UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________________

 

FORM 10-Q

 

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

(Mark One)

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

 

For the quarterly period ended December 31, 2019September 30, 2022

 

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

☐ 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)

 

13-5549348

(I.R.S. Employer

Identification No.)

140 58th Street, Suite 8E,

Brooklyn, New YorkNY

11220

(Address of principal executive offices)

 

11220

(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 each classEach Class:Trading Symbol(s)Name of each exchangeEach Exchange on which registeredWhich Registered:
Common StockShares of common stock, $0.01 par valueIEHCIEHCOTC QX Pink Market Place

 

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

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 ☒

 

2,360,251As 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 February 14, 2020.outstanding.

 

 1

 

IEH CORPORATION

 

TABLE OF CONTENTS

 

  Page
Number
   
PART I -– FINANCIAL INFORMATION 1
Item 1.Financial Statements1
Condensed Balance Sheets as of September 30, 2022 (unaudited) and March 31, 20221
Condensed Statements of Operations for the three and six months ended September 30, 2022 and 2021 (unaudited)2
Condensed Statements of Changes in Stockholders’ Equity for the three and six months ended September 30, 2022 and 2021 (unaudited)3
Condensed Statements of Cash Flows for the six months ended September 30, 2022 and 2021 (unaudited)4
Notes to Unaudited Condensed Financial Statements5
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations17
Item 3.Quantitative and Qualitative Disclosures About Market Risk22
Item 4.Controls and Procedures22
  
ITEM 1-PART II – OTHER INFORMATION23
Item 1.FINANCIAL STATEMENTSLegal Proceedings23
Item 1A.Risk Factors23
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds23
Item 3.Defaults Upon Senior Securities23
Item 4.Mine Safety Disclosure23
Item 5.Other Information23
Item 6.Exhibits24
 
EXHIBIT INDEX24
SIGNATURES25

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;
   
 Balance Sheets as●increased levels of December 31, 2019(Unaudited)and March 29, 20194competition;
   
 Statements of Operations(Unaudited) for●changes in political, economic or regulatory conditions generally and in the three and nine months ended December 31, 2019 and December 28, 20186markets in which we operate;
   
 Statement of Changes in Stockholders’ Equity(Unaudited) for the three and nine months ended December 31, 2019 and December 28, 2018●7our relationships with our key customers;
   
 Statements of Cash Flows(Unaudited) for●adverse conditions in the nine months ended December 31, 2019 and December 28, 20189industries in which our customers operate;
   
 Notes●our ability to Financial Statements(Unaudited)11retain and attract senior management and other key employees;
   
 ●
ITEM 2 –MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS21
ITEM 3 –QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK27
ITEM 4 –CONTROLS AND PROCEDURES27
PART II –OTHER INFORMATION29
ITEM 1 –LEGAL PROCEEDINGS29
ITEM 1A –RISK FACTORS29
ITEM 2 –UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS30
ITEM 3 –DEFAULTS UPON SENIOR SECURITIES30
ITEM 4 – MINE SAFETY DISCLOSURE30
ITEM 5 –OTHER INFORMATION31
ITEM 6 –EXHIBITS31our ability to quickly and effectively respond to new technological developments;
   
 ●
SIGNATURES32

 2

Exhibitsour ability to protect our trade secrets or other proprietary rights, operate without infringing upon the proprietary rights of others and prevent others from infringing on our proprietary rights; and
   
 ●
Exhibit 31.1Certification Pursuant to 17CFR240.13a-14(a) or 17CFR240.15d-14(a)33
Exhibit 31.2Certification Pursuant to 17CFR240.13a-14(a) or 17CFR240.15d-14(a)34
Exhibit 32.1Certification Pursuant to 17CFR240.13a-14(b) or 17CFR240.15d-14(b) and Section 1350other risks, including those described in the “Risk Factors” section of Chapter 63 of Title 18 of the United States Code35
Exhibit 101Instance Document
Exhibit 101Schema Document
Exhibit 101Calculation Linkbase Document
Exhibit 101Labels Linkbase Document
Exhibit 101Presentation Linkbase Document
Exhibit 101Definition Linkbase Documentthis Quarterly Report.

 3

Table of Contents

 

IEH CORPORATIONii

 

PART I: FINANCIAL INFORMATION

Item 1. Financial Statements

IEH CORPORATION

CONDENSED BALANCE SHEETS

  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 

The accompanying notes are an integral part of these unaudited condensed financial statements.


IEH CORPORATION

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

  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 

The accompanying notes are an integral part of these unaudited condensed financial statements.


IEH CORPORATION

 CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

  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 

  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 

The accompanying notes are an integral part of these unaudited condensed financial statements.


IEH CORPORATION

 CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

  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 

The accompanying notes are an integral part of these unaudited condensed financial statements.


IEH CORPORATION
Notes to Unaudited Condensed Financial Statements

Note 1DESCRIPTION OF BUSINESS:

Overview

 

IEH CORPORATIONCorporation (hereinafter referred to as “IEH” or the “Company”) began in New York, New York in 1941. IEH was incorporated in March, 1943.

 

BALANCE SHEETSThe Company designs and manufactures HYPERBOLOID connectors that not only accommodate, but exceed military and aerospace specification standards.

Note 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Basis of Presentation

 

As of December 31, 2019 and March 29, 2019

  December 31,  March 29, 
  2019  2019 
  (Unaudited)    
       
ASSETS      
       
CURRENT ASSETS:        
Cash $8,191,969  $7,080,126 
Accounts receivable  5,776,564   3,833,090 
Inventories  14,108,916   12,021,443 
Prepaid expenses and other current assets  271,540   534,897 
         
          Total Current Assets  28,348,989   23,469,556 
         
         
PROPERTY, PLANT AND EQUIPMENT  2,331,705   2,560,607 
         
         
OTHER ASSETS:        
  Right of use Asset-Leasehold  158,833   — 
  Other assets  54,489   54,489 
 Total Other Assets  213,322   54,489 
         
Total Assets $30,894,016  $26,084,652 

The accompanying notescondensed financial statements and the related disclosures as of September 30, 2022 and for the three and six months ended September 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 thesethe March 31, 2022 audited financial statements.

