,480 $277,739
======== ========
-16-
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 8 - 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.
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 September 25, 2009, the current
portion of this assessment liability was $20,268 and the
long-term portion was $57,443.
Note 9 - CHANGES IN STOCKHOLDERS' EQUITY:
Retained earnings increased by $721,033, which represents the
net income for the six months ended September 25, 2009.
Note 10- 2002 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.
-17-
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 10- 2002 EMPLOYEE STOCK OPTION PLAN: (continued)
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 of the Company's common stock
and the option must not be exercisable after the expiration of
five years from the day of the grant.
Exercise prices of non-incentive stock options may be less
than the fair market value of the Company's common stock.
The aggregate fair market value of shares subject to options
granted to a participant(s), which are designated as incentive
stock options, and which become exercisable in any calendar
year, shall not exceed $100,000. As of September 25, 2009, no
options had been granted under the 2002 Plan.
Note 11 - CASH BONUS 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. The Company accrued $60,000 for
the six months ended September 25, 2009. For the year ended
March 27, 2009, the contribution was $121,000.
Note 12 - COMMITMENTS AND CONTINGENCIES:
The Company leases its facility under a renewed tenure lease
agreement, which expires on August 23, 2011. The Company is
obligated under this lease at minimum annual rentals as
follows:
Fiscal year ending March:
2010 $ 87,108
2011 116,144
---------
$ 203,252
=========
The rental expense for the six months ended September 25, 2009
and September 26, 2008 was $72,840 and $72,534, respectively.
The Company has a collective bargaining multi-employer pension
plan ("Multi-Employer Plan") with the United Auto Workers of
America, Local 259 ("UAW"). Contributions are made by the
Company in accordance with a negotiated labor contract and are
based on the number of covered employees employed per month.
With the passage of the Multi-Employer Pension Plan Amendment
Act of 1990 (the "1990 Act"), the Company may become subject
to liabilities in excess of contributions made under the
collective bargaining agreement. Generally, these are
-18-
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 12 - COMMITMENTS AND CONTINGENCIES:
contingent upon termination, withdrawal, or partial withdrawal
from the Multi-Employer Plan.
The Company has not taken any action to terminate, withdraw or
partially withdraw from the Multi-Employer Plan, nor does it
intend to do so in the future. Under the 1990 Act, liabilities
would be based upon the Company's proportional share of the
Multi-Employer Plan's unfunded vested benefits which is
currently not available.
The amount of accumulated benefits and net assets of such Plan
also is not currently available to the Company. The total
contributions charged to operations under the provisions of
the Multi-Employer Plan were $55,692 and $45,281 for the six
months ended September 25, 2009 and September 26, 2008,
respectively.
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. In June 2009, the
three former employees recognized the inherent weakness in
their cases and elected to settle their charges. On August 10,
2009, an agreement was reached between the parties whereby a
compensatory amount was to be subsequently paid to each former
employee in full settlement of their complaint.
-19-
IEH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Forward Looking Statements
This report contains forward looking statements within the meaning of Section
21E of the Securities and Exchange Act of 1934, as amended (the "1934 Act") and
Section 27A of the Securities Act of 1933 (the "1933 Act"). Statements contained
in this report which are not statements of historical facts may be considered
forward-looking information with respect to plans, projections, or future
performance of the Company as defined under the Private Securities litigation
Reform Act of 1995. These forward-looking statements are subject to risks and
uncertainties which could cause actual results to differ materially from those
projected. The words "anticipate", "believe", "estimate", "expect", "objective",
and "think" or similar expressions used herein are intended to identify
forward-looking statements. The forward-looking statements are based on the
Company's current views and assumptions and involve risks and uncertainties that
include, among other things, the effects of the Company's business, actions of
competitors, changes in laws and regulations, including accounting standards,
employee relations, customer demand, prices of purchased raw material and parts,
domestic economic conditions, including housing starts and changes in consumer
disposable income, and foreign economic conditions, including currency rate
fluctuations. Some or all of the facts are beyond the Company's control.
Except as may be required by applicable law, we do not undertake or intend to
update or revise our forward-looking statements, and we assume no obligation to
update any forward-looking statements contained in this report as a result of
new information or future events or developments. Thus, you should not assume
that our silence over time means that actual events are bearing out as expressed
or implied in such forward-looking statements. You should carefully review and
consider the various disclosures we make in this report and our other reports
filed with the SEC that attempt to advise interested parties of the risks,
uncertainties and other factors that m ay affect our business. The following
discussion and analysis should be read in conjunction with the financial
statements and related footnotes which provide additional information concerning
the Company's financial activities and condition.
