UNITED STATES

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30 2022, 2023

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

For the transition period from ____________ to ____________

Commission file number: 0-5278

IEH Corporation

(Exact name of registrant as specified in its charter)

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

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☒

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☐ No ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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 ☐ No ☒

As of October 6,November 30, 2023, the registrant had 2,370,2512,380,251 shares of its common stock, par value $0.01 per share, outstanding.

TABLE OF CONTENTS

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, 2022,2023, filed with the Securities and Exchange Commission (“SEC”) on June 22,October 6, 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,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”)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:

PART I: FINANCIAL INFORMATION

Item 1. Financial Statements

IEH CORPORATION

CONDENSED BALANCE SHEETS

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

IEH CORPORATION

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

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

IEH CORPORATION

CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

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

IEH CORPORATION

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

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

IEH CORPORATION

Notes to Unaudited Condensed Financial Statements

Overview

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

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

Basis of Presentation

The accompanying condensed financial statements and the related disclosures as of June 30, 20222023 and for the three months ended June 30, 20222023 and 20212022 are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP, and the rules and regulations of the SEC for interim financial statements. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These interim condensed financial statements should be read in conjunction with the March 31, 20222023 audited financial statements and notes included in the Annual Report on Form 10-K filed with the SEC on June 22,October 6, 2023. The March 31, 20222023 balance sheet included herein was derived from the audited financial statements as of that date but does not include all disclosures including notes required by U.S. GAAP for complete financial statements. In the opinion of management, the condensed financial statements reflect all adjustments, consisting of normal and recurring adjustments, necessary for the fair presentation of the Company’s financial position and results of operations for the three months ended June 30, 20222023 and 2021.2022. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the fiscal year ended March 31, 20232024 or any other interim period or future year or period.

Revenue Recognition

The core principle underlying Accounting Standards Codification ASC 606 “Revenue from Contracts with Customers” (“ASC 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 sets out the following steps for an entity to follow when applying the core principle to its revenue generating transactions:

IEH CORPORATION

Notes to Unaudited Condensed Financial Statements

Revenue Recognition, continued

The Company recognizes revenue and the related cost of products sold when the performance obligations are satisfied. The performance obligations are typically satisfied upon shipment of physical goods. In addition to the satisfaction of the performance obligations, the following conditions are required for revenue recognition: an arrangement exists, there is a fixed price, and collectability is reasonably assured.

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

IEH CORPORATION

Notes to Unaudited Condensed Financial Statements

Revenue Recognition, continued

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 provide a replacement at its own cost. Historically, returns and repairs have not been material.

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

Approximately 54.7%11.5% and 79.4%64.7% of the international net sales for the three months ended June 30, 20222023 and 2021,2022, respectively represent sales to customers located in China.

The Company’s aggregateddisaggregated revenue by industry as a percentage of total revenue is provided below:

Inventories

Inventories

Inventories are comprised of raw materials, work-in-process and finished goods, and are stated at cost, on an average basis, which does not exceed net realizable value. The Company manufactures products pursuant to specific technical and contractual requirements.

The Company reviews its purchase and usage activity of its inventory of parts as well as work in process and finished goods to determine which items of inventory have become obsolete within the framework of current and anticipated orders. The Company estimates which materials may be obsolete and which products in work in process or finished goods may be sold at less than cost. A periodic adjustment, based upon historical experience is made to inventory in recognition of this impairment. The Company’s allowance for obsolete inventory was $271,000$487,000 and $211,000$433,000 as of June 30, 20222023 and March 31, 2022,2023, respectively, and was reflected as a reduction of inventory.

IEH CORPORATION

Notes to Unaudited Condensed Financial Statements

Concentration of Credit Risk

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

At times, the Company’s cash in banks was in excess of the Federal Deposit Insurance Corporation insurance limits. The Company has not experienced any loss as a result of these deposits.

(Net Loss) EarningsLoss Per Share

The Company accounts for earnings per share pursuant to ASC Topic 260, “Earnings per Share”, which requires disclosure on the financial statements of “basic” and “diluted” earnings per share. Basic (net loss) earningsnet loss per common share areis computed by dividing net (loss) incomeloss by the weighted average number of common shares outstanding for the reporting period. Diluted (net loss) earningsnet loss per common share is computed by dividing net (loss) incomeloss by the weighted average number of common shares outstanding plus common stock equivalents (if dilutive) for the reporting period.

Basic and diluted (net loss) earningsnet loss per common share is calculated as follows: 

Potentially dilutive securities outlined in the table below have been excluded from the computation of diluted (net loss) earningsnet loss per share because the effect of their inclusion would have been anti-dilutive.

