SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________________

FORM 10-Q

For the quarterly period ended September 29, 201728, 2018

For the transition period from ________________ to _______________

Commission File No. 0-5278

IEH CORPORATION

(Exact name of registrant as specified in its charter)

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.

Yesþ                   Noo

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).

Yesþ                   Noo

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):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES  o NOþ

2,303,4682,323,468 shares of Common Shares, par value $.01 per share, were outstanding as of September 29, 2017.November 16, 2018.

IEH CORPORATION

TABLE OF CONTENTS

Exhibits

IEH CORPORATION

PART I: FINANCIAL INFORMATION

Item 1. Financial Statements

IEH CORPORATION

BALANCE SHEETS

As of September 29, 201728, 2018 and March 31, 201730, 2018

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

IEH CORPORATION

BALANCE SHEETS(Continued)

As of September 29, 201728, 2018 and March 31, 201730, 2018

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

IEH CORPORATION

STATEMENTS OF OPERATIONS

(Unaudited)

For the Six and Three Months Ended September 29, 201728, 2018 and September 23, 201629, 2017

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

IEH CORPORATION

STATEMENTS OF CASH FLOWS

(Unaudited)

For the Six Months Ended September 29, 201728, 2018 and September 23, 201629, 2017

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

IEH CORPORATION

STATEMENTS OF CASH FLOWS(continued)

(Unaudited)

For the Six Months Ended September 29, 201728, 2018 and September 23, 201629, 2017

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

IEH CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

The accompanying unaudited financial statements as of September 29, 201728, 2018 and September 23, 201629, 2017 and for the six 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. 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 September 29, 201728, 2018 and September 23, 201629, 2017 and the results of operations and cash flows for the six 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 six months ended September 29, 2017,28, 2018, are not necessarily indicative of the results to be expected for any subsequent quarter or the entire fiscal year. The balance sheet at March 31, 201730, 2018 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 31, 201730, 2018 included in the Company’s AnnualQuarterly Report on Form 10-K10-Q as filed with the SEC and the attached Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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 HYPERBOLOID contact design, a rugged high-reliability contact system ideally suited for high-stress environments. We are the only independent producer of HYPERBOLOID 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 regional representatives located in all regions of the United States, Canada, Israel, India, various Pacific Rim countries, South Korea and the European Union (EU).

The customers of the Company services are in the following markets: Government, Military, Aerospace, Medical, Automotive, Industrial, Test Equipment and Commercial Aerospace. The Company appears on the Military Qualified Product Listing “QPL” to MIL-DTL-55302 and supply customer requested modifications to this specification. Sales to the Commercial Aerospace and Military markets were 35% and 45%, respectively, of the Company’s net sales for the year ended March 30, 2018. The balance of the Company’s sales is principally in the following markets: Space (10%), Oil and Gas Exploration (5%), and Medical, Industrial and Testing Equipment (5%). The Company’s offering of “QPL” items has recently been expanded to include additional products.

IEH CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Description of Business:(continued)

The customers of the Company services are in the following markets: Government, Military, Aerospace, Medical, Automotive, Industrial, Test Equipment and Commercial Electronics. The Company appears 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 37% and 51%, respectively, of the Company’s net sales for the year ended March 31, 2017. The Company’s 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. During the fiscal year ended March 31, 2017,30, 2018, the Company purchased several machines to increase the productivity of certain processes. This will help the Company 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. The Company will continue to support its customers to the best of its 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 the Company can offer under the Military Qualified Product Listing “QPL.”

Accounting Period:

The Company maintains an accounting period based upon a 52-53-week52-53 week year, which ends on the nearest Friday in business days to March 31. The year ended March 31, 201730, 2018 was comprised of 5352 weeks. The current fiscal year, ending on March 30, 2018,29, 2019, will be comprised of 52 weeks.

IEH CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Revenue Recognition:

Sales are recognized when revenue is realized or realizable and has been earned. Revenue transactions represent sales of inventory. The Company has historically adopted the shipping terms that title to merchandise passes to the customer at the shipping point (FOB Shipping Point).

