SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 24, 2005
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. 0-5258
IEH CORPORATION
(Exact name of registrant as specified in its charter)
New York 1365549348
(State or other jurisdiction of (I.R.S. Employer
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
2,303,468 shares of Common Shares, par value $.01 per share, were outstanding as
of June 24, 2005.
IEH CORPORATION
CONTENTS
Page
Number
------
Part I - FINANCIAL INFORMATION
ITEM 1- FINANICAL STATEMENTS
Balance Sheets as of June 24, 2005 (Unaudited) and March 25, 2005 1
Statement of Operations (Unaudited) for the three months ended June 24,
2005 and June 25, 2004 3
Statement of Cash Flows (Unaudited) for the three months ended June 24,
2005 and June 25, 2004 4
Notes to Financial Statements (Unaudited) 6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 15
ITEM 3 - CONTROLS AND PROCEDURES 23
PART II - OTHER INFORMATION
Item 1 - Legal proceedings 23
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds;
Purchases of Equity Securities 23
Item 3 - Defaults Upon Senior Securities 23
Item 4 - Submission of Matters to a Vote of Security Holders 23
Item 5 - Other Information 23
Item 6 - Exhibits and Reports on Form 8K 24
IEH CORPORATION
BALANCE SHEETS
As of June 24, 2005 and March 25, 2005
June 24, March 25,
2005 2005
---------- ----------
(Unaudited) (Note 1)
ASSETS
CURRENT ASSETS:
Cash $ 9,987 $ 25,154
Accounts receivable, less allowances for doubtful accounts of
$10,062 at June 24 2005 and March 25, 2005 918,185 769,402
Inventories (Note 3) 1,219,400 1,219,103
Prepaid expenses and other current assets (Note 4) 35,935 14,212
---------- ----------
Total current assets 2,183,507 2,027,871
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, less accumulated
depreciation and amortization of $6,214,329 at June 24, 2005 and
$6,169,269 at March 25, 2005 1,179,321 1,172,433
---------- ----------
1,179,321 1,172,433
---------- ----------
OTHER ASSETS:
Other assets 40,094 41,562
---------- ----------
40,094 41,562
---------- ----------
Total assets $3,402,922 $3,241,866
========== ==========
The accompanying notes and should be read in conjunction with
the financial statements
1
IEH CORPORATION
BALANCE SHEETS
As of June 24, 2005 and March 25, 2005
June 24, March 25,
2005 2005
----------- -----------
(Unaudited) (Note 1)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts receivable financing (Note 6) $ 699,922 $ 643,472
Notes payable, equipment, current portion (Note 8) 3,358 4,325
Loans payable- officers (Note 9) 171,500 187,744
Accrued corporate income taxes 48,968 28,287
Accounts payable 804,998 882,646
Pension plan payable, current portion (Note 10) 61,000 86,000
Other current liabilities (Note 7) 178,831 194,114
----------- -----------
Total current liabilities 1,968,577 2,026,588
----------- -----------
LONG-TERM LIABILITIES:
Pension Plan payable, less current portion (Note 10) 54,000 63,000
Notes payable, equipment, less current portion (Note 8) 5,788 6,573
----------- -----------
Total long-term liabilities 59,788 69,573
----------- -----------
Total liabilities 2,028,365 2,096,161
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 10,000,000 shares authorized;
2,303,468 shares issued and outstanding at June 24, 2005 and
March 25, 2005 23,035 23,035
Capital in excess of par value 2,744,573 2,744,573
Retained earnings (Deficit) (1,393,051) (1,621,903)
----------- -----------
Total stockholders' equity 1,374,557 1,145,705
----------- -----------
Total liabilities and stockholders' equity $ 3,402,922 $ 3,241,866
=========== ===========
The accompanying notes should be read in conjunction with
the financial statements
2
IEH CORPORATION
STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended
---------------------------
June 24, June 25,
2005 2004
----------- -----------
REVENUE, net sales $ 1,729,169 $ 1,172,388
----------- -----------
COSTS AND EXPENSES
Cost of products sold 1,150,759 905,073
Selling, general and administrative 252,461 243,583
Interest expense 27,417 23,519
Depreciation and amortization 45,060 50,100
----------- -----------
1,475,697 1,222,275
----------- -----------
OPERATING INCOME (LOSS) 253,472 (49,887)
OTHER INCOME 58 55
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 253,530 (49,832)
----------- -----------
PROVISION FOR INCOME TAXES (24,678) (4,200)
----------- -----------
NET INCOME (LOSS) $ 228,852 $ (54,032)
=========== ===========
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE $ .10 $ (.02)
=========== ===========
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
3
IEH CORPORATION
STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash
(Unaudited)
Three months Ended
