SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________________

 

FORM 10-Q

 

þ

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended December 27, 2013

 

o

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 incorporation or organization)	(I.R.S. Employer 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.

 

Indicate by check mark whether the registrant: (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 þ                                                                             No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

Yes þ                                                                             No o

 

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  o		Accelerated filer o
Non-accelerated filer  o (Do not check if a smaller reporting company)		Smaller Reporting Company þ

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES  o NO þ

 

2,303,468 shares of Common Shares, par value $.01 per share, were outstanding as of December 27, 2013.

 

IEH CORPORATION

 

TABLE OF CONTENTS

 

 

		Page
		Number
PART I –	FINANCIAL INFORMATION
ITEM 1-	FINANCIAL STATEMENTS
	Balance Sheets as of December 27, 2013 (Unaudited) and March 29, 2013	3
	Statement of Operations (Unaudited) for the nine and three months ended December 27, 2013 and December 28, 2012	5
	Statement of Cash Flows (Unaudited) for the nine months ended December 27, 2013 and December 28, 2012	6
	Notes to Financial Statements (Unaudited)	8
ITEM 2 –	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	21
ITEM 3 –	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	31
ITEM 4 –	CONTROLS AND PROCEDURES	31
PART II –	OTHER INFORMATION
ITEM 1 –	LEGAL PROCEEDINGS	32
ITEM 1a –	RISK FACTORS	32
ITEM 2 –	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	34
ITEM 3 –	DEFAULTS UPON SENIOR SECURITIES	34
ITEM 4 –	REMOVED AND RESERVED	34
ITEM 5 –	OTHER INFORMATION	34
ITEM 6 –	EXHIBITS	35
SIGNATURES		37

 

 

Exhibits
Exhibit 31.1	Certification Pursuant to Section 302 of the Sarbanes Oxley Act	38
Exhibit 31.2	Certification Pursuant to Section 302 of the Sarbanes Oxley Act	39
Exhibit 32.1	Certification Pursuant to Section 906 of the Sarbanes Oxley Act	40
Exhibit 101	Instance Document
Exhibit 101	Schema Document
Exhibit 101	Calculation Linkbase Document
Exhibit 101	Labels Linkbase Document
Exhibit 101	Presentation Linkbase Document
Exhibit 101	Definition Linkbase Document

 

 

 

 

 

 

IEH CORPORATION

 

PART I: FINANCIAL INFORMATION

 

 

Item 1. Financial Statements

 

IEH CORPORATION

 

BALANCE SHEETS

 

As of December 27, 2013 and March 29, 2013

 

 

		Dec. 27,				March 29,
		2013				2013
		(Unaudited)
ASSETS
CURRENT ASSETS:
Cash		$	1,230,563			$	415,857
Accounts receivable, less allowances for doubtful accounts of  $11,562 at December 27, 2013 and March 29, 2013			1,861,600				1,817,768
Inventories (Note 3)			4,743,377				4,463,180
Excess payments to accounts receivable factor (Note 6)			417,650				36,916
Prepaid expenses and other current assets (Note 4)			782,733				955,226
Total Current Assets			9,035,923				7,688,947
PROPERTY, PLANT AND EQUIPMENT, less accumulated depreciation and amortization of $7,852,207 at December 27, 2013 and $7,665,207 at March 29, 2013 (Note 5)			1,575,018				1,497,690
			1,575,018				1,497,690
OTHER ASSETS:
Other assets			43,247				34,220
			43,247				34,220
Total Assets		$	10,654,188			$	9,220,857

 

The accompanying notes should be read in conjunction with the financial statements.

 

IEH CORPORATION

 

BALANCE SHEETS (Continued)

 

As of December 27, 2013 and March 29, 2013

 

 

		Dec. 27,				March 29,
		2013				2013
		(Unaudited)
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable		$	364,921			$	85,548
Accrued corporate income taxes			40,159				—
Workers compensation insurance assessments- current portion (Note 8)			—				47,638
Other current liabilities (Note 7)			424,798				439,117
Total Current Liabilities			829,878				572,303
LONG-TERM LIABILITIES:
Workers compensation insurance assessments- net of current portion (Note 8)			—				21,358
Total Long-Term Liabilities			—				21,358
Total Liabilities			829,878				593,661
STOCKHOLDERS’ EQUITY:
Common stock, $.01 par value; 10,000,000 shares authorized; 2,303,468 shares issued and outstanding at December 27, 2013 and March 29, 2013			23,035				23,035
Capital in excess of par value			2,744,573				2,744,573
Retained earnings (Note 9)			7,056,702				5,859,588
Total Stockholders’ Equity			9,824,310				8,627,196
Total Liabilities and Stockholders’ Equity		$	10,654,188			$	9,220,857

 

The accompanying notes should be read in conjunction with the financial statements.

