SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 25, 2004
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to _______________
Commission File No. 0-5258
IEH CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 1365549348
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
140 58th Street, Suite 8E, Brooklyn, New York 11220
---------------------------------------------------
(Address of principal executive office)
Registrant's telephone number, including area code: (718) 492-4440
____________________________________________________
Former name, former address and former fiscal year,
if changed since last report.
Check whether the Issuer: (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 [X] No [ ]
2,303,468 shares of Common Shares, par value $.01 per share, were outstanding as
of June 25, 2004 and August 4, 2004.
IEH CORPORATION
CONTENTS
Page
Number
------
Part I - FINANCIAL INFORMATION
ITEM 1- FINANICAL STATEMENTS
Balance Sheets as of June 25, 2004 (Unaudited) and March 26, 2004 3
Statement of Operations (Unaudited) for the three months ended
June 25, 2004 and June 27, 2003. 5
Statement of Cash Flows (Unaudited) for the three months ended
June 25, 2004 and June 27, 2003. 6
Notes to Financial Statements (Unaudited) 8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 16
Item 3 - Controls and Procedures
PART II - OTHER INFORMATION
Item 1 - Legal proceedings
Item 2 - Changes in Securities and Small Business Issuer Purchases of
Equity Securities
Item 3 - Defaults Upon Senior Securities
Item 4 - Submission of Matters to a Vote of Security Holders
Item 5 - Other Information
Item 6 - Exhibits and Reports on Form 8K
2
IEH CORPORATION
BALANCE SHEETS
As of June 25, 2004 and March 26, 2004
June 25, March 26,
2004 2004
----------- ----------
(Unaudited) (Note 1)
ASSETS
CURRENT ASSETS:
Cash $ 1,499 $ 4,480
Accounts receivable, less allowances for doubtful
accounts of $10,062 at June 25, 2004 and March 26, 594,377 586,491
2004
Inventories (Note 3) 1,058,000 1,014,598
Prepaid expenses and other current assets (Note 4) 25,613 16,616
----------- -----------
Total current assets 1,679,489 1,622,185
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, less accumulated
depreciation and amortization of $6,041,865 at June
25, 2004 and $5,991,765 at March 26, 2004 1,162,534 1,130,026
----------- -----------
1,162,534 1,130,026
----------- -----------
OTHER ASSETS:
Other assets 41,404 41,356
----------- -----------
41,404 41,356
----------- -----------
Total assets $ 2,883,427 $ 2,793,567
=========== ===========
See accompanying notes to financial statements
3
IEH CORPORATION
BALANCE SHEETS
As of June 25, 2004 and March 26, 2004
June 25, March 26,
2004 2004
---------- ----------
Unaudited) (Note 1)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts receivable financing (Note 7) $ 574,315 $ 645,096
Notes payable, equipment, current portion (Note 6) 8,742 8,936
Accrued corporate income taxes 14,732 14,500
Due to union health and welfare plan, current portion 21,700 32,200
(Note 9)
Accounts payable 1,018,474 738,105
Pension plan payable, current portion (Note 9) 59,000 56,000
Other current liabilities (Note 5) 137,145 159,339
---------- ----------
Total current liabilities 1,834,108 1,654,176
---------- ----------
LONG-TERM LIABILITIES:
Pension Plan payable, less current portion (Note 9) 115,000 149,000
Notes payable, equipment, less current portion (Note 6) 9,130 11,170
---------- ----------
Total long-term liabilities 124,130 160,170
---------- ----------
Total liabilities 1,958,238 1,814,346
---------- ----------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 10,000,000 shares
authorized;
2,303,468 shares issued and outstanding at June 25, 2004 23,035 23,035
and March 26, 2004
Capital in excess of par value 2,744,573 2,744,573
Retained earnings (Deficit) (1,842,419) (1,788,387)
---------- ----------
Total stockholders' equity 925,189 979,221
---------- ----------
Total liabilities and stockholders' equity $2,883,427 $2,793,567
========== ==========
See accompanying notes to financial statements
4
IEH CORPORATION
STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended
---------------------------
June 25, June 27,
2004 2003
------------ -----------
REVENUE, net sales $ 1,172,388 $ 1,222,252
------------ -----------
COSTS AND EXPENSES
Cost of products sold 905,073 903,989
Selling, general and administrative 243,583 242,856
Interest expense 23,519 29,798
Depreciation and amortization 50,100 50,700
------------ -----------
1,222,275 1,227,343
------------ -----------
OPERATING INCOME (LOSS) (49,887) (5,091)
OTHER INCOME 55 33
------------ -----------
INCOME (LOSS) BEFORE INCOME TAXES (49,832) (5,058)
------------ -----------
PROVISION FOR INCOME TAXES (4,200) (4,200)
------------ -----------
NET INCOME (LOSS) $ (54,032) $ (9,258)