----------------------
June 24, June 25,
2005 2004
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 228,852 $ (54,032)
--------- ---------
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation and amortization 45,060 50,100
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (148,783) (7,886)
(Increase) decrease inventories (297) (43,402)
(Increase) decrease in prepaid expenses and other current assets (21,723) (8,997)
(Increase) decrease in other assets 1,468 (48)
Increase (decrease) in accounts payable (77,648) 280,369
Increase (decrease) in other current liabilities (15,283) (22,194)
Increase (decrease) in accrued corporate income taxes 20,681 232
Increase (decrease) in union health and welfare plan -- (10,500)
Increase (decrease) in due to pension plan payable (34,000) (31,000)
--------- ---------
Total adjustments (230,525) 206,674
--------- ---------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (1,673) 152,642
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of fixed assets (51,948) (82,608)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES $ (51,948) $ (82,608)
========= =========
The accompanying notes should be read in conjunction with
the financial statements
4
IEH CORPORATION
STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash
(Unaudited)
Three months Ended
--------------------
June 24, June 25,
2005 2004
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes payable $ (1,752) $ (2,234)
Proceeds from accounts receivable financing 56,450 (70,781)
Proceeds from loans payable (16,244) --
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 38,454 (73,015)
-------- --------
INCREASE (DECREASE) IN CASH (15,167) (2,981)
CASH, beginning of period 25,154 4,480
-------- --------
-------- --------
CASH, end of period $ 9,987 $ 1,499
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the three months for:
Interest $ 19,582 $ 16,555
======== ========
Income Taxes $ 3,997 $ 3,968
======== ========
The accompanying should be read in conjunction with
the financial statements
5
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 1- INTERIM RESULTS AND BASIS OF PRESENTATION
The accompanying unaudited financial statements as of June 24, 2005
and June 25, 2004 and for the three months then ended have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-QSB and Items 303 and 310 of Regulation S-B. 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 24,
2005 and June 25, 2004 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 24, 2005, are not necessarily indicative
of the results to be expected for any subsequent quarter or the
entire fiscal year. The balance sheet at March 25, 2005 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
Securities and Exchange Commission's rules and regulations. The
Company believes, however, that the disclosures in this report are
adequate to make the information presented not misleading in any
material respect. The accompanying financial statements should be
read in conjunction with the audited financial statements of IEH
Corporation as of March 25, 2005 and notes thereto included in the
Company's report on Form 10-KSB as filed with the Securities and
Exchange Commission.
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.
6
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
Revenue Recognition:
Revenues are recognized at the shipping date of the Company's
products. The Company has historically adopted the shipping terms
that title merchandise passes to the customer at the shipping point
(FOB Shipping Point). At this juncture, title has passed, the
Company has recognized the sale, inventory has been relieved, and
the customer has been invoiced. The Company does not offer any
discounts, credits or other sales incentives.
The Company's policy with respect to customer returns and allowances
as well as product warranty is as follows:
The Company will accept a return of defective product within one
year from shipment for repair or replacement at the Company's
option. If the product is repairable, the Company at its own cost
will repair and return to the customer. If unrepairable, the Company
will either offer an allowance against payment or will reimburse the
customer for the total cost of product.
Most of the Company's products are custom ordered by customers for a
specific use. The Company provides engineering services as part of
the relationship with its customers in developing the custom
product. The Company is not obligated to provide such engineering
service to its customers. The Company does not charge separately for
these services.
Inventories:
Inventories are stated at cost, on a first-in, first-out basis,
which does not exceed market value.