 

IEH CORPORATION

 

STATEMENT OF OPERATIONS

(Unaudited)

 

For the Nine and Three Months Ended December 27, 2013 and December 28, 2012

 

 

		Nine Months Ended								Three Months Ended
		Dec. 27,				Dec. 28,				Dec. 27,				Dec. 28,
		2013				2012				2013				2012
REVENUE, net sales		$	11,770,051			$	9,967,202			$	3,664,070			$	3,259,646
COSTS AND EXPENSES
Cost of products sold			7,467,662				6,683,959				2,521,753				2,179,415
Selling, general and administrative			1,994,722				1,696,947				718,086				575,289
Interest expense			17,201				19,461				4,500				5,904
Depreciation			187,000				184,500				62,100				59,100
			9,666,585				8,584,867				3,306,439				2,819,708
OPERATING INCOME			2,103,466				1,382,335				357,631				439,938
OTHER INCOME			54,546				393				149				154
INCOME BEFORE INCOME TAXES			2,158,012				1,382,728				357,780				440,092
PROVISION FOR INCOME TAXES			960,898				610,122				167,226				185,000
NET INCOME		$	1,197,114			$	772,606			$	190,554			$	255,092
BASIC AND DILUTED EARNINGS PER SHARE (Note 2)		$	.52			$	.34			$	.08			$	.11
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.

IEH CORPORATION

 

STATEMENT OF CASH FLOWS

(Unaudited)

 

For the Nine Months Ended December 27, 2013 and December 28, 2012

 

 

		Nine Months Ended
		Dec. 27,				Dec. 28,
		2013				2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	1,197,114			$	772,606
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation			187,000				184,500
Changes in assets and liabilities:
(Increase) decrease in accounts receivable			(43,832	)			287,863
(Increase) in inventories			(280,197	)			(169,640	)
(Increase) decrease in prepaid expenses and other current assets			172,494				(305,524	)
(Increase) in other assets			(9,027	)			(12	)
Increase (decrease) in accounts payable			279,371				(188,255	)
(Decrease) in other current liabilities			(14,319	)			(15,905	)
Increase in accrued corporate income taxes			40,159				—
(Decrease) in workers compensation assessment			(68,995	)			(33,347	)
Total adjustments			262,654				(240,320	)
NET CASH PROVIDED BY OPERATING ACTIVITIES			1,459,768				532,286
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of fixed assets			(264,328	)			(223,124	)
NET CASH (USED) BY INVESTING ACTIVITIES		$	(264,328	)		$	(223,124	)

 

The accompanying notes should be read in conjunction with the financial statements.

 

IEH CORPORATION

 

STATEMENT OF CASH FLOWS (Continued)

(Unaudited)

 

For the Nine Months Ended December 27, 2013 and December 28, 2012

 

 

		Nine Months Ended
		Dec. 27,				Dec. 28,
		2013				2012
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in accounts receivable financed		$	—			$	99,105
Increase (decrease) in excess payments to accounts receivable factor			(380,734	)			—
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES			(380,734	)			99,105
INCREASE IN CASH			814,706				408,267
CASH, beginning of period			415,857				286,109
CASH, end of period		$	1,230,563			$	694,376
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the nine months for:
Interest		$	17,201			$	17,177
Income Taxes		$	810,000			$	960,000

 

The accompanying notes should be read in conjunction with the financial statements.

 

IEH CORPORATION

NOTES TO FINANCIAL STATEMENTS
(Unaudited)

 

 

Note 1-

INTERIM RESULTS AND BASIS OF PRESENTATION:

 

The accompanying unaudited financial statements as of December 27, 2013 and December 28, 2012 and for the nine and three months then ended have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Regulation S-X. 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 27, 2013 and December 28, 2012 and the results of operations and cash flows for the nine and 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 nine and three months ended December 27, 2013, are not necessarily indicative of the results to be expected for any subsequent quarter or the entire fiscal year. The balance sheet at March 29, 2013 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 GAAP 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 29, 2013 included in the Company’s Annual Report on Form 10-K/A as filed with the SEC and the attached Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

 

Note 2-

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

 

Description of Business:

 

The Company designs, develops and manufactures printed circuit connectors for high performance applications. We have also developed a high performance plastic circular connector line. All of our products utilize the HYPERTAC™ contact design, which is identified by the generic “HYPERBOLOID” in our catalogs. This is necessary since all other HYPERTAC™ companies have been purchased by a multi-national company. We are the only independent producer of HYPERTAC™ in the United States.

