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 December 23, 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 December 23, 2005.
IEH CORPORATION
FINANCIAL REPORT
December 23, 2005
IEH CORPORATION
CONTENTS
Page
Number
------
PART I - FINANCIAL INFORMATION
ITEM 1- Financial Statements
Balance Sheets as of December 23, 2005 (Unaudited) and March 25, 2005 1
Statement of Operations (Unaudited) for the three and nine months ended
December 23, 2005 and December 24, 2004 3
Statement of Cash Flows (Unaudited) for the nine months ended
December 23, 2005 and December 24, 2004 4
Notes to Financial Statements (Unaudited) 6
ITEM 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
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 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 8-K 24
SIGNATURES 24
EXHIBITS
Item 31.1 Certification Pursuant to Section 302 of the
Sarbanes Oxley Act 25
Item 31.2 Certification Pursuant to Section 302 of the
Sarbanes Oxley Act 26
Item 32.1 Certification Pursuant to Section 906 of the
Sarbanes Oxley Act 27
Item 32.2 Certification Pursuant to Section 906 of the
Sarbanes Oxley Act 28
IEH CORPORATION
BALANCE SHEETS
As of December 23, 2005 and March 25, 2005
DEC. 23, March 25,
2005 2005
----------- -----------
(UNAUDITED) (Note 1)
ASSETS
CURRENT ASSETS:
Cash $ 39,470 $ 25,154
Accounts receivable, less allowances for doubtful accounts of
$10,062 at December 23, 2005 and March 25, 2005 518,451 769,402
Inventories (Note 3) 1,309,500 1,219,103
Prepaid expenses and other current assets (Note 4) 47,250 14,212
----------- -----------
Total current assets 1,914,671 2,027,871
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, less accumulated
depreciation and amortization of $6,304,449 at December 23, 2005
and $6,169,269 at March 25, 2005 (Note 5) 1,233,146 1,172,433
----------- -----------
1,233,146 1,172,433
----------- -----------
OTHER ASSETS:
Other assets 23,099 41,562
----------- -----------
23,099 41,562
----------- -----------
Total assets $ 3,170,916 $ 3,241,866
=========== ===========
The accompanying notes and should be read in conjunction with the financial
statements
1
IEH CORPORATION
BALANCE SHEETS
As of December 23, 2005 and March 25, 2005
DEC. 23, March 25,
2005 2005
------------ ------------
(UNAUDITED) (Note 1)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts receivable financing (Note 6) $ 188,918 $ 643,472
Notes payable, equipment, current portion (Note 8) 3,136 4,325
Loans payable- officers (Note 9) 118,900 187,744
Accrued corporate income taxes 53,963 28,287
Accounts payable 901,630 882,646
Pension plan payable, current portion (Note 10) 65,000 86,000
Other current liabilities (Note 7) 145,189 194,114
----------- ------------
Total current liabilities 1,476,736 2,026,588
----------- ------------
LONG-TERM LIABILITIES:
Pension Plan payable, less current portion (Note 10) 32,000 63,000
Notes payable, equipment, less current portion (Note 8) 4,443 6,573
----------- ------------
Total long-term liabilities 36,443 69,573
----------- ------------
Total liabilities 1,513,179 2,096,161
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 10,000,000 shares authorized;
2,303,468 shares issued and outstanding at December 23, 2005 and
March 25, 2005 23,035 23,035
Capital in excess of par value 2,744,573 2,744,573
Retained earnings (Deficit) (Note 11) (1,109,871) (1,621,903)
----------- ------------
Total stockholders' equity 1,657,737 1,145,705
----------- ------------
Total liabilities and stockholders' equity $ 3,170,916 $ 3,241,866
=========== ===========
The accompanying notes should be read in conjunction with the financial
statements
2
IEH CORPORATION
STATEMENT OF OPERATIONS
(Unaudited)
Nine Months Ended Three Months Ended
----------------- ------------------
DEC. 23, Dec. 24, DEC. 23, Dec. 24,
2005 2004 2005 2004
----------- ---------- ---------- ----------
REVENUE, net sales $ 5,220,812 $3,792,767 $1,816,040 $1,307,731
----------- ---------- ---------- ----------
COSTS AND EXPENSES
Cost of products sold 3,592,747 2,807,198 1,301,282 956,574
Selling, general and administrative 858,686 739,708 306,223 262,075
Interest expense 73,036 75,658 20,402 26,252
Depreciation and amortization 135,180 143,572 45,060 46,821