The Company manufactures products pursuant to specific technical and
contractual requirements. The Company historically purchases
material in excess of its requirements to avail itself of favorable
pricing as well as the possibility of receiving additional orders
from customers. This excess may result in material not being used in
subsequent periods, which may result in this material being deemed
obsolete.
The Company annually reviews its purchase and usage activity of its
inventory of parts as well as work in process and finished goods to
determine which items of inventory have become obsolete within the
framework of current and anticipated orders. The Company based upon
historical experience has determined that if a part has not been
used and purchased or an item of finished goods has not been sold in
three years, it is deemed to be obsolete. The Company estimates
which materials may be obsolete and which products in work in
process or finished goods may be sold at less than cost. A periodic
adjustment, based upon historical experience is made to inventory in
recognition of this impairment.
Concentration of Credit Risk:
The Company maintains cash balances at one bank. Amounts on deposit
are insured by the Federal Deposit Insurance Corporation up to
$100,000 in aggregate. There were no uninsured balances at either
June 24, 2005 or March 25, 2005.
7
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
Property, Plant and Equipment:
Property, plant and equipment is stated at cost less accumulated
depreciation and amortization. The Company provides for depreciation
and amortization using the Double Declining Balance method over the
estimated useful lives (5-7 years) of the related assets.
Maintenance and repair expenditures are charged to operations, and
renewals and betterments are capitalized. Items of property, plant
and equipment, which are sold, retired or otherwise disposed of, are
removed from the asset and accumulated depreciation or amortization
account. Any gain or loss thereon is either credited or charged to
operations.
Income Taxes:
The Company follows the policy of treating investment tax credits as
a reduction in the provision for federal income tax in the year in
which the credit arises or may be utilized. Deferred income taxes
arise from temporary differences resulting from different
depreciation methods used for financial and income tax purposes. The
Company has adopted Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes".
Net Income Per Share:
The Company has adopted the provisions of SFAS No. 128, "Earnings
Per Share", which requires the disclosure of "basic" and "diluted"
earnings (loss) per share. Basic earnings per share is computed by
dividing net income by the weighted average number of common shares
outstanding during each period. Diluted earnings per share is
similar to basic earnings per share except that the weighted average
number of common shares outstanding is increased to reflect the
dilutive effect of potential common shares, such as those issuable
upon the exercise of stock or warrants, as if they had been issued.
For the three months ended June 24, 2005 and June 25, 2004, there
were no items of potential dilution that would impact on the
computation of diluted earnings or loss per share.
Fair Value of Financial Instruments:
The carrying value of the Company's financial instruments,
consisting of accounts receivable, accounts payable, and borrowings,
approximate their fair value due to the relatively short maturity
(three months) of these instruments.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities, revenues and expenses, and disclosure of contingent
assets and liabilities at the date of the financial statements.
Actual amounts could differ from those estimates.
8
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
Impairment of Long-Lived Assets:
SFAS No. 121, "Accounting For The Impairment of Long-Lived Assets To
Be Disposed Of", requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable. The Company has adopted SFAS No. 121. There were no
long-lived asset impairments recognized by the Company for the three
months ended June 24, 2005 and June 25, 2004.
Reporting Comprehensive Income:
The Company has adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income". This statement established standards for
reporting and display of comprehensive income and its components
(revenues, expenses, gains and losses) in an entity's financial
statements. This Statement requires an entity to classify items of
other comprehensive income by their nature in a financial statement
and display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in
the equity section of a statement of financial position. There were
no material items of comprehensive income to report for the three
months ended June 24, 2005 and June 25, 2004.
Segment Information:
The Company has adopted the provisions of SFAS No. 131, "Disclosures
About Segment of An Enterprise and Related Information." This
Statement requires public enterprises to report financial and
descriptive information about its reportable operating segments and
establishes standards for related disclosures about product and
services, geographic areas, and major customers. The adoption of
SFAS No. 131 did not affect the Company's presentation of its
results of operations or financial position.
Research and Development:
The Company provides personalized engineering services to its
customers by designing connectors for specific customer
applications. The employment of electromechanical engineers is the
anticipated cornerstone of the Company's future growth. The Company
maintains a testing laboratory where its engineers experiment with
new connector designs based on changes in technology and in an
attempt to create innovative, more efficient connector designs.