 

Our customers consist of OEM’s (Original Equipment Manufacturers), companies manufacturing medical equipment, and Distributors who resell our products to OEMs. We sell our products directly and through 16 independent sales representatives located in all regions of the United States, Canada, Israel, India, various Pacific Rim countries, South Korea and the European Union (EU).

 

Note 2-

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

 

Description of Business: (continued)

 

The customers we service are in the Government, Military, Aerospace, Medical, Automotive, Industrial, Test Equipment and Commercial Electronics markets. We appear on the Military Qualified Product Listing “QPL” to MIL-DTL-55302 and supply customer requested modifications to this specification. Sales to the commercial electronic and military markets were 31% and 63%, respectively, of the Company’s net sales for the year ended March 29, 2013. Our offering of “QPL” items has recently been expanded to include additional products.

 

In order to remain competitive, the Company has an internal program to upgrade, add and maintain machinery, review material costs and increase labor force productivity. We recently purchased several machines to increase the productivity of certain processes. This will help us meet this goal.

 

Business New Product Development:

 

The Company is sought after by many of its customers to design and manufacture custom connectors. This has created many new products that are innovative designs and employ new technologies. The Company continues to be successful because of its ability to assist its customers and create a new design, including engineering drawing packages, in a relatively short period of time. We will continue to support our customers to the best of our ability.

 

The circular product line of connectors introduced several years ago for the medical industry continues to be very rewarding for the Company. The line has been expanded to include connector cable assemblies utilizing the circular connectors.

 

A new product line featuring high density connectors is being added to the Company’s product offering. This offering should be available within the next few months. The Company expects the new product line to bring additional revenue.

 

The standard printed circuit board connectors we produce are continually being expanded and utilized in many of the military programs being built today. We have recently received approval for additional products that we can offer under the Military Qualified Product Listing “QPL”.

 

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 29, 2013 was comprised of 52 weeks.

 

Note 2-

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

 

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.

 

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 invoice its customers 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.

 

Note 2-

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued)

 

Concentration of Credit Risk:

 

Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents and accounts receivable.

 

Under the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act that was signed into law on July 21, 2010, the Federal Deposit Insurance Corporation (FDIC) will permanently insure all accounts at each financial institution up to $250,000 in the aggregate.

 

As of December 27, 2013, the Company had funds on deposit in the amount of $1,230,563 in one financial institution comprised of the following:

 

Non-interest bearing accounts		$	889,653
Interest bearing account			340,910
		$	1,230,563

 

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 are 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.

 

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 the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 740, Income Taxes, which includes the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes.”

 

Note 2-

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued)

  

Net Income Per Share:

 

The Company has adopted the provisions of ASC Topic 260, Earnings per Share, which includes 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 27, 2013 and December 28, 2012, respectively, 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 (six months) of these instruments.

  

Use of Estimates:

 

The preparation of financial statements in conformity with U.S. GAAP 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:

 

The Company has adopted the provisions of ASC Topic, 360, Property, Plant and Equipment-Impairment or Disposal of Long-Lived Assets which includes the provisions of SFAS No. 144, “Accounting for The Impairment or Disposal of Long-Lived Assets,” and 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 nine months ended December 27, 2013 and December 28, 2012, respectively.

 

Note 2-

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued)

 

Reporting Comprehensive Income:

 

The Company has adopted the provisions of ASC Topic, 220, Comprehensive Income which includes 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 nine months ended December 27, 2013 and December 28, 2012, respectively.

 

Segment Information:

 

The Company has adopted the provisions of ASC Topic, 280, Segment Reporting which includes 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 ASC Topic 280 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 nor receive any revenues related to customer sponsored research and development activities relating to the development of new designs, techniques and the improvement of existing design during the nine months ended December 27, 2013 and December 28, 2012, respectively.

 

Note 2-

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued)

 

Effect of New Accounting Pronouncements:

 

In February 2013, the FASB issued ASU 2013-02, "Comprehensive Income (Topic 220), Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income". The amendments do not change the current requirements for reporting net income or other comprehensive income in financial statements. However, the amendments require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S.GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. The pronouncement is effective for fiscal years and interim periods ending after December 15, 2012. The adoption of this pronouncement is not expected to have a material effect on our Company's financial position or results of operations.

 

In October 2012, the FASB issued ASU 2012-04 "Technical corrections and improvements". This ASU makes certain technical correction to the FASB Accounting Standards Codification. The new guidance will be effective for fiscal years beginning after December 15, 2012. The adoption of the new amendments is not expected to have a significant impact on our financial statements.

