U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934
For the fiscal year ended March 25, 2005
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[_] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the transition period from __________________ to ____________________
Commission file number 0-5278
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IEH CORPORATION
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(Name of Small Business Issuer in Its Charter)
New York 13-5549348
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
140 58th Street, Suite 8E, Brooklyn, New York 11220
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(Address of Principal Executive Offices) (Zip Code)
(718) 492-9673
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(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Title of each Class Name of Each Exchange on Which Registered
None None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.01 Par Value
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(Title of Class)
Indicated by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act 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
past 90 days.
Yes [X] No [_]
-1-
Indicate by check mark if disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.
Yes [X] No [_]
The Registrant's revenues for its most recent fiscal year ended March 25,
2005 were $5,321,145.
On June 30, 2005, the aggregate market value of the voting stock of
Registrant held by non-affiliates of Registrant (consisting of Common Stock,
$.01 par value) computed by reference to the closing price at which the stock
was sold on June 30, 2005 ($0.58) was approximately $772,435.
As of June 30, 2005, there were 2,303,468 shares of Common Stock issued
and outstanding
-2-
PART I
Item I. Business
IEH Corporation (hereinafter referred to as the "Company") was
organized under the laws of the State of New York on March 22, 1943
under the name Industrial Heat Treating Company, Inc. On March 15,
1989, the Company changed its name to its current name. The Company's
executive offices and manufacturing facilities are located at 140 58th
Street, Suite 8E, Brooklyn, New York 11220. The Company's telephone
number is (718) 492-4448; its email address is ieh@iehcorp.com.
The Industry in Which the Company is Engaged
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 to provide connections between
electronic component assemblies. The Company develops and manufactures
connectors, which are designed for a variety of high technological and
high performance applications. These connectors are primarily utilized
by those users who require highly efficient and dense (the space
between connection pins within the connector) electrical connections.
Printed circuit boards in computers contain the components necessary
to perform specific system sub-functions. These functions require
connections, which relay information between electronic components and
circuit boards, enabling the commands that are input by the user to be
performed. Electronic connectors, in essence, enable circuit boards
and electronic components to communicate with each other, via direct
electrical connection. Connectors also are fundamental to modular
construction of electronic assemblies enabling the disconnection and
removal of circuit boards and other electronic components for testing,
repair, and replacement.
Connectors may be designed and manufactured in various shapes, sizes
and specifications to meet specific customer requirements and
applications. High performance connectors are designed to meet various
density and pin count (the number of individual connection points
within each connector) criteria and to provide low forces (the amount
of pressure needed to make the connection) and electrically efficient
connections.
Constant advances in the design of solid-state devices have resulted
in significantly denser component packaging configurations on circuit
boards. Historically, a 5" X 8" circuit board may have consisted of
thousands of circuits with 10 to 30 lines of communication. Under
those conditions, an insertion force of one pound per contact for each
of the communication lines formed a common and acceptable standard in
connection devices. As a result of technological developments in
recent years, the same 5" X 8" circuit board may contain hundreds of
thousands of circuits with hundreds of communication lines, and an
insertion force of one (1) ounce per contact as the standard in the
industry.
The Company's Product Line
The Company primarily manufactures printed circuit board connectors
that meet military or individual customer specifications. Certain of
the Company's manufacturing and sales involve the competitive bidding
process because of the military and/or government status of customers.
The Company also manufactures a line of standard universal connectors,
which have common usage in the high technology and commercial
electronics industries.
-3-
Item I. Business (continued)
The Company's Product Line (continued)
The Company serves both the commercial and military marketplace,
manufacturing connectors for avionics, electronics, satellite, radar
systems, test equipment, medical electronic and related industries.
The Company is continuously redesigning and adapting its connectors to
keep pace with developments in the electronics industry, and has, for
example, developed connectors for use with flex-circuits which are
used in aerospace programs, computers, air-borne communication
systems, testing systems and other areas. The Company also provides
engineering services to its customers to assist in the development and
design of connectors to meet specific product requirements.
The Company's electronic printed circuit connectors are sold to
original equipment manufacturers and distributors. The Company
supplies its connectors to manufacturers who principally produce and
distribute finished products as well as to distributors who resell the
Company's products. Prior to the decrease in military and government
spending over the last five (5) years, the Company's sales were made
primarily to the government, military defense contractors and
aerospace companies. However, since the decrease in military and
government spending, the Company has modified its product line so as
to concentrate its sales efforts to commercial electronics companies.
The Company still continues to market its connectors for use in
government and military computers; military defense equipment and
information systems; terrestrial, airborne and aerospace
communications products; avionics and guidance systems and
instrumental and electronic testing equipment.
With the continuing downturn in government contracts over the last few
years, the Company has been striving the past several years to develop
commercial accounts.
Management has instituted several steps to increase productivity and
increase sales such as downsizing the labor force, implementing
material changes to make the Company's products more competitive and
developing machinery and equipment to increase production rates.
Management believes these initiatives have decreased costs and will
continue to do so in the near future.
For the fiscal year ended March 25, 2005, the Company's principal
customers included manufacturers of commercial electronics products,
military defense contractors and distributors who service these
markets. Sales to the commercial electronics and military defense
markets comprised 24% and 75%, respectively, of the Company's net
sales for the year ended March 25, 2005. Approximately 1% of the
Company's net sales for the year March 25, 2005, were made
internationally.
New Product Development
The Company maintains a program to increase the efficiency and
performance of its connectors to meet anticipated and specific market
needs. Computer and electronics technology is continuously changing
and requires the redesign and development of connectors to adapt to
these changes. Primarily, new technology has dictated a decrease in
the size of solid-state electronic components and smaller and denser
high performance connectors. Management believes that a key ingredient
to the Company's success is its ability to assist customers with a new
design effort and prepare necessary drawing packages in a short period
of time. After the customer approves the design, prototypes are built,
approved by the customer and production is released. As an example,
six new connectors have been introduced to a major commercial account.
The Company's design effort on this product line began mid-year 1994
and was recently completed.
-4-
IEH CORPORATION
PART I
Item I. Business (continued)
New Product Development (continued)
The new development process with this commercial client has led to
substantial repeat business in the past fiscal year. The Company now
has the ability to introduce this line to other commercial accounts.
The Company has also recently commenced production of two new
connectors for the aerospace industry. To date early orders for
pre-production units have been completed and the Company is awaiting
commencement of production.
One of the nation's leading radar system manufacturers has contracted
with the Company for six new designs. The design work is complete,
approvals have been obtained, and the Company is now in small-scale
production. The Company anticipates full-scale production when the
radar system is released for sale by the customer.
Several years ago, the Company designed and developed a form of
compliant termination connector, which is named, "COMTAC". This
product, which utilizes technology known as "Solderless Pin
Technology", does not require the soldering of connector pins, but
instead utilizes a spring type locking system in attaching the
connector to the printed circuit board. This technology was patented
in the United States under patent No. 4,720,268 and assigned to the
Company on January 19, 1988. During the fiscal year ended March 25,
2005 sales of the COMTAC connectors accounted for over 13% of the
Company's total sales. The Company has sent pre-production units for
evaluation to certain customers and potential customers. Although
there can be no assurance of future sales, the Company is optimistic
that this new technology will lead to an increase in sales.
Commitments
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 $54,643 for the
year ended March 25, 2005 and $47,519 for the year ended March 26,
2004.
As of March 25, 2005, the Company had satisfied the arrears on the
Union's health and welfare plan.
-5-
IEH CORPORATION
PART I
Item I. Business (continued)
Commitments (continued)
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 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 have agreed to the terms of a settlement of
the matter. The agreement is effective July 2, 2001. Under the
agreement, the Company and the PBGC agreed on a total sum of $244,000.
The Company has agreed to make payments as follows:
September 1, 2003 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, May 1, 2004 and May 1, 2005. The Company is also
obligated to make an additional balloon payment of $25,000 on 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. $56,000 was paid during the year ended March 25, 2005 and
$39,000 was paid during the year ended March 26, 2004. The balance of
$149,000 is reported as follows: $86,000 as a current liability and
$63,000 as a long-term liability.
