form10q-109630_ieh.htm
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
_______________________
FORM
10-Q
þ QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For
the quarterly period ended June 25, 2010
o 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
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13-5549348
|
(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification Number)
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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 þ No o
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):
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Large
accelerated filer o
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Accelerated
filer o
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Non-accelerated
filer o
(Do
not check if a smaller reporting company)
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Smaller
Reporting Company þ
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). YES o NO þ
2,303,468
shares of Common Shares, par value $.01 per share, were outstanding as of June
25, 2010.
IEH
CORPORATION
TABLE
OF CONTENTS
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Page
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Number
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PART
I –
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FINANCIAL
INFORMATION
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ITEM
1-
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FINANCIAL
STATEMENTS
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Balance
Sheets as of June 25, 2010 (Unaudited) and March
26, 2010
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3
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Statement
of Operations (Unaudited) for the
three months ended June 25, 2010 and June 26, 2009
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5
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Statement
of Cash Flows (Unaudited) for the
three months ended June 25, 2010 and June 26, 2009
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6
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Notes
to Financial Statements (Unaudited)
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8
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ITEM
2 –
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MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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20
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ITEM
3 –
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QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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27
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ITEM
4 –
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CONTROLS
AND PROCEDURES
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27
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PART
II –
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OTHER
INFORMATION
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ITEM 1 –
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LEGAL
PROCEEDINGS
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28
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ITEM
1A –
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RISK
FACTORS
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28
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ITEM
2 –
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UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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31
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ITEM
3 –
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DEFAULTS
UPON SENIOR SECURITIES
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31
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ITEM
4 –
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REMOVED
AND RESERVED
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31
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ITEM
5 –
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OTHER
INFORMATION
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31
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ITEM
6 –
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EXHIBITS
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31
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SIGNATURES
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32
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EXHIBITS
Exhibit
31.1
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Certification
Pursuant to Section 302 of the Sarbanes Oxley Act
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32
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Exhibit
31.2
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Certification
Pursuant to Section 302 of the Sarbanes Oxley Act
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33
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Exhibit
32.1
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Certification
Pursuant to Section 906 of the Sarbanes Oxley Act
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34
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IEH
CORPORATION
PART
I: FINANCIAL INFORMATION
Item
1. Financial Statements
IEH
CORPORATION
BALANCE
SHEETS
As of
June 25, 2010 and March 26, 2010
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June
25,
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March
26,
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2010
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2010
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(Unaudited)
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ASSETS
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CURRENT
ASSETS:
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Cash
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$ |
427,131 |
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$ |
320,006 |
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Accounts
receivable, less allowances for doubtful accounts of $11,562 at
June 25, 2010 and March 26, 2010
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1,805,394 |
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1,520,364 |
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Inventories
(Note
3)
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2,757,200 |
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2,573,196 |
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Excess
payments to accounts receivable factor (Note
6)
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- |
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224,040 |
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Prepaid
expenses and other current assets (Note
4)
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568,516 |
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110,320 |
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Total
Current Assets
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5,558,241 |
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4,747,926 |
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PROPERTY,
PLANT AND EQUIPMENT, less accumulated
depreciation
and amortization of $7,122,052 at June 25, 2010 and $7,084,552 at March
26, 2010 (Note
5)
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1,217,985 |
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1,195,240 |
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1,217,985 |
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1,195,240 |
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OTHER
ASSETS:
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Other
assets
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25,059 |
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25,019 |
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25,059 |
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25,019 |
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Total
Assets
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$ |
6,801,285 |
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$ |
5,968,185 |
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The
accompanying notes should be read in conjunction with the financial
statements.
