U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 THE FISCAL YEAR ENDED MARCH 31, 2006.
Commission File Number 0-5278
IEH CORPORATION
(Name of Small Business Issuer in Its Charter)
NEW YORK 13-5549348
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation)
140 58th Street, Suite 8E
Brooklyn, NY 11220 (718) 492-9673
(Address of Principal Executive Offices) (Issuer's Telephone Number,
Including Area Code)
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Act: Common Stock, $.01 Par
Value Per Share
Check whether the Registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") during the past 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 |_|
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form and no disclosure will be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. |X|
Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes|_| No|X|
The Registrant's revenues for the fiscal year ended March 31, 2006 were
$7,588,253.
The number of shares of Common Stock of the Registrant issued and outstanding as
of July 14, 2006 was 2,303,468.
The aggregate market value of the Registrant's voting stock (consisting of
Common Stock, $1.00 par value held by non-affiliates, computed by reference to
the closing price ($2.24) at which stock was sold on June 28, 2006, the last
trading day on which stock was reported to be sold, was $3,034,718.40.
DOCUMENTS INCORPORATED BY REFERENCE: None
Transitional Small Business Disclosure Format: Yes|_| No|X|
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IEH CORPORATION
PART I
Item 1. Business
IEH Corporation (hereinafter referred to as the "Company") was
organized under the laws of the State of New York on March 22, 1943
under the name Industrial Heat Treating Company, Inc. On March 15,
1989, the Company changed its name to its current name. The Company's
executive offices and manufacturing facilities are located at 140 58th
Street, Suite 8E, Brooklyn, New York 11220. The Company's telephone
number is (718) 492-4448; Fax: 718-492-9898; its email address is
ieh@iehcorp.com.
The Company has been approved by the federal government as a "Hub-zone
small business Company". This classification is monitored, and while
the Company must remain competitive, it is taken into account by large
business concerns when awarding specific contracts.
The majority of the Company's customers require that the Company
maintain quality system in strict accordance with ISO9001. This is an
International Standard Organization specification for which the Company
has recently been audited and has received certification to ISO:2000.
The Company's quality policy is: "Listening to our Customers and
meeting their needs, while continuously improving our processes and
services."
The Company has developed a web site that reflects the standard catalog
items we produce. The web site is an ongoing project and we will
continue to add special items and newsworthy information to it. The
Company's web site can be viewed by going to: http://www.iehcorp.com.
The Company designs, develops and manufactures printed circuit
connectors for high performance applications. Our customers consist of
OEM's (Original Equipment Manufacturers), and Distributors who sell our
products to OEMs. We sell our products directly and through regional
representatives located in the United States, Canada and Europe.
The customers we service are in the government, aerospace, medical,
automotive, test equipment and commercial electronics markets. We
appear on the Military Qualified Product Listing "QPL" to MIL-C-55302
and supply customer requested modifications to this specification.
Sales to the commercial electronic market and military defense market
were 26% and 74% of the Company's net sales for the year ended March
31, 2006.
In order to remain competitive, the Company has an internal program to
upgrade and maintain machinery (to increase production), review
material costs and increase labor force productivity.
New Product Development
The Company is sought after by many of its customers to design and
manufacture custom connectors for them. This environment has resulted
in the development of many new products and technologies.
The Company has developed a new technology for a high speed connector
module for one of its customers. Because this technology has been so
well received, it will be used in 5 (five) other programs the customer
has under contracts.
-2-
IEH CORPORATION
PART I
Item 1. Business (continued)
New Product Development (continued)
In addition to the many standard products we manufacture, it is in the
area of custom connector design and manufacture that the Company faces
its biggest challenge. To meet this challenge, we are able to draw upon
our dedicated staff of engineers. We work with many designs and will
continue to support our customers in all their requirements.
Commitments
The Company has a collective bargaining multi-employer pension plan
("Multi-Employer Plan") with the United Auto Workers of America, Local
259. Contributions are made in accordance with a negotiated labor
contract and are based on the number of covered employees employed per
month. With the passage of the Multi-Employer Pension Plan Amendments
Act of 1990 ( the "Act"), the Company may become subject to liabilities
in excess of contributions made under the collective bargaining
agreement. Generally, these liabilities are contingent upon the
termination, withdrawal, or partial withdrawal from the Multi-Employer
Plan. The Company has not taken any action to terminate, withdraw or
partially withdraw from the Multi-Employer Plan nor does it intend to
do so in the future. Under the Act, liabilities would be based upon the
Company's proportional share of the Multi-Employer Plan's unfunded
vested benefits, which is currently not available. The amount of
accumulated benefits and net assets of such Plan also is not currently
available to the Company. The total contributions charged to operations
under such Plan were $62,771 for the year ended March 31, 2006 and
$54,643 for the year ended March 25, 2005.
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 such Plan.
The PBGC further determined that pursuant to the provisions of the
Employment Retirement Income Security Act of 1974, as amended ("ERISA")
that the Salaried Pension Plan must be terminated in order to protect
the interests of such Plan's participants. Accordingly, the PBGC
proceeded pursuant to ERISA to have the Salaried Pension 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 have 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
Additionally, the Company has made balloon payments of $25,000 each on
January 1, 2004, May 1, 2004, May 1, 2005 and January 1, 2006.
-3-
IEH CORPORATION
PART I
Item 1. Business (continued)
Commitments (continued)
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. $86,000 was paid during the year ended March 31, 2006,
$56,000 was paid during the year ended March 25, 2005 and $39,000 was
paid during the year ended March 26, 2004. The remaining balance of
$63,000 is reported as follows: $43,000 as a current liability and
$20,000 as a long-term liability in the accompanying financial
statements.
Marketing and Sales
The market for connectors and interconnection devices, domestic and
worldwide, is highly fragmented as a result of the manufacture by many
companies of a multitude of different types and varieties of
connectors. For example, connectors include: printed circuit,
rectangular I/O, circular, planar (IOC) RF coax, IC socket and fiber
optic. The Company has been servicing a niche in the market by
manufacturing HYPERTAC (TM) connectors and innovative Company-designed
printed circuit connectors such as the COMTAC connectors. Previously,
the Company was one of only three licensed manufacturers of the
HYPERTAC (TM) design in the United States. In fiscal year 1996, the
Company learned that the other two licensees had merged. Moreover, the
Company, based upon advice of counsel, determined that the HYPERTAC
technology was no longer protected by a patent, and therefore was in
the public domain. As a result, the Company notified the licensor that
it would no longer be bound by the terms of its license agreement and
the Company ceased making license payments. The Company has received a
brief notice from the licensor that it disputed the Company's
interpretations and demanded return of certain equipment. No legal
proceedings have been instituted by the licensor and the Company has
not received any further notices. The Company does not anticipate
manufacturing other types of connectors in the immediate future. The
Company is continuously experimenting with innovative connection
designs, which may cause it to alter its marketing plans in the future
if a market should develop for any of its current or future innovative
designs.
The Company's products are marketed to original equipment manufacturers
directly and through distributors serving primarily the government,
military, aerospace and commercial electronics markets. The Company is
also involved in developing new connectors for specific uses, which
result from changes in technology. This includes the COMTAC connectors.
The Company assists customers in the development and design of
connectors for specific customer applications. This service is marketed
to customers who require the development of connectors and
interconnection devices specially designed to accommodate the customers
own products.
The Company is primarily a manufacturer and its products are
essentially basic components of larger assemblies of finished goods.
Approximately 91% and 92% of the Company's net sales for the years
ended March 31, 2006 and March 25, 2005, respectively, were made
directly to manufacturers of finished products with the balance of the
Company's products sold to distributors. Distributors often purchase
connectors for customers who do not require large quantities of
connectors over a short period of time but rather require small
allotments of connectors over an extended period of time.
One customer of the Company accounted for 19% and 34% of the Company's
net sales for the years ended March 31, 2006 and March 25, 2005,
respectively.
-4-
IEH CORPORATION
PART I
Item 1. Business (continued)
Marketing and Sales (continued)
The Company currently employs 14 independent sales representatives to
market its products in all regions in the United States.
