SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 29, 2006
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to _______________
Commission File No. 0-5278
IEH CORPORATION
(Exact name of registrant as specified in its charter)
New York 1365549348
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
140 58th Street, Suite 8E, Brooklyn, New York 11220
(Address of principal executive office)
Registrant's telephone number, including area code: (718) 492-4440
--------------------------------------------
Former name, former address and former fiscal year,
if changed since last report.
Check whether the Issuer: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes [X] No [_]
2,303,468 shares of Common Shares, par value $.01 per share, were outstanding as
of December 29, 2006.
IEH CORPORATION
CONTENTS
Page
Number
------
PART I - FINANCIAL INFORMATION
ITEM 1- FINANICAL STATEMENTS
Balance Sheets as of December 29, 2006 (Unaudited) and March 31, 2006 4
Statement of Operations (Unaudited) for the nine and three months ended
December 29, 2006 and December 23, 2005 6
Statement of Cash Flows (Unaudited) for the nine months ended December
29, 2006 and December 23, 2005 7
Notes to Financial Statements (Unaudited)
8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 18
ITEM 3 - CONTROLS AND PROCEDURES 25
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings 25
ITEM 2 - Unregistered Sales of Equity Securities and Use of Proceeds 25
ITEM 3 - Defaults upon Senior Securities 25
ITEM 4 - Submission of Matters to a Vote of Security Holders 25
ITEM 5 - Other Information 25
ITEM 6 - Exhibits and Reports on Form 8-K 25
1
IEH CORPORATION
CONTENTS (continued)
SIGNATURES 26
EXHIBITS
Exhibit 31.1 Certification Pursuant to Section 302 of the Sarbanes Oxley Act 27
Exhibit 31.2 Certification Pursuant to Section 302 of the Sarbanes Oxley Act 28
Exhibit 32.1 Certification Pursuant to Section 906 of the Sarbanes Oxley Act 29
Exhibit 32.2 Certification Pursuant to Section 906 of the Sarbanes Oxley Act 30
2
IEH CORPORATION
BALANCE SHEETS
As of December 29, 2006 and March 31, 2006
Dec. 29, March 31,
2006 2006
----------- ----------
(Unaudited) (Note 1)
ASSETS
CURRENT ASSETS:
Cash $ 4,268 $ 8,742
Accounts receivable, less allowances for doubtful accounts
of $11,562 at December 29, 2006 and March 31, 2006 968,948 900,347
Inventories (Note 3) 1,456,200 1,540,423
Prepaid expenses and other current assets (Note 4) 57,573 25,992
---------- ----------
Total current assets 2,486,989 2,475,504
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, less accumulated
depreciation and amortization of $6,522,634 at December 29, 2006
and $6,373,522 at March 31, 2006 1,179,774 1,200,143
---------- ----------
1,179,774 1,200,143
---------- ----------
OTHER ASSETS:
Other assets 24,889 23,177
---------- ----------
24,889 23,177
---------- ----------
Total assets $3,691,652 $3,698,824
========== ==========
The accompanying notes should be read in conjunction with
the financial statements.
3
IEH CORPORATION
BALANCE SHEETS
As of December 29, 2006 and March 31, 2006
Dec. 29, March 31,
2006 2006
----------- -----------
(Unaudited) (Note 1)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts receivable financing (Note 6) $ 302,616 $ 269,099
Notes payable, equipment, current portion (Note 8) 3,136 3,358
Loans payable- officers (Note 9) 51,000 79,000
Accrued corporate income taxes -- 33,697
Accounts payable 715,383 775,870
Pension plan payable, current portion (Note 10) 32,000 43,000
Other current liabilities (Note 7) 181,703 188,036
----------- -----------
Total current liabilities 1,285,838 1,392,060
----------- -----------
LONG-TERM LIABILITIES:
Pension plan payable, less current portion (Note 10) -- 20,000
Notes payable, equipment, less current portion (Note 8) 1,307 3,437
----------- -----------
Total long-term liabilities 1,307 23,437
----------- -----------
Total liabilities 1,287,145 1,415,497
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 10,000,000 shares authorized;
2,303,468 shares issued and outstanding at December 29, 2006 and
March 31, 2006 23,035 23,035
Capital in excess of par value 2,744,573 2,744,573
Retained earnings (Deficit) (363,101) (484,281)
----------- -----------
Total stockholders' equity 2,404,507 2,283,327
----------- -----------
Total liabilities and stockholders' equity $ 3,691,652 $ 3,698,824
=========== ===========
The accompanying notes should be read in conjunction with the
financial statements.