IEH
CORPORATION
BALANCE
SHEETS
As of
June 25, 2010 and March 26, 2010
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June
25,
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March
26,
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2010
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2010
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(Unaudited)
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LIABILITIES
AND STOCKHOLDERS’ EQUITY
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CURRENT
LIABILITIES:
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Accounts
receivable financing (Note
6)
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$ |
26,054 |
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$ |
- |
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Accrued
corporate income taxes
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350,809 |
|
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8,009 |
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Accounts
payable
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383,819 |
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389,013 |
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Workers
compensation insurance assessments-
current
portion (Note
8)
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39,285 |
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39,285 |
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Other
current liabilities (Note
7)
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511,829 |
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432,188 |
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Total
Current Liabilities
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1,311,796 |
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869,495 |
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LONG-TERM
LIABILITIES:
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Workers
compensation insurance assessments- net of
current
portion (Note
8)
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169,296 |
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174,365 |
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Total
Long-Term Liabilities
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169,296 |
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174,365 |
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Total
Liabilities
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1,481,092 |
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1,042,860 |
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STOCKHOLDERS’
EQUITY:
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Common
stock, $.01 par value; 10,000,000 shares authorized;
2,303,468
shares issued and outstanding at June 25, 2010 and March 26,
2010
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23,035 |
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23,035 |
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Capital
in excess of par value
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2,744,573 |
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2,744,573 |
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Retained
earnings (Note
9)
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2,552,585 |
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2,157,717 |
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Total
Stockholders’ Equity
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5,320,193 |
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4,925,325 |
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Total
Liabilities and Stockholders’ Equity
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$ |
6,801,285 |
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$ |
5,968,185 |
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The
accompanying notes should be read in conjunction with the financial
statements.
IEH
CORPORATION
STATEMENT
OF OPERATIONS
(Unaudited)
For the
Three Months Ended June 25, 2010 and June 26, 2009
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Three
Months Ended
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June
25,
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June
26,
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2010
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2009
|
|
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REVENUE,
net sales
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$ |
3,353,081 |
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$ |
2,877,700 |
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COSTS
AND EXPENSES
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Cost
of products sold
|
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2,109,906 |
|
|
|
1,893,533 |
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Selling,
general and administrative
|
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|
460,763 |
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417,889 |
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Interest
expense
|
|
|
7,408 |
|
|
|
11,580 |
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Depreciation
|
|
|
37,500 |
|
|
|
45,714 |
|
|
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2,615,577 |
|
|
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2,368,716 |
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OPERATING
INCOME
|
|
|
737,504 |
|
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|
508,984 |
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|
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OTHER
INCOME
|
|
|
164 |
|
|
|
90 |
|
|
|
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INCOME
BEFORE INCOME TAXES
|
|
|
737,668 |
|
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|
509,074 |
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PROVISION
FOR INCOME TAXES
|
|
|
(342,800 |
) |
|
|
(157,800 |
) |
|
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NET
INCOME
|
|
$ |
394,868 |
|
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$ |
351,274 |
|
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|
|
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BASIC
AND DILUTED EARNINGS PER SHARE (Note 2)
|
|
$ |
.17 |
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$ |
.15 |
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WEIGHTED
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING
(in thousands)
|
|
|
2,303 |
|
|
|
2,303 |
|
The
accompanying notes should be read in conjunction with the financial
statements.
IEH
CORPORATION
STATEMENT
OF CASH FLOWS
(Unaudited)
For the
Three Months Ended June 25, 2010 and June 26, 2009
|
|
Three
Months Ended
|
|
|
|
June
25,
|
|
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June
26,
|
|
|
|
2010
|
|
|
2009
|
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CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
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Net
income
|
|
$ |
394,868 |
|
|
$ |
351,274 |
|
|
|
|
|
|
|
|
|
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Adjustments
to reconcile net income to net cash used in
operating
activities:
|
|
|
|
|
|
|
|
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Depreciation
|
|
|
37,500 |
|
|
|
45,714 |
|
|
|
|
|
|
|
|
|
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Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
(Increase)
in accounts receivable
|
|
|
(285,030 |
) |
|
|
(11,100 |
) |
(Increase)
in inventories
|
|
|
(184,004 |
) |
|
|
(119,497 |
) |
Decrease
in excess payments to accounts receivable factor
|
|
|
224,040 |
|
|
|
- |
|
(Increase)
in prepaid expenses and other current assets
|
|
|
(458,196 |
) |
|
|
(6,367 |
) |
(Increase)
in other assets
|
|
|
(40 |
) |
|
|
(25 |
) |
(Decrease)
in accounts payable
|
|
|
(5,194 |
) |
|
|
(34,020 |
) |
Increase
in other current liabilities
|
|
|
79,641 |
|
|
|
115,498 |
|
Increase
in accrued corporate income taxes
|
|
|
342,800 |
|
|
|
71,184 |
|
(Decrease)
in workers compensation assessment
|
|
|
(5,069 |
) |
|
|
(5,067 |
) |
|
|
|
|
|
|
|
|
|
Total
adjustments
|
|
|
(253,552 |
) |
|
|
56,320 |
|
|
|
|
|
|
|
|
|
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NET
CASH PROVIDED BY OPERATING ACTIVITIES
|
|
|
141,316 |
|
|
|
407,594 |
|
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CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of fixed assets
|
|
|
(60,245 |
) |
|
|
(42,381 |
) |
|
|
|
|
|
|
|
|
|
NET
CASH USED BY INVESTING ACTIVITIES
|
|
$ |
(60,245 |
) |
|
$ |
(42,381 |
) |
The
accompanying notes should be read in conjunction with the financial
statements.