IEH CORPORATION

Notes to Unaudited Condensed Financial Statements

Fair Value of Financial 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 3-3 - 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

The preparation of financial statements in conformity with generally 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 basedstock-based instruments, an incremental borrowing rate for determining for its leases the present value of lease payments, the calculation of inventory obsolescence, as well as determining the amount of the valuation allowance for deferred income tax assets, net. Actual amounts could differ from those estimates.

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 inas a single reportable operating segment.

IEH CORPORATION

Notes to Unaudited Condensed Financial Statements

Depreciation and Amortization

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 June 30, 2023 and 2022 was $215,236 and 2021 was $248,483 and $175,916 respectively.

Stock-Based Compensation

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

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13 – Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which was subsequently revised by ASU 2018-19 and ASU 2020-02. The ASU 2016-13 introduces a new model for assessing impairment on most financial assets. Entities will be required to use a 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 for2016-13 was adopted by the Company’sCompany on April 1, 2023, which is the beginning of the 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 related updates, and has determined that the impact wouldwas not be material to its financial statements and disclosures.

The Company has evaluated other recently issued accounting pronouncements and has concluded that the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s financial position or results of operations upon adoption.

Subsequent Events

The 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.

IEH CORPORATION

Notes to Unaudited Condensed Financial Statements

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

Inventories are comprised of the following:

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 forgivenessOther current liabilities are comprised of the principal balance of $2,103,885 as debt forgiveness income in the quarter ended June 30, 2021.following:

Other current liabilities are comprised of the following:

Operating leases

Leases classified as operating leases are included in operating lease right-of use, or ROU, assets, operating lease liabilities and operating lease liabilities, non-current, in the Company’s condensed balance sheets.

Condensed balance sheet information related to our leases is presented below:

IEH CORPORATION

Notes to Unaudited Condensed Financial Statements

Condensed balance sheet information related to our leases is presented below:

The lease expense for the three months ended June 30, 2023 and 2022 was $140,307 and 2021 was $138,722, and $131,004,respectively, which was included in selling, general and administrative expensecost of products sold on the Company’s condensed statement of operations, respectively.operations. 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.

The basic minimum annual rental remaining on these leases is $3,935,102$3,462,518 as of June 30, 2022.2023. 

The weighted-average remaining lease term and the weighted average discount rate for operating leases were:

The total remaining operating lease payments included in the measurement of lease liabilities on the Company’s condensed balance sheet as of June 30, 20222023 was as follows:

IEH CORPORATION

Notes to Unaudited Condensed Financial Statements

The effective income tax rates for the three months ended June 30, 2023 and 2022 were a provision of 0% on a loss before provision for income taxes of $1,315,902 and 2021 were a provision of 38.4% on a loss before provision for income taxes of $2,097,396, and arespectively. The provision for income taxes of 4.01% on income$0 for the three months ended June 30, 2023 was attributable to the loss before provision for income taxes incurred for the period and the impact of $2,441,492, respectively.recording a full valuation allowance on the Company’s deferred tax assets, net. The tax provision for income taxes of $806,380 for the three months ended June 30, 2022 represents a charge to record a full valuation allowance of the Company’s deferred income tax assets, net as of April 1, 2022. The lower effective income tax rate for the three months ended June 30, 2021 was due to the effect of the $2,103,885 gain on forgiveness of debt, which was not subject to income tax.  

2011 Equity Incentive Plan

On August 31, 2011, the Company’s stockholders approved the adoption of the Company’s 2011 Equity Incentive Plan (“2011 Plan”) to provide for the grant of stock options and restricted stock awards to purchase up to 750,000 shares of the Company’s common stock to all employees, consultants and other eligible participants including senior management and members of the Board of Directors of the Company. The 2011 Equity Incentive Plan expired on August 31, 2021 after which no further awards will be granted under such plan.

2020 Equity Incentive Plan

On November 18, 2020, the Board of Directors approved the Company’s 2020 Equity Incentive Plan (the “2020 Plan”) for submission to stockholders at the next annual meeting. On December 16, 2020, the Company’s stockholders approved the adoption of the 2020 Plan, which provides for options and restricted stock awards to purchase up to 750,000 shares of common stock to award in the future as employee incentive compensation to employees, management and directors of the Company.

Options granted to employees under the 2020 Plan may be designated as options which qualify for incentive stock option treatment under Section 422A of the Internal Revenue Code, or options which do not qualify (non-qualified stock options).