 

In July, 2012, the FASB issued ASU 2012-02, "Intangibles - Goodwill and Other (Topic). ASU 2012-02 amends the required annual impairment testing of indefinite-lived intangible assets by providing an entity an option to first assess qualitative factors to determine whether it is more likely than not that the fair value of the indefinite-lived asset is less than its carrying amount. If, after assessing the totality of events and circumstances, an entity determines it is not more likely than not that the fair value of the indefinite-lived asset is less than its carrying amount, then performing the two-step impairment test under Topic 350-30 is unnecessary. However, if an entity concludes otherwise, then it is required to perform the impairment testing under Topic 350-30-35-18F by calculating the fair value of the reporting unit and comparing the results with the carrying amount. If the fair value exceeds the carrying amount, then the entity must perform the second step test of measuring the amount of the impairment test under Topic 350-30-35-19. An entity has the option to bypass the qualitative assessment and proceed directly to the two step goodwill impairment test. Additionally, the entity has the option to resume with the qualitative testing in any subsequent period.

 

The pronouncement is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012 and early adoption is permitted. Our Company's adoption of the new standard is not expected to have a material effect on our Company's financial position or results of operations.

  

Note 2-

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued)

 

Effect of New Accounting Pronouncements: (continued)

 

In December 2011, the FASB issued ASU 2011-11 "Disclosures about offsetting assets and liabilities". Under the new guidance entities must disclose both gross information and net information on instruments and transactions eligible for offset on the balance sheet in accordance with the offsetting guidance in ASC 210-20-45 or ASC 815-10-45, and instruments and transactions subject to an agreement similar to a master netting arrangement. The new guidance will be effective for the Company beginning April 1, 2013. The adoption of the new amendments is not expected to have a significant impact on our Company’s financial statements.

 

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our Company's financial statements upon adoption.

 

 

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. 27,				March 29,
		2013				2013
Raw materials		$	2,812,351			$	2,646,222
Work in progress			722,411				679,737
Finished goods			1,208,615				1,137,221
		$	4,743,377			$	4,463,180

 

Note 4-

PREPAID EXPENSES AND OTHER CURRENT ASSETS:

 

Prepaid expenses and other current assets are comprised of the following:

 

		Dec. 27,				March 29,
		2013				2013
Prepaid insurance		$	—			$	63,897
Prepaid corporate taxes			695,146				805,885
Other current assets			87,587				85,444
		$	782,733			$	955,226

 

 

Note 5-

PROPERTY, PLANT AND EQUIPMENT:

 

Property, plant and equipment are comprised of the following:

 

		Dec. 27,				March 29,
		2013				2013
Computers		$	312,186			$	308,080
Leasehold improvements			792,657				784,882
Machinery and equipment			5,328,324				5,296,237
Tools and dies			2,815,030				2,596,379
Furniture and fixture			169,978				168,269
Website development cost			9,050				9,050
			9,427,225				9,162,897
Less: accumulated depreciation and amortization			(7,852,207	)			(7,665,207	)
		$	1,575,018			$	1,497,690

 

 

Note 6-

ACCOUNTS RECEIVABLE FINANCING:

 

The Company has an accounts receivable financing agreement with a non-bank lending institution (“Factor”) whereby it can borrow up to 80 percent of its eligible receivables (as defined in such financing agreement) at an interest rate of 2.5% above JP Morgan Chase’s publicly announced rate with a minimum rate of 12% per annum. The financing agreement has an initial term of one year and will automatically renew for successive one-year terms, unless terminated by the Company or the Factor upon receiving 60 days prior notice. Funds advanced by the Factor are secured by the Company’s accounts receivable and inventories.

 

At December 27, 2013, the Company had reported excess payments to the Factor resulting in overpayments of $417,650, which the Company will apply against future borrowings. These excess payments are reported in the accompanying financial statements as of December 27, 2013 as “Excess payments to accounts receivable factor.” As of March 29, 2013, the Company had reported excess payments to the Factor of $36,916.

 

Note 7-

OTHER CURRENT LIABILITIES:

 

Other current liabilities are comprised of the following:

 

		Dec. 27,				March 29,
		2013				2013
Payroll and vacation accruals		$	315,415			$	387,341
Sales commissions			54,209				40,214
Insurance			5,402				7,362
Other			49,772				4,200
		$	424,798			$	439,117

 

 

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 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 elected the deferral option, and was obligated to making monthly payments of $1,689 for 59 months, and $1,711 for the 60^th and final month. The Company had recorded this assessment as a charge to Cost of Sales in the quarter ended December 26, 2008.

 

The Company was subsequently notified that it was being assessed an additional $146,073 covering the years 2002 through 2007, bringing the total deficit allocation assessment to $247,435.

 

Note 8-

WORKERS COMPENSATION INSURANCE ASSESSMENT: (continued)

 

The total revised assessment for the years 2002 to 2007 was as follows:

 

2002		$	23,445
2003			43,797
2004			51,381
2005			38,309
2006			46,477
2007			44,026
		$	247,435

 

As of March 29, 2013, the Company had paid down $178,440 of this assessment leaving a remaining balance due of $68,996.