IEH
CORPORATION
STATEMENT
OF CASH FLOWS
(Unaudited)
For the
Three Months Ended June 25, 2010 and June 26, 2009
|
|
Three
Months Ended
|
|
|
|
June
25,
|
|
|
June
26,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
Net
Activity of accounts receivable financing
|
|
$ |
26,054 |
|
|
$ |
(308,132 |
) |
|
|
|
|
|
|
|
|
|
NET
CASH (USED) BY FINANCING ACTIVITIES
|
|
|
26,054 |
|
|
|
(308,132 |
) |
|
|
|
|
|
|
|
|
|
INCREASE
IN CASH
|
|
|
107,125 |
|
|
|
57,081 |
|
|
|
|
|
|
|
|
|
|
CASH,
beginning of period
|
|
|
320,006 |
|
|
|
169,316 |
|
|
|
|
|
|
|
|
|
|
CASH,
end of period
|
|
$ |
427,131 |
|
|
$ |
226,397 |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION
Cash
paid during the three months for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
3,563 |
|
|
$ |
11,580 |
|
|
|
|
|
|
|
|
|
|
Income
Taxes
|
|
$ |
355,000 |
|
|
$ |
42,000 |
|
The
accompanying should be read in conjunction with the financial
statements.
IEH
CORPORATION
NOTES
TO FINANCIAL STATEMENTS
(Unaudited)
Note
1- INTERIM
RESULTS AND BASIS OF PRESENTATION:
The
accompanying unaudited financial statements as of June 25, 2010 and June 26,
2009 and for the three months then ended have been prepared in accordance with
U.S. generally accepted accounting principles (“GAAP”) for interim financial
information and with the instructions to Form 10-Q. In the opinion of
management, the unaudited financial statements have been prepared on the same
basis as the annual financial statements and reflect all adjustments, which
include only normal recurring adjustments, necessary to present fairly the
financial position as of June 25, 2010 and June 26, 2009 and the results of
operations and cash flows for the three 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 three
months ended June 25, 2010, are not necessarily indicative of the results to be
expected for any subsequent quarter or the entire fiscal year. The balance sheet
at March 26, 2010 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 GAAP have been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission (the “SEC”). The
Company believes, however, that the disclosures in this report are adequate to
make the information presented not misleading in any material respect. The
accompanying financial statements should be read in conjunction with the audited
financial statements and notes thereto of IEH Corporation for the fiscal year
ended March 26, 2010 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 Operations.
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.
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 26, 2010 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.
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 was recently extended
through December 31, 2010, whereupon, coverage will be limited to $250,000 in
the aggregate.
With the
extension of the TAGP, the FDIC permitted participating financial institutions
to opt out of the TAGP Program effective January 1, 2010. The financial
institution holding the non-interest bearing funds on deposit elected to opt out
of the TAGP Program. As a result, on January 1, 2010, the FDIC coverage on its
non-interest bearing accounts was limited to $250,000 in the
aggregate.
As of
June 25, 2010, the Company had funds on deposit in the amount of $426,831 in one
financial institution comprised of the following:
Non-interest
bearing accounts
|
|
$ |
325,681 |
|
Interest
bearing account
|
|
|
101,150 |
|
|
|
|
|
|
|
|
$ |
426,831 |
|
The
Company has not experienced any losses in such accounts and believes its cash
balances are not exposed to any significant risk. In addition to the deposited
balances there is cash on hand of $300 for petty cash.
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.
