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 28, 2018September 27, 2019

 

 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)

13-5549348

(I.R.S. Employer

Identification Number)No.)

140 58th Street, Suite 8E

Brooklyn, New York

(Address of principal executive offices)

11220

(Zip Code)

140 58th Street, Suite 8E, Brooklyn, New York 11220(718) 492-4440

(Address of principal executive office)

Registrant'sRegistrant’s telephone number, including area code:(718) 492-4440

code)

Former name, former addressName, Former Address and former fiscal year,Former Fiscal Year, if Changed Since Last Report

if changed since last report.Securities registered pursuant to Section 12(b) of the Act:

Title of each classTrading Symbol(s)Name of each exchange on which registered
Common StockIEHCOTC QX Market Place

 

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 ☒                  No☐

 

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 or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

   
 Large accelerated filer  o☐ Accelerated filero
☐ 
Non-accelerated filer  ☐o
(Do not check if a smaller reporting company)		 

Smaller Reporting Company☒

þ Emerging Growth Company☐ 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

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

 

2,323,4682,331,751 shares of Common Shares, par value $.01 per share, were issued and outstanding as of February 11,November 19, 2019.

1 

IEH CORPORATION

 

TABLE OF CONTENTS

 

  Page
  Number
   
PART I -FINANCIAL INFORMATION 
   
ITEM 1-FINANCIAL STATEMENTS 
   
 Balance Sheets as of December 28, 2018September 27, 2019(Unaudited)and March 30, 2018(Audited)29, 20194
   
 Statements of Operations(Unaudited) for the three months and ninesix months ended DecemberSeptember 27, 2019 and September 28, 2018 and December 29, 20176
Statement of Changes in Stockholders’ Equity for the three and six months ended September 27, 2019 and September 28, 20187
   
 Statements of Cash Flows(Unaudited) for the ninesix months ended DecemberSeptember 27, 2019 and September 28, 2018 and December 29, 201779
   
 Notes to Financial Statements(Unaudited)911
   
   
ITEM 2 –MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS23

21

   
ITEM 3 –QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK3327
   
ITEM 4 –CONTROLS AND PROCEDURES3428
   
PART II –OTHER INFORMATION30
   
ITEM 1 –LEGAL PROCEEDINGS3730
   
ITEM 1A –RISK FACTORS3730
   
ITEM 2 –UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS3831
   
ITEM 3 –DEFAULTS UPON SENIOR SECURITIES3831
   
ITEM 4 – MINE SAFETY DISCLOSURE3831
   
ITEM 5 –OTHER INFORMATION3932
   
ITEM 6 –EXHIBITS3932
   
   
SIGNATURES4133
   


Exhibits  
   
   
Exhibit 31.1Certification Pursuant to 17CFR240.13a-14(a) or 17CFR240.15d-14(a)4134
   
Exhibit 31.2Certification Pursuant to 17CFR240.13a-14(a) or 17CFR240.15d-14(a)4235
   
Exhibit 32.1Certification Pursuant to 17CFR240.13a-14(b) or 17CFR240.15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code4336
   
Exhibit 101Instance Document 
   
Exhibit 101Schema Document 
   
Exhibit 101Calculation Linkbase Document 
   
Exhibit 101Labels Linkbase Document 
   
Exhibit 101Presentation Linkbase Document 
   
Exhibit 101Definition Linkbase Document 

 

 

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IEH CORPORATION

 

PART I: FINANCIAL INFORMATION

 

 

Item 1. Financial Statements

 

IEH CORPORATION

 

BALANCE SHEETS

 

As of December 28, 2018September 27, 2019 and March 30, 201829, 2019

 

 

 December 28,  March 30,  September 27,  March 29, 
 2018  2018  2019  2019 
 (Unaudited)  (Audited)  (Unaudited)    
          
ASSETS                
                
CURRENT ASSETS:                
Cash $7,088,965  $1,407,013  $6,563,424  $7,080,126 
Accounts receivable, less allowances for doubtful accounts of $0 at December 28, 2018 and
$11,562 at March 30, 2018(Note 13)		  2,911,476   4,429,267 
Accounts receivable  5,515,887   3,833,090 
Inventories(Note 3)  11,429,390   10,751,498   13,091,697   12,021,443 
Excess payments to commercial finance company(Note 6)  —   154,960   608,666   — 
Prepaid expenses and other current assets(Note 4)  115,884   489,594   551,032   534,897 
                
Total Current Assets  21,545,715   17,232,332   26,330,706   23,469,556 
                
                
PROPERTY, PLANT AND EQUIPMENT, less accumulated
depreciation and amortization of $9,686,961, at December 28, 2018 and
$9,377,361 at March 30, 2018(Note 5)		  2,284,643   2,066,155 
PROPERTY, PLANT AND EQUIPMENT(Note 5)  2,433,956   2,560,607 
  2,284,643   2,066,155   2,433,956   2,560,607 
                
OTHER ASSETS:                
Right of use Asset-Leasehold(Note 2)  206,541   — 
Other assets  54,489   54,489   54,489   54,489 
  54,489   54,489 
Total Other Assets  261,030   54,489 
                
Total Assets $23,884,847  $19,352,976  $29,025,692  $26,084,652 
        

 

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

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IEH CORPORATION

 

BALANCE SHEETS(Continued)

 

As of December 28, 2018September 27, 2019 and March 30, 201829, 2019

 

 

 December 28,  March 30,  September 27,  March 29, 
 2018  2018  2019  2019 
 (Unaudited)  (Audited)  (Unaudited)    
          
LIABILITIES AND SHAREHOLDERS’ EQUITY                
                
CURRENT LIABILITIES:                
Accounts payable $40,945  $576,629  $119,691  $480,012 
Due to commercial finance company(Note 6)  228,757   —   —   334,306 
Customer advance payments  222,541   348,230 
Accrued corporate income taxes  1,422,092   935,762   2,747,407   1,676,428 
Deferred Lease Liability - Net of Long Term(Note 2)  177,664   — 
Other current liabilities(Note 7)  1,099,566   768,369   1,171,749   977,420 
Total Current Liabilities  2,791,360   2,280,760   4,439,052   3,816,396 
        
LONG TERM LIABILITIES        
Deferred Lease Liability-Long Term(Note 2)  33,047   — 
Total Long-Term Liabilities  33,047   — 
                
Total Liabilities  2,791,360   2,280,760   4,472,099   3,816,396 
                
SHAREHOLDERS’ EQUITY:                
Common stock, $.01 par value; 10,000,000 shares authorized;
2,323,468 shares issued and outstanding at December 28, 2018 and 2,303,468 issued
and outstanding at March 30, 2018(Note 9)		  23,235   23,035 
Common stock, $.01 par value; 10,000,000 shares authorized;
2,331,751 shares issued and outstanding at September 27, 2019
and 2,323,468 shares issued and outstanding at March 29, 2019		  23,318   23,235 
Capital in excess of par value  3,794,210   3,767,608   3,849,715   3,802,672 
Retained earnings (Note 9)  17,276,042   13,281,573 
Retained earnings  20,680,560   18,442,349 
                
Total Shareholders’ Equity  21,093,487   17,072,216   24,553,593   22,268,256 
                
Total Liabilities and Shareholders’ Equity $23,884,847  $19,352,976  $29,025,692  $26,084,652 

 

 

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

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IEH CORPORATION

 

STATEMENTS OF OPERATIONS

(Unaudited)

 

For the NineThree and ThreeSix Months Ended DecemberSeptember 27, 2019 and September 28, 2018 and December 29, 2017

 

        

 Nine Months Ended Three Months Ended 
 

Dec. 28,

2018

 Dec. 29,
2017		 

Dec. 28,

2018

 Dec. 29,
2017		  Three Months Ended Six Months Ended 
   (Restated)   (Restated)  

Sept. 27,

2019

 Sept. 28,
2018		 

Sept. 27,

2019

 Sept. 28,
2018		 
                  
REVENUE, net sales $21,619,017  $16,283,973  $5,977,835  $5,232,733  $7,551,384  $6,597,876  $15,118,782  $15,641,182 
                                
COSTS AND EXPENSES                                
                                
Cost of products sold  12,415,830   10,481,129   3,790,188   3,503,644   4,052,488   4,041,230   8,874,100   8,626,465 
Selling, general and administrative  3,063,345   2,961,572   985,043   909,348   1,232,611   1,042,532   2,345,776   2,077,479 
Interest expense  56,456   25,095   40,904   8,457 
Depreciation  309,600   317,900   84,000   105,300   223,333   84,000   459,953   225,600 
  15,845,231   13,785,696   4,900,135   4,526,749   5,508,432   5,167,762   11,679,829   10,929,544 
                                
OPERATING INCOME  5,773,786   2,498,277   1,077,700   705,984   2,042,952   1,430,114   3,438,953   4,711,638 
                                
OTHER INCOME  8,579   2,092   5,417   766 
Other income  7,976   1,955   16,874   3,162 
                
Interest expense  (19,816)  (5,304)  (33,743)  (15,552)
                
NET OTHER EXPENSE  (11,840)  (3,349)  (16,869)  (12,390)
                
                                
INCOME BEFORE INCOME TAXES  5,782,365   2,500,369   1,083,117   706,750   2,031,112   1,426,765   3,422,084   4,699,248 
                                
PROVISION FOR INCOME TAXES  1,787,896   1,155,178   294,237   231,842   702,434   480,461   1,183,873   1,493,659 
                                
NET INCOME $3,994,469  $1,345,191  $788,880  $474,908  $1,328,678  $946,304  $2,238,211  $3,205,589 
                                
BASIC EARNINGS PER SHARE(Note 2) $1.72  $.59  $.34  $.21  $.57  $.41  $.96  $1.38 
                                
FULLY DILUTED EARNINGS PER SHARE(Noter2) $1.66  $.59  $.33  $.20 
FULLY DILUTED EARNINGS PER SHARE $.54  $.39  $.92  $1.34 
                                