Critical Accounting Policies
The Financial Statements have been prepared in accordance with accounting
principles generally accepted in the United States of America, which require the
Company to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the Financial Statements, and revenues and
expenses during the periods reported. Actual results could differ from those
estimates. The Company believes the following are the critical accounting
policies, which could have the most significant effect on the Company's reported
results and require the most difficult, subjective or complex judgments by
management.
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
-20-
IEH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
Critical Accounting Policies (continued)
actual amount realized from the sale of inventory.
o Income Taxes:
The Company records a liability for potential tax assessments based on its
estimate of the potential exposure. Due to the subjectivity and complex
nature of the underlying issues, actual payments or assessments may differ
from estimates. Income tax expense in future periods could be adjusted for
the difference between actual payments and the Company's recorded liability
based on its assessments and estimates.
o Revenue Recognition:
Revenues are recognized at the shipping date of the Company's products. The
Company has historically adopted the shipping terms that title merchandise
passes to the customer at the shipping point (FOB Shipping Point). At this
juncture, title has passed, the Company has recognized the sale, inventory
has been relieved, and the customer has been invoiced. The Company does not
offer any discounts, credits or other sales incentives.
The Company's policy with respect to customer returns and allowances as well
as product warranty is as follows:
The Company will accept a return of defective product within one year from
shipment for repair or replacement at the Company's option. If the product is
repairable, the Company at its own cost will repair and return it to the
customer. If unrepairable, the Company will either offer an allowance against
payment or will reimburse the customer for the total cost of the product.
Most of the Company's products are custom ordered by customers for a specific
use. The Company provides engineering services as part of the relationship
with its customers in developing the custom product. The Company is not
obligated to provide such engineering service to its customers. The Company
does not charge separately for these services.
o Research & Development:
The Company provides personalized engineering services to its customers by
designing connectors for specific customer applications. The employment of
electromechanical engineers is the anticipated cornerstone of the Company's
future growth. The Company maintains a testing laboratory where its engineers
experiment with new connector designs based on changes in technology and in
an attempt to create innovative, more efficient connector designs.
-21-
IEH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
Results of Operations
Comparative Analysis-Six Months Ended September 25, 2009 and September 26, 2008
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
Sept. 25, Sept. 26,
2009 2008
------------ ----------
Operating Revenues (in thousands) $ 5,865 $ 5,230
Operating Expenses:
(as a percentage of Operating Revenues)
Costs of Products Sold 65.99% 69.05%
Selling, General and Administrative 14.38% 14.25%
Interest Expense .45% .74%
Depreciation and amortization 1.51% 1.72%
------------ ------------
TOTAL COSTS AND EXPENSES 82.33% 85.76%
------------ ------------
Operating Income (loss) 17.67% 14.24%
Other Income -- .01%
------------ ------------
Income (loss) before Income Taxes 17.67% 14.25%
Income Taxes (5.38%) (.80%)
------------ ------------
Net Income (loss) 12.29% 13.45%
============ ============
Operating revenues for the six months ended September 25, 2009 amounted to
$5,864,724 reflecting a 12.13% increase versus the six months ended September
26, 2008 revenues of $5,230,328. The sharp increase in revenues can be
attributed to a dramatic increase in commercial aerospace spending, new
customers in the medical device manufacturing sector as well as internal
production efficiencies.
Cost of products sold amounted to $3,870,207 for the six months ended September
25, 2009, or 65.99% of operating revenues. This reflected a $258,457 or 7.16%
increase in the cost of products sold from $3,611,750 or 69.05% of operating
revenues for the six months ended September 26, 2008. The increase in cost of
product sold is due primarily to costs necessary to support the increase in
revenue.
-22-
IEH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
Comparative Analysis-Six Months Ended September 25, 2009 and September 26, 2008
(continued)
Selling, general and administrative expenses were $843,517 or 14.38% of
operating revenues for the six months ended September 25, 2009 compared to
$745,294 or 14.25% of operating revenues for the six months ended September 26,
2008. This category of expenses increased by $98,223 or 13.18% from the prior
year. The increase can be attributed to an increase in salaries to sales
personnel, commissions and travel expenses.