============ ===========
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE $ (.023) $ (.004)
============ ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING (in thousands) 2,303 2,303
============ ===========
See accompanying notes to financial statements
5
IEH CORPORATION
STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash
(Unaudited)
Three months Ended
-------------------------
June 25, June 27,
2004 2003
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ (54,032) $ (9,258)
----------- -----------
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization
50,100 50,700
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (7,886) 151,770
(Increase) decrease inventories (43,402) 34,075
(Increase) decrease in prepaid expenses and other current
assets (8,997) (1,330)
(Increase) decrease in other assets (48) (856)
Increase (decrease) in accounts payable 280,369 (85,514)
Increase (decrease) in other current liabilities (22,194) (36,925)
Increase (decrease) in accrued corporate income taxes
232 (998)
Increase (decrease) in union health and welfare plan (10,500) --
Increase (decrease) in due to pension plan payable (31,000) (7,500)
----------- -----------
Total adjustments 206,674 103,422
----------- -----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 152,642 94,164
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of fixed assets (82,608) (62,538)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES $ (82,608) $ (62,538)
=========== ===========
See accompanying notes to financial statements
6
IEH CORPORATION
STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash
(Unaudited)
Three months Ended
---------------------
June 25, June 27,
2004 2003
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable $ -- $ 16,790
Principal payments on notes payable (2,234) (5,139)
Proceeds from accounts receivable financing (70,781) (44,234)
--------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (73,015) (32,583)
--------- ---------
INCREASE (DECREASE) IN CASH (2,981) (957)
CASH, beginning of period 4,480 5,565
--------- ---------
CASH, end of period $ 1,499 $ 4,608
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION, cash paid
during the three months for:
Interest $ 16,555 $ 20,813
========= =========
Income Taxes $ 3,968 $ 5,198
========= =========
See accompanying notes to financial statements
7
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 1- INTERIM RESULTS AND BASIS OF PRESENTATION
The accompanying unaudited financial statements as of June 25, 2004
and June 27, 2003 and for the three month periods then ended have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-QSB and Items 303 and 310 of Regulation S-B. In the opinion of
management, the unaudited financial statements have been prepared on
the same basis as the annual financial statements and reflect all
adjustments, which include only normal recurring adjustments,
necessary to present fairly the financial position as of June 25, 2004
and June 27, 2003 and the results of operations and cash flows for the
three month periods 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 months ended June 25, 2004, are not necessarily indicative of
the results to be expected for any subsequent quarter or the entire
fiscal year. The balance sheet at March 26, 2004 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 generally accepted
accounting principles have been condensed or omitted pursuant to the
Securities and Exchange Commission's rules and regulations. 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 of IEH
Corporation as of March 26, 2004 and notes thereto included in the
Company's report on Form 10-KSB as filed with the Securities and
Exchange Commission.
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Description of Business:
The Company is engaged in the design, development, manufacture and
distribution of high performance electronic printed circuit connectors
and specialized interconnection devices. Electronic connectors and
interconnection devices are used in providing electrical connections
between electronic component assemblies. The Company develops and
manufactures connectors which are designed for a variety of high
technology and high performance applications, and are primarily
utilized by those users who require highly efficient and dense (the
space between connection pins with the connector) electrical
connections.
The Company is continuously redesigning and adapting its connectors to
meet and keep pace with developments in the electronics industry and
has, for example, developed connectors for use with flex-circuits now
being used in aerospace programs, computers, air-borne communications
systems, testing systems and other areas. The Company also services
its connectors to meet specified product requirements.