The Company did not expend any funds on customer sponsored research
and development during the three months ended June 24, 2005 and June
25, 2004. In addition the Company did not receive any revenues
related to customer sponsored research and development activities
during the three months ended June 24, 2005 and June 25, 2004.
Effect of New Accounting Pronouncements:
The Company does not believe that any recently issued but not yet
effective accounting standards, have a material effect on the
Company's financial position, results of operations or cash flows.
9
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 24, March 25,
2005 2005
---------- ----------
Raw materials $ 850,168 $ 824,926
Work in progress 215,347 210,292
Finished goods 153,885 183,885
---------- ----------
$1,219,400 $1,219,103
========== ==========
Note 4 - PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets are comprised of the
following:
June 24, March 25,
2005 2005
------- -------
Prepaid insurance $10,802 $14,062
Other current assets 25,133 150
------- -------
$35,935 $14,212
======= =======
10
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 5 - PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are as follows:
June 24, March 25,
2005 2005
---------- ----------
Computers $ 198,257 $ 198,257
Leasehold improvements 585,831 585,831
Machinery and equipment 4,593,631 4,549,183
Tools and dies 1,853,573 1,846,073
Furniture and fixture 154,808 154,808
Website development cost 7,550 7,550
---------- ----------
7,393,650 7,341,702
Less: accumulated
depreciation and amortization 6,214,329 6,169,269
---------- ----------
$1,179,321 $1,172,433
========== ==========
Note 6 - ACCOUNTS RECEIVABLE FINANCING:
The Company entered into an accounts receivable financing agreement
whereby it can borrow up to eighty percent of its eligible
receivables (as defined in the agreement) at an interest rate of 2
1/2 % above JP Morgan Chase's publicly announced rate of 6.0% at
June 24, 2005, with a minimum of 12% per annum. The agreement has an
initial term of one year and will automatically renew for successive
one-year terms, unless terminated by the Company or Lender upon
receiving sixty days prior notice. The loan is secured by the
Company's accounts receivable and inventories. The balance due under
this agreement as of June 24, 2005 was $699,922. The balance due as
of March 25, 2005 was $643,472.
Note 7 - OTHER CURRENT LIABILITIES:
Other current liabilities are comprised of the following:
June 24, March 25,
2005 2005
-------- --------
Payroll and vacation accruals $ 75,277 $105,812
Sales commissions 17,937 14,882
Other 85,617 73,420
-------- --------
$178,831 $194,114
======== ========
11
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 8 - NOTES PAYABLE EQUIPMENT:
The Company financed the acquisition of new equipment with notes
payable. The notes are payable over a sixty month period. The
balance remaining at June 24, 2005 amounted to $9,147. The interest
rates on the remaining lease is 22%.
Aggregate future principal payments are as follows:
Fiscal Year Ending March:
2006 $2,519
2007 3,358
2008 3,270
------
$9,147
======
Note 9 - RELATED PARTIES TRANSACTIONS
During the year ended March 26, 2004, two of the Company's officers
loaned the Company a total of $52,000 on a non-interest bearing
basis. The Company used these funds as a source of additional
working capital.
During the year ended March 25, 2005, one of these officers loaned
the Company an additional $135,744 on a non-interest bearing basis
as well. These funds were also used by the Company for working
capital requirements. As of March 25, 2005, the amount owed to these
officers was $187,744.
During the three months ended June 24, 2005,one of the officers
loaned the Company an additional $15,500. The Company repaid $31,744
of the total funds loaned to it during the three months ended June
24, 2005. The balance as of June 24, 2005 was $171,500.
Note 10 - PENSION PLAN-SALARIED PERSONNEL:
On June 30, 1995, the Company applied to the Pension Benefit
Guaranty Corporation ("PBGC") to have the PBGC assume all of the
Company's responsibilities and liabilities under its Salaried
Pension Plan. On April 26, 1996, the PBGC determined that the
Salaried Pension Plan did not have sufficient assets available to
pay benefits, which were and are currently due under the terms of
the Plan.