IEH CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Revenue Recognition:(continued)

Revenue is realized or realizable and earned when all of the following criteria are met:

The Company does not offer any discounts, credits or other sales incentives. Historically, the Company believes that it has no collection issues with its customer base.

Revenue is realized or realizable and earned when all of the following criteria are met:

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 cost of defective products is immaterial at this time.

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 an average cost on an averagea 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 threesix 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.

IEH CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

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 maintained with each financial institution up to $250,000 in the aggregate.

As of September 29, 201728, 2018 and March 31, 2017,30, 2018, the Company had funds on deposit in the amount of $1,076,739$4,300,136 and $1,660,904,$1,887,682, in one financial institution comprised of the following:

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:

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.”

IEH CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

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

IEH CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Net Income Per Share:(continued)

In 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 and options, as if they had been issued. For the six months ended September 29, 2017 and September 23, 2016, 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 (three(six months) of these instruments.

Use of Estimates:

The preparation of financial statements in conformity with 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 Assetswhich 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 six months ended September 28, 2018 and September 29, 2017, respectively, and September 23, 2016, respectively.currently all assets are being utilized.

Stock-Based Compensation Plan:

Compensation expense for stock options granted to directors, officers and key employees is based on the fair value of the award on the measurement date, which is the date of the grant. The expense is recognized ratably over the service period of the award. The fair value of stock options is estimated using a Black-Scholes valuation model. The fair value of any other non-vested stock awards is generally the market price of the Company’s common stock on the date of the grant.

IEH CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Recent Accounting Pronouncements:

In December 2016, the FASB issued ASU 2016-19; the amendments cover a wide range of topics in the Accounting Standards Codification, including differences between original guidance and the Accounting Standards Codification, guidance clarification and reference corrections, simplification and minor improvements. The adoption of ASU 2016-19 is effective for annual periods, including interim periods, within those annual periods, beginning after December 15, 2016. The Company is currently evaluating the effect of this standard on its financial statements.

In December 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. The amendments in this update are of a similar nature to the items typically addressed in the ASU 2016-19, Technical Corrections and Improvements. The FASB elected to issue a separate update for technical corrections and improvements to Topic 606 as well as other Topics amended by ASU 2014-09 to increase public awareness of the proposals and to expedite improvements to ASU-2014-9. The adoption of ASU 2016-20 is effective from the periods beginning after December 31, 2017, including interim reporting periods within that reporting period. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently evaluating the effect of this standard on its financial statements.

In addition, the Financial Accounting Standards Board (“FASB”) has issued certain accounting standards updates as of September 29, 201728, 2018 that will become effective in subsequent periods. The Company believes that none of those updates would have significantly affected the Company’s financial accounting measures or disclosures had they been in effect during the six months ended September 28, 2018 and September 29, 2017, and September 23, 2016,respectively, and it does not believe that any of those pronouncements will have a significant impact on the Company’s financial statements at the time that they become effective.

Inventories are stated at average cost, on an averagea 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 threesix years, it is deemed to be obsolete.

IEH CORPORATION

NOTES TO FINANCIAL STATEMENTS

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 were comprised of the following:

IEH CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

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

IEH CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Property, plant and equipment were comprised of the following:

The Company entered into an accounts receivable financing agreement with a commercial finance company, whereby it can borrow up to 80 percent of its eligible receivables (as defined in the financing agreement) at an interest rate of 2.5% above JP Morgan Chase’s publicly announced rate with a minimum rate of 6% 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 commercial finance company upon receiving 60 days’ prior notice. Funds advanced by the commercial finance company are secured by IEH’s accounts receivable and inventories.

AtAs of September 29, 2017,28, 2018 and March 30, 2018, the Company had reported excess payments to the commercial finance company of $604,334. As of March 31, 2017, the Company had reported excess payments to the commercial finance company of $191,430.$448,930 and $154,960, respectively. These excess payments are reported in the accompanying financial statements as of September 29, 201728, 2018 and March 31, 201730, 2018 as “Excess payments to commercial finance company.”