8
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Accounting Period:
The Company maintains an accounting period based upon a 52-53 week
year which ends on the nearest Friday in business days to March 31st.
For the year ending March 26, 2004, the year was comprised of 52
weeks.
Revenue Recognition:
Revenues are recognized at the shipping date of the Company's
products.
The Company's policy with respect to customer returns and allowances
as well as product warranty is as follows:
The Company will accept a return of defective product within one year
from shipment for repair or replacement at the Company's option. If
the product is repairable, the Company at its own cost will repair and
return it to the customer. If unrepairable, the Company will either
offer an allowance against payment or will reimburse the customer for
the total cost of the product.
Most of the Company's products are custom ordered by customers for a
specific use. The Company provides engineering services as part of the
relationship with its customers in developing the custom product. The
Company is not obligated to provide such engineering service to its
customers. The Company does not charge separately for these services.
Inventories:
Inventories are stated at cost, on a first-in, first-out basis, which
does not exceed market value.
Concentration of Credit Risk:
The Company maintains cash balances at one bank. Amounts on deposit
are insured by the Federal Deposit Insurance Corporation up to
$100,000 in aggregate. There were no uninsured balances at either June
25, 2004 or March 26, 2004.
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 Modified Accelerated Cost Recovery System
(MACRS) 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 account.
Any gain or loss thereon is either credited or charged to operations.
9
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Income Taxes:
The Company follows the policy of treating investment tax credits as a
reduction in the provision for federal income tax in the year in which
the credit arises or may be utilized. Deferred income taxes arise from
temporary differences resulting from different depreciation methods
used for financial and income tax purposes. The Company has adopted
Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes".
Net Income Per Share:
The Company has adopted the provisions of SFAS No. 128, "Earnings Per
Share", which requires the disclosure of "basic" and "diluted"
earnings (loss) per share. Basic earnings per share is computed by
dividing net income by the weighted average number of common shares
outstanding during each period. Diluted earnings per share is similar
to basic earnings per share except that the weighted average number of
common shares outstanding is increased to reflect the dilutive effect
of potential common shares, such as those issuable upon the exercise
of stock or warrants, as if they had been issued. For the three months
ended June 25, 2004 and June 27, 2003, there were no items of
potential dilution that would impact on the computation of diluted
earnings or loss per share.
Fair Value of Financial Instruments:
The carrying value of the Company's financial instruments, consisting
of accounts receivable, accounts payable, and borrowings, approximate
their fair value due to the relatively short maturity (three months)
of these instruments.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities, revenues and expenses, and disclosure of contingent
assets and liabilities at the date of the financial statements. Actual
amounts could differ from those estimates.
Impairment of Long-Lived Assets:
SFAS No. 144, "Accounting For The Impairment or Disposal of Long-Lived
Assets", requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. The Company
has adopted SFAS No. 144. There were no, long-lived asset impairments
recognized by the Company for the three months ended June 25, 2004 and
June 27, 2003.
10
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Reporting Comprehensive Income:
The Company has adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income". This statement established standards for
reporting and display of comprehensive income and its components
(revenues, expenses, gains and losses) in an entity's financial
statements. This Statement requires an entity to classify items of
other comprehensive income by their nature in a financial statement
and display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in
the equity section of a statement of financial position. There were no
material items of comprehensive income to report for the three months
ended June 25, 2004 and June 27, 2003.
Segment Information:
The Company has adopted the provisions of SFAS No. 131, "Disclosures
About Segment of An Enterprise and Related Information." This
Statement requires public enterprises to report financial and
descriptive information about its reportable operating segments and
establishes standards for related disclosures about product and
services, geographic areas, and major customers. The adoption of SFAS
No. 131 did not affect the Company's presentation of its results of
operations or financial position.
Effect of New Accounting Pronouncements:
The Company does not believe that any recently issued but not yet
effective accounting standards, have a material effect on the
Company's financial position, results of operations or cash flows.