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 IEH CORPORATION

BALANCE SHEETS(Continued)

As of December 31, 2019statements and March 29, 2019

  December 31,  March 29, 
  2019  2019 
  (Unaudited)    
       
LIABILITIES AND SHAREHOLDERS’ EQUITY   
       
CURRENT LIABILITIES:        
Accounts payable $246,706  $480,012 
Due to commercial finance company  381,871   334,306 
Customer advance payments  —   348,230 
Accrued corporate income taxes  1,844,650   1,676,428 
Deferred lease liability - net of long term  165,395   — 
Other current liabilities  2,025,287   977,420 
          Total Current Liabilities  4,663,909   3,816,396 
         
          Total Liabilities  4,663,909   3,816,396 
         
SHAREHOLDERS’ EQUITY:        
  Common stock, $.01 par value; 10,000,000 shares authorized;
2,360,251 shares issued and outstanding at December 31, 2019
and 2,323,468 shares issued and outstanding at March 29, 2019		  23,603   23,235 
Capital in excess of par value  5,165,588   3,802,672 
Retained earnings  21,040,916   18,442,349 
         
          Total Shareholders’ Equity  26,230,107   22,268,256 
         
          Total Liabilities and Shareholders’ Equity $30,894,016  $26,084,652 

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

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Table of Contents

IEH CORPORATION

STATEMENTS OF OPERATIONS

(Unaudited)

For the Three and Nine Months Ended December 31, 2019 and December 28, 2018

  Three Months Ended  Nine Months Ended 
  

December. 31,

2019

  December. 28,
2018		  

December. 31,

2019

  December. 28,
2018		 
             
REVENUE, net sales $8,424,657  $5,977,835  $23,542,266  $21,619,017 
                 
COSTS AND EXPENSES                
                 
Cost of products sold  5,270,795   3,790,188   14,143,666   12,415,830 
Selling, general and administrative  1,469,198   985,043   4,699,640   3,063,345 
Depreciation  237,764   84,000   697,717   309,600 
   6,977,757   4,859,231   19,541,023   15,788,775 
                 
OPERATING INCOME  1,446,900   1,118,604   4,001,243   5,830,242 
                 
Other income  6,025   5,417   22,899   8,579 
                 
Interest expense  (17,263)  (40,904)  (51,006)  (56,456)
                 
OTHER INCOME AND (EXPENSE), NET  (11,238)  (35,487)  (28,107)  (47,877)
                 
                 
INCOME BEFORE INCOME TAXES  1,435,662   1,083,117   3,973,136   5,782,365 
                 
PROVISION FOR INCOME TAXES  587,550   294,237   1,374,511   1,787,896 
                 
NET INCOME $848,112  $788,880  $2,598,625  $3,994,469 
                 
BASIC EARNINGS PER SHARE $0.36  $0.34  $1.11  $1.72 
                 
FULLY DILUTED EARNINGS PER SHARE $0.31  $0.33  $0.99  $1.66 
                 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
(in thousands)		  2,349   2,323   2,334   2,321 
                 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING – FULLY DILUTED (in thousands)  2,769   2,427   2,616   2,407 
                 

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

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IEH CORPORATION

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

For the Three and Nine Months Ended December 31, 2019 and December 28, 2018

                
        Capital in       
        Excess of  Retained    
For the Three Months Ended December 31, 2019 Common Stock  Par Value  Earnings  Total 
  Shares  Amount          
                
Balances at September 27, 2019  2,331,751  $23,318  $4,734,382  $20,192,804  $24,950,504 
                     
Stock based compensation – Amortization of stock options  —   —   260,491   —   260,491 
                     
Exercise of stock option  28,500   285   170,715   —   171,000 
                     
Net income  —   —   —   848,112   848,112 
                     
Balances at December 31, 2019  2,360,251  $23,603  $5,165,588  $21,040,916  $26,230,107 
                     

     Capital in       
     Excess of  Retained    
 For the Three Months Ended December 28, 2018 Common Stock  Par Value  Earnings  Total 
  Shares  Amount          
                
Balances at September 28, 2018  2,323,468  $23,235  $3,773,004  $16,487,162  $20,283,401 
                     
Stock based compensation – Amortization of stock options  —   —   21,206   —   21,206 
                     
Net income  —   —   —   788,880   788,880 
                     
Balances at December 28, 2018  2,323,468  $23,235  $3,794,210  $17,276,042  $21,093,487 
                     

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

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IEH CORPORATION

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY(Continued)

(Unaudited)

For the Three and Nine Months Ended December 31, 2019 and December 28, 2018

     Capital in       
     Excess of  Retained    
For the Nine Months Ended December 31, 2019 Common Stock  Par Value  Earnings  Total 
  Shares  Amount          
                
Balances at March 29, 2019  2,323,468  $23,235  $3,802,672  $18,442,348  $22,268,255 
                     
Stock based compensation – Amortization of stock options  —   —   1,159,284   —   1,159,284 
                     
Exercise of stock options  36,783   368   203,632   —   204,000 
                     
Net income  —   —   —   2,598,568   2,598,568 
                     
Balances at December 31, 2019  2,360,251  $23,603  $5,165,588  $21,040,916  $26,230,107 
                     

     Capital in       
     Excess of  Retained    
For the Nine Months Ended December 28, 2018 Common Stock  Par Value  Earnings  Total 
  Shares  Amount          
                
Balances at March 30, 2018  2,303,468  $23,035  $3,767,608  $13,281,573  $17,072,216 
                     
Stock based compensation – Amortization of stock options  —   —   26,802   —   26,802 
                     
Exercise of 75,000 options by surrendering 55,000 Shares of common stock  20,000   200   (200)  —   — 
                     
Net income  —   —   —   3,994,469   3,994,469 
                     
Balances at December 28, 2018  2,323,468  $23,235  $3,794,210  $17,276,042  $21,093,487 
                     

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

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IEH CORPORATION

STATEMENTS OF CASH FLOWS

(Unaudited)

For the Nine Months Ended December 31, 2019 and December 28, 2018

  Nine Months Ended 
  December 31,  December 28, 
  2019  2018 
       
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net income $2,598,625  $3,994,469 
         
Adjustments to reconcile net income to net cash provided by
operating activities:		        
         
Depreciation and amortization  697,717   309,600 
Stock based compensation expense  1,159,284   26,802 
         
Changes in assets and liabilities:        
         
Increase in accounts receivable  (1,943,474)  1,517,791 
Increase in inventories  (2,087,473)  (677,892)
Increase in excess payments to commercial finance company  —   154,960 
Decrease in prepaid expenses and other current assets  263,357   373,711 
Increase in right of use asset leasehold  (158,833)  — 
Increase in deferred lease liability  165,395   — 
Decrease in accounts payable  (233,363)  (535,684)
Decrease in customer advance payments  (348,230)  — 
Increase in other current liabilities  1,047,867   331,196 
Increase in accrued corporate taxes  168,221   486,330 
         