IEH
CORPORATION
NOTES
TO FINANCIAL STATEMENTS
(Unaudited)
Note
2
- SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES: (continued)
Property,
Plant and Equipment: (continued)
Maintenance
and repair expenditures are charged to operations, and renewals and betterments
are capitalized. Items of property, plant and equipment, which are
sold, retired or otherwise disposed of, are removed from the asset and
accumulated depreciation or amortization accounts. Any gain or loss
thereon is either credited or charged to operations.
Income
Taxes:
The
Company follows the policy of treating investment tax credits as a reduction in
the provision for federal income tax in the year in which the credit arises or
may be utilized. Deferred income taxes arise from temporary
differences resulting from different depreciation methods used for financial and
income tax purposes. The Company has adopted 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
three months ended June 25, 2010 and June 26, 2009, 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 (three months) of these
instruments.
Use
of Estimates:
The
preparation of financial statements in conformity with GAAP 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.
IEH
CORPORATION
NOTES
TO FINANCIAL STATEMENTS
(Unaudited)
Note
2
-
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued)
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 three months
ended June 25, 2010 and June 26, 2009, 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 three months ended June 25, 2010 and June 26, 2009,
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 nor receive any revenues related to customer
sponsored research and development activities relating to the development of new
designs, techniques and the improvement of existing design during the three
months ended June 25, 2010 and June 26, 2009, respectively.
IEH
CORPORATION
NOTES
TO FINANCIAL STATEMENTS
(Unaudited)
Note
2
- SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES: (continued)
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”). SFAS No. 168 establishes
the ASC as the source of authoritative accounting principles recognized by the
FASB to be applied in the preparation of financial statements in conformity with
GAAP.
Rules and
interpretive releases of the SEC under the authority of Federal securities laws
are also sources of authoritative 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
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 July 31,
2010.
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 has not had a material impact on
the Company’s financial position, results of operations or cash
flows.
IEH
CORPORATION
NOTES
TO FINANCIAL STATEMENTS
(Unaudited)
Note
2
- SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES: (continued)
Effect
of New Accounting Pronouncements: (continued)
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” 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 three months ended June 25, 2010.
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. ASC Topic 820 and SFAS No. 157 provide a single definition of fair value,
together with a framework for measuring it, and require 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.
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:
|
|
June
25,
|
|
|
March
26,
|
|
|
|
2010
|
|
|
2010
|
|
|
|
|
|
|
|
|
Raw
materials
|
|
$ |
1,191,585 |
|
|
$ |
1,112,064 |
|
Work
in progress
|
|
|
700,104 |
|
|
|
653,382 |
|
Finished
goods
|
|
|
865,511 |
|
|
|
807,750 |
|
|
|
$ |
2,757,200 |
|
|
$ |
2,573,196 |
|
Note
4
- PREPAID
EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current
assets are comprised of the following:
|
|
June
25,
|
|
|
March
26,
|
|
|
|
2010
|
|
|
2010
|
|
|
|
|
|
|
|
|
Prepaid
insurance
|
|
$ |
29,794 |
|
|
$ |
30,657 |
|
Prepaid
corporate taxes
|
|
|
522,617 |
|
|
|
76,248 |
|
Other
current assets
|
|
|
16,105 |
|
|
|
3,415 |
|
|
|
$ |
568,516 |
|
|
$ |
110,320 |
|
IEH
CORPORATION
NOTES
TO FINANCIAL STATEMENTS
(Unaudited)
Note
5
- PROPERTY,
PLANT AND EQUIPMENT:
Property, plant and equipment are
comprised of the following:
|
|
June
25,
|
|
|
March
26,
|
|
|
|
2010
|
|
|
2010
|
|
|
|
|
|
|
|
|
Computers
|
|
$ |
248,959 |
|
|
$ |
242,708 |
|
Leasehold
improvements
|
|
|
588,685 |
|
|
|
588,685 |
|
Machinery
and equipment
|
|
|
5,128,210 |
|
|
|
5,091,909 |
|
Tools
and dies
|
|
|
2,210,698 |
|
|
|
2,193,005 |
|
Furniture
and fixture
|
|
|
155,935 |
|
|
|
155,935 |
|
Website
development cost
|
|
|
7,550 |
|
|
|
7,550 |
|
|
|
|
|
|
|
|
|
|
|
|
|
8,340,037 |
|
|
|
8,279,792 |
|
Less:
accumulated depreciation and amortization
|
|
|
(7,122,052 |
) |
|
|
(7,084,552 |
) |
|
|
$ |
1,217,985 |
|
|
$ |
1,195,240 |
|
Note
6
- ACCOUNTS
RECEIVABLE FINANCING:
The
Company entered into an accounts receivable financing agreement with a non-bank
lending institution (“Factor”) whereby it can borrow up to 80 percent of its
eligible receivables (as defined in such financing agreement) at an interest
rate of 2 ½ % above JP Morgan Chase’s publicly announced rate with a minimum
rate of 12% per annum. The financing agreement has an initial term of
one year and will automatically renew for successive one-year terms, unless
terminated by the Company or the Factor upon receiving 60 days prior
notice. Funds advanced by the Factor are secured by the Company’s
accounts receivable and inventories. As of June 25, 2010, the Company reported a
liability to the Factor of $26,054. As of March 26, 2010, the
Company had reported excess payments to the Factor resulting in an overpayment
of $224,040, which the Company applied against borrowings during the current
quarter. These excess repayments are reported in the accompanying
financial statements as of March 26, 2010 as “Excess repayments to accounts
receivable factor.”