Note 3 - INVENTORIES:
Inventories are comprised of the following:
June 25, March 26,
2004 2004
---------- ----------
Raw materials $ 719,334 $ 689,851
Work in progress 204,617 196,182
Finished goods 134,049 128,565
---------- ----------
$1,058,000 $1,014,598
========== ==========
Inventories are priced at the lower of cost (first-in, first-out
method) or market, whichever is lower. The Company has established a
reserve for obsolescence to reflect net realizable inventory value.
The balance of this reserve as of June 25, 2004 was $12,000. At March
26, 2004, the balance of this reserve was $0. Inventories at June 25,
2004 and March 26, 2004 are recorded net of this reserve.
11
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 4 - PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets are comprised of the
following:
June 25, March 26,
2004 2004
--------- ---------
Prepaid insurance $ 10,408 $ 11,030
Prepaid corporate taxes 5,489 5,489
Other current assets 9,716 97
--------- ---------
$ 25,613 $ 16,616
========= =========
Note 5 - OTHER CURRENT LIABILITIES:
Other current liabilities are comprised of the following:
June 25, March 26,
2004 2004
---------- ----------
Payroll and vacation accruals $ 52,645 $ 87,964
Sales commissions 12,271 9,705
Other 72,229 61,670
---------- ----------
$ 137,145 $ 159,339
========== ==========
Note 6 - NOTES PAYABLE EQUIPMENT:
The Company financed the acquisition of new computer equipment and
software with notes payable. The notes are payable over a sixty month
period. The balance remaining at June 25, 2004 amounted to $17,872.
Aggregate future principal payments are as follows:
Fiscal year ending March 31,
2005 $ 6,869
2006 4,392
2007 3,358
2008 3,253
----------
$ 17,872
==========
12
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 7- ACCOUNTS RECEIVABLE FINANCING:
The Company has an accounts receivable financing agreement with a
factor which bears interest at 2.5% above prime with a minimum of 12%
per annum. At June 25, 2004 the amount outstanding with the factor was
$574,315 as compared to $645,096 at March 26, 2004. The loan is
secured by the Company's accounts receivables and inventories.
Note 8- 2001 EMPLOYEE STOCK OPTION PLAN:
On June 21, 2001 the Company's shareholders approved the adoption of
the Company's 2001 Employees Stock Option Plan to provide for the
grant of options to purchase up to 750,000 shares of the Company's
common stock to all employees, including senior management.
Options granted to employees under this 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 so
qualify.
Under this 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%) shareholder, such exercise price shall be at least
110 Percent (110%) of the fair market value or the Company's common
stock and the option must not be exercisable after the expiration of
five years from the day of the grant.
Exercise prices of non incentive stock options may be less than the
fair market value of the Company's common stock.
The aggregate fair market value of shares subject to options granted
to a participant(s), which are designated as incentive stock options,
and which become exercisable in any calendar year, shall not exceed
$100,000. As of June 25, 2004 no options had been granted under the
plan.
13
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 9 - COMMITMENTS:
The Company exercised its option to renew its lease on the premises
for 10 years. The original lease ran through August 23, 2001.
The Company is obligated under this renewal through August 23, 2011,
at minimum annual rentals as follows:
Fiscal year ending March,
2005 $ 84,573
2006 112,764
2007 112,764
2008 112,764
2009 112,764
2010 112,764
2011 75,176
----------
$ 723,569
==========
The rental expense for the three months ended June 25, 2004 for this
lease was $28,191.
The Company has a collective bargaining multi-employer pension plan
with the United Auto Workers of America, Local 259. 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 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 Plan.
The Company has not taken any action to terminate, withdraw or
partially withdraw from the Plan nor does it intend to do so in the
future. Under the Act, liabilities would be based upon the Company's
proportional share of the Plan's unfunded vested benefits, which is
currently not available. The amount of accumulated benefits and net
assets of such Plan also is not currently available to the Company.
The total contributions charged to operations under this pension plan
were $15,420 for the three months ended June 25, 2004 and $14,117 for
the three months ended June 27, 2003.
As of June 25, 2004, the Company reported arrears with respect to its
contributions to the Union's Health and Welfare plan. The amount due
the Health and Welfare plan was $21,700.
The total amount due of $21,700 is reported on the accompanying
balance sheet as a current liability.