IEH CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Other current liabilities were comprised of the following:

On July 1, 2015, the Company granted 245,000 options to purchase shares of the Company’s common stock under the 2011 Equity Incentive Plan.

The Company did account for these grants as statutory stock options but did not report these grants as additional compensation expense during the fiscal year ended March 25, 2016. Upon subsequent review, it was determined that these grants should have been reported as compensation expense using a Black-Scholes Method of valuation for the fiscal year ended March 25, 2016.

The Company is reporting additional stock option compensation expense of $995,055 as an adjustment of the opening component balances of stockholders’ equity as of March 31, 2017.

The following table shows the effect of this correction:

IEH CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

The financial statements for the three and six months periods ended September 29, 2017 have been restated to include the recognition of quarterly stock compensation as follows:

The accumulated retained earnings increased by $892,666,$3,205,589, which represents the net income for the six months ended September 29, 2017.28, 2018.

On May 17, 2017,9, 2018, the Company’s boardEstate of directors voted to authorize a $0.25 one-time special cash dividend payable on June 19, 2017, to shareholdersMichael Offerman, the late Chief Executive Officer of record on the close of business at June 6, 2017. This dividend distribution of $575,867 was the first dividend ever paid by the Company, since it became an SEC reporting company.

Accordingly,exercised all of the options (75,000) that had been awarded to him under the 2011 Equity Incentive Plan. As a result of such exercise, the aggregate issued and outstanding shares of common stock of the Company reported accumulated retained earnings of $12,603,734 as of September 29, 2017.increased to 2,323,468 shares.

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).

IEH CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

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.

On July 1, 2015, our Board of Directors granted 245,000 options to purchase shares of the Company’s common stock under the 2011 Plan as follows: (i) Michael Offerman, our then Chief Executive Officer, was granted 75,000 options; (ii) Robert Knoth, our Chief Financial Officer, was granted 50,000 options; (iii) four non-executive officer key employees were granted 110,000 options; and (iv) each of our non-management directors, Allen Gottlieb and Gerald Chafetz, was granted 5,000 options. The stock options: (i) have a ten-year term; (ii) have an exercise price equal to the fair market value of the Company’s common stock as determined under the 2011 Plan, as reported in the OTCBB, on the date of grant ($6.00), except that thegrant; and (iii) were all immediately vested. The options granted to Michael Offerman hashad an exercise price equal to 110% of such fair market value because he ownsowned ten percent (10%) or greater of the Company’s outstanding common stock; and (iii) were all immediately vested.stock. In the event of the termination of each recipient’s employment by, or association with, the Company (as applicable), the options will remain exercisable in accordance with the terms of the 2011 Plan.

IEH CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

*Options for 1,000 shares vested on October 26, 2018, Options for 1,000 shares have not yet vested. 2,000 shares shall vest on October 26, 2019 and 2,000 shares shall vest on October 26, 2020.

The following table shows the option activity for the fiscal year ended March 30, 2018 and the current six months ended September 28, 2018.

Stock-based compensation expense, shown in the table below, is recorded in general and administrative expenses included in our statement of operations:

Unrecognized stock-based compensation expense:

Note: Stock option grants to IEH officers, directors and key employees in the fiscal years ended March 30, 2018 and March 31, 2017 were valued using a Black-Scholes model, under the following criteria:

IEH CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

The following table shows the activity for the fiscal years ended March 30, 2018 and March 31, 2017. 

IEH CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

The aggregate intrinsic value in the table above represents the total pretax intrinsic value (i.e., the difference between the Company’s closing stock price on the last trading day of the period and the exercise price, times the number of shares) that would have been received by the option holders had all option holders exercised their in-the-money options on those dates. This amount will change based on the fair market value of the Company’s common stock.

In 1987, the Company adopted a cash bonus plan (“Cash Bonus Plan”) for executive officers.non-union, management and administrative staff. 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. Accordingly,when the Company hasis profitable for the fiscal year. The Company accrued a contribution provision of $162,000 for the six months ended September 29, 2017.28, 2018. For the fiscal year ended March 31, 2017,30, 2018, the Company’s contribution was $324,000.