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
(in thousands)		  2,321   2,303   2,323   2,303   2,328   2,323   2,326   2,319 
                                
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING –
FULLY DILUTED
(in thousands)		  2,407   2,312   2,425   2,316   2,446   2,411   2,443   2,397 
                                

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

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IEH CORPORATION

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

For the Three and Six Months Ended September 27, 2019 and September 28, 2018

     Capital in       
     Excess of  Retained    
Three Months Ended September 28, 2018 Common Stock  Par Value  Earnings  Total 
  Shares  Amount          
                
Balances at June 29, 2018  2,323,468  $23,235  $3,770,206  $15,540,858  $19,334,299 
                     
Recognition of stock compensation  —   —   2,798   —   2,798 
                     
Net income for the quarter ended September 28, 2018  —   —   —   946,304   946,304 
                     
Balances at September 28, 2018  2,323,468  $23,235  $3,773,004  $16,487,162  $20,283,401 

        Capital in       
        Excess of  Retained    
Three Months Ended September 27, 2019 Common Stocks  Par Value  Earnings  Total 
  Shares  Amount          
                
Balances at June 28, 2019  2,323,468  $23,235  $3,811,134  $19,351,882  $23,186,251 
                     
Recognition of stock compensation  —   —   5,664   —   5,664 
                     
Exercise of stock option  8,283   83   32,917   —   33,000 
                     
Net income for the quarter ended September 27, 2019  —   —   —   1,328,678   1,328,678 
                     
Balances at September 27, 2019  2,331,751  $23,318  $3,849,715  $20,680,560  $24,553,593 
                     

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

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IEH CORPORATION

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY(Continued)

(Unaudited)

For the Three and Six Months Ended September 27, 2019 and September 28, 2018

     Capital in       
     Excess of  Retained    
Six Months Ended September 28, 2018 Common Stock  Par Value  Earnings  Total 
  Shares  Amount          
                
Balances, March 30, 2018  2,303,468  $23,035  $3,767,608  $13,281,573  $17,072,216 
                     
Stock option expense recognized for the quarter
ended September 28, 2018		  —   —   5,596   —   5,596 
                     
Exercise of 75,000 options by surrendering 55,000
Shares of common stock		  20,000   200   (200)  —   0 
                     
Net income: six months ended September 28, 2018  —   —   —   3,205,589   3,205,589 
                     
Balances at September 28, 2018  2,323,468  $23,235  $3,773,004  $16,487,162  $20,283,401 

     Capital in       
     Excess of  Retained    
Six Months Ended September 27, 2019 Common Stock  Par Value  Earnings  Total 
  Shares  Amount          
                
Balances at March 29, 2019  2,323,468  $23,235  $3,802,672  $18,442,349  $22,268,256 
                     
Recognition of stock compensation  —   —   14,126   —   14,126 
                     
Exercise of stock options(Note 8)  8,283   83   32,917   —   33,000 
                     
Net income for the quarter ended September 27, 2019  —   —   —   2,238,211   2,238,211 
                     
Balances at September 27, 2019  2,331,751  $23,318  $3,849,715  $20,680,560  $24,553,593 
                     

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

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IEH CORPORATION

STATEMENTS OF CASH FLOWS

(Unaudited)

For the Six Months Ended September 27, 2019 and September 28, 2018

  Six Months Ended 
  September 27,  September 28, 
  2019  2018 
       
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net income $2,238,211  $3,205,589 
         
Adjustments to reconcile net income to net cash provided by
operating activities:		        
         
Depreciation and amortization  459,953   225,600 
Stock compensation expense  14,126   5,596 
Increase in right of use asset leasehold  (206,541)  — 
Increase in deferred lease liability  210,711   — 
         
Changes in assets and liabilities:        
         
Increase in accounts receivable  (1,682,797)  22,250 
Increase in inventories  (1,070,254)  (826,202)
Increase in excess payments to commercial finance company  (608,666)  (293,970)
Increase decrease in prepaid expenses and other current assets  (16,135)  192,961 
Decrease in accounts payable  (360,321)  (421,111)
Decrease in customer advance payments  (125,689)  — 
Increase in other current liabilities  194,329   66,918 
Increase in accrued corporate taxes  1,070,979   828,498 
         
          Total adjustments  (2,120,305)  (199,460)
         
NET CASH PROVIDED BY OPERATING ACTIVITIES  117,906   3,006,129 
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
Acquisition of property, plant and equipment  (333,302)  (325,894)
         
NET CASH USED BY INVESTING ACTIVITIES $(333,302) $(325,894)

 

 

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

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IEH CORPORATION

STATEMENTS OF CASH FLOWS

(Unaudited)

 

For the Nine Months Ended December 28, 2018 and December 29, 2017

  Nine Months Ended 
  December 28,  December 29, 
  2018  2017 
     (Restated) 
       
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net income $3,994,469  $1,345,191 
         
Adjustments to reconcile net income to net cash provided by
operating activities:		        
         
Depreciation  309,600   317,900 
Recognition of stock compensation expense  26,802   25,182 
         
Changes in assets and liabilities:        
(Increase) decrease in accounts receivable  1,517,791   (196,350)
(Increase) in inventories  (677,892)  (1,721,414)
 Decrease in excess payments to commercial finance company  154,960   191,430 
 Decrease in prepaid expenses and other current assets  373,711   890,205 
 Increase (decrease) in accounts payable  (535,684)  86,462 
 Increase in other current liabilities  331,196   206,100 
 Increase (decrease) in accrued corporate taxes  486,330   (71,712)
         
          Total adjustments  1,986,814   (272,197)
         
NET CASH PROVIDED BY OPERATING ACTIVITIES  5,981,283   1,072,994 
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
Acquisition of property, plant and equipment  (528,088)  (328,105)
         
NET CASH (USED) BY INVESTING ACTIVITIES $(528,088) $(328,105)
         

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

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IEH CORPORATION

 

STATEMENTS OF CASH FLOWS(continued)

(Unaudited)

 

For the NineSix Months Ended DecemberSeptember 27, 2019 and September 28, 2018 and December 29, 2017

 

 

  Nine Months Ended 
  December 28,  December 29, 
  2018  2017 
     (Restated) 
       
CASH FLOWS FROM FINANCING ACTIVITIES:        
Net activity from commercial financing company $228,757  $479,250 
Payment of special cash dividend  —   (575,867)
         
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES $228,757   (96,617)
         
INCREASE IN CASH  5,681,952   648,272 
         
CASH, beginning of period  1,407,013   1,210,761 
         
CASH, end of period $7,088,965   1,859,033 
         
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the nine months for:		        
     Interest $54,956   19,638 
         
     Income Taxes $694,040   326,182 
         
Increase in issued and outstanding shares $200  $— 

  Six Months Ended 
  September 27,  September 28, 
  2019  2018 
       
 CASH FLOWS FROM FINANCING ACTIVITIES:        
 Activity from commercial financing company $(334,306) $— 
 Exercise of Options for cash  33,000   — 
         
         
 NET CASH USED BY FINANCING ACTIVITIES $(301,306)  — 
         
(DECREASE) INCREASE IN CASH  (516,702)  2,680,235 
         
 CASH, beginning of period  7,080,126   1,407,013 
         
 CASH, end of period $6,563,424   4,087,248 
         
 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
 Cash paid during the six months for:		        
     Interest $31,329   14,052 
         
     Income Taxes $112,895   504,662 
         

 

 

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

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IEH CORPORATION

 

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 1- INTERIM RESULTS AND BASIS OF PRESENTATION: 

 

The accompanying unaudited financial statements as of December 28, 2018 and December 29, 2017September 27, 2019 and for the ninethree and 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 December 28, 2018 and December 29, 2017September 27, 2019 and the results of operations and cash flows for the ninethree and 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 ninethree and six months ended December 28, 2018,September 27, 2019, are not necessarily indicative of the results to be expected for any subsequent quarter or the entire fiscal year. The balance sheet at March 30, 201829, 2019 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 30, 201829, 2019 included in the Company’s Annual Report on Form 10-K as filed with the SEC on July 12, 2019 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-performancehigh performance plastic circular connector line. All of our productsconnectors utilize the HYPERBOLOID contact design, a rugged, high-reliability contact system ideally suited for high-stress environments. We believe we are the only independent producer of HYPERBOLOID printed circuit board connectors 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 and distributors located in all regions of the United States, Canada, Israel, India, various Pacific Rim countries, South Korea and the European Union (EU).Union.

 

The customers we service are in the Military, Aerospace, Space, Medical, Oil and& Gas, 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 Aerospacecommercial electronic (inclusive of aerospace, space, oil & gas, medical & miscellaneous) and Militarymilitary markets were 35%49.9% and 45%50.1%, respectively, of the Company’s net sales for the year ended March 30, 2018.29, 2019. 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. During the fiscal year ended March 30, 2018,29, 2019, the Company purchased several machines to increase the productivity of certain processes. This will help the Company meet this goal.

 

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IEH CORPORATION

 

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued)

  

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 week year, which ends on the nearest Friday in business days to March 31. The year ended March 30, 201829, 2019 was comprised of 52 weeks. The current fiscal year, ending on March 29, 2019,27, 2020, will be comprised of 52 weeks.

 

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 shipping termsIn May 2014, the Financial Accounting Standards Board issued ASC 606 “Revenue from Contracts with Customers” that, title to merchandise passes to the customer at the shipping point (FOB Shipping Point).as amended on August 12, 2015, became effective for annual report periods beginning after December 15, 2017.

