SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 26, 2009
|_| 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 13-5549348
(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 |_|
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer," "accelerated filer"
and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer |_| Accelerated filer |_|
Non-accelerated filer |_|
(Do not check if a smaller reporting company) Smaller Reporting Company |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|
2,303,468 shares of Common Shares, par value $.01 per share, were outstanding as
of June 26, 2009.
IEH CORPORATION
CONTENTS
Page
Number
------
PART I - FINANCIAL INFORMATION
ITEM 1- FINANCIAL STATEMENTS
Balance Sheets as of June 26, 2009 (Unaudited) and March 27, 2009 3
Statement of Operations (Unaudited) for the three months ended
June 26, 2009 and June 27, 2008 5
Statement of Cash Flows (Unaudited) for the three months ended
June 26, 2009 and June 27, 2008 6
Notes to Financial Statements (Unaudited) 8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 18
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 23
ITEM 4 - CONTROLS AND PROCEDURES 24
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS 24
ITEM 1A - RISK FACTORS 25
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND
USE OF PROCEEDS 26
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES 26
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 27
ITEM 5 - OTHER INFORMATION 27
ITEM 6 - EXHIBITS 27
SIGNATURES 28
- 1 -
EXHIBITS
Exhibit 31.1 Certification Pursuant to Section 302 of the Sarbanes Oxley Act 29
Exhibit 31.2 Certification Pursuant to Section 302 of the Sarbanes Oxley Act 30
Exhibit 32.1 Certification Pursuant to Section 906 of the Sarbanes Oxley Act 31
Exhibit 32.2 Certification Pursuant to Section 906 of the Sarbanes Oxley Act 32
- 2 -
IEH CORPORATION
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
IEH CORPORATION
BALANCE SHEETS
As of June 26, 2009 and March 27, 2009
June 26, March 27,
2009 2009
------------ ------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 226,397 $ 169,316
Accounts receivable, less allowances for doubtful accounts of
$11,562 at June 26, 2009 and March 27, 2009 1,841,768 1,830,668
Inventories (Note 3) 2,367,637 2,248,140
Prepaid expenses and other current assets (Note 4) 32,287 25,920
------------ ------------
Total Current Assets 4,468,089 4,274,044
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, less accumulated
depreciation and amortization of $6,973,383 at June 26, 2009 and
$6,927,669 at March 27, 2009 (Note 5) 1,180,094 1,183,427
------------ ------------
1,180,094 1,183,427
------------ ------------
OTHER ASSETS:
Other assets 24,993 24,968
------------ ------------
24,993 24,968
------------ ------------
Total Assets $ 5,673,176 $ 5,482,439
============ ============
The accompanying notes should be read in conjunction with the financial
statements.
- 3 -
IEH CORPORATION
BALANCE SHEETS
As of June 26, 2009 and March 27, 2009
June 26, March 27,
2009 2009
------------ ------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts receivable financing (Note 6) $ 146,591 $ 454,723
Accrued corporate income taxes 328,478 257,294
Accounts payable 514,928 548,948
Workers compensation insurance assessments-
current portion (Note 8) 20,268 20,268
Other current liabilities (Note 7) 393,237 277,739
------------ ------------
Total Current Liabilities 1,403,502 1,558,972
------------ ------------
LONG-TERM LIABILITIES:
Workers compensation insurance assessments- net of
current portion (Note 8) 62,512 67,579
------------ ------------
Total Long-Term Liabilities 62,512 67,579
------------ ------------
Total Liabilities 1,466,014 1,626,551
------------ ------------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 10,000,000 shares authorized;
2,303,468 shares issued and outstanding at June 26, 2009 and
March 27, 2009 23,035 23,035
Capital in excess of par value 2,744,573 2,744,573
Retained earnings (Note 9) 1,439,554 1,088,280
------------ ------------
Total Stockholders' Equity 4,207,162 3,855,888
------------ ------------
Total Liabilities and Stockholders' Equity $ 5,673,176 $ 5,482,439
============ ============
The accompanying notes should be read in conjunction with the financial
statements.
- 4 -
IEH CORPORATION
STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended
-------------------------------
June 26, June 27,
2009 2008
------------ ------------
REVENUE, net sales $ 2,877,700 $ 2,577,473
------------ ------------
COSTS AND EXPENSES
Cost of products sold 1,893,533 1,704,391
Selling, general and administrative 417,889 366,830
Interest expense 11,580 21,209
Depreciation 45,714 45,880
------------ ------------
2,368,716 2,138,310
------------ ------------
OPERATING INCOME 508,984 439,163
OTHER INCOME 90 57
------------ ------------
INCOME BEFORE INCOME TAXES 509,074 439,220
------------ ------------
PROVISION FOR INCOME TAXES (157,800) (24,000)
------------ ------------
NET INCOME $ 351,274 $ 415,220
============ ============
BASIC AND DILUTED EARNINGS PER SHARE $ .15 $ .18
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING (in thousands) 2,303 2,303
============ ============
The accompanying notes should be read in conjunction with the financial
statements.