The PBGC further determined that pursuant to the provisions of the
Employment Retirement Income Security Act of 1974, as amended
("ERISA"), that the Plan must be terminated in order to protect the
interests of the Plan's participants. Accordingly, the PBGC
proceeded pursuant to ERISA to have the Plan terminated and the PBGC
appointed as statutory trustee, and to have July 31, 1995
established as the Plan's termination date.
12
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 10 - PENSION PLAN-SALARIED PERSONNEL: (continued)
The Company and the PBGC negotiated a settlement on the entire
matter and on July 2, 2001, an agreement was reached whereby the
Company's liability to the PBGC was reduced to $244,000. The Company
will make monthly payments to the PBGC as follows:
September 1, 2003 to August 1, 2004 $2,000 per month
September 1, 2004 to August 1, 2006 $3,000 per month
September 1, 2006 to August 1, 2007 $4,000 per month
Additionally, the Company has made balloon payments of $25,000 each
on January 1, 2004, May 1, 2004 and May 1, 2005. The Company is also
obligated to make an additional balloon payment of $25,000 on
January 1, 2006.
The Company also granted the PBGC a lien on the Company's machinery
and equipment.
As a result of this agreement the amount due the PBGC was restated
to $244,000. $34,000 was paid during the three months ended June 24,
2005. $56,000 was paid during the year ended March 25, 2005 and
$39,000 was paid during the year ended March 26, 2004. The balance
of $115,000 is reported as follows: $61,000 as a current liability
and $54,000 as a long-term liability.
Note 11 - CHANGES IN STOCKHOLDERS' EQUITY:
The accumulated deficit decreased by $228,852, which represents the
net income for the three months ended June 24, 2005.
Note 12- 2001 EMPLOYEE STOCK OPTION PLAN:
On September 21, 2001 the Company's shareholders approved the
adoption of the Company's 2002 Employees Stock Option Plan 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 this 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 this plan, the exercise price of an option designated as an
Incentive Stock Option shall not be less than the fair market value
of the Company's common stock on the day the option is granted. In
the event an option designated as an incentive stock option is
granted to a ten percent (10%) shareholder, such exercise price
shall be at least 110 Percent (110%) of the fair market value or the
Company's common stock and the option must not be exercisable after
the expiration of five years from the day of the grant.
13
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 12- 2001 EMPLOYEE STOCK OPTION PLAN: (continued)
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 24, 2005 no options had been granted
under the plan.
Note 13 - CASH BONUS PLAN:
In 1987, the Company adopted a cash bonus plan ("Cash Bonus Plan")
for Executive Officers. Contributions to the Bonus Plan are made by
the Company only after pre-tax operating profits exceed $150,000 for
a fiscal year, and then to the extent of 10% of the excess of the
greater of $150,000 or 25% of pre-tax operating profits. There were
no contributions to the Bonus Plan for the fiscal year ended March
26, 2004. For the year ended March 26, 2005 the contribution was
$4,188. There were no contributions to the bonus plan for the three
months ended June 24, 2005.
Note 14 - COMMITMENTS:
The Company leases it 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:
2006 $ 84,574
2007 112,765
2008 112,765
2009 112,765
2010 112,765
2011 75,177
--------
$610,811
========
The rental expense for the three months ended June 24, 2005 and June
25, 2004 was $31,966 and $28,191, respectively.
Rental expense for the three months ended June 24, 2005 includes a
surcharge of $3,396.
14
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 14 - COMMITMENTS: (continued)
The Company has a collective bargaining multi-employer pension plan
with the United Auto Workers of America, Local 259. Contributions
are made in accordance with a negotiated labor contract and are
based on the number of covered employees employed per month. With
the passage of the Multi-Employer Pension Plan Amendments Act of
1990 ("The Act"), the Company may become subject to liabilities in
excess of contributions made under the collective bargaining
agreement. Generally, these liabilities are contingent upon the
termination, withdrawal, or partial withdrawal from the Plan.
The Company has not taken any action to terminate, withdraw or
partially withdraw from the Plan nor does it intend to do so in the
future. Under the Act, liabilities would be based upon the Company's
proportional share of the Plan's unfunded vested benefits, which is
currently not available. The amount of accumulated benefits and net
assets of such Plan also is not currently available to the Company.