 

RevenueThe core principle underlying ASC 606, is realizedto recognize revenue to depict the transfer of promised goods or realizable and earned when all ofservices to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” ASC 606-10-05-4 sets out the following criteria are met:steps for an entity to follow when applying the core principle to its revenue -generating transactions:

 ·Persuasive evidence of an arrangement exitsIdentify the contract with a customer

 ·Shipment has occurredIdentify the performance obligations in the contract

 ·The Company’s sellingDetermine the transaction price for its products are fixed and determinable

 ·CollectabilityAllocate the transaction price to the performance obligations
·Recognize revenue when (or as) each performance obligation is reasonable assuredsatisfied

 

The Company does not offer any discounts, credits or other sales incentives. Historically,designs, develops and manufactures printed circuit board connectors and custom interconnects for high performance applications. All of our connectors utilize the Company believes that it has no collection issues with its customer base.HYPERBOLOID contact design, a rugged, high-reliability contact system ideally suited for high-stress environments.

 

The Company’s policy with respect to customer returnscustomers we service are in the Military, Aerospace, Space, Medical, Oil and allowances as well as product warranty is as follows:Gas, Industrial, Test Equipment and Commercial Electronics markets.

 

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IEH CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

 

Note 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued)

 

Revenue Recognition:(continued)

 

The Company’s disaggregated revenue, as of September 27, 2019 and September 28, 2018, respectively, by geographical location is as follows:

  Three Months Ended  Three Months Ended  Six Months Ended  Six Months ended 
  September 27, 2019  September 28, 2018  September 27, 2019  September 28, 2018 
             
Domestic $6,169,481  $6,004,067  $12,352,045  $14,233,476 
International  1,381,903   593,809   2,766,737  $1,407,706 
Total $7,551,384  $6,597,876  $15,118,782  $15,641,182 
                 

The Company does not offer any discounts, credits or other sales incentives. Historically, the Company has not had an issue with uncollectible accounts receivable.

The Company will accept a return of defective productproducts 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.products. 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 a first-in, first-out basis, which does not exceed marketnet realizable 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 ninethree 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. The Company recognized $108,000 for the six months ended September 27, 2019 and September 28, 2018, respectively, as a reduction of inventory due to obsolescence.

 

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.

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IEH CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Note 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued):

Concentration of Credit Risk:(continued)

 

Under the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act, 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 December 28, 2018 and March 30, 2018, the Company had funds on deposit in the amount of $7,299,734 and $1,887,682, in one financial institution comprised of the following:

  December 28, 2018  March 30, 2018 
       
Non-interest-bearing accounts $3,050,432  $746,958 
Interest bearing account  4,249,302   1,140,724 
  $7,299,734  $1,887,682 
         

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IEH CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Note 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued) 

Concentration of Credit Risk (continued):

The Company has not experienced any losses in such accounts and believes itsdoes maintain cash balances are not exposed to any significant risk.in excess of insured limits.

 

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.

 

Net IncomeEarnings Per Share:

 

The Company has adopted the provisions of Financial Accounting Standards Board (“FASB”)accounts for earnings per share pursuant to ASC Topic 260,Earnings “Earnings per Share,which includes the provisions of SFAS No. 128, “Earnings Per Share,”Share”, which requires disclosure on the disclosureFinancial Statements of “basic” and “diluted” earnings (loss) per share. Basic earnings per share are computed by dividing net income by the weighted average number of common shares outstanding for the year. Diluted earnings per share is computed by dividing net income by the weighted average number of common shares outstanding duringplus common stock equivalents (if dilutive) related to stock options for each period. Fullyyear. As the Company reported net income for both the three months and six months ended September 27, 2019 and September 28, 2018, respectively, basic and diluted earningsincome per share is computed by dividing net income by the weighted average numberare calculated separately as follows:

  Three months
ended
9/27/2019		  Three months
ended
9/28/2018		  Six months
ended
9/27/2019		  Six months
ended
9/28/2018		 
             
NET INCOME $1,328,678  $946,304  $2,238,211  $3,205,589 
                 
BASIC EARNINGS PER COMMON SHARE $.57  $.41  $.96  $1.38 
                 
FULLY DILUTED EARNINGS PER SHARE $.54  $.39  $.92  $1.34 
                 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING-BASIC  2,328,423   2,323,468   2,325,959   2,319,206 
                 
 DILUTIVE EFFECT OF OPTIONS GRANTED  118,462   88,134   117,343   77,893 
                 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING-
FULLY DILUTED		  2,446,885   2,411,602   2,443,302   2,397,099 

14 

Table of common shares outstanding on a fully diluted basis during each period.Contents

IEH CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

 

Under the requirements of ASC Topic 260, during this period the Company is required to use the Treasury Stock method in computing fully diluted earnings per share and the weighted average number of common shares outstanding on a fully diluted basis because the options previously granted by the Company are considered to be “in the money” (i.e., when the option grant price is lower than the prevailing market price of the Company’s common stock). The weighted average number of common shares outstanding has been increased to reflect the dilutive effect of potential shares, such as those issuable upon the exercise of the stock options as if they had been issued.

Note 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued)

 

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 (nine 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. The Company utilizes estimates with respect to determining the useful lives of fixed assets as well as in the calculation of inventory obsolescence. 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,” 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. There were no long-lived asset impairments recognized by the Company for the ninesix months ended

December September 27, 2019 and September 28, 2018, and December 29, 2017, respectively, and currently all assets are being utilized.

 

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IEH CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Note 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued) 

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.

 

Recent Accounting Pronouncements:Leases:

 

ASC 2016-02 Leases (Topic 842) – In February 2016, the FASB has issued certainASC 2016-02, which requires lessees to recognize all leases on their balance sheet as a right-of-use asset and a lease liability. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating leases or finance leases. The classification is based on criteria that are largely similar to those applied in current lease accounting, standards updatesbut without explicit bright lines. Accordingly, we have adopted ASC 2016-2 as of December 28, 2018March 30, 2019.

On our balance sheet operating leases are reported as operating lease right-of-use (“ROU”) assets and deferred lease liabilities. ROU assets represent our right to use an underlying asset for the lease term and deferred lease liabilities represent our obligation to make lease payments over time arising from the lease. Operating lease ROU assets and deferred lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As our contracted leases do not provide an implicit rate, we do use an incremental borrowing rate based on the information available at the transition date and commencement date in determining the present value of lease payments. This is the rate that will become effective in subsequent periods. we would have to pay if borrowing on a collateralized basis over a similar term to each lease. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

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IEH CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Note 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued) 

Leases:(continued)

The Company believes that noneleases space for its corporate offices and its manufacturing facility located at 140 58th Street, Suite 8E, Brooklyn New York. The lease commenced on December 1, 2010 and expires on November 30, 2020. As of those updates would have significantly affectedSeptember 27, 2019, there remains 14 payments on this lease.

Presented below are the Company’s financial accounting measures or disclosures had they been in effect duringbalances of ROU asset and the ninecorresponding deferred lease liability and resultant amortization as of March 30, 2019 and September 27, 2019. The present value was calculated using an interest rate of six (6%) percent.

  ROU
Asset		  Deferred
Lease
Liability		  Amortization 
March 30, 2019 $301,957  $301,957   — 
September 27, 2019  206,541   210,711   95,416 

Future lease commitments to be paid by us as of September 27, 2019 were as follows:

  Payments       
Fiscal year Operating Leases  Interest  Total 
2020(a) $88,832  $4,828  $93,660 
2021  121,879   3,001   124,880 
             
Total lease commitments $210,711  $7,829  $218,540 

(a) Represents the remainder of fiscal year 2020 which excludes the six months ended December 28, 2018 and December 29, 2017, 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.September 27, 2019.

 

Note 3- INVENTORIES: 

 

Inventories are stated at average 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 nine 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 were comprised of the following:

 

 December 28,  March 30,  September 27,  March 29, 
 2018  2018  2019  2019 
          
Raw materials $7,063,374  $6,644,436  $7,681,895  $7,053,896 
Work in progress  2,432,383   2,288,115   3,046,020   2,797,006 
Finished goods  1,933,633   1,818,947   2,363,782   2,170,541 
 $11,429,390  $10,751,498  $13,091,697  $12,021,443 

 

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 IEH CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 4- PREPAID EXPENSES AND OTHER CURRENT ASSETS: 

 

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

 

  December 28,  March 30, 
  2018  2018 
       
Prepaid insurance $19,988  $16,256 
Prepaid corporate taxes  —   467,606 
Other current assets  95,896   5,732 
  $115,884  $489,594 
  September 27,  March 29, 
  2019  2019 
       
Prepaid insurance $69,491  $106,801 
Prepaid payroll liabilities  430,214   289,311 
Other prepaid expenses and Other Current Assets  51,327   138,785 
  $551,032  $534,897 

 

Note 5- PROPERTY, PLANT AND EQUIPMENT: 

 

Property, plant and equipment were comprised of the following:

 

 December 28,  March 30,  September 27,  March 29, 
 2018  2018  2019  2019 
          
Computers $500,355  $496,489  $512,420  $502,723 
Leasehold improvements  917,498   888,488   969,253   934,648 
Machinery and equipment  6,427,473   6,189,340   6,825,097   6,657,875 
Tools and dies  3,937,421   3,681,077 
Tools and dyes  4,121,484   3,999,705 
Furniture and fixture  179,072   179,072   179,071   179,072 
Website development cost  9,785   9,050   9,785   9,785 
  11,971,604   11,443,516   12,617,110   12,283,808 
Less: accumulated depreciation and amortization  (9,686,961)  (9,377,361)  (10,183,154)  (9,723,201)
 $2,284,643  $2,066,155  $2,433,956  $2,560,607 
        

Depreciation expense for the six months ended September 27, 2019 and September 28, 2018 was $459,953 and $225,600, respectively. Depreciation expense for the three months ended September 27, 2019 and September 28, 2018 was $223,333 and $84,000, respectively.

