Item 1. Financial Statements
IEH CORPORATION
BALANCE SHEETS
As of June 27, 2014 and March 28, 2014
|
|
June 27,
|
|
|
March 28,
|
|
|
|
2014
|
|
|
2014
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
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ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,438,582
|
|
|
$
|
1,733,460
|
|
Accounts receivable, less allowances for doubtful accounts of $11,562 at June 27, 2014 and March 28, 2014
|
|
|
2,044,023
|
|
|
|
1,655,930
|
|
Inventories
(Note 3)
|
|
|
4,821,000
|
|
|
|
4,581,432
|
|
Excess payments to accounts receivable factor
(Note 6)
|
|
|
631,769
|
|
|
|
630,059
|
|
Prepaid expenses and other current assets
(Note 4)
|
|
|
847,275
|
|
|
|
780,173
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
9,782,649
|
|
|
|
9,381,054
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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PROPERTY, PLANT AND EQUIPMENT, less
accumulated depreciation and amortization of $8,021,206 at June 27, 2014 and $7,939,106 at March 28, 2014 (
Note 5
)
|
|
|
1,665,784
|
|
|
|
1,576,476
|
|
|
|
|
1,665,784
|
|
|
|
1,576,476
|
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS:
|
|
|
|
|
|
|
|
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Other assets
|
|
|
49,284
|
|
|
|
46,284
|
|
|
|
|
49,284
|
|
|
|
46,284
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
11,497,717
|
|
|
$
|
11,003,814
|
|
The accompanying notes should be read in
conjunction with the financial statements.
IEH CORPORATION
BALANCE SHEETS
(Continued)
As of June 27, 2014 and March 28, 2014
|
|
June 27,
|
|
|
March 28,
|
|
|
|
2014
|
|
|
2014
|
|
|
|
(Unaudited)
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|
|
|
|
|
|
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|
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LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
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|
|
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|
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|
|
|
|
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CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
193,746
|
|
|
$
|
267,599
|
|
Accrued corporate income taxes
|
|
|
235,643
|
|
|
|
96,169
|
|
Other current liabilities
(Note 7)
|
|
|
600,213
|
|
|
|
559,143
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
1,029,602
|
|
|
|
922,911
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM LIABILITIES:
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
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Total Liabilities
|
|
|
1,029,602
|
|
|
|
922,911
|
|
|
|
|
|
|
|
|
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STOCKHOLDERS’ EQUITY:
|
|
|
|
|
|
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Common stock, $.01 par value; 10,000,000 shares authorized;
2,303,468 shares issued and outstanding at June 27, 2014 and March 28, 2014
|
|
|
23,035
|
|
|
|
23,035
|
|
Capital in excess of par value
|
|
|
2,744,573
|
|
|
|
2,744,573
|
|
Retained earnings (
Note 9
)
|
|
|
7,700,507
|
|
|
|
7,313,295
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders’ Equity
|
|
|
10,468,115
|
|
|
|
10,080,903
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ Equity
|
|
$
|
11,497,717
|
|
|
$
|
11,003,814
|
|
The accompanying notes should be read in
conjunction with the financial statements.
IEH CORPORATION
STATEMENT OF OPERATIONS
(Unaudited)
For the Three Months Ended June 27, 2014 and
June 28, 2013
|
|
Three Months Ended
|
|
|
|
June 27,
|
|
|
June 28,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
REVENUE, net sales
|
|
$
|
3,935,647
|
|
|
$
|
4,090,639
|
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
|
|
2,500,757
|
|
|
|
2,488,825
|
|
Selling, general and administrative
|
|
|
641,252
|
|
|
|
636,240
|
|
Interest expense
|
|
|
3,514
|
|
|
|
7,673
|
|
Depreciation
|
|
|
82,100
|
|
|
|
62,800
|
|
|
|
|
3,227,623
|
|
|
|
3,195,538
|
|
|
|
|
|
|
|
|
|
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OPERATING INCOME
|
|
|
708,024
|
|
|
|
895,101
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME
|
|
|
167
|
|
|
|
54,218
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES
|
|
|
708,191
|
|
|
|
949,319
|
|
|
|
|
|
|
|
|
|
|
PROVISION FOR INCOME TAXES
|
|
|
(320,979
|
)
|
|
|
(425,000
|
)
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$
|
387,212
|
|
|
$
|
524,319
|
|
|
|
|
|
|
|
|
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|
BASIC AND DILUTED EARNINGS PER SHARE
(Note 2)
|
|
$
|
.17
|
|
|
$
|
.23
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING (in thousands)
|
|
|
2,303
|
|
|
|
2,303
|
|
The accompanying notes should be read in
conjunction with the financial statements.