14
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 9 - COMMITMENTS (continued):
In June 1993, the Company and Local 259 entered into a verbal
agreement whereby the Company would satisfy this debt by the following
payment schedule:
The sum of $2,500 will be paid by the Company each month in
satisfaction of the current arrears until this total debt has been
paid. Under this agreement, the projected payment schedule for arrears
will satisfy the total debt in 9 months.
On June 30, 1995, the Company applied to the Pension Benefit Guaranty
Corporation ("PBGC") to have the PBGC assume all of the Company's
responsibilities and liabilities under its Salaried Pension Plan. On
April 26, 1996, the PBGC determined that the Salaried Pension Plan did
not have sufficient assets available to pay benefits which were and
are currently due under the terms of the Plan.
The PBGC further determined that pursuant to the provisions of the
Employment Retirement Income Security Act of 1974, as amended
("ERISA"), that the Plan must be terminated in order to protect the
interests of the Plan's participants. Accordingly, the PBGC proceeded
pursuant to ERISA to have the Plan terminated and the PBGC appointed
as statutory trustee, and to have July 31, 1995 established as the
Plan's termination date.
The Company and the PBGC negotiated a settlement on the entire matter
and on July 2, 2001, an agreement was reached whereby the Company's
liability to the PBGC was reduced to $244,000. The Company will make
monthly payments to the PBGC as follows:
September 1, 2004 to August 1, 2004 $2,000 per month
September 1, 2004 to August 1, 2006 $3,000 per month
September 1, 2006 to August 1, 2007 $4,000 per month
Additionally, the Company has made balloon payments of $25,000 each on
January 1, 2004 and May 1, 2004. The Company is also obligated to make
additional balloon payments of $25,000 each on May 1, 2005 and January
1, 2006.
The Company also granted the PBGC a lien on the Company's machinery
and equipment.
As a result of this agreement the amount due the PBGC was restated to
$244,000. The balance as of June 25, 2004 was $174,000. The balance of
$174,000 is reported on the accompanying balance sheet as follows:
$59,000 as a current liability and $115,000 as a long-term liability.
Note 10 - CHANGES IN STOCKHOLDERS' EQUITY:
Retained earnings (deficit) increased by $54,032, which represents the
net loss for the three months ended June 25, 2004.
15
IEH CORPORATION
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 effects of the Company's business, actions
of competitors, changes in laws and regulations, including accounting standards,
employee relations, customer demand, prices of purchased raw material and parts,
domestic economic conditions, including housing starts and changes in consumer
disposable income, and foreign economic conditions, including currency rate
fluctuations. Some or all of the facts are beyond the Company's control.
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and related footnotes which provide additional
information concerning the Company's financial activities and condition.
CRITICAL ACCOUNTING POLICIES
Accounting Period:
The Company maintains an accounting period based upon a 52-53 week year which
ends on the nearest Friday in business days to March 31st.
Revenue Recognition:
Revenues are recognized at the shipping date of the Company's products.
The Company's policy with respect to customer returns and allowances as well as
product warranty is as follows:
The Company will accept a return of defective product within one year from
shipment for repair or replacement at the Company's option.
If the product is repairable, the Company at its own cost will repair and return
it to the customer. If unrepairable, the Company will either offer an allowance
against payment or will reimburse the customer for the total cost of the
product.
Most of the Company's products are custom ordered by customers for a specific
use. The Company provides engineering services as part of the relationship with
its customers in developing the custom product. The Company is not obligated to
provide such engineering service to its customers. The Company does not charge
separately for these services.
Inventories:
Inventories are stated at cost, on a first-in, first-out basis, which does not
exceed market value.
16
IEH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CRITICAL ACCOUNTING POLICIES (CONTINUED)
Concentration of Credit Risk:
The Company maintains cash balances at one bank. Amounts on deposit are insured
by the Federal Deposit Insurance Corporation up to $100,000 in aggregate. There
were no uninsured balances at either June 25, 2004 or March 26, 2004.
Property, Plant and Equipment:
Property, plant and equipment is stated at cost less accumulated depreciation
and amortization. The Company provides for depreciation and amortization using
the Modified Accelerated Cost Recovery System (MACRS) 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 account. Any gain or loss thereon is
either credited or charged to operations.