Under the 2020 Plan, the exercise price of an option designated as an incentive stock option shall not be less than the fair market value of the Company’s common stock on the day the option is granted. In the event an option designated as an incentive stock option is granted to a ten percent (10%) or greater stockholder, such exercise price shall be at 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 provideprovides 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.stock on the grant date.

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

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 June 30, 20222023 and 2021,2022, stock-based compensation expense was $0$129,600 and $199,500,$0, respectively.

As of June 30, 20222023 there was no unrecognized compensation expense related to unamortized stock options. It is the Company’s policy that any unrecognized stock-based compensation cost would be adjusted for actual forfeitures as they occur.

There were no options granted during the three months ended June 30, 2022 or 2021.2022.

The following table provides the stock option activity:

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

In 1987, the Company adopted a cash bonus plan (the “Cash Bonus Plan”) for non-union, management and administration staff. Unless otherwise approved by the Company’sCompensation Committee of the Board of Directors contributions toor the full Board of Directors, the Cash Bonus Plan are madewill only be funded by the Company onlyfor payment of bonuses with respect to any fiscal year, when the Company is profitable for thesuch applicable fiscal year. As of June 30, 20222023 and March 31, 2022,2023, the Company’s accrued bonus was $381,642$100,181 and $408,000,$354,250, respectively. Bonus expense recorded for each of the three months ended June 30, 20222023 and 20212022 was $100,500.

IEH CORPORATION

Notes to Unaudited Condensed Financial Statements

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, and thereafter, 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, and thereafter 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 (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 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 Amendments 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.

The total contributions charged to operations under the provisions of the Multi-Employer Plan were $9,528$14,790 and $13,331$9,528 for the three months ended June 30, 2023 and 2022, respectively, and 2021, respectively.were reflected within cost of products sold included in the condensed statements of operations.

During the three months ended June 30, 2023 and June 30, 2022, one customer accounted for 12% and 10.8%, respectively, of the Company’s net sales.

As of June 30, 2023, no customer accounted for 10% or more of accounts receivable. As of March 31, 2023, three customers accounted for 44.5% of accounts receivable, each represented 23.2%, 11.0% and 10.3%, respectively.

During the three months ended June 30, 2021, three customers2023, two vendors accounted for 44.6%23.4% of the Company’s net sales,purchases, each represented 16.6%, 16.6%,12.7% and 11.4%10.7%, respectively.

As of June 30, 2022 and March 31, 2022, one customer accounted for 10.4% and 15.0% of accounts receivable, respectively.

During the three months ended June 30, 2022, one vendor accounted for 15.4% of the Company’s purchases.

During the three months endedAs of June 30, 2021,2023 and March 31, 2023, two vendors accounted for 21.7%22.1% of the Company’s purchases, each represented 11.6%accounts payable and 10.1%, respectively.

As of June 30, 2022 and March 31, 2022, one vendor accounted for 14.6% and two vendors accounted for 21.4%20.9% of accounts payable, respectively.

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

Statements contained in this report, which are not historical facts, may be considered forward-looking information with respect to plans, projections, or future performance of the Company as defined under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those projected. The words “anticipate,” “believe”, “estimate”, “expect,” “objective,” and think” or similar expressions used herein are intended to identify forward-looking statements. The forward-looking statements are based on the Company’s current views and assumptions and involve risks and uncertainties that include, among other things, the performance of the Company’s business, actions of competitors, changes in laws and regulations, including accounting standards, employee relations, customer demand, prices of purchased raw materials and parts, domestic economic conditions including inflation and interest rates, foreign economic conditions, including currency rate fluctuations.fluctuations and geopolitical uncertainty.

The following discussion and analysis should be read in conjunction with our audited financial statements and related footnotes included elsewhere in this report, which provide additional information concerning the Company’s financial activities and condition.

Overview

The Company designs, develops and manufactures printed circuit board connectors and custom interconnects for high performance applications.

All of our connectors utilize the HYPERBOLOID contact design, a rugged, high-reliability contact system ideally suited for high-stress environments. We believe we are the only independent producer of HYPERBOLOID printed circuit board connectors in the United States.

Our customers consist of OEMs (OriginalOriginal Equipment Manufacturers)Manufacturers (“OEMs”) and distributors who resell our products to OEMs. We sell our products directly and through 22 independent sales representatives and distributors located in all regions of the United States, Canada, the European Union, Southeast Asia, Central Asia and the Middle East.

The customers we service are in the Defense, Aerospace, Space, Medical, Oil and Gas, Industrial, Test Equipment and Commercial Electronics markets. We appear on the Military Qualified Product Listing (“QPL”) MIL-DTL-55302 and supply customer requested modifications to this specification. Our offering of “QPL” items has recently been expanded to include additional products.