          Total adjustments  (1,269,532)  1,986,814 
         
NET CASH PROVIDED BY OPERATING ACTIVITIES  1,329,093   5,981,283 
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
Acquisition of property, plant and equipment  (468,815)  (528,088)
         
NET CASH USED BY INVESTING ACTIVITIES $(468,815) $(528,088)
         

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

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IEH CORPORATION

STATEMENTS OF CASH FLOWS(continued)

(Unaudited)

For the Nine Months Ended December 31, 2019 and December 28, 2018

  Nine Months Ended 
  December 31,  December 28, 
  2019  2018 
       
 CASH FLOWS FROM FINANCING ACTIVITIES:        
 Activity from commercial financing company $47,565  $228,757 
 Exercise of Options for cash  204,000   — 
         
         
 NET CASH PROVIDED BY FINANCING ACTIVITIES  251,565   228,757 
         
INCREASE IN CASH  1,111,843   5,681,952 
         
 CASH, beginning of period  7,080,126   1,407,013 
         
 CASH, end of period $8,191,969  $7,088,965 
         
 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
 Cash paid for:		        
     Interest $48,592  $54,956 
         
     Income Taxes $953,365  $694,040 
         

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

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IEH CORPORATION

 NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Note 1- DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION: 

Description of Business

The Company designs, develops and manufactures printed circuit connectors for high performance applications. We have also developed a high performance plastic circular connector line. All of our 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 connectorsincluded in the United States.

Our customers consist of Original Equipment Manufacturers (“OEMs”), 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 ofAnnual Report on Form 10-K filed on June 22, 2023. The March 31, 2022 balance sheet included herein was derived from 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.

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.

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.

Basis of Presentation

The accompanying unauditedaudited financial statements as of that date but does not include all disclosures including notes required by U.S. GAAP for the three and nine months ended December 31, 2019 have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) for interimcomplete financial information and with the instructions to Form 10-Q.statements. In the opinion of management, these unauditedthe condensed financial statements have been prepared on the same basis as the annual financial statements and reflect all adjustments, which include onlyconsisting of normal and recurring adjustments, necessary to present fairlyfor the fair presentation of the Company’s financial position as of

December 31, 2019 and the results of operations and cash flows for the three and ninesix months then ended.ended September 30, 2022 and 2021. The financial data and other information disclosed in these notes toresults of operations for the interim financial statements related to these periods are unaudited. The results for the three and nine months ended December 31, 2019, are not necessarily indicative of the results to be expected for any subsequent quarter or the entire fiscal year. The balance sheet at March 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.

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IEH CORPORATION31, 2023 or any other interim period or future year or period.

  

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Note 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: 

Accounting Period:

On February 11, 2020, the Audit Committee of the Board of Directors of the Company adopted a resolution approving a change in the fiscal year end from a 52-53 week year ending on the last Friday of March to a calendar year ending on March 31. In addition, each applicable fiscal quarter, which previously ended on the last Friday of each of June, September, December and March would now, beginning with the third fiscal quarter ending on December 31, 2019, change to a calendar fiscal quarter ending on June 30, September 30, December and March 31, respectively. Accordingly, the Company’s current calendar year will end on March 31, 2020 and thereafter each March 31. The Company does not intend to adjust operating results for prior periods.

Correction of an Immaterial Misstatement in a Prior Period Financial Statement:

During the third quarter of 2019, the Company identified certain adjustments required to correct and disclose stock based compensation expense related to an option that was granted to its President and Chief Executive Officer on July 29, 2019. The Company had omitted the disclosure and expense related to this option. This omission resulted in an understatement of selling, general and administrative expense of $884,667 for the three and six months ended September 27, 2019, and overstatement of income tax expense by $396,911 for the three and six months ended September 27, 2019 and an overstatement of net income by $487,756 for the three and six months ended September 27, 2019.

Based on an analysis of Accounting Standards Codification (“ASC”) 250 – “Accounting Changes and Error Corrections” (“ASC 250”), Staff Accounting Bulletin 99 – “Materiality” (“SAB 99”) and Staff Accounting Bulletin 108 – “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”), the Company determined that these errors were immaterial to the previously issued financial statements, and as such no restatement was necessary. Correcting prior period financial statements for immaterial errors would not require previously filed reports to be amended. Such correction may be made the next time the registrant files the prior period financial statements. Accordingly, the misstatements were corrected during the period ended December 31, 2019 in the accompanying balance sheet as of December 31, 2019 and statements of operations for the nine months ended December 31, 2019.Revenue Recognition

 

The effect of these revisions on the Company’s balance sheet as of September 27, 2019 is as follows:

  As previously
 reported at
 September 27, 2019		  Adjustment –
debit/(credit)		  As revised at
September 27, 2019		 
          
Accrued corporate income taxes  2,747,407   396,911   2,350,496 
Capital in excess of par value  3,849,715   (884,667)  4,734,382 
Retained Earnings  20,680,560   487,756   20,192,804 

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IEH CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

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

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 generating 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’s disaggregatedCompany recognizes revenue asand the related cost of December 31, 2019products 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 December 28, 2018, respectively, by geographical locationcollectability is as follows:reasonably assured.

 

  Three Months Ended  Three Months Ended  Nine Months Ended  Nine Months ended 
  December 31, 2019  December 28, 2018  December 31, 2019  December 28, 2018 
             
Domestic $6,908,219  $4,901,825  $19,304,658  $17,727,594 
International  1,516,438   1,076,010   4,237,608   3,891,423 
Total $8,424,657  $5,977,835  $23,542,266  $21,619,017 
                 


 

IEH CORPORATION
Notes to Unaudited Condensed Financial Statements

Note 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):

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 reimburseprovide a replacement at its own cost.

The Company’s disaggregated revenue by geographical location is as follows:

  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 customerinternational net sales for the three months ended September 30, 2022 and 2021, respectively, represent sales to customers located in China.

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 cost, of product.on an average basis, which does not exceed net realizable value. The Company manufactures products pursuant to specific technical and contractual requirements.

The Company provides engineering servicesreviews its purchase and usage activity of its inventory of parts as partwell as work in process and finished goods to determine which items of inventory have become obsolete within the relationship with its customers in developing custom products.framework of current and anticipated orders. 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 not obligatedmade to provide such engineering service to its customers.inventory in recognition of this impairment. The Company does not invoice its customers separatelyCompany’s allowance for these services.obsolete inventory was $325,000 and $211,000 as of September 30, 2022 and March 31, 2022, respectively, and was reflected as a reduction of inventory.

 


IEH CORPORATION
Notes to Unaudited Condensed Financial Statements

Note 2SUMMARY 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.