- 5 -
IEH CORPORATION
STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash
(Unaudited)
Three Months Ended
-------------------------------
June 26, June 27,
2009 2008
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 351,274 $ 415,220
------------ ------------
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation 45,714 45,880
Changes in assets and liabilities:
(Increase) in accounts receivable (11,100) (145,422)
(Increase) decrease in inventories (119,497) 18,467
(Increase) in prepaid expenses and other current assets (6,367) (8,183)
(Increase) in other assets (25) --
(Decrease) in accounts payable (34,020) (68,700)
Increase in other current liabilities 115,498 45,757
Increase in accrued corporate income taxes 71,184 15,516
(Decrease) in workers compensation assessment (5,067) --
------------ ------------
Total adjustments 56,320 (96,685)
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 407,594 318,535
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of fixed assets (42,381) (43,385)
------------ ------------
NET CASH USED BY INVESTING ACTIVITIES $ (42,381) $ (43,385)
============ ============
The accompanying notes should be read in conjunction with the financial
statements.
- 6 -
IEH CORPORATION
STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash
(Unaudited)
Three Months Ended
-----------------------
June 26, June 27,
2009 2008
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Payment) of accounts receivable financing $(308,132) (54,747)
(Repayment) of loan payable - officer -- (17,000)
--------- ---------
NET CASH (USED) BY FINANCING ACTIVITIES (308,132) (71,747)
--------- ---------
INCREASE IN CASH 57,081 203,403
CASH, beginning of period 169,316 29,136
--------- ---------
CASH, end of period $ 226,397 $ 232,539
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the three months for:
Interest $ 11,580 $ 14,656
========= =========
Income Taxes $ 42,000 $ 16,429
========= =========
The accompanying notes 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 June 26, 2009
and June 27, 2008 and for the three months then ended have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-Q. In the opinion of management, the unaudited financial
statements have been prepared on the same basis as the annual
financial statements and reflect all adjustments, which include only
normal recurring adjustments, necessary to present fairly the
financial position as of June 26, 2009 and June 27, 2008 and the
results of operations and cash flows for the three months then
ended. The financial data and other information disclosed in these
notes to the interim financial statements related to these periods
are unaudited. The results for the three months ended June 26, 2009,
are not necessarily indicative of the results to be expected for any
subsequent quarter or the entire fiscal year. The balance sheet at
March 27, 2009 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
rules and regulations of the Securities and Exchange Commission (the
"SEC"). The Company believes, however, that the disclosures in this
report are adequate to make the information presented not misleading
in any material respect. The accompanying financial statements
should be read in conjunction with the audited financial statements
and notes thereto of IEH Corporation for the fiscal year ended March
27, 2009 included in the Company's Annual Report on Form 10-K as
filed with the SEC and the attached Management's Discussion and
Analysis of Financial Condition and Results of Operation.
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)
Accounting Period:
The Company maintains an accounting period based upon a 52-53 week
year, which ends on the nearest Friday in business days to March 31.
The year ended March 27, 2009 was comprised of 52 weeks.
Revenue Recognition:
Revenues are recognized at the shipping date of the Company's
products. The Company has historically adopted the shipping terms
that title to merchandise passes to the customer at the shipping
point (FOB Shipping Point). At this juncture, title has passed, the
Company has recognized the sale, inventory has been relieved, and
the customer has been invoiced. The Company does not offer any
discounts, credits or other sales incentives.
The Company's policy with respect to customer returns and allowances
as well as product warranty is as follows:
The Company will accept a return of defective product within one
year from shipment for repair or replacement at the Company's
option. If the product is repairable, the Company at its own cost,
will repair and return it to the customer. If unrepairable, the
Company will either offer an allowance against payment or will
reimburse the customer for the total cost of product. The Company's
experience has been that a loss from returns is extremely remote.
Accordingly, the Company's management does not believe that an
allowance for loss from returns is necessary.
Most of the Company's products are custom ordered by customers for a
specific use. The Company provides engineering services as part of
the relationship with its customers in developing the custom
product. The Company is not obligated to provide such engineering
service to its customers. The Company does not 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
- 9 -
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued)
Inventories (continued):
adjustment, based upon historical experience is made to inventory in
recognition of this impairment.
Concentration of Credit Risk:
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of cash and cash
equivalents and accounts receivable.
Under the provisions of the Emergency Stabilization Act of 2008, the
Federal Deposit Insurance Corporation (FDIC) will insure interest
bearing accounts at participating financial institutions up to
$250,000 in the aggregate. This insurance coverage limit was
recently extended through December 31, 2013.
An additional provision of the Act provided for the FDIC to
establish the Transaction Account Guarantee Program ("TAGP"). Under
TAGP all non-interest bearing transaction accounts are fully
guaranteed by the FDIC for the entire amount in the account.
Coverage under TAGP is in addition to and separate from the coverage
available under the FDIC's general deposit insurance rules. This
insurance coverage is scheduled to end on December 31, 2009,
whereupon, coverage will be limited to $250,000 in the aggregate.
As of June 26, 2009, the Company had funds on deposit in the amount
of $226,397 in one participating financial institution comprised of
the following:
Non-interest bearing accounts $155,657
Interest bearing account 70,740
--------
$226,397
========
The Company has not experienced any losses in such accounts and
believes its cash balances are not exposed to any significant risk.