Backlog of Orders/Capital Requirements
These independent sales representatives also promote the product lines
of other electronics manufacturers; however, they do not promote the
product lines of competitors, which compete directly with the Company's
products. These sales representatives accounted for approximately 94%
of Company sales (with the balance of Company sales being generated via
direct customer contact) for the year ended March 31, 2006.
International sales accounted for less than 1% of sales for the years
ended March 31, 2006 and March 25, 2005.
The backlog of orders for the Company's products amounted to
approximately $1,830,000 at March 31, 2006, as compared to $2,600,000
at March 25, 2005. A portion of these orders are subject to
cancellation or postponement of delivery dates and, therefore, no
assurance can be given that actual sales will result from these orders.
The Company does not foresee any problems, which would prevent it from
fulfilling its orders.
Competition
The design, development, manufacture and distribution of electrical
connectors and interconnection devices is a highly competitive field.
The Company principally competes with companies who produce high
performance connectors in printed circuits and wireboards for high
technology application. The Company competes with respect to their
abilities to adapt certain technologies to meet specific product
applications; in producing connectors cost-effectively; and in
production capabilities. In addition, there are many companies who
offer connectors with designs similar to those utilized by the Company
and are direct competitors of the Company.
The primary basis upon which the Company competes is product
performance and production capabilities. The Company usually receives
job orders after submitting bids pursuant to customer-issued
specifications. The Company also offers engineering services to its
customers in designing and developing connectors for specialized
products and specific customer applications. This enables the Company
to receive a competitive advantage over those companies who basically
manufacture connectors based solely or primarily on cataloged
specifications. Many of the Company's competitors have greater
financial resources, market penetration and experience than the Company
and no assurances can be given that the Company will be able to compete
effectively with these companies in the future.
-5-
IEH CORPORATION
PART I
Item 1. Business (continued)
Suppliers of Raw Materials and Component Parts
The Company utilizes a variety of raw materials and manufactured
component parts, which it purchases from various suppliers. These
materials and components are available from numerous sources and the
Company does not believe that it will have a problem obtaining such
materials in the future. However, any delay in the Company's ability to
obtain necessary raw materials and component parts may affect its
ability to meet customer production needs. In anticipation of such
delays, the Company carries an inventory of raw materials and component
parts to avoid shortages and to insure continued production.
Research & Development
The Company provides personalized engineering services to its customers
by designing connectors for specific customer applications. The
employment of electromechanical engineers is the anticipated
cornerstone of the Company's future growth. The Company maintains a
testing laboratory where its engineers experiment with new connector
designs based on changes in technology and in an attempt to create
innovative, more efficient connector designs.
The Company expended $21,000 and $31,000 for the years ended March 31,
2006 and March 25, 2005, respectively, on Company sponsored research
and development activities relating to the development of new designs,
techniques and the improvement of existing designs. In addition, the
Company received $21,000 in revenues for the year ended March 31, 2006
and $31,000 for the year ended March 25, 2005, respectively, pursuant
to customer sponsored research activities.
Employees
The Company presently employs approximately 83 people, two (2) of whom
are executive officers; four (4) are engaged in management activities;
five (5) provide general and administrative services and approximately
72 are employed in manufacturing and testing activities. The employees
engaged in manufacturing and testing activities are covered by a
collective bargaining agreement with the United Auto Workers of
America, Local 259 (the "Union"), which expires on March 31, 2006 and
was renegotiated and extended until March 31, 2009. The Company
believes that it has a good relationship with its employees and the
Union.
Patents and Licenses
Electrical connectors and interconnection devices are usually the
subject of standard designs; therefore, only innovations of standards
designs or the discovery of a new form of connector are patentable. The
Company is continuously attempting to develop new forms of connectors
or adaptations of current connector designs in an attempt to increase
performance and decrease per unit costs. The Company has developed and
designed the COMTAC connector, which was patented on January 19, 1988,
at which time the patent was assigned to the Company.
-6-
IEH CORPORATION
PART I
Item 1. Business (continued)
Governmental Regulations
The Company is subject to federal regulations under the Occupational
Safety and Health Act ("OSHA") and the Defense Electrical Supply
Command ("DESC"). OSHA provides federal guidelines and specifications
to companies in order to insure the health and safety of employees.
DESC oversees the quality and specifications of products and components
manufactured and sold to the government and the defense industry.
Although DESC continuously requires suppliers to meet changing
specifications, the Company has not encountered any significant
problems meeting such specifications and its products have, in the
past, been approved. The Company is unaware of any changes in the
government's regulations, which are expected to materially affect the
Company's business.
Item 2. Properties
The Company exercised its option to renew its lease on its facility for
10 years. The original lease was effective through August 23, 2001.
The Company is obligated under this renewal lease through August 23,
2011, at minimum annual rentals as follows:
Fiscal year ending March:
2007 $ 112,765
2008 112,765
2009 112,765
2010 112,765
2011 75,177
---------
$ 526,237
=========
The Company leases approximately 20,400 feet of space, of which it
estimates; 6,000 square feet are used as executive, sales and
administrative offices and 14,400 square feet are used for its plating
and manufacturing operations.
The rental expense for the year ended March 31, 2006 and March 25, 2005
was $136,325 and $169,765, respectively. Rental expense for the years
ended March 31, 2006 and March 25, 2005 included a surcharge of $23,560
and $57,210 respectively. In addition to the base rent, the Company
pays real estate taxes, insurance premiums and utility charges relating
to the use of the premises. The Company considers its present
facilities to be adequate for its present and anticipated future needs
Item 3. Legal Proceedings
The Company is not a party to or aware of any pending or threatened
legal proceedings which would result in any material adverse effect on
its operations or its financial condition.
-7-
IEH CORPORATION
PART II
Item 4. Submission of Matters to Vote of Security Holders
No matters were submitted to shareholders during the fourth quarter for
the fiscal year ended March 31, 2006. We expect to have our annual
meeting for 2006 sometime in the late second fiscal quarter or early
third fiscal quarter.
Item 5. Market for Common Equity and Related Stockholder Matters
Principal Market
The common stock of the Company (the "common stock") is traded in the
Over-The-Counter Market and is quoted on the National Association of
Securities Dealers Automated Quotation ("NASDAQ") System Bulletin Board
under the symbol "IEHCE.OB"). On January 11, 1993, the Company's common
stock was deleted from listing on the NASDAQ SmallCap Market System
because of the Company's failure to maintain the minimum asset and
shareholders equity requirements. On January 12, 1993, the Company's
common stock was first quoted over the Electronic Bulletin Board
(OTCBB).
Market Information
The range of high and low bid prices for the Company's common stock,
for the periods indicated as set forth below. For the period to October
29, 1991, the Company was listed on the NASDAQ National Market System.
On October 29, 1991, the Company's common stock was delisted from the
NASDAQ National Market System and from October 29, 1991 to January 11,
1993, the Company's common stock was listed on the NASDAQ SmallCap
Market System. On January 11, 1993, the Company's common stock was
delisted from the NASDAQ SmallCap Market System and on January 13,
1993, the Company's common stock was first quoted over the Electronic
Bulletin Board (OTCBB). Set forth below is a table indicating the high
and low bid prices of the common stock during the periods indicated.
Year High Bid Low Bid
Fiscal Year ended March 31, 2006
1st Quarter .90 .34
2nd Quarter 3.13 .58
3rd Quarter 4.75 1.55
4th Quarter 2.70 2.00
Fiscal Year ended March 25, 2005 (1)
1st Quarter .50 .50
2nd Quarter .29 .29
3rd Quarter .39 .39
4th Quarter .51 .51
(*) As reported by the OTCBB.
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IEH CORPORATION
PART II
Item 5. Market for Common Equity and Related Stockholder Matters (continued)
The above quotations, as reported, represent prices between dealers and
do not include retail mark-ups, mark-downs or commissions. Such
quotations do not necessarily represent actual transactions.
On June 29, 2006, the high bid for the common stock was $2.24 and the
low bid was $2.24 . Trading in our securities does not occur on a daily
basis.
Dividends
The Company has not paid any cash dividends on its common stock during
the last five (5) fiscal years. At present, the Company does not
anticipate issuing any cash dividends on its common stock in the
foreseeable future by reason of its contemplated future financial
requirements and business plans. The Company will retain earnings, to
the extent that there are any, to finance the development of its
business.