Note
7
- OTHER
CURRENT LIABILITIES:
Other current liabilities are comprised
of the following:
|
|
June
25,
|
|
|
March
26,
|
|
|
|
2010
|
|
|
2010
|
|
|
|
|
|
|
|
|
Payroll
and vacation accruals
|
|
$ |
377,739 |
|
|
$ |
315,923 |
|
Sales
commissions
|
|
|
37,012 |
|
|
|
37,040 |
|
Insurance
|
|
|
40,752 |
|
|
|
73,617 |
|
Other
|
|
|
56,326 |
|
|
|
5,608 |
|
|
|
$ |
511,829 |
|
|
$ |
432,188 |
|
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 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 elected the
deferral option, and was obligated to 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.
The
Company was subsequently notified that it was being assessed an additional
$146,073 covering the years 2002 through 2007, bringing the total deficit
allocation assessment to $247,435.
The total
revised assessment for the years 2002 to 2007 is as follows:
2002
|
|
$ |
23,445 |
|
2003
|
|
|
43,797 |
|
2004
|
|
|
51,381 |
|
2005
|
|
|
38,309 |
|
2006
|
|
|
46,477 |
|
2007
|
|
|
44,026 |
|
|
|
$ |
247,435 |
|
As of
June 25, 2010, the Company had paid down $38,854 of this
assessment.
The
Company has elected to pay the revised assessment over a five year period (60
months). The monthly payments, inclusive of interest at 7.50%, are
$3,970.
The
Company has recorded the additional assessment of $146,073 as a charge to Cost
of Sales in the quarter ended March 26, 2010. As of June 25, 2010, the Company
had paid down an addi- tional $5,069 and the remaining balance of the total
revised assessment payable was $208,581.
IEH
CORPORATION
NOTES
TO FINANCIAL STATEMENTS
(Unaudited)
Note
9
- CHANGES
IN STOCKHOLDERS’ EQUITY:
Retained
earnings increased by $394,868, which represents the net income for the three
months ended June 25, 2010. As a result at June 25, 2010, the Company
reported accumulated retained earnings of $2,552,585.
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.
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 June
25, 2010, 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 $39,000 for the three
months ended June 25, 2010. For the year ended March 26, 2010, the
contribution was $163,000.
IEH
CORPORATION
NOTES
TO FINANCIAL STATEMENTS
(Unaudited)
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:
|
|
|
|
|
|
|
|
2011
|
|
$ |
126,288 |
|
2012
|
|
|
70,160 |
|
|
|
$ |
196,448 |
|
The
rental expense for the three months ended June 25, 2010 and June 26, 2009 was
$36,267, 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 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 $28,500 and $25,205 for the three
months ended June 25, 2010 and June 26, 2009, respectively.
IEH
CORPORATION
PART
I: FINANCIAL INFORMATION
Item
2. 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 “Exchange Act”) and
Section 27A of the Securities Act of 1933 (the “Securities 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 may affect our business. The
following discussion and analysis should be read in conjunction with the
financial statements and related footnotes included elsewhere in this quarterly
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 have the most significant effect on the Company's reported results and
require the most difficult, subjective or complex judgments by
management.