The total contributions charged to operations under this pension
plan were $15,990 for the three months ended June 24, 2005 and
$15,420 for the three months ended June 25, 2004.
15
IEH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Statements contained in this report which are not historical facts may be
considered forward-looking information with respect to plans, projections, or
future performance of the Company as defined under the Private Securities
litigation Reform Act of 1995. These forward-looking statements are subject to
risks and uncertainties which could cause actual results to differ materially
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.
The following discussion and analysis should be read in conjunction with the
consolidated 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 actual amount realized from the sale of
inventory.
16
IEH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF O
PERATIONS (continued)
Critical Accounting Policies (continued)
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.
17
IEH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
Results of Operations
The following table sets forth for the periods indicated, percentages for
certain items reflected in the financial data as such items bear to the revenues
of the Company:
Relationship to Total Revenues
June 24, June 25,
2005 2004
-------- --------
Operating Revenues (in thousands) $ 1,729 $ 1,172
-------- --------
Operating Expenses:
(as a percentage of Operating Revenues)
Costs of Products Sold 66.6% 77.2%
Selling, General and Administrative 14.6% 20.7%
Interest Expense 1.6% 2.0%
Depreciation and amortization 2.6% 4.3%
-------- --------
TOTAL COSTS AND EXPENSES 85.4% 104.2%
-------- --------
Operating Income (loss) 14.6% (4.2%)
Other Income -- --
-------- --------
Income (loss) before Income Taxes 14.6% (4.2%)
Income Taxes (1.4%) (.4%)
-------- --------
Net Income (loss) 13.2% (4.6%)
======== ========
Comparative Analysis-Three Months Ended June 24, 2005 and June 25, 2004
Operating revenues for the three months ended June 24, 2005 amounted to
$1,729,169 reflecting a 47.5% increase versus the three months ended June 25,
2004 revenues of $1,172,388. The increase in revenues is a direct result of an
increase in commercial sales.
Cost of products sold amounted to $1,150,759 for the three months ended June 24,
2005, or 66.6% of operating revenues. This reflected a $245,686 or 27.1%
increase in the cost of products sold from $905,073 or 77.2% of operating
revenues for the three months ended June 25, 2004. This increase is due
primarily to the increased cost of production associated with the sales
increase.
18
IEH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
Comparative Analysis-Three Months Ended June 24, 2005 and June 25, 2004
Selling, general and administrative expenses were $252,461 and $243,583 or 14.6%
and 20.7% of operating revenues for the three months ended June 24, 2005 and
June 25, 2004, respectively. This category of expense increased by $8,878 or
3.6% from the prior year. The increase can be attributed to an increase in sales
salaries, commissions and travel.
Interest expense was $27,417 for the three months ended June 24, 2005 or 1.6% of
operating revenues. For the fiscal three months ended June 25, 2004, interest
expense was $23,519 or 2.0% of operating revenues. The increase of $3,898 or
16.6% reflects an increase in factor balances during the quarter ended June 24,
2005 over the comparable three months ended June 25, 2004.
Depreciation and amortization of $45,060 or 2.6% of operating revenues was
reported for the three months ended June 24, 2005. This reflects a decrease of
$5,040 from the prior three months ended June 25, 2004 of $50,100 or 4.3% of
operating revenues. The decrease is due primarily to a significant amount of
capital assets being fully depreciated.
The Company reported net income of $228,852 for the three months ended June 24,
2005 representing basic earnings of $.10 per share as compared to a net loss of
$54,032 or $(.02) per share for the three months ended June 25, 2004. The
increase in net income for the current year can be attributed primarily to the
reported increase in commercial sales.
Liquidity and Capital Resources
The Company reported working capital of $214,930 as of June 24, 2005 compared to
a working capital of $1,283 as of March 25, 2005. The increase in working
capital of $213,647 was attributable to the following items:
Net income $ 228,852
Depreciation and amortization 45,060
Capital expenditures (51,948)
Other transactions (8,317)
As a result of the above, the current ratio (current assets to current
liabilities) was 1.1 to 1 at June 24, 2005 as compared to 1 to 1 at March 25,
2005. Current liabilities at June 24, 2005 were $1,968,577 compared to
$2,026,588 at March 25, 2005.