 

Note 6- ACCOUNTS RECEIVABLE FINANCING: 

 

The Company entered intohas an accounts receivable financing agreement with a commercial finance company,non-bank lending institution (“Financing 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 companyits lender upon receiving 60 days’ prior notice. Funds advanced by the commercial finance companyFinance Company are secured by IEH’s accounts receivable and inventories.

 

As of December 28, 2018,September 27, 2019, the Company reported a liability to the commercial finance company of $228,757. As of March 30, 2018, the Company had reported excess payments to the commercial finance companyits Finance Company of $154,960.$608,666. These excess payments are reported in the accompanying financial statementscondensed Financial Statements as of March 30, 2018September 27, 2019 as “Excess payments to commercial finance company.” As of March 29, 2019, the Company had reported a liability to its commercial finance company of $334,306. 

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IEH CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 7- OTHER CURRENT LIABILITIES: 

 

Other current liabilities were comprised of the following:

 

 December 28,  March 30,  September 27,  March 29, 
 2018  2018  2019  2019 
          
Payroll and vacation accruals $734,012  $569,043  $1,105,044  $831,187 
Sales commissions  47,185   104,791   64,154   80,553 
Insurance  —   52,648 
Other  318,369   41,887 
Other current liabilities  2,551   65,680 
 $1,099,566  $768,369  $1,171,749  $977,420 

 

 

Note 8-CORRECTION OF AN ERROR: 

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:

  Capital in    
  Excess of  Retained 
  Par value  earnings 
       
Balances at March 25, 2016 $2,744,573  $10,812,960 
         
Correction of an error: recognition of stock option compensation expense  995,055   (995,055)
         
Restated balances at March 26, 2016  3,739,628   9,817,905 
         
Net income for the year ended March 31, 2017  —   1,473,976 
         
Balances at March 31, 2017 $3,739,628  $11,291,881 
         

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IEH CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Note 8- CORRECTION OF AN ERROR: (continued)

  Capital in    
  Excess of  Retained 
  Par value  Earnings 
       
   Balances at March 31, 2017(from page 16) $3,739,628  $11,291,881 
         
   Stock compensation recognized for the year ended March 25, 2016  16,788   — 
         
   Dividend distribution paid on June 17, 2017  —   (575,867)
         
   Stock compensation recognized for the quarter ended June 30, 2017  2,798   — 
         
   Restated net income for the quarter ended June 30, 2017  —   305,622 
         
   Balances at June 30, 2017  3,759,214   11,021,636 
         
   Stock compensation recognized for the quarter ended September 29, 2017  2,798   — 
         
   Restated net income for the quarter ended September 29, 2017  —   564,660 
         
   Balances at September 29, 2017  3,762,012   11,586,296 
         
   Stock compensation recognized for the quarter ended December 29, 2017  2,798   — 
         
   Restated net income for the quarter ended December 29, 2017  —   474,908 
         
   Balances at December 29, 2017 $3,764,810  $12,061,204 
         

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

  Quarter ended  Nine months ended 
  Dec 29, 2017  Dec 29, 2017 
  (in thousands)
(restated)		  (in thousands)
(restated)		 
IEH employees $—  $— 
Non-employee directors  3   25 
Total stock compensation expense $3  $25 

Note 9- CHANGES IN SHAREHOLDERS’ EQUITY: 

The accumulated retained earnings increased by $3,994,469, which represents the net income for the nine months ended December 28, 2018.

On May 9, 2018, the Estate of Michael Offerman, the late Chief Executive Officer of the Company, 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 increased to 2,323,468 shares.

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IEH CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

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).

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 nine 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.Stock-based compensation expense:

 

The aggregate fair market valueCompany reported compensation expense of shares subject to options granted to a participant(s) that are designated as incentive stock options,$5,664 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$14,126 during 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;three 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 value of the Company’s common stock on the date of grant; and (iii) were all immediately vested. The options granted to Michael Offerman had an exercise price equal to 110% of such fair market value because he owned ten percent (10%) or greater of the Company’s outstanding common 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.

Effective July 15, 2016, the Board of Directors of the Company unanimously voted to increase the number of directors from three to six directors and elected David Offerman as a Class II director and Dr. Sonia Marciano and Eric C. Hugel as Class I Directors.

Effective August 15, 2016, the Board of Directors also approved the granting of stock options to purchase shares of the Company’s common stock under the 2011 Plan to each of Dr. Marciano and Mr. Hugel as follows: Each of the new non-management directors will receive a grant of options totalling 5,000 shares each subject to the following vesting schedule: (i) 1,000 shares vested immediately (August 15, 2016); (ii) 2,000 shares vested on August 15, 2017; and (iii) 2,000 shares vested on August 15, 2018. The stock options: (i) have a ten-year term; and (ii) have an exercise price equal to the value of the Company’s common stock on the date of grant. In the event of the termination of each recipient’s association with the Company, the options will remain exercisable in accordance with the terms of the 2011 Plan.

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IEH CORPORATION

 NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Note 10- 2011 EQUITY INCENTIVE PLAN:(continued) 

Onmonths ended September 7, 2018, the Board of Directors elected Michael E. Rosenfeld to the Board of Directors to fill the vacancy of a Class I Director of the Company created by the death of the Company’s then President and Chief Executive Officer, Michael Offerman. Such appointment became effective on October 26, 2018.

At the same time, the Board of Directors also approved the granting of stock options to purchase shares of the Company’s common stock under the 2011 Plan to Mr. Rosenfeld as follows: He will receive a grant of options totalling 5,000 shares each subject to the following vesting schedule: (i) 1,000 shares vested on October 26, 2018; (ii) 2,000 shares will vest on October 26, 2019; and (iii) 2,000 shares will vest on October 26, 2020. The stock options: (i) have a ten-year term; and (ii) have an exercise price equal to the value of the Company’s common stock on the date of grant. In the event of the termination of each recipient’s association with the Company, the options will remain exercisable in accordance with the terms of the 2011 Plan.

The table below summarizes the option awards for the named executive officers and non-management directors:

NameStock Option Grants
David Offerman50,000
Robert Knoth50,000
Allen Gottlieb5,000
Gerald Chafetz5,000
Sonia Marciano5,000
Eric Hugel5,000
Michael E. Rosenfeld5,000*

*Options for 1,000 shares vested on October 26, 2018. 2,000 shares shall vest on October 26,27, 2019 and 2,000 shares shall vest on October 26, 2020.

The following table shows$2,398 and $5,596 during the option activity for the fiscal year ended March 30, 2018three and the current ninesix months ended DecemberSeptember 28, 2018.

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

                
     Nine months
ended		  Nine months
Ended		  Quarter ended  Quarter ended
Dec. 29, 2017		 
  Ref  Dec. 28, 2018
(in thousands)		  Dec. 29,2017
(in thousands)		  Dec. 28, 2018
(in thousands)		  (in thousands)
(restated)		 
IEH employees     $—  $—  $—  $— 
Non-employee directors      27   25   21   3 
Total stock compensation expense  (a)  $27  $25  $21  $3 

(a):

The Company reported compensation expense of $2,798 during the quarter ended December 28, 2018 and $2,798 during the quarter ended December 29, 2017 resulting from stock options granted on August 15, 2016.

The Company also reported compensation expense of $18,408 during the quarter ended December 28, 2018 resulting from stock options granted on October 26, 2018.

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IEH CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Note 10- 2011 EQUITY INCENTIVE PLAN:(continued) 

 

Unrecognized stock-based compensation expense:

 

        As of 
     As of  December 29, 2017 
  Ref  December 28, 2018
(in thousands)		  (in thousands)
(restated)		 
Unrecognized expense for IEH employees     $—  $— 
Unrecognized expense for Non-employee directors      51   16 
Total unrecognized expense     (b)  $51  $16 
             

(b):Unrecognized stock-based compensation expense related to prior years’ equity grants ofThe Company expects to recognize $25,454 in stock options to non-employee directors, that had not vested as of the end of the applicable fiscal year.

Note: Stock option grants to IEH officers, directors and key employees incompensation expense for the entire fiscal yearsyear ended March 30, 20182020 and $16,992 for the entire fiscal year ended March 31, 2017 were valued using a Black-Scholes model, under the following criteria:2021.

  March 30, 2018  March 31, 2017 
Risk free interest rate  2.09%   1.88% 
Contractual term   10 years    10 years 
Dividend yield  —   — 
Expected lives  10 years    10 years 
Expected volatility  64%   56% 
Fair value per option $5.85  $6.00 

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IEH CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Note 10-2011 EQUITY INCENTIVE PLAN:(continued)

  

The following table shows the activity for the fiscal years ended March 29, 2019 and March 30, 2018 and March 31, 2017. through September 27, 2019:

 

        Weighted Avg.  Remaining  Aggregate 
        Exercise  Contractual  Intrinsic Value 
     Shares  Price  Term (Years)  (in thousands) 
Outstanding at the Beginning of the Year  3/25/2016   245,000  $6.18   9.27  $— 
            Granted  8/15/2016   10,000  $5.30   10.00   — 
            Exercised      0             
            Forfeited or Expired      0             
Outstanding at the End of the Year  3/31/2017   255,000  $6.15   8.82  $87 
            Fully Vested      247,000  $6.05         
            Exercisable at the End of the Year                    
            March 31 2017      247,000             
Outstanding at the Beginning of the Year  3/31/2017   255,000  $6.15   8.82  $87 
            Granted      0             
            Exercised      0             
            Forfeited or Expired      0             
Outstanding at the End of the Year  3/30/2018   255,000  $6.15   8.07  $702 
            Fully Vested      251,000  $6.02         
            Exercisable at the End of the Year
            March 30, 2018		      251,000             
                     