 

Effective as of May 31, 2013, the Company and the WC Board executed a settlement agreement pursuant to which the Company entered into a final settlement of the outstanding liability to the Trust and paid a lump-sum settlement amount of $7,771. The Company has no further liability to the Trust. In connection with this final settlement, the WC Board executed and issued a general release to the Company. The settlement resulted in the Company recognizing forgiveness of debt income of $54,078.

 

 

Note 9-

CHANGES IN STOCKHOLDERS’ EQUITY:

 

The accumulated retained earnings increased by $1,197,114, which represents the net income for the nine months ended December 27, 2013. Accordingly, the Company reported accumulated retained earnings of $7,056,702 as of December 27, 2013.

 

 

Note 10-

2011 EQUITY INCENTIVE PLAN:

 

On August 31, 2011, the Company’s shareholders approved the adoption of the Company’s 2011 Equity Incentive Plan (“2011 Plan”) to provide for the grant of stock options and restricted stock awards to purchase up to 750,000 shares of the Company’s common stock to all employees, consultants and other eligible participants including senior management and members of the Board of Directors of the Company. The 2011 Plan replaced the prior 2002 Employee Stock Option Plan which had expired in accordance with its terms.

 

Options granted to employees under the 2011 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 qualify (non-qualified stock options).

 

Note 10-

2011 EQUITY INCENTIVE PLAN: (continued)

 

Under the 2011 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%) or greater 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. The 2011 Plan also provides that holders of options that wish to pay for the exercise price of their options with shares of the Company’s common stock must have beneficially owned such stock for at least six months prior to the exercise date.

 

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), that are designated as incentive stock options, and which become exercisable in any calendar year, shall not exceed $100,000. As of December 27, 2013, no options or restricted stock awards had been granted under the 2011 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 $142,200 for the nine months ended December 27, 2013. For the year ended March 29, 2013, the Company’s contribution was $159,000.

 

 

Note 12-

COMMITMENTS AND CONTINGENCIES:

 

The Company leases space for its corporate offices (including its manufacturing facility) at 140 58^th Street, Suite 8E, Brooklyn, New York. The lease term runs from December 1, 2010 through November 30, 2020. The basic minimum annual rentals are as follows:

 

Fiscal year ending March:
2014		$	158,480
2015			163,240
2016			168,120
2017			173,180
2018			178,360
Thereafter			501,560
		$	1,342,940

 

Note 12-

COMMITMENTS AND CONTINGENCIES: (continued)

 

The rental expense for the nine months ended December 27, 2013 and December 28, 2012 was $118,070 and $114,635, 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 $80,726 and $90,098 for the nine months ended December 27, 2013 and December 28, 2012, respectively.

IEH CORPORATION

 

PART I: FINANCIAL INFORMATION

 

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 “Exchange Act”) and Section 27A of the Securities Act of 1933 (the “Securities 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 may affect our business. The following discussion and analysis should be read in conjunction with the financial statements and related footnotes included elsewhere in this quarterly report 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.

 

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.

 

 

Critical Accounting Policies (continued)

 

Inventory Valuation: 

Inventories are stated at cost on first-in, first-out basis, which does not exceed market value. 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.

 

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.

 

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.

Critical Accounting Policies (continued)

 

Research & Development: 

The Company provides personalized engineering services to its customers by designing connectors for specific customer applications. The employment of electromechanical engineers is the anticipated cornerstone of the Company’s future growth. The Company maintains a testing laboratory where its engineers experiment with new connector designs based on changes in technology and in an attempt to create innovative, more efficient connector designs.

 

The Company did not expend any funds on customer sponsored research and development activities for the quarter ended December 27, 2013 and December 28, 2012, respectively, relating to the development of new designs, techniques and the improvement of existing designs.

 

 

Comparative Analysis-Nine Months Ended December 27, 2013 and December 28, 2012

 

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
		Dec. 27,				Dec. 28,
		2013				2012
Operating Revenues (in thousands)		$	11,770			$	9,967
Operating Expenses:
(as a percentage of Operating Revenues)
Costs of Products Sold			63.45	%			67.06	%
Selling, General and Administrative			16.95	%			17.02	%
Interest Expense			.14	%			.20	%
Depreciation and amortization			1.59	%			1.85	%
TOTAL COSTS AND EXPENSES			82.13	%			86.13	%
Operating Income			17.87	%			13.87	%
Other Income			.46	%			—
Income (loss) before Income Taxes			18.33	%			13.87	%
Income Taxes			(8.16	%)			(6.12	%)
Net Income			10.17	%			7.75	%

 

Operating revenues for the nine months ended December 27, 2013 amounted to $11,770,051 reflecting a 18.09% increase versus the nine months ended December 28, 2012 revenues of $9,967,202. The increase in revenues can be attributed to an increase in military and commercial spending.