-6-
IEH CORPORATION
PART I
Item I. Business (continued)
Marketing and Sales
The market for connectors and interconnection devices, domestic and
worldwide, is highly fragmented as a result of the manufacture by many
companies of a multitude of different types and varieties of
connectors. For example, connectors include: printed circuit,
rectangular I/O, circular, planar (IOC) RF coax, IC socket and fiber
optic. The Company has been servicing a niche in the market by
manufacturing HYPERTAC (TM) connectors and innovative Company-designed
printed circuit connectors such as the COMTAC connectors. Previously,
the Company was one of only three licensed manufacturers of the
HYPERTAC (TM) design in the United States. In the fiscal year 1996,
the Company learned that the other two licensees had merged. Moreover,
the Company, based upon advice of counsel, determined that the
HYPERTAC technology was no longer protected by a patent, and therefore
was in the public domain. As a result, the Company notified the
licensor that it would no longer be bound by the terms of its license
agreement and the Company ceased making license payments. The Company
has received a brief notice from the licensor that it disputed the
Company's interpretations and demanded return of certain equipment. No
legal proceedings have been instituted by the licensor and the Company
has not received any further notices. The Company does not anticipate
manufacturing other types of connectors in the immediate future. The
Company is continuously experimenting with innovative connection
designs, which may cause it to alter its marketing plans in the future
if a market should develop for any of its current or future innovative
designs.
The Company's products are marketed to original equipment
manufacturers directly and through distributors serving primarily the
government, military, aerospace and commercial electronics markets.
The Company is also involved in developing new connectors for specific
uses, which result from changes in technology. This includes the
COMTAC connectors. The Company assists customers in the development
and design of connectors for specific customer applications. This
service is marketed to customers who require the development of
connectors and interconnection devices specially designed to
accommodate the customers own products.
The Company is primarily a manufacturer and its products are
essentially basic components of larger assemblies of finished goods.
Approximately 92% and 93% of the Company's net sales for the years
ended March 25, 2005 and March 26, 2004, respectively, were made
directly to manufacturers of finished products with the balance of the
Company's products sold to distributors. Distributors often purchase
connectors for customers who do not require large quantities of
connectors over a short period of time but rather require small
allotments of connectors over an extended period of time.
One (1) of the Company's customers accounted for 34% and 21% of the
Company's net sales for the years ended March 25, 2005 and March 26,
2004, respectively. The Company currently employs 14 independent sales
representatives to market its products in all regions in the United
States.
-7-
Item I. Business (continued)
Backlog of Orders/Capital Requirements
These independent sales representatives also promote the product lines
of other electronics manufacturers; however, they do not promote the
product lines of competitors, which compete directly with the
Company's products. These sales representatives accounted for
approximately 94% of Company sales (with the balance of Company sales
being generated via direct customer contact) for the year ended March
25, 2005.
International sales accounted for less than 1% of sales for the years
ended March 25, 2005 and March 26, 2004.
The backlog of orders for the Company's products amounted to
approximately $2,600,000 at March 25, 2005, as compared to $1,700,000
at March 26, 2004. A portion (which management does not believe are
material) of these orders are subject to cancellation or postponement
of delivery dates and, therefore, no assurance can be given that
actual sales will result from these orders. The Company does not
foresee any problems which would prevent it from fulfilling its
orders.
Competition
The design, development, manufacture and distribution of electrical
connectors and interconnection devices is a highly competitive field.
The Company principally competes with companies who produce high
performance connectors in printed circuits and wireboards for high
technology application. The Company competes with respect to their
abilities to adapt certain technologies to meet specific product
applications; in producing connectors cost-effectively; and in
production capabilities. In addition, there are many companies who
offer connectors with designs similar to those utilized by the Company
and are direct competitors of the Company.
The primary basis upon which the Company competes is product
performance and production capabilities. The Company usually receives
job orders after submitting bids pursuant to customer-issued
specifications. The Company also offers engineering services to its
customers in designing and developing connectors for specialized
products and specific customer applications. This enables the Company
to receive a competitive advantage over those companies who basically
manufacture connectors based solely or primarily on cataloged
specifications. Many of the Company's competitors have greater
financial resources, market penetration and experience than the
Company and no assurances can be given that the Company will be able
to compete effectively with these companies in the future.
Suppliers of Raw Materials and Component Parts
The Company utilizes a variety of raw materials and manufactured
component parts, which it purchases from various suppliers. These
materials and components are available from numerous sources and the
Company does not believe that it will have a problem obtaining such
materials in the future. However, any delay in the Company's ability
to obtain necessary raw materials and component parts may affect its
ability to meet customer production needs. In anticipation of such
delays, the Company carries an inventory of raw materials and
component parts to avoid shortages and to insure continued production.
-8-
IEH CORPORATION
PART I
Item I. Business (continued)
Research & Development
The Company provides personalized engineering services to its
customers by designing connectors for specific customer applications.
The employment of electromechanical engineers is the anticipated
cornerstone of the Company's future growth. The Company maintains a
testing laboratory where its engineers experiment with new connector
designs based on changes in technology and in an attempt to create
innovative, more efficient connector designs.
The Company expended $31,000 and $49,500 for the years ended March 25,
2005 and March 26, 2004, respectively, on Company sponsored research
and development activities relating to the development of new designs,
techniques and the improvement of existing designs. In addition, the
Company received $31,000 in revenues for the year ended March 25, 2005
and $49,000 for the year ended March 26, 2004, respectively, pursuant
to customer sponsored research activities.
Employees
The Company presently employs approximately 78 people, two (2) of whom
are executive officers; two (2) are engaged in management activities;
four (4) provide general and administrative services and approximately
70 are employed in manufacturing and testing activities. The employees
engaged in manufacturing and testing activities are covered by a
collective bargaining agreement with the United Auto Workers of
America, Local 259 (the "Union"), which expires on March 31, 2006. The
Company believes that it has a good relationship with its employees
and the Union.
Patents and Licenses
Electrical connectors and interconnection devices are usually the
subject of standard designs; therefore, only innovations of standards
designs or the discovery of a new form of connector are patentable.
The Company is continuously attempting to develop new forms of
connectors or adaptations of current connector designs in an attempt
to increase performance and decrease per unit costs. The Company has
developed and designed the COMTAC connector, which was patented on
January 19, 1988, at which time the patent was assigned to the
Company.
Governmental Regulations
The Company is subject to federal regulations under the Occupational
Safety and Health Act ("OSHA") and the Defense Electrical Supply
Command ("DESC"). OSHA provides federal guidelines and specifications
to companies in order to insure the health and safety of employees.
DESC oversees the quality and specifications of products and
components manufactured and sold to the government and the defense
industry. Although DESC continuously requires suppliers to meet
changing specifications, the Company has not encountered any
significant problems meeting such specifications and its products
have, in the past, been approved. The Company is unaware of any
changes in the government's regulations, which are expected to
materially affect the Company's business.
-9-
Item 2. Properties
The Company exercised its option to renew its lease on its facility
for 10 years. The original lease was effective through August 23,
2001.
The Company is obligated under this renewal lease through August 23,
2011, at minimum annual rentals as follows:
Fiscal year ending March:
2006 $173,371
2007 112,765
2008 112,765
2009 112,765
2010 112,765
2011 75,177
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$699,608
========
The Company leases approximately 20,400 feet of space, of which it
estimates; 6,000 square feet are used as executive, sales and
administrative offices and 14,400 square feet are used for its
manufacturing and plating.
The rental expense for the year ended March 25, 2005 and March 26,
2004 was $169,765 and $112,765, respectively. Rental expense for the
year ended March 25, 2005 includes a surcharge of $57,210. In addition
to the base rent, the Company pays real estate taxes, 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. See "Legal Proceedings" for
certain matters involving the Company's operating facility and
offices.
Item 3. Legal Proceedings
The Company is not a party to or aware of any pending or threatened
legal proceedings which would result in any material adverse effect on
its operations or its financial condition.
Item 4. Submission of Matters to Vote of Security Holders
No matters were submitted to shareholders during the fourth quarter
for the fiscal year ended March 25, 2005. We expect to have our annual
meeting for 2005 sometime in the late second fiscal quarter or early
third fiscal quarter.