· 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.
IEH
CORPORATION
PART
I: FINANCIAL INFORMATION
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations (continued)
Critical
Accounting Policies (continued)
· 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.
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.
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.
·
|
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 did not expend any funds for the quarter ended June 25, 2010 and June
26, 2009, respectively,
IEH
CORPORATION
PART
I: FINANCIAL INFORMATION
Item 2. Management’s Discussion and Analysis
of Financial Condition and Results of Operations
(continued)
Critical
Accounting Policies (continued)
on
customer sponsored research and development activities relating to the
development of new designs, techniques and the improvement of existing
designs.
Results
of Operations
The
following table sets forth for the periods indicated, percentages for certain
items reflected in the financial data as such items relate to the revenues of
the Company:
Relationship
to Total Revenues
|
|
|
|
June
25,
|
|
|
June
26,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
Operating
Revenues (in thousands)
|
|
$ |
3,353 |
|
|
$ |
2,878 |
|
|
|
|
|
|
|
|
|
|
Operating
Expenses:
|
|
|
|
|
|
|
|
|
(as
a percentage of Operating Revenues)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
of Products Sold
|
|
|
62.9 |
% |
|
|
65.8 |
% |
Selling,
General and Administrative
|
|
|
13.8 |
% |
|
|
14.5 |
% |
Interest
Expense
|
|
|
.2 |
% |
|
|
.4 |
% |
Depreciation
and amortization
|
|
|
1.1 |
% |
|
|
1.6 |
% |
|
|
|
|
|
|
|
|
|
TOTAL
COSTS AND EXPENSES
|
|
|
78.0 |
% |
|
|
82.3 |
% |
|
|
|
|
|
|
|
|
|
Operating
Income
|
|
|
22.0 |
% |
|
|
17.7 |
% |
|
|
|
|
|
|
|
|
|
Other
Income
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Income
(loss) before Income Taxes
|
|
|
22.0 |
% |
|
|
17.7 |
% |
|
|
|
|
|
|
|
|
|
Income
Taxes
|
|
|
(10.2 |
%) |
|
|
(5.5 |
%) |
|
|
|
|
|
|
|
|
|
Net
Income
|
|
|
11.8 |
% |
|
|
12.2 |
% |
Comparative
Analysis-Three Months Ended June 25, 2010 and June 26, 2009
Operating
revenues for the three months ended June 25, 2010 amounted to $3,353,081
reflecting a 16.5% increase versus the three months ended June 26, 2009 revenues
of $2,877,700. The increase in revenues can be attributed to a significant
increase in commercial aerospace spending and new customers in the medical
device manufacturing sector.
IEH
CORPORATION
PART
I
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations (continued)
|
Comparative
Analysis-Three Months Ended June 25, 2010 and June 26, 2009 (continued)
Cost of
products sold amounted to $2,109,906 for the three months ended June 25, 2010,
or 62.9% of operating revenues. This reflected a $216,373 or 11.4%
increase in the cost of products sold from $1,893,533 or 65.8% of operating
revenues for the three months ended June 26, 2009. The increase in
cost of product sold is due primarily to the increased production costs
associated with the increase in revenues for the quarter ended June 25,
2010.
Selling,
general and administrative expenses were $460,763 or 13.8% of operating revenues
for the three months ended June 25, 2010 compared to $417,889 or 14.5% of
operating revenues for the three months ended June 26, 2009. This category of
expense increased by $42,874 or 10.3% from the prior year. The increase can be
attributed to an increase in salaries to personnel, commissions and travel
expenses.
Interest
expense was $7,408 for the three months ended June 25, 2010 or .2% of operating
revenues. For the fiscal three months ended June 26, 2009, interest
expense was $11,580 or .4% of operating revenues. The decrease of
$4,172 or 36.0% reflects primarily management’s commitment to apply operating
revenues to reduce the Company’s debt.
Depreciation
and amortization of $37,500 or 1.1% of operating revenues was reported for the
three months ended June 25, 2010. This reflects a decrease of $8,214
from the comparable three month period ended June 26, 2009 of $45,714 or 1.6% of
operating revenues. The reduction in depreciation is the result of assets being
written off prior to the three months ended June 25, 2010.