 

UnderAt times, the provisionsCompany’s cash in banks was in excess 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.

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IEH CORPORATIONthese deposits.

 

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

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

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 nine months ended December 31, 2019 and December 28, 2018, respectively, basicreporting period.

Basic and diluted income(net loss) earnings per share areis calculated separately as follows:

 

  Three months
ended
12/31/2019		  Three months
ended
12/28/2018		  Nine months
ended
12/31/2019		  Nine months
ended
12/28/2018		 
             
NET INCOME $848,112  $788,880  $2,598,625  $3,994,469 
                 
BASIC EARNINGS PER COMMON SHARE $0.36  $0.34  $1.11  $1.72 
                 
FULLY DILUTED EARNINGS PER SHARE $0.31  $0.33  $0.99  $1.66 
                 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING-BASIC  2,348,718   2,323,468   2,333,573   2,320,632 
                 
DILUTIVE EFFECT OF OPTIONS GRANTED  420,448   103,825   282,481   86,568 
                 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING-FULLY DILUTED  2,769,166   2,427,293   2,616,054   2,407,200 
                 
  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 
                 

 


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IEH CORPORATIOCORPORATION
Notes to Unaudited Condensed Financial StatementsN

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

 

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

(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, the fair value of stock based instruments, as well as inan 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.

 

Stock Based


IEH CORPORATION
Notes to Unaudited Condensed Financial Statements

Note 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):

Segment Information

The Company identifies its operating segments in accordance with ASC 280, Segment Reporting (“ASC 280”). Operating segments are defined as components of an enterprise 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 30, 2022 and 2021 was $505,594 and $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 generally recognized ratably over the vestingservice 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 2016-02 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.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 8 E, 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.the Company’s financial position or results of operations upon adoption.

 

Presented below are the balances of the ROU asset and the corresponding deferred lease liability and resultant amortization as of December 31, 2019 and March 30, 2019. The present value of the ROU was calculated using an interest rate of six (6%) percent.

  

ROU

Asset

  

Deferred

Lease

Liability

  

 

Amortization

 
December 31, 2019 $158,833  $165,395  $143,124 
March 30, 2019  301,957   301,957   — 

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IEH CORPORATIONSubsequent Events

 

NOTES TO FINANCIAL STATEMENTSThe 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 issued. The Company did not identify any subsequent events that would have required adjustment or disclosure in the financial statements.

(Unaudited)

 


 

IEH CORPORATION
Notes to Unaudited Condensed Financial Statements

Note 2- 3SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued) INVENTORIES:

Leases:(continued)

 Future lease commitments as of December 31, 2019 were as follows:

   Fiscal year    
2020 (3 months) $48,180 
2021  128,480 
     
Total lease commitments $176,660 

Note 3- INVENTORIES: 

 

Inventories wereare stated at cost, on a moving average basis that does not exceed net realizable value.

Inventories are comprised of the following as of:following:

 

 December 31,  March 29, 
 2019  2019  As of 
      

September 30,

2022

 

March 31,

2022

 
Raw materials $10,941,582  $7,053,896  $8,370,682  $7,875,015 
Work in progress  2,739,934   2,797,006   1,100,083   1,505,614 
Finished goods  427,400   2,170,541   581,596   558,758 
Allowance for obsolete inventory  (325,000)  (211,000)
 $14,108,916  $12,021,443  $9,727,361  $9,728,387 

 

The Company recognized $162,000 for the nine months ended December 31, 2019 and December 28, 2018, respectively, as a reduction of inventory due to obsolescence. The Company recognized $54,000 for the three months ended December 31, 2019 and December 28, 2018, respectively, as a reduction of inventory due to obsolescence.

Note 4- 4PREPAID EXPENSESPPP LOAN AND OTHER CURRENT ASSETS: 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 5OTHER CURRENT LIABILITIES:

Other current assets wereliabilities are comprised of the following as of:following:

 

  December 31,  March 29, 
  2019  2019 
       
Prepaid insurance $32,587  $106,801 
Prepaid payroll liabilities  232,605   289,311 
Other prepaid expenses and Other Current Assets  6,348   138,785 
  $271,540  $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 6LEASES:

 

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IEH CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)Operating leases

 

Note 5- PROPERTY, PLANT AND EQUIPMENT: 

Property, plantLeases classified as operating leases are included in operating lease right-of use, or ROU, assets, operating lease liabilities and equipment were comprised ofoperating lease liabilities, non-current, in the following as of:Company’s condensed balance sheets.

 

  December 31,  March 29, 
  2019  2019 
       
Computers $536,409  $502,723 
Leasehold improvements  988,024   934,648 
Machinery and equipment  6,826,425   6,657,875 
Tools and dyes  4,212,909   3,999,705 
Furniture and fixture  179,071   179,072 
Website development cost  9,785   9,785 
   12,752,623   12,283,808 
Less: accumulated depreciation and amortization  (10,420,918)  (9,723,201)
  $2,331,705  $2,560,607 
         

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 

 

Depreciation expense for the nine months ended December 31, 2019 and December 28, 2018 was $697,717 and $309,600, respectively. DepreciationThe lease expense for the three months ended December 31, 2019September 30, 2022 and December 28, 20182021 was $237,764$143,157 and $84,000,$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 30, 2022 and 2021 was $281,879 and $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 6- 6ACCOUNTS RECEIVABLE FINANCING: LEASES (continued):

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,
2022

  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
Lease

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 7INCOME 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 8EQUITY INCENTIVE PLANS:

 

The Company has an accounts receivable financing agreement with a non-bank lending institution (“Financing Company”), whereby it can borrow up to 80 percent of its eligible receivables (as defined in the financing agreement) at an interest rate of 2.5% above JP Morgan Chase’s publicly announced rate with a minimum rate of 6% per annum.

The financing agreement has an initial term of one year and will automatically renew for successive one-year terms, unless terminated by the Company or its lender upon receiving 60 days’ prior notice. Funds advanced by the Financing Company are secured by IEH’s accounts receivable.

As of December 31, 2019, the Company reported a liability to its Financing Company of $381,871, and at March 29, 2019, the Company had reported a liability to its Financing Company of $334,306. 

Note 7- OTHER CURRENT LIABILITIES: 

Other current liabilities were comprised of the following as of:

  December 31,  March 29, 
  2019  2019 
       
Payroll and vacation accruals $775,492  $831,187 
Due to Commercial Finance Company  1,173,359   — 
Sales commissions  67,637   80,553 
Other current liabilities  8,799   65,680 
  $2,025,287  $977,420 

 17

Table of Contents

IEH CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Note 8- 2011 EQUITY INCENTIVE PLAN:2011 Equity Incentive Plan

The Company established a stock based compensation plan in 2011. As of December 31, 2019, the total authorized stock based instruments (including stock options) was 750,000 and 255,000 stock based instruments (including stock options) remain available for future issuance.