-10-
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Principal Market
The common stock of the Company (the "common stock") is traded in the
Over-The-Counter Market and is quoted on the National Association of
Securities Dealers Automated Quotation ("NASDAQ") System Bulletin
Board under the symbol "IEHC"). On January 11, 1993, the Company's
common stock was deleted from listing on the NASDAQ SmallCap Market
System because of the Company's failure to maintain the minimum asset
and shareholders equity requirements. On January 12, 1993, the
Company's common stock was first quoted over the Electronic Bulletin
Board (OTCBB).
Market Information
The range of high and low bid prices for the Company's common stock,
for the periods indicated as set forth below. For the period to
October 29, 1991, the Company was listed on the NASDAQ National Market
System. On October 29, 1991, the Company's common stock was delisted
from the NASDAQ National Market System and from October 29, 1991 to
January 11, 1993, the Company's common stock was listed on the NASDAQ
SmallCap Market System. On January 11, 1993, the Company's common
stock was delisted from the NASDAQ SmallCap Market System and on
January 13, 1993, the Company's common stock was first quoted over the
Electronic Bulletin Board (OTCBB). Set forth below is a table
indicating the high and low bid prices of the common stock during the
periods indicated.
Year High Bid Low Bid
Fiscal Year ended March 25, 2005
1st Quarter .50 .50
2nd Quarter .29 .29
3rd Quarter .39 .39
4th Quarter .51 .51
Fiscal Year ended March 26, 2004
1st Quarter .46 .13
2nd Quarter .25 .25
3rd Quarter .20 .18
4th Quarter .45 .18
(*) As reported by the OTCBB.
The above quotations, as reported, represent prices between dealers
and do not include retail mark-ups, mark-downs or commissions. Such
quotations do not necessarily represent actual transactions. Trading
in our securities is sporadic.
On July 6, 2005 the high bid for the common stock was .58 and the low
bid was .58.
-11-
Item 5. Market for Common Equity and Related Stockholder Matters (continued)
Dividends
The Company has not paid any cash dividends on its common stock during
the last five (5) fiscal years. At present, the Company does not
anticipate issuing any cash dividends on its common stock in the
foreseeable future by reason of its contemplated future financial
requirements and business plans. The Company will retain earnings, to
the extent that there are any, to finance the development of its
business.
Approximated Number of Equity Security Holders
The number of record holders of the Company's common stock as of May
21, 2005 was approximately 1,208. Such number of record owners was
determined from the Company's stockholder records, and does not
include the beneficial owners of the Company's common stock whose
shares are held in the names of various security holders, dealers and
clearing agencies.
Item 6. 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 form 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 financial statements and related footnotes, which provide
additional information concerning the Company's financial activities
and condition.
Critical Accounting Policies
The Financial Statements have been prepared in accordance with
accounting principles generally accepted in the United States of
America, which require the Company to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date
of the Financial Statements, and revenues and expenses during the
periods reported. Actual results could differ from those estimates.
The Company believes the following are the critical accounting
policies, which could have the most significant effect on the
Company's reported results and require the most difficult, subjective
or complex judgments by management.
-12-
Item 6. Management's Discussion and Analysis of Financial Condition and
Results Of Operations (continued)
o Impairment of Long-Lived Assets:
The Company reviews its long-lived assets for impairment whenever
events or circumstances indicate that the carrying amount of an
asset may not be recoverable. If the sum of the expected cash
flows, undiscounted and without interest, is less than the
carrying amount of the asset, an impairment loss is recognized as
the amount by which the carrying amount of the asset exceeds its
fair value. The Company makes estimates of its future cash flows
related to assets subject to impairment review.
o Inventory Valuation:
Raw materials and supplies are valued at the lower of first-in,
first-out cost or market. Finished goods and work in process are
valued at the lower of actual cost, determined on a specific
identification basis, or market. The Company estimates which
materials may be obsolete and which products in work in process
or finished goods may be sold at less than cost, and adjusts
their inventory value accordingly. Future periods could include
either income or expense items if estimates change and for
differences between the estimated and actual amount realized from
the sale of inventory.
o Income Taxes:
The Company records a liability for potential tax assessments
based on its estimate of the potential exposure. Due to the
subjectivity and complex nature of the underlying issues, actual
payments or assessments may differ from estimates. Income tax
expense in future periods could be adjusted for the difference
between actual payments and the Company's recorded liability
based on its assessments and estimates.
o Revenue Recognition:
Revenues are recognized at the shipping date of the Company's
products. The Company has historically adopted the shipping terms
that title merchandise passes to the customer at the shipping
point (FOB Shipping Point). At this juncture, title has passed,
the Company has recognized the sale, inventory has been relieved,
and the customer has been invoiced. The Company does not offer
any discounts, credits or other sales incentives.
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.
-13-
Item 6. Management's Discussion and Analysis of Financial Condition and
Results Of Operations (continued)
o Research & Development
The Company provides personalized engineering services to its
customers by designing connectors for specific customer
applications. The employment of electromechanical engineers is
the anticipated cornerstone of the Company's future growth. The
Company maintains a testing laboratory where its engineers
experiment with new connector designs based on changes in
technology and in an attempt to create innovative, more efficient
connector designs.
The Company expended $31,000 and $49,500 for the years ended
March 25, 2005 and March 26, 2004, respectively, on Company
sponsored research and development activities relating to the
development of new designs, techniques and the improvement of
existing designs. In addition, the Company received $31,000 in
revenues for the year ended March 25, 2005 and $49,000 for the
year ended March 26, 2004, respectively, pursuant to customer
sponsored research activities.
Results of Operations
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:
Relationship to Total Revenues
March 25, March 26,
2005 2004
-------- --------
Operating Revenues (in thousands) $ 5,321 $ 4,893
-------- --------
Operating Expenses:
(as a percentage of Operating Revenues)
Costs of Products Sold 71.8% 71.6%
Selling, General and Administrative 19.3% 19.6%
Interest Expense 2.0% 2.2%
Depreciation and amortization 3.3% 4.2%
-------- --------
TOTAL COSTS AND EXPENSES 96.4% 97.6%
-------- --------
Operating Income (loss) 3.6% 2.4%
Other Income -- --
-------- --------
Income (loss) before Income Taxes 3.6% 2.4%
Income Taxes .5% .1%
-------- --------
Net Income (loss) 3.1% 2.3%
======== ========
-14-
Item 6. Management's Discussion and Analysis of Financial Condition and
Results Of Operations (continued)
Results of Operations (continued)
Year End Results: March 25, 2005 vs. March 26, 2004
Operating revenues for the year ended March 25, 2005 amounted to
$5,321,269 reflecting an 8.8% increase versus the year ended March 26,
2004 revenues of $4,892,755. The increase in revenues is a direct
result of an increase in commercial sales.
The Company is primarily a manufacturer and its products are
essentially basic components of larger assemblies of finished goods.
Approximately 92% and 93% of the Company's net sales for the fiscal
year ended March 25, 2005 and March 26, 2004 respectively were made
directly to manufacturers of finished products with the balance of the
Company's products sold to distributors. Distributors often purchase
connectors for customers who do not require large quantities of
connectors over a short period of time but rather require small
allotments of connectors over an extended period of time.
For the fiscal year ended March 25, 2005, one of the Company's
customers accounted for approximately 34% of total sales. The same
customer accounted for approximately 21% of sales in the fiscal year
ended March 26, 2004.
The Company currently employs 14 independent sales representatives to
market its products in all regions of the United States. These sales
representatives accounted for approximately 94% of the Company's
sales, with the balance of sales being generated by direct customer
contact.
For the fiscal year ended March 25, 2005, the Company's principal
customers included manufacturers of commercial electronic products,
military defense contractors and distributors who service these
markets. Sales to the commercial electronic and military defense
markets comprised 24% and 75% of the Company's net sales for the year
ended March 25, 2005 and 22% and 77% for the year ended March 26, 2004
respectively. Approximately 1% of net sales were made to international
customers.
Cost of products sold amounted to $3,819,234 for the fiscal year ended
March 25, 2005, or 71.8% of operating revenues. This reflected a
$317,625 or 9.1% increase in the cost of products sold from $3,501,609
or 71.6% of operating revenues for the fiscal year ended March 26,
2004. This increase is due primarily to the increased cost of
production associated with the sales increase.