Approximated Number of Equity Security Holders
The number of record holders of the Company's common stock as of June
30, 2006 was approximately 602. Such number of record owners was
determined from the Company's stockholder records, and does not include
the beneficial owners of the Company's common stock whose shares are
held in the names of various security holders, dealers and clearing
agencies.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Statements contained in this report, which are not historical facts may
be considered forward looking information with respect to plans,
projections, or future performance of the Company as defined under the
Private Securities litigation Reform Act of 1995. These forward-looking
statements are subject to risks and uncertainties, which could cause
actual results to differ materially form those projected. The words
"anticipate," "believe", "estimate", "expect," "objective," and "think"
or similar expressions used herein are intended to identify
forward-looking statements. The forward-looking statements are based on
the Company's current views and assumptions and involve risks and
uncertainties that include, among other things, the effects of the
Company's business, actions of competitors, changes in laws and
regulations, including accounting standards, employee relations,
customer demand, prices of purchased raw material and parts, domestic
economic conditions, including housing starts and changes in consumer
disposable income, and foreign economic conditions, including currency
rate fluctuations. Some or all of the facts are beyond the Company's
control.
The following discussion and analysis should be read in conjunction
with the financial statements and related footnotes, which provide
additional information concerning the Company's financial activities
and condition.
Critical Accounting Policies
The Financial Statements have been prepared in accordance with
accounting principles generally accepted in the United States of
America, which require the Company to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date
of the Financial
-9-
IEH CORPORATION
PART II
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Critical Accounting Policies (continued)
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.
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.
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IEH CORPORATION
PART II
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Critical Accounting Policies (Continued)
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.
The Company expended $21,000 and $31,000 for the years ended
March 31, 2006 and March 25, 2005, respectively, on Company
sponsored research and development activities relating to the
development of new designs, techniques and the improvement of
existing designs. In addition, the Company received $21,000 in
revenues for the year ended March 31, 2006 and $31,000 for the
year ended March 25, 2005, respectively, pursuant to customer
sponsored research activities.
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IEH CORPORATION
PART II
Item 6. 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
March 31, March 25,
2006 2005
-------- --------
Operating Revenues (in thousands) $ 7,588 $ 5,321
-------- --------
Operating Expenses:
(as a percentage of Operating Revenues)
Costs of Products Sold 64.0% 71.8%
Selling, General and Administrative 16.5% 19.3%
Interest Expense 1.2% 2.0%
Depreciation and amortization 2.7% 3.3%
-------- --------
TOTAL COSTS AND EXPENSES 84.4% 96.4%
-------- --------
Operating Income (loss) 15.6% 3.6%
Other Income -- --
-------- --------
Income (loss) before Income Taxes 15.6% 3.6%
Income Taxes .6% .5%
-------- --------
Net Income (loss) 15.0% 3.1%
======== ========
Year End Results: March 31, 2006 vs. March 25, 2005
Operating revenues for the year ended March 31, 2006 amounted to
$7,588,253 reflecting an 42.6% increase versus the year ended March 25,
2005 revenues of $5,321,269. The increase in revenues is a direct
result of an increase in commercial sales.
The Company is primarily a manufacturer and its products are
essentially basic components of larger assemblies of finished goods.
Approximately 91% and 92% of the Company's net sales for the fiscal
year ended March 31, 2006 and March 25, 2005, respectively, were made
directly to manufacturers of finished products with the balance of the
Company's products sold to distributors. Distributors often
-12-
IEH CORPORATION
PART II
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Results of Operations (continued)
Year End Results: March 31, 2006 vs. March 25, 2005
purchase connectors for customers who do not require large quantities
of connectors over a short period of time but rather require small
allotments of connectors over an extended period of time.
For the fiscal year ended March 31, 2006, one of the Company's
customers accounted for approximately 19% of total sales. The same
customer accounted for approximately 34% of sales in the fiscal year
ended March 25, 2005.
The Company currently employs 14 independent sales representatives to
market its products in all regions of the United States. These sales
representatives accounted for approximately 94% of the Company's sales,
with the balance of sales being generated by direct customer contact.
For the fiscal year ended March 31, 2006, the Company's principal
customers included manufacturers of commercial electronic products,
defense contractors and distributors who service these markets. Sales
to the commercial electronic and government markets comprised 26% and
73% of the Company's net sales for the year ended March 31, 2006 and
22% and 77% for the year ended March 25, 2005 respectively.
Approximately 1% of net sales were made to international customers.
Cost of products sold amounted to $4,856,281 for the fiscal year ended
March 31, 2006, or 64% of operating revenues. This reflected a
$1,037,047 or 27.2% increase in the cost of products sold from
$3,819,234 or 71.8% of operating revenues for the fiscal year ended
March 25, 2005. This increase is due primarily to the increased cost of
production associated with the sales increase.
Selling, general and administrative expenses were $1,253,458 and
$1,027,222 or 16.5% and 19.3% of operating revenues for the fiscal
years ended March 31, 2006 and March 25, 2005, respectively. This
category of expense increased by $226,236 or 22.0% from the prior year.
The increase can be attributed to an increase in sales salaries,
commissions and travel.
Interest expense was $90,616 for the fiscal year ended March 31, 2006
or 1.2% of operating revenues. For the fiscal year ended March 25,
2005, interest expense was $104,185 or 2.0% of operating revenues. The
decrease of $13,569 or 13.0% reflects the liquidation of a significant
amount of the Company's debt.
Depreciation and amortization of $204,253 or 2.7% of operating revenues
was reported for the fiscal year ended March 31, 2006. This reflects an
increase of $26,749 from the prior year ended March 25, 2005 of
$177,504 or 3.3% of operating revenues. The increase is due primarily
to an increase in capital assets being purchased over the current
fiscal year.
The Company reported net income of $1,137,622 for the year ended March
31, 2006 representing basic earnings of $.49 per share as compared to
net income of $166,484 or $.07 per share for the year ended March 25,
2005. The increase in net income for the current year can be attributed
primarily to the reported increase in commercial sales.
-13-
IEH CORPORATION
PART II
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Liquidity and Capital Resources
The Company reported working capital of $1,083,444 as of March 31, 2006
compared to a working capital deficit of $1,283 as of March 25, 2005.
The increase in working capital of $1,082,161 was attributable to the
following items:
Net income $ 1,137,622
Depreciation and amortization 204,253
Capital expenditures (231,963)
Other transactions (27,751)
As a result of the above, the current ratio (current assets to current
liabilities) was 1.8 to 1.0 at March 31, 2006 as compared to 1.0 to 1.0
at March 25, 2005. Current liabilities at March 31, 2006 were
$1,392,060 compared to $2,026,588 at March 25, 2005.
The Company reported $231,963 in capital expenditures for the year
ended March 31, 2006 and reported depreciation of $204,253 for the year
ended March 31, 2006.
The net income of $1,137,622 for the year ended March 31, 2006 resulted
in an increase in stockholders' equity to $2,283,327 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 March 31, 2006, the amount outstanding with the factor
was $269,099 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 period ended March 31, 2006, the Company had
repaid $108,744 of the total funds loaned to it.
As of March 31, 2006, the amount owed to these officers was $79,000.
-14-
IEH CORPORATION
PART II
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Liquidity and Capital Resources (continued)
The Company has a collective bargaining Multi-Employer Plan with the
United Auto Workers of America, Local 259. Contributions are made in
accordance with a negotiated labor contract and are based on the number
of covered employees employed per month. With the passage of the Act,
the Company may become subject to liabilities in excess of
contributions made under the collective bargaining agreement.
Generally, these liabilities are contingent upon the termination,
withdrawal, or partial withdrawal from the Multi-Employer Plan. The
Company has not taken any action to terminate, withdraw or partially
withdraw from the Multi-Employer Plan nor does it intend to do so in
the future. Under the Act, liabilities would be based upon the
Company's proportional share of such Plan's unfunded vested benefits,
which is currently not available. The amount of accumulated benefits
and net assets of such Plan also is not currently available to the
Company. The total contributions charged to operations under the
Multi-Employer Plan were $62,771 for the year ended March 31, 2006 and
$54,643 for the year ended March 25, 2005.