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
accounts. Any gain or loss thereon is either credited or charged to
operations.
- 10 -
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued)
Income Taxes:
The Company follows the policy of treating investment tax credits as
a reduction in the provision for federal income tax in the year in
which the credit arises or may be utilized. Deferred income taxes
arise from temporary differences resulting from different
depreciation methods used for financial and income tax purposes. The
Company has adopted Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes".
Net Income Per Share:
The Company has adopted the provisions of SFAS No. 128, "Earnings
Per Share", which requires the disclosure of "basic" and "diluted"
earnings (loss) per share. Basic earnings per share is computed by
dividing net income by the weighted average number of common shares
outstanding during each period. Diluted earnings per share is
similar to basic earnings per share except that the weighted average
number of common shares outstanding is increased to reflect the
dilutive effect of potential common shares, such as those issuable
upon the exercise of stock or warrants, as if they had been issued.
For the three months ended June 26, 2009 and June 27, 2008, 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 or Disposal of
Long-Lived Assets," requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable. The Company has adopted SFAS No. 144. There were no
long-lived asset impairments recognized by the Company for the three
months ended June 26, 2009 and June 27, 2008, respectively.
- 11 -
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued)
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 balance sheet. There were no
material items of comprehensive income to report for the three
months ended June 26, 2009 and June 27, 2008, respectively.
Segment Information:
The Company has adopted the provisions of SFAS No. 131, "Disclosures
About Segment of An Enterprise and Related Information." This
Statement requires public enterprises to report financial and
descriptive information about its reportable operating segments and
establishes standards for related disclosures about product and
services, geographic areas, and major customers. The adoption of
SFAS No. 131 did not affect the Company's presentation of its
results of operations or financial position.
Research and Development:
The Company provides personalized engineering services to its
customers by designing connectors for specific customer
applications. The employment of electromechanical engineers is the
anticipated cornerstone of the Company's future growth. The Company
maintains a testing laboratory where its engineers experiment with
new connector designs based on changes in technology and in an
attempt to create innovative, more efficient connector designs.
The Company did not expend any funds on customer sponsored research
and development during the three months ended June 26, 2009 and June
27, 2008, respectively. In addition the Company did not receive any
revenues related to customer sponsored research and development
activities during the three months ended June 26, 2009 and June 27,
2008, respectively.
Effect of New Accounting Pronouncements:
Effective April 1, 2007, the Company adopted the provisions of
Financial Accounting Standards Board Interpretation No.48 ("FIN
48"), "Accounting for Uncertainty in Income Taxes- an interpretation
of FASB Statement No. 109", which clarifies the accounting for
uncertainty in income taxes recognized in an entity's financial
statements in accordance with FASB Statement No.109, "Accounting for
Income Taxes". FIN 48 prescribes a recognition threshold and
measurement attribute for the financial statement disclosures of tax
positions taken or expected to be taken in an income tax filing. The
evaluation of a tax position is a two step process. The first step
requires an entity to determine whether it is more likely than not
that a tax position will be sustained upon examination based upon
the technical merits of the position.
- 12 -
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued)
Effect of New Accounting Pronouncements: (continued)
The second step requires an entity to recognize in the financial
statements each tax position that meets the more likely than not
criteria, measured at the largest amount of benefit that has a
greater than fifty percent likelihood of being recognized. FIN 48
also provides guidance on de-recognition, classification, interest
and penalties, accounting for interim periods, disclosure and
transition.
The Company believes that with its adoption of FIN 48, that the
income tax positions taken by it did not have a material effect on
the financial statements for the three months ended June 26, 2009.
In December 2006, the FASB issued SFAS No. 157, "Fair Value
Measurements", which enhances existing guidance for measuring assets
and liabilities using fair value. This Standard provides a single
definition of fair value, together with a framework for measuring
it, and requires additional disclosure about the use of fair value
to measure assets and liabilities. SFAS No. 157 is effective for
financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years.
The Company does not believe that SFAS No. 157 will have a material
impact on its financial statements.
In February 2007, the FASB issued SFAS No. 159 ("SFAS 159") "The
Fair Value Option for Financial Assets and Financial Liabilities",
providing companies with an option to report selected financial
assets and liabilities at fair value. The Standard's objective is to
reduce both complexity in accounting for financial instruments and
the volatility in earnings caused by measuring related assets and
liabilities differently. It also requires entities to display the
fair value of those assets and liabilities for which the Company has
chosen to use fair value on the face of the balance sheet. SFAS 159
is effective for fiscal years beginning after November 15, 2007. The
Company does not believe that SFAS No. 159 will have a material
impact on its financial statements.
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.
- 13 -
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 3 - INVENTORIES: (continued)
The Company estimates which materials may be obsolete and which
products in work in process or finished goods may be sold at less
than cost. A periodic adjustment, based upon historical experience
is made to inventory in recognition of this impairment.