Interest expense was $26,175 for the six months ended September 25, 2009 or .45%
of operating revenues. For the fiscal six months ended September 26, 2008,
interest expense was $38,486 or .74% of operating revenues. The decrease of
$12,311 or 31.99% reflects primarily management's commitment to apply revenues
to reduce the Company's debt.
Depreciation and amortization of $88,314 or 1.51% of operating revenues was
reported for the six months ended September 25, 2009. This reflects a decrease
of $1,846 from the comparable six month period ended September 26, 2008 of
$90,160 or 1.72% of operating revenues. The reduction in depreciation is the
result of assets being written off during the six months ended September 25,
2009.
The Company reported net income of $721,033 for the six months ended September
25, 2009 representing basic earnings of $.31 per share as compared to net income
of $702,914 or $.31 per share for the six months ended September 26, 2008. The
increase in net income for the current six month period can be attributed
primarily to the increased revenue recorded during the current quarter.
-23-
IEH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
Comparative Analysis-Three Months Ended September 25, 2009 and September 26,
2008
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
Sept. 25, Sept. 26,
2009 2008
------------- -----------
Operating Revenues (in thousands) $ 2,987 $ 2,653
------------- ------------
Operating Expenses:
(as a percentage of Operating Revenues)
Costs of Products Sold 66.18% 71.90%
Selling, General and Administrative 14.25% 14.27%
Interest Expense .49% .65%
Depreciation and amortization 1.43% 1.67%
------------- -----------
TOTAL COSTS AND EXPENSES 82.35% 88.49%
------------- -----------
Operating Income (loss) 17.65% 11.51%
Other Income -- --
------------- -----------
Income (loss) before Income Taxes 17.65% 11.51%
Income Taxes ((5.29)%) (.68%)
------------- -----------
Net Income (loss) 12.36% 10.83%
============= ===========
Operating revenues for the three months ended September 25, 2009 amounted to
$2,987,024 reflecting a 12.60% increase versus the three months ended September
26, 2008 revenues of $2,652,855. The increase in revenues is due to an increase
in commercial sales orders including aerospace and medical devices as well as
internal production efficiencies during the current quarter.
Cost of products sold amounted to $1,976,674 for the three months ended
September 25, 2009, or 66.18% of operating revenues. This reflected a $69,315 or
3.63% increase in the cost of products sold from $1,907,359 or 71.90% of
operating revenues for the three months ended September 26, 2008. The increase
in product sold is due primarily to costs necessary to support the increase in
revenues during the quarter.
-24-
IEH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
Comparative Analysis-Three Months Ended September 25, 2009 and September 26,
2008 (continued)
Selling, general and administrative expenses were $425,628 or 14.25% of
operating revenues for the three months ended September 25, 2009 compared to
$378,464 or 14.27% of operating revenues for the three months ended September
26, 2008. This category of expenses increased by $47,164 or 12.46% from the
prior year. The increase can be attributed to an increase in salaries to sales
personnel, commissions and travel.
Interest expense was $14,595 for the three months ended September 25, 2009 or
..49% of operating revenues. For the fiscal three months ended September 26,
2008, interest expense was $17,277 or .65% of operating revenues. The decrease
of $2,682 or 15.52% reflects primarily management's commitment to apply revenues
to reduce the Company's debt.
Depreciation and amortization of $42,600 or 1.43% of operating revenues was
reported for the three months ended September 25, 2009. This reflects a decrease
of $1,680 or 3.79% from the prior three months ended September 26, 2008 of
$44,280 or 1.67% of operating revenues.
The Company reported net income of $369,759 for the three months ended September
25, 2009 representing basic earnings of $.16 per share as compared to a net
income of $287,694 or $.13 per share for the three months ended September 26,
2008. The increase in net income for the current three month period can be
attributed primarily to the increased revenue recorded during the current
quarter.
Liquidity and Capital Resources
The Company reported working capital of $3,388,105 as of September 25, 2009
compared to a working capital of $2,715,072 as of March 27, 2009. The increase
in working capital of $673,033 was attributable to the following items:
Net income $ 721,033
Depreciation and amortization 88,314
Capital expenditures (126,153)
Other transactions (10,161)
As a result of the above, the current ratio (current assets to current
liabilities) was 3.97 to 1 at September 25, 2009 as compared to 2.74 to 1 at
March 27, 2009. Current liabilities at September 25, 2009 were $1,139,752
compared to $1,558,972 at March 27, 2009.