Selling, general and administrative expenses were $1,027,222 and
$957,952 or 19.3% and 19.6% of operating revenues for the fiscal years
ended March 25, 2005 and March 26, 2004, respectively. This category
of expense increased by $69,270 or 7.2% from the prior year. The
increase can be attributed to an increase in sales salaries,
commissions and travel.
Interest expense was $104,185 for the fiscal year ended March 25, 2005
or 2.0% of operating revenues. For the fiscal year ended March 26,
2004, interest expense was $105,661 or 2.2% of operating revenues. The
decrease of $1,476 or 1.4% reflects the liquidation of a significant
amount of the Company's notes payable.
-15-
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Results of Operations (continued)
Year End Results: March 25, 2005 vs. March 26, 2004
Depreciation and amortization of $177,504 or 3.3% of operating
revenues was reported for the fiscal year ended March 25, 2005. This
reflects a decrease of $26,146 from the prior year ended March 26,
2004 of $203,650 or 4.2% of operating revenues. The decrease is due
primarily to a significant amount of capital assets being fully
depreciated.
The Company reported net income of $166,484 for the year ended March
25, 2005 representing basic earnings of $.07 per share as compared to
net income of $118,423 or $.05 per share for the year ended March 26,
2004. The increase in net income for the current year can be
attributed primarily to the reported increase in commercial sales.
Liquidity and Capital Resources
The Company reported working capital of $1,283 as of March 25, 2005
compared to a working capital deficit of $31,991 as of March 26, 2004.
The increase in working capital of $33,274 was attributable to the
following items:
Net income $ 166,484
Depreciation and amortization 177,504
Capital expenditures (219,911)
Other transactions (90,803)
As a result of the above, the current ratio (current assets to current
liabilities) was 1 to 1 at March 25, 2005 as compared to .98 to 1 at
March 26, 2004. Current liabilities at March 25, 2005 were $2,026,588
compared to $1,654,176 at March 26, 2004.
The Company reported $219,911 in capital expenditures for the year
ended March 25, 2005 and reported depreciation of $177,504 for the
year ended March 25, 2005.
The net income of $166,484 for the year ended March 25, 2005 resulted
in an increase in stockholders' equity to $1,145,705 as compared to
stockholders' equity of $979,221 at March 26, 2004.
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 March 25, 2005 the amount outstanding with the factor
was $643,472 as compared to $645,096 at March 26, 2004. The loan is
secured by the Company's accounts receivables and inventories. The
factor provides discounted funds based upon the Company's accounts
receivables, these funds provide the primary source of working capital
for operations.
In the past two fiscal years, management has been reviewing its
collection practices and policies for outstanding receivables and has
revised its collection procedures to a more aggressive collection
policy. As a consequence of this new policy the Company's experience
is that its customers have been remitting payments on a more
consistent and timely basis. The Company reviews the collectability of
all accounts receivable on a monthly basis. The reserve is less than
2% of average gross accounts receivable and is considered to be
conservatively adequate.
-16-
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Liquidity and Capital Resources (continued)
During the year ended March 26, 2004, two of the Company's officers
loaned the Company a total of $52,000 on a non-interest bearing basis.
The Company used these funds as a source of additional working
capital.
During the year ended March 25, 2005, one of these officers loaned the
Company an additional $135,744 on a non-interest bearing basis as
well. These funds were also used by the Company for working capital
requirements.
As of March 25, 2005, the amount owed to these officers was $187,744.
Through the period ended June 24, 2005, the Company had repaid $36,244
of the total funds loaned to it.
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 $54,643 for the
year ended March 25, 2005 and $47,519 for the year ended March 26,
2004.
As of March 25, 2005, the Company had satisfied the arrears on the
Union's Health and Welfare Plan.
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 agreed to the terms of a settlement of the
matter. The agreement is effective July 2, 2001. Under the agreement,
the Company and the PBGC agreed on a total sum of $244,000. The
Company has agreed to make payments as follows:
-17-
Item 6. Management's Discussion And Analysis Of Financial Conditions And
Results Of Operations (continued)
Liquidity And Capital Resources (continued)
September 1, 2003 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, May 1, 2004 and May 1, 2005. The Company is also
obligated to make an additional balloon payment of $25,000 on 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. $56,000 was paid during the year ended March 25, 2005 and
$39,000 was paid during the year ended March 26, 2004. The balance of
$149,000 is reported as follows: $86,000 as a current liability and
$63,000 as a long-term liability.
On September 21, 2001 the Company's shareholders approved the adoption
of the Company's 2002 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. No options
have been granted under the Employee Option Plan to date.
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 option 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%) share holder, 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 its participants, which are
designated as incentive stock options, and which become exercisable in
any calendar year, shall not exceed $100,000. As of March 25, 2005 no
options had been granted under the plan.
In 1987, the Company adopted a cash bonus plan ("Cash Bonus Plan") for
Executive Officers. Contributions to the Bonus Plan are made by the
Company only after pre-tax operating profits exceed $150,000 for a
fiscal year, and then to the extent of 10% of the excess of the
greater of $150,000 or 25% of pre-tax operating profits. There were no
contributions to the Bonus Plan for the fiscal year ended March 26,
2004. For the year ended March 26, 2005 the contribution was $4,188.
-18-
IEH CORPORATION
PART II
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
relatively competitive price position. However, significant decreases
in government and military subcontractor spending, has provided excess
production capacity in the industry, which in turn has tightened
pricing margins.
Off Balance Sheet Arrangements
The Company does not have any off balance sheet arrangements within
the meaning of Item 303 of Regulation S-B.
Item 7. Financial Statements
See Index to Financial Statements attached hereto are financial
statements appearing at pages 28 to 46.
Item 8A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures:
Our management, under the supervision and with the participation of
our Chief Executive Officer and 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-KSB. Based on their evaluation, our
chief executive officer and controller have concluded that as of the
end of the period covered by this Form 10KSB, our disclosure controls
and procedures are effective to ensure that all material information
required to be filed in this Report on Form 10-KSB has been made known
to them. Our Chief Financial Officer and Controller is our principal
accounting officer.
There have been no changes, including corrective actions with regard
to significant deficiencies or material weaknesses in our internal
controls or in other factors that have materially affected or could
significantly or materially affect these controls subsequent to the
Evaluation Date set forth above. In addition, historically, the
Company has relied upon the entire Board of Directors in appointing
the Company's independent auditors and reviewing the financial
condition and statements of the Company. Given the relatively small
size of the Company's operations and revenues, the Board has not
believed that appointing an independent committee was a necessity.
Additionally, in response to the passage of the Sarbanes-Oxley Act of
2002, our Board of Directors and management have adopted a Code of
Ethics and have instituted a periodic review by members of our
management team to assist and guide the disclosure process. The Board
has also determined to periodically review and develop policies and
procedures to enhance our disclosure controls and procedures as well
as with reviewing our periodic reports and other public disclosures.
Item 8B. Other Information
Not applicable
-19-
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16 (a) of the Exchange Act
The executive officers and directors of the Company are as follows:
Name Age Office
Michael Offerman 64 Chairman of the Board of Directors and
President
Robert Knoth 63 Secretary, Controller and Treasurer
(Principal Accounting Officer)
Murray Sennet 82 Director
Allen Gottlieb 64 Director
All directors serve for a term of two years and until their successors
are duly elected. All officers serve at the discretion of the Board of
Directors.
Executive Officers and Directors
Michael Offerman has been a member of the Board of Directors since
1973. In May 1987, Mr. Offerman was elected President of the Company
and has held that position since that date. Prior to his becoming
President, Mr. Offerman served as Executive Vice-President of the
Company.
Robert Knoth joined the Company as Controller in January 1990 and was
elected treasurer of the Company in March 1990. Mr. Knoth was elected
as Secretary of the Company in September 1992 and Mr. Knoth has held
these positions since said dates. From 1986 to January 1990, Mr. Knoth
was employed as controller by G&R Preuss, Inc., a company engaged in
the business of manufacturing truck bodies and accessories. Mr. Knoth
serves as our principal accounting officer
Murray Sennet has been a member of the Company's Board of Directors
since 1970. Mr. Sennet was the Secretary and the Treasurer of the
Company at the time of his retirement in April 1986.