The Company reported $51,948 in capital expenditures for the three months ended
June 24, 2005 and reported depreciation of $45,060 for the same three-month
period.
The net income of $228,852 for the three months ended June 24, 2005 resulted in
an increase in stockholders' equity to $1,374,557 as compared to stockholders'
equity of $1,145,705 at March 25, 2005.
The Company has an accounts receivable financing agreement with a factor, which
bears interest at 2.5% above prime with a minimum of 12% per annum. At June 24,
2005 the amount outstanding with the factor was $699,922 as compared to $643,472
at March 25, 2005. The loan is secured by the Company's accounts receivables and
inventories. The factor provides discounted funds based upon the Company's
accounts receivables, these funds provide the primary source of working capital
for operations.
19
IEH CORPORATION
Management's Discussion And Analysis Of Financial Conditions And Results Of
Operations (continued)
Liquidity And Capital Resources (continued)
In the past two fiscal years, management has been reviewing its collection
practices and policies for outstanding receivables and has revised its
collection procedures to a more aggressive collection policy. As a consequence
of this new policy the Company's experience is that its customers have been
remitting payments on a more consistent and timely basis. The Company reviews
the 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.
During the year ended March 26, 2004, two of the Company's officers loaned the
Company a total of $52,000 on a non-interest bearing basis. The Company used
these funds as a source of additional working capital.
During the year ended March 25, 2005, one of these officers loaned the Company
an additional $135,744 on a non-interest bearing basis as well. These funds were
also used by the Company for working capital requirements.
Through the three months ended June 24, 2005 one of the officers loaned the
Company an additional $15,500. Additionally, through the period ended June 24,
2005, the Company had repaid $31,744 of the total funds loaned to it. The
balance due to these officers at June 24, 2005 was $171,500.
The Company has a collective bargaining multi-employer pension plan with the
United Auto Workers of America, Local 259. Contributions are made in accordance
with a negotiated labor contract and are based on the number of covered
employees employed per month. With the passage of the Multi-Employer Pension
Plan Amendments Act of 1990 ("The Act"), the Company may become subject to
liabilities in excess of contributions made under the collective bargaining
agreement. Generally, these liabilities are contingent upon the termination,
withdrawal, or partial withdrawal from the Plan. The Company has not taken any
action to terminate, withdraw or partially withdraw from the Plan nor does it
intend to do so in the future. Under the Act, liabilities would be based upon
the Company's proportional share of the Plan's unfunded vested benefits, which
is currently not available. The amount of accumulated benefits and net assets of
such Plan also is not currently available to the Company. The total
contributions charged to operations under this pension plan were $15,990 for the
three months ended June 24, 2005 and $15,420 for the three months ended June 25,
2004.
On June 30, 1995, the Company applied to the Pension Benefit Guaranty
Corporation ("PBGC") to have the PBGC assume all of the Company's
responsibilities and liabilities under its Salaried Pension Plan. On April 26,
1996, the PBGC determined that the Salaried Pension Plan did not have sufficient
assets available to pay benefits, which were and are currently due under the
terms of the Plan.
The PBGC further determined that pursuant to the provisions of the Employment
Retirement Income Security Act of 1974, as amended ("ERISA") that the Plan must
be terminated in order to protect the interests of the Plan's participants.
Accordingly, the PBGC proceeded pursuant to ERISA to have the Plan terminated
and the PBGC appointed as statutory trustee, and to have July 31, 1995
established as the Plan's termination date.
The Company and the PBGC agreed to the terms of a settlement of the matter. The
agreement is effective July 2, 2001. Under the agreement, the Company and the
PBGC agreed on a total sum of $244,000. The Company has agreed to make payments
as follows:
September 1, 2003 to August 1, 2004 $2,000 per month
September 1, 2004 to August 1, 2006 $3,000 per month
September 1, 2006 to August 1, 2007 $4,000 per month
20
IEH CORPORATION
Management's Discussion And Analysis Of Financial Conditions And Results Of
Operations (continued)
Liquidity And Capital Resources (continued)
Additionally, the Company has made balloon payments of $25,000 each on January
1, 2004, May 1, 2004 and May 1, 2005. The Company is also obligated to make an
additional balloon payment of $25,000 on January 1, 2006.