4
IEH CORPORATION
STATEMENT OF OPERATIONS
(Unaudited)
Nine Months Ended Three Months Ended
----------------- ------------------
Dec. 29, Dec. 23, Dec. 29, Dec. 23,
2006 2005 2006 2005
---------- ---------- ---------- ----------
REVENUE, net sales $4,575,509 $5,220,812 $1,532,584 $1,816,040
---------- ---------- ---------- ----------
COSTS AND EXPENSES
Cost of products sold 3,405,727 3,592,747 1,146,868 1,301,282
Selling, general and administrative 829,941 858,686 280,283 306,223
Interest expense 50,866 73,036 18,698 20,402
Depreciation and amortization 149,113 135,180 49,704 45,060
---------- ---------- ---------- ----------
4,435,647 4,659,649 1,495,553 1,672,967
---------- ---------- ---------- ----------
OPERATING INCOME 139,862 561,163 37,031 143,073
OTHER INCOME 918 669 132 267
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 140,780 561,832 37,163 143,340
PROVISION FOR INCOME TAXES 19,600 49,800 3,600 11,800
---------- ---------- ---------- ----------
NET INCOME $ 121,180 $ 512,032 $ 33,563 $ 131,540
========== ========== ========== ==========
BASIC AND DILUTED EARNINGS PER
SHARE $ .05 $ .22 $ .01 $ .06
========== ========== ========== ==========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES
OUTSTANDING (in thousands) 2,303 2,303 2,303 2,303
========== ========== ========== ==========
The accompanying notes should be read in conjunction with the
financial statements.
5
IEH CORPORATION
STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash
(Unaudited)
Nine Months Ended
----------------------
Dec. 29, Dec. 23,
2006 2005
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 121,180 $ 512,032
--------- ---------
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation and amortization 149,113 135,180
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (68,601) 250,951
(Increase) decrease inventories 84,223 (90,397)
(Increase) decrease in prepaid expenses and other current assets (31,581) (33,038)
(Increase) decrease in other assets (1,712) 18,463
Increase (decrease) in accounts payable (60,487) 18,984
Increase (decrease) in other current liabilities (6,333) (48,925)
Increase (decrease) in accrued corporate income taxes (33,697) 25,676
Increase (decrease) in pension plan payable (31,000) (52,000)
--------- ---------
Total adjustments (75) 224,894
--------- ---------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 121,105 736,926
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (128,743) (195,893)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES $(128,743) $(195,893)
========= =========
The accompanying notes should be read in conjunction with the
financial statements.
6
IEH CORPORATION
STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash
(Unaudited)
Nine Months Ended
----------------------
Dec. 29, Dec. 23,
2006 2005
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes payable $ (2,352) $ (3,319)
Proceeds from accounts receivable financing 33,516 (454,554)
Proceeds from loans payable- officers (28,000) (68,844)
--------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 3,164 (526,717)
--------- ---------
INCREASE (DECREASE) IN CASH (4,474) 14,316
CASH, beginning of period 8,742 25,154
--------- ---------
CASH, end of period $ 4,268 $ 39,470
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the six months for:
Interest $ 45,405 $ 67,585
========= =========
Income Taxes $ 5,621 $ 19,081
========= =========
The accompanying should be read in conjunction with the
financial statements.
7
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 1- INTERIM RESULTS AND BASIS OF PRESENTATION:
The accompanying unaudited financial statements as of December 29, 2006
and December 23, 2005 and for the nine months then ended have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-QSB and Items 303 and 310 of Regulation S-B. In the opinion of
management, the unaudited financial statements have been prepared on
the same basis as the annual financial statements and reflect all
adjustments, which include only normal recurring adjustments, necessary
to present fairly the financial position as of December 29, 2006 and
December 23, 2005 and the results of operations and cash flows for the
nine months then ended. The financial data and other information
disclosed in these notes to the interim financial statements related to
these periods are unaudited. The results for the nine months ended
December 29, 2006, are not necessarily indicative of the results to be
expected for any subsequent quarter or the entire fiscal year. The
balance sheet at March 31, 2006 has been derived from the audited
financial statements at that date.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the
Securities and Exchange Commission's rules and regulations. The Company
believes, however, that the disclosures in this report are adequate to
make the information presented not misleading in any material respect.
The accompanying financial statements should be read in conjunction
with the audited financial statements of IEH Corporation as of March
31, 2006 and notes thereto included in the Company's report on Form
10-KSB as filed with the Securities and Exchange Commission.