Income Taxes:
The Company follows the policy of treating investment tax credits as a reduction
in the provision for federal income tax in the year in which the credit arises
or may be utilized. Deferred income taxes arise from temporary differences
resulting from different depreciation methods used for financial and income tax
purposes. The Company has adopted Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes".
Net Income Per Share:
The Company has adopted the provisions of SFAS No. 128, "Earnings Per Share",
which requires the disclosure of "basic" and "diluted" earnings (loss) per
share. Basic earnings per share is computed by dividing net income by the
weighted average number of common shares outstanding during each period.
Diluted earnings per share is similar to basic earnings per share except that
the weighted average number of common shares outstanding is increased to reflect
the dilutive effect of potential common shares, such as those issuable upon the
exercise of stock or warrants, as if they had been issued. For the three months
ended June 25, 2004 and June 27, 2003, there were no items of potential dilution
that would impact on the computation of diluted earnings or loss per share.
Fair Value of Financial Instruments:
The carrying value of the Company's financial instruments, consisting of
accounts receivable, accounts payable, and borrowings, approximate their fair
value due to the relatively short maturity (three months) of these instruments.
17
IEH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CRITICAL ACCOUNTING POLICIES (CONTINUED)
Use of Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, revenues and expenses,
and disclosure of contingent assets and liabilities at the date of the financial
statements. Actual amounts could differ from those estimates.
Impairment of Long-Lived Assets:
SFAS No. 144, "Accounting For The Impairment or Disposal of Long-Lived Assets",
requires that long-lived assets and certain identifiable intangibles to be held
and used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company has adopted SFAS No. 144. There were no, long-lived
asset impairments recognized by the Company for the three months ended June 25,
2004 and June 27, 2003.
Reporting Comprehensive Income:
The Company has adopted the provisions of SFAS No. 130, "Reporting Comprehensive
Income". This statement established standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in an entity's financial statements. This Statement requires an entity to
classify items of other comprehensive income by their nature in a financial
statement and display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of a statement of financial position. There were no material items of
comprehensive income to report for the three months ended June 25, 2004 and June
27, 2003.
Segment Information:
The Company has adopted the provisions of SFAS No. 131, "Disclosures About
Segment of An Enterprise and Related Information." This Statement requires
public enterprises to report financial and descriptive information about its
reportable operating segments and establishes standards for related disclosures
about product and services, geographic areas, and major customers. The adoption
of SFAS No. 131 did not affect the Company's presentation of its results of
operations or financial position.
18
IEH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
For the three months ended June 25, 2004 compared to the three months ended June
27, 2003:
The following table sets forth for the periods indicated, percentages for
certain items reflected in the financial data as such items bear to the revenues
of the Company:
Three Months Ended
---------------------
June 25, June 27,
2004 2003
-------- --------
Operating Revenues (in thousands) $ 1,172 $ 1,222
-------- --------
Operating Expenses: (as a percentage of operating revenues) 77.2% 74.0%
Cost of Products Sold 20.7% 19.8%
Selling, General and Administrative 2.0% 2.4%
Interest Expense 4.3% 4.2%
Depreciation and Amortization
-------- --------
Total Costs and Expenses 104.2% 100.4%
-------- --------
Operating Income (loss) (4.2%) (.4%)
Other Income -- --
-------- --------
Income (loss) before Income Taxes (4.2%) (.4%)
Income Taxes (.4%) (.3%)
-------- --------
Net Income (loss) (4.6%) (.7%)
======== ========
COMPARATIVE ANALYSIS-THREE MONTHS
Operating revenues for the three months ended June 25, 2004 amounted to
$1,172,388, reflecting a 4.08% decrease versus the comparative three months
ended June 27, 2003 operating revenues of $1,222,252. The decrease is a direct
result of a decrease in commercial, governmental and military orders during the
quarter ended June 25, 2004.
Cost of products sold amounted to $905,073 for the three months ended June 25,
2004 or 77.2% of operating revenues. This reflected an increase of $1,084 or .1%
of the cost of products sold of $903,989 or 74.0% for the three months ended
June 27, 2003.