Inventories are comprised of the following:
June 26, March 27,
2009 2009
------------- -------------
Raw materials $ 1,105,324 $ 1,049,537
Work in progress 561,569 533,226
Finished goods 700,744 665,377
------------- -------------
$ 2,367,637 $ 2,248,140
============= =============
Note 4 - PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets are comprised of the
following:
June 26, March 27,
2009 2009
------------- -------------
Prepaid insurance $ 11,234 $ 13,649
Prepaid corporate taxes 15,102 7,681
Other current assets 5,951 4,590
------------- -------------
$ 32,287 $ 25,920
============= =============
Note 5 - PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are comprised of the following:
June 26, March 27,
2009 2009
------------- -------------
Computers $ 229,676 $ 229,676
Leasehold improvements 588,685 585,831
Machinery and equipment 5,002,084 4,992,114
Tools and dies 2,169,547 2,139,990
Furniture and fixture 155,935 155,935
Website development cost 7,550 7,550
------------- -------------
8,153,477 8,111,096
Less: accumulated
depreciation and amortization (6,973,383) (6,927,669)
------------- -------------
$ 1,180,094 $ 1,183,427
============= =============
- 14 -
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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 3.25% at
June 26, 2009. However, the agreement does stipulate that the
minimum interest rate is 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 60 days prior notice. The loan is secured by the Company's
accounts receivable and inventories. The balance due under this
agreement as of June 26, 2009 was $146,591. The balance due as of
March 27, 2009 was $454,723.
Note 7 - OTHER CURRENT LIABILITIES:
Other current liabilities are comprised of the following:
June 26, March 27,
2009 2009
------------ ------------
Payroll and vacation accruals $ 351,967 $ 242,188
Sales commissions 22,680 30,543
Other 18,590 5,008
------------ ------------
$ 393,237 $ 277,739
============ ============
Note 8 - WORKERS COMPENSATION INSURANCE ASSESSMENT:
On September 15, 2008, the Company was notified by the State of New
York Workers' Compensation Board (the "Board") that the Trade
Industry Workers' Compensation Trust for Manufacturers (the "Trust")
had defaulted. As a member of the Trust, which is a self-insured
group, the Company was assessed on an estimated basis by the Board
for its allocable share necessary to discharge all liabilities of
the Trust.
The estimated assessment pertains to the years 2002 through 2006.
The Company was advised that there may be an additional assessment
for the year 2007 and that the estimated assessments for the year
2002 through 2006 are subject to additional review and adjustment.
The total assessed amount for the years 2002 through 2006 was
$101,362. The assessed amount for each year is detailed as follows:
2002 $ 16,826
2003 24,934
2004 31,785
2005 14,748
2006 13,069
--------
$101,362
========
The Company did have the option of paying this assessment as a lump
sum amount or paying off the assessment over a 60 month period.
- 15 -
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 8 - WORKERS COMPENSATION INSURANCE ASSESSMENT (continued):
The Company has elected the deferral option, and is making monthly
payments of $1,689 for 59 months, and $1,711 for the 60th and final
month. The Company has recorded this assessment as a charge to Cost
of Sales in the quarter ended December 26, 2008. As of June 26,
2009, the current portion of this assessment liability was $20,268
and the long-term portion was $62,512.
Note 9 - CHANGES IN STOCKHOLDERS' EQUITY:
Retained earnings increased by $351,274, which represents the net
income for the three months ended June 26, 2009.
Note 10- 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 ("2002
Plan") to provide for the grant of options to purchase up to 750,000
shares of the Company's common stock to all employees, including
senior management.
Options granted to employees under the 2002 Plan may be designated
as options which qualify for incentive stock option treatment under
Section 422A of the Internal Revenue Code, or options which do not
so qualify.
Under the 2002 Plan, the exercise price of an option designated as
an Incentive Stock Option shall not be less than the fair market
value of the Company's common stock on the day the option is
granted. In the event an option designated as an incentive stock
option is granted to a ten percent (10%) shareholder, such exercise
price shall be at least 110 percent (110%) of the fair market value
of the Company's common stock and the option must not be exercisable
after the expiration of five years from the day of the grant.
Exercise prices of non-incentive stock options may be less than the
fair market value of the Company's common stock.
The aggregate fair market value of shares subject to options granted
to a participant(s), which are designated as incentive stock
options, and which become exercisable in any calendar year, shall
not exceed $100,000. As of June 26, 2009, no options had been
granted under this Plan.
Note 11 - CASH BONUS PLAN:
In 1987, the Company adopted a cash bonus plan ("Cash Bonus Plan")
for executive officers. Contributions to the Cash Bonus Plan are
made by the Company only after pre-tax operating profits exceed
$150,000 for a fiscal year, and then to the extent of 10% of the
excess of the greater of $150,000 or 25% of pre-tax operating
profits. The Company accrued $30,000 for the three months ended June
26, 2009. For the year ended March 27, 2009, the contribution was
$121,000.
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IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 12 - COMMITMENTS AND CONTINGENCIES:
The Company leases its facility under a renewed tenure lease
agreement, which expires on August 23, 2011. The Company is
obligated under this lease at minimum annual rentals as follows:
Fiscal year ending March:
2010 $130,662
2011 116,144
--------
$246,806
========
The rental expense for the three months ended June 26, 2009 and June
27, 2008 was $36,267 and $36,267, respectively.