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Description of Business:
The Company is engaged in the design, development, manufacture and
distribution of high performance electronic printed circuit connectors
and specialized interconnection devices. Electronic connectors and
interconnection devices are used in providing electrical connections
between electronic component assemblies. The Company develops and
manufactures connectors, which are designed for a variety of high
technology and high performance applications, and are primarily
utilized by those users who require highly efficient and dense (the
space between connection pins with the connector) electrical
connections.
The Company is continuously redesigning and adapting its connectors to
meet and keep pace with developments in the electronics industry and
has, for example, developed connectors for use with flex-circuits now
being used in aerospace programs, computers, air-borne communications
systems, testing systems and other areas. The Company also services its
connectors to meet specified product requirements.
8
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
Revenue Recognition:
Revenues are recognized at the shipping date of the Company's products.
The Company has historically adopted the shipping terms that title
merchandise passes to the customer at the shipping point (FOB Shipping
Point). At this juncture, title has passed, the Company will recognize
the sale, inventory has been relieved, and the customer will be
invoiced. The Company does not offer any discounts, credits or other
sales incentives.
The Company's policy with respect to customer returns and allowances as
well as product warranty is as follows:
The Company will accept a return of defective product within one year
from shipment for repair or replacement at the Company's option. If the
product is repairable, the Company at its own cost will repair and
return to the customer. If unrepairable, the Company will either offer
an allowance against payment or will reimburse the customer for the
total cost of product.
Most of the Company's products are custom ordered by customers for a
specific use. The Company provides engineering services as part of the
relationship with its customers in developing the custom product. The
Company is not obligated to provide such engineering service to its
customers. The Company does not charge separately for these services.
Inventories:
Inventories are stated at cost, on a first-in, first-out basis, which
does not exceed market value.
The Company manufactures products pursuant to specific technical and
contractual requirements. The Company historically purchases material
in excess of its requirements to avail itself of favorable pricing as
well as the possibility of receiving additional orders from customers.
This excess may result in material not being used in subsequent
periods, which may result in this material being deemed obsolete.
The Company annually reviews its purchase and usage activity of its
inventory of parts as well as work in process and finished goods to
determine which items of inventory have become obsolete within the
framework of current and anticipated orders. The Company based upon
historical experience has determined that if a part has not been used
and purchased or an item of finished goods has not been sold in three
years, it is deemed to be obsolete. The Company estimates which
materials may be obsolete and which products in work in process or
finished goods may be sold at less than cost. A periodic adjustment,
based upon historical experience is made to inventory in recognition of
this impairment.
Concentration of Credit Risk:
The Company maintains cash balances at one bank. Amounts on deposit are
insured by the Federal Deposit Insurance Corporation up to $100,000 in
the aggregate. There were no uninsured balances at either December 29,
2006 or March 31, 2006.
9
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
Property, Plant and Equipment:
Property, plant and equipment is stated at cost less accumulated
depreciation and amortization. The Company provides for depreciation
and amortization using the Double Declining Balance method over the
estimated useful lives (5-7 years) of the related assets.
Maintenance and repair expenditures are charged to operations, and
renewals and betterments are capitalized. Items of property, plant and
equipment, which are sold, retired or otherwise disposed of, are
removed from the asset and accumulated depreciation or amortization
account. Any gain or loss thereon is either credited or charged to
operations.
Income Taxes:
The Company follows the policy of treating investment tax credits as a
reduction in the provision for federal income tax in the year in which
the credit arises or may be utilized. Deferred income taxes arise from
temporary differences resulting from different depreciation methods
used for financial and income tax purposes. The Company has adopted
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting
for Income Taxes".
Net Income Per Share:
The Company has adopted the provisions of SFAS No. 128, "Earnings Per
Share", which requires the disclosure of "basic" and "diluted" earnings
(loss) per share. Basic earnings per share is computed by dividing net
income by the weighted average number of common shares outstanding
during each period. Diluted earnings per share is similar to basic
earnings per share except that the weighted average number of common
shares outstanding is increased to reflect the dilutive effect of
potential common shares, such as those issuable upon the exercise of
stock or warrants, as if they had been issued. For the nine months
ended December 29, 2006 and December 23, 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:
SFAS 105, "Disclosures About Fair Value of Financial Instruments,"
requires disclosure of fair value information about financial
instruments. Fair value estimates discussed herein are based upon
certain market assumptions and pertinent information available to
management as of December 29, 2006.
The respective carrying value of certain on-balance-sheet financial
instruments approximates their fair values. These financial instruments
include cash, accounts receivable, accounts payable and borrowings.
Fair values were assumed to approximate carrying values for these
financial instruments since they are short-term in nature and their
carrying amounts approximate fair value or they are receivable or
payable on December 29, 2006.