On June 30, 1995, the Company applied to the 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
Salaried Pension Plan.
The PBGC further determined that pursuant to the provisions of ERISA
that the Salaried Pension 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 Salaried Pension 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
Additionally, the Company has made balloon payments of $25,000 each on
January 1, 2004, May 1, 2004, May 1, 2005 and 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. $86,000 was paid during the year ended March 31, 2006,
$56,000 was paid during the year ended March 25, 2005 and $39,000 was
paid during the year ended March 26, 2004. The remaining balance of
$63,000 is reported as follows: $43,000 as a current liability and
$20,000 as a long-term liability on the accompanying financial
statements.
-15-
IEH CORPORATION
PART II
Item 6. Management's Discussion And Analysis Of Financial Conditions And
Results Of Operations (continued)
Liquidity and Capital Resources (continued)
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 2002 Employees Stock 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 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%) share holder, such exercise price shall
be at least 110 percent (110%) of the fair market value or the
Company's common stock and the option must not be exercisable after the
expiration of five years from the day of the grant. Exercise prices of
non-incentive stock options may be less than the fair market value of
the Company's common stock. The aggregate fair market value of shares
subject to options granted to its participants, which are designated as
incentive stock options, and which become exercisable in any calendar
year, shall not exceed $100,000. As of March 31, 2006, no options had
been granted under such Plan.
In 1987, the Company adopted a cash bonus plan ("Cash Bonus Plan") for
Executive Officers. Contributions to the Cash Bonus Plan are made by
the Company only after pre-tax operating profits exceed $150,000 for a
fiscal year, and then to the extent of 10% of the excess of the greater
of $150,000 or 25% of pre-tax operating profits. For the year ended
March 31, 2006 the contribution was $75,500. For the year ended March
25, 2005 the contribution was $4,188.
Effects of Inflation
The Company does not view the effects of inflation to have a material
effect upon its business. Increases in costs of raw materials and labor
costs have been offset by increases in the price of the Company's
products, as well as reductions in costs of production, reflecting
management's efforts in this area. While the Company has in the past
increased its prices to customers, it has maintained its relatively
competitive price position. However, significant decreases in
government and defense subcontractor spending, has provided excess
production capacity in the industry, which in turn has tightened
pricing margins.
Off Balance Sheet Arrangements
The Company does not have any off balance sheet arrangements within the
meaning of Item 303 of Regulation S-B.
-16-
IEH CORPORATION
PART II
Item 7. Financial Statements
See Index to Financial Statements attached hereto appearing at pages 25
to 43.
Item 8. Controls and Procedures
Evaluation of Disclosure 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)) within 90 days of the filing date
of this Report on Form 10-KSB ("Evaluation Date"). Based on their
evaluation, our Chief Executive Officer and Controller have concluded
that as of the end of the period covered by this Form 10-KSB, our
disclosure controls and procedures are effective to ensure that all
material information required to be filed in this Report on Form 10-KSB
has been made known to them. Our Chief Financial Officer and Controller
is our principal accounting officer.
There have been no changes, including corrective actions with regard to
significant deficiencies or material weaknesses in our internal
controls or in other factors that have materially affected or could
significantly or materially affect these controls subsequent to the
Evaluation Date set forth above. In addition, historically, the Company
has relied upon the entire Board of Directors in appointing the
Company's independent auditors and reviewing the financial condition
and statements of the Company. Given the relatively small size of the
Company's operations and revenues, the Board has not believed that
appointing an independent committee was a necessity.
Additionally, in response to the passage of the Sarbanes-Oxley Act of
2002, our Board of Directors and management have adopted a Code of
Ethics and have instituted a periodic review by members of our
management team to assist and guide the disclosure process. The Board
has also determined to periodically review and develop policies and
procedures to enhance our disclosure controls and procedures as well as
with reviewing our periodic reports and other public disclosures.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16 (a) of the Exchange Act
The executive officers and directors of the Company are as follows:
Name Age Office
Michael Offerman 65 Chairman of the Board of Directors
and President
Robert Knoth 64 Secretary and Treasurer
Murray Sennet 83 Director
Allen Gottlieb 65 Director
-17-
IEH CORPORATION
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16 (a) of the Exchange Act (continued)
All directors serve for a term of two years and until their successors
are duly elected. All officers serve at the discretion of the Board of
Directors.
Executive Officers and Directors
Michael Offerman has been a member of the Board of Directors since
1973. In May 1987, Mr. Offerman was elected President of the Company
and has held that position since that date. Prior to his becoming
President, Mr. Offerman served as Executive Vice-President of the
Company.
Robert Knoth joined the Company as Controller in January 1990 and was
elected Treasurer of the Company in March 1990. Mr. Knoth was elected
as Secretary of the Company in September 1992 and Mr. Knoth has held
these positions since said dates. From 1986 to January 1990, Mr. Knoth
was employed as controller by G&R Preuss, Inc., a company engaged in
the business of manufacturing truck bodies and accessories.
Murray Sennet has been a member of the Company's Board of Directors
since 1970. Mr. Sennet was the Secretary and the Treasurer of the
Company at the time of his retirement in April 1986.
Allen Gottlieb has been a member of the Company's Board of Directors
since 1992. Mr. Gottlieb has been an attorney in private practice for
over five (5) years.
Significant Employees
Joan Prideaux joined the Company in April 1994, as Director of Sales
and Marketing. Joan has been in the connector business over 30 years
and brings this experience to IEH. Prior to joining us, she was
employed by Automatic Connector as Director of Sales.
Mark Iskin is the Director of Purchasing, a position he has held since
September 2000. Prior to joining the Company, Mr. Iskin worked as a
materials and purchasing specialist, in manufacturing and distribution
companies. In his last position with an industrial distributor, Mr.
Iskin was responsible for purchasing and managing vendors for the
cutting tool section of the catalog. In addition he participated in
setting up and developing the company's forecasting/planning software
related to that department procedures.
David Offerman joined IEH in September 2004 as the National Sales
Manager. Prior to joining IEH, David worked as an account executive and
sales manager in the telecommunication industry.
Robert Romeo serves as Vice President of Engineering for IEH; a post he
has held since October 2005. Robert has corporate responsibility for
engineering products and driving product enhancements to satisfy the
demanding application requirements of IEH customers. In addition,
Robert is tasked with engineering new product developments in the IEH
connector offerings to broaden the market base of potential customers.
These new connectors will introduce the traditional IEH quality and
value to industries that specify exceptional reliability and
performance in electrical and electronic equipment.
-18-
IEH CORPORATION
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16 (a) of the Exchange Act (continued)
Significant Employees (continued)
Before joining IEH, Robert worked for more than twenty years in
positions of increasing responsibility for major national manufacturers
of electrical and electronic goods for residential, industrial,
government and OEM markets.
Paul Tzetzos joined IEH in November, 2005 as a Quality Assurance
Director. Paul has over 20 years of experience in the field of Quality
Assurance; with the last 15 years as Director/Manager. A degreed
Engineer; with diversified knowledge in developing, implementing,
maintaining, and improving Quality Systems, such as, ISO 9001:2000,
EECS, MIL-Q-9858A, ETC. A certified Lead and Internal Auditor, Paul has
a great deal of knowledge concerning military and industry
specifications and standards.
Certain Reports
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and officers and persons who own, directly or
indirectly, more than 10% of a registered class of the Corporation's
equity securities, to file with the Securities and Exchange Commission
("SEC") reports of ownership and reports of changes in ownership of
Common Stock of the Corporation.
Officers, directors and greater than 10% shareholders are required to
furnish the Company with copies of all Section 16(a) reports that they
file. Based solely on review of the copies of such reports received by
the Company, the Company believes that filing requirements applicable
to officers, directors and 10% shareholders were complied with during
the fiscal year ended March 31, 2006.
Item 10. Executive Compensation
The following table sets forth below the summary compensation paid or
accrued by the Company during the fiscal years ended March 31, 2006,
March 25, 2005, and March 26, 2004 for the Company's Chief Executive
Officer:
Other Annual
Name and Principal Position Year Salary Bonus Compensation
--------------------------------- -------------- --------- ------- ------------
Michael Offerman, Chief Executive
Officer, President (1) March 31, 2006 $ 100,000 24,000 0
March 25, 2005 96,235 1,424 0
March 26, 2004 95,500 -- 0
(1) During the years ended March 31, 2006, March 25, 2005 and
March 26, 2004, the Company provided automobile allowances to
Mr. Offerman. This does not include the aggregate incremental
cost to the Company of such automobile allowance.