The
Company reported net income of $394,868 for the three months ended June 25, 2010
representing basic earnings of $.17 per share as compared to net income of
$351,274 or $.15 per share for the three months ended June 26,
2009. The increase in net income for the current three month period
can be attributed primarily to the increase in sales of its products in the
commercial aerospace and medical device sectors.
Liquidity
and Capital Resources
The
Company reported working capital of $4,246,445 as of June 25, 2010 compared to a
working capital of $3,878,431 as of March 26, 2010. The increase in working
capital of $368,014 was attributable to the following items:
Net
income
|
|
$ |
394,868 |
|
Depreciation
and amortization
|
|
|
37,500 |
|
Capital
expenditures
|
|
|
(60,245 |
) |
Other
transactionsA
|
|
|
(4,109 |
) |
As a
result of the above, the current ratio (current assets to current liabilities)
was 4.24 to 1 at June 25, 2010 as compared to 5.46 to 1 at March 26,
2010. Current liabilities at June 25, 2010 were $1,311,796 compared
to $869,495 at March 26, 2010.
For the
three months ended June 25, 2010, the Company reported $60,245 in capital
expenditures and depreciation of $37,500.
IEH
CORPORATION
PART
I: FINANCIAL INFORMATION
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Liquidity
and Capital Resources (continued)
The net
income of $394,868 for the three months ended June 25, 2010 resulted in an
increase in stockholders’ equity to $5,320,193 as compared to stockholders’
equity of $4,925,325 at March 26, 2010.
The
Company has an accounts receivable financing agreement with non-lending
institution (“Factor”) whereby it can
borrow up to 80 percent of its eligible receivables (as defined in such
financing agreement) at an interest rate of 2.5% above JP Morgan Chase’s
publicly announced prime rate with a minimum rate of 12% per
annum. Funds advanced by the Factor are secured by the
Company’s accounts receivable and inventories. At June 25, 2010, the
Company reported that the amount outstanding with the Factor was $26,054 as
compared to reported excess payments to the Factor of $224,040 at March 26,
2010. These excess repayments are reported in the accompanying
financial statements as “Excess repayments to accounts receivable
factor.”
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 $28,500 and $25,205 for the three months ended June 25, 2010 and June
26, 2009, respectively.
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.
IEH
CORPORATION
PART
I: FINANCIAL INFORMATION
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Liquidity
and Capital Resources (continued)
The
assessed amount for the years 2002 through 2006 was $101,362. The assessed
amount for each year is detailed as follows:
2007
|
|
$ |
16,826 |
|
2008
|
|
|
24,934 |
|
2009
|
|
|
31,785 |
|
2010
|
|
|
14,748 |
|
2011
|
|
|
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 elected the
deferral option, and was obligated to 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.
The
Company was subsequently notified that it was being assessed an additional
$146,073 covering the years 2002 through 2007, bringing the total deficit
allocation assessment to $247,435.
IEH
CORPORATION
PART
I: FINANCIAL INFORMATION
Item
2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations
(continued)
Liquidity
and Capital Resources (continued)
The total
revised assessment for the years 2002 to 2007 is as follows:
2003
|
|
$ |
23,445 |
|
2008
|
|
|
43,797 |
|
2009
|
|
|
51,381 |
|
2010
|
|
|
38,309 |
|
2011
|
|
|
46,477 |
|
2012
|
|
|
44,026 |
|
|
|
$ |
247,435 |
|
As of
June 25, 2010, the Company had paid down $38,854 of this
assessment.
The
Company has elected to pay the revised assessment over a five year period (60
months). The monthly payments, inclusive of interest at 7.50%, are
$3,970.
The
Company has recorded the additional assessment of $146,073 as a charge to Cost
of Sales in the quarter ended March 26, 2010. As of June 25, 2010, the Company
had paid down an additional $5,069 and the remaining balance of the total
revised assessment payable was $208,581.
On
September 21, 2001, the Company’s shareholders approved the adoption of the
Company’s 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 Employee Stock Option Plan may be designated
as options which qualify for incentive stock option treatment under Section 422A
of the Internal Revenue Code, or option which do not so qualify.
Under 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 June 25, 2010, 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. The Company accrued $39,000 for the three months
ended June 25, 2010. For the year ended March 26, 2010, the
contribution was $163,000.