10
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
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. 121, "Accounting For The Impairment of Long-Lived Assets To Be
Disposed Of", requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. The Company has adopted SFAS
No. 121. There were no long-lived asset impairments recognized by the
Company for the nine months ended December 29, 2006 and December 23,
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 nine months
ended December 29, 2006 and December 23, 2005.
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.
11
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
Research and Development (continued):
The Company did not expend any funds on customer-sponsored research and
development during the nine months ended December 29, 2006 and December
23, 2005. In addition the Company did not receive any revenues related
to customer-sponsored research and development activities during the
nine months ended December 29, 2006 and December 23, 2005.
Effect of New Accounting Pronouncements:
The Company does not believe that any recently issued but not yet
effective accounting standards, have a material effect on the Company's
financial position, results of operations or cash flows.
Note 3 - INVENTORIES:
Inventories are stated at cost, on a first-in, first-out basis, which
does not exceed market value.
The Company manufactures products pursuant to specific technical and
contractual requirements. The Company historically purchases material
in excess of its requirements to avail itself of favorable pricing as
well as the possibility of receiving additional orders from customers.
This excess may result in material not being used in subsequent
periods, which may result in this material being deemed obsolete.
The Company annually reviews its purchase and usage activity of its
inventory of parts as well as work in process and finished goods to
determine which items of inventory have become obsolete within the
framework of current and anticipated orders. The Company based upon
historical experience has determined that if a part has not been used
and purchased or an item of finished goods has not been sold in three
years, it is deemed to be obsolete. The Company estimates which
materials may be obsolete and which products in work in process or
finished goods may be sold at less than cost. A periodic adjustment,
based upon historical experience is made to inventory in recognition of
this impairment.
Inventories are comprised of the following:
Dec. 29, March 31,
2006 2006
---------- ----------
Raw materials $ 858,284 $ 907,849
Work in progress 123,340 130,480
Finished goods 474,576 502,094
---------- ----------
$1,456,200 $1,540,423
========== ==========
12
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 4 - PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets are comprised of the
following:
Dec. 29, March 31,
2006 2006
---------- ----------
Prepaid insurance $ 2,585 $ 13,955
Prepaid corporate taxes 22,373 11,905
Other current assets 32,615 132
---------- ----------
$ 57,573 $ 25,992
========== ==========
Note 5 - PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are as follows:
Dec. 29, March 31,
2006 2006
---------- ----------
Computers $ 205,799 $ 205,799
Leasehold improvements 585,831 585,831
Machinery and equipment 4,785,604 4,705,561
Tools and dies 1,961,689 1,912,989
Furniture and fixture 155,935 155,935
Website development cost 7,550 7,550
---------- ----------
7,702,408 7,573,665
Less: accumulated depreciation and
amortization 6,522,634 6,373,522
---------- ----------
$1,179,774 $1,200,143
========== ==========
Note 6 - ACCOUNTS RECEIVABLE FINANCING:
The Company entered into an accounts receivable financing agreement
whereby it can borrow up to eighty percent of its eligible receivables
(as defined in the agreement) at an interest rate of 2 1/2 % above JP
Morgan Chase's publicly announced rate of 8.25% at December 29, 2006,
with a minimum of 12% per annum. The agreement had an initial term of
one year and automatically renews for successive one-year terms, unless
terminated by the Company or Lender upon receiving sixty days prior
notice. The loan is secured by the Company's accounts receivable and
inventories. The balance due under this agreement as of December 29,
2006 was $302,616. The balance due as of March 31, 2006 was 269,099.
13
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 7 - OTHER CURRENT LIABILITIES:
Other current liabilities are comprised of the following:
Dec. 29, March 31,
2006 2006
---------- ----------
Payroll and vacation accruals $ 147,020 $ 169,919
Sales commissions 13,558 15,367
Other 21,125 2,750
---------- ----------
$ 181,703 $ 188,036
========== ==========
Note 8 - NOTES PAYABLE EQUIPMENT:
The Company financed the acquisition of new equipment with notes
payable. The notes are payable over a sixty month period. The balance
remaining at December 29, 2006 amounted to $4,443. The interest rate on
the remaining lease is 22%.
Aggregate future principal payments are as follows:
Fiscal Year Ending March:
2006 $ 784
2007 3,136
2008 523
------
$4,443
======
Note 9 - RELATED PARTIES TRANSACTIONS:
During the year ended March 26, 2004, two of the Company's officers
loaned the Company a total of $52,000 on a non-interest bearing basis.
The Company used these funds as a source of additional working capital.
During the year ended March 25, 2005, one of these officers loaned the
Company an additional $135,744 on a non-interest bearing basis as well.