(2) There are no employment agreements between the Company and
members of its senior management, including the Chief
Executive Officer, Michael Offerman.
-19-
IEH CORPORATION
PART III
Item 10. Executive Compensation (continued)
No other officer of the Company received compensation (salary and
bonus) in excess of $100,000 during the fiscal years ended March 31,
2006, March 25, 2005 or March 26, 2004.
Pension/Benefit Incentive Plan
In 1964, the Company's Shareholders and Board of Directors adopted the
Salaried Pension Plan effective April 1, 1964, for salaried employees
of the Company. The Salaried Pension Plan as revised on April 1, 1987,
provides for retirement benefits for qualified employees upon or prior
to retirement.
For early retirement, employees are eligible to receive a portion of
their retirement benefits, starting 10 years prior to the employees
anticipated normal retirement age (age 65), if the employee has
completed 15 years of service to the Company. The employee is eligible
to receive reduced retirement benefits based on an actuarial table for
a period not exceeding ten (10) years of his lifetime. In no event
would benefits exceed $12,000 per year.
For normal retirement at the age of sixty-five (65) the employee is
entitled to receive full retirement benefits for a period not exceeding
ten (10) years of his lifetime. If the employee should die prior to the
ten-year period, his beneficiaries will continue to receive the full
benefit for the remainder of the ten-year term. In no event will
benefits exceed $12,000 per year.
If payment is made on the "joint and survivor basis" as elected by the
employee, benefits will be provided to both the employee and spouse on
a reduced basis over the life of both the employee and his spouse. If
the employee should die prior to the guaranteed ten-year period, the
spouse will receive the employee benefit for the remainder of the term,
after which, the spouse will received the reduced spousal benefit for
the life of the spouse. In no event will the benefits pursuant to the
joint and survivor basis exceed $12,000 per year.
On June 30, 1995, the Company applied to the 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 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 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
-20-
IEH CORPORATION
PART III
Item 10. Executive Compensation (continued)
Pension/Benefit Incentive Plan (continued)
Additionally, the Company has made balloon payments of $25,000 each on
January 1, 2004, May 1, 2004, May 1, 2005 and 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. $86,000 was paid during the year ended March 31, 2006,
$56,000 was paid during the year ended March 25, 2005 and $39,000 was
paid during the year ended March 26, 2004. The remaining balance of
$63,000 is reported as follows: $43,000 as a current liability and
$20,000 as a long-term liability on the accompanying financial
statements.
Cash Bonus Plan
In 1987, the Company adopted a cash bonus plan ("Cash Bonus Plan") for
Executive Officers. Contributions to the Cash Bonus Plan are made by
the Company only after pre-tax operating profits exceed $150,000 for a
fiscal year, and then to the extent of 10% of the excess of the greater
of $150,000 of 25% of pre-tax operating profits. For the year ended
March 31, 2006 the contribution was $75,500. The contribution for the
year ended March 25, 2005 was $4,188.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of July 14, 2006
with respect to (i) the persons (including any "group" as that term is
used in Section 13(d)(3) of the Securities Exchange Act of 1934), known
by the Company to be the beneficial owner of more than five percent
(5%) of any class of the Company's voting securities; (ii) each
Executive Officer and Director who owns Common Stock in the Company;
and (iii) all Executive Officers and Directors as a group. As of July
14, 2006, there were 2,303,468 shares of Common Stock issued and
outstanding.
-21-
IEH CORPORATION
PART III
Item 11. Security Ownership of Certain Benenficial Owners and Management
(continued)
Amount of
and Nature of
Name and Address of Beneficial
Title of Class Beneficial Owner Ownership Percentage of Class
--------------- ---------------------- ------------- -------------------
Common Stock Michael Offerman 923,784 40%
$.01 Par Value 140 58th Street
Brooklyn, NY 11220(1)
Murray Sennet 24,500 1.1%
1900 Manor Lane
Plano, TX 75093
Allen Gottlieb 0 0
325 Coral Way
Ft. Lauderdale, FL 33301
Robert Pittman (2) 20,000 *
45 Ocean Avenue
Monmouth Beach
NJ 07750
Robert Knoth 400 *
140 58th Street
Brooklyn, NY 11220
All Officers & Directors as a Group
(5 in number) 968,684 42%
----------------------
* Less than 1%.
1. 43,600 shares of Common Stock are jointly owned by Mr. Offerman and his
wife, Gail Offerman.
2. Mr. Pittman is now deceased and the shares are owned by his estate.
All shares set forth above are owned directly by the named individual unless
otherwise stated.
Item 12. Certain Relationships and Related Transactions
Other than the employment terms for its executive officers as described
elsewhere in this Form 10-KSB, and as described below, there have been no
related transactions between the Company, officers, directors or shareholders
holding in excess of 5% of its securities within the last three years.
-22-
IEH CORPORATION
PART III
Item 12. Certain Relationships and Related Transactions (continued)
During the year ended March 26, 2004, two of the Company's officers,
(Michael Offerman, the Chief Executive Officer and Robert Knoth, the
Chief Financial Officer, Controller and the Principal Accounting
Officer) 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, Mr. Robert Knoth 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 period ended March 31, 2006, the Company had
repaid $108,744 of the total funds loaned to it. As of March 31, 2006,
the aggregate amount owed to these officers was $79,000 of the total
funds loaned to it.
Item 13. Exhibits
Exhibits filed with Form 10-KBS:
31.1 Certification of Principal Executive Officer pursuant to Section17
CFR 240.13a-14(a) or 17 CFR 240.15d-14(a).
31.2 Certification of Principal Accounting Officer pursuant to
Section17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a).
32.1 Certification by Michael Offerman, President, pursuant to 17 CFR
240.13a-14(b) or 17 CFR 240.15d-14(b) and Section 1350 of Chapter 63 of
Title 18 of the United States Code.
32.2 Certification by Robert Knoth, Chief Financial Officer, Controller
and Principal Accounting Officer, pursuant to 17 CFR 240.13a-14(b) or
17 CFR 240.15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the
United States Code.
Item 14. Principal Accountant Fees and Services
The Board of Directors of IEH has selected Jerome Rosenberg, Certified
Public Accountant, P.C. as the independent auditor of IEH for the
fiscal year ending March 31, 2006. Shareholders are not asked to
approve such selection because such approval is not required. The audit
services provided by Jerome Rosenberg, CPA P.C. consist of examination
of financial statements, services relative to filings with the
Securities and Exchange Commission, and consultation in regard to
various accounting matters. A member of the firm is expected to be
present at the next meeting of shareholders, will have the opportunity
to make a statement if he so desires, and will be available to respond
to appropriate questions.
Audit Fees. During the fiscal year ended March 31, 2006 and March 25,
2005, IEH paid an aggregate of $30,000 and $27,000, respectfully, to
Jerome Rosenberg, CPA P.C. for fees related to the audit of its
financial statements.
Audit Related Fees. During the fiscal years ended March 31, 2006 and
March 25, 2005 no fees were paid to Jerome Rosenberg, CPA P.C. with
respect to financial systems design or implementation.
-23-
IEH CORPORATION
PART III
Item 14. Principal Accountant Fees and Services (Continued)
Tax Fees. During the fiscal years ended March 31, 2006 and March 25,
2005, the Company paid to Jerome Rosenberg CPA P.C. the sums of $3,000
and $3,000 for tax compliance, tax advice and tax planning services.
All Other Fees. During the fiscal year ended March 31, 2006, IEH did
not pay any other fees for services to its auditor.
The Board of Directors has determined that the services
provided by Jerome Rosenberg, CPA P.C. and the fees paid to it for such
services during the fiscal year ended March 31, 2006 has not
compromised the independence of Jerome Rosenberg, CPA P.C.