The Company has a collective bargaining multi-employer pension plan
("Multi-Employer Plan") with the United Auto Workers of America,
Local 259 ("UAW"). Contributions are made by the Company in
accordance with a negotiated labor contract and are based on the
number of covered employees employed per month. With the passage of
the Multi-Employer Pension Plan Amendment Act of 1990 (the "1990
Act"), the Company may become subject to liabilities in excess of
contributions made under the collective bargaining agreement.
Generally, these are contingent upon termination, withdrawal, or
partial withdrawal from the Multi-Employer Plan. The Company has not
taken any action to terminate, withdraw or partially withdraw from
the Multi-Employer Plan, nor does it intend to do so in the future.
Under the 1990 Act, liabilities would be based upon the Company's
proportional share of the Multi-Employer Plan's unfunded vested
benefits which is currently not available.
The amount of accumulated benefits and net assets of such Plan also
is not currently available to the Company. The total contributions
charged to operations under the provisions of the Multi-Employer
Plan were $25,205 and $21,087 for the three months ended June 26,
2009 and June 27, 2008, respectively.
In November 2006, three former employees of the Company filed claims
with the New York State Division of Human Rights ("SDHR") alleging
national origin discrimination The SDHR acts as an investigative and
adjudicative agency. With respect to its adjudicative function, the
SDHR resolves complaints by conducting public hearings before
administrative law judges. The SDHR does not litigate claims in
court on behalf of claimants. On December 27, 2008, the SDHR issued
a determination that probable cause existed that the Company may
have violated applicable law and directed that a public hearing be
held before an administrative law judge with respect to each former
employee's claim. The SDHR has not yet scheduled these matters for
hearing. The SDHR is authorized to award legal and equitable relief,
including, reinstatement, back pay, and compensatory damages. The
Company intends to vigorously defend these claims and believes that
there are meritorious defenses in each case.
- 17 -
IEH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward Looking Statements
This report contains forward looking statements within the meaning of Section
21E of the Securities and Exchange Act of 1934, as amended (the "1934 Act") and
Section 27A of the Securities Act of 1933 (the "1933 Act"). Statements contained
in this report which are not statements of historical facts may be considered
forward-looking information with respect to plans, projections, or future
performance of the Company as defined under the Private Securities litigation
Reform Act of 1995. These forward-looking statements are subject to risks and
uncertainties which could cause actual results to differ materially from those
projected. The words "anticipate", "believe", "estimate", "expect", "objective",
and "think" or similar expressions used herein are intended to identify
forward-looking statements. The forward-looking statements are based on the
Company's current views and assumptions and involve risks and uncertainties that
include, among other things, the effects of the Company's business, actions of
competitors, changes in laws and regulations, including accounting standards,
employee relations, customer demand, prices of purchased raw material and parts,
domestic economic conditions, including housing starts and changes in consumer
disposable income, and foreign economic conditions, including currency rate
fluctuations. Some or all of the facts are beyond the Company's control.
Except as may be required by applicable law, we do not undertake or intend to
update or revise our forward-looking statements, and we assume no obligation to
update any forward-looking statements contained in this report as a result of
new information or future events or developments. Thus, you should not assume
that our silence over time means that actual events are bearing out as expressed
or implied in such forward-looking statements. You should carefully review and
consider the various disclosures we make in this report and our other reports
filed with the SEC that attempt to advise interested parties of the risks,
uncertainties and other factors that m ay affect our business. 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 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.
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IEH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
Critical Accounting Policies (continued)
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.
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.
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IEH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
Results of Operations
The following table sets forth for the periods indicated, percentages for
certain items reflected in the financial data as such items relate to the
revenues of the Company:
Relationship to Total Revenues
June 26, June 27,
2009 2008
------------ ------------
Operating Revenues (in thousands) $ 2,878 $ 2,577
------------ ------------
Operating Expenses:
(as a percentage of Operating Revenues)
Costs of Products Sold 65.8% 66.1%
Selling, General and Administrative 14.5% 14.2%
Interest Expense .4% .8%
Depreciation and amortization 1.6% 1.8%
------------ ------------
TOTAL COSTS AND EXPENSES 82.3% 82.9%
------------ ------------
Operating Income 17.7% 17.1%
Other Income -- --
------------ ------------
Income (loss) before Income Taxes 17.7% 17.1%
Income Taxes (5.5%) (.9%)
------------ ------------
Net Income 12.2% 16.2%
============ ============
Comparative Analysis-Three Months Ended June 26, 2009 and June 27, 2008
Operating revenues for the three months ended June 26, 2009 amounted to
$2,877,700 reflecting a 11.6% increase versus the three months ended June 27,
2008 revenues of $2,577,473. The increase in revenues can be attributed to a
dramatic increase in commercial aerospace spending, new customers in the medical
device manufacturing sector as well as internal production efficiencies.
Cost of products sold amounted to $1,893,533 for the three months ended June 26,
2009, or 65.8% of operating revenues. This reflected a $189,142 or 11.1%
increase in the cost of products sold from $1,704,391 or 66.1% of operating
revenues for the three months ended June 27, 2008. The increase in cost of
product sold is due primarily to the increase in costs related to the increase
in revenues for the quarter ended June 26, 2009.