These funds were also used by the Company for working capital
requirements.
During the year ended March 31, 2006 the Company repaid $108,744 of the
total funds loaned to it. As of March 31, 2006, the amount owed to
these officers was $79,000.
During the nine months ended December 29, 2006, one of the officers
loaned the Company an additional $45,000 which was used by the Company
for working capital requirements. The Company repaid $73,000 of the
total funds loaned to it during the nine months ended December 29,
2006. The balance as of December 29, 2006 was $51,000.
14
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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 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. $31,000 was paid during the nine months ended December 29,
2006. $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 balance of $32,000 is
reported as a current liability in the accompanying financial
statements.
Note 11 - CHANGES IN STOCKHOLDERS' EQUITY:
The accumulated deficit decreased by $121,180, which represents the net
income for the nine months ended December 29, 2006.
Note 12- 2001 EMPLOYEE STOCK OPTION PLAN:
On September 21, 2001 the Company's shareholders approved the adoption
of the Company's 2002 Employees Stock Option Plan to provide for the
grant of options to purchase up to 750,000 shares of the Company's
common stock to all employees, including senior management.
15
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 12- 2001 EMPLOYEE STOCK OPTION PLAN (continued):
Options granted to employees under this plan may be designated as
options which qualify for incentive stock option treatment under
Section 422A of the Internal Revenue Code, or options which do not so
qualify.
Under this plan, the exercise price of an option designated as an
Incentive Stock Option shall not be less than the fair market value of
the Company's common stock on the day the option is granted. In the
event an option designated as an incentive stock option is granted to a
ten percent (10%) shareholder, such exercise price shall be at least
110 Percent (110%) of the fair market value or the Company's common
stock and the option must not be exercisable after the expiration of
five years from the day of the grant.
Exercise prices of non-incentive stock options may be less than the
fair market value of the Company's common stock.
The aggregate fair market value of shares subject to options granted to
a participant(s), which are designated as incentive stock options, and
which become exercisable in any calendar year, shall not exceed
$100,000. As of December 29, 2006 no options had been granted under the
plan.
Note 13 - CASH BONUS PLAN:
In 1987, the Company adopted a cash bonus plan ("Cash Bonus Plan") for
Executive Officers. Contributions to the Cash Bonus Plan are made by
the Company when pre-tax operating profits exceed $150,000 for a fiscal
year, and then to the extent of 10% of the excess of the greater of
$150,000 or 25% of pre-tax operating profits. There were no
contributions to the Cash Bonus Plan for the fiscal year ended March
26, 2004. For the year ended March 25, 2005 the contribution was
$4,188. The contribution for the year ended March 31, 2006 was $75,500.
There were no contributions to the Cash Bonus Plan for the nine months
ended December 29, 2006.
Note 14 - COMMITMENTS:
The Company leases its facility under a renewed tenure lease agreement,
which expires on August 23, 2011. The Company is obligated under this
lease at minimum annual rentals as follows:
Fiscal year ending March:
2007 36,267
2008 145,067
2009 145,067
2010 145,067
2011 60,445
----------
$ 531,913
==========
16
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 14 - COMMITMENTS (continued):
The rental expense for the nine months ended December 29, 2006 and
December 23, 2005 was $106,102 and $101,677, respectively.
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
$49,301 for the nine months ended December 29, 2006 and $44,753 for the
nine months ended December 23, 2005.
17
IEH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Statements contained in this report, which are not historical facts may be
considered forward-looking information with respect to plans, projections, or
future performance of the Company as defined under the Private Securities
litigation Reform Act of 1995. These forward-looking statements are subject to
risks and uncertainties, which could cause actual results to differ materially
from those projected. The words "anticipate", "believe", "estimate", "expect",
"objective", and "think" or similar expressions used herein are intended to
identify forward-looking statements. The forward-looking statements are based on
the Company's current views and assumptions and involve risks and uncertainties
that include, among other things, the effects of the Company's business, actions
of competitors, changes in laws and regulations, including accounting standards,
employee relations, customer demand, prices of purchased raw material and parts,
domestic economic conditions, including housing starts and changes in consumer
disposable income, and foreign economic conditions, including currency rate
fluctuations. Some or all of the facts are beyond the Company's control.
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and related footnotes, which provide
additional information concerning the Company's financial activities and
condition.