Outstanding at the Beginning of the Year  3/30/2018   255,000  $6.15   8.07  $702 
            Granted      0             
            Exercised      (75,000)            
            Forfeited or Expired      0             
Outstanding at the End of the Quarter  6/29/2018   180,000  $6.04   7.57  $666 
            Fully Vested      176,000  $5.94         
            Exercisable at the End of the Year
            December 28, 2018		      176,000             
                     
Outstanding at the Beginning of the Quarter  6/29/2018   180,000  $6.04   7.57  $666 
            Granted      0             
            Exercised      0             
            Forfeited or Expired      0             
Outstanding at the End of the Quarter  9/28/2018   180,000  $6.04   7.32  $1,393 
            Fully Vested      180,000  $5.94         
            Exercisable at the End of the Quarter
            December 28, 2018		      180,000             
                     
Outstanding at the Beginning of the Quarter     9/28/2018   180,000  $6.04   7.57  $1,393 
            Granted   10/26/2018   5,000             
            Exercised      0             
            Forfeited or Expired      0             
Outstanding at the End of the Quarter   12/28/2018   185,000  $6.02   7.99  $1,518 
            Fully Vested      181,000  $5.88         
            Exercisable at the End of the Quarter
            December 28, 2018		      185,000             

    Shares Weighted Avg.
Exercise
Price		 Remaining
Contractual
Term (Years)		 Aggregate
Intrinsic Value
(in thousands)
Outstanding at the Beginning of the Quarter  3/29/2019   185,000  $6.05   7.75  $1,832 
            Granted      —             
            Exercised      —             
            Forfeited or Expired      —             
Outstanding at the End of the Quarter  6/28/2019   185,000  $6.05         
            Fully Vested      181,000  $5.87   7.50   2,008 
            Exercisable at the End of the Quarter
            June 28, 2019		      181,000             
                     
Outstanding at the Beginning of the Quarter  6/28/2019   185,000  $6.05         
            Granted      —             
            Exercised      (9,283)  6.00         
            Forfeited or Expired      —             
Outstanding at the End of the Quarter  9/27/2019   175,717  $6.24   7.25  $2,418 
            Fully Vested      171,717  $5.95         
            Exercisable at the End of the Quarter
            September 27, 2019		      171,717             

 2018 

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IEH CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 10-8- 2011 EQUITY INCENTIVE PLAN:(continued)

 

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.

 

During the quarter ended September 27, 2019, three individuals opted to exercise some of their options, consequently, the issued and outstanding number of shares increased by 8,283 shares (9,283 shares exercised less 1,000 issued and outstanding shares surrendered) to 2,331,751 shares.

  

Note 11-9- CASH BONUS PLAN: 

 

In 1987, the Company adopted a cash bonus plan (“Cash Bonus Plan”) for non-union, management and administrative staff. Contributions to the Cash Bonus Plan are made by the Company only when the Company is profitable for the fiscal year. The Company accrued a contribution of $81,000 for each of the three months ended September 27, 2019 and September 28, 2018. The Company accrued a contribution provision of $243,000$162,000 for the ninesix months ended DecemberSeptember 27, 2019 and the six months ended September 28, 2018. For the fiscal year ended March 30, 2018, the Company’s contribution was $324,000.

 

Note 12-10- COMMITMENTS AND CONTINGENCIES: 

The Company leases space for its corporate offices (including its manufacturing facility) at 140 58th 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:    
     
2019 $46,830 
2020  189,200 
2021  128,640 
  $364,670 

The rental expense for the nine months ended December 28, 2018 was $136,890 and $132,880 for the nine months ended December 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.

 

Based upon such Plan’s information and data as of December 31, 2018 furnished to the Company (including, without limitation, unfunded vested benefits, accumulated benefits and net assets), such Plan is fully funded. Based thereupon, the Company’s proportional share of the liability through December 31, 2018 is fully funded. The total contributions charged to operations under the provisions of the Multi-Employer Plan were $13,329 and $24,837 for the three months ended September 29, 2019 and September 28, 2018, respectively and $26,759 and $37,042 for the six months ended September 27, 2019 and September 28, 2018, respectively. 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

Note 11 -INCOME TAXES

The income tax provision for three months ended September 27, 2019 and the 1990 Act, liabilities would be based uponthree months ended September 28, 2018 reflect effective tax rates of 34.6% and 33.7% respectively. The Company’s effective tax rate for the six months ended September 27, 2019 and September 28, 2018 reflect effective tax rates of 34.6% and 31.8% respectively.

Note 12- REVENUE FROM MAJOR CUSTOMERS: 

During the three months ended September 29, 2019, two customers accounted for $2,247,968 constituting 30% of the Company’s proportional sharenet sales. One of those customers accounted for 16% of the Multi-Employer Plan’s unfunded vested benefits, which is currently not available. The Plan’s information and dataCompany’s net sales while the second customer accounted for the year ending December 31, 2018 is not yet available. As14% of the date hereof,Company’s net sales. During the Company expects that its proportional sharethree months ended September 28, 2018 one customer accounted for $1,065,411 constituting 16% of the 2018 liability will also be fully funded. The amount of accumulated benefits andCompany’s net assets of such Plan is also not currently available tosales. During the Company. The total contributions charged to operations under the provisionssix months ended September 27, 2019, three customers accounted for $5,729,924 or 38% of the Multi-Employer Plan were $50,153Company’s net sales. One of those customers accounted for 16% of the Company’s net sales while the second and $111,038third customers accounted for 12% and 10% of the nine months ended December 28, 2018 and December 29, 2017,Company’s net sales respectively.

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 IEH CORPORATION

 

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

 

Note 13-12- ALLOWANCE FOR DOUBTFUL ACCOUNTS: REVENUE FROM MAJOR CUSTOMERS: (continued)

 

The Company historically had maintained an allowance for uncollectable accounts receivables. The Company did determine that overDuring the past five years, no customer account balances were determined to be uncollectable and charged off to operations. A review of accounts receivable at Decembersix months ended September 28, 2018, indicated that none were either deemed to be delinquentthree customers accounted for $6,096,486 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.39% of the Company’s net sales. One of the customers accounted for 15% of the Company’s net sales while the other two accounted for 12% each of the Company’s net sales, respectively.

 

Note 14-13-SUBSEQUENT EVENTS:

 

The Company has evaluated all subsequent events through February 11,November 19, 2019, 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.

 

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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

 

TheAs discussed in our Form 10-k for the fiscal year ended March 29, 2019, the discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordanceconformity with accounting principles generally accepted in the United States of America, which require the CompanyAmerica. The preparation of these financial statements requires us 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. Actualreported in those financial statements. These judgments can be subjective and complex, and consequently, actual results could differ from those estimates. The Company believes the following are theOur most critical accounting policies and estimates relate to revenue recognition; leases; share-based compensation and income taxes (including uncertain tax positions). As discussed in Note 1 the Company adopted Topic 842, “Leases” effective March 30, 2019. There have been no other significant changes to the Company’s accounting policies subsequent to March 29, 2019.

Leases

ASC 2016-02 Leases (Topic 842) – In February 2016, the FASB issued ASC 2016-02, which couldrequires lessees to recognize all leases on their balance sheet as a right-of-use asset and a lease liability. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating lease or finance leases. The classification is based on criteria that are largely similar to those applied in current lease accounting, but without explicit bright lines. Accordingly, we have adopted ASC 2016-2 as of March 30, 2019.

On our balance sheet operating leases are reported in operating lease right-of-use (“ROU”) assets and deferred lease liabilities. ROU assets represent our right to use an underlying asset for the most significant effectlease term and deferred lease liabilities represent its obligation to make lease payments over time arising from the lease. Operating lease ROU assets and deferred lease liabilities are recognized at the commencement date based on the Company's reported results and requirepresent value of lease payments over 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 thatlease term. As our contracted leases do not provide an implicit rate, we do use an incremental borrowing rate based on 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.

Inventory Valuation: 

Raw materials and supplies are stated at average cost on a first in first out basis, which does not exceed market value. Finished goods and work in process are valuedinformation available at the lowertransition date and commencement date in determining the present value 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.

lease payments.

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IEH CORPORATION

 

PART I: FINANCIAL INFORMATION

 

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

 

Critical Accounting PoliciesLeases(continued)

 

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 shipping terms that title to merchandise passes to the customerleases space for its corporate offices and its manufacturing facility located at the shipping point (FOB Shipping Point).140 58th Street, Suite 8E, Brooklyn, New York. The lease term commenced on December 1, 2010 and expires on November 30, 2020.

 

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

·Persuasive evidence of an arrangement exits

·Shipment has occurred

·The Company’s selling price for its products are fixed and determinable

·Collectability is reasonable assured

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.Provision for Income Taxes

 

The income tax provision for three months ended September 27, 2019 and the three months ended September 28, 2018 reflect effective tax rates of 34.6% and 33.7% respectively. The Company’s policy with respect to customer returns and allowances as well as product warranty is as follows:

effective tax rate increased .9% on a comparable basis. 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 customereffective tax rate 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.

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 ninesix months ended DecemberSeptember 27, 2019 and September 28, 2018 reflect effective tax rates of 34.6% and December 29, 2017,31.8% respectively, relating to the developmentreflecting a comparative increase 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.

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IEH CORPORATION

PART I: FINANCIAL INFORMATION

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

Comparative Analysis-Nine Months Ended December 28, 2018 and December 29, 20172.8%.

 

Results of OperationsOperation

Comparative Analysis-Six Months Ended September 27, 2019 and September 28, 2018

  

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 December 28,  December 29,   September 27,  September 28, 
 2018  2017 
   (Restated) 
      2019  2018 
Operating Revenues (in thousands) $21,619  $16,284  $15,119  $15,641 
                
Operating Expenses:                
(as a percentage of Operating Revenues)                
                
Costs of Products Sold  57.43%   64.36%   58.70%   55.15% 
Selling, General and Administrative  14.17%   18.03%   15.52%   13.28% 
Interest Expense  0.26%   0.15%   .22%   0.10% 
Depreciation and amortization  1.43%   1.95%   3.04%   1.44% 
                
TOTAL COSTS AND EXPENSES  73.29%   84.49%   77.48%   69.97% 
             
Operating Income  26.71%   15.51%   22.52%   30.03% 
                
Other Income  0.04%   0.01%   .11%   0.02% 
                
Income before Income Taxes  26.75%   15.52%   22.63%   30.05% 
                
Income Taxes  (8.27%)  (7.09%)  (7.83%)  (9.55%)
                
Net Income  18.48%   8.43%   14.80%   20.50% 
                

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PART I: FINANCIAL INFORMATION 

 

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

 

Comparative Analysis-Nine Months Ended December 28, 2018 and December 29, 2017Results of Operations(continued)

 

Results of OperationsComparative Analysis-Six Months Ended September 27, 2019 and September 28, 2018(continued)

 

Operating revenues for the ninesix months ended December 28, 2018September 27, 2019 amounted to $21,619,017$15,118,782 reflecting an 32.76% increasea 3.33% decrease versus $16,283,973$15,641,182 for the ninesix months ended December 29, 2017.September 28, 2018. The increasedecrease in revenues of $5,335,044$522,400 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 nine month period ending December 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.quarter last year.

 

Cost of products sold were $12,415,830$8,874,100 for the ninesix months ended December 28, 2018September 27, 2019 or 57.43%58.70% of operating revenues. This reflected an increase of $1,934,701$247,635 or 18.46%2.87% in the cost of products sold from $10,481,129$8,626,465 or 64.36%55.15% of operating revenues for the ninesix months ended December 29, 2017.September 28, 2018. The increase in cost of products sold can be attributed to increased production costs necessary to support theproduction, primarily due to an increase in sales.payroll and related fringe costs.

 

Selling, general and administrative expenses were $3,063,345$2,345,776 or 14.17%15.52% of operating revenues for the ninesix months ended

December 28, 2018September 27, 2019 compared to $2,961,572$2,077,479 or 18.03%13.28% of operating revenues.revenues for the six months ended September 28, 2018. This comparative increase of $101,773$268,297 can be attributed primarily to the Company’s efforts to better control expenses.an increase in general and administrative salaries of approximately $90,600, an increase in cyber security expense of approximately $25,700 and an increase in travel expenses of approximately $47,000.

 

Interest expense was $56,456$33,743 for the ninesix months ended December 28, 2018September 27, 2019 or 0.26%0.22% of operating revenues. For the ninesix months ended December 29, 2017,September 28, 2018, interest expense was $25,095$15,552 or 0.15%0.10% of operating revenues. The increase can be attributed to an increase in borrowing from our commercial financial companyinterest rates during the current nine-monthsix-month period.

 

Depreciation and amortization of $309,600$459,953 or 1.43%3.04% of operating revenues was reported for the ninesix months ended December 28, 2018September 27, 2019 as compared to $317,900$225,600 or 1.95%1.44% of operating revenues for the ninesix months ended December 29, 2017.September 28, 2018. The increase is due to newly acquired fixed assets being put into service during the current six-month period.

 

The Company reported net income of $3,994,469$2,238,211 for the ninesix months ended December 28, 2018September 27, 2019 as compared to net income of $1,345,191as$3,205,589 as restated for the ninesix months ended December 29, 2017.September 28, 2018. The increasedecrease in net income for the current nine-monthsix-month period can be attributed primarily to the increasedecrease in operating revenues for the current nine-month period.

six-month period, related to the previously mentioned completed contract in the first quarter of the last fiscal year.

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PART I: FINANCIAL INFORMATION 

 

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

 

Results of Operations(continued)

Comparative Analysis-Six Months Ended September 27, 2019 and September 28, 2018(continued)

Comparative Analysis-Three Months Ended DecemberSeptember 27, 2019 and September 28, 2018 and December 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:

 

      
Relationship to Total Revenues December 28,  December 29,  September 27,  September 28, 
 2018  2017 
   (Restated)  2019  2018 
          
Operating Revenues (in thousands) $5,978  $5,233  $7,551  $6,598 
                
Operating Expenses:                
(as a percentage of Operating Revenues)                
                
Costs of Products Sold  63.40%   66.96%   53.67%   61.25% 
Selling, General and Administrative  16.48%   17.32%   16.32%   15.80% 
Interest Expense  0.68%   0.16%   .26%   0.08% 
Depreciation and amortization  1.41%   2.01%   2.96%   1.27% 
                
TOTAL COSTS AND EXPENSES  81.97%   86.45%   73.21%   78.40% 
                
Operating Income  18.03%   13.55%   26.79%   21.60% 
                
Other Income  0.09%   0.01%   .11%   0.03% 
                
Income before Income Taxes  18.12%   13.56%   26.90%   21.63% 
                
Income Taxes  (4.92%)  (4.43%)  (9.3%)  (7.28%)
                
Net Income  13.20%   9.13%   17.60%   14.35% 

 

Operating revenues for the three months ended December 28, 2018September 27, 2019 amounted to $5,977,835$7,551,384 reflecting an 14.24%14.45% increase versus $5,232,733$6,597,876 for the three months ended December 29, 2017.September 28, 2018. The increase in revenues of $745,102$953,508 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 $3,790,188$4,052,488 for the three months ended December 28, 2018September 27, 2019 or 63.40%53.67% of operating revenues. This reflected an increase of $286,544$11,258 or 8.18%0.28% in the cost of products sold from $3,503,644$4,041,230 or 66.96%61.25% of operating revenues for the three months ended December 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 $985,043 or 16.48% of operating revenues for the three months ended

DecemberSeptember 28, 2018 compared to $909,348 or 17.32% of operating revenues.2018. This minor comparative increase of $75,695 can be attributed to the Company’s efforts to better control expenses.

Interest expense was $40,904 for the three months ended December 28, 2018 or 1.41% of operating revenues. For the three months ended December 29, 2017, interest expense was $8,457 or 0.16% of operating revenues. The increase can be attributed to an increase in borrowing from our commercial financial company during the current three-month period.payroll and related fringe costs along with decreases in insurance and travel.

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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 December 28, 2018 and December 29, 2017(continued)

Results of Operations(continued)

 

Comparative Analysis-Three Months Ended September 27, 2019 and September 28, 2018(continued)

Selling, general and administrative expenses were $1,232,611 or 16.32% of operating revenues for the three months ended September 27, 2019 compared to $1,042,532 or 15.80% of operating revenues for the three months ended September 28, 2018. This comparative increase of $190,079 can be attributed primarily to an increase in general and administrative salaries of approximately $63,500, an increase in cyber security expense of approximately $19,000 and director fees of $25,000.

Interest expense was $19,816 for the three months ended September 27, 2019 or 0.26% of operating revenues. For the three months ended September 28, 2018, interest expense was $5,304 or 0.08% of operating revenues. The increase can be attributed to an increase in interest rates during the current three-month period.

Depreciation and amortization of $84,000$223,333 or 1.41%2.96% of operating revenues was reported for the three months ended

December 28, 2018September 27, 2019 as compared to $105,300$84,000 or 2.01%1.27% of operating revenues for the three months ended December 29, 2017.September 28, 2018. The increase is due to additional fixed assets put into service during the current quarter.

 

The Company reported net income of $788,880$1,328,678 for the three months ended December 28, 2018September 27, 2019 as compared to net income of $474,908$946,304 for the three months ended December 29, 2017.September 28, 2018. The increase in net income for the current three-month period can be attributed primarily to the increase in operating revenues for the current period.

 

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PART I: FINANCIAL INFORMATION 

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

Liquidity and Capital Resources

 

The Company reported working capital of $18,754,355$21,891,654 as of December 28, 2018,September 27, 2019, compared to a working capital of $14,951,572$19,653,160 as of March 30, 2018.29, 2019 as restated. The increase in working capital of $3,802,783$2,238,494 was attributable to the following items:

 

Net income $3,994,469  $2,238,211 
Depreciation and amortization  309,600   459,953 
Capital expenditures  (528,088)  (333,302)
Recognition of stock compensation expense  26,802   14,126 
Deferred lease liability  (210,711)
Other  70,217 
 $3,802,783  $2,238,494 

 

As a result of the above, the current ratio (current assets to current liabilities) was 7.725.93 to 1 at December 28, 2018September 27, 2019 as compared to 7.566.15 to 1 at March 30, 2018.29, 2019. Current liabilities at December 28, 2018September 27, 2019 were $2,791,360$4,439,052 compared to $2,280,760$3,816,396 at March 30, 2018.29, 2019.

 

For the ninesix months ended December 28, 2018,September 27, 2019, the Company reported $528,088$333,301 in capital expenditures and depreciation and amortization of $309,600.

The net income of $3,994,469 for the nine months ended December 28, 2018 resulted in an increase in total shareholders’ equity to $21,093,487.$459,953.

 

The Company has an accounts receivable financing agreement with a commercial finance companynon-bank lending institution (“Financing 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 prime 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 its lender upon receiving 60 days’ prior notice. Funds advanced by the Financing Company are secured by the Company’s accounts receivable and inventories.

 

As of December 28, 2018, the Company had reported a liability to the commercial finance company of $228,757. As of March 30, 2018,September 27, 2019, the Company had reported excess payments to the commercial finance companyits Finance Company of $154,960.$608,666. These excess payments are reported in the accompanying financial statements as of March 30, 2018September 27, 2019 as “Excess payments to commercial finance company.” As of March 29, 2019, the Company had reported a liability to its Financing Company of $334,306.

 

In the past two fiscal years, managementManagement has been consistently reviewing its collection practices and policies for outstanding receivables and has revised its collection procedures to a more aggressive collection policy. The Company has not had an issue with uncollectable accounts receivables. 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 allowance for doubtful accounts that was less than 2% of average gross accounts receivable was no longer considered necessary as the company has no uncollectible accounts.

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 IEH CORPORATION

PART I: FINANCIAL INFORMATION

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

Liquidity and Capital Resources

 

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. Generally, these liabilities are contingent upon the termination, withdrawal, or partial withdrawal from the Multi-Employer Plan. The Company has not taken any action to terminate, withdraw or partially withdraw from the Multi-Employer Plan, nor does it intend to do so in the future. Under the 1990 Act, liabilities would be based upon the Company’s proportional share of the Multi-Employer Plan’s unfunded vested benefits. Based upon such Plan’s information and data as of December 31, 20162018 furnished to the Company (including, without limitation, unfunded vested benefits, accumulated benefits and net assets), such Plan is fully funded. Based thereupon, the Company’s proportional share of the liability through December 31, 20162018 is fully funded. The Multi-Employer Plan’s information and data for such Plan’s years ending December 31, 2017 and December 31, 2018 are not yet available to the Company. As of the date hereof, the Company expects that its proportional share of the 2017 liability will also be fully funded. The total contributions charged to operations under the provisions of the Multi-Employer Plan were $50,153$13,329 and $111,038$24,837 for the ninethree months ended DecemberSeptember 27, 2019 and September 28, 2018, respectively, and December 29, 2017,$26,759 and $37,048 for the six months ended September 27, 2019 and September 28, 2018, respectively.

Stock Option 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 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).

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 nine 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.

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, were granted 5,000 options. The stock options: (i) have a ten-year term; (ii) have an exercise price equal to the value of the Company’s common stock on the date of grant; and (iii) were all immediately vested. The options granted to Michael Offerman has an exercise price equal to 110% of such value because he owned ten percent (10%) or greater of the Company’s outstanding common 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.

Effective July 15, 2016, the Board of Directors of the Company unanimously voted to increase the number of directors from three to six directors and elected David Offerman as a Class II director and Dr. Sonia Marciano and Eric C. Hugel as Class I Directors.

Effective August 15, 2016, the Board of Directors also approved the granting of stock options to purchase shares of the Company’s common stock under the 2011 Plan to each of Dr. Marciano and Mr. Hugel as follows: Each of the new non-management directors will receive a grant of options totalling 5,000 shares each subject to the following vesting schedule: (i) 1,000 shares vested immediately (August 15, 2016); (ii) 2,000 shares vested on August 15, 2017; and (iii) 2,000 shares vested on August 15, 2018.

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PART I: FINANCIAL INFORMATION

 

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

Liquidity and Capital Resources(continued)

Stock Option Plan(continued)

The stock options (i) have a ten-year term; and (ii) have an exercise price equal to the value of the Company’s common stock on the date of grant. In the event of the termination of each recipient’s association with the Company, the options will remain exercisable in accordance with the terms of the 2011 Plan.

On September 7, 2018, the Board of Directors elected Michael E. Rosenfeld to the Board of Directors to fill the vacancy of a Class I Director of the Company created by the death of the Company’s then President and Chief Executive Officer, Michael Offerman. Such appointment became effective on October 26, 2018.

At the same time, the Board of Directors also approved the granting of stock options to purchase shares of the Company’s common stock under the 2011 Plan to Mr. Rosenfeld as follows: He will receive a grant of options totalling 5,000 shares each subject to the following vesting schedule: (i) 1,000 shares vested on October 26, 2018; (ii) 2,000 shares will vest on October 26, 2019; and (iii) 2,000 shares will vest on October 26, 2020. The stock options: (i) have a ten-year term; and (ii) have an exercise price equal to the value of the Company’s common stock on the date of grant. In the event of the termination of each recipient’s association with the Company, the options will remain exercisable in accordance with the terms of the 2011 Plan. 

Stock Option Plan(continued)

NameStock Option Grants*
David Offerman50,000
Robert Knoth50,000
Allen Gottlieb5,000
Gerald Chafetz5,000
Sonia Marciano5,000
Eric Hugel5,000
Michael E. Rosenfeld5,000*

*Options for 1,000 shares were vested on October 26, 2018 and options for 4,000 shares have not yet vested. 2,000 shares shall vest on October 26, 2019 and 2,000 shares shall vest on October 26, 2020.

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PART I: FINANCIAL INFORMATION

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

Liquidity and Capital Resources(continued)

Stock Option Plan(continued)

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

Stock-based compensation expense:

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

                
     Nine months
ended		  Nine months
ended		  Quarter ended  Quarter ended
Dec 29, 2017		 
  Ref  Dec 28, 2018
(in thousands)		  Dec 29,2017
(in thousands)		  Dec 28, 2018
(in thousands)		  (in thousands)
(restated)		 
IEH employees     $—  $—  $—  $— 
Non-employee directors      27   25   21   3 
Total stock compensation expense  (a)  $27  $25  $21  $3 

(a):

The Company reported compensation expense of $2,798 during the quarter ended December 28, 2018 and $2,798 during the quarter ended December 29, 2017 resulting from stock options granted on August 15, 2016.

The Company also reported compensation expense of $18,408 during the quarter ended December 28, 2018 resulting from stock options granted on October 26, 2018.

Unrecognized stock-based compensation expense: 

        As of 
     As of  December 29, 2017 
  Ref  December 28, 2018
(in thousands)		  (in thousands)
(restated)		 
Unrecognized expense for IEH employees     $—  $— 
Unrecognized expense for Non-employee directors      51   16 
Total unrecognized expense   (b)  $51  $16 
             

(b):Unrecognized stock-based compensation expense related to prior years’ equity grants of stock options to non-employee directors, that had not vested as of the end of the applicable fiscal year.

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:

  March 30, 2018  March 31, 2017 
Risk free interest rate  2.09%   1.88% 
Contractual term   10 years    10 years 
Dividend yield  —   — 
Expected lives  10 years    10 years 
Expected volatility  64%   56% 
Fair value per option $5.85  $6.00 

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PART I: FINANCIAL INFORMATION

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

Liquidity and Capital Resources(continued)

Stock Option Plan(continued)

The following table shows the activity for the fiscal years ended March 30, 2018 and March 31, 2017 and through December 28, 2018.

        Weighted Avg.  Remaining  Aggregate 
        Exercise  Contractual  Intrinsic Value 
     Shares  Price  Term (Years)  (in thousands) 
Outstanding at the Beginning of the Year  3/25/2016   245,000  $6.18   9.27  $— 
            Granted  8/15/2016   10,000  $5.30   10.00   — 
            Exercised      0             
            Forfeited or Expired      0             
Outstanding at the End of the Year  3/31/2017   255,000  $6.15   8.82  $87 
            Fully Vested      247,000  $6.05         
            Exercisable at the End of the Year                    
            March 31 2017      247,000             
Outstanding at the Beginning of the Year  3/31/2017   255,000  $6.15   8.82  $87 
            Granted      0             
            Exercised      0             
            Forfeited or Expired      0             
Outstanding at the End of the Year  3/30/2018   255,000  $6.15   8.07  $702 
            Fully Vested      251,000  $6.02         
            Exercisable at the End of the Year
March 30, 2018		      251,000             
                     
Outstanding at the Beginning of the Year  3/30/2018   255,000  $6.15   8.07  $702 
            Granted      0             
            Exercised      (75,000)            
            Forfeited or Expired      0             
Outstanding at the End of the Quarter  6/29/2018   180,000  $6.04   7.57  $666 
            Fully Vested      176,000  $5.94         
            Exercisable at the End of the Year
            December 28, 2018		      176,000             
                     
Outstanding at the Beginning of the Quarter  6/29/2018   180,000  $6.04   7.57  $666 
            Granted      0             
            Exercised      0             
            Forfeited or Expired      0             
Outstanding at the End of the Quarter  9/28/2018   180,000  $6.04   7.32  $1,393 
            Fully Vested      180,000  $5.94         
            Exercisable at the End of the Quarter
            December 28, 2018		      180,000             

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

Liquidity and Capital Resources(continued)

Stock Option Plan(continued)

        Weighted Avg.  Remaining  Aggregate 
        Exercise  Contractual  Intrinsic Value 
     Shares  Price  Term (Years)))  (in thousands) 
                
Outstanding at the Beginning of the Quarter  9/28/2018   180,000  $6.04   7.57  $1,393 
            Granted  10/26/2018    5,000             
            Exercised      0             
            Forfeited or Expired      0             
Outstanding at the End of the Quarter  12/28/2018   185,000  $6.02   7.99  $1,518 
            Fully Vested      181,000  $5.88         
            Exercisable at the End of the Quarter
            December 28, 2018		      185,000             

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.

 

Cash Bonus Plan

 

In 1987, the Company adopted the Cash Bonus Plan for non-union, management and administrative staff. Contributions to the Cash Bonus Plan are made by the Company only when the Company is profitable for the fiscal year. The Company accrued a contribution of $81,000 for each of the three months ended September 27, 2019 and September 28, 2018, respectively. The Company accrued a contribution provision of $243,000$162,000 for each of the ninesix months ended DecemberSeptember 27, 2019 and September 28, 2018. For the fiscal year ended March 30, 2018, the Company’s contribution was $324,000.respectively.

Item 3.Quantitative and Qualitative Disclosures About Market Risk

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

We are a “smaller reporting company”company��� as defined by Regulation S-K and as such, are not required to provide this information contained in this item pursuant to Regulation S-K.

 

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.cash. 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.

 

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PART I: FINANCIAL INFORMATION

Item 3.Quantitative and Qualitative Disclosures About Market Risk(continued)

Interest Rate Risk(continued)

As of December 28, 2018, ourSeptember 27, 2019, we reported unrestricted cash per the Company’s books was $7,088,965of $6,563,424 of which $4,249,302$4,774,156 was in an interest-bearing money market account with and the balance of $2,839,663$1,789,268 was maintained in non-interest-bearing checking accounts used to pay operating expenses. As of March 30, 2018,29, 2019, our unrestricted cash per the Company’s books was $1,407,013$7,080,126 of which $1,140,724$4,757,283 was maintained in an interest-bearing money market account and the balance of $266,289$2,322,843 was maintained in non-interest-bearing checking accounts to pay operating expenses.