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:

The rental expense for the six months ended September 29, 201728, 2018 was $88,290$90,960 and $85,740$88,290 for the six months ended September 23, 2016.29, 2017.

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 been advised by the UAW that the Company has any liability under the Multi-Employer Plan as

IEH CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

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 Plan’s information and data for the year ending December 31, 2018 is not yet available. As of the date hereof, the Company expects that its proportional share of the 2018 liability will also be fully funded. The amount of accumulated benefits and net assets of such Plan is also is not currently available to the Company. The total contributions charged to operations under the provisions of the Multi-Employer Plan were $58,652$37,048 and $65,265$58,652 for the six months ended September 28, 2018 and September 29, 2017, and September 23, 2016.respectively.

IEH CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)The Company historically had maintained an allowance for uncollectable accounts receivables. The Company did determine that over the past five years, no customer account balances were determined to be uncollectable and charged off to operations. A review of accounts receivable at September 28, 2018 indicated that none were either deemed to be delinquent or uncollectable. Accordingly, The Company has determined that collectability is not an issue and it that there is no longer a need to maintain this allowance.

The Company has evaluated all other subsequent events through November 13, 2017,16, 2018, the date the financial statements were available to be issued. Based on this evaluation, except as set forth below, the Company has determined that no subsequent events have occurred which require disclosure through the date that these financial statements were available to be issued.

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.

IEH CORPORATION

PART I: FINANCIAL INFORMATION

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations(continued)

Critical Accounting Policies(continued)

Inventory Valuation: 

Raw materials and supplies are stated at average cost on an averagea 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: 

Sales are recognized when revenue is realized or realizable and has been earned. Revenue transactions represent sales of inventory. The Company has historically adopted the shipping terms that title to merchandise passes to the customer at the shipping point (FOB Shipping Point).

Revenue is realized or realizable and earned when all of the following criteria are met:

The Company does not offer any discounts, credits or other sales incentives. Historically, the Company believes that it has no collection issues with its customer base.

Revenue is realized or realizable and earned when all of the following criteria are met:

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 cost of defective products is immaterial at this time.

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.

IEH CORPORATION

PART I: FINANCIAL INFORMATION

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations(continued)

Critical Accounting Policies(continued)

The Company did not expend any funds on, nor receiving any revenues related to, customer sponsored research and development activities, relating to the development of new designs, techniques and the improvement of existing designs, for the six and three months ended September 29, 201728, 2018 and September 23, 2016,29, 2017, respectively, relating to the development of new designs, techniques and the improvement of existing designs.

Stock-Based Compensation Plan:

Compensation expense for stock options granted to directors, officers and key employees is based on the fair value of the award on the measurement date, which is the date of the grant. The expense is recognized ratably over the service period of the award. The fair value of stock options is estimated using a Black-Scholes valuation model. The fair value of any other non-vested stock awards is generally the market price of the Company’s common stock on the date of the grant.

Comparative Analysis-Six Months Ended September 28, 2018 and September 29, 2017

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:

IEH CORPORATION

PART I: FINANCIAL INFORMATION 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations(continued)

Comparative Analysis-Six Months Ended September 28, 2018 and September 29, 2017(continued)

Results of Operations(continued)

Operating revenues for the six months ended September 28, 2018 amounted to $15,641,182 reflecting an 41.53% increase versus $11,051,240 for the six months ended September 29, 2017. The increase in revenues of $4,589,942 can be attributed to increased marketing efforts and sales management support along with successful penetration into new markets and continued cultivation of our existing customer base.

The results of this six month period ending September 28, 2018 reflect the completion of a large customer contract which was fulfilled by the end of the first fiscal quarter. Our reasonable expectation at this time is that this customer’s business will not be repetitive and accordingly there can be no assurance that the operating revenues in future fiscal quarters will equal or exceed the results of the first fiscal quarter.