 

On July 29, 2019, the Board of Directors granted David Offerman,August 31, 2011, the Company’s Presidentstockholders approved the adoption of the Company’s 2011 Equity Incentive Plan (“2011 Plan”) to provide for the grant of stock options and Chief Executive Officer an optionrestricted stock awards to purchase 225,000up to 750,000 shares of the Company’s common stock underto all employees, consultants and other eligible participants 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 connection with his employment agreement datedthe future as employee incentive compensation to employees, management and directors of July 29, 2019. (See Note 2 – Correction of an Immaterial Misstatement in a Prior Period Financial Statement). The option has an exercise price of $20.00 per share, expires ten years from the date of grant, and vests in three equal annual installments of 75,000 options each, with the first vesting installment occurring on the date of grant. The option had a fair value on the date of grant of $2,274,858.Company.

 

The Company determinedOptions granted to employees under the fair value2020 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 option grant based upon the assumptions as provided below:

For the Nine Months Ended

December 31, 2019

Stock price$ 20.00
Exercise price$ 20.00
Dividend yield0%
Expected volatility55%
Risk-Free interest rate, per annum1.69%
Expected life (in years)5.50

options).

 

The following table summarizesUnder the option activity for the nine months ended December 31, 2019:

  Number of
Shares		  Weighted
Average
Exercise Price		  Weighted
Average
Grant Date
Fair Value		  Weighted
Average
Remaining
Contractual
Term (years)		  Aggregate
Intrinsic Value
(in thousands)		 
Outstanding at March 29, 2019  185,000  $6.05  $6.05   7.75  $1,832 
Granted  10,000   13.00   13.00         
Granted  225,000   20.00   20.00         
Exercised  (37,783)  6.00   6.00         
Outstanding at December 31, 2019  382,217  $14.50  $14.50   8.09  $3,250 
Exercisable at December 31, 2019  230,217  $6.51  $6.51   8.09     

The aggregate intrinsic value is calculated as the difference between2020 Plan, the exercise price of the underlyingan option designated as an incentive stock options andoption 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 December 31, 2019.least 110 percent (110%) of the fair market value of the Company’s common stock and the option must not be exercisable after the expiration of 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 shares of the Company’s common stock must have beneficially owned such stock for at least six months prior to the exercise date.

Exercise prices of non-incentive stock options may not be less than the fair market value of the Company’s common stock.

The aggregate fair market value of shares subject to options granted to a participant(s), which are designated as incentive stock options, and which become exercisable in any calendar year, shall not exceed $100,000.


IEH CORPORATION
Notes to Unaudited Condensed Financial Statements

Note 8EQUITY INCENTIVE PLANS (continued):

Stock-based compensation expense

Stock-based compensation expense is recorded in selling, general and administrative expenses included in the condensed statements of operations. For the three months ended September 30, 2022 and 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 December 31, 2019September 30, 2022 there was a total of $1,200,620 ofno unrecognized compensation expense related to unamortized stock options. ThisIt is the Company’s policy that any unrecognized stock-based compensation cost is expected towould be recognized through 2021 over a weighted average period of 1.59 years.   adjusted for actual forfeitures as they occur.

There were no options granted during the three or six months ended September 30, 2022 or 2021.

 

The Company’sfollowing table provides the stock based compensation expense was $260,491 and $1,159,284 during the three and nine months ended December 31, 2019 and $21,206 and $26,802 during the three and nine months ended December 28, 2018.

 18

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IEH CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)option activity:

 

Note 8- 2011 EQUITY INCENTIVE PLAN:(continued)
  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 

 

DuringThe aggregate intrinsic value in the quarter ended September 27, 2019, three individuals opted totable 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 someprice, times the number of their options, including 3,783 of such options exercisedshares) that would have been received by the Company’s Chief Executive Officer by means of a cashless exercise using 1,000 previously issued shares of the Company’s common stock. During the quarter ended December 31, 2019, five individuals opted to exercise some ofoption holders had all option holders exercised their options. Consequently, the issued and outstanding number of shares of the Company’s common stock increased by 28,500 shares to 2,360,251 shares. During the quarter ended December 31, 2019, 10,000in-the-money options were granted to a senior employee of the Company. For the nine months ended December 31, 2019, a total of 235,000 options were granted including 225,000 options granted to the Company’s Chief Executive Officer.on those dates.

 

Note 9- 9CASH 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 December 31, 2019September 30, 2022 and December 28, 2018. The Company accrued a contribution provision2021 was $100,500, respectively. Bonus expense recorded for each of $243,000 for the ninesix months ended December 31, 2019September 30, 2022 and the nine months ended December 28, 2018.2021 was $201,000, respectively.

 


IEH CORPORATION
Notes to Unaudited Condensed Financial Statements

Note 10- 10COMMITMENTS 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 $9,497$14,617 and $13,105$14,763 for the three months ended December 31, 2019September 30, 2022 and December 28, 2018, respectively, and $36,255 and $50,153 for the nine months ended December 31, 2019 and December 28, 2018,2021, respectively. The Company has not taken any actiontotal contributions charged to terminate, withdraw or partially withdraw fromoperations under the provisions of the Multi-Employer Plan nor does it intend to do so inwere $24,145 and $28,094 for the future.six months ended September 30, 2022 and 2021, respectively.

 

Note 11- 11REVENUE FROM MAJOR CUSTOMERS: CONCENTRATIONS:

 

During the three months ended December 31, 2019,September 30, 2022, there were no customers with concentrations of net sales greater than 10% of the total sales per the financial statements.

During the three months ended September 30, 2021, two customers accounted for $2,548,988 constituting approximately 30% of the Company’s net sales. One of those customers accounted for approximately 17%22.9% of the Company’s net sales, whileeach represented 11.5% and 11.4%, respectively.

During the second customersix months ended September 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 11CONCENTRATIONS (continued):

During the six months ended September 30, 2021, three customers accounted for approximately 13%38.4% of the Company’s net sales. sales, each 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 15.0% of accounts receivable.

During the three months ended December 28, 2018 one customer accounted for $1,002,255 constituting approximately 17%September 30, 2022, there were no highly concentrated vendors of the Company’s net sales. purchases.