Critical Accounting Policies
The Financial Statements have been prepared in accordance with accounting
principles generally accepted in the United States of America, which require the
Company to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the Financial Statements, and revenues and
expenses during the periods reported. Actual results could differ from those
estimates. The Company believes the following are the critical accounting
policies, which could have the most significant effect on the Company's reported
results and require the most difficult, subjective or complex judgments by
management.
o Impairment of Long-Lived Assets:
The Company reviews its long-lived assets for impairment whenever events or
circumstances indicate that the carrying amount of an asset may not be
recoverable. If the sum of the expected cash flows, undiscounted and without
interest is less than the carrying amount of the asset, an impairment loss is
recognized as the amount by which the carrying amount of the asset exceeds
its fair value. The Company makes estimates of its future cash flows related
to assets subject to impairment review.
o Inventory Valuation:
Raw materials and supplies are valued at the lower of first-in, first-out
cost or market. Finished goods and work in process are valued at the lower of
actual cost, determined on a specific identification basis, or market. The
Company estimates which materials may be obsolete and which products in work
in process or finished goods may be sold at less than cost, and adjusts their
inventory value accordingly. Future periods could include either income or
expense items if estimates change and for differences between the estimated
and actual amount realized from the sale of inventory.
18
IEH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
Critical Accounting Policies (continued)
o Income Taxes:
The Company records a liability for potential tax assessments based on its
estimate of the potential exposure. Due to the subjectivity and complex
nature of the underlying issues, actual payments or assessments may differ
from estimates. Income tax expense in future periods could be adjusted for
the difference between actual payments and the Company's recorded liability
based on its assessments and estimates.
o Revenue Recognition:
Revenues are recognized at the shipping date of the Company's products. The
Company has historically adopted the shipping terms that title merchandise
passes to the customer at the shipping point (FOB Shipping Point). At this
juncture, title has passed, the Company will recognize the sale, inventory
has been relieved, and the customer will be invoiced. The Company does not
offer any discounts, credits or other sales incentives.
The Company's policy with respect to customer returns and allowances as well
as product warranty is as follows:
The Company will accept a return of defective product within one year from
shipment for repair or replacement at the Company's option. If the product is
repairable, the Company at its own cost will repair and return it to the
customer. If unrepairable, the Company will either offer an allowance against
payment or will reimburse the customer for the total cost of the product.
Most of the Company's products are custom ordered by customers for a specific
use. The Company provides engineering services as part of the relationship
with its customers in developing the custom product. The Company is not
obligated to provide such engineering service to its customers. The Company
does not charge separately for these services.
o Research & Development:
The Company provides personalized engineering services to its customers by
designing connectors for specific customer applications. The employment of
electromechanical engineers is the anticipated cornerstone of the Company's
future growth. The Company maintains a testing laboratory where its engineers
experiment with new connector designs based on changes in technology and in
an attempt to create innovative, more efficient connector designs.
19
IEH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
Results of Operations
Comparative Analysis-Nine Months Ended December 29, 2006 and December 23, 2005
The following table sets forth for the periods indicated, percentages for
certain items reflected in the financial data as such items bear to the revenues
of the Company:
Relationship to Total Revenues
Dec. 29, Dec. 23,
2006 2005
--------- ---------
Operating Revenues (in thousands) $ 4,576 $ 5,221
--------- ---------
Operating Expenses:
(as a percentage of Operating Revenues)
Costs of Products Sold 74.43% 68.82%
Selling, General and Administrative 18.14% 16.45%
Interest Expense 1.11% 1.40%
Depreciation and amortization 3.26% 2.59%
--------- ---------
TOTAL COSTS AND EXPENSES 96.94% 89.26%
--------- ---------
Operating Income (loss) 3.06% 10.74%
Other Income .02% .01%
--------- ---------
Income (loss) before Income Taxes 3.08% 10.75%
Income Taxes .43% .95%
--------- ---------
Net Income (loss) 2.65% 9.80%
========= =========
Operating revenues for the nine months ended December 29, 2006 amounted to
$4,575,509 reflecting a 12.36% decrease versus the nine months ended December
23, 2005 revenues of $5,220,812. The decrease in revenues is a direct result of
completion of open orders during the nine months ended December 29, 2006.
Cost of products sold amounted to $3,405,727 for the nine months ended December
29, 2006, or 74.43% of operating revenues. This reflected a $187,020 or 5.21%
decrease in the cost of products sold from $3,592,747 or 68.82% of operating
revenues for the nine months ended December 23, 2005. This decrease is due
primarily to the reduced cost of production associated with the decrease in
sales.
20
IEH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
Comparative Analysis-Nine Months Ended December 29, 2006 and December 23, 2005
(continued)
Selling, general and administrative expenses were $829,941 and $858,686 or
18.14% and 16.45% of operating revenues for the nine months ended December 29,
2006 and December 23, 2005, respectively. This category of expense decreased by
$21,745 or 2.53% from the prior year. The decrease can be attributed to a
decrease in sales salaries, commissions and travel.