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IEH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
Comparative Analysis-Three Months Ended June 26, 2009 and June 27, 2008
(continued)
Selling, general and administrative expenses were $417,889 or 14.5% of operating
revenues for the three months ended June 26, 2009 compared to $366,830 or 14.2%
of operating revenues for the three months ended June 27, 2008. This category of
expense increased by $51,059 or 13.9% from the prior year. The increase can be
attributed to an increase in salaries to sales personnel, commissions and travel
expenses.
Interest expense was $11,580 for the three months ended June 26, 2009 or .4% of
operating revenues. For the fiscal three months ended June 27, 2008, interest
expense was $21,209 or .8% of operating revenues. The decrease of $9,629 or
45.4% reflects primarily management's commitment to apply revenues to reduce the
Company's debt.
Depreciation and amortization of $45,714 or 1.6% of operating revenues was
reported for the three months ended June 26, 2009. This reflects a decrease of
$166 from the comparable three month period ended June 27, 2008 of $45,880 or
1.8% of operating revenues. The reduction in depreciation is the result of
assets being written off prior to the three months ended June 26, 2009.
The Company reported net income of $351,274 for the three months ended June 26,
2009 representing basic earnings of $.15 per share as compared to net income of
$415,220 or $.18 per share for the three months ended June 27, 2008. The
decrease in net income for the current three month period can be attributed
primarily to the increase in provision for corporate taxes.
Liquidity and Capital Resources
The Company reported working capital of $3,064,587 as of June 26, 2009 compared
to a working capital of $2,715,072 as of March 27, 2009. The increase in working
capital of $349,515 was attributable to the following items:
Net income $ 351,274
Depreciation and amortization 45,714
Capital expenditures (42,381)
Other transactions (5,092)
As a result of the above, the current ratio (current assets to current
liabilities) was 3.18 to 1 at June 26, 2009 as compared to 2.74 to 1 at March
27, 2009. Current liabilities at June 26, 2009 were $1,403,502 compared to
$1,558,972 at March 27, 2009.
The Company reported $42,381 in capital expenditures for the three months ended
June 26, 2009 and reported depreciation of $45,714 for the same three-month
period.
The net income of $351,274 for the three months ended June 26, 2009 resulted in
an increase in stockholders' equity to $4,207,162 as compared to stockholders'
equity of $3,855,888 at March 27, 2009.
The Company has an accounts receivable financing agreement with a factor, which
bears interest at 2.5% above prime. However, the agreement does stipulate that
the minimum interest rate is 12% per annum. At June 26, 2009 the amount
outstanding with the factor was $146,591 as compared to $454,723 at March 27,
2009. The loan is secured by the Company's accounts receivables and inventories.
The factor provides financing based upon the Company's accounts receivables.
These funds provide the primary source of working capital for operations.
- 21 -
IEH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
Liquidity and Capital Resources (continued)
In the past two fiscal years, management has been reviewing its collection
practices and policies for outstanding receivables and has revised its
collection procedures to a more aggressive collection policy. As a consequence
of this new policy the Company's experience is that its customers have been
remitting payments on a more consistent and timely basis. The Company reviews
the collectability of all accounts receivable on a monthly basis. The reserve is
less than 2% of average gross accounts receivable and is considered to be
conservatively adequate.
The Company has the Multi-Employer Plan with the UAW. Contributions are made by
the Company in accordance with a negotiated labor contract and are based on the
number of covered employees employed per month. With the passage of the 1990
Act, the Company may become subject to liabilities in excess of contributions
made under the collective bargaining agreement. Generally, these are contingent
upon termination, withdrawal, or partial withdrawal from the Multi-Employer
Plan. The Company has not taken any action to terminate, withdraw or partially
withdraw from the Multi-Employer Plan, nor does it intend to do so in the
future. Under the 1990 Act, liabilities would be based upon the Company's
proportional share of the Multi-Employer Plan's unfunded vested benefits which
is currently not available. The amount of accumulated benefits and net assets of
such Plan also is not currently available to the Company. The total
contributions charged to operations under the provisions of the Multi-Employer
Plan were $25,205 and $21,087 for the three months ended June 26, 2009 and June
27, 2008, respectively.
On September 15, 2008, the Company was notified by the State of New York
Workers' Compensation Board (the "Board") that the Trade Industry Workers'
Compensation Trust for Manufacturers (the "Trust") had defaulted. As a member of
this self-insured group, the Company was assessed on an estimated basis by the
Board for its allocable share necessary to discharge all liabilities of the
Trust.
The assessed amount for the years 2002 through 2006 was $101,362. The assessed
amount for each year is detailed as follows:
2002 $ 16,826
2003 24,934
2004 31,785
2005 14,748
2006 13,069
--------
$101,362
========
The Company did have the option of paying this assessment as a lump sum amount
or paying off the assessment over a 60 month period. The Company has elected the
deferral option, and is making monthly payments of $1,689 for 59 months, and
$1,711 for the 60th and final month. The Company has recorded this assessment as
a charge to Cost of Sales in the quarter ended December 26, 2008. As of June 26,
2009, the current portion of this assessment liability was $20,268 and the
long-term portion was $62,512.
On September 21, 2001, the Company's shareholders approved the adoption of the
Company's 2002 Plan to provide for the grant of options to purchase up to
750,000 shares of the Company's common stock to all employees, including senior
management. No options have been granted under the 2002 Plan to date.