During the ninethree months ended December 31, 2019, three customersSeptember 30, 2021, one vendor accounted for $9,189,430 or approximately 39%10.7% of the Company’s net sales. One of those customerspurchases.

During the six months ended September 30, 2022, one vendor accounted for approximately 15%12.0% of the Company’s net sales whilepurchases.

During the second and third customerssix months ended September 30, 2021, one vendor accounted for approximately 13% and 11%11.1% of the Company’s net sales, respectively. During the nine months ended December 28, 2018, three customers accounted for $8,102,144 or approximately 38% of the Company’s net sales. One of the customers accounted for approximately 14% of the Company’s net sales while the second and third customers accounted for approximately 13% and 11% of the Company’s net sales, respectively.purchases.

 19

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IEH CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Note 11- REVENUE FROM MAJOR CUSTOMERS: (continued)

 

As of DecemberSeptember 30, 2022 and March 31, 2019,2022 one vendor accounted for 12.1% and two customers represented approximately 19% and 14%, respectively,vendors accounted for 21.4% of the Company’s account receivables. As of March 29, 2019, one customer represented approximately 24% of the Company’s account receivables. There was no concentration for purchases.accounts payable, respectively.

 


 

Note 12-SUBSEQUENT EVENTS:

 

The Company has evaluated all subsequent events through February 14, 2020, the date 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.

 20

Table of Contents

IEH CORPORATION

PART I: FINANCIAL INFORMATION

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

 

Forward-Looking Statements

This report contains forward-looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”) and Section 27A of the Securities Act of 1933 (the “Securities Act”). Statements contained in this report, which are not statements of historical facts, may be considered forward-looking information with respect to plans, projections, or future performance of the Company as defined under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those projected. The words “anticipate”,“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.

 

Desciption of BusinessOverview

 

The Company designs, develops and manufactures printed circuit board connectors and custom interconnects 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 OriginalOEMs (Original Equipment Manufacturers (“OEMs”), companies manufacturing medical equipmentManufacturers) and distributors who resell our products to OEMs. We sell our products directly and through regional22 independent sales representatives and distributors located in all regions of the United States, Canada, Israel, India, various Pacific Rim countries, South Koreathe European Union, Southeast Asia, Central Asia and the European Union.Middle East.

 

The customers we service are in the Military,Defense, Aerospace, Space, Medical, Oil &and Gas, Industrial, Test Equipment and Commercial Electronics markets. We appear on the Military Qualified Product Listing “QPL” to(“QPL”) 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.

The accompanying unaudited financial statements for the three and nine months ended December 31, 2019 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, these unaudited financial statements have been prepared on the same basis as the annual financial statements and reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the financial position as of December 31, 2019 and the results of operations and cash flows for the three and nine 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 nine months ended December 31, 2019, are not necessarily indicative of the results to be expected for any subsequent quarter or the entire fiscal year. The balance sheet at March 29, 2019 has been derived from the audited financial statements at that date.

 

 21

TableThe customers we service by industry as a percentage of Contentstotal revenue is provided below:

EH CORPORATION

 

PART I: FINANCIAL INFORMATION

  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 

 

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

 

Forward-Looking Statements(continued)

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.

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.”

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; stock based compensation and income taxes (including uncertain tax positions). Please see accounting principles aswhich have been disclosed in footnote 2our Annual Report on Form 10-K for the accompanying financial statements.fiscal year ended March 31, 2022 filed with the SEC on June 22, 2023.

 

ProvisionResults of Operations

Comparison of the Three Months Ended September 30, 2022 and 2021

The following table summarizes our results of operations for Income Taxes

The income tax provision forthe three months ended December 31, 2019September 30, 2022 and December 28, 2018 reflect effective tax rates of 34.6%, respectively. The Company’s effective tax rate2021:

  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 ninethree months ended December 31, 2019September 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 December 28, 2018space 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 34.6%, respectively.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.

 

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IEH CORPORATION

PART I: FINANCIAL INFORMATION

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

Results of Operations

Comparative Analysis-Nine Months Ended December 31, 2019 and December 28, 2018

The following table sets forth for the periods indicated, percentages for certain items reflected in the financial data as such items relate to the revenues of the Company:

Relationship to Total Revenues  December 31,   December 28, 
  2019  2018 
Revenues (in thousands) $23,542  $21,619 
         
Operating Expenses:        
  (as a percentage of Revenues)        
         
            Costs of Products Sold  60.08%   57.43% 
            Selling, General and Administrative  19.96%   14.17% 
            Interest Expense  0.22%   0.26% 
            Depreciation and amortization  2.96%   1.43% 
         
                   TOTAL COSTS AND EXPENSES  83.22%   73.29% 
       
Operating Income  16.78%   26.71% 
         
Other Income  0.10%   0.04% 
         
Income before Income Taxes  16.88%   26.75% 
         
Income Taxes  (5.84%)  (8.27%)
         
Net Income  11.04%   18.48% 
         

 23

Table of Contents

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-Nine Months Ended December 31, 2019 and December 28, 2018(continued)

Revenues for the nine months ended December 31, 2019 amounted to $23,542,266 reflecting a 8.90% increase versus $21,619,017

for the nine months ended December 28, 2018. The increase in revenues of $1,923,249 can be attributed to the completion of a large customer contract which was fulfilled by the end of the first fiscal quarter of this year.

Cost of products sold were $14,143,666 for the ninethree months ended December 31, 2019September 30, 2022 was $4,209,506, reflecting a decrease of $1,354,048, or 60.08% of revenues. This reflected an increase of $1,727,836 or 13.90% in the cost of products sold from $12,415,830 or 57.43% of operating revenues24.3%, as compared to $5,563,554 for the ninethree months ended December 28, 2018.September 30, 2021. The increasedecrease was principally attributable to the 36.1% decrease in costrevenue, offset by additional costs we have incurred in staffing the Pennsylvania location, the costs of products sold can be attributed to an increase in payrollmaintaining our highly trained labor force through periods of reduced production and related fringe costs as a resultthe impacts of the Company hiring additional employees engaged in the manufacturing process.inflation.

 

Selling, general and administrative expenses were $4,699,640 or 19.96% of revenues for the ninethree months ended December 31, 2019September 30, 2022 was $1,230,748, reflecting an increase of $50,473, or 4.3%, as compared to $3,063,345 or 14.17% of revenues$1,180,275 for the ninethree months ended December 28, 2018. ThisSeptember 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 $1,636,295 can be attributed$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 benefit of $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 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 following table summarizes our results of operations for the six months ended September 30, 2022 and 2021:

  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)

(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).