Selling, general and administrative expenses for the three months ended June 25,
2004 were $243,583 or 20.7% of revenues compared to $242,856 or 19.8% of
revenues for the comparable three-month period ended June 27, 2003. This
reflected an increase of $727 or .3% and reflects increases in administrative
expenses.
Interest expense was $23,519 or 2.0% of revenues for the period ended June 25,
2004 as compared to $29,798 or 2.4% of revenues in the three-month period ended
June 27, 2003. The decrease in interest is associated with the Company's full
repayment of its loans payable.
19
IEH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
COMPARATIVE ANALYSIS -THREE MONTHS (Continued)
Depreciation and amortization of $50,100 or 4.3% of revenues was reported for
the three-month period ended June 25, 2004. This reflects a decrease of $600 or
1.2% from the comparable three-month period ended June 27, 2003 of $50,700 or
4.2% of revenues. The decrease is a result of some equipment becoming fully
depreciated.
The Company reported a net loss of $54,032 for the three months ended June 25,
2004, representing basic loss per common share of $.023 as compared to a basic
loss of $9,258 or $.004 per common share for the three months ended June 27,
2003.
LIQUIDITY AND CAPITAL RESOURCES
The Company reported working capital deficit as of June 25, 2004 of $154,619 as
compared to a working capital deficit of $31,991 at March 26, 2004. The increase
in working capital deficit of $122,628 was attributable to the following items:
Net income (loss)
(excluding depreciation and $(3,932)
amortization)
Capital expenditures (82,608)
Other transactions (36,088)
----------
$ (122,628)
==========
As a result of the above, the current ratio (current assets to current
liabilities) was .92 to 1.0 as of June 25, 2004 as compared to .98 to 1.0 at
March 26, 2004. Current liabilities at June 25, 2004 were $1,834,108 as compared
to $1,654,176 at March 26, 2004.
The Company expended $82,608 in capital expenditures in the three months ended
June 25, 2004. Depreciation and amortization for the three months ended June 25,
2004 was $50,100.
The Company has an accounts receivable financing agreement with a factor, which
bears interest at 2.5% above prime with a minimum of 12% per annum. The
agreement had an initial term of one year and will automatically renew for
successive one year terms, unless terminated by the Company or Lender upon
receiving sixty days prior notice. The loan is secured by the Company's accounts
receivable and inventories. At June 25, 2004 the amount outstanding was $574,315
as compared to $645,096 at March 26, 2004.
The Company has a collective bargaining multi-employer pension plan with the
United Auto Workers of America, Local 259. 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
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
Plan.
20
IEH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (continued)
The Company has not taken any action to terminate, withdraw or partially
withdraw from the Plan nor does it intend to do so in the future. Under the Act,
liabilities would be based upon the Company's proportional share of the Plan's
unfunded vested benefits which is currently not available.
The amount of accumulated benefits and net assets of such Plan also is not
currently available to the Company. The total contributions charged to
operations under this pension plan were $14,117 for the three months ended June
25, 2004 and $15,420 for the three months ended June 27, 2003.
As of June 25, 2004, the Company reported arrears with respect to its
contributions to the Union's Health & Welfare plan. The amount due the Health &
Welfare plan was $21,700.
The total amount due of $21,700 is reported on the accompanying balance sheet as
a current liability.
In June 1993, the Company and Local 259 entered into a verbal agreement whereby
the Company would satisfy this debt by the following payment schedule:
The sum of $2,500 will be paid by the Company each month in satisfaction of the
current arrears until this total debt has been paid. Under this agreement, the
projected payment schedule for arrears will satisfy the total debt in 9 months.
On June 30, 1995, the Company applied to the Pension Benefit Guaranty
Corporation ("PBGC") to have the PBGC assume all of the Company's
responsibilities and liabilities under its Salaried Pension Plan. On April 26,
1996, the PBGC determined that the Salaried Pension Plan did not have sufficient
assets available to pay benefits which were and are currently due under the
terms of the Plan.