- 22 -
IEH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
Liquidity and Capital Resources (continued)
Options granted to employees under the 2002 Employee Stock Option Plan may be
designated as options which qualify for incentive stock option treatment under
Section 422A of the Internal Revenue Code, or option which do not so qualify.
Under the 2002 Plan, the exercise price of an option designated as an incentive
stock option shall not be less than the fair market value of the Company's
common stock on the day the option is granted. In the event an option designated
as an incentive stock option is granted to a ten percent (10%) shareholder, such
exercise price shall be at least 110 percent (110%) of the fair market value or
the Company's common stock and the option must not be exercisable after the
expiration of five years from the day of the grant.
Exercise prices of non-incentive stock options may be less than the fair market
value of the Company's common stock. The aggregate fair market value of shares
subject to options granted to its participants, which are designated as
incentive stock options, and which become exercisable in any calendar year,
shall not exceed $100,000. As of June 26, 2009, no options had been granted
under the 2002 Plan.
In 1987, the Company adopted the Cash Bonus Plan for executive officers.
Contributions to the Cash Bonus Plan are made by the Company only after pre-tax
operating profits exceed $150,000 for a fiscal year, and then to the extent of
10% of the excess of the greater of $150,000 or 25% of pre-tax operating
profits. The Company accrued $30,000 for the three months ended June 26, 2009.
For the year ended March 27, 2009, the contribution was $121,000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not believe that any of our financial instruments have significant risk
associated with market sensitivity. For more information on these investments
see Note 2 to our financial statements included in this Form 10-Q. We are not
exposed to significant financial market risks from changes in foreign currency
exchange rates and are only minimally impacted by changes in interest rates. We
have not used, and currently do not contemplate using, any derivative financial
instruments.
Interest Rate Risk
At any time, fluctuations in interest rates could affect interest earnings on
our cash and marketable securities. We believe that the effect, if any, of
reasonably possible near term changes in interest rates on our financial
position, results of operations, and cash flows would not be material.
Currently, we do not hedge these interest rate exposures. The primary objective
of our investment activities is to preserve capital. We have not used derivative
financial instruments in our investment portfolio.
As of June 26, 2009, our unrestricted cash was $226,397 of which $70,740 was in
an interest bearing money market account with and the balance of $155,657 was
maintained in non-interest bearing checking accounts used to pay operating
expenses.
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IEH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
ITEM 4. CONTROLS AND PROCEDURES
Based on an evaluation of the effectiveness of the Company's "disclosure
controls and procedures" (as defined in Rules 13a-15(e) and 15d-15(e) under the
1934 Act, the Company's President and Chief Executive Officer and its 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-Q,
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 1934 Act is, recorded, processed, and reported within
the time periods specified within the SEC's rules and forms and that such
information is accumulated and communicated to our management, including our
President and Chief Executive Officer and our Chief Financial Officer to allow
timely decisions regarding required disclosure.
Our management, including our President and Chief Executive Officer and our
Chief Financial Officer, does not expect that our disclosure controls and
procedures or our internal controls will prevent all errors and all fraud. A
control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met. Further, the design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within our Company have been
detected. Our management, however, believes our disclosure controls and
procedures are in fact effective to provide reasonable assurance that the
objectives of the control system are met.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting (as
defined in Rule 13a - 15(f) under the 1934 Act) during the quarter ended June
26, 2009 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
Except as described below, the Company is not a party to or aware of any pending
or threatened legal proceedings which, in the opinion of the Company's
management, would result in any material adverse effect on its results of
operations or its financial condition.
In November 2006, three former employees of the Company filed claims with the
New York State Division of Human Rights ("SDHR") alleging national origin
discrimination The SDHR acts as an investigative and adjudicative agency. With
respect to its adjudicative function, the SDHR resolves complaints by conducting
public hearings before administrative law judges. The SDHR does not litigate
claims in court on behalf of claimants. On December 27, 2008, the SDHR issued a
determination that probable cause existed that the Company may have violated
applicable law and directed that a public hearing be held before an
administrative law judge with respect to each former employee's claim. The SDHR
has not yet scheduled these matters for hearing. The SDHR is authorized to award
legal and equitable relief, including, reinstatement, back pay, and compensatory
damages. The Company intends to vigorously defend these claims and believes that
there are meritorious defenses in each case.
- 24 -
IEH CORPORATION
ITEM 1A. RISK FACTORS
Risks Related to Our Business
Failure to increase our revenue and keep our expenses consistent with revenues
could prevent us from achieving and maintaining profitability.
We have generated net income of $768,003, $603,865 and $200,693, respectively,
for the fiscal years ended March 27, 2009, March 28, 2008 and March 30, 2007 and
$351,274 for the quarter ended June 26, 2009. We have expended, and will
continue to be required to expend, substantial funds to pursue product
development projects, enhance our marketing and sales efforts and to effectively
maintain business operations. Therefore, we will need to generate higher
revenues to achieve and maintain profitability and cannot assure you that we
will be profitable in any future period.
Our capital requirements are significant and we have historically partially
funded our operations through the financing of our accounts receivable.