The customers we service by industry as a percentage of total revenue is provided below:

Financial Overview

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (US GAAP) requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from those 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 financial 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 which have been disclosed in our Annual Report on Form 10-K for the fiscal year ended March 31, 20222023 filed with the SEC on June 22,October 6, 2023.

Results of Operations

Comparison of the Three Months Ended June 30, 20222023 and 20212022

The following table summarizes our results of operations for the three months ended June 30, 20222023 and 2021:2022:

Revenue for the three months ended June 30, 20222023 was $4,078,584,$4,679,845, reflecting a decreasean increase of $2,431,993,$601,261, or 37.4%14.7%, as compared to $6,510,577$4,078,584 for the three months ended June 30, 2021. 2022.

The declineincrease in revenue for the period was principally on account of softnessan increase in orders from our defense and space customers. Our defense revenues continue to be negatively impacted by reduced governmenthave benefitted from increased defense related spending in these sectors foron programs in which we participate. Our quarter over quarter commercial aerospace revenues declined less than ourhave grown steadily, consistent with the post COVID-19 return of consumer aviation traffic. Our increase in commercial aerospace revenues offset quarter over quarter softness in revenues from defense andour space customers, 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.customers.

Cost of products sold for the three months ended June 30, 20222023 was $4,918,939,$4,241,432, reflecting an increasea decrease of $179,197,$677,507, or 3.8%13.8% as compared to $4,739,742$4,918,939 for the three months ended June 30, 2021.2022. The increasedecrease in our cost of products sold especiallyis attributable to a combination of improved margins due to changes in lightproduct mix and greater absorption of declining revenues, reflects the additionalproduction costs we have incurredinto inventory, driven by increases in staffing the Pennsylvania location, the costs of maintaining our highly trained labor force through periods of reduced production and the impacts of inflation.volume.

Selling, general and administrative expenses for the three months ended June 30, 20222023 was $1,009,007,$1,557,569, reflecting a decreasean increase of $275,099,$548,562, or 21.4%54.4%, as compared to $1,284,106$1,009,007 for the three months ended June 30, 2021.2022. The decreaseincrease was primarily due to a decreaseincreased consulting and legal fees incurred in stock-based compensation of $199,500.connection with bringing our public filings current. 

Depreciation and amortization for the three months ended June 30, 20222023 was $248,483,$215,236, reflecting an increasea decrease of $72,567,$33,247, or 41.3%13.4%, as compared to $175,916$248,483 for the three months ended June 30, 2021.2022. The increasedecrease was principally attributable to capitalized leasehold improvementsreduced amortization in our new Pennsylvania facility, as well as increases in capitalized molds and diesthe current period for new products.certain fully amortized assets.

Total other income (expense) for the three months ended June 30, 20222023 was income of $449,$18,490, reflecting a decreasean increase of $2,130,230,$18,041, as compared to income of $2,130,679$449 for the three months ended June 30, 2021.2022. The decreaseincrease was primarilyprincipally attributable to the gaininterest earned on the forgiveness of the PPP loan of $2,103,885 recognized duringour cash balances.

Provision for income taxes was $0 and $806,380 for the three months ended June 30, 2021.

Provision2023 and 2022. The provision for income taxes of $0 for the three months ended June 30, 2023 was attributable to the loss before provision for income taxes incurred for the period and the impact of recording a full valuation allowance on our deferred tax assets.  The tax provision for the three months ended June 30, 2022 wasof $806,380 reflecting an increase of $708,476 as compared to $97,904 for the three months ended June 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 determinedrepresents a charge to record a full valuation allowance onof 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, the charge to provision for income taxes for the three months ended June 30, 2022 consisted solelyas of the write down of the existing deferred income tax asset, net, and that for the remaining quarterly periods within the fiscal year ended March 31, 2023, we are expecting a provision for income taxes of $0.April 1, 2022.

Liquidity and Capital Resources:  

Our 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 months ended June 30, 2022,2023, 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 Russiaconflicts in Eastern Europe and Ukrainein the Middle East 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 June 30, 20222023 and March 31, 2022,2023, the Company’s cash on hand was $11,462,890$6,939,727 and $12,675,271,$8,344,706, respectively. The Company recorded a net (loss) incomeloss of $(2,903,776)$1,315,902 and $2,343,588$2,903,776 for the three months ended June 30, 20222023 and 2021,2022, respectively. As of June 30, 20222023 and March 31, 2022,2023, the Company had working capital of $23,605,171$19,301,993 and $25,508,882$20,303,090 and stockholders’ equity of $27,915,718$23,130,268 and $30,819,494,$24,316,570, respectively.