----------- ---------- ---------- ----------
4,659,649 3,766,136 1,672,967 1,291,722
----------- ---------- ---------- ----------
OPERATING INCOME 561,163 26,631 143,073 16,009
OTHER INCOME 669 118 267 6
----------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 561,832 26,749 143,340 16,015
PROVISION FOR INCOME TAXES 49,800 12,600 11,800 4,200
----------- ---------- ---------- ----------
NET INCOME $ 512,032 $ 14,149 $ 131,540 $ 11,815
=========== ========== ========== ==========
BASIC AND DILUTED EARNINGS PER
SHARE $ .22 $ .01 $ .06 $ .01
=========== ========== ========== ==========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES
OUTSTANDING (in thousands) 2,303 2,303 2,303 2,303
=========== ========== ========== ==========
The accompanying notes should be read in conjunction with the financial
statements
3
IEH CORPORATION
STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash
(Unaudited)
Nine Months Ended
----------------------
DEC. 23, Dec. 24,
2005 2004
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 512,032 $ 14,149
--------- ---------
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 135,180 143,572
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 250,951 (150,926)
(Increase) decrease inventories (90,397) (119,602)
(Increase) decrease in prepaid expenses and other current assets (33,038) (8,749)
(Increase) decrease in other assets 18,463 175
Increase (decrease) in accounts payable 18,984 392,377
Increase (decrease) in other current liabilities (48,925) (3,954)
Increase (decrease) in accrued corporate income taxes 25,676 6,077
Increase (decrease) in union health and welfare plan -- (30,872)
Increase (decrease) in due to pension plan payable (52,000) (47,000)
--------- ---------
Total adjustments 224,894 181,098
--------- ---------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 736,926 195,247
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (195,893) (182,114)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES $(195,893) $(182,114)
========= =========
The accompanying notes should be read in conjunction with the financial
statements
4
IEH CORPORATION
STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash
(Unaudited)
Nine Months Ended
----------------------
Dec. 23, Dec. 24,
2005 2004
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes payable $ (3,319) $ (6,975)
Proceeds from accounts receivable financing (454,554) (7,057)
Proceeds from loans payable- officers (68,844) --
--------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (526,717) (14,032)
--------- ---------
INCREASE (DECREASE) IN CASH 14,316 (899)
CASH, beginning of period 25,154 4,480
--------- ---------
CASH, end of period $ 39,470 $ 3,581
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the six months for:
Interest $ 67,585 $ 68,121
========= =========
Income Taxes $ 19,081 $ --
========= =========
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 December 23,
2005 and December 24, 2004 and for the nine 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 December 23,
2005 and December 24, 2004 and the results of operations and cash
flows for the nine months then ended. The financial data and other
information disclosed in these notes to the interim financial
statements related to these periods are unaudited. The results for the
nine months ended December 23, 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 will
recognize the sale, inventory has been relieved, and the customer will
be 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 the aggregate. There were no uninsured balances at either
December 23, 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 nine months
ended December 23, 2005 and December 24, 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 nine months ended
December 23, 2005 and December 24, 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 nine months
ended December 23, 2005 and December 24, 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 nine months ended December 23, 2005 and
December 24, 2004. In addition the Company did not receive any
revenues related to customer sponsored research and development
activities during the nine months ended December 23, 2005 and December
24, 2004.
EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS:
The Company does not believe that any recently issued but not
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:
DEC. 23, March 25,
2005 2005
---------- ----------
Raw materials $ 886,139 $ 824,926
Work in progress 225,889 210,292
Finished goods 197,472 183,885
---------- ----------
$1,309,500 $1,219,103
========== ==========
NOTE 4 - PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets are comprised of the
following:
DEC. 23, March 25,
2005 2005
--------- ---------
Prepaid insurance $ 19,749 $ 14,062
Other current assets 27,501 150
--------- ---------
$ 47,250 $ 14,212
========= =========
10
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment is as follows:
Dec. 23, March 25,
2005 2005
---------- ----------
Computers $ 205,799 $ 198,257
Leasehold improvements 587,388 585,831
Machinery and equipment 4,669,661 4,549,183
Tools and dies 1,912,389 1,846,073
Furniture and fixture 154,808 154,808
Website development cost 7,550 7,550
---------- ----------
7,537,595 7,341,702
Less: accumulated depreciation and
amortization 6,304,449 6,169,269
---------- ----------
$1,233,146 $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 % above JP
Morgan Chase's publicly announced rate of 7.25% at December 23, 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 December
23, 2005 was $188,918. The balance due as of March 25, 2005 was
$643,472.
NOTE 7 - OTHER CURRENT LIABILITIES:
Other current liabilities are comprised of the following:
Dec. 23, March 25,
2005 2005
-------- --------
Payroll and vacation accruals $120,382 $105,812
Sales commissions 12,556 14,882
Other 12,251 73,420
-------- --------
$145,189 $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 December 23, 2005 amounted to $7,579. The interest rate
on the remaining lease is 22%.
Aggregate future principal payments are as follows:
Fiscal Year Ending March:
2006 $ 784
2007 3,136
2008 3,659
------
$7,579
======
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 nine months ended December 23, 2005, one of the officers
loaned the Company an additional $15,500 which was used by the Company
for working capital requirements. The Company repaid $84,344 of the
total funds loaned to it during the nine months ended December 23,
2005. The balance as of December 23, 2005 was $118,900.
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:
December 1, 2003 to August 1, 2004 $2,000 per month
December 1, 2004 to August 1, 2006 $3,000 per month
December 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. $52,000 was paid during the nine months ended December 23,
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
$97,000 is reported as follows: $65,000 as a current liability and
$32,000 as a long-term liability.
NOTE 11 - CHANGES IN STOCKHOLDERS' EQUITY:
The accumulated deficit decreased by $512,032, which represents the
net income for the nine months ended December 23, 2005.
NOTE 12- 2001 EMPLOYEE STOCK OPTION PLAN:
On December 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 December 23, 2005 no options had been granted under
the plan.
NOTE 13 - BONUS PLAN:
In 1987, the Company adopted a discretionary bonus plan ("Bonus Plan")
for its executive officers and key employees. Contributions to the
Bonus Plan are made by the Company, at its option, when 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. Under the provision of this plan for the
year ended March 25, 2005, the Company paid a total bonus of $4,188 to
its executive officers and selected key employees. For the nine months
ended December 23, 2005, the Company has accrued $40,000 in bonuses
consisting of $10,400 for its executive officers and $29,600 for
selected key employees.
NOTE 14 - COMMITMENTS:
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:
2006 $ 33,289
2007 133,156
2008 133,156
2009 133,156
2010 133,156
2011 55,482
--------
$621,395
========
The rental expense for the six months ended December 23, 2005 and December 24,
2004 was $101,677 and $84,574, respectively.
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 are not currently available to the Company.
The total contributions charged to operations under this pension plan
were $44,753 for the nine months ended December 23, 2005 and $42,951
for the nine months ended December 24, 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
OPERATIONS (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 will recognize the sale, inventory
has been relieved, and the customer will be 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
COMPARATIVE ANALYSIS-NINE MONTHS ENDED DECEMBER 23, 2005 AND DECEMBER 24, 2004
The following table sets forth for the periods indicated, percentages for
certain items reflected in the financial data as such items bear to the revenues
of the Company:
Relationship to Total Revenues
Dec. 23, Dec. 24,
2005 2004
--------- ---------
Operating Revenues (in thousands) $ 5,221 $ 3,793
--------- ---------
Operating Expenses:
(as a percentage of Operating Revenues)
Costs of Products Sold 68.82% 74.01%
Selling, General and Administrative 16.45% 19.50%
Interest Expense 1.40% 1.99%
Depreciation and Amortization 2.59% 3.79%
--------- ---------
TOTAL COSTS AND EXPENSES 89.26% 99.29%
--------- ---------
Operating Income (loss) 10.74% .71%
Other Income .01% --
--------- ---------
Income (loss) before Income Taxes 10.75% .71%
Income Taxes .95% .33%
--------- ---------
Net Income (loss) 9.80% .38%
========= =========
Operating revenues for the nine months ended December 23, 2005 amounted to
$5,220,812 reflecting a 37.7% increase versus the nine months ended December 24,
2004 revenues of $3,792,767. The increase in revenues is a direct result of an
increase in commercial sales.