We have an existing accounts receivable financing agreement with a factor
whereby we can borrow up to eighty percent of our eligible receivables at an
interest rate of 2 1/2% above JP Morgan Chase's publicly announced interest
rate. No assurances can be given that this financing agreement will continue
into the future. If we are unable to continue with this agreement, our cash flow
might adversely be affected.
Our success is dependent on the performance of our management and the
cooperation, performance and retention of our executive officers and key
employees.
Our business and operations are substantially dependent on the performance of
our senior management team and executive officers. If our management team is
unable to perform it may adversely impact our results of operations and
financial condition. We do not maintain "key person" life insurance on any of
our executive officers. The loss of one or several key employees could seriously
harm our business. Any reorganization or reduction in the size of our employee
base could harm our ability to attract and retain other valuable employees
critical to the success of our business.
If we lose key personnel or fail to integrate replacement personnel
successfully, our ability to manage our business could be impaired.
Our future success depends upon the continued service of our key management,
technical, sales, finance, and other critical personnel. We cannot assure you
that we will be able to retain them. Key personnel have left our Company in the
past and there likely will be additional departures of key personnel from time
to time in the future. The loss of any key employee could result in significant
disruptions to our operations, including adversely affecting the timeliness of
product releases, the successful implementation and completion of Company
initiatives, the effectiveness of our disclosure controls and procedures and our
internal control over financial reporting, and the results of our operations. In
addition, hiring, training, and successfully integrating replacement sales and
other personnel could be time consuming, may cause additional disruptions to our
operations, and may be unsuccessful, which could negatively impact future
revenues.
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IEH CORPORATION
ITEM 1A. RISK FACTORS (continued)
Our reported financial results could be adversely affected by changes in
financial accounting standards or by the application of existing or future
accounting standards to our business as it evolves.
As a result of the enactment of the Sarbanes-Oxley Act and the review of
accounting policies by the SEC and national and international accounting
standards bodies, the frequency of accounting policy changes may accelerate.
Possible future changes to accounting standards, could adversely affect our
reported results of operations.
Risks Related to Our Common Stock
Our stock price is volatile and could decline.
The price of our common stock has been, and is likely to continue to be,
volatile. For example, our stock price during the fiscal year ended March 27,
2009 traded as low as $1.65 per share and as high as $4.30 per share. During the
three month period ended June 26, 2009, our common stock traded in the range of
$2.46 per share to $3.75 per share. We cannot assure you that your initial
investment in our common stock will not fluctuate significantly. The market
price of our common stock may fluctuate significantly in response to a number of
factors, some of which are beyond our control, including:
o Quarterly variations in our operating results.
o Announcements we make regarding significant contracts, acquisitions,
dispositions, strategic partnerships, or joint ventures.
o Additions or departures of key personnel.
o The introduction of competitive offerings by existing or new
competitors.
o Uncertainty about and customer confidence in the current economic
conditions and outlook.
o Reduced demand for any of our products.
o Sales of our common stock.
In addition, the stock market in general, and companies whose stock is listed on
The NASDAQ Global Market, have experienced extreme price and volume fluctuations
that have often been disproportionate to the operating performance of these
companies. Broad market and industry factors may negatively affect the market
price of our common stock, regardless of our actual operating performance.
Since we have not paid dividends on our common stock, you may not receive income
from this investment.
We have not paid any dividends on our common stock since our inception and do
not contemplate or anticipate paying any dividends on our common stock in the
foreseeable future. Earnings, if any, will be used to finance the development
and expansion of our business
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS; PURCHASES
OF EQUITY SECURITIES
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
- 26 -
IEH CORPORATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER MATTERS.
On May 26, 2009, the Board of Directors of the Company unanimously voted to
increase the number of directors from three to four directors and elected Gerald
E. Chafetz as a Class II Director. The Class II Directors of the Board are
scheduled to be elected at the Company's Annual Meeting on September 1, 2009.
Mr. Chafetz will serve on the Board of Directors for the balance of the term of
the Class II Directors or until his successor is elected and qualified. The
Company intends to renominate Mr. Chafetz and Mr. Allen Gottlieb, the other
Class II Director, for reelection. The Company filed a Current Report on Form
8-K with respect to the foregoing matters on June 1, 2009.
ITEM 6. EXHIBITS.
(a) Exhibits
Exhibit 31.1 Certification Pursuant to Section 302 of the Sarbanes Oxley Act
Exhibit 31.2 Certification Pursuant to Section 302 of the Sarbanes Oxley Act
Exhibit 32.1 Certification Pursuant to Section 906 of the Sarbanes Oxley Act
Exhibit 32.2 Certification Pursuant to Section 906 of the Sarbanes Oxley Act
(b) Reports on Form 8-K during Quarter
See Item 5 above.
- 27 -
SIGNATURES
In accordance with the requirements of the 1934 Act, the Registrant has duly
caused this Report on Form 10-Q to be signed on its behalf by the undersigned,
thereunto duly authorized.
IEH CORPORATION
(Registrant)
August 7, 2009 /s/ Michael Offerman
--------------------
Michael Offerman
President (Principal Executive Officer)
August 7, 2009 /s/ Robert Knoth
----------------
Robert Knoth
Chief Financial Officer (Principal Accounting Officer)
- 28 -