The Company granted the PBGC a lien on the Company's machinery and equipment.
As a result of this agreement the amount due the PBGC was restated to $244,000.
$34,000 was paid during the three months ended June 24, 2005. $56,000 was paid
during the three months ended June 24, 2005 and $34,000 was paid during the
three months ended June 25, 2004. The balance of $115,000 is reported as
follows: $61,000 as a current liability and $54,000 as a long-term liability.
On September 21, 2001 the Company's shareholders approved the adoption of the
Company's 2002 Employees Stock Option Plan to provide for the grant of options
to purchase up to 750,000 shares of the Company's common stock to all employees,
including senior management. No options have been granted under the Employee
Option Plan to date.
Options granted to employees under this plan may be designated as options which
qualify for incentive stock option treatment under Section 422A of the Internal
Revenue Code, or option which do not so qualify. Under this plan, the exercise
price of an option designated as an Incentive Stock Option shall not be less
than the fair market value of the Company's common stock on the day the option
is granted.
In the event an option designated as an incentive stock option is granted to a
ten percent (10%) share holder, such exercise price shall be at least 110
Percent (110%) of the fair market value or the Company's common stock and the
option must not be exercisable after the expiration of five years from the day
of the grant. Exercise prices of non-incentive stock options may be less than
the fair market value of the Company's common stock. The aggregate fair market
value of shares subject to options granted to its participants, which are
designated as incentive stock options, and which become exercisable in any
calendar year, shall not exceed $100,000. As of June 24, 2005 no options had
been granted under the plan.
In 1987, the Company adopted a cash bonus plan ("Cash Bonus Plan") for Executive
Officers. Contributions to the Bonus Plan are made by the Company only after
pre-tax operating profits exceed $150,000 for a fiscal year, and then to the
extent of 10% of the excess of the greater of $150,000 or 25% of pre-tax
operating profits. There were no contributions to the Bonus Plan for the fiscal
three months ended June 25, 2004. For the three months ended March 26, 2005 the
contribution was $4,188. There were no contributions to the bonus plan for the
three months ended June 24, 2005.
21
Item 3. CONTROLS AND PROCEDURES
Our management, under the supervision and with the participation of our Chief
Executive Officer and Controller, conducted an evaluation of our "disclosure
controls and procedures" (as defined in the Securities Exchange Act of 1934
Rules 13a-14(c)) as of the end of the period covered by this Report on Form
10-QSB ("Evaluation Date"). Based on their evaluation, our chief executive
officer and chief financial officer (who is also our controller and principal
accounting officer) have concluded that as of the date of the end of the period
covered by this Report on Form 10-QSB, our disclosure controls and procedures
are effective to ensure that all information required to be filed in this Report
on Form 10-QSB the Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the Securities and Exchange Commission's
rules and forms.
In addition, there have been no changes in our internal controls or in other
factors that have materially affected, or are reasonably likely to materially
affect, internal control 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 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 Shareholders
No matters were submitted to shareholders during the quarter ended June
24, 2004. The Company expects to conduct its Annual Meeting of
Shareholders on September 30, 2005. It is expected that the only matters
to be submitted to shareholders for a vote is the election of directors.
Item 5. Other Matters.
None
22
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Item 31.1 Certifications Pursuant to Section 302 of the Sarbanes
Oxley Act
Item 31.2 Certifications Pursuant to Section 302 of the Sarbanes
Oxley Act
Item 32.1 Certification Pursuant to Section 906 of the Sarbanes
Oxley Act
Item 32.2 Certification Pursuant to Section 906 of the Sarbanes
Oxley Act
(b) Reports on Form 8-K during Quarter
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
has duly cause this report on Form 10QSB to be signed on its behalf by the
undersigned, thereunto duly authorized.
IEH CORPORATION
(Registrant)
August 4, 2005 /s/ Michael Offerman
-------------- --------------------
Michael Offerman
President
August 4, 2005 /s/ Robert Knoth
-------------- ----------------
Robert Knoth
Chief Financial Officer/Controller/Principal
Accounting Officer
23