The Company reported $126,153 in capital expenditures for the six months ended
September 25, 2009 and reported depreciation of $88,314 for the same six month
period.
The net income of $721,033 for the six months ended September 25, 2009 resulted
in an increase in stockholders' equity to $4,576,921 as compared to
stockholders' equity of $3,855,888 at March 27, 2009.
The Company has an accounts receivable financing agreement with a factor, which
bears interest at 2 1/2 % above prime. However, the agreement does stipulate
that the minimum interest rate is 12% per annum. At September 25, 2009 the
amount outstanding with the factor was $117,732 as compared to $454,723 at March
27, 2009. The loan is secured by the Company's accounts receivables and
inventories.
-25-
IEH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
Liquidity and Capital Resources (continued)
The factor provides discounted funds to the Company based upon the Company's
accounts receivables. These funds provide the primary source of working capital
for operations.
In the past two fiscal years, management has been reviewing its collection
practices and policies for outstanding receivables and has revised its
collection procedures to a more aggressive collection policy. As a consequence
of this new policy the Company's experience is that its customers have been
remitting payments on a more consistent and timely basis. The Company reviews
the collectability of all accounts receivable on a monthly basis. The reserve is
less than 2% of average gross accounts receivable and is considered to be
conservatively adequate.
The Company has the Multi-Employer Plan with the UAW. Contributions are made by
the Company in accordance with a negotiated labor contract and are based on the
number of covered employees employed per month. With the passage of the 1990
Act, the Company may become subject to liabilities in excess of contributions
made under the collective bargaining agreement. Generally, these are contingent
upon termination, withdrawal, or partial withdrawal from the Multi-Employer
Plan. The Company has not taken any action to terminate, withdraw or partially
withdraw from the Multi-Employer Plan, nor does it intend to do so in the
future. Under the 1990 Act, liabilities would be based upon the Company's
proportional share of the Multi-Employer Plan's unfunded vested benefits which
is currently not available. The amount of accumulated benefits and net assets of
such Plan also is not currently available to the Company. The total
contributions charged to operations under the provisions of the Multi-Employer
Plan were $55,692 and $45,281 for the six months ended September 25, 2009 and
September 26, 2008, respectively.
On September 21, 2001 the Company's shareholders approved the adoption of the
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. No
options have been granted under the Employee Option Plan to date.
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 option which do not so qualify.
Under the 2002 Plan, the exercise price of an option designated as an incentive
stock option shall not be less than the fair market value of the Company's
common stock on the day the option is granted. In the event an option designated
as an incentive stock option is granted to a ten percent (10%) shareholder, such
exercise price shall be at least 110 Percent (110%) of the fair market value or
the Company's common stock and the option must not be exercisable after the
expiration of five years from the day of the grant. Exercise prices of
non-incentive stock options may be less than the fair market value of the
Company's common stock. The aggregate fair market value of shares subject to
options granted to its participants, which are designated as incentive stock
options, and which become exercisable in any calendar year, shall not exceed
$100,000. As of September 25, 2009, no options had been granted under the 2002
Plan.
In 1987, the Company adopted the Cash Bonus Plan for executive officers.
Contributions to the Cash Bonus Plan are made by the Company only after pre-tax
operating profits exceed $150,000 for a fiscal year, and then to the extent of
10% of the excess of the greater of $150,000 or 25% of pre-tax operating
profits.
-26-
IEH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
Liquidity and Capital Resources (continued)
The Company accrued $60,000 for the six months ended September 25, 2009. For the
year ended March 27, 2009, the contribution was $121,000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not believe that any of our financial instruments have significant risk
associated with market sensitivity. For more information on these investments
see Note 2 to our financial statements included in this Form 10-Q. We are not
exposed to significant financial market risks from changes in foreign currency
exchange rates and are only minimally impacted by changes in interest rates. We
have not used, and currently do not contemplate using, any derivative financial
instruments.
Interest Rate Risk
At any time, fluctuations in interest rates could affect interest earnings on
our cash and marketable securities. We believe that the effect, if any, of
reasonably possible near term changes in interest rates on our financial
position, results of operations, and cash flows would not be material.