The Board of Directors of the Company is comprised of three
persons. Due to the limited size and scope of the Company's operations
which are limited to one office and the level of revenue and income,
the Board of Directors has not established an Audit Committee. Further,
as the Company's securities are not traded on any exchange or on
Nasdaq, but solely are listed for quotations on the Over the Counter
Bulletin Board, there is no requirement that an Audit Committee be
established. The Board, as an entirety, approves that appointment of
its independent auditor and the related work performed by the auditor
for services which are not audit related. In its deliberations
regarding approval of the independent auditor for auditing and other
services, the Board reviews the auditor's history of representing the
Company, the fees to be paid and paid historically, the level of
performance provided by the auditor and the ability of the Company,
given its lack of profits to obtain similar services for similar costs.
Consistent with SEC policies regarding auditor independence,
the Board of Directors has responsibility for appointing, setting
compensation and overseeing the work of the independent auditor. In
recognition of this responsibility, the Board has established a policy
to pre-approve all audit and permissible non-audit services provided by
the independent auditor. Prior to engagement of the independent auditor
for the next year's audit, management advises the Board of the audit
and permissible non-audit services expected to be rendered during that
year for each of the categories of services which may provided by the
independent auditor to the Board for approval. The primary categories
of services expected to be provided by the independent auditor are as
described in the fee table set forth above. In addition, management
will also provide to the Board for its approval a fee proposal for the
services proposed to be rendered by the independent auditor. Prior to
the engagement of the independent auditor, the Board will approve both
the description of audit and permissible non-audit services proposed to
be rendered by the independent auditor and the budget for all such
services. The fees are budgeted and the Board requires the independent
auditor and management to report actual fees versus the budget
periodically throughout the year by category of service.
During the year, circumstances may arise when it may become
necessary to engage the independent auditor for additional services not
contemplated in the original pre-approval. In those instances, the
Board requires separate pre-approval before engaging the independent
auditor.
-24-
IEH Corporation
Contents
March 31, 2006 and March 25, 2005
Page
Number
------
Report of Independent Registered Public Accounting Firm 26
Financial Statements:
Balance Sheets as of March 31, 2006 and March 25, 2005 27
Statement of Operations for the twelve months ended March 31, 2006
and March 25, 2005 29
Statement of Stockholders' Equity as of March 31, 2006 and March 25, 2005 30
Statement of Cash Flows for the years ended March 31, 2006 and March 25, 2005 31
Notes to Financial Statements 32
-25-
Report of Independent Registered Public Accounting Firm
-------------------------------------------------------
Board of Directors
IEH Corporation
We have audited the accompanying balance sheets of IEH Corporation as of March
31, 2006 and March 25, 2005 and the related statements of operations,
stockholders' equity, and cash flows for each of the two years in the periods
ended March 31, 2006 and March 25, 2005. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based upon our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of IEH Corporation as of March 31,
2006 and March 25, 2005 and the results of its operations and its cash flows for
each of the two years ended March 31, 2006 and March 25, 2005 in conformity with
U.S. generally accepted accounting principles.
/s/ Jerome Rosenberg
---------------------------
Jerome Rosenberg, CPA, P.C.
Melville, New York
June 10, 2006
-26-
IEH CORPORATION
BALANCE SHEETS
As of March 31, 2006 and March 25, 2005
March 31, March 25,
2006 2005
---------- ----------
ASSETS
CURRENT ASSETS:
Cash $ 8,742 $ 25,154
Accounts receivable, less allowances for doubtful accounts
of $11,562 at March 31, 2006 and March 25, 2005 900,347 769,402
Inventories (Note 2) 1,540,423 1,219,103
Prepaid expenses and other current assets (Note 3) 25,992 14,212
---------- ----------
Total current assets 2,475,504 2,027,871
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, less accumulated depreciation and
amortization of $6,373,522 at March 31, 2006
and $6,169,269 at March 25, 2005 (Note 4) 1,200,143 1,172,433
---------- ----------
1,200,143 1,172,433
---------- ----------
OTHER ASSETS:
Other assets 23,177 41,562
---------- ----------
23,177 41,562
---------- ----------
Total assets $3,698,824 $3,241,866
========== ==========
The accompanying notes and independent auditors' report should be read
in conjunction with the financial statements
-27-
IEH CORPORATION
BALANCE SHEETS
As of March 31, 2006 and March 25, 2005
March 31, March 25,
2006 2005
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts receivable financing (Note 5) $ 269,099 $ 643,472
Notes payable, equipment, current portion (Note 7) 3,358 4,325
Loans payable- officers (Note 8) 79,000 187,744
Accrued corporate income taxes 33,697 28,287
Accounts payable 775,870 882,646
Pension plan payable, current portion (Note 10) 43,000 86,000
Other current liabilities (Note 6) 188,036 194,114
----------- -----------
Total current liabilities 1,392,060 2,026,588
----------- -----------
LONG-TERM LIABILITIES:
Pension Plan payable, less current portion (Note 10) 20,000 63,000
Notes payable, equipment, less current portion (Note 7) 3,437 6,573
----------- -----------
Total long-term liabilities 23,437 69,573
----------- -----------
Total liabilities 1,415,497 2,096,161
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 10,000,000 shares authorized; 2,303,468
shares issued and outstanding at March 31, 2006 and
March 25, 2005 23,035 23,035
Capital in excess of par value 2,744,573 2,744,573
Retained earnings (Deficit) (484,281) (1,621,903)
----------- -----------
Total stockholders' equity 2,283,327 1,145,705
----------- -----------
Total liabilities and stockholders' equity $ 3,698,824 $ 3,241,866
=========== ===========
The accompanying notes and independent auditors' report should be read in
conjunction with the financial statements
-28-
IEH CORPORATION
STATEMENT OF OPERATIONS
For the Years Ended March 31, 2006 and March 25, 2005
Years Ended
-------------------------
March 31, March 25,
2006 2005
----------- -----------
REVENUE, net sales (Note 15) $ 7,588,253 $ 5,321,269
----------- -----------
COSTS AND EXPENSES:
Cost of products sold 4,856,281 3,819,234
Selling, general and administrative 1,253,458 1,027,222
Interest expense 90,616 104,185
Depreciation and amortization 204,253 177,504
----------- -----------
6,404,608 5,128,145
----------- -----------
OPERATING INCOME 1,183,645 193,124
OTHER INCOME 1,171 248
----------- -----------
INCOME BEFORE INCOME TAXES 1,184,816 193,372
PROVISION FOR INCOME TAXES (47,194) (26,888)
----------- -----------
NET INCOME $ 1,137,622 $ 166,484
=========== ===========
BASIC AND DILUTED EARNINGS PER COMMON SHARE (Note 1) $ .49 $ .07
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING (IN THOUSANDS) 2,303 2,303
=========== ===========
The accompanying notes and independent auditors' report should be read in
conjunction with the financial statements
-29-
IEH CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
For the Years Ended March 31, 2006 and March 25, 2005
Capital in Retained
Excess of Earnings
Common Stock Par Value (Deficit) Total
------------------------- ----------- ----------- -----------
Shares Amount
----------- -----------
Balances, March 26, 2004 2,303,468 $ 23,035 $ 2,744,573 $(1,788,387) $ 979,221
Net income: year ended
March 25, 2005 166,484 166,484
----------- ----------- ----------- ----------- -----------
Balances, March 25, 2005 2,303,468 23,035 2,744,573 (1,621,903) 1,145,705
Net income: year ended
March 31, 2006 1,137,622 1,137,622
----------- ----------- ----------- ----------- -----------
Balances, March 31, 2006 2,303,468 $ 23,035 $ 2,744,573 $ (484,281) $ 2,283,327
The accompanying notes and independent auditors' report should be read in
conjunction with the financial statements
-30-
IEH CORPORATION
STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash
For the Years Ended March 31, 2006 and March 25, 2005
Years Ended
--------------------------
March 31, March 25,
2006 2005
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,137,622 $ 166,484
----------- -----------
Adjustments to reconcile net income to net cash used in
operating activities
Depreciation and amortization 204,253 177,504
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (130,945) (182,911)
(Increase) decrease inventories (321,320) (204,505)
(Increase) decrease in prepaid expenses and other current assets (11,780) 2,404
(Increase) decrease in other assets 18,385 (206)
(Decrease) increase in accounts payable (106,776) 144,541
(Decrease) increase in other current liabilities (6,078) 86,775
Increase in accrued corporate income taxes 5,410 13,787
(Decrease) in due to union health & welfare -- (32,200)
(Decrease) in pension plan payable (86,000) (56,000)
----------- -----------
Total adjustments (434,851) (50,811)
----------- -----------
NET CASH PROVIDED BY (USED) FOR OPERATING ACTIVITIES 702,771 115,673
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (231,963) (219,911)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES $ (231,963) $ (219,911)
----------- -----------
The accompanying notes and independent auditors' report should be read in
conjunction with the financial statements
-31-
IEH CORPORATION
STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash
For the Years Ended March 31, 2006 and March 25, 2005
March 31, March 25,
2006 2005
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes payable, equipment $ (4,103) $ (9,208)
Proceeds from accounts receivable financing (374,373) (1,624)
Proceeds (repayment) of loans payable - officers (108,744) 135,744
--------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (487,220) 124,912
--------- ---------
INCREASE (DECREASE) IN CASH (16,412) 20,674
CASH, beginning of period 25,154 4,480
--------- ---------
CASH, end of period $ 8,742 $ 25,154
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION,
Cash paid during the year for:
Interest $ 84,309 $ 95,347
========= =========
Income Taxes $ 6,796 $ 7,612
========= =========
The accompanying notes and independent auditors' report should be read in
conjunction with the financial statements
-32-
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Description of Business:
The Company is engaged in the design, development, manufacture
and distribution of high performance electronic printed
circuit connectors and specialized interconnection devices.