 

Comparative Analysis - Nine Months Ended December 27, 2013 and December 28, 2012 (continued)

 

Cost of products sold amounted to $7,467,662 for the nine months ended December 27, 2013, or 63.45% of operating revenues. This reflected a $783,703 or 11.73% increase in the cost of products sold from $6,683,959 or 67.06% of operating revenues for the nine months ended December 28, 2012. The increase in cost of products sold is related to the increase in military and commercial spending.

 

Selling, general and administrative expenses were $1,994,722 or 16.95% of operating revenues for the nine months ended December 27, 2013 compared to $1,696,947 or 17.02% of operating revenues for the nine months ended December 28, 2012. This category of expense increased by $297,775 or 17.55% from the prior nine month period. The increase can be attributed to an increase in travel expenses.

 

Interest expense was $17,201 for the nine months ended December 27, 2013 or .14% of operating revenues. For the fiscal nine months ended December 28, 2012, interest expense was $19,461 or .20% of operating revenues. The decrease of $2,260 or 11.61% reflects a decrease in the Company’s borrowings during the quarter ended December 27, 2013.

 

Depreciation and amortization of $187,000 or 1.59% of operating revenues was reported for the nine months ended December 27, 2013 as compared to the nine month period ended December 28, 2012 of $184,500 or 1.85% of operating revenues.

 

The Company reported net income of $1,197,114 for the nine months ended December 27, 2013 representing basic earnings of $.52 per share as compared to net income of $772,606 or $.34 per share for the nine months ended December 28, 2012. The increase in net income for the current nine month period can be attributed primarily to an increase in military and commercial spending.

 

Comparative Analysis - Three Months Ended December 27, 2013 and December 28, 2012

 

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:

 

Comparative Analysis -Three Months Ended December 27, 2013 and December 28, 2012

 

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
		Dec. 27,				Dec. 28,
		2013				2012
Operating Revenues (in thousands)		$	3,664			$	3,260
Operating Expenses:
(as a percentage of Operating Revenues)
Costs of Products Sold			68.83	%			66.86	%
Selling, General and Administrative			19.60	%			17.64	%
Interest Expense			.14	%			.18	%
Depreciation and amortization			1.69	%			1.81	%
TOTAL COSTS AND EXPENSES			90.26	%			86.49	%
Operating Income			9.74	%			13.51	%
Other Income			—				—
Income (loss) before Income Taxes			9.74	%			13.51	%
Income Taxes			(4.56	%)			(5.68	%)
Net Income			5.18	%			7.83	%

 

Operating revenues for the three months ended December 27, 2013 amounted to $3,664,070 reflecting a 12.41% increase versus the three months ended December 28, 2012 revenues of $3,259,646. The increase in revenues can be attributed to an increase in military and commercial spending.

 

Cost of products sold amounted to $2,521,753 for the three months ended December 27, 2013, or 68.83% of operating revenues. This reflected a $342,338 or 15.71% increase in the cost of products sold from $2,179,415 or 66.86% of operating revenues for the three months ended December 28, 2012. Cost of products sold increased to support the work necessary to fulfill the increase in military and commercial spending.

Comparative Analysis - Three Months Ended December 27, 2013 and December 28, 2012 (continued)

 

Selling, general and administrative expenses were $718,086 or 19.60% of operating revenues for the three months ended December 27, 2013 compared to $575,289 or 17.64% of operating revenues for the three months ended December 28, 2012. This category of expense increased by $142,797 or 24.82% from the prior three month period. The increase is primarily due to an increase in travel expenses.

 

Interest expense was $4,500 for the three months ended December 27, 2013 or .14% of operating revenues. For the fiscal three months ended December 28, 2012, interest expense was $5,904 or .18% of operating revenues. The decrease of $1,404 or 23.78% reflects a decrease in the Company’s borrowings during the quarter ended December 27, 2013.

 

Depreciation and amortization of $62,100 or 1.69% of operating revenues was reported for the three months ended December 27, 2013 as compared to the three month period ended December 28, 2012 of $59,100 or 1.81% of operating revenues. The increase was due to an increase in capital expenditures during the quarter ended December 27, 2013.

 

The Company reported net income of $190,554 for the three months ended December 27, 2013 representing basic earnings of $.08 per share as compared to net income of $255,092 or $.11 per share for the three months ended December 28, 2012. The decrease in net income for the current three month period can be attributed primarily to an increase in operational costs and expenses.