Currently, we do not hedge these interest rate exposures. The primary objective
of our investment activities is to preserve capital. We have not used derivative
financial instruments in our investment portfolio.
As of September 25, 2009, our unrestricted cash was $175,154 of which $110,172
was in an interest bearing money market account and the balance of $64,982 was
maintained in non-interest bearing checking accounts used to pay operating
expenses.
ITEM 4. CONTROLS AND PROCEDURES
Based on an evaluation of the effectiveness of the Company's "disclosure
controls and procedures" (as defined in Rules 13a-15(e) and 15d-15(e) under the
1934 Act, the Company's President and Chief Financial Officer (who is also our
controller and principal accounting officer) concluded that, as of the end of
the period covered by this Report on Form 10-Q, the Company's disclosure
controls and procedures are effective to ensure that all information required to
be disclosed by the Company in this Report that it files or submits under the
1934 Act is, recorded, processed, and reported within the time periods specified
within the SEC's rules and forms and that such information is accumulated and
communicated to our management, including our President and Chief Financial
Officer, to allow timely decisions regarding required disclosure.
Our management, including our President and Chief Financial Officer, does not
expect that our disclosure controls and procedures or our internal controls will
prevent all errors and all fraud. A control system, no matter how well conceived
and operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a control
system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within our company have been detected. Our management, however, believes
our disclosure controls and procedures are in fact effective to provide
reasonable assurance that the objectives of the control system are met.
-27-
IEH CORPORATION
ITEM 4. CONTROLS AND PROCEDURES (continued)
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting (as
defined in Rule 13(a)-15(f) under the 1934 Act) during the quarter ended
September 25, 2009 that have been materially affected, or are reasonably likely
to materially affect our internal controls over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not involved in any legal proceedings which may have a material
effect upon the Company, its financial condition or operations.
ITEM 1A. RISK FACTORS
As provided for under the Private Securities Litigation Reform Act of 1995, we
wish to caution shareholders and investors that the following important factors,
among others discussed throughout this Report on Form 10-Q and a restated
description of the risk factors associated with our business is set forth below.
This description includes any material changes to and supersedes the description
of the risk factors associated with our business previously disclosed in Part I,
Item 1A of our Annual Report on Form 10-K for the year ended March 27, 2009. You
should carefully consider the risks described below, together with all of
following risk factors and the other information included in this Report, in
considering our business herein as well as the information included in other
reports and prospects. The risks and uncertainties described below are not the
only ones facing our Company. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial also may impair our business
operations, financial condition and/or operating results. If any of the matters
or events described in the following risks actually occurs, our business,
financial condition or results of operations could be harmed. In such case, the
trading price of our common stock could decline, and you may lose all or part of
your investment due to any of these risks.
Risks Related to Our Business
Failure to increase our revenue and keep our expenses consistent with revenues
could prevent us from achieving and maintaining profitability.
We have generated net income of $768,003, $603,865 and $200,693, respectively,
for the fiscal years ended March 27, 2009, March 28, 2008 and March 30, 2007 and
$721,033 for the six months ended September 25, 2009. We have expended, and will
continue to be required to expend, substantial funds to pursue product
development projects, enhance our marketing and sales efforts and to effectively
maintain business operations. Therefore, we will need to generate higher
revenues to achieve and maintain profitability and cannot assure you that we
will be profitable in any future period.
Our capital requirements are significant and we have historically partially
funded our operations through the financing of our accounts receivable.
We have an existing accounts receivable financing agreement with a factor
whereby we can borrow up to 80 percent of our eligible receivables at an
interest rate of 2 1/2 % above JP Morgan Chase's publicly announced
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IEH CORPORATION
ITEM 1A. RISK FACTORS (continued)
interest rate. No assurances can be given that this financing agreement will
continue into the future. If we unable to continue with this agreement, our cash
flow might adversely be affected.
Our success is dependent on the performance of our management and the
cooperation, performance and retention of our executive officers and key
employees.
Our business and operations are substantially dependent on the performance of
our senior management team and executive officers. If our management team is
unable to perform it may adversely impact our results of operations and
financial condition. We do not maintain "key person" life insurance on any of
our executive officers. The loss of one or several key employees could seriously
harm our business. Any reorganization or reduction in the size of our employee
base could harm our ability to attract and retain other valuable employees
critical to the success of our business.