Electronic connectors and interconnection devices are used in
providing electrical connections between electronic component
assemblies. The Company develops and manufactures connectors,
which are designed for a variety of high technology and high
performance applications, and are primarily utilized by those
users who require highly efficient and dense (the space
between connection pins with the connector) electrical
connections.
The Company is continuously redesigning and adapting its
connectors to meet and keep pace with developments in the
electronics industry and has, for example, developed
connectors for use with flex-circuits now being used in
aerospace programs, computers, air-borne communications
systems, testing systems and other areas. The Company also
services its connectors to meet specified product
requirements.
Accounting Period:
The Company maintains an accounting period based upon a 52-53
week year, which ends on the nearest Friday in business days
to March 31st. The year ended March 31, 2006, was compromised
of 53 weeks. The year ended March 25, 2005 was comprised of 52
weeks.
Revenue Recognition:
Revenues are recognized at the shipping date of the Company's
products. The Company has historically adopted the shipping
terms that title 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.
-33-
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
Inventories:
Inventories are stated at cost, on a first-in, first-out
basis, which does not exceed market value.
The Company manufactures products pursuant to specific
technical and contractual requirements. The Company
historically purchases material in excess of its requirements
to avail itself of favorable pricing as well as the
possibility of receiving additional orders from customers.
This excess may result in material not being used in
subsequent periods, which may result in this material being
deemed obsolete.
The Company annually reviews its purchase and usage activity
of its inventory of parts as well as work in process and
finished goods to determine which items of inventory have
become obsolete within the framework of current and
anticipated orders. The Company based upon historical
experience has determined that if a part has not been used and
purchased or an item of finished goods has not been sold in
three years, it is deemed to be obsolete. The Company
estimates which materials may be obsolete and which products
in work in process or finished goods may be sold at less than
cost. A periodic adjustment, based upon historical experience
is made to inventory in recognition of this impairment.
Concentration of Credit Risk:
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 March 31, 2006 or March 25, 2005.
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".
-34-
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
Net Income Per Share:
The Company has adopted the provisions of SFAS No. 128,
"Earnings Per Share", which requires the disclosure of "basic"
and "diluted" earnings (loss) per share. Basic earnings per
share is computed by dividing net income by the weighted
average number of common shares outstanding during each
period. Diluted earnings per share is similar to basic
earnings per share except that the weighted average number of
common shares outstanding is increased to reflect the dilutive
effect of potential common shares, such as those issuable upon
the exercise of stock or warrants, as if they had been issued.
For the years ended March 31, 2006 and March 25, 2005, 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.
Impairment of Long-Lived Assets:
SFAS No. 144, "Accounting For The Impairment of Long-Lived
Assets And Long-Lived Assets To Be Disposed Of", requires that
long-lived assets and certain identifiable intangibles to be
held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. The Company has
adopted SFAS No. 144. There were no long-lived asset
impairments recognized by the Company for the years ended
March 31, 2006 and March 25, 2005.
Reporting Comprehensive Income:
The Company has adopted the provisions of SFAS No. 130,
"Reporting Comprehensive Income". This statement established
standards for reporting and display of comprehensive income
and its components (revenues, expenses, gains and losses) in
an entity's financial statements. This Statement requires an
entity to classify items of other comprehensive income by
their nature in a financial statement and display the
accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in capital in the
equity section of a statement of financial position. There
were no material items of comprehensive income to report for
the years ended March 31, 2006 and March 25, 2005.
-35-
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
Segment Information:
The Company has adopted the provisions of SFAS No. 131,
"Disclosures About Segment of An Enterprise and Related
Information." This Statement requires public enterprises to
report financial and descriptive information about its
reportable operating segments and establishes standards for
related disclosures about product and services, geographic
areas, and major customers. The adoption of SFAS No. 131 did
not affect the Company's presentation of its results of
operations or financial position.
Research and Development:
The Company provides personalized engineering services to its
customers by designing connectors for specific customer
applications. The employment of electromechanical engineers is
the anticipated cornerstone of the Company's future growth.
The Company maintains a testing laboratory where its engineers
experiment with new connector designs based on changes in
technology and in an attempt to create innovative, more
efficient connector designs.
The Company expended $21,000 and $31,000 for the years ended
March 31, 2006 and March 25, 2005, respectively, on Company
sponsored research and development activities relating to the
development of new designs, techniques and the improvement of
existing designs. In addition, the Company received $21,000 in
revenues for the year ended March 31, 2006 and $31,000 for the
year ended March 25, 2005, respectively, pursuant to customer
sponsored research activities.
Effect of New Accounting Pronouncements:
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes
and Error Corrections," which replaces APB Opinion No. 20,
"Accounting Changes" and FASB Statement No. 3, "Reporting
Accounting Changes in Interim Financial Statements." This
pronouncement applies to all voluntary changes in accounting
principle, and revises the requirements for accounting for and
reporting a change in accounting principle. SFAS No. 154
requires retroactive application to prior periods' financial
statements of a voluntary change in accounting principle,
unless it is impracticable to do so. This pronouncement also
requires that a change in the method of depreciation,
amortization, or depletion for long-lived, non-financial
assets be accounted for as a change in accounting estimate
that is affected by a change in accounting principle. SFAS No.
154 is effective for accounting changes and corrections of
errors made in fiscal years beginning after December 15, 2005.
The Statement does not change the transition provisions of any
existing accounting pronouncements, including those that are
in a transition phase as of the effective date of SFAS No.
154. The adoption of this pronouncement is not expected to
have a material impact on the Company's future financial
statements.
-36-
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 2 - INVENTORIES:
Inventories are stated at cost, on a first-in, first-out
basis, which does not exceed market value.
The Company manufactures products pursuant to specific
technical and contractual requirements. The Company
historically purchases material in excess of its requirements
to avail itself of favorable pricing as well as the
possibility of receiving additional orders from customers.
This excess may result in material not being used in
subsequent periods, which may result in this material being
deemed obsolete.
The Company annually reviews its purchase and usage activity
of its inventory of parts as well as work in process and
finished goods to determine which items of inventory have
become obsolete within the framework of current and
anticipated orders. The Company based upon historical
experience has determined that if a part has not been used and
purchased or an item of finished goods has not been sold in
three years, it is deemed to be obsolete. The Company
estimates which materials may be obsolete and which products
in work in process or finished goods may be sold at less than
cost. A periodic adjustment, based upon historical experience
is made to inventory in recognition of this impairment.