Cost of products sold amounted to $3,592,747 for the nine months ended December
23, 2005, or 68.82% of operating revenues. This reflected a $785,549 or 27.98%
increase in the cost of products sold from $2,807,198 or 74.01% of operating
revenues for the nine months ended December 24, 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-NINE MONTHS ENDED DECEMBER 23, 2005 AND DECEMBER 24, 2004
Selling, general and administrative expenses were $858,686 and $739,708 or
16.45% and 19.50% of operating revenues for the nine months ended December 23,
2005 and December 24, 2004, respectively. This category of expense increased by
$118,978 or 16.08% from the prior year. The increase can be attributed to an
increase in sales salaries, commissions and travel.
Interest expense was $73,036 for the nine months ended December 23, 2005 or
1.40% of operating revenues. For the fiscal nine months ended December 24,
2004, interest expense was $75,658 or 1.99% of operating revenues. The decrease
of $2,622 or 3.47% reflects a decrease in the total liability outstanding.
Depreciation and amortization of $135,180 or 2.59% of operating revenues was
reported for the nine months ended December 23, 2005. This reflects a decrease
of $8,392 from the prior nine months ended December 24, 2004 of $143,572 or
3.79% of operating revenues. The decrease is due primarily to a significant
amount of capital assets being fully depreciated.
The Company reported net income of $512,032 for the nine months ended December
23, 2005 representing basic earnings of $.22 per share as compared to a net
income of $14,149 or $.01 per share for the nine months ended December 24, 2004.
The increase in net income for the current year can be attributed primarily to
the reported increase in commercial sales.
COMPARATIVE ANALYSIS-THREE MONTHS ENDED DECEMBER 23, 2005 AND DECEMBER 24, 2004
THREE MONTHS ENDED DECEMBER 23, 2005 COMPARED TO THE THREE MONTHS ENDED DECEMBER
24, 2004:
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:
Three Months Ended
----------------------
Dec. 23, Dec. 24,
2005 2004
--------- ---------
Operating Revenues (in thousands) $ 1,816 $ 1,308
--------- ---------
Operating Expenses: (as a percentage of operating revenues)
Cost of Products Sold 71.65% 73.15%
Selling, General and Administrative 16.86% 19.99%
Interest Expense 1.12% 2.01%
Depreciation and Amortization 2.48% 3.58%
--------- ---------
Total Costs and Expenses 92.11% 98.73%
--------- ---------
Operating Income (loss) 7.89% 1.27%
Other Income .01% --
--------- ---------
Income (loss) before Income Taxes 7.90% 1.27%
Income Taxes .65% .32%
--------- ---------
Net Income (loss) 7.25% .95%
========= =========
19
IEH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
COMPARATIVE ANALYSIS -THREE MONTHS (Continued)
Operating revenues for the three months ended December 23, 2005 amounted to
$1,816,040, reflecting a 38.9% increase versus the comparative three months
ended December 24, 2004 operating revenues of $1,307,731. The increase is a
direct result of an increase in commercial orders during the quarter ended
December 23, 2005.
Cost of products sold amounted to $1,301,282 for the three months ended December
23, 2005 or 71.65% of operating revenues. This reflected an increase of
$344,708 or 36.03% of the cost of products sold of $956,574 or 73.15% for the
three months ended December 24, 2004. The increase represents the additional
cost necessary to support the increase in sales.
Selling, general and administrative expenses for the three months ended December
23, 2005 were $306,223 or 16.86% of revenues compared to $262,252 or 19.99% of
revenues for the comparable three-month period ended December 24, 2004. This
increase was due primarily to increases in sales, salaries, commissions, and
travel.