Allen Gottlieb has been a member of the Company's Board of Directors
since 1992. Mr. Gottlieb has been an attorney in private practice for
over five (5) years.
Significant Employees
Joan Prideaux joined the Company in July 1995 as National Sales
Manager. Prior to such time Ms. Prideaux was employed as an account
executive of Viking Connectors for the previous five years.
Mark Iskin is the Director of Purchasing, a position he has held since
September 2000. Prior to joining the Company, Mr. Iskin worked as a
materials and purchasing specialist, in manufacturing and distribution
companies. In his last position with an industrial distributor, Mr.
Iskin was responsible for purchasing and managing vendors for the
cutting tool section of the catalog. In addition he participated in
setting up and developing the company's forecasting/planning software
related to that department procedures.
-20-
Jeff (Yefim) Berenstein is the quality control manager, a position he
started on April 16, 2002. Prior to joining the Company Mr. Berenstein
worked as a quality assurance specialist for various manufacturing
companies where he was responsible for the implementation of quality
systems - ISI-9000, Mil-I-45208A writing quality manuals, quality
procedures, work instructions, design special gigs, testing equipment
to improve quality of the manufacturing products, maintaining and
supervising calibration and calibration recall systems.
Certain Reports
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and officers and persons who own, directly or
indirectly, more than 10% of a registered class of the Corporation's
equity securities, to file with the Securities and Exchange Commission
("SEC") reports of ownership and reports of changes in ownership of
Common Stock of the Corporation.
Officers, directors and greater than 10% shareholders are required to
furnish the Company with copies of all Section 16(a) reports that they
file. Based solely on review of the copies of such reports received by
the Company, the Company believes that filing requirements applicable
to officers, directors and 10% shareholders were complied with during
the fiscal year.
-21-
Item 10. Executive Compensation
The following table sets forth below the summary compensation paid or
accrued by the Corporation during the fiscal years ended March 25,
2005, March 26, 2004, and March 30, 2003 for the Corporation's Chief
Executive Officer:
Other Annual
Name and Principal Position Year Salary Bonus Compensation
---------------------------------- -------------- -------- ----- ------------
Michael Offerman, Chief Executive
officer, President (1) March 25, 2005 $ 96,235 1,424 0
March 26, 2004 95,500 - 0
March 28, 2003 95,500 - 0
(1) During the years ended March 25, 2005, March 26, 2004 and March
28, 2003, the Corporation provided automobile allowances to Mr.
Offerman. This does not include the aggregate incremental cost to
the Corporation of such automobile or automobile allowances. The
Corporation is unable to determine without unreasonable effort
and expense the specific amount of such benefit, however, the
Corporation has concluded that the aggregate amounts of such
personal benefit for Mr. Offerman does not exceed $25,000 or 10%
of the compensation reported as total salary and bonus reported.
(2) There are no employment agreements between the Company and
members of its senior management, including the Chief Executive
Officer, Michael Offerman.
No other officer of the Corporation received compensation (salary and
bonus) in excess of $100,000 during the fiscal years ended March 25,
2005 or March 26, 2004
Pension/Benefit Incentive Plan
In 1964, the Corporation's Shareholders and Board of Directors adopted
a contributory pension plan (the "Salaried Pension Plan") effective
April 1, 1964, for salaried employees of the Corporation. The Salaried
Pension Plan as revised on April 1, 1987, provides for retirement
benefits for qualified employees upon or prior to retirement.
For early retirement, employees are eligible to receive a portion of
their retirement benefits, starting 10 years prior to the employees
anticipated normal retirement age (age 65), if the employee has
completed 15 years of service to the Corporation. The employee is
eligible to receive reduced retirement benefits based on an actuarial
table for a period not exceeding ten (10) years of his lifetime. In no
event would benefits exceed $12,000 per year.
For normal retirement at the age of sixty-five (65) the employee is
entitled to receive full retirement benefits for a period not
exceeding ten (10) years of his lifetime. If the employee should die
prior to the ten-year period, his beneficiaries will continue to
receive the full benefit for the remainder of the ten-year term. In no
event will benefits exceed $12,000 per year.
-22-
IEH CORPORATION
PART III
Item 10. Executive Compensation (continued)
Pension/Benefit Incentive Plan (continued)
If payment is made on the "joint and survivor basis" as elected by the
employee, benefits will be provided to both the employee and spouse on
a reduced basis over the life of both the employee and his spouse. If
the employee should die prior to the guaranteed ten year period, the
spouse will receive the employee benefit for the remainder of the
term, after which, the spouse will received the reduced spousal
benefit for the life of the spouse. In no event will the benefits
pursuant to the joint and survivor basis exceed $12,000 per year.
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, 2003 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, May 1, 2004 and May 1, 2005. The Company is also
obligated to make an additional balloon payment of $25,000 on January
1, 2006.
The Company also granted the PBGC a lien on the Company's machinery
and equipment.
-23-
Item 10. Executive Compensation (continued)
Pension/Benefit Incentive Plan (continued)
As a result of this agreement the amount due the PBGC was restated to
$244,000. $56,000 was paid during the year ended March 25, 2005 and
$39,00 was paid during the year ended March 26, 2004. The balance of
$149,000 is reported as follows: $86,000 as a current liability and
$63,000 as a long-term liability.
Cash Bonus Plan
In 1987, the Company adopted a cash bonus plan ("Cash Bonus Plan") for
Executive Officers. Contributions to the Bonus Plan are made by the
Company only after pre-tax operating profits exceed $150,000 for a
fiscal year, and then to the extent of 10% of the excess of the
greater of $150,000 of 25% of pre-tax operating profits. There were no
contributions to the Bonus Plan for the fiscal year ended March 26,
2004. For the year ended March 25, 2005 the contribution was $4,188.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of July 5, 2004 with
respect to (i) the persons (including any "group" as that term is used in
Section 13(d)(3) of the Securities Exchange Act of 1934), known by the Company
to be the beneficial owner of more than five percent (5%) of any class of the
Company's voting securities; (ii) each Executive Officer and Director who owns
Common Stock in the Company; and (iii) all Executive Officers and Directors as a
group. As of July 5, 2005, there were 2,303,468 shares of Common Stock issued
and outstanding.
--------------------------------------------------------------------------------------------------------
Amount of and
Nature of
Name and Address of Beneficial
Title of Class Beneficial Owner Ownership Percentage of Class
--------------------------------------------------------------------------------------------------------
Common Stock Michael Offerman 946,784 41%
$.01 Par Value 140 58th Street
Brooklyn, NY 11220(1)
--------------------------------------------------------------------------------------------------------
Murray Sennet 24,500 1.1%
1900 Manor Lane
Plano, TX 75093
--------------------------------------------------------------------------------------------------------
Allen Gottlieb 0 0
325 Coral Way
Ft. Lauderdale, FL 33301
--------------------------------------------------------------------------------------------------------
Robert Pittman (2) 20,000 *
45 Ocean Avenue
Monmouth Beach
NJ 07750
--------------------------------------------------------------------------------------------------------
Robert Knoth
c/o 140 58th Street
Brooklyn, New York 11220 400 *
--------------------------------------------------------------------------------------------------------
All Officers & Directors as a Group
(5 in number) 991,684 43%
--------------------------------------------------------------------------------------------------------
-24-
----------------------
* Less than 1%.
1. 43,600 shares of Common Stock are jointly owned by Mr. Offerman and his
wife, Gail Offerman.
2. Mr. Pittman is now deceased and the shares are owned by his estate.
All shares set forth above are directly by the named individual unless otherwise
stated.
Item 12. Certain Relationships and Related Transactions
Other than the employment terms for its executive officers as described
elsewhere in this Form 10-KSB, and as described below, there have been no
related transactions between the Company, officers, directors or shareholders
holding in excess of 5% of its securities within the last three years.
During the year ended March 26, 2004, two of the Company's officers,
(Michael Offerman, the Chief Executive Officer and Robert Knoth the principal
accounting officer) loaned the Company a total of $52,000 on a non-interest
bearing basis. The Company used these funds as a source of additional working
capital.