Inventories are comprised of the following:
March 31, March 25,
2006 2005
---------- ----------
Raw materials $ 907,849 $ 824,926
Work in progress 130,480 210,292
Finished goods 502,094 183,885
---------- ----------
$1,540,423 $1,219,103
========== ==========
Note 3 - PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets are comprised of the
following:
March 31, March 25,
2006 2005
------- -------
Prepaid insurance $13,955 $14,062
Prepaid corporate taxes 11,905 --
Other current assets 132 150
------- -------
$25,992 $14,212
======= =======
-37-
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 4 - PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are as follows:
March 31 March 25,
2006 2005
---------- ----------
Computers $ 205,799 $ 198,257
Leasehold improvements 585,831 585,831
Machinery and equipment 4,705,561 4,549,183
Tools and dies 1,912,989 1,846,073
Furniture and fixture 155,935 154,808
Website development cost 7,550 7,550
---------- ----------
7,573,665 7,341,702
Less: accumulated depreciation and
amortization 6,373,522 6,169,269
---------- ----------
$1,200,143 $1,172,433
========== ==========
Note 5 - ACCOUNTS RECEIVABLE FINANCING:
The Company entered into an accounts receivable financing
agreement whereby it can borrow up to eighty percent of its
eligible receivables (as defined in the agreement) at an
interest rate of 2 1/2 % above JP Morgan Chase's publicly
announced rate of 7.75% at March 31, 2006, 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 March 31, 2006 was $269,099. The balance
due as of March 25, 2005 was $643,472.
Note 6 - OTHER CURRENT LIABILITIES:
Other current liabilities are comprised of the following:
March 31, March 25,
2006 2005
-------- --------
Payroll and vacation accruals $169,919 $105,812
Sales commissions 15,367 14,882
Other 2,750 73,420
-------- --------
$188,036 $194,114
======== ========
-38-
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 7 - 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 March 31, 2006 amounted to
$6,795. The interest rate on the remaining lease is 22%.
Aggregate future principal payments are as follows:
Fiscal Year Ending March:
2007 $ 3,358
2008 3,437
--------
$ 6,795
========
Note 8 - 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. Through the period
ended March 31, 2006, the Company had repaid $108,744 of the
total funds loaned to it.
As of March 31, 2006, the amount owed to these officers was
$79,000.
Note 9 - INCOME TAXES:
Income taxes are provided for the tax effects of transactions
reported in the financial statements, and consist of taxes
currently due as well as deferred taxes related to differences
between financial statement and tax basis of assets and
liabilities for financial statement and income tax reporting
purposes. Deferred tax assets and liabilities represent the
future tax consequences of these temporary differences, which
will either be taxable or deductible in the year in which the
assets or liabilities are recovered or settled. Accordingly,
measurement of the deferred tax assets and liabilities
attributable to the book-tax basis differentials are computed
at a rate of 34% for federal and l2% for state and local tax
purposes.
-39-
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 9 - INCOME TAXES (continued):
The components of the deferred tax assets and liabilities are
as follows:
March 31, March 25,
2006 2005
----------- -----------
Deferred tax assets:
Net operating loss carryforwards $ 1,765,056 $ 1,933,105
----------- -----------
Gross deferred assets tax assets 1,765,056 1,933,105
Deferred tax liabilities:
State income taxes (51,600) (79,111)
----------- -----------
Net deferred tax assets before valuation allowance 1,713,456 1,853,994
Valuation allowance (1,713,456) (1,853,994)
----------- -----------
Net deferred tax assets $ 0 $ 0
=========== ===========
At March 31, 2000, the Company established a 100% valuation
allowance for the net deferred tax assets, as management could
not determine that it was more likely than not that the
deferred tax assets could be realized. The change in valuation
allowance amounted to $140,538 for the year ended March 31,
2006.
As of March 31, 2006, the Company has available Federal net
operating loss carryforwards (NOL's) totaling approximately
$1,765,056 which expire at various times through March 31,
2012, for State and Local purposes, the company has available
NOL's approximating $1,997,834, which expire at various times
through March 31, 2012.
Utilization of the NOL's may be limited pursuant to Internal
Revenue Code Section 382 should significant changes to the
existing ownership of the Company occur.
A reconciliation of income taxes computed at the Federal
statutory rate as compared to income tax expense at the
effective income tax is as follows:
March 31, March 25,
2006 2005
--------- ---------
Federal statutory income tax (benefit) rate (34.0)% (34.0)%
State tax benefit, net of Federal liability (12.2)% (12.2)%
Net change in valuation allowance 46.2% 46.2%
Effective income tax (benefit) rate ( - )% ( - )%
-40-
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
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.
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, May 1, 2005 and January
1, 2006.
The Company will also grant 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. $86,000 was paid during the year ended
March 31, 2006, $56,000 was paid during the year ended March
25, 2005 and $39,000 was paid during the year ended March 26,
2004. The remaining balance of $63,000 is reported as follows:
$43,000 as a current liability and $20,000 as a long-term
liability on the accompanying financial statements.
Note 11 - CHANGES IN STOCKHOLDERS' EQUITY:
The accumulated deficit decreased by $1,137,622, which
represents the net income for the fiscal year ended March 31,
2006.
-41-
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 12- 2002 EMPLOYEE STOCK OPTION PLAN:
On September 21, 2001 the Company's shareholders approved the
adoption of the Company's 2002 Employees Stock Option Plan
("2002 Plan") to provide for the grant of options to purchase
up to 750,000 shares of the Company's common stock to all
employees, including senior management.
Options granted to employees under 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 2002 Plan, the exercise price of an option
designated as an incentive stock option shall not be less than
the fair market value of the Company's common stock on the day
the option is granted. In the event an option designated as an
incentive stock option is granted to a ten percent (10%)
shareholder, such exercise price shall be at least 110 percent
(110%) of the fair market value or the Company's common stock
and the option must not be exercisable after the expiration of
five years from the day of the grant.
Exercise prices of non-incentive stock options may be less
than the fair market value of the Company's common stock.
The aggregate fair market value of shares subject to options
granted to a participant(s), which are designated as incentive
stock options, and which become exercisable in any calendar
year, shall not exceed $100,000. As of March 31, 2006, no
options had been granted under the 2002 Plan.
Note 13 - CASH BONUS PLAN:
In 1987, the Company adopted a cash bonus plan ("Cash Bonus
Plan") for Executive Officers. Contributions to the Cash Bonus
Plan are made by the Company only after pre-tax operating
profits exceed $150,000 for a fiscal year, and then to the
extent of 10% of the excess of the greater of $150,000 or 25%
of pre-tax operating profits. For the year ended March 31,
2006, the contribution was $75,500. For the year ended March
25, 2005 the contribution was $4,188.
-42-
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 14 - COMMITMENTS:
The Company exercised its option to renew its lease on its
facility for 10 years. The original lease was in effect
through August 23, 2001.
The Company is obligated under this lease renewal through
August 23, 2011, at minimum annual rentals as follows:
Fiscal year ending March:
2007 $ 112,765
2008 112,765
2009 112,765
2010 112,765
2011 75,177
---------
$ 526,237
=========
The rental expense for the years ended March 31, 2006 and
March 25, 2005 was $136,325and $169,975, respectively.
Rental expense for the year ended March 31, 2006 includes a
surcharge of $23,560.
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 $62,771 for
the year ended March 31, 2006 and $54,643 for the year ended
March 25, 2005.
Note 15 - REVENUES FROM MAJOR CUSTOMERS:
In the fiscal years ended March 31, 2006 and March 25, 2005,
approximately 19% and 34% of the Company's total revenues were
earned from one customer. Total sales to this customer were
approximately $1,469,000 and $1,783,000, respectively. No
other customer accounted for over 10% of the Company's sales.
Accounts receivable as of March 31, 2006, included receivables
from three customers, which amounted to 43% of the total
accounts receivable.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
IEH CORPORATION
By: /s/ Michael Offerman
-----------------------
Michael Offerman
President
Dated: July 17, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Michael Offerman July 17, 2006
--------------------------------------------
Michael Offerman, Chairman of the
Board and President
/s/ Robert Knoth July 17, 2006
--------------------------------------------
Robert Knoth, Secretary and
Treasurer; Chief Financial Officer,
Controller and Principal Accounting Officer
/s/ Murray Sennet July 17, 2006
--------------------------------------------
Murray Sennet, Director
/s/ Alan Gottlieb July 17, 2006
--------------------------------------------
Alan Gottlieb, Director
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