Cost of products sold were $8,626,465 for the six months ended September 28, 2018 or 55.15% of operating revenues. This reflected an increase of $1,648,980 or 23.63% in the cost of products sold from $6,977,485 or 63.14% of operating revenues for the six months ended September 29, 2017. The increase in cost of products sold can be attributed to increased production costs necessary to support the increase in sales.

Selling, general and administrative expenses were $2,077,479 or 13.28% of operating revenues for the six months ended September 28, 2018 compared to $2,052,224 or 18.37% of operating revenues. This comparative increase of $25,255 can be attributed to the Company’s efforts to better control expenses.

Interest expense was $15,552 for the six months ended September 28, 2018 or .10% of operating revenues. For the six months ended September 29, 2017, interest expense was $16,639 or .15% of operating revenues. The decrease can be attributed to a reduction in borrowing from our commercial financial company during the current six-month period.

Depreciation and amortization of $225,600 or 1.44% of operating revenues was reported for the six months ended September 28, 2018 as compared to $212,600 or 1.92% of operating revenues for the six months ended September 29, 2017.

The Company reported net income of $3,205,589 for the six months ended September 28, 2018 as compared to net income of $870,282 for the six months ended September 29, 2017. The increase in net income for the current six-month period can be attributed primarily to the increase in operating revenues for the current six-month period.

IEH CORPORATION

PART I: FINANCIAL INFORMATION 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations(continued)

Comparative Analysis-Three Months Ended September 28, 2018 and September 23, 201629, 2017

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:

Operating revenues for the sixthree months ended September 28, 2018 amounted to $6,597,876 reflecting an 8.91% increase versus $6,058,261 for the three months ended September 29, 2017 amounted to $11,051,240 reflecting a 13.70% increase versus $9,719,421 for the six months ended September 23, 2016.2017. The $1,331,819 increase in revenues of $539,615 can be attributed to increased marketing efforts and sales management support along with successful penetration into new markets and continued cultivation of our existing customer base.

Cost of products sold were $4,041,230 for the three months ended September 28, 2018 or 61.25% of operating revenues. This reflected an increase of $418,797 or 11.56% in the cost of products sold from $3,622,433 or 59.79% of operating revenues for the three months ended September 29, 2017. The increase in cost of products sold can be attributed to increased production costs necessary to support the increase in sales.

IEH CORPORATION

PART I: FINANCIAL INFORMATION

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations(continued)

Comparative Analysis - Six Months Ended September 29, 2017 and September 23, 2016(continued)

Results of Operations(continued)

Cost of products sold were $6,977,485 for the six months ended September 29, 2017, or 63.14% of operating revenues. This reflected a $885,843 or 14.54% increase in the cost of products sold from $6,091,642 or 62.67% of operating revenues for the six months ended September 23, 2016. The increase in cost of products sold can be attributed to the increase necessary to support the increase in sales.

Selling, general and administrative expenses were $2,029,840 or 18.37% of operating revenues for the six months ended September 29, 2017 compared to $1,821,165 or 18.74% of operating revenues for the six months ended September 23, 2016. This category of expense increased by $208,675 or 11.46% from the prior fiscal year’s six-month period. The increase can be attributed to an increase in sales support and operating expenses.

Interest expense was $16,639 for the six months ended September 29, 2017 or .15% of operating revenues. For the fiscal six months ended September 23, 2016, interest expense was $37,483 or .39% of operating revenues. The decrease can be attributed to a reduction in borrowing from our commercial financial company.

Depreciation and amortization of $212,600 or 1.92% of operating revenues was reported for the six months ended September 29, 2017 as compared to the six-month period ended September 23, 2016 of $157,800 or 1.62% of operating revenues.

The Company reported net income of $892,666 for the six months ended September 29, 2017 representing basic earnings of $.39 per share as compared to net income of $874,247 or $.38 per share for the six months ended September 23, 2016. The net increase in income for the current six-month period can be attributed to a combination of the above factors.

IEH CORPORATION

PART I: FINANCIAL INFORMATION

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations(continued)

Comparative Analysis-Three Months Ended September 29, 2017 and September 23, 2016

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: