UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 27, 201930, 2022
☐ 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.file number: 0-5278
IEH CORPORATIONCorporation
(Exact name of registrant as specified in its charter)
New York | 13-5549348 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
140 58th Street, Suite 8E, Brooklyn, | 11220 | |
(Address of principal executive offices) |
(Zip Code) |
(718) 492-4440
(Registrant’s telephone number, including area code)code: (718) 492-4440
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of | Trading Symbol(s) | Name of | ||
IEHC | OTC |
Indicate by check mark whether the registrant: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 ☒ No☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☐ No ☒ No☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitionsdefinition of “large accelerated filer,” “accelerated filer”,filer, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☒ | Smaller reporting company | ☒ | |||
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 oNOYes ☐ No ☒
2,331,751As of October 6, 2023, the registrant had 2,370,251 shares of Common Shares,its common stock, par value $.01$0.01 per share, were issued and outstanding as of November 19, 2019.outstanding.
1
IEH CORPORATION
i
CAUTIONARY NOTE FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of Section 21E of the Exchange Act and Section 27A of the Securities Act. Any statements contained in this report that are not statements of historical fact may be forward-looking statements. When we use the words “anticipates,” “plans,” “estimates,” “expects,” “believes,” “should,” “could,” “may,” “will” and similar expressions, we are identifying forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future financial events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. Forward-looking statements involve risks and uncertainties described under “Risk Factors” in Part II, Item 1A, and elsewhere in this Quarterly Report on Form 10-Q, and as set forth in Part I, Item 1A, Risk Factors, of our Form 10-K for the fiscal year ended March 31, 2022, filed on June 22, 2023, and may include statements related to, among other things: macroeconomic factors, including inflationary pressures, supply shortages and recessionary pressures; accounting estimates and assumptions; pricing pressures on our product caused by competition; the risk that our products will not gain market acceptance; our ability to obtain additional financing; our ability to successfully prevent our registration with the SEC from being suspended or revoked and to timely file our SEC reports; our ability to operate our accounting system and material weaknesses identified in connection with our migration to such accounting system; our ability to protect intellectual property; our ability to integrate our satellite facility into our operations, and our ability to attract and retain key employees. No forward-looking statement is a guarantee of future performance and you should not place undue reliance on any forward-looking statements. Our actual results may differ materially from those projected in any forward-looking statements, as they will depend on many factors about which we are unsure, including many factors beyond our 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 Securities and Exchange Commission (“SEC”) that attempt to advise interested parties of the risks, uncertainties and other factors that may affect our business.
Important factors that could cause actual results to differ materially from the results and events anticipated or implied by such forward-looking statements include, but are not limited to:
● | changes in the market acceptance of our products and services; | ||
increased levels of | |||
● | |||
| |||
● | |||
adverse conditions in the industries in which our customers operate; | |||
● | |||
our ability to | |||
our ability to | |||
other risks, including those described in the “Risk Factors” section of this Quarterly Report. |
3 ii
IEH CORPORATION
PART I: FINANCIAL INFORMATION
IEH CORPORATION
As of September 27, 2019 and March 29, 2019
As of | ||||||||
September 30, 2022 | March 31, 2022 | |||||||
(Unaudited) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash | $ | 9,824,154 | $ | 12,675,271 | ||||
Accounts receivable | 2,295,569 | 3,039,468 | ||||||
Inventories | 9,727,361 | 9,728,387 | ||||||
Corporate income taxes receivable | 2,049,430 | 2,096,480 | ||||||
Prepaid expenses and other current assets | 137,883 | 112,173 | ||||||
Total current assets | 24,034,397 | 27,651,779 | ||||||
Non-current assets: | ||||||||
Property, plant and equipment, net | 4,279,291 | 4,354,111 | ||||||
Operating lease right-of-use assets | 2,823,426 | 2,980,820 | ||||||
Deferred income tax assets, net | - | 806,380 | ||||||
Security deposit | 75,756 | 75,756 | ||||||
Total assets | $ | 31,212,870 | $ | 35,868,846 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 720,526 | $ | 808,631 | ||||
Customer advance payments | 31,766 | 97,885 | ||||||
Operating lease liabilities | 300,995 | 285,275 | ||||||
Other current liabilities | 936,671 | 951,106 | ||||||
Total current liabilities | 1,989,958 | 2,142,897 | ||||||
Non-current liabilities: | ||||||||
Operating lease liabilities, non-current | 2,752,536 | 2,906,455 | ||||||
Total liabilities | 4,742,494 | 5,049,352 | ||||||
Commitments and Contingencies (Note 10) | ||||||||
Stockholders’ Equity | ||||||||
Common Stock, $0.01 par value; 10,000,000 shares authorized; 2,370,251 shares issued and outstanding at September 30, 2022 and March 31, 2022 | 23,703 | 23,703 | ||||||
Additional paid-in capital | 7,566,324 | 7,566,324 | ||||||
Retained earnings | 18,880,349 | 23,229,467 | ||||||
Total Stockholders’ Equity | 26,470,376 | 30,819,494 | ||||||
Total Liabilities and Stockholders’ Equity | $ | 31,212,870 | $ | 35,868,846 |
September 27, | March 29, | |||||||
2019 | 2019 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
CURRENT ASSETS: | ||||||||
Cash | $ | 6,563,424 | $ | 7,080,126 | ||||
Accounts receivable | 5,515,887 | 3,833,090 | ||||||
Inventories(Note 3) | 13,091,697 | 12,021,443 | ||||||
Excess payments to commercial finance company(Note 6) | 608,666 | — | ||||||
Prepaid expenses and other current assets(Note 4) | 551,032 | 534,897 | ||||||
Total Current Assets | 26,330,706 | 23,469,556 | ||||||
PROPERTY, PLANT AND EQUIPMENT(Note 5) | 2,433,956 | 2,560,607 | ||||||
2,433,956 | 2,560,607 | |||||||
OTHER ASSETS: | ||||||||
Right of use Asset-Leasehold(Note 2) | 206,541 | — | ||||||
Other assets | 54,489 | 54,489 | ||||||
Total Other Assets | 261,030 | 54,489 | ||||||
Total Assets | $ | 29,025,692 | $ | 26,084,652 | ||||
The accompanying notes should be read in conjunction with theare an integral part of these unaudited condensed financial statements.
4
IEH CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
BALANCE SHEETS(Continued)
For the Three Months Ended September 30, | For the Six Months Ended September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Revenue | $ | 4,193,646 | $ | 6,561,872 | $ | 8,272,230 | $ | 13,072,449 | ||||||||
Costs and expenses: | ||||||||||||||||
Cost of products sold | 4,209,506 | 5,563,554 | 9,128,445 | 10,303,296 | ||||||||||||
Selling, general and administrative | 1,230,748 | 1,180,275 | 2,239,755 | 2,464,381 | ||||||||||||
Depreciation and amortization | 257,111 | 181,149 | 505,594 | 357,065 | ||||||||||||
Total operating expenses | 5,697,365 | 6,924,978 | 11,873,794 | 13,124,742 | ||||||||||||
Operating loss | (1,503,719 | ) | (363,106 | ) | (3,601,564 | ) | (52,293 | ) | ||||||||
Other income (expense): | ||||||||||||||||
Other income (for six months ended September 30, 2021, consists principally of $2,103,885 debt forgiveness income from the forgiveness of the PPP Loan, see Note 4) | 53,977 | 50,839 | 54,053 | 2,181,445 | ||||||||||||
Interest income (expense), net | 4,400 | 126 | 4,773 | 199 | ||||||||||||
Total other income (expense), net | 58,377 | 50,965 | 58,826 | 2,181,644 | ||||||||||||
(Loss) income before benefit from (provision for) income taxes | (1,445,342 | ) | (312,141 | ) | (3,542,738 | ) | 2,129,351 | |||||||||
Benefit from (provision for) income taxes | - | 69,914 | (806,380 | ) | (27,990 | ) | ||||||||||
Net (loss) income | $ | (1,445,342 | ) | $ | (242,227 | ) | $ | (4,349,118 | ) | $ | 2,101,361 | |||||
(Net loss) earnings per common share: | ||||||||||||||||
Basic | $ | (0.61 | ) | $ | (0.10 | ) | $ | (1.84 | ) | $ | 0.89 | |||||
Diluted | $ | (0.61 | ) | $ | (0.10 | ) | $ | (1.84 | ) | $ | 0.86 | |||||
Weighted-average number of common and common equivalent shares (in thousands): | ||||||||||||||||
Basic | 2,370 | 2,370 | 2,370 | 2,370 | ||||||||||||
Diluted | 2,370 | 2,370 | 2,370 | 2,456 |
As of September 27, 2019 and March 29, 2019
September 27, | March 29, | |||||||
2019 | 2019 | |||||||
(Unaudited) | ||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
CURRENT LIABILITIES: | ||||||||
Accounts payable | $ | 119,691 | $ | 480,012 | ||||
Due to commercial finance company(Note 6) | — | 334,306 | ||||||
Customer advance payments | 222,541 | 348,230 | ||||||
Accrued corporate income taxes | 2,747,407 | 1,676,428 | ||||||
Deferred Lease Liability - Net of Long Term(Note 2) | 177,664 | — | ||||||
Other current liabilities(Note 7) | 1,171,749 | 977,420 | ||||||
Total Current Liabilities | 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 | 4,472,099 | 3,816,396 | ||||||
SHAREHOLDERS’ EQUITY: | ||||||||
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 | 3,849,715 | 3,802,672 | ||||||
Retained earnings | 20,680,560 | 18,442,349 | ||||||
Total Shareholders’ Equity | 24,553,593 | 22,268,256 | ||||||
Total Liabilities and Shareholders’ Equity | $ | 29,025,692 | $ | 26,084,652 |
The accompanying notes should be read in conjunction with theare an integral part of these unaudited condensed financial statements.
5
IEH CORPORATION
(Unaudited)
For the Three and Six Months Ended September 27, 2019 and September 28, 2018
Three Months Ended | Six Months Ended | |||||||||||||||
Sept. 27, 2019 | Sept. 28, 2018 | Sept. 27, 2019 | Sept. 28, 2018 | |||||||||||||
REVENUE, net sales | $ | 7,551,384 | $ | 6,597,876 | $ | 15,118,782 | $ | 15,641,182 | ||||||||
COSTS AND EXPENSES | ||||||||||||||||
Cost of products sold | 4,052,488 | 4,041,230 | 8,874,100 | 8,626,465 | ||||||||||||
Selling, general and administrative | 1,232,611 | 1,042,532 | 2,345,776 | 2,077,479 | ||||||||||||
Depreciation | 223,333 | 84,000 | 459,953 | 225,600 | ||||||||||||
5,508,432 | 5,167,762 | 11,679,829 | 10,929,544 | |||||||||||||
OPERATING INCOME | 2,042,952 | 1,430,114 | 3,438,953 | 4,711,638 | ||||||||||||
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 | 2,031,112 | 1,426,765 | 3,422,084 | 4,699,248 | ||||||||||||
PROVISION FOR INCOME TAXES | 702,434 | 480,461 | 1,183,873 | 1,493,659 | ||||||||||||
NET INCOME | $ | 1,328,678 | $ | 946,304 | $ | 2,238,211 | $ | 3,205,589 | ||||||||
BASIC EARNINGS PER SHARE(Note 2) | $ | .57 | $ | .41 | $ | .96 | $ | 1.38 | ||||||||
FULLY DILUTED EARNINGS PER SHARE | $ | .54 | $ | .39 | $ | .92 | $ | 1.34 | ||||||||
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (in thousands) | 2,328 | 2,323 | 2,326 | 2,319 | ||||||||||||
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING – FULLY DILUTED (in thousands) | 2,446 | 2,411 | 2,443 | 2,397 | ||||||||||||
The accompanying notes should be read in conjunction with the financial statements.
6
IEH CORPORATION
STATEMENTS CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
For the Three and Six Months Ended September 27, 2019 and September 28, 2018
Common Stock | Additional Paid-in | Retained | Total Stockholders’ | |||||||||||||||||
Shares | Amount | Capital | Earnings | Equity | ||||||||||||||||
Balance at March 31, 2021 | 2,370,251 | $ | 23,703 | $ | 7,183,241 | $ | 21,791,333 | $ | 28,998,277 | |||||||||||
Stock-based compensation expense | - | - | 199,500 | - | 199,500 | |||||||||||||||
Net income | - | - | - | 2,343,588 | 2,343,588 | |||||||||||||||
Balance at June 30, 2021 | 2,370,251 | $ | 23,703 | $ | 7,382,741 | $ | 24,134,921 | $ | 31,541,365 | |||||||||||
Stock-based compensation expense | - | - | 66,500 | - | 66,500 | |||||||||||||||
Net loss | - | - | - | (242,227 | ) | (242,227 | ) | |||||||||||||
Balance at September 30, 2021 | 2,370,251 | $ | 23,703 | $ | 7,449,241 | $ | 23,892,694 | $ | 31,365,638 |
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 |
Common Stock | Additional Paid-in | Retained | Total Stockholders’ | |||||||||||||||||
Shares | Amount | Capital | Earnings | Equity | ||||||||||||||||
Balance at March 31, 2022 | 2,370,251 | $ | 23,703 | $ | 7,566,324 | $ | 23,229,467 | $ | 30,819,494 | |||||||||||
Net loss | - | - | - | (2,903,776 | ) | (2,903,776 | ) | |||||||||||||
Balance at June 30, 2022 | 2,370,251 | $ | 23,703 | $ | 7,566,324 | $ | 20,325,691 | $ | 27,915,718 | |||||||||||
Net loss | - | - | - | (1,445,342 | ) | (1,445,342 | ) | |||||||||||||
Balance at September 30, 2022 | 2,370,251 | $ | 23,703 | $ | 7,566,324 | $ | 18,880,349 | $ | 26,470,376 |
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 theare an integral part of these unaudited condensed financial statements.
7
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.
8
IEH CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months Ended September 27, 2019 and September 28, 2018
For the Six Months Ended September 30, | ||||||||
2022 | 2021 | |||||||
Cash flows from operating activities: | ||||||||
Net (loss) income | $ | (4,349,118 | ) | $ | 2,101,361 | |||
Adjustments to reconcile net (loss) income to | ||||||||
Net cash (used in) provided by operating activities: | ||||||||
Depreciation and amortization | 505,594 | 357,065 | ||||||
Stock-based compensation expense | - | 266,000 | ||||||
Inventory obsolescence provision | 114,000 | (14,000 | ) | |||||
Deferred income taxes, net | 806,380 | (512,272 | ) | |||||
Operating lease right-of-use assets | 251,438 | 232,921 | ||||||
Gain on forgiveness of PPP loan | - | (2,103,885 | ) | |||||
Changes in assets and liabilities: | ||||||||
Accounts receivable | 743,899 | 2,578,046 | ||||||
Inventories | (112,974 | ) | 4,778 | |||||
Corporate income taxes receivable | 47,050 | (883,356 | ) | |||||
Prepaid expenses and other current assets | (25,710 | ) | (34,819 | ) | ||||
Accounts payable | (88,105 | ) | (347,151 | ) | ||||
Customer advance payments | (66,119 | ) | (9,028 | ) | ||||
Operating lease liabilities | (232,243 | ) | (137,041 | ) | ||||
Other current liabilities | (14,435 | ) | (377,422 | ) | ||||
Net cash (used in) provided by operating activities | (2,420,343 | ) | 1,121,197 | |||||
Cash flows from investing activities: | ||||||||
Acquisition of property, plant and equipment | (430,774 | ) | (412,158 | ) | ||||
Net cash used in investing activities | (430,774 | ) | (412,158 | ) | ||||
Net (decrease) increase in cash | (2,851,117 | ) | 709,039 | |||||
Cash - beginning of period | 12,675,271 | 13,907,542 | ||||||
Cash - end of period | $ | 9,824,154 | $ | 14,616,581 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid during the period for: | ||||||||
Interest | $ | 7 | $ | 52 | ||||
Income Taxes | $ | - | $ | 1,010,539 |
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 theare an integral part of these unaudited condensed financial statements.
9
IEH CORPORATION
Notes to Unaudited Condensed Financial Statements
Note 1 | DESCRIPTION OF BUSINESS: |
Overview
STATEMENTS OF CASH FLOWS(continued)
(Unaudited)
ForIEH Corporation (hereinafter referred to as “IEH” or the Six Months Ended September 27, 2019 and September 28, 2018“Company”) began in New York, New York in 1941. IEH was incorporated in March, 1943.
The Company designs and manufactures HYPERBOLOID connectors that not only accommodate, but exceed military and aerospace specification standards.
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 | |||||
Note 2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: |
The accompanying notes should be read in conjunction with the financial statements.
10
TableBasis of ContentsPresentation
IEH CORPORATION
(Unaudited)
The accompanying unauditedcondensed financial statements and the related disclosures as of September 27, 201930, 2022 and for the three 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 September 27, 2019 and the results of operations and cash flows for the three 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 three and six months ended September 27, 2019,30, 2022 and 2021 are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP, and the rules and regulations of the SEC for interim financial statements. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These interim condensed financial statements should be read in conjunction with the March 31, 2022 audited financial statements and notes included in the Annual Report on Form 10-K filed on June 22, 2023. The March 31, 2022 balance sheet included herein was derived from the audited financial statements as of that date but does not include all disclosures including notes required by U.S. GAAP for complete financial statements. In the opinion of management, the condensed financial statements reflect all adjustments, consisting of normal and recurring adjustments, necessary for the fair presentation of the Company’s financial position and results of operations for the three and six months ended September 30, 2022 and 2021. The results of operations for the interim periods are not necessarily indicative of the results to be expected for any subsequent quarter or the entire fiscal year. The balance sheet at March 29, 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 29, 2019 included in the Company’s Annual Report on Form 10-K as filed with the SEC on July 12, 2019 and Management’s Discussion and Analysis of Financial Condition and Results of Operations.31, 2023 or any other interim period or future year or period.
Description of Business:Revenue Recognition
The Company designs, develops and manufactures printed circuit connectors for high performance applications. We have also developed a high performance plastic circular connector line. All of our connectors 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.
The customers we service are in the Military, Aerospace, Space, Medical, Oil & 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 electronic (inclusive of aerospace, space, oil & gas, medical & miscellaneous) and military markets were 49.9% and 50.1%, respectively, of the Company’s net sales for the year ended March 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 29, 2019, the Company purchased several machines to increase the productivity of certain processes. This will help the Company meet this goal.
11
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Business New Product Development:
The Company 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 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 29, 2019 was comprised of 52 weeks. The current fiscal year, ending on March 27, 2020, will be comprised of 52 weeks.
Revenue Recognition:
In May 2014, the Financialcore principle underlying Accounting Standards Board issuedCodification ASC 606 “Revenue from Contracts with Customers” that, as amended on August 12, 2015, became effective for annual report periods beginning after December 15, 2017.
The core principle underlying (“ASC 606,606”), is to recognize revenue to depict the transfer of promised goods or services 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 606-10-05-4606 sets out the following steps for an entity to follow when applying the core principle to its revenue -generatinggenerating transactions:
Identify the contract with a customer |
Identify the performance obligations in the contract |
Determine the transaction price |
Allocate the transaction price to the performance obligations |
Recognize revenue when (or as) each performance obligation is satisfied |
The Company designs, developsrecognizes revenue and manufactures printed circuit board connectorsthe related cost of products sold when the performance obligations are satisfied. The performance obligations are typically satisfied upon shipment of physical goods. In addition to the satisfaction of the performance obligations, the following conditions are required for revenue recognition: an arrangement exists, there is a fixed price, and custom interconnects for high performance applications. All of our connectors utilize the HYPERBOLOID contact design, a rugged, high-reliability contact system ideally suited for high-stress environments.
The customers we service are in the Military, Aerospace, Space, Medical, Oil and Gas, Industrial, Test Equipment and Commercial Electronics markets.collectability is reasonably assured.
12
IEH CORPORATION
Notes to Unaudited Condensed Financial Statements
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note | SUMMARY OF SIGNIFICANT ACCOUNTING |
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 products 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.provide a replacement at its own cost.
The Company provides engineering servicesCompany’s disaggregated revenue by geographical location is as partfollows:
For the Three Months Ended September 30, | For the Six Months Ended September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Domestic | $ | 3,392,280 | $ | 5,132,645 | $ | 6,405,074 | $ | 9,695,840 | ||||||||
International | 801,366 | 1,429,227 | 1,867,156 | 3,376,609 | ||||||||||||
Total | $ | 4,193,646 | $ | 6,561,872 | $ | 8,272,230 | $ | 13,072,449 |
Approximately 46.2% and 70.6% of the relationship with itsinternational net sales for the three months ended September 30, 2022 and 2021, respectively, represent sales to customers located in developing custom 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.China.
Inventories:Approximately 56.8% and 75.5% of the international net sales for the six months ended September 30, 2022 and 2021, respectively, represent sales to customers located in China.
The Company’s aggregated revenue by industry as a percentage of total revenue is provided below:
For the Three Months Ended September 30, | For the Six Months Ended September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Industry | % | % | % | % | ||||||||||||
Defense | 46.2 | 57.5 | 51.0 | 56.8 | ||||||||||||
Commercial Aerospace | 24.7 | 12.8 | 22.6 | 13.7 | ||||||||||||
Space | 13.5 | 18.5 | 15.2 | 20.0 | ||||||||||||
Other | 15.6 | 11.2 | 11.2 | 9.5 |
Inventories
Inventories are comprised of raw materials, work-in-process and finished goods, and are stated at an average cost, on a first-in, first-outan average basis, which does not exceed net 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 three years, it is deemed to be obsolete. The Company estimates which materials may be obsolete and which products in work in process or finished goods may be sold at less than cost. A periodic adjustment, based upon historical experience is made to inventory in recognition of this impairment. The Company recognized $108,000Company’s allowance for the six months endedobsolete inventory was $325,000 and $211,000 as of September 27, 201930, 2022 and September 28, 2018,March 31, 2022, respectively, and was reflected as a reduction of inventory due to obsolescence.inventory.
IEH CORPORATION
Notes to Unaudited Condensed Financial Statements
Note 2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued): |
Concentration of Credit Risk:Risk
Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable.
13
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
ConcentrationAt times, the Company’s cash in banks was in excess 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.insurance limits. The Company does maintain cash balances in excesshas not experienced any loss as a result of insured limits.these deposits.
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 Loss) Earnings Per Share:Share
The Company accounts for earnings per share pursuant to ASC Topic 260, “Earnings per Share”, which requires disclosure on the Financial Statementsfinancial statements of “basic” and “diluted” earnings per share. Basic (net loss) earnings per common share are computed by dividing net (loss) income by the weighted average number of common shares outstanding for the year.reporting period. Diluted (net loss) earnings per share is computed by dividing net (loss) income by the weighted average number of common shares outstanding plus common stock equivalents (if dilutive) related to stock options for each year. As the Company reported net income for both the three months and six months ended September 27, 2019 and September 28, 2018, respectively, basicreporting period.
Basic and diluted income(net loss) earnings per share areis 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 |
For the Three Months Ended September 30, | For the Six Months Ended September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Net (loss) income | $ | (1,445,342 | ) | $ | (242,227 | ) | $ | (4,349,118 | ) | $ | 2,101,361 | |||||
(Net loss) earnings per common share: | ||||||||||||||||
Basic | $ | (0.61 | ) | $ | (0.10 | ) | $ | (1.84 | ) | $ | 0.89 | |||||
Diluted | $ | (0.61 | ) | $ | (0.10 | ) | $ | (1.84 | ) | $ | 0.86 | |||||
Weighted average number of common shares outstanding-basic (in thousands) | 2,370 | 2,370 | 2,370 | 2,370 | ||||||||||||
Dilutive effect of options to the extent that such options are determined to be in the money for the period (in thousands) | - | - | - | 86 | ||||||||||||
Weighted average number of common shares outstanding-fully diluted (in thousands) | 2,370 | 2,370 | 2,370 | 2,456 | ||||||||||||
14
IEH CORPORATION
Notes to Unaudited Condensed Financial Statements
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note | SUMMARY OF SIGNIFICANT ACCOUNTING |
(Net Loss) Earnings Per Share, continued
Potentially dilutive securities outlined in the table below have been excluded from the computation of diluted (net loss) earnings per share because the effect of their inclusion would have been anti-dilutive.
For the Three Months Ended September 30, | For the Six Months Ended September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Potentially dilutive options to purchase common shares | 467,217 | 472,217 | 467,217 | 234,158 |
Fair Value of Financial Instruments:Instruments
The carrying value of the Company’s financial instruments, consisting of accounts receivable and accounts payable, approximate their fair value due to the relatively short maturity of these instruments. The Company is exposed to credit risk through its cash but mitigates this risk by keeping these deposits at major financial institutions.
ASC 820, “Fair Value Measurements and Disclosures”, provides the framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements).
Fair value is defined as an exit price, representing the amount that would be received upon the sale of an asset or payment to transfer a liability in an orderly transaction between market participants.
Fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability. A three-tier fair value hierarchy is used to prioritize the inputs in measuring fair value as follows:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable, either directly or indirectly.
Level 3- Significant unobservable inputs that cannot be corroborated by market data and inputs that are derived principally from or corroborated by observable market data or correlation by other means.
Use of Estimates:Estimates
The preparation of financial statements in conformity with GAAPgenerally accepted accounting principles (“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 inthe fair value of stock based instruments, an incremental borrowing rate for determining for its leases the present value of lease payments, the calculation of inventory obsolescence.obsolescence, as well as determining the amount of the valuation allowance for deferred income tax assets, net. Actual amounts could differ from those estimates.
Impairment of Long-Lived Assets:
IEH CORPORATION
Notes to Unaudited Condensed Financial Statements
Note 2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued): |
Segment Information
The Company has adopted the provisions ofidentifies its operating segments in accordance with 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 amount280, Segment Reporting (“ASC 280”). Operating segments are defined as components of an asset may not be recoverable. There were no long-lived asset impairments recognizedenterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker, its Chief Executive Officer, manages the Company’s operations on a combined basis for the purposes of allocating resources. Accordingly, the Company has determined it operates and manages its business in a single reportable operating segment.
Depreciation
The Company provides for depreciation and amortization on a straight-line basis over the estimated useful lives (5-7 years) of the related assets. Depreciation expense for the three months ended September 30, 2022 and 2021 was $257,111 and $181,149 respectively. Depreciation expense for the six months ended September 27, 201930, 2022 and September 28, 2018, respectively,2021 was $505,594 and currently all assets are being utilized.$357,065 respectively.
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 athe 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.
Leases:Recent Accounting Pronouncements
ASC 2016-02 Leases (Topic 842) – In FebruaryJune 2016, the FASB issued ASC 2016-02,ASU 2016-13 – Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires lessees to recognize all leaseswas subsequently revised by ASU 2018-19 and ASU 2020-02. The ASU introduces a new model for assessing impairment 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 tomost financial assets. Entities will 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, 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 as operating lease right-of-use (“ROU”) assets and deferred lease liabilities. ROU assets represent our rightrequired to use an underlying asseta forward-looking expected loss model, which will replace the current incurred loss model, which will result in earlier recognition of allowance for losses. The ASU will be effective for the lease termCompany’s first interim period of the fiscal year ended March 31, 2024. The Company has evaluated the impact of the adoption of ASU 2016-13, and deferred lease liabilities represent our obligationrelated updates, and has determined that the impact would not be material to make lease payments over time arising from the lease. Operating lease ROU assetsits financial statements 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 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.
15
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Leases:(continued)disclosures.
The Company leases space for its corporate officeshas evaluated other recently issued accounting pronouncements and its manufacturing facility located at 140 58th Street, Suite 8E, Brooklyn New York. The lease commencedhas concluded that the impact of recently issued standards that are not yet effective will not have a material impact on December 1, 2010 and expires on November 30, 2020. Asthe Company’s financial position or results of September 27, 2019, there remains 14 payments on this lease.operations upon adoption.
Presented below are the balances of ROU asset and the corresponding 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.Subsequent Events
ROU Asset | Deferred Lease Liability | Amortization | ||||||||||
March 30, 2019 | $ | 301,957 | $ | 301,957 | — | |||||||
September 27, 2019 | 206,541 | 210,711 | 95,416 |
Future lease commitmentsThe Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the financial statements were available to be paid by us as of September 27, 2019 were as follows:issued. The Company did not identify any subsequent events that would have required adjustment or disclosure in the financial statements.
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 September 27, 2019.
IEH CORPORATION
Notes to Unaudited Condensed Financial Statements
Note | INVENTORIES: |
Inventories wereare stated at cost, on a moving average basis that does not exceed net realizable value.
Inventories are comprised of the following:
September 27, | March 29, | |||||||
2019 | 2019 | |||||||
Raw materials | $ | 7,681,895 | $ | 7,053,896 | ||||
Work in progress | 3,046,020 | 2,797,006 | ||||||
Finished goods | 2,363,782 | 2,170,541 | ||||||
$ | 13,091,697 | $ | 12,021,443 |
As of | ||||||||
September 30, 2022 | March 31, 2022 | |||||||
Raw materials | $ | 8,370,682 | $ | 7,875,015 | ||||
Work in progress | 1,100,083 | 1,505,614 | ||||||
Finished goods | 581,596 | 558,758 | ||||||
Allowance for obsolete inventory | (325,000 | ) | (211,000 | ) | ||||
$ | 9,727,361 | $ | 9,728,387 |
16
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note |
Prepaid expensesOn April 13, 2020, the Company entered into an unsecured note (the “PPP Note”) evidencing an unsecured loan (“PPP Loan”) in the principal amount of $2,103,885 pursuant to the Payment Protection Program (“PPP”) under the Coronavirus Aid Relief and otherEconomic Security Act (“CARES Act”).
On April 21, 2021, the Company received notice that the PPP Loan was forgiven. The Company recorded the forgiveness of the principal balance of $2,103,885 as debt forgiveness income in the quarter ended June 30, 2021.
Note 5 | OTHER CURRENT LIABILITIES: |
Other current assets wereliabilities are comprised of the following:
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 |
As of | ||||||||
September 30, 2022 | March 31, 2022 | |||||||
Payroll and vacation accruals | $ | 840,178 | $ | 871,117 | ||||
Sales commissions | 40,891 | 48,681 | ||||||
Other current liabilities | 55,602 | 31,308 | ||||||
$ | 936,671 | $ | 951,106 |
IEH CORPORATION
Notes to Unaudited Condensed Financial Statements
Note |
Property, plant and equipment were comprised of the following:Operating leases
September 27, | March 29, | |||||||
2019 | 2019 | |||||||
Computers | $ | 512,420 | $ | 502,723 | ||||
Leasehold improvements | 969,253 | 934,648 | ||||||
Machinery and equipment | 6,825,097 | 6,657,875 | ||||||
Tools and dyes | 4,121,484 | 3,999,705 | ||||||
Furniture and fixture | 179,071 | 179,072 | ||||||
Website development cost | 9,785 | 9,785 | ||||||
12,617,110 | 12,283,808 | |||||||
Less: accumulated depreciation and amortization | (10,183,154 | ) | (9,723,201 | ) | ||||
$ | 2,433,956 | $ | 2,560,607 | |||||
Depreciation expense forLeases classified as operating leases are included in operating lease right-of use, or ROU, assets, operating lease liabilities and operating lease liabilities, non-current, in the six months ended September 27, 2019 and September 28, 2018 was $459,953 and $225,600, respectively. DepreciationCompany’s condensed balance sheets.
Condensed balance sheet information related to our leases is presented below:
As of | ||||||||||
Condensed Balance Sheet Location | September 30, 2022 | March 31, 2022 | ||||||||
Operating leases: | ||||||||||
Right-of-use assets | Operating lease right-of-use assets | $ | 2,823,426 | $ | 2,980,820 | |||||
Right-of-use liability, current | Operating lease liabilities, current | $ | 300,995 | $ | 285,275 | |||||
Right-of-use lease liability, long-term | Operating lease liabilities, non-current | $ | 2,752,536 | $ | 2,906,455 |
The lease expense for the three months ended September 27, 201930, 2022 and 2021 was $143,157 and $154,898, which was included in selling, general and administrative expense on the Company’s condensed statements of operations, respectively, and for six months ended September 28, 201830, 2022 and 2021 was $223,333$281,879 and $84,000,$285,902, which was included in selling, general and administrative expense on the Company’s condensed statements of operations, respectively. In addition to the base rent, the Company pays insurance premiums and utility charges relating to the use of the premises. The Company considers its present facilities to be adequate for its present and anticipated future needs.
IEH CORPORATION
Notes to Unaudited Condensed Financial Statements
Note |
The basic minimum annual rental remaining on these leases is $3,818,455 as of September 30, 2022.
The weighted-average remaining lease term and the weighted average discount rate for operating leases were:
As of | ||||||||
September 30, | March 31, 2022 | |||||||
Other information | ||||||||
Weighted-average discount rate – operating leases | 6.00 | % | 6.00 | % | ||||
Weighted-average remaining lease term – operating lease (in years) | 7.3 | 7.8 |
The total remaining operating lease payments included in the measurement of lease liabilities on the Company’s condensed balance sheet as of September 30, 2022 was as follows:
For the years ended March 31,: | Operating Payments | |||
(Six months ending) March 31, 2023 | $ | 236,867 | ||
2024 | 483,184 | |||
2025 | 497,684 | |||
2026 | 519,036 | |||
2027 | 547,460 | |||
Thereafter | 1,534,224 | |||
Total gross operating lease payments | 3,818,455 | |||
Less: imputed interest | (764,924 | ) | ||
Total lease liabilities, reflecting present value of future minimum lease payments | $ | 3,053,531 |
IEH CORPORATION
Notes to Unaudited Condensed Financial Statements
Note 7 | INCOME TAXES: |
The effective tax rates for the three months ended September 30, 2022 and 2021 were a provision of 0% on a loss before provision for income taxes of $1,445,342 and a benefit of 22.4% on a loss before benefit from income taxes of $312,141, respectively. The effective tax rates for the six months ended September 30, 2022 and 2021 were a provision of 22.8% on a loss before provision for income taxes of $3,542,738 and a provision of 1.3% on income before provision for income taxes of $2,129,351, respectively. The tax provision of $806,380 for the six months ended September 30, 2022 represents a charge to record a full valuation of the Company’s deferred tax asset as of April 1, 2022. The lower effective income tax rate for the six months ended September 30, 2021 was due the effect of the $2,103,885 gain on forgiveness of debt, which was not subject to income tax.
Note 8 | EQUITY INCENTIVE PLANS: |
The Company has an accounts receivable financing agreement with a non-bank lending institution2011 Equity Incentive Plan
On August 31, 2011, the Company’s stockholders approved the adoption of the Company’s 2011 Equity Incentive Plan (“Financing Company”2011 Plan”), whereby it can borrow to provide for the grant of stock options and restricted stock awards to purchase up to 80 percent750,000 shares of itsthe Company’s common stock to all employees, consultants and other eligible receivables (as definedparticipants including senior management and members of the Board of Directors of the Company. The 2011 Equity Incentive Plan expired on August 31, 2021 after which no further awards will be granted under such plan.
2020 Equity Incentive Plan
On November 18, 2020, the Board of Directors approved the Company’s 2020 Equity Incentive Plan (the “2020 Plan”) for submission to stockholders at the next annual meeting. On December 16, 2020, the Company’s stockholders approved the adoption of the 2020 Plan, which provides for options and restricted stock awards to purchase up to 750,000 shares of Common Stock to award in the financing agreement)future as employee incentive compensation to employees, management and directors of the Company.
Options granted to employees under the 2020 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 2020 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 stockholder, such exercise price shall be at an interest rateleast 110 percent (110%) of 2.5% above JP Morgan Chase’s publicly announced ratethe fair market value of the Company’s common stock and the option must not be exercisable after the expiration of ten years from the day of the grant. The 2020 Plan also provide that holders of options that wish to pay for the exercise price of their options with a minimum rateshares of 6% per annum.the Company’s common stock must have beneficially owned such stock for at least six months prior to the exercise date.
Exercise prices of non-incentive stock options may not be less than the fair market value of the Company’s common stock.
The financing agreement has an initial termaggregate fair market value of oneshares 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.
IEH CORPORATION
Notes to Unaudited Condensed Financial Statements
Note 8 | EQUITY INCENTIVE PLANS (continued): |
Stock-based compensation expense
Stock-based compensation expense is recorded in selling, general and will automatically renew for successive one-year terms, unless terminated byadministrative expenses included in the Company or its lender upon receiving 60 days’ prior notice. Funds advanced bycondensed statements of operations. For the Finance Company are secured by IEH’s accounts receivablethree months ended September 30, 2022 and inventories.2021, stock-based compensation expense was $0 and $66,500, respectively. For the six months ended September 30, 2022 and 2021, stock-based compensation expense was $0 and $266,000, respectively.
As of September 27, 2019,30, 2022 there was no unrecognized compensation expense related to unamortized stock options. It is the Company reported excess payments to its Finance Company of $608,666. These excess payments are reported in the accompanying condensed Financial StatementsCompany’s policy that any unrecognized stock-based compensation cost would be adjusted for actual forfeitures as of September 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.
17
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)they occur.
Other current liabilitiesThere were comprised of the following:
September 27, | March 29, | |||||||
2019 | 2019 | |||||||
Payroll and vacation accruals | $ | 1,105,044 | $ | 831,187 | ||||
Sales commissions | 64,154 | 80,553 | ||||||
Other current liabilities | 2,551 | 65,680 | ||||||
$ | 1,171,749 | $ | 977,420 |
Stock-based compensation expense:
The Company reported compensation expense of $5,664 and $14,126no options granted during the three andor six months ended September 27, 2019 and $2,398 and $5,596 during the three and six months ended September 28, 2018.
Unrecognized stock-based compensation expense:
The Company expects to recognize $25,454 in stock option compensation expense for the entire fiscal year ended March 2020 and $16,992 for the entire fiscal year ended March30, 2022 or 2021.
The following table showsprovides the activity for the fiscal years ended March 29, 2019 and March 30, 2018 and through September 27, 2019:stock option activity:
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 |
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IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Shares | Weighted Avg. Grant Date Fair Value | Weighted Avg. Exercise Price | Remaining Contractual Term (Years) | Aggregate Intrinsic Value (in thousands) | ||||||||||||||||
Balance as of March 31, 2022 | 482,217 | $ | 7.91 | $ | 14.69 | 6.56 | $ | 865 | ||||||||||||
Granted | - | - | - | |||||||||||||||||
Exercised | - | - | - | |||||||||||||||||
Forfeited or Expired | (15,000 | ) | 6.76 | 13.70 | ||||||||||||||||
Balance as of September 30, 2022 | 467,217 | $ | 7.94 | $ | 14.72 | 6.01 | $ | 602 | ||||||||||||
Exercisable as of September 30, 2022 | 467,217 | $ | 7.94 | $ | 14.72 | 6.01 | $ | 602 |
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 | CASH BONUS PLAN: |
In 1987, the Company adopted a cash bonus plan (“Cash(the “Cash Bonus Plan”) for non-union, management and administrativeadministration staff. ContributionsUnless otherwise approved by the Company’s Board of Directors, contributions to the Cash Bonus Plan are made by the Company only when the Company is profitable for the fiscal year. The CompanyAs of September 30, 2022 and March 31, 2022, the Company’s accrued a contribution of $81,000bonus was $478,142 and $408,000, respectively. Bonus expense recorded for each of the three months ended September 27, 201930, 2022 and September 28, 2018. The Company accrued a contribution provision2021 was $100,500, respectively. Bonus expense recorded for each of $162,000 for the six months ended September 27, 201930, 2022 and the six months ended September 28, 2018.2021 was $201,000, respectively.
IEH CORPORATION
Notes to Unaudited Condensed Financial Statements
Note | COMMITMENTS AND CONTINGENCIES: |
The Company maintains its operations in facilities located in both New York and Pennsylvania.
On December 1, 2020, the Company entered into a 120 month extension of its lease agreement for an industrial building in Brooklyn, NY, expiring December 1, 2030. Monthly rent at inception was $20,400, such monthly rent escalates annually to a monthly rent of $28,426 for the final year of the lease term. The Company maintains a security deposit of $40,800, which is included in other assets on the accompanying condensed balance sheet.
On January 29, 2021, the Company entered into an 87 month lease agreement for an industrial building in Allentown, Pennsylvania, expiring March 30, 2028. Monthly rent at inception was $18,046, such that the monthly rent escalates annually to a monthly rent of $20,920 for the final year of the lease term. The Company maintains a security deposit of $35,040, which is included in other assets on the accompanying condensed balance sheet.
The Company has a collective bargaining multi-employer pension plan (“Multi-Employer Plan”) with the United Auto Workers of America, Local 259 (“UAW”)(ID No. 136115077). The Multi-Employer Plan is covered by a collective bargaining agreement with the Company, which expires on March 31, 2024. 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 AmendmentAmendments 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 liabilities are contingent upon the termination, withdrawal, or partial withdrawal from the Multi-Employer Plan. The risks of participating in a multiemployer plan are different from single-employer plans, for example, assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers, if a participating employer stops contributing to the multiemployer plan, the unfunded obligations of the plan may become the obligation of the remaining participating employers, and if a participating employer chooses to stop participating in these multiemployer plans, the employer may be required to pay those plans an amount based on the underfunded status of the 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$14,617 and $24,837$14,763 for the three months ended September 29, 201930, 2022 and September 28, 2018, respectively2021, respectively. The total contributions charged to operations under the provisions of the Multi-Employer Plan were $24,145 and $26,759 and $37,042$28,094 for the six months ended September 27, 201930, 2022 and September 28, 2018,2021, 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.
Note 11 |
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 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.
During the three months ended September 29, 2019, two30, 2022, there were no customers accounted for $2,247,968 constituting 30%with concentrations of net sales greater than 10% of the Company’s net sales. One of those customers accounted for 16% oftotal sales per the Company’s net sales while the second customer accounted for 14% of the Company’s net sales. financial statements.
During the three months ended September 28, 2018 one customer accounted for $1,065,411 constituting 16% of the Company’s net sales. During the six months ended September 27, 2019, three30, 2021, two customers accounted for $5,729,924 or 38% of the Company’s net sales. One of those customers accounted for 16%22.9% of the Company’s net sales, while the secondeach represented 11.5% and third customers accounted for 12% and 10% of the Company’s net sales11.4%, respectively.
19
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
During the six months ended September 28, 2018,30, 2022, there were no customers with concentrations of net sales greater than 10% of total sales per the financial statements.
IEH CORPORATION
Notes to Unaudited Condensed Financial Statements
Note 11 | CONCENTRATIONS (continued): |
During the six months ended September 30, 2021, three customers accounted for $6,096,486 or 39% of the Company’s net sales. One of the customers accounted for 15%38.4% of the Company’s net sales, while the other twoeach represented 14.0%, 13.0%, and 11.4%, respectively.
As of September 30, 2022 and March 31, 2022 there were no highly concentrated customers of accounts receivable.
As of March 31, 2022, one customer accounted for 12% each15.0% of accounts receivable.
During the three months ended September 30, 2022, there were no highly concentrated vendors of the Company’s net sales, respectively.purchases.
The Company has evaluated all subsequent events through November 19, 2019,During the datethree months ended September 30, 2021, one vendor accounted for 10.7% of the financial statements were available to be issued. Based on this evaluation, 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.Company’s purchases.
20
the Company’s purchases.
IEH CORPORATIONDuring the six months ended September 30, 2021, one vendor accounted for 11.1% of the Company’s purchases.
PART I: FINANCIAL INFORMATIONAs of September 30, 2022 and March 31, 2022 one vendor accounted for 12.1% and two vendors accounted for 21.4% of accounts payable, respectively.
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”,“anticipate,” “believe”, “estimate”, “expect”, “objective”,“expect,” “objective,” and “think”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 effectsperformance of the Company’s business, actions of competitors, changes in laws and regulations, including accounting standards, employee relations, customer demand, prices of purchased raw materialmaterials 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 theour audited financial statements and related footnotes included elsewhere in this quarterly report, which provide additional information concerning the Company’s financial activities and condition.
Overview
The Company designs, develops and manufactures printed circuit board connectors and custom interconnects for high performance applications.
All of our connectors 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 OEMs (Original Equipment Manufacturers) and distributors who resell our products to OEMs. We sell our products directly and through 22 independent sales representatives and distributors located in all regions of the United States, Canada, the European Union, Southeast Asia, Central Asia and the Middle East.
The customers we service are in the Defense, Aerospace, Space, Medical, Oil and Gas, Industrial, Test Equipment and Commercial Electronics markets. We appear on the Military Qualified Product Listing (“QPL”) MIL-DTL-55302 and supply customer requested modifications to this specification. Our offering of “QPL” items has recently been expanded to include additional products.
The customers we service by industry as a percentage of total revenue is provided below:
For the Three Months Ended September 30, | For the Six Months Ended September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Industry | % | % | % | % | ||||||||||||
Defense | 46.2 | 57.5 | 51.0 | 56.8 | ||||||||||||
Commercial Aerospace | 24.7 | 12.8 | 22.6 | 13.7 | ||||||||||||
Space | 13.5 | 18.5 | 15.2 | 20.0 | ||||||||||||
Other | 15.6 | 11.2 | 11.2 | 9.5 |
Financial Overview
Critical Accounting Policies
As discussed in our Form 10-k for the fiscal year ended March 29, 2019, the discussion and analysisThe preparation of our financial condition and results of operations are based upon our financial statements which have been prepared in conformity with accounting principles generally accepted in the United States of America. The preparation of these financial statementsAmerica (US GAAP) requires usmanagement to make estimates and assumptions about future events that affect the amounts of assets, liabilities, revenues and expenses reported in thosethe financial statements. These judgments canstatements and accompanying notes. Future events and their effects cannot be subjective and complex, and consequently, actualdetermined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results couldinevitably will differ from those estimates. estimates, and such differences may be material to the financial statements. The most significant accounting estimates inherent in the preparation of our financial statements include estimates associated with revenue recognition, valuation of inventories, accounting for income taxes and stock-based compensation expense.
Our mostfinancial position, results of operations and cash flows are impacted by the accounting policies we have adopted. In order to get a full understanding of our financial statements, one must have a clear understanding of the accounting policies employed. It is important that the discussion of our operating results that follow be read in conjunction with these 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. Therewhich 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 requires lessees to recognize all leasesdisclosed in our Annual Report 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 assetForm 10-K for the lease term and deferred lease liabilities represent its obligation to make lease payments over time arising fromfiscal year ended March 31, 2022 filed with the lease. Operating lease ROU assets and deferred lease liabilities are recognized at the commencement date basedSEC 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.June 22, 2023.
21
IEH CORPORATION
PART I: FINANCIAL INFORMATION
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations(continued)
Leases(continued)Comparison of the Three Months Ended September 30, 2022 and 2021
The Company leases spacefollowing table summarizes our results of operations for its corporate offices and its manufacturing facility located at 140 58th Street, Suite 8E, Brooklyn, New York. The lease term commenced on December 1, 2010 and expires on November 30, 2020.
Provision for Income Taxes
The income tax provision for three months ended September 27, 2019 and the three months ended September 28, 2018 reflect effective30, 2022 and 2021:
For the Three-Months Ended September 30, | Period-to-Period | |||||||||||
2022 | 2021 | Change | ||||||||||
Revenue | $ | 4,193,646 | $ | 6,561,872 | $ | (2,368,226 | ) | |||||
Operating expenses: | ||||||||||||
Cost of products sold | 4,209,506 | 5,563,554 | (1,354,048 | ) | ||||||||
Selling, general and administrative | 1,230,748 | 1,180,275 | 50,473 | |||||||||
Depreciation and amortization | 257,111 | 181,149 | 75,962 | |||||||||
Total operating expenses | 5,697,365 | 6,924,978 | (1,227,613 | ) | ||||||||
Operating loss | (1,503,719 | ) | (363,106 | ) | (1,140,613 | ) | ||||||
Other income (expense): | ||||||||||||
Other income | 53,977 | 50,839 | 3,138 | |||||||||
Interest income (expense), net | 4,400 | 126 | 4,274 | |||||||||
Total other income (expense), net | 58,377 | 50,965 | 7,412 | |||||||||
Loss before benefit from income taxes | (1,445,342 | ) | (312,141 | ) | (1,133,201 | ) | ||||||
Benefit from income taxes | - | 69,914 | (69,914 | ) | ||||||||
Net loss | $ | (1,445,342 | ) | $ | (242,227 | ) | $ | (1,203,115 | ) |
Revenue for the three months ended September 30, 2022 was $4,193,646, reflecting a decrease of $2,368,226, or 36.1%, as compared to $6,561,872 for the three months ended September 30, 2021. The decline in revenue for the period was principally on account of softness in orders from our defense and space customers. Our revenues continue to be negatively impacted by reduced government spending in these sectors for programs in which we participate. The decline in defense and space customer revenue was offset somewhat by increases in commercial aerospace revenues. The commercial aerospace programs in which we participate have seen recoveries. We are seeing increases in commercial aerospace, generally, as consumer aviation traffic has been returning to pre COVID-19 levels, and from the Boeing 737-Max program, in particular, as Boeing has resumed its production after having earlier grounded the production of this aerospace program.
Cost of products sold for the three months ended September 30, 2022 was $4,209,506, reflecting a decrease of $1,354,048, or 24.3%, as compared to $5,563,554 for the three months ended September 30, 2021. The decrease was principally attributable to the 36.1% decrease in revenue, offset by additional costs we have incurred in staffing the Pennsylvania location, the costs of maintaining our highly trained labor force through periods of reduced production and the impacts of inflation.
Selling, general and administrative expenses for the three months ended September 30, 2022 was $1,230,748, reflecting an increase of $50,473, or 4.3%, as compared to $1,180,275 for the three months ended September 30, 2021. The increase was principally due to additional accounting and legal fees.
Depreciation and amortization for the three months ended September 30, 2022 was $257,111, reflecting an increase of $75,962, or 41.9%, as compared to $181,149 for the three months ended September 30, 2021. The increase was primarily attributable to an increase in capitalized leasehold improvements related to our new Pennsylvania facility, as well as increases in capitalized molds and dies for new products.
Total other income (expense) for the three months ended September 30, 2022 was income of $58,377, reflecting an increase of $7,412, as compared to an income of $50,965 for the three months ended September 30, 2021. The increase was primarily attributable to an increase in interest income of $4,274 and an increase in other income of $3,138.
Provision for income taxes for the three months ended September 30, 2022 was $0, reflecting a decrease in income tax ratesbenefit of 34.6%$69,914 as compared to a benefit of $69,914 for the three months ended September 30, 2021. The decrease in income tax benefit was primarily attributable to fully impairing the deferred income tax assets, net. During the three months ended June 30, 2022, we determined to record a full valuation allowance on our deferred income tax assets, net. As such, during the three months ended June 30, 2022, we recorded a full valuation allowance for the opening period deferred income tax asset, net and 33.7% respectively. then beginning on June 30, 2022, recorded an adjustment to fully impair any increase in the deferred income tax asset, net. As such, for the three months ended September 30, 2022, the effect of recording a full valuation allowance resulted in an income tax provision of $0.
Comparison of the Six Months Ended September 30, 2022 and 2021
The Company’s effective tax rate increased .9% on a comparable basis. The Company’s effective tax ratefollowing table summarizes our results of operations for the six months ended September 27, 201930, 2022 and September 28, 2018 reflect effective tax rates of 34.6% and 31.8% respectively, reflecting a comparative increase of 2.8%.2021:
Results of Operation
For the Six-Months Ended September 30, | Period-to-Period | |||||||||||
2022 | 2021 | Change | ||||||||||
Revenue | $ | 8,272,230 | $ | 13,072,449 | $ | (4,800,219 | ) | |||||
Operating expenses: | ||||||||||||
Cost of products sold | 9,128,445 | 10,303,296 | (1,174,851 | ) | ||||||||
Selling, general and administrative | 2,239,755 | 2,464,381 | (224,626 | ) | ||||||||
Depreciation and amortization | 505,594 | 357,065 | 148,529 | |||||||||
Total operating expenses | 11,873,794 | 13,124,742 | (1,250,948 | ) | ||||||||
Operating loss | (3,601,564 | ) | (52,293 | ) | (3,549,271 | ) | ||||||
Other income (expense): | ||||||||||||
Other income (a) | 54,053 | 2,181,445 | (2,127,392 | ) | ||||||||
Interest income (expense), net | 4,773 | 199 | 4,574 | |||||||||
Total other income (expense), net | 58,826 | 2,181,644 | (2,122,818 | ) | ||||||||
(Loss) income before provision for income taxes | (3,542,738 | ) | 2,129,351 | (5,672,089 | ) | |||||||
Provision for income taxes | (806,380 | ) | (27,990 | ) | (778,390 | ) | ||||||
Net (loss) income | $ | (4,349,118 | ) | $ | 2,101,361 | $ | (6,450,479 | ) |
Comparative Analysis-Six Months Ended September 27, 2019 and September 28, 2018
(a) | For the six months ended September 30, 2021, other income consists of $2,103,885 of debt forgiveness income from the forgiveness of the PPP Loan (See Note 4 – PPP Loan and Note). |
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 | September 27, | September 28, | ||||||
2019 | 2018 | |||||||
Operating Revenues (in thousands) | $ | 15,119 | $ | 15,641 | ||||
Operating Expenses: | ||||||||
(as a percentage of Operating Revenues) | ||||||||
Costs of Products Sold | 58.70% | 55.15% | ||||||
Selling, General and Administrative | 15.52% | 13.28% | ||||||
Interest Expense | .22% | 0.10% | ||||||
Depreciation and amortization | 3.04% | 1.44% | ||||||
TOTAL COSTS AND EXPENSES | 77.48% | 69.97% | ||||||
Operating Income | 22.52% | 30.03% | ||||||
Other Income | .11% | 0.02% | ||||||
Income before Income Taxes | 22.63% | 30.05% | ||||||
Income Taxes | (7.83% | ) | (9.55% | ) | ||||
Net Income | 14.80% | 20.50% | ||||||
22
IEH CORPORATION
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)
Operating revenuesRevenue for the six months ended September 27, 2019 amounted to $15,118,78230, 2022 was $8,272,230, reflecting a 3.33% decrease versus $15,641,182of 4,800,219, or 36.7%, as compared to $13,072,449 for the six months ended September 28, 2018.30, 2021. The decreasedecline in revenue for the period was principally on account of softness in orders from our defense and space customers. Our revenues continue to be negatively impacted by reduced government spending in these sectors for programs in which we participate. The decline in defense and space customer revenue was offset somewhat by increases in commercial aerospace revenues. The commercial aerospace programs in which we participate have seen recoveries. We are seeing increases in commercial aerospace, generally, as consumer aviation traffic has been returning to pre COVID-19 levels, and from the Boeing 737-Max program, in particular, as Boeing has resumed its production after having earlier grounded the production of $522,400 can be attributed to the completion of a large customer contract which was fulfilled by the end of the first fiscal quarter last year.this aerospace program.
Cost of products sold were $8,874,100 for the six months ended September 27, 201930, 2022 was $9,128,445, reflecting a decrease of $1,174,851, or 58.70% of operating revenues. This reflected an increase of $247,635 or 2.87% in the cost of products sold from $8,626,465 or 55.15% of operating revenues11.4%, as compared to $10,303,296 for the six months ended September 28, 2018.30, 2021. The increasedecrease was principally attributable to the 36.7% decrease in costrevenue, offset by additional costs we have incurred in staffing the Pennsylvania location, the costs of products sold can be attributed to increasedmaintaining our highly trained labor force through periods of reduced production costs necessary to support production, primarily due to an increase payroll and related fringe costs.the impacts of inflation.
Selling, general and administrative expenses were $2,345,776 or 15.52% of operating revenues for the six months ended
September 27, 2019 compared to $2,077,479 or 13.28% of operating revenues for the six months ended September 28, 2018. This comparative increase30, 2022 was $2,239,755, reflecting a decrease of $268,297 can be attributed primarily$224,626 or 9.1%, as compared to 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 $33,743$2,464,381 for the six months ended September 27, 2019 or 0.22% of operating revenues. For the six months ended September 28, 2018, interest expense was $15,552 or 0.10% of operating revenues.30, 2021. The increase can be attributedwas principally due to an increase in interest rates during the current six-month period.additional accounting and legal fees.
Depreciation and amortization of $459,953 or 3.04% of operating revenues was reported for the six months ended September 27, 201930, 2022 was $505,594, reflecting an increase of $148,529, or 41.6%, as compared to $225,600 or 1.44% of operating revenues$357,065 for the six months ended September 28, 2018.30, 2021. The increase iswas primarily due to newly acquired fixed assets being put into service during the current six-month period.an increase in capitalized leasehold improvements related to our new Pennsylvania facility, as well as increases in capitalized molds and dies for new products.
The Company reported netTotal other income of $2,238,211(expense) for the six months ended September 27, 201930, 2022 was income of $58,826, reflecting a decrease of $2,122,818, as compared to net income of $3,205,589 as restated$2,181,644 for the six months ended September 28, 2018.30, 2021. The decrease in net income for the current six-month period can be attributedwas primarily attributable to the decrease in operating revenues forgain on the current six-month period, related toforgiveness of the previously mentioned completed contractPPP loan of $2,103,885 recorded in the first quarter of the last fiscal year.year ended March 31, 2022.
23
IEH CORPORATION
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 September 27, 2019 and September 28, 2018
Results of Operations
The following table sets forthProvision for income taxes for the periods indicated, percentagessix months ended September 30, 2022 was $806,380, reflecting an increase of $778,390 as compared to a provision of $27,990 for certain items reflectedthe six months ended September 30, 2021. The increase was primarily attributable to fully impairing the deferred income tax assets, net. During the three months ended June 30, 2022, we determined to record a full valuation allowance on our deferred income tax assets, net. As such, during the three months ended June 30, 2022, we recorded a full valuation allowance for the opening period deferred income tax asset, net and then beginning on June 30, 2022, recorded an adjustment to fully impair any increase in the financial data asdeferred income tax asset, net. As such, items relate tofor the revenuessix months ended September 30, 2022, the effect of the Company:recording a full valuation allowance resulted in an income tax provision of $806,380.
Relationship to Total Revenues | September 27, | September 28, | ||||||
2019 | 2018 | |||||||
Operating Revenues (in thousands) | $ | 7,551 | $ | 6,598 | ||||
Operating Expenses: | ||||||||
(as a percentage of Operating Revenues) | ||||||||
Costs of Products Sold | 53.67% | 61.25% | ||||||
Selling, General and Administrative | 16.32% | 15.80% | ||||||
Interest Expense | .26% | 0.08% | ||||||
Depreciation and amortization | 2.96% | 1.27% | ||||||
TOTAL COSTS AND EXPENSES | 73.21% | 78.40% | ||||||
Operating Income | 26.79% | 21.60% | ||||||
Other Income | .11% | 0.03% | ||||||
Income before Income Taxes | 26.90% | 21.63% | ||||||
Income Taxes | (9.3% | ) | (7.28% | ) | ||||
Net Income | 17.60% | 14.35% |
Liquidity and Capital Resources:
Operating revenuesOur primary requirements for liquidity and capital are working capital, inventory, capital expenditures, public company costs and general corporate needs. We expect these needs to continue as we further develop and grow our business. For the three and six months ended September 30, 2022, our primary sources of liquidity came from existing cash. Based on our current plans and business conditions, we believe that existing cash, together with cash generated from operations will be sufficient to satisfy our anticipated cash requirements, and we are not aware of any trends or demands, commitments, events or uncertainties that are reasonably likely to result in a decrease in liquidity of our assets. We may require additional capital to respond to technological advancements, competitive dynamics or technologies, business opportunities, challenges, acquisitions or unforeseen circumstances and in either the short-term or long-term may determine to engage in equity or debt financings or enter into credit facilities for other reasons. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to grow or support our business and to respond to business challenges could be significantly limited. In particular, inflationary pressures and interest rates, and the conflict between Russia and Ukraine have resulted in, and may continue to result in, significant disruption and volatility in the global financial markets, reducing our ability to access capital. If we are unable to raise additional funds when or on the terms desired, our business, financial condition and results of operations could be adversely affected.
As of September 30, 2022 and March 31, 2022, the Company’s cash on hand was $9,824,154 and $12,675,271, respectively. The Company has recorded net loss of $1,445,342 and $242,227 for the three months ended September 27, 2019 amounted to $7,551,384 reflecting an 14.45% increase versus $6,597,876 for the three months ended September 28, 2018. The increase in revenues of $953,508 can be attributed to increased marketing efforts30, 2022 and sales management support along with successful penetration into new markets and continued cultivation of our existing customer base.
Cost of products sold were $4,052,488 for the three months ended September 27, 2019 or 53.67% of operating revenues. This reflected an increase of $11,258 or 0.28% in the cost of products sold from $4,041,230 or 61.25% of operating revenues for the three months ended September 28, 2018. This increase can be attributed to an increase in payroll and related fringe costs along with decreases in insurance and travel.
24
IEH CORPORATION
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-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 $223,333 or 2.96% of operating revenues was reported for the three months ended
September 27, 2019 as compared to $84,000 or 1.27% of operating revenues for the three months ended September 28, 2018. The increase is due to additional fixed assets put into service during the current quarter.
The Company reported net income of $1,328,678 for the three months ended September 27, 2019 as compared to net income of $946,304 for the three months ended 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.
25
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 reported working capital of $21,891,654 as of September 27, 2019, compared to a working capital of $19,653,160 as of March 29, 2019 as restated. The increase in working capital of $2,238,494 was attributable to the following items:
Net income | $ | 2,238,211 | ||
Depreciation and amortization | 459,953 | |||
Capital expenditures | (333,302 | ) | ||
Recognition of stock compensation expense | 14,126 | |||
Deferred lease liability | (210,711 | ) | ||
Other | 70,217 | |||
$ | 2,238,494 |
As a result of the above, the current ratio (current assets to current liabilities) was 5.93 to 1 at September 27, 2019 as compared to 6.15 to 1 at March 29, 2019. Current liabilities at September 27, 2019 were $4,439,052 compared to $3,816,396 at March 29, 2019.
For the six months ended September 27, 2019, the Company reported $333,301 in capital expenditures and depreciation and amortization of $459,953.
2021. The Company has an accounts receivable financing agreement withrecorded a non-bank lending institution (“Financing Company”) whereby it can borrow up to 80 percentnet loss 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 September 27, 2019, the Company had reported excess payments to its Finance Company of $608,666. These excess payments are reported in the accompanying financial statements as of September 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.
Management 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 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, 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 27, 2019 and September 28, 2018, respectively, and $26,759 and $37,048$4,349,118 for the six months ended September 27, 201930, 2022 and September 28, 2018, respectively.
26
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 (continued)
Cash Bonus Plan
In 1987, the Company adopted the Cash Bonus Plan$2,101,361 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 $162,000 for each of the six months ended September 27, 201930, 2021, respectively. As of September 30, 2022 and March 31, 2022, the Company had working capital of $22,044,439 and $25,508,882 and stockholders’ equity of $26,470,376 and $30,819,494, respectively.
Our principal source of liquidity has been from cash flows generated by operating activities.
Cash Flow Activities for the Six Months Ended September 28, 2018, respectively.30, 2022 Compared to the Six Months Ended September 30, 2021
The following table summarizes our sources and uses of cash for the six months ended September 30, 2022 and 2021:
For the Six Months Ended September 30, | Period-to-Period | |||||||||||
2022 | 2021 | Change | ||||||||||
Cash flow (used in) provided by | ||||||||||||
Operating activities | $ | (2,420,343 | ) | $ | 1,121,197 | $ | (3,541,540 | ) | ||||
Investing activities | (430,774 | ) | (412,158 | ) | (18,616 | ) | ||||||
Net (decrease) increase in cash and cash equivalents | $ | (2,851,117 | ) | $ | 709,039 | $ | (3,560,156 | ) |
Net cash used in operating activities was $2,420,343 for the six months ended September 30, 2022 compared to net cash provided by operating activities was $1,121,197 for the six months ended September 30, 2021. The period over period decrease in cash of $3,541,540 was primarily due the decrease in net income (loss) (as adjusted for the non-cash gain on forgiveness of debt) of $4,346,594, offset principally by the non-cash charge to fully impair the deferred income tax asset, net.
Net cash used in investing activities was $430,774 for the six months ended September 30, 2022 compared to $412,158 for the six months ended September 30, 2021. The increase in cash used in investing activities was due to an increase in purchases of molds and dies and machinery and equipment during the six months ended September 30, 2022, partially offset by buildout of our Pennsylvania facility during the six months ended September 30, 2021.
There were no financing activities during the six months ended September 30, 2022 or 2021.
PPP Loan and Note
On April 13, 2020, the Company entered into an unsecured note (the “PPP Note”) evidencing an unsecured loan (“PPP Loan”) in the principal amount of $2,103,885 pursuant to the Payment Protection Program (“PPP”) under the Coronavirus Aid Relief and Economic Security Act (“CARES Act”).
On April 21, 2021, the Company received notice that the PPP Loan was forgiven. The Company recorded the forgiveness of the principal balance of $2,103,885 as debt forgiveness income in the quarter ended June 30, 2021.
Backlog of Orders
The backlog of orders for the Company’s products amounted to approximately $11,358,000 at September 30, 2022 as compared to $7,909,000 at March 31, 2022. The orders in backlog at September 30, 2022 are expected to ship and/or services are expected to be performed over the next 12 months depending on customer requirements and product availability.
Inflation
In the opinion of management, inflation has begun to impact the costs of our operations and depending upon the current duration and degree of higher inflation levels, is expected to have an impact upon our operations in the future. Management will continue to monitor inflation and evaluate the possible future effects of inflation on our business and operations.
Item 3. Qualitative and Quantitative and Qualitative Disclosures Aboutabout Market Risk
We are a “smaller reporting 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. We believe that the effect, if any, of reasonably possible near-term changes in interest rates on our financial position, results of operations, and cash flows would not be material. Currently, we do not hedge these interest rate exposures. The primary objective of our investment activities is to preserve capital. We have not used derivative financial instruments in our investment portfolio.
As of September 27, 2019, we reported unrestricted cash of $6,563,424 of which $4,774,156 was in an interest-bearing money market account and the balance of $1,789,268 was maintained in non-interest-bearing checking accounts used to pay operating expenses. As of March 29, 2019, our unrestricted cash was $7,080,126 of which $4,757,283 was maintained in an interest-bearing money market account and the balance of $2,322,843 was maintained in non-interest-bearing checking accounts to pay operating expenses.
27
Not applicable.
IEH CORPORATION
PART I: FINANCIAL INFORMATION
Item 4. Controls and Procedures
EvaluationsManagement’s Evaluation of our Disclosure Controls and Procedures
UnderWe maintain disclosure controls and procedures (as defined in paragraph (e) of Rules 13a-15 and 15d-15 under the supervisionExchange Act) designed to ensure that the information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified under the rules and forms of the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.
As required by paragraph (b) of Rules 13a-15 and 15d-15 under the Exchange Act, our management, with the participation of our management, including the Chief Executive Officer (our principal executive officer) and our Chief Financial Officer we evaluated(our principal financial officer) carried out an evaluation of 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 Actas of as of the end of the period covered by this Quarterly Report on Form 10-Q. Based uponOur management recognizes that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosureany controls and procedures, throughout the period covered by this report were effective at the reasonable assurance level to ensure that the information required to be disclosed by us in reports that 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.
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’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 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 September 27, 2019.
Inherent Limitations on Effectiveness of Controls
Our 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 of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our principal executive and principal financial officer have concluded based upon the evaluation described above that, the control system’s objectives will be met. Further, the designas 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 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.
28
IEH CORPORATION
PART I: FINANCIAL INFORMATION
Item 4. Controls and Procedures(continued)
Inherent Limitations on Effectiveness of Controls (continued)
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. Our management, however, believesSeptember 30, 2022, our disclosure controls and procedures are in factwere not effective to provideat the reasonable assurance level.
Management has used the framework set forth in the report entitled Internal Control—Integrated Framework published by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), known as COSO, to evaluate the effectiveness of our internal control over financial reporting. As of March 31, 2022, the following material weaknesses were identified. Management is working diligently on steps to remediate these weaknesses. However, until such time as management is able to fully document, implement, test, validate and repeat its steps for remediation, the Company has determined that the objectivesbelow material weaknesses continue to be in effect as of September 30, 2022:
● | Certain of the Company’s controls associated with reconciliations of inventory, cost of products sold and income taxes, as well as for the calculation of stock-based compensation awards, were not operating effectively. These deficiencies, combined with inadequate compensating review controls, resulted in material misstatements, individually in the financial statements and represented a material weakness in the Company’s internal control over financial reporting. |
● | The Company has not established an effective control environment due to the ineffective design and implementation of Information Technology General Controls (“ITGC”). The Company’s ITGC deficiencies included improperly designed controls pertaining to user access rights over systems that are critical to the Company’s system of financial reporting. The ITGC deficiencies, combined with a lack of properly designed management review controls to compensate for these deficiencies, represent a material weakness in the Company’s internal control over financial reporting. |
Management is actively engaged in the control system are met.planning for and implementation of remediation efforts to address the identified material weaknesses. The remediation plan includes (i) the engaging of additional experienced financial resources, (ii) the development and implementation of enhanced controls designed to evaluate the appropriateness of policies and procedures, (iii) the implementation of review and monitoring of transactions to ensure compliance with the new policies and procedures, (iv) improvements in the design and implementation of enhanced monitoring of ITGC controls, and (v) the enhanced training of personnel.
Changes in Internal Controls Over Financial Reporting
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 the evaluation of our internal controls that occurred during the fiscal quarter ended September 27, 201930, 2022 that materially affected, or are reasonably likely to materially effectaffect our internal controls over financial reporting.
29
IEH CORPORATION
PART II:II – OTHER INFORMATION
There are no legal proceedings that have occurred within the past year concerning our directors, or control persons which involved a criminal conviction, a criminal proceeding, an administrative or civil proceeding limiting one’s participation in the securities or banking industries, or a finding of securities or commodities law violations.
On August 17, 2022, the SEC issued an Order Instituting Administrative Proceedings and Notice of Hearing pursuant to Section 12(j) of the Exchange Act. The stated purpose of the administrative proceeding is for the Commission to determine whether it is necessary and appropriate for the protection of investors to suspend for a period not exceeding twelve months, or revoke the registration of each class of securities registered pursuant to Section 12 of the Exchange Act of the Company. The Company is not a party to or aware of any pending or threatened legal proceedings which,filed an Answer in the opinionproceeding on October 3, 2022 and on October 13, 2022 we conducted a prehearing conference with SEC staff in the Division of Enforcement. On March 1, 2023 the SEC’s Division of Enforcement filed a Motion for Summary Disposition, on March 15, 2023, IEH filed an opposition brief to the SEC Division of Enforcement’s Motion for Summary Disposition, and on March 29, 2023, the SEC’s Division of Enforcement filed a Reply in Support of its Motion for Summary Disposition. The Commission will issue a decision on the basis of the Company’s management, would resultrecord in any material adverse effect on its results of operations or its financial condition.the proceeding.
Item 1A. Risk Factors
You should carefully consider the risks described below, together with all of following risk factorsOur operations and the other information included in this report, in considering our business herein as well as the information included in other reports and prospects. Thefinancial results are subject to various 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 eventsincluding those described in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the following risks actually occurs,year ended March 30, 2022 which could adversely affect our business, financial condition, or results of operations, could be harmed. In such case,cash flows, and the trading price of our common stock could decline, and you may lose all or partcapital stock. Except as set forth below, as of your investment due to anythe date 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.
Wethis Quarterly Report, there have generated net income of $5,160,776, $2,565,559, and $1,473,976, respectively, for the fiscal years ended March 29, 2019, March 30, 2018 and March 31, 2017 and $2,328,211 for the six months ended 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 non-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.
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 disruptionsbeen no material changes 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.
30
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 29, 2019 traded as low as $6.12 per share and as high as $8.89 per share. During the six-month period ended September 27, 2019, our common stock traded in the range of $16.05 per share to $23.00 per share. We cannot assure you that your initial investmentrisk factors previously disclosed in our common stock will not decline.Exchange Act Reports.
Item 2.2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicableNone.
Item 3. Defaults Upon Senior Securities
NoneNone.
Item 4. Mine Safety DisclosureDisclosures
None
31
None.
IEH CORPORATION
PART II: OTHER INFORMATION
NoneNone.
(a) ExhibitsThe exhibits filed as part of this Quarterly Report on Form 10-Q are set forth on the Exhibit Index, which Exhibit Index is incorporated herein by reference.
EXHIBIT INDEX
101.1* | The following information from IEH Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, formatted in Inline XBRL |
101.INS* | Interactive Data Files pursuant to Rule 405 of Regulation S-T formatted in Inline Extensible Business Reporting Language (“Inline XBRL”) | |
101.SCH* | Inline XBRL Taxonomy Extension |
101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase |
101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase | |
Inline XBRL Taxonomy Extension Presentation Linkbase | ||
104 | Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101) |
*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 six months ended September 27, 2019 and September 28, 2018; (ii) Balance Sheets as of September 27, 2019 and March 29, 2019; (iii) Statement of Cash Flows for the six months ended September 27, 2019 and September 28, 2018; and (iv) Notes to Financial Statements for the six months ended 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.
* | Exhibits filed herewith. |
** | Exhibits furnished herewith. |
† | Indicates management contract or compensatory plan or arrangement. |
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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-Qreport to be signed on its behalf by the undersigned thereunto duly authorized.
IEH CORPORATION | ||
Dated: October 6, 2023 | By: | /s/ David Offerman |
Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer) /s/ Subrata Purkayastha Subrata Purkayastha, Interim Chief Financial Officer (Principal | ||
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