Interest expense was $50,866 for the nine months ended December 29, 2006 or
1.11% of operating revenues. For the fiscal nine months ended December 23, 2005,
interest expense was $73,036 or 1.40% of operating revenues. The decrease of
$22,170 or 30.35% reflects the repayment of interest bearing liabilities.
Depreciation and amortization of $149,113 or 3.26% of operating revenues was
reported for the nine months ended December 29, 2006. This reflects an increase
of $13,933 from the prior nine months ended December 23, 2005 of $135,180 or
2.59% of operating revenues. The increase is due primarily to the purchase of
new capital assets.
The Company reported net income of $121,180 for the nine months ended December
29, 2006 representing basic earnings of $.05 per share as compared to a net
income of $512,032 or $.22 per share for the nine months ended December 23,
2005. The decrease in net income for the current year can be attributed
primarily to the reported decrease in sales.
Comparative Analysis-Three Months Ended December 29, 2006 and December 23, 2005
The following table sets forth for the periods indicated, percentages for
certain items reflected in the financial data as such items bear to the revenues
of the Company:
Three Months Ended
----------------------
Dec. 29, Dec. 23,
2006 2005
--------- ---------
Operating Revenues (in thousands) $ 1,533 $ 1,816
--------- ---------
Operating Expenses: (as a percentage of operating revenues)
Cost of Products Sold 74.83% 71.65%
Selling, General and Administrative 18.29% 16.86%
Interest Expense 1.22% 1.12%
Depreciation and Amortization 3.24% 2.48%
--------- ---------
Total Costs and Expenses 97.58% 92.11%
--------- ---------
Operating Income (loss) 2.42% 7.89%
Other Income -- .01%
--------- ---------
Income (loss) before Income Taxes 2.42% 7.90%
Income Taxes .23% .65%
--------- ---------
Net Income (loss) 2.19% 7.25%
========= =========
21
IEH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
Comparative Analysis -Three Months Ended December 29, 2006 and December 23, 2005
(continued)
Operating revenues for the three months ended December 29, 2006 amounted to
$1,532,584, reflecting a 15.61% decrease versus the comparative three months
ended December 23, 2005 operating revenues of $1,816,040. The decrease is a
direct result of the completion of open orders during the quarter ended December
29, 2006.
Cost of products sold amounted to $1,146,868 for the three months ended December
29, 2006 or 74.83% of operating revenues. This reflected an increase of $154,414
or 13.46% of the cost of products sold of $1,301,282 or 71.65% for the three
months ended December 23, 2005. The decrease represents the reduced cost
associated with the decrease in sales.
Selling, general and administrative expenses for the three months ended December
29, 2006 were $280,283 or 18.29% of revenues compared to $306,223 or 16.86% of
revenues for the comparable three-month period ended December 23, 2005. This
decrease was due primarily to decreases in salaries and sales commissions.
Interest expense was $18,698 or 1.22% of revenues for the period ended December
29, 2006 as compared to $20,402 or 1.12% of revenues in the three-month period
ended December 23, 2005. The decrease in interest is associated with the
Company's repayment of its loans payable.
Depreciation and amortization of $49,704 or 3.24% of revenues was reported for
the three-month period ended December 29, 2006. This reflects an increase of
$4,644 or 9.34% from the comparable three-month period ended December 23, 2005
of $45,060 or 2.48% of revenues.
The Company reported net income of $33,566 for the three months ended December
29, 2006 representing basic earnings per common share of $.01 as compared to
basic income of $131,540 or $.06 per common share for the three months ended
December 23, 2005.
Liquidity and Capital Resources
The Company reported working capital of $1,201,151 as of December 29, 2006
compared to a working capital of $1,083,444 as of March 31, 2006. The increase
in working capital of $117,707 attributable to the following items:
Net income $ 121,180
Depreciation and amortization 149,113
Capital expenditures (128,743)
Other transactions (23,843)
As a result of the above, the current ratio (current assets to current
liabilities) was 1.9 to 1.0 at December 29, 2006 as compared to 1.8 to 1.0 at
March 31, 2006. Current liabilities at December 29, 2006 were $1,285,838
compared to $1,392,060 at March 31, 2006.
The Company reported $128,743 in capital expenditures for the nine months ended
December 29, 2006 and reported depreciation of $149,113 for the same nine-month
period.
The net income of $121,180 for the nine months ended December 29, 2006 resulted
in an increase in stockholders' equity to $2,404,507 as compared to
stockholders' equity of $2,283,327 at March 31, 2006.