 

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PART I: FINANCIAL INFORMATION

Item 4.Controls and Procedures

Item 4. Controls and Procedures

 

Evaluations of Disclosure Controls and Procedures

 

Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15e and 15d-15e) under the Exchange Act as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures throughout the period covered by this report were effective. As described below, they determinedeffective at the reasonable assurance level to ensure that deficiencies that were previously identified with respect to prior periods were corrected. These deficiencies included how the information required to be disclosed by us in reports filedthat we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow for timely decisions regarding disclosure. The deficiencies in our internal controls over financial reporting and disclosure controls related to the expertise of recording complex accounting issues with respect to stock-based compensation expense.

 

A controls system cannot provide absolute assurance, however, that the objectives of the controls systems are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

Management previously determined following the filing of the Company’s Annual Report on Form 10-K for the fiscal year ended March 30, 2018 that as of March 30, 2018, there were material weaknesses in both the design and effectiveness of our internal controls over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal controls over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Specifically, these weaknesses related to the analysis and reporting of stock-based compensation expense. Additionally, the Company did not report fully diluted earnings per share for the year ended March 30, 2018.

Following the filing of the Company’s Annual Report on Form 10-K, the Company filed Amendment No. 1 to Form 10-K to report properly stock-based compensation and fully diluted earnings per share for the year ended March 30, 2018.

Management immediately thereafter undertook steps to correct these past deficiencies in its system of internal controls over financial reporting and implemented procedures to closely monitor its system of internal controls in the future. Specifically, management implemented protocols to report properly in all future quarterly and annual reports stock-based compensation and fully diluted earnings per share. The Company started properly reporting stock-based compensation in the Company’s Annual Report on Form 10-K for the fiscal year ended March 30, 2018 and in the Quarterly Report on Form 10-Q for the fiscal quarter ended June 29, 2018 properly reported stock-based compensation and fully diluted earnings per share.

In addition, management recommended to the Board of Directors to form an audit committee of the Board which will be responsible to review: (i) all financial reports of the Company including, without limitation, the audited and unaudited financial statements of the Company, as applicable; and (ii) periodically review our disclosure controls and internal controls over financial reporting. The audit committee will also be authorized to investigate and make recommendations to the Board to implement any necessary system of internal controls over financial reporting to prevent any future deficiency in the internal controls over financial reporting. The audit committee will be comprised of at least three (3) independent directors of the Company.  
In making this recommendation management believed that these changes were reasonably likely to affect materially and positively the Company’s internal controls over financial reporting. At its meeting on November 27, 2018, the Board of the Directors approved formation of the audit committee and appointed the following directors to the audit committee: Eric Hugel, Michael Rosenfeld and Allen Gottlieb.

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PART I: FINANCIAL INFORMATION

Item 4.Controls and Procedures(continued)

 

Management’s Report on Internal Control over Financial Reporting

 

Our management, under the supervision of our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Our internal controls over financial reporting is a process designed by, or under the supervision of our principal executive officer and principal financial officer, or persons performing similar functions, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s internal controls over financial reporting includes those policies and procedures that:

 

(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; and

 

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the Company; and

 

(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

 

Management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 28, 2018.September 27, 2019. In making this evaluation, management used the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). As stated above, based on our evaluation under the framework in Internal Control—Integrated Framework, our management has concluded that our internal controls over financial reporting, as amended, are effective as of March 30, 2018 and December 28, 2018.September 27, 2019.

 

This Quarterly Report on Form 10-Q does not include an attestation report of our independent registered public accounting firm regarding our internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this Annual Report.

Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Changes in Internal Control over Financial Reporting

As stated above, management previously undertook steps to correct the deficiencies in our system of internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) which have now been in effect for the Company’s first three quarters of the Company’s current fiscal year. As described above, the Board of Directors approved the formation of an audit committee and appointed three (3) independent directors to the audit committee.

Inherent Limitations on Effectiveness of Controls

We doOur management, including our Chief Executive Officer and Chief Financial Officer does not expect that our disclosure controls and procedures or internal controls over financial reporting will prevent all errors or all instances of fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be 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 theits inherent limitations, in all control systems, nointernal controls over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of controls can provide absolute assuranceeffectiveness to future periods are subject to the risk that all control issues and instances of fraud, if any, within its company have been detected. These inherent limitations include the realities that

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PART I: FINANCIAL INFORMATION

Item 4.Controls and Procedures(continued)

Inherent Limitations on Effectiveness of Controls

judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls.

The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and any design may not succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or deterioration inthat the degree of compliance with the policies or procedures. Becauseprocedures may deteriorate.

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Table of the inherent limitation of a cost-effective control system, misstatements due to error or fraud may occurContents

IEH CORPORATION

PART I: FINANCIAL INFORMATION

Item 4. Controls and not be detected.

ProceduresOther Information Related to Internal Controls(continued)

 

Additionally, in responseInherent Limitations on Effectiveness of Controls (continued)

Also, projections of any evaluation of effectiveness to future periods are subject to the passagerisk that controls may become inadequate because of changes in conditions, or that the Sarbanes-Oxley Actdegree of 2002, our Board of Directors andcompliance with the policies or procedures may deteriorate. Our management, have adopted a Code of Ethics and have instituted a periodic review by members of our management team to assist and guide the disclosure process. The Board has also determined to periodically review and develop policies and procedures to enhancehowever, believes our disclosure controls and procedures as well asare in fact effective to provide reasonable assurance that the objectives of the control system are met.

There were no changes in our internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) identified in connection with reviewingthe evaluation of our periodic reports and other public disclosures.internal controls that occurred during the fiscal quarter ended September 27, 2019 that materially affected, or are reasonably likely to materially effect our internal controls over financial reporting.

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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 $5,160,776, $2,565,559, $1,473,976 and $1,690,110,$1,473,976, respectively, for the fiscal years ended March 29, 2019, March 30, 2018 and March 31, 2017 and March 25, 2016 and $3,994,469$2,328,211 for the ninesix months ended December 28, 2018. The results of this nine month period ending December 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.September 27, 2019. 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 commercial finance companynon-bank lending institution 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 with a minimum rate of 6% per annum. 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.

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IEH CORPORATION

PART II: OTHER INFORMATION

Item 1a. Risk Factors(continued)

Risks Related to Our Business(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.

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IEH CORPORATION

PART II: OTHER INFORMATION

Item 1a. Risk Factors(continued)

 

Our reported financial results could be adversely affected by changes in financial accounting standards or by the application of existing or future accounting standards to our business as it evolves.

 

As a result of the enactment of the Sarbanes-Oxley Act and the review of accounting policies by the SEC and national and international accounting standards bodies, the frequency of accounting policy changes may accelerate. Possible future changes to accounting standards, could adversely affect our reported results of operations.

  

Risks Related to Our Common Stock

 

Our stock price is volatile and could decline; 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 30, 201829, 2019 traded as low as $6.12 per share and as high as $8.89 per share. During the nine-monthsix-month period ended

December 28, 2018, September 27, 2019, our common stock traded in the range of $7.30$16.05 per share to $22.00$23.00 per share. We cannot assure you that your initial investment in our common stock will not decline.

  

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

 

Not applicable

 

Item 3. Defaults Upon Senior Securities

 

None

 

Item 4. Mine Safety Disclosure

 

None

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IEH CORPORATION

 

PART II: OTHER INFORMATION

 

Item 5. Other Information

 

None

 

Item 6. Exhibits

 

(a) Exhibits

 

Exhibit 10.1Employment Agreement, dated as of July 29, 2019, between the Company and David Offerman (filed as Exhibit 10.1 to Current Report on Form 8-K, dated July 29, 2019).
Exhibit 31.1 Certification of Chief Executive Officer Pursuant to 17CFR240.13a-14(a) or 17CFR240.15d-14(a)*

 

Exhibit 31.2Certification of Chief Financial Officer Pursuant to 17CFR240.13a-14(a) or 17CFR240.15d-14(a)* 

 

Exhibit 32.1 Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 17CFR240.13a-14(b) or 17CFR240.15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code* 

 

Exhibit 101.INS XBRL Instance Document* 

 

Exhibit 101.SCH XBRL Taxonomy Extension Schema* 

 

Exhibit 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document* 

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IEH CORPORATION

PART II: OTHER INFORMATION(continued)

Item 6. Exhibits(continued)

  

Exhibit 101.LAB XBRL Taxonomy Extension Label Linkbase Document* 
  
Exhibit 101.PREXBRL Taxonomy Extension Presentation Linkbase Document*

 

Exhibit 101.DEF XBRL Taxonomy Extension Definition Label Document* 

*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 ninesix months ended DecemberSeptember 27, 2019 and September 28, 2018 and December 29, 2017;2018; (ii) Balance Sheets as of December 28, 2018September 27, 2019 and March 30, 2018;29, 2019; (iii) Statement of Cash Flows for the ninesix months ended DecemberSeptember 27, 2019 and September 28, 2018 and December 29, 2017;2018; and (iv) Notes to Financial Statements for the ninesix months ended December 28, 2018.September 27, 2019.

 

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.

(i)Form 8-K, dated November 13, 2018

(ii)Form 8-K dated November 30, 2018

 

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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,November 19, 2019/s/ David Offerman
 David Offerman
 

President and Chief Executive Officer

(Principal Executive Officer)

  
  
February 12,November 19, 2019/s/ Robert Knoth
 Robert Knoth
 Chief Financial Officer (Principal Accounting Officer)
  
  

 


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