If we lose key personnel or fail to integrate replacement personnel
successfully, our ability to manage our business could be impaired.
Our future success depends upon the continued service of our key management,
technical, sales, finance, and other critical personnel. We cannot assure you
that we will be able to retain them. Key personnel have left our Company in the
past and there likely will be additional departures of key personnel from time
to time in the future. The loss of any key employee could result in significant
disruptions to our operations, including adversely affecting the timeliness of
product releases, the successful implementation and completion of Company
initiatives, the effectiveness of our disclosure controls and procedures and our
internal control over financial reporting, and the results of our operations. In
addition, hiring, training, and successfully integrating replacement sales and
other personnel could be time consuming, may cause additional disruptions to our
operations, and may be unsuccessful, which could negatively impact future
revenues.
Our reported financial results could be adversely affected by changes in
financial accounting standards or by the application of existing or future
accounting standards to our business as it evolves.
As a result of the enactment of the Sarbanes-Oxley Act and the review of
accounting policies by the SEC and national and international accounting
standards bodies, the frequency of accounting policy changes may accelerate.
Possible future changes to accounting standards, could adversely affect our
reported results of operations.
Risks Related to Our Common Stock
Our stock price is volatile and could decline.
The price of our common stock has been, and is likely to continue to be,
volatile. For example, our stock price during the fiscal year ended March 27,
2009 traded as low as $1.60 per share and as high as $2.90 per share. During the
six month period ended September 25, 2009, our stock traded in the range of
$2.46 per share to $3.80 per share. We cannot assure you that your initial
investment in our common stock will not fluctuate significantly. The market
price of our common stock may fluctuate significantly in response to a number of
factors, some of which are beyond our control, including:
o quarterly variations in our operating results;
o announcements we make regarding significant contracts, acquisitions,
dispositions, strategic partnerships, or joint ventures;
o additions or departures of key personnel;
o the introduction of competitive offerings by existing or new
competitors;
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IEH CORPORATION
ITEM 1A. RISK FACTORS (continued)
o uncertainty about and customer confidence in the current economic
conditions and outlook;
o reduced demand for any of our products; and
o sales of our common stock.
In addition, the stock market in general, and companies whose stock is listed on
The NASDAQ Global Market, have experienced extreme price and volume fluctuations
that have often been disproportionate to the operating performance of these
companies. Broad market and industry factors may negatively affect the market
price of our common stock, regardless of our actual operating performance.
Since we have not paid dividends on our common stock, you may not receive income
from this investment.
We have not paid any dividends on our common stock since our inception and do
not contemplate or anticipate paying any dividends on our common stock in the
foreseeable future. Earnings, if any, will be used to finance the development
and expansion of our business
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS;
PURCHASES OF EQUITY SECURITIES
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER MATTERS.
None
ITEM 6. EXHIBITS.
The exhibits designated with an asterisk (*) are filed herewith. All other
exhibits have been previously filed with the SEC and, pursuant to 17 C.F.R Secs.
201.24 and 240.12b-32, are incorporated by reference to the document referenced
in parentheses following the descriptions of such exhibits. The exhibits
designated with a number sign (#) indicate a management contract or compensation
plan or arrangement.
Exhibit 10.1# Agreement between the Company and Michael Offermand Dated
September 1, 2009 (filed as Exhibit 10.1 to Current Report on
Form 8-K filed on September 4, 2009).
Exhibit 10.2# Agreement between the Company and Robert Knoth dated September
1, 2009 (filed as Exhibit 10.2 to Current Report on Form 8-K
filed on September 4, 2009).
Exhibit 31.1* Certification Pursuant to Section 302 of the Sarbanes Oxley Act
Exhibit 31.2* Certification Pursuant to Section 302 of the Sarbanes Oxley Act
Exhibit 32.1* Certification Pursuant to Section 906 of the Sarbanes Oxley Act
Exhibit 32.2* Certification Pursuant to Section 906 of the Sarbanes Oxley Act
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
has duly caused this Report on Form 10-Q to be signed on its behalf by the
undersigned, thereunto duly authorized.
IEH CORPORATION
(Registrant)
November 9, 2009 /s/ Michael Offerman
-------------------------------------
Michael Offerman
President (Principal Executive Officer)
November 9, 2009 /s/ Robert Knoth
--------------------------------------
Robert Knoth
Chief Financial Officer/Controller
(Principal Accounting Officer)
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