22
IEH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
Liquidity and Capital Resources (continued)
The Company has an accounts receivable financing agreement with a factor, which
bears interest at 2.5% above prime with a minimum of 12% per annum. At December
29, 2006 the amount outstanding with the factor was $302,616 as compared to
$269,099 at March 31, 2006. 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. During the year ended March 31, 2006
the Company repaid $108,744 of the funds loaned to it. As of March 31, 2006 the
balance owed to these officers was $79,000.Through the nine months ended
December 29, 2006 one of the officers loaned the Company an additional $45,000.
Additionally, through the period ended December 29, 2006, the Company had repaid
$73,000 of the total funds loaned to it. The balance due to these officers at
December 29, 2006 was $51,000.
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 $49,301 for the
nine months ended December 29, 2006 and $44,753 for the nine months ended
December 23, 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 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.
23
IEH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
Liquidity and Capital Resources (continued)
The Company and the PBGC agreed to the terms of a settlement of the matter. The
agreement is effective July 2, 2001. Under the agreement, the Company and the
PBGC agreed on a total sum of $244,000. The Company has agreed to make payments
as follows:
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 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.
$31,000 was paid during the nine months ended December 29, 2006. $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 balance of $32,000 is reported as a current liability in the accompanying
financial statements.
On September 21, 2001 the Company's shareholders approved the adoption of the
Company's 2002 Employees Stock Option Plan to provide for the grant of options
to purchase up to 750,000 shares of the Company's common stock to all employees,
including senior management. No options have been granted under the Employee
Option Plan to date.
Options granted to employees under this plan may be designated as options which
qualify for incentive stock option treatment under Section 422A of the Internal
Revenue Code, or option which do not so qualify. Under this plan, the exercise
price of an option designated as an Incentive Stock Option shall not be less
than the fair market value of the Company's common stock on the day the option
is granted.
In the event an option designated as an incentive stock option is granted to a
ten percent (10%) share holder, such exercise price shall be at least 110
Percent (110%) of the fair market value or the Company's common stock and the
option must not be exercisable after the expiration of five years from the day
of the grant. Exercise prices of non-incentive stock options may be less than
the fair market value of the Company's common stock. The aggregate fair market
value of shares subject to options granted to its participants, which are
designated as incentive stock options, and which become exercisable in any
calendar year, shall not exceed $100,000. As of December 29, 2006 no options had
been granted under the plan.
In 1987, the Company adopted a cash bonus plan ("Cash Bonus Plan") for Executive
Officers. Contributions to the Bonus Plan are made by the Company when pre-tax
operating profits exceed $150,000 for a fiscal year, and then to the extent of
10% of the excess of the greater of $150,000 or 25% of pre-tax operating
profits. There were no contributions to the Bonus Plan for the fiscal nine
months ended December 29, 2006. For the year ended March 31, 2006 the
contribution was $75,500. For the year ended March 25, 2005 the contribution was
$4,188.
ITEM 3. CONTROLS AND PROCEDURES
Based on an evaluation of the effectiveness of the Company's "disclosure
controls and procedures" (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended, (the
24
IEH CORPORATION
ITEM 3. CONTROLS AND PROCEDURES (continued)
"Exchange Act."), the Company's Chief Executive Officer and Chief Financial
Officer (who is also our controller and principal accounting officer) concluded
that, as of the end of the period covered by this Report on Form 10-QSB, the
Company's disclosure controls and procedures are effective to ensure that all
information required to be disclosed by the Company in this Report that it files
or submits under the Exchange Act is, recorded, processed, and reported within
the time periods specified within the Securities and Exchange Commission's rules
and forms. There have been no changes in our internal control over financial
reporting during the quarter ended December 29, 2006 that have been materially
affected, or are reasonably likely to materially affect our internal controls
over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not involved in any legal proceedings which may have a material
effect upon the Company, its financial condition or operations.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS;
PURCHASES OF EQUITY SECURITIES
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER MATTERS.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 31.1 Certification Pursuant to Section 302 of the Sarbanes Oxley Act
Exhibit 31.2 Certification Pursuant to Section 302 of the Sarbanes Oxley Act
Exhibit 32.1 Certification Pursuant to Section 906 of the Sarbanes Oxley Act
Exhibit 32.2 Certification Pursuant to Section 906 of the Sarbanes Oxley Act
(b) Reports on Form 8-K during Quarter
None
25
IEH CORPORATION
SIGNATURES
In accordance with Section 13 and 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, on this January 31, 2007.
IEH CORPORATION
/s/ Michael Offerman
-------------------------
Michael Offerman
President
26