IEH
CORPORATION
PART
I: FINANCIAL INFORMATION
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
June 25, 2010, our unrestricted cash was $426,831 of which $101,150 was in an
interest bearing money market account with and the balance of $325,681 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 Exchange
Act), the Company’s President and Chief Executive Officer and its Chief
Financial Officer (who is also our controller and principal accounting officer)
have concluded that, as of the end of the period covered by this Report on Form
10-Q, the Company’s disclosure controls and procedures were effective at the
reasonable assurance level to ensure that information required to be disclosed
by the Company in this Report that it files or submit under the Exchange Act is,
recorded, processed, summarized 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 Executive
Officer and our Chief Financial Officer, to allow timely decisions regarding
required disclosure. Management does not view the Company’s inability
to timely file its Annual Report on Form 10-K for the fiscal year ended March
26, 2010 as evidence that the Company’s disclosure controls and procedures were
not effective as the delay experienced by the Company in completing its Annual
Report was caused by the delay in completing its financial statements for the
period ended March 26, 2010 which resulted in a delay in obtaining the review of
such financial statements by its independent registered public accounting firm.
Accordingly, the Company’s management was not able to complete its preparation
of the Annual Report prior to the required filing date.
Our
management, including our President and Chief Executive Officer and our 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.
IEH
CORPORATION
PART
I: FINANCIAL INFORMATION
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(continued)
Changes
in Internal Control over Financial Reporting (continued)
There
have been no changes in our internal control over financial reporting (as
defined in Rule 13a – 15(f) under the Exchange Act) during the quarter ended
June 25, 2010 that have been materially affected, or are reasonably likely to
materially affect our internal controls over financial reporting.
IEH
CORPORATION
PART
II: OTHER INFORMATION
ITEM
1. 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.
ITEM
1A. RISK
FACTORS
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 $1,069,437, $768,003 and $603,865, respectively, for the
fiscal years ended March 26, 2010, March 27, 2009 and March 28, 2008, and
$394,868 for the quarter ended June 25, 2010. 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 non-lending
institution (“Factor”) whereby we can borrow up to 80 percent of our eligible
receivables at an interest rate of 2 ½ % above JP Morgan Chase’s publicly
announced prime rate. No assurances can be given that this financing agreement
will continue into the future. If we are 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.
IEH
CORPORATION
PART
II: OTHER INFORMATION
ITEM
1A. RISK
FACTORS (continued)
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 26, 2010 traded as
low as $2.46 per share and as high as $4.45 per share. During the three month
period ended June 25, 2010, our common stock traded in the range of $3.11 per
share to $4.45 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:
|
·
|
Quarterly
variations in our operating
results.
|
|
·
|
Announcements
we make regarding significant contracts, acquisitions, dispositions,
strategic partnerships, or joint
ventures.
|
|
·
|
Additions
or departures of key personnel.
|
|
·
|
The
introduction of competitive offerings by existing or new
competitors.
|
|
·
|
Uncertainty
about and customer confidence in the current economic conditions and
outlook.
|
|
·
|
Reduced
demand for any of our products.
|
|
·
|
Sales
of our common stock.
|
In
addition, the stock market in general, and companies whose 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” 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.
IEH
CORPORATION
PART
II: FINANCIAL INFORMATION
ITEM
1A. RISK
FACTORS (continued)
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
Not
applicable
ITEM
3. DEFAULTS
UPON SENIOR SECURITIES
None
ITEM
4. REMOVED
AND RESERVED
None
ITEM
5. OTHER
INFORMATION
None
ITEM
6. EXHIBITS.
(a)
Exhibits
Exhibit
31.1
Certification Pursuant to Section 302 of the Sarbanes Oxley
Act
Exhibit
31.2 Certification
Pursuant to Section 302 of the Sarbanes Oxley Act
Exhibit
32.1 Certification
Pursuant to Section 906 of the Sarbanes Oxley Act
(b)
Reports on Form 8-K during Quarter
None
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, 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)
|
|
|
|
|
August
6, 2010
|
/s/ Michael Offerman
|
|
Michael
Offerman
|
|
President
(Principal Executive Officer)
|
|
|
|
|
August
6, 2010
|
/s/ Robert Knoth
|
|
Robert
Knoth
|
|
Chief
Financial Officer (Principal Accounting
Officer)
|
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