Revenue for the six months ended September 30, 2022 was $8,272,230, reflecting a decrease of 4,800,219, or 36.7%, as compared to $13,072,449 for the six 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 six months ended September 30, 2022 was $9,128,445, reflecting a decrease of $1,174,851, or 11.4%, as compared to $10,303,296 for the six months ended September 30, 2021. The decrease was principally attributable to the 36.7% 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 salaries.

Interest expense was $51,006expenses for the ninesix months ended December 31, 2019. ForSeptember 30, 2022 was $2,239,755, reflecting a decrease of $224,626 or 9.1%, as compared to $2,464,381 for the six months ended December 28, 2018, interest expenseSeptember 30, 2021. The increase was $56,456 or 0.26% of revenues. The decrease can be attributedprincipally due to a decrease in interest rates during the current nine-month period.additional accounting and legal fees.

 

Depreciation and amortization of $697,717 or 2.96% of revenues was reported for the ninesix months ended December 31, 2019September 30, 2022 was $505,594, reflecting an increase of $148,529, or 41.6%, as compared to $309,600 or 1.43% of operating revenues$357,065 for the ninesix months ended December 28, 2018.September 30, 2021. The increase iswas primarily due to newly acquired fixed assets of $468,814 being put into service duringan 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 current nine-month period.

The Company reported netsix months ended September 30, 2022 was income of $2,598,625 for the nine months ended December 31, 2019$58,826, reflecting a decrease of $2,122,818, as compared to net income of $3,994,469$2,181,644 for the ninesix months ended December 28, 2018.September 30, 2021. The decrease in net income for the current nine-month period can be attributedwas primarily attributable to the decrease in operating revenues forgain on the current nine 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.

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IEH CORPORATION

 

PART I: FINANCIAL INFORMATION 

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

Results of Operations(continued)

Comparative Analysis-Three Months Ended December 31, 2019 and December 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 December 31,  December 28, 
  2019  2018 
       
Revenues (in thousands) $8,425  $5,978 
         
Operating Expenses:        
  (as a percentage of Revenues)        
         
            Costs of Products Sold  62.56%   63.40% 
            Selling, General and Administrative  17.44%   16.48% 
            Interest Expense  0.20%   0.68% 
            Depreciation and amortization  2.82%   1.41% 
         
                   TOTAL COSTS AND EXPENSES  83.02%   81.97% 
         
Operating Income  16.97%   18.03% 
         
Other Income  0.07%   0.09% 
         
Income before Income Taxes  17.04%   18.12% 
         
Income Taxes  (6.97%)  (4.92%)
         
Net Income  10.07%   13.20% 

Liquidity and Capital Resources:

 

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 December 31, 2019 amounted to $8,424,657 reflectingSeptember 30, 2022 and 2021. The Company has recorded a 40.93% increase versus $5,977,835net loss of $4,349,118 for the threesix months ended December 28, 2018.September 30, 2022 and net income of $2,101,361 for the six months ended September 30, 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 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 revenues of $2,446,822 can be attributed to increased marketing efforts and sales management support along with successful penetration into new markets and continued cultivation of our existing customer base.

Cost of products sold were $5,270,795 for the three months ended December 31, 2019 or 62.56% of revenues. This reflected an increase of $1,480,607 or 39.06%cash used in the cost of products sold from $3,790,188 or 63.40% of revenues for the three months ended December 28, 2018. The increase in cost of products sold can be attributedinvesting activities was due to an increase in payrollpurchases of molds and related fringe costs as a resultdies 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 Company hiring additional employees engagedprincipal balance of $2,103,885 as debt forgiveness income in the manufacturing process.quarter ended June 30, 2021.

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IEH CORPORATIONBacklog of Orders

 

PART I: FINANCIAL INFORMATION 

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

Results of Operations(continued)

Comparative Analysis-Three Months Ended December 31, 2019 and December 28, 2018(continued)

Selling, general and administrative expenses were $1,469,198 or 17.44% of revenuesorders for the three months ended December 31, 2019 comparedCompany’s products amounted to $985,043 or 16.48% of revenues for the three months ended December 28, 2018. This comparative increase of $484,155 can be attributed primarily to an increase in general and administrative salaries.

Interest expense was $17,263 for the three months ended December 31, 2019 or 0.20% of revenues. For the three months ended December 28, 2018, interest expense was $40,904 or 0.68% of revenues. The decrease can be attributed to a decrease in interest rates during the current three-month period.

Depreciation and amortization of $237,764 or 2.82% of revenues was reported for the three months ended December 31, 2019approximately $11,358,000 at September 30, 2022 as compared to $84,000 $7,909,000 at March 31, 2022. The orders in backlog at September 30, 2022 are expected to ship and/or 1.41%services are expected to be performed over the next 12 months depending on customer requirements and product availability.

Inflation

In the opinion of revenues formanagement, inflation has begun to impact the three months ended December 28, 2018. The increase is due to additional fixed assets put into service duringcosts of our operations and depending upon the current quarter.

The Company reported net incomeduration and degree of $848,112 for the three months ended December 31, 2019 as comparedhigher inflation levels, is expected to net income of $788,880 for the three months ended December 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.

Liquidity and Capital Resources

The Company reported working capital of $23,685,080 as of December 31, 2019, compared to a working capital of $19,653,160 as of March 29, 2019. The improvement in working capital was principally attributed tohave an increase of $4,031,920 comprised of the following items:

Net Income $2,598,625 
Depreciation  697,717 
Capital Expenditure  (468,815)
Recognition of Stock Based Compensation Expense  1,159,284 
Other  45,109 
Total $4,031,920 

For the nine months ended December 31, 2019, the Company utilize cash of $468,815 in capital expenditures for the acquisition of property plant and equipment.

The Company has an accounts receivable financing agreement with a non-bank lending institution (“Financing Company”) whereby it can borrow up to 80 percent of its eligible receivables (as definedimpact upon our operations in the financing agreement) at an interest ratefuture. Management will continue to monitor inflation and evaluate the possible future effects of 2.5% above JP Morgan Chase’s publicly announced prime rate with a minimum rate of 6% per annum.inflation on our business and operations.

 

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 receivables.


 

As of December 31, 2019 and March 29, 2019, the Company had reported a liability to its Financing Company of $381,871 and $334,306, respectively.

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IEH CORPORATION

 

PART I: FINANCIAL INFORMATION 

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

Liquidity and Capital Resources(continued)

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 historically 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 timelier basis. The Company reviews the collectability of all accounts receivable on a monthly basis.

Item 3. QuantitativeQualitative and QualitativeQuantitative Disclosures about 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.Not applicable.