Our principal source of liquidity has been from cash flows generated by operating activities and our cash reserves.

Cash Flow Activities for the Three Months Ended June 30, 20222023 Compared to the Three Months Ended June 30, 20212022

The following table summarizes our sources and uses of cash for the three months ended June 30, 20222023 and 2021:2022:

Net cash used in operating activities was $1,376,666 for the three months ended June 30, 2023, compared to $1,155,245 for the three months ended June 30, 2022, compared2022. The period over period increase in use of cash of $221,421 was primarily attributable to netan increase in the payment of the accrued cash provided by operatingbonus during the current period.  

Net cash used in investing activities of $1,154,891was $28,313 for the three months ended June 30, 2021. The period over period2023, a decrease in cash from operating activities of $2,310,136, was primarily due$28,823, as compared to the decrease in net income (as adjusted for the non-cash gain on forgivenessa use of debt), offset principally by the non-cash charge to fully impair the deferred income tax assets, net.

Net cash used in investing activities was $57,136 for the three months ended June 30, 2022, an increase of $23,016, as compared to a use of $34,120 for the three months ended June 30, 2021.2022. The increasedecrease in cash used in investing activities during the three months ended June 30, 20222023 was principally due to an increasedecreases in purchase of purchases of moldsproperty and dies.equipment.

There were no financing activities during the three months ended June 30, 20222023 or 2021.2022.

PPP Loan and Note

On April 13, 2020, the Company entered into an unsecured note (the “PPP Note”) evidencing an unsecured loan (“PPP Loan”) in the principal amount of $2,103,885 pursuant to the Payment Protection Program (“PPP”) under the Coronavirus Aid Relief and Economic Security Act (“CARES Act”).

On April 21, 2021, the Company received notice that the PPP Loan was forgiven. The Company recorded the forgiveness of the principal balance of $2,103,885 as debt forgiveness income in the quarter ended June 30, 2021.

Backlog of Orders

The backlog of orders for the Company’s products amounted to approximately $13,837,000 at June 30, 2023 as compared to approximately $9,537,000 at June 30, 2022 as compared to $7,909,000 at March 31, 2022. The orders in backlog at June 30, 20222023 are expected to ship over the next twelve months depending on customer requirements and product availability.

Inflation

In the opinion of management, inflation has beguncontinued to impact the costs of our operations and depending upon the current duration and degree of higher inflation levels, is expected to have an impact upon our operations in the future. Management will continue to monitor inflation and evaluate the possible future effects of inflation on our business and operations.

Item 3. Qualitative and Quantitative Disclosures about Market Risk

Not applicable.

Item 4. Controls and Procedures

Management’s Evaluation of our Disclosure Controls and Procedures 

We maintain disclosure controls and procedures (as defined in paragraph (e) of Rules 13a-15 and 15d-15 under the Exchange Act) designed to ensure that the information we are required to disclose in reports that we file or submitfurnish 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 Chief Executive Officer (our principal executive officer) and our Chief Financial Officer (our principal financial officer) carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of as of the end of the period covered by this Quarterly Report on Form 10-Q. Our management recognizes that any controls and procedures, 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 June 30, 2022,2023, our disclosure controls and procedures were not 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,June 30, 2023, 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 below material weaknesses continue to be in effect as of June 30, 2022:identified:

Management is actively engaged in the planning for and implementation of remediation efforts to address the identified material weaknesses. The remediation plan includes (i) the engaging of additional experienced financial resources, (ii) the development and implementation of enhanced controls designed to evaluate the appropriateness of policies and procedures, (iii) the implementation of review and monitoring of transactions to ensure compliance with the new policies and procedures, (iv) improvements in the design and implementation of enhanced monitoring of ITGC controls, and (v) the enhanced training of personnel.

Changes in Internal Controls Over Financial Reporting

There were no changes in our internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) identified in connection with the evaluation of our internal controls that occurred during the fiscal quarter ended June 30, 20222023 that materially affected, or are reasonably likely to materially affect our internal controls over financial reporting.

PART 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 filed an Answer in the proceeding 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 record in the proceeding.

Item 1A. Risk Factors

Our operations and financial results are subject to various risks and uncertainties, including those described in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended March 30, 20222023 which could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our common and capital stock. Except as set forth below, as of the date of this Quarterly Report on Form 10-Q, there have been no material changes to our risk factors previously disclosed in our Exchange Act Reports.

Item 2. Unregistered Sales of Equity Securities, and Use of Proceeds, and Issuer Purchases of Equity Securities

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

Item 6. Exhibits

The 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

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.