IEH CORPORATION
STATEMENT OF CASH FLOWS
(Unaudited)
For the Three Months Ended June 27, 2014 and
June 28, 2013
|
|
Three Months Ended
|
|
|
|
June 27,
|
|
|
June 28,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
387,212
|
|
|
$
|
524,319
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income to net cash provided (used) by
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
82,100
|
|
|
|
62,800
|
|
|
|
|
|
|
|
|
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
(Increase) in accounts receivable
|
|
|
(388,093
|
)
|
|
|
(654,833
|
)
|
(Increase) in inventories
|
|
|
(239,568
|
)
|
|
|
(144,820
|
)
|
(Increase) in excess payments to accounts receivable factor
|
|
|
(1,710
|
)
|
|
|
(179,135
|
)
|
(Increase) decrease in prepaid expenses and other current assets
|
|
|
(67,102
|
)
|
|
|
155,936
|
|
(Increase) in other assets
|
|
|
(3,000
|
)
|
|
|
(3,000
|
)
|
Increase (decrease) in accounts payable
|
|
|
(73,853
|
)
|
|
|
285,691
|
|
Increase in other current liabilities
|
|
|
41,070
|
|
|
|
47,287
|
|
Increase in accrued corporate taxes
|
|
|
139,474
|
|
|
|
—
|
|
(Decrease) in workers compensation assessment
|
|
|
—
|
|
|
|
(68,995
|
)
|
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
(510,682
|
)
|
|
|
(499,069
|
)
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES
|
|
|
(123,470
|
)
|
|
|
25,250
|
|
|
|
|
|
|
|
|
|
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CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of fixed assets
|
|
|
(171,408
|
)
|
|
|
(110,345
|
)
|
|
|
|
|
|
|
|
|
|
NET CASH (USED) BY INVESTING ACTIVITIES
|
|
$
|
(171,408
|
)
|
|
$
|
(110,345
|
)
|
The accompanying notes should be read in
conjunction with the financial statements.
IEH CORPORATION
STATEMENT OF CASH FLOWS
(Continued)
(Unaudited)
For the Three Months Ended June 27, 2014 and
June 28, 2013
|
|
Three Months Ended
|
|
|
|
June 27,
|
|
|
June 28,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
(DECREASE) IN CASH
|
|
$
|
(294,878
|
)
|
|
$
|
(85,095
|
)
|
|
|
|
|
|
|
|
|
|
CASH, beginning of period
|
|
|
1,733,460
|
|
|
|
415,857
|
|
|
|
|
|
|
|
|
|
|
CASH, end of period
|
|
$
|
1,438,582
|
|
|
$
|
330,762
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the three months for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
3,514
|
|
|
$
|
6,173
|
|
|
|
|
|
|
|
|
|
|
Income Taxes
|
|
$
|
210,000
|
|
|
$
|
270,000
|
|
The accompanying notes should be read
in conjunction with the financial statements.
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 1-
|
INTERIM RESULTS AND BASIS OF PRESENTATION:
|
The accompanying unaudited financial statements as of June
27, 2014 and June 28, 2013 and for the three months then ended have been prepared in accordance with U.S. generally accepted accounting
principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q. In the opinion of management,
the unaudited financial statements have been prepared on the same basis as the annual financial statements and reflect all adjustments,
which include only normal recurring adjustments, necessary to present fairly the financial position as of June 27, 2014 and June
28, 2013 and the results of operations and cash flows for the three months then ended. The financial data and other information
disclosed in these notes to the interim financial statements related to these periods are unaudited. The results for the three
months ended June 27, 2014, are not necessarily indicative of the results to be expected for any subsequent quarter or the entire
fiscal year. The balance sheet at March 28, 2014 has been derived from the audited financial statements at that date.
Certain information and footnote disclosures normally included
in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of
the Securities and Exchange Commission (the “SEC”). The Company believes, however, that the disclosures in this report
are adequate to make the information presented not misleading in any material respect. The accompanying financial statements should
be read in conjunction with the audited financial statements and notes thereto of IEH Corporation for the fiscal year ended March
28, 2014 included in the Company’s Annual Report on Form 10-K as filed with the SEC and the attached Management’s Discussion
and Analysis of Financial Condition and Results of Operations.
Note 2-
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
|
Description of Business:
The Company designs, develops and manufactures printed circuit
connectors for high performance applications. We have also developed a high performance plastic circular connector line. All of
our products utilize the HYPERBOLOID contact design, a rugged high-reliability contact system ideally suited for high-stress environments.
We are the only independent producer of HYPERBOLOID in the United States.
Our customers consist of OEM’s (Original Equipment
Manufacturers), companies manufacturing medical equipment, and distributors who resell our products to OEMs. We sell our products
directly and through regional representatives located in all regions of the United States, Canada, Israel, India, various Pacific
Rim countries, South Korea and the European Union (EU).
Note 2-
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
|
Description of Business:
(continued)
The customers the Company services are in the Government,
Military, Aerospace, Medical, Automotive, Industrial, Test Equipment and Commercial Electronics markets. The Company appears on
the Military Qualified Product Listing “QPL” to MIL-DTL-55302 and supply customer requested modifications to this specification.
Sales to the commercial electronic and military markets were 35% and 58%, respectively, of the Company’s net sales for the
year ended March 28, 2014. The Company’s offering of “QPL” items has recently been expanded to include additional
products.
In order to remain competitive, the Company has an internal
program to upgrade, add and maintain machinery, review material costs and increase labor force productivity. We recently purchased
several machines to increase the productivity of certain processes. This will help us meet this goal.
Business New Product Development:
The Company is sought after by many of its customers to
design and manufacture custom connectors