During the year ended March 25, 2005, Mr. Robert Knoth loaned the Company
an additional $135,744 on a non-interest bearing basis as well. These funds were
also used by the Company for working capital requirements. As of March 25, 2005,
the amount owed to these officers was $187,744. Through the period ended June
24, 2005, the Company had repaid $36,244 of the total funds loaned to it.
Item 13. Exhibits
Exhibits filed with Form 10-KBS:
31.1 Certification of Chief Executive Officer pursuant to Section17
CFR 240.13a-14(a) or 17 CFR 240.15d-14(a).
31.2 Certification of Principal Accounting Officer pursuant to
Section17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a).
32.1 Certification by Michael Offerman, President pursuant to 17 CFR
240.13a-14(b) or 17 CFR 240.15d-14(b) and Section 1350 of Chapter 63
of Title 18 of the United States Code.
32.2 Certification by Robert Knoth, Chief Financial Officer pursuant
to 17 CFR 240.13a-14(b) or 17 CFR 240.15d-14(b) and Section 1350 of
Chapter 63 of Title 18 of the United States Code.
Item 14. Principal Accountant Fees and Services
The Board of Directors of IEH has selected Jerome Rosenberg, Certified
Public Accountant, P.C. as the independent auditor of IEH for the
fiscal year ending March 25, 2005. Shareholders are not asked to
approve such selection because such approval is not required. The
audit services provided by Jerome Rosenberg, CPA P.C. consist of
examination of financial statements, services relative to filings with
the Securities and Exchange Commission, and consultation in regard to
various accounting matters. Jerome Rosenberg, CPA P.C. or a member of
the firm is expected to be present at the next meeting of
-25-
shareholders, will have the opportunity to make a statement if he so
desires, and will be available to respond to appropriate questions.
Audit Fees. During the fiscal year ended March 25, 2005 and March 26,
2004, IEH paid an aggregate of $27,000 and $27,000, respectfully, to
Jerome Rosenberg, CPA P.C. for fees related to the audit of its
financial statements.
Audit Related Fees. During the fiscal years ended March 25, 2005 and
March 26, 2004 no fees were paid to Jerome Rosenberg, CPA P.C. with
respect to financial systems design or implementation.
Tax Fees. During the fiscal years ended march 25, 2005 and March 26,
2004 , the Company paid to Jerome Rosenberg CPA P.C. the sums of
$3,000 and $3,000 for tax compliance, tax advice and tax planning
services.
All Other Fees. During the fiscal year ended March 25, 2005, IEH did
not pay any other fees for services to its auditor.
The Board of Directors has determined that the services provided
by Jerome Rosenberg, CPA P.C. and the fees paid to it for such
services during the fiscal year ended March 25, 2005 has not
compromised the independence of Jerome Rosenberg, CPA P.C.
The Board of Directors of the Company is comprised of three
persons. Due to the limited size and scope of the Company's operations
which are limited to one office and the level of revenue and income,
the Board of Directors has not established an Audit Committee.
Further, as the Company's securities are not traded on any exchange or
on Nasdaq, but solely are listed for quotations on the Over the
Counter Bulletin Board, there is no requirement that an Audit
Committee be established. The Board, as an entirety, approves that
appointment of its independent auditor and the related work performed
by the auditor for services which are not audit related. In its
deliberations regarding approval of the independent auditor for
auditing and other services, the Board reviews the auditor's history
of representing the Company, the fees to be paid and paid
historically, the level of performance provided by the auditor and the
ability of the Company, given its lack of profits to obtain similar
services for similar costs.
Consistent with SEC policies regarding auditor independence, the
Board of Directors has responsibility for appointing, setting
compensation and overseeing the work of the independent auditor. In
recognition of this responsibility, the Board has established a policy
to pre-approve all audit and permissible non-audit services provided
by the independent auditor. Prior to engagement of the independent
auditor for the next year's audit, management advises the Board of the
audit and permissible non-audit services expected to be rendered
during that year for each of the categories of services which may
provided by the independent auditor to the Board for approval. The
primary categories of services expected to be provided by the
independent auditor are as described in the fee table set forth above.
In addition, management will also provide to the Board for its
approval a fee proposal for the services proposed to be rendered by
the independent auditor. Prior to the engagement of the independent
auditor, the Board will approve both the description of audit and
permissible non-audit services proposed to be rendered by the
independent auditor and the budget for all such services. The fees are
budgeted and the Board requires the independent auditor and management
to report actual fees versus the budget periodically throughout the
year by category of service.
During the year, circumstances may arise when it may become
necessary to engage the independent auditor for additional services
not contemplated in the original pre-approval. In those instances, the
Board requires separate pre-approval before engaging the independent
auditor.
-26-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
IEH CORPORATION
By: /s/ Michael Offerman
---------------------------
Michael Offerman, President
Dated: July 7, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Michael Offerman July 7, 2005
----------------------------------------
Michael Offerman, Chairman of the
Board and President
/s/ Robert Knoth July 7, 2005
----------------------------------------
Robert Knoth, Secretary and
Treasurer and Chief Financial Officer
Principal Accounting Officer
/s/ Murray Sennet July 7, 2005
----------------------------------------
Murray Sennet, Director
/s/ Alan Gottlieb July 7, 2005
----------------------------------------
Alan Gottlieb, Director
-27-
IEH Corporation
Contents
March 25, 2005 and March 26, 2004
Page
Number
------
Report of Independent Registered Public Accounting Firm 29
Financial Statements:
Balance Sheets as of March 25, 2005 and March 26, 2004 30
Statement of Operations for the twelve months ended March 25, 2005
and March 26, 2004 32
Statement of Stockholders' Equity as of March 25, 2005 and March 26, 2004 33
Statement of Cash Flows for the years ended March 25, 2005 and March 26, 2004 34
Notes to Financial Statements 36
-28-
Report of Independent Registered Public Accounting Firm
-------------------------------------------------------
Board of Directors
IEH Corporation
We have audited the accompanying balance sheets of IEH Corporation as of March
25, 2005 and March 26, 2004 and the related statements of operations,
stockholders' equity, and cash flows for each of the two years in the period
ended March 25, 2005 and March 26, 2004. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based upon our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of IEH Corporation as of March 25,
2005 and March 26, 2004 and the results of its operations and its cash flows for
each of the two years ended March 25, 2005 and March 26, 2004 in conformity with
U.S. generally accepted accounting principles.
Jerome Rosenberg, CPA, P.C.