Interest expense was $20,402 or 1.12% of revenues for the period ended December
23, 2005 as compared to $26,252 or 2.01% of revenues in the three-month period
ended December 24, 2004. The decrease in interest is associated with the
Company's repayment of its loans payable.
Depreciation and amortization of $45,060 or 2.48% of revenues was reported for
the three-month period ended December 23, 2005. This reflects a decrease of
$1,761 or 3.76% from the comparable three-month period ended December 24, 2004
of $46,821 or 3.58% of revenues.
The Company reported net income of $131,540 for the three months ended December
23, 2005 representing basic earnings per common share of $.06 as compared to
basic income of $11,815 or $.01 per common share for the three months ended
December 24, 2004.
LIQUIDITY AND CAPITAL RESOURCES:
The Company reported working capital of $437,938 as of December 23, 2005
compared to a working capital of $1,283 as of March 25, 2005. The increase in
working capital of $436,655 was attributable to the following items:
Net income $ 512,032
Depreciation and amortization 135,180
Capital expenditures (195,893)
Other transactions (14,664)
As a result of the above, the current ratio (current assets to current
liabilities) was 1.30 to 1 at December 23, 2005 as compared to 1 to 1 at March
25, 2005. Current liabilities at December 23, 2005 were $1,476,736 compared to
$2,026,588 at March 25, 2005.
The Company reported $195,893 in capital expenditures for the nine months ended
December 23, 2005 and reported depreciation of $135,180 for the same nine-month
period.
The net income of $512,032 for the nine months ended December 23, 2005 resulted
in an increase in stockholders' equity to $1,657,737 as compared to
stockholders' equity of $1,145,705 at March 25, 2005.
20
IEH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
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 December
23, 2005 the amount outstanding with the factor was $188,918 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.
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 nine months ended December 23, 2005 one of the officers loaned the
Company an additional $15,500. Additionally, through the period ended December
23, 2005, the Company had repaid $84,344 of the total funds loaned to it. The
balance due to these officers at December 23, 2005 was $118,900.
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 $44,753 for the
nine months ended December 23, 2005 and $42,951 for the nine months ended
December 24, 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.
21
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
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:
December 1, 2003 to August 1, 2004 $2,000 per month
December 1, 2004 to August 1, 2006 $3,000 per month
December 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 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.
$52,000 was paid during the nine months ended December 23, 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 $97,000 is reported as follows: $65,000 as
a current liability and $32,000 as a long-term liability.
On December 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 December 23, 2005 no options had
been granted under the plan.
In 1987, the Company adopted a discretionary bonus plan ("Bonus Plan") for its
executive officers and key employees. Contributions to the Bonus Plan are made
by the Company, and its option, when pre-tax operating profits exceed $150,000
for a fiscal year, and then to the extent of 10% of the excess of the greater of
$150,000 or 25% of pre-tax operating profits. For year ended March 26, 2005 the
contribution to the Bonus Plan was $4,188. For the nine months ended December
23, 2005, the Company has accrued $40,000 in bonuses consisting of
$10,400 for its executive officers and $29,600 for selected key employees.
ITEM 3. 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
Securities Exchange Act of 1934, as amended, (the "Exchange Act"), the
Company's Chief Executive Officer and Chief Financial Officer (who is also our
controller and principal accounting officer) concluded that, as of the end of
the period covered by this Report on Form 10-QSB, the Company's disclosure
controls and procedures are effective to ensure that all information required
to be disclosed by the Company in this Report that it files or submits under the
22
Exchange Act is, recorded, processed, and reported within the time periods
specified within the Securities and Exchange Commission's rules and forms.
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
None
ITEM 5. OTHER MATTERS.
None
23
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Item 31.1 Certification Pursuant to Section 302 of the Sarbanes Oxley Act
Item 31.2 Certification 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 caused this Report on Form 10-QSB to be signed on its behalf by the
undersigned, thereunto duly authorized.
IEH CORPORATION
(Registrant)
February 2, 2006 /s/ Michael Offerman
---------------- --------------------
Michael Offerman
President
February 2, 2006 /s/ Robert Knoth
---------------- --------------------
Robert Knoth
Chief Financial Officer/Controller/
Principal Accounting Officer
24