 

Liquidity and Capital Resources

 

The Company reported working capital of $8,206,045 as of December 27, 2013 compared to a working capital of $7,116,644 as of March 29, 2013. The increase in working capital of $1,089,401 was attributable to the following items:

 

Net income		$	1,197,114
Depreciation and amortization			187,000
Capital expenditures			(264,328	)
Other transactions			(30,375	)
		$	1,089,411

 

As a result of the above, the current ratio (current assets to current liabilities) was 10.89 to 1 at December 27, 2013 as compared to 13.43 to 1 at March 29, 2013. Current liabilities at December 27, 2013 were $829,878 compared to $572,303 at March 29, 2013.

 

For the nine months ended December 27, 2013, the Company reported $264,328 in capital expenditures and depreciation of $187,000.

 

The net income of $1,197,114 for the nine months ended December 27, 2013 resulted in an increase in stockholders’ equity to $9,824,310 as compared to stockholders’ equity of $8,627,196 at March 29, 2013.

 

Liquidity and Capital Resources (continued)

 

The Company has an accounts receivable financing agreement with non-bank lending institution (“Factor”) whereby it can borrow up to 80 percent of its eligible receivables (as defined in such financing agreement) at an interest rate of 2.5% above JP Morgan Chase’s publicly announced prime rate with a minimum rate of 12% per annum. Funds advanced by the Factor are secured by the Company’s accounts receivable and inventories. At December 27, 2013, the Company reported excess payments to the Factor of $417,650. These excess payments are reported in the accompanying financial statements as “Excess payments to accounts receivable factor.” The Company reported excess payments to the Factor of $36,916 at March 29, 2013.

 

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 1% 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 $80,726 and $90,098 for the nine months ended December 27, 2013 and December 28, 2012, respectively.

 

On December 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

 

Liquidity and Capital Resources (continued)

 

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 elected the deferral option, and was obligated to making monthly payments of $1,689 for 59 months, and $1,711 for the 60^th and final month. The Company had recorded this assessment as a charge to Cost of Sales in the quarter ended December 26, 2008.

 

The Company was subsequently notified that it was being assessed an additional $146,073 covering the years 2002 through 2007, bringing the total deficit allocation assessment to $247,435. 

 

The total revised assessment for the years 2002 to 2007 is as follows:

 

2002		$	23,445
2003			43,797
2004			51,381
2005			38,309
2006			46,477
2007			44,026
		$	247,435

 

The Company elected to pay the revised assessment over a five year period (60 months). The monthly payments, inclusive of interest at 7.50%, are $3,970.

 

As of March 29, 2013, the Company had paid down $178,440 of this assessment leaving a remaining balance due of $68,996.

 

Effective as of May 31, 2013, the Company and the WC Board executed a settlement agreement pursuant to which the Company entered into a final settlement of the outstanding liability to the Trust and paid a lump-sum settlement amount of $7,771. The Company has no further liability to the Trust. In connection with this final settlement, the WC Board executed and issued a general release to the Company. The settlement resulted in the Company recognizing forgiveness of debt income of $54,078.

 

On August 31, 2011 the Company’s shareholders approved the adoption of the Company’s 2011 Equity Incentive Plan (“2011 Plan”) to provide for the grant of stock options and restricted stock awards to purchase up to 750,000 shares of the Company’s common stock to all employees, consultants and other eligible participants including senior management and members of the Board of Directors of the Company. The 2011 Plan replaced the prior 2002 Employee Stock Option Plan which had expired on its terms.

 

Options granted to employees under the 2011 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 qualify (non-qualified stock options).

  

Liquidity and Capital Resources (continued)

 

Under the 2011 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%) or greater 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. The 2011 Plan also provides that holders of options that wish to pay for the exercise price of their options with shares of the Company’s common stock must have beneficially owned such stock for at least six months prior to the exercise date.

 

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 27, 2013, no options or restricted stock awards had been granted under the 2011 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 $142,200 for the nine months ended December 27, 2013. For the year ended March 29, 2013, the Company’s contribution was $159,000.

 

 

IEH CORPORATION

 

PART I: FINANCIAL INFORMATION

 

 

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 December 27, 2013, our unrestricted cash was $1,230,563 of which $340,910 was in an interest bearing money market account with and the balance of $889,653 was maintained in non-interest bearing checking accounts used to pay operating expenses.

 

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 Exchange Act), the Company’s Chief Executive Officer (who is also our President) and its Chief Financial Officer (who is also our controller and principal accounting officer) have concluded that, as of the end of the period covered by this Report on Form 10-Q, the Company’s disclosure controls and procedures were effective at the reasonable assurance level to ensure that information required to be disclosed by the Company in this Report that it files or submit under the Exchange Act is, recorded, processed, summarized 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 Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required disclosure.