Melville, New York
June 10, 2005
-29-
IEH CORPORATION
BALANCE SHEETS
As of March 25, 2005 and March 26, 2004
March 25, March 26,
2005 2004
---------- ----------
ASSETS
CURRENT ASSETS:
Cash $ 25,154 $ 4,480
Accounts receivable, less allowances for doubtful accounts
of $10,062 at March 25, 2005 and March 26, 2004 769,402 586,491
Inventories (Note 2) 1,219,103 1,014,598
Prepaid expenses and other current assets (Note 3) 14,212 16,616
---------- ----------
Total current assets 2,027,871 1,622,185
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, less accumulated depreciation and
amortization of $6,169,269 at March 25, 2005
and $5,991,765at March 26, 2004 (Note 4) 1,172,433 1,130,026
---------- ----------
1,172,433 1,130,026
---------- ----------
OTHER ASSETS:
Other assets 41,562 41,356
---------- ----------
41,562 41,356
---------- ----------
Total assets $3,214,866 $2,793,567
========== ==========
The accompanying notes and independent auditors' report should be read in
conjunction with the financial statements
-30-
IEH CORPORATION
BALANCE SHEETS
As of March 25, 2005 and March 26, 2004
March 25, March 26,
2005 2004
----------- -----------
(Note 1)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts receivable financing (Note 5) $ 643,472 $ 645,096
Notes payable, equipment, current portion (Note 7) 4,325 8,936
Loans payable- officers (Note 8) 187,744 52,000
Accrued corporate income taxes 28,287 14,500
Union health & welfare, current portion (Note 14) -- 32,200
Accounts payable 882,646 738,105
Pension plan payable, current portion (Note 10) 86,000 56,000
Other current liabilities (Note 6) 194,114 107,339
----------- -----------
Total current liabilities 2,026,588 1,654,176
----------- -----------
LONG-TERM LIABILITIES:
Pension Plan payable, less current portion (Note 10) 63,000 149,000
Notes payable, equipment, less current portion (Note 7) 6,573 11,170
----------- -----------
Total long-term liabilities 69,573 160,170
----------- -----------
Total liabilities 2,096,161 1,814,346
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 10,000,000 shares authorized; 2,303,468 shares
issued and outstanding at March 25, 2005 and
March 26, 2004 23,035 23,035
Capital in excess of par value 2,744,573 2,744,573
Retained earnings (Deficit) (1,621,903) (1,788,387)
----------- -----------
Total stockholders' equity 1,145,705 979,221
----------- -----------
Total liabilities and stockholders' equity $ 3,241,866 $ 2,793,567
=========== ===========
The accompanying notes and independent auditors' report should be read in
conjunction with the financial statements
-31-
IEH CORPORATION
STATEMENT OF OPERATIONS
For the Years ended March 25, 2005 and March 26, 2004
Years Ended
--------------------------
March 25, March 26,
2005 2004
----------- -----------
REVENUE, net sales (Note 15) $ 5,321,269 $ 4,892,755
----------- -----------
COSTS AND EXPENSES:
Cost of products sold 3,819,234 3,501,609
Selling, general and administrative 1,027,222 957,952
Interest expense 104,185 105,661
Depreciation and amortization 177,504 203,650
----------- -----------
5,128,145 4,768,872
----------- -----------
OPERATING INCOME 193,124 123,883
OTHER INCOME 248 387
----------- -----------
INCOME BEFORE INCOME TAXES 193,372 124,270
PROVISION FOR INCOME TAXES (26,888) (5,847)
----------- -----------
NET INCOME $ 166,484 $ 118,423
=========== ===========
BASIC AND DILUTED EARNINGS PER COMMON SHARE (NOTE 1) $ .07 $ .05
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING (IN THOUSANDS) 2,303 2,303
=========== ===========
The accompanying notes and independent auditors' report should be read in
conjunction with the financial statements
-32-
IEH CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
For the Years Ended March 25, 2005 and March 26, 2004
Capital in Retained
Excess of Earnings
Common Stock Par Value (Deficit) Total
-------------------------- ----------- ----------- -----------
Shares Amount
----------- -----------
Balances, March 28, 2003 2,303,468 $ 23,035 $ 2,744,573 $(1,906,810) $ 860,798
Net income: year ended
March 26, 2004 118,423 118,423
----------- ----------- ----------- ----------- -----------
Balances, March 26, 2004 2,303,468 23,035 2,744,573 (1,788,387) 979,221
Net income: year ended
March 25, 2005 166,484 166,484
----------- ----------- ----------- ----------- -----------
Balances, March 25, 2005 2,303,468 $ 23,035 $ 2,744,573 $(1,621,903) $ 1,145,705
The accompanying notes and independent auditors' report should be read in
conjunction with the financial statements
-33-
IEH CORPORATION
STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash
For the Years Ended March 25, 2005 and March 26, 2004
Years Ended
----------------------
March 25, March 26,
2005 2004
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 166,484 $ 118,423
--------- ---------
Adjustments to reconcile net income to net cash used in
operating activities
Depreciation and amortization 177,504 203,650
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (182,911) 183,354
(Increase) decrease inventories (204,505) 74,477
(Increase) decrease in prepaid expenses and other current assets 2,404 37,106
(Increase) decrease in other assets (206) 1,074
(Decrease) increase in accounts payable 144,541 (279,577)
(Decrease) increase in other current liabilities 86,775 (494)
Increase in accrued corporate income taxes 13,787 (2,300)
(Decrease) in due to union health & welfare (32,200) (11,628)
(Decrease) in pension plan payable (56,000) (39,000)
--------- ---------
Total adjustments (50,811) 166,662
--------- ---------
NET CASH PROVIDED BY (USED) FOR OPERATING ACTIVITIES 115,673 285,085
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (219,911) (213,913)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES $(219,911) $(213,913)
--------- ---------
The accompanying notes and independent auditors' report should be read in
conjunction with the financial statements
-34-
IEH CORPORATION
STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash
For the Years Ended March 25, 2005 and March 26, 2004
March 25, March 26,
2005 2004
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes payable, equipment $ (9,208) $ (67,563)
Proceeds from accounts receivable financing (1,624) (4,694)
Proceeds from loans payable- officers 135,744 --
--------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 124,912 (72,257)
--------- ---------
INCREASE (DECREASE) IN CASH 20,674 (1,085)
CASH, beginning of period 4,480 5,565
--------- ---------
CASH, end of period $ 25,154 $ 4,480
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION,
cash paid during the year for:
Interest $ 95,347 $ 97,309
========= =========
Income Taxes $ 7,612 $ --
========= =========
The accompanying notes and independent auditors' report should be read in
conjunction with the financial statements
-35-
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 1 - 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.
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.
The years ended March 25, 2005 and March 26, 2004 were comprised of 52
weeks.
Revenue Recognition:
Revenues are recognized at the shipping date of the Company's
products. The Company has historically adopted the shipping terms that
title merchandise passes to the customer at the shipping point (FOB
Shipping Point). At this juncture, title has passed, the Company has
recognized the sale, inventory has been relieved, and the customer has
been invoiced. The Company does not offer any discounts, credits or
other sales incentives.
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 to the customer. If unrepairable, the Company will either offer
an allowance against payment or will reimburse the customer for the
total cost of product.
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.
-36-
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
Inventories:
Inventories are stated at cost, on a first-in, first-out basis, which
does not exceed market value.
The Company manufactures products pursuant to specific technical and
contractual requirements. The Company historically purchases material
in excess of its requirements to avail itself of favorable pricing as
well as the possibility of receiving additional orders from customers.
This excess may result in material not being used in subsequent
periods, which may result in this material being deemed obsolete.
The Company annually reviews its purchase and usage activity of its
inventory of parts as well as work in process and finished goods to
determine which items of inventory have become obsolete within the
framework of current and anticipated orders. The Company based upon
historical experience has determined that if a part has not been used
and purchased or an item of finished goods has not been sold in three
years, it is deemed to be obsolete. The Company estimates which
materials may be obsolete and which products in work in process or
finished goods may be sold at less than cost. A periodic adjustment,
based upon historical experience is made to inventory in recognition
of this impairment.
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
March 25, 2005 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 Double Declining Balance method over the
estimated useful lives (5-7 years) of the related assets.
Maintenance and repair expenditures are charged to operations, and
renewals and betterments are capitalized. Items of property, plant and
equipment, which are sold, retired or otherwise disposed of, are
removed from the asset and accumulated depreciation or amortization
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".
-37-
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 years ended
March 25, 2005 and March 26, 2004, 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. 121, "Accounting For The Impairment of Long-Lived Assets To
Be Disposed Of", 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. 121. There were no long-lived asset
impairments recognized by the Company for the years ended March 25,
2005 and March 26, 2004.
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 years ended
March 25, 2005 and March 26, 2004.
-38-
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
Research and Development:
The Company provides personalized engineering services to its
customers by designing connectors for specific customer applications.
The employment of electromechanical engineers is the anticipated
cornerstone of the Company's future growth. The Company maintains a
testing laboratory where its engineers experiment with new connector
designs based on changes in technology and in an attempt to create
innovative, more efficient connector designs.
The Company expended $31,000 and $49,500 for the years ended March 25,
2005 and March 26, 2004, respectively, on Company sponsored research
and development activities relating to the development of new designs,
techniques and the improvement of existing designs. In addition, the
Company received $31,000 in revenues for the year ended March 25, 2005
and $49,000 for the year ended March 26, 2004, respectively, pursuant
to customer sponsored research activities.
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 2 - INVENTORIES:
Inventories are stated at cost, on a first-in, first-out basis, which
does not exceed market value.
The Company manufactures products pursuant to specific technical and
contractual requirements. The Company historically purchases material
in excess of its requirements to avail itself of favorable pricing as
well as the possibility of receiving additional orders from customers.
This excess may result in material not being used in subsequent
periods, which may result in this material being deemed obsolete.