21
IEH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (continued)
The PBGC further determined that pursuant to the provisions of the Employment
Retirement Income Security Act of 1974, as amended ("ERISA"), that the Plan must
be terminated in order to protect the interests of the Plan's participants.
Accordingly, the PBGC proceeded pursuant to ERISA to have the Plan terminated
and the PBGC appointed as statutory trustee, and to have July 31, 1995
established as the Plan's termination date.
The Company and the PBGC negotiated a settlement on the entire matter and on
July 2, 2001, an agreement was reached whereby the Company's liability to the
PBGC was reduced to $244,000. The Company will make monthly payments to the PBGC
as follows:
September 1, 2004 to August 1, 2004 $2,000 per month
September 1, 2004 to August 1, 2006 $3,000 per month
September 1, 2006 to August 1, 2007 $4,000 per month
Additionally, the Company has made balloon payments of $25,000 each on January
1, 2004 and May 1, 2004. The Company is also obligated to make additional
balloon payments of $25,000 each on May 1, 2005 and January 1, 2006.
The Company also granted the PBGC a lien on the Company's machinery and
equipment.
As a result of this agreement the amount due the PBGC was restated to $244,000.
The balance as of June 25, 2004 was $174,000. The balance of $174,000 is
reported on the accompanying balance sheet as follows: $59,000 as a current
liability and the balance of $115,000 as a long-term liability.
EFFECTS OF INFLATION
The Company does not view the effects of inflation to have a material effect
upon its business. Increases in costs of raw materials and labor costs have been
offset by increases in the price of the Company's products, as well as
reductions in costs of production, reflecting management's efforts in this area.
While the Company has in the past increased its prices to customers, it has
maintained its relative competitive price position. However, significant
decreases in government, military subcontractor spending has provided excess
production capacity in the industry which has tightened pricing margins.
The Company does not view the effects of inflation to have a material effect
upon its business. Increases in costs of raw materials and labor costs have been
offset by increases in the price of the Company's products, as well as
reductions in costs of production, reflecting management's efforts in this area.
While the Company has in the past increased its prices to customers, it has
maintained its relative competitive price position. However, significant
decreases in government, military subcontractor spending have provided excess
production capacity in the industry which has tightened pricing margins.
22
IEH CORPORATION
Item 3 Controls and Procedures
Our management, under the supervision and with the participation of our Chief
Executive Officer and Chief Financial Officer/Controller, conducted an
evaluation of our "disclosure controls and procedures" (as defined in the
Securities Exchange Act of 1934 Rules 13a-14(c)) within 90 days of the filing
date of this Report on Form 10-QSB. Based on their evaluation, our Chief
Executive Officer and Chief Financial Officer/Controller have concluded that as
of the Evaluation Date, our disclosure controls and procedures are effective to
ensure that all material information required to be filed in this Report on Form
10-QSB has been made known to them.
Changes in Internal Controls
There have been no significant changes (including corrective actions with regard
to significant deficiencies or material weaknesses) in our internal controls or
in other factors that could significantly affect these controls subsequent to
the Evaluation Date set forth above.
PART II
OTHER INFORMATION
Item 1 Legal Proceedings
The Company is not involved in any legal proceedings which may have a
material effect upon the Company, its financial condition or operations.
Item 2. Changes in Securities and Purchases of Securities
Not applicable
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Shareholders
No matters were submitted to shareholders during the fiscal quarter
covered by this Report.
23
Item 5. Other Matters.
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Item 31.1 Certifications Pursuant to Section 302 of the Sarbanes Oxley Act
Item 31.2 Certifications Pursuant to Section 302 of the Sarbanes Oxley Act
Item 32.1 Certification Pursuant to Section 906 of the Sarbanes Oxley Act
Item 32.2 Certification Pursuant to Section 906 of the Sarbanes Oxley Act
(b) Reports on Form 8-K during Quarter
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
has duly cause this report on Form 10QSB to be signed on its behalf by the
undersigned, thereunto duly authorized.
IEH CORPORATION
(Registrant)
August 6, 2004 /s/ Michael Offerman
-------------- --------------------------------
Michael Offerman
President
August 6, 2004 /s/ Robert Knoth
-------------- --------------------------------
Robert Knoth
Chief Financial Officer/Controller