 

Our management, including our Chief Executive Officer and our Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all instances of fraud. A control system, no matter how well designed 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 all 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. In connection with their review and assessment of our disclosure controls and procedures, the Company has retained the services of an outside consultant to further assist management in its annual evaluation of such internal control over financial reporting and procedures. There have been no changes in our internal control over financial reporting (as defined in Rule 13a – 15(f) under the Exchange Act) during the quarter ended December 27, 2013 that have been materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

 

IEH CORPORATION

 

PART II: OTHER INFORMATION

 

Item 1. Legal Proceedings

 

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.

 

Item 1a. Risk Factors

 

You should carefully consider the risks described below, together with all of following risk factors and the other information included in this report, in considering our business herein as well as the information included in other reports and prospects. The risks and uncertainties described below are not the only ones facing our Company. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations, financial condition and/or operating results. If any of the matters or events described in the following risks actually occurs, our business, financial condition or results of operations could be harmed. In such case, the trading price of our common stock could decline, and you may lose all or part of your investment due to any of these risks.

 

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 $929,930, $1,102,424 and $1,669,517, respectively, for the fiscal years ended March 29, 2013, March 30, 2012 and March 25, 2011, and $1,197,114 for the nine months ended December 27, 2013. 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 non-lending institution (“Factor”) whereby we can borrow up to 80 percent of our eligible receivables at an interest rate of 2.5% above JP Morgan Chase’s publicly announced prime 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.

IEH CORPORATION

 

PART II: OTHER INFORMATION

 

Item 1a. Risk Factors (continued)

 

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.

 

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; we have a very limited trading market.

 

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 29, 2013 traded as low as $2.02 per share and as high as $4.09 per share. During the nine month period ended December 27, 2013, our common stock traded in the range of $2.76 per share to $5.75 per share. We cannot assure you that your initial investment in our common stock will not decline.

 

  

 

IEH CORPORATION

 

PART II: OTHER INFORMATION

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

Not applicable

 

Item 3. Defaults Upon Senior Securities

 

None

 

Item 4. Removed and Reserved

 

None

 

Item 5. Other Information

 

The Company held its Annual Meeting of Shareholders on November 19, 2013 at the Company’s offices in Brooklyn, New York. The results of the matters voted on by the shareholders are set forth below. Only shareholders of record as of the close of business on October 16, 2013 were entitled to vote at the Annual Meeting. As of the record date, 2,303,468 shares of common stock of the Company were outstanding and entitled to vote at the Annual Meeting. At the Annual Meeting, 2,002,959 shares of common stock of the Company were represented, in person or by proxy, constituting a quorum.

 

1.

The shareholders voted to elect the following directors by the votes indicated:

 

Nominee	For	Withheld
Allen Gottlieb	1,301,962	121,912
Gerald Chafetz	1,336,287	87,587

 

In addition, there were a total of 579,085 broker non-votes relating to this proposal.

 

2.

The shareholders voted to ratify the appointment of Jerome Rosenberg, CPA as the Company’s independent registered public accounting firm for the year ending March 30, 2015, by the following votes:

 

For	Against	Abstain	Broker Non-Votes
1,959,253	10,534	33,172	--

 

 

IEH CORPORATION

 

PART II: OTHER INFORMATION

 

 

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 101.INS

XBRL Instance Document*

 

Exhibit 101.SCH

XBRL Taxonomy Extension Schema*

 

Exhibit 101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document*

 

Exhibit 101.LAB

XBRL Taxonomy Extension Label Linkbase Document*

 

Exhibit 101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document*

 

Exhibit 101.DEF

XBRL Taxonomy Extension Definition Label Document*

 

 

 

IEH CORPORATION

 

PART II: OTHER INFORMATION

 

Item 6. Exhibits (continued)

 

*Submitted electronically herewith.

 

Attached as Exhibit 101 to this Quarterly Report on Form 10-Q are the following formatted in XBRL (Extensible Business Reporting Language): (i) Statement of Operations for the nine months ended December 27, 2013 and December 28, 2012; (ii) Balance Sheets as of December 27, 2013 and March 29, 2013; (iii) Statement of Cash Flows for the nine months ended December 27, 2013 and December 28, 2012; and (iv) Notes to Financial Statements for the nine months ended December 28, 2012.

 

In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to the Quarterly Report on Form 10-Q shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section and shall not be part of any registration statement or other document filed under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

 

(b) Reports on Form 8-K during Quarter.

 

None.

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, 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)
February 12, 2014	/s/ Michael Offerman
	Michael Offerman
	President (Principal Executive Officer)
February 12, 2014	/s/ Robert Knoth
	Robert Knoth
	Chief Financial Officer (Principal Accounting Officer)