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 not 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.

Management determined that a misstatement and lack of disclosure in the second quarter regarding the employment agreement and option grant to the Chief Executive Officer, represented a material weakness in the disclosure controls and procedures.

Mitigation of Material Weakness

Our Chief Executive Officer and Chief Financial Officer are currently evaluating the conditions which resulted in the misstatement in the Form 10-Q for the three and nine months ended September 27, 2019, and are developing and implementing a plan of remediation. As a first step in implementing such a plan, the Company engaged a SEC reporting consultant who assisted the Company with the accounting for such transactions and revisions to the Company’s disclosures. The Company’s management will continue to actively review, evaluate and implement changes where necessary to its internal controls and procedures, including controls to ensure that the information properly record transactions is adequately communicated on a timely basis.

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

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IEH CORPORATION

PART I: FINANCIAL INFORMATION 

Item 4. Controls and Procedures(continued)

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

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

Management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 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, with respect to the analysis and determination of the misstatement and lack of disclosure in the second quarter and 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, were not effective as of December 31, 2019. In response to the conclusion stated above, management is developing and implementing a plan of remediation.

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 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, as of September 30, 2022, our disclosure controls and procedures were not absolute,effective at 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 control system’s objectives willbelow material weaknesses continue to be met. Further,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 designplanning for and implementation of a control system must reflectremediation efforts to address the fact that there are resource constraints,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 benefitsappropriateness of controls must be considered relativepolicies and procedures, (iii) the implementation of review and monitoring of transactions 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 ofensure compliance with the new policies orand procedures, may deteriorate. Also, projections(iv) improvements in the design and implementation of any evaluationenhanced monitoring of effectiveness to future periods are subject toITGC controls, and (v) the risk that controls may become inadequate becauseenhanced training of changespersonnel.

Changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.Internal Controls Over Financial Reporting

There were no changes other than described above, 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 December 31, 2019September 30, 2022 that materially affected, or are reasonably likely to materially affect our internal controls over financial reporting.

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IEH CORPORATION

PART II:II – OTHER INFORMATION

Item 1. Legal Proceedings

 

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

 

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, $2,598,625, 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 nine months ended December 31, 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 ofrisk factors previously disclosed in 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.Exchange Act Reports.

 

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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 $7.30 per share and as high as $22.00 per share. During the nine-month period ended December 31, 2019, our common stock traded in the range of $16.05 per share to $24.97 per share. During the three-month period ended December 31, 2019, our common stock traded in the range of $19.56 per share to $24.97 per share. We cannot assure you that your initial investment in our common stock will not decline.

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

 

NoneNone.

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IEH CORPORATION

 

PART II: OTHER INFORMATION

Item 5. Other Information

 

NoneNone.


Item 6. Exhibits

 

(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

Exhibit 10.1No.Employment Agreement, dated asDescription
3.1Amended and Restated Certificate of July 29, 2019, betweenIncorporation of the Company and David Offerman (filed as Exhibit 10.1C-4 to Current Report on Form 8-K, dated February 27, 1991).
3.2By-Laws of the Company (filed as Exhibit 3.2 on Annual Report on Form 10-KSB for the fiscal year ended March 27, 1994).
4.1Form of Common Stock Certificate of the Company (filed as Exhibit 4.1 on Annual Report on Form 10-KSB for the fiscal year ended March 27, 1994).
4.2Description of Securities (filed as Exhibit 4.2 on Annual Report on Form 10-K for the fiscal year ended March 31, 2022 on June 22, 2023).
10.1(†)2020 Equity Stock Based Compensation Plan (filed as Annex A to definitive Proxy Statement dated November 23, 2020).
10.2(†)Employment Agreement between the Company and David Offerman, dated as of July 29,31, 2019 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 31, 2019).
10.3(†)Employment Agreement between the Company and William H. Craig dated as of September 21, 2022 and effective as of July 1, 2022 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 21, 2022).
  
Exhibit 31.1 31.1*Certification of Chief Executive Officer Pursuantpursuant to 17CFR240.13a-14(a)Section 17 CFR 240.13a-14(a) or 17CFR240.15d-14(a)*17 CFR 240.15d-14(a) pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  
Exhibit 31.231.2*Certification of ChiefPrincipal Financial Officer Pursuantpursuant to 17CFR240.13a-14(a)Section 17 CFR 240.13a-14(a) or 17CFR240.15d-14(a)*17 CFR 240.15d-14(a) pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
  
Exhibit 32.1 32.1**Certification ofCertifications by Chief Executive Officer and ChiefPrincipal Financial Officer, Pursuantpursuant to 17CFR240.13a-14(b)17 CFR 240.13a-14(b) or 17CFR240.15d-14(b)17 CFR 240.15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code*Code adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit 101.INS 
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 Instance Document* (Extensible Business Reporting language) and filed electronically herewith: (i) the Balance Sheets; (ii) the Statements of Operations; (iii) the Statements of Stockholders’ Equity; (iv) the Statements of Cash Flow; and (v) the Notes to Financial Statements.

Exhibit 101.SCH 
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 Schema* Schema Document

Exhibit 101.CAL 
101.CAL*Inline XBRL Taxonomy Extension Calculation Linkbase Document* Document

Exhibit 101.LAB 
101.DEF*Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*Inline XBRL Taxonomy Extension Label Linkbase Document* Document
  
Exhibit 101.PRE101.PRE*Inline XBRL Taxonomy Extension Presentation Linkbase Document*Document
104Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)

Exhibit 101.DEF XBRL Taxonomy Extension Definition Label Document* 

*Submitted electronically herewith

Attached as Exhibit 101 to this Quarterly Report on Form 10-Q are the following formatted in XBRL (Extensible Business Reporting Language): (i) Statement of Operations for the nine months ended December 31, 2019 and December 28, 2018; (ii) Balance Sheets as of December 31, 2019 and March 29, 2019; (iii) Statements of Cash Flows for the nine months ended December 31, 2019 and December 28, 2018; (iv) Statements of Changes in Stockholders’ Equity for the three and nine months ended December 31, 2019 and December 28, 2019; and (v) Notes to Financial Statements for the nine months ended December 31, 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

 

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
(Registrant)
  
Dated: October 6, 2023By:/s/ David Offerman
  
February 14, 2020/s/ David Offerman
 David Offerman
 

Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer)

/s/ Subrata Purkayastha

Subrata Purkayastha, Interim Chief Financial Officer

(Principal ExecutiveFinancial Officer)

February 14, 2020/s/ Robert Knoth
Robert Knoth
Chief Financial Officer (Principal Accounting Officer)

 


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