-39-
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 2 - INVENTORIES: (continued)
The Company annually reviews its purchase and usage activity of its
inventory of parts as well as work in process and finished goods to
determine which items of inventory have become obsolete within the
framework of current and anticipated orders. The Company based upon
historical experience has determined that if a part has not been used
and purchased or an item of finished goods has not been sold in three
years, it is deemed to be obsolete. The Company estimates which
materials may be obsolete and which products in work in process or
finished goods may be sold at less than cost. A periodic adjustment,
based upon historical experience is made to inventory in recognition
of this impairment.
Inventories are comprised of the following:
March 25, March 26,
2005 2004
---------- ----------
Raw materials $ 824,926 $ 689,851
Work in progress 210,292 196,182
Finished goods 183,885 128,565
---------- ----------
$1,219,103 $1,014,598
========== ==========
Note 3 - PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets are comprised of the
following:
March 25, March 26,
2005 2004
------- -------
Prepaid insurance $14,062 $11,030
Prepaid corporate taxes -- 5,489
Other current assets 150 97
------- -------
$14,212 $16,616
======= =======
-40-
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 4 - PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are as follows:
March 25, March 26,
2005 2004
---------- ----------
Computers $ 198,257 $ 195,102
Leasehold improvements 585,831 585,831
Machinery and equipment 4,549,183 4,430,202
Tools and dies 1,846,073 1,748,298
Furniture and fixture 154,808 154,808
Website development cost 7,550 7,550
---------- ----------
7,341,702 7,121,791
Less: accumulated depreciation and
amortization 6,169,269 5,991,765
---------- ----------
$1,172,433 $1,130,026
========== ==========
Note 5 - ACCOUNTS RECEIVABLE FINANCING:
The Company entered into an accounts receivable financing agreement
whereby it can borrow up to eighty percent of its eligible receivables
(as defined in the agreement) at an interest rate of 2 1/2 % above JP
Morgan Chase's publicly announced rate of 5.75% at March 25, 2005,
with a minimum of 12% per annum. The agreement has 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. The balance due under this agreement as of March 25,
2005 was $643,472. The balance due as of March 24, 2004 was $645,096.
Note 6 - OTHER CURRENT LIABILITIES:
Other current liabilities are comprised of the following:
March 25, March 26,
2005 2004
-------- --------
Payroll and vacation accruals $105,812 $ 87,964
Sales commissions 14,882 9,705
Other 73,420 9,670
-------- --------
$194,114 $107,339
======== ========
-41-
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 7 - NOTES PAYABLE EQUIPMENT:
The Company financed the acquisition of new equipment with notes
payable. The notes are payable over a sixty month period. The balance
remaining at March 25, 2005 amounted to $10,898. The interest rates on
the two remaining leases are 22% and 18% respectively.
Aggregate future principal payments are as follows:
Fiscal Year Ending March:
2006 $ 4,325
2007 3,358
2008 3,215
-------
$10,898
=======
Note 8 - RELATED PARTIES TRANSACTIONS
During the year ended March 26, 2004, two of the Company's officers
loaned the Company a total of $52,000 on a non-interest bearing basis.
The Company used these funds as a source of additional working
capital.
During the year ended March 25, 2005, one of these officers loaned the
Company an additional $135,744 on a non-interest bearing basis as
well. These funds were also used by the Company for working capital
requirements. As of March 25, 2005, the amount owed to these officers
was $187,744.
Through the period ended June 24, 2005, the Company had repaid $36,244
of the total funds loaned to it.
Note 9 - INCOME TAXES:
Income taxes are provided for the tax effects of transactions reported
in the financial statements, and consist of taxes currently due as
well as deferred taxes related to differences between financial
statement and tax basis of assets and liabilities for financial
statement and income tax reporting purposes. Deferred tax assets and
liabilities represent the future tax consequences of these temporary
differences, which will either be taxable or deductible in the year in
which the assets or liabilities are recovered or settled. Accordingly,
measurement of the deferred tax assets and liabilities attributable to
the book-tax basis differentials are computed at a rate of 34% for
federal and l2% for state and local tax purposes.
-42-
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 9 - INCOME TAXES:
The components of the deferred tax assets and liabilities are as
follows:
March 25, March 26,
2005 2004
----------- -----------
Deferred tax assets:
Net operating loss carryforwards $ 1,933,105 $ 2,116,868
----------- -----------
Gross deferred assets tax assets 1,933,105 2,116,868
Deferred tax liabilities:
State income taxes (79,111) (86,368)
----------- -----------
Net deferred tax assets before valuation allowance 1,853,994 2,030,500
Valuation allowance (1,853,994) (2,030,500)
----------- -----------
Net deferred tax assets $ 0 $ 0
=========== ===========
At March 31, 2000, the Company established a 100% valuation allowance
for the net deferred tax assets, as management could not determine
that it was more likely than not that the deferred tax assets could be
realized. The change in valuation allowance amounted to $176,506 for
the year ended March 25, 2005.
As of March 25, 2005, the Company has available Federal net operating
loss carryforwards (NOL's) totaling approximately $1,903,533 which
expire at various times through March 31, 2012, for State and Local
purposes, the company has available NOL's approximating $2,051,501,
which expire at various times through March 31, 2012.
Utilization of the NOL's may be limited pursuant to Internal Revenue
Code Section 382 should significant changes to the existing ownership
of the Company occur.
A reconciliation of income taxes computed at the Federal statutory
rate as compared to income tax expense at the effective income tax is
as follows:
March 25, March 26,
2005 2004
--------- ---------
Federal statutory income tax (benefit) rate (34.0)% (34.0)%
State tax benefit, net of Federal liability (12.2)% (12.2)%
Net change in valuation allowance 46.2% 46.2%
Effective income tax (benefit) rate ( - )% ( - )%
-43-
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 10 - PENSION PLAN-SALARIED PERSONNEL:
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, 2003 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, May 1, 2004 and May 1, 2005. The Company is also
obligated to make an additional balloon payment of $25,000 on January
1, 2006.
The Company will also grant 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. $56,000 was paid during the year ended March 25, 2005 and
$39,000 was paid during the year ended March 26, 2004. The balance of
$149,000 is reported as follows: $86,000 as a current liability and
$63,000 as a long-term liability.
Note 11 - CHANGES IN STOCKHOLDERS' EQUITY:
The accumulated deficit decreased by $166,484, which represents the
net income for the year.
-44-
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 12 - 2001 EMPLOYEE STOCK OPTION PLAN:
On September 21, 2001 the Company's shareholders approved the adoption
of the Company's 2002 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 March 25, 2005 no options had been granted under the
plan.
Note 13 - CASH BONUS PLAN:
In 1987, the Company adopted a cash bonus plan ("Cash Bonus Plan") for
Executive Officers. Contributions to the Bonus Plan are made by the
Company only after pre-tax operating profits exceed $150,000 for a
fiscal year, and then to the extent of 10% of the excess of the
greater of $150,000 or 25% of pre-tax operating profits. There were no
contributions to the Bonus Plan for the fiscal year ended March 26,
2004. For the year ended March 26, 2005 the contribution was $4,188.
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IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 14 - COMMITMENTS:
The Company exercised its option to renew its lease on its facility
for 10 years. The original lease was in effect through August 23,
2001.
The Company is obligated under this lease renewal through August 23,
2011, at minimum annual rentals as follows:
Fiscal year ending March:
2006 $173,371
2007 112,765
2008 112,765
2009 112,765
2010 112,765
2011 75,177
--------
$699,608
========
The rental expense for the years ended March 25, 2005 and March 26,
2004 was $169,975 and $112,765, respectively.
Rental expense for the year ended March 25, 2005 includes a surcharge
of $57,210.
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 $54,643 for the year ended March 25, 2005 and $47,519 for the
year ended March 26, 2004.
As of March 25, 2005, the Company had satisfied the arrears on the
Union's health and welfare plan.
Note 15 - REVENUES FROM MAJOR CUSTOMERS:
In the fiscal year ended March 25, 2005, approximately 34% of the
Company's total revenues were earned from one customer. Total sales to
this customer were approximately $1,783,000. No other customer
accounted for over 10% of the Company's sales. Accounts receivable as
of March 25, 2005, included a receivable from one customer, which
amounted to 38% of the total accounts receivable, no other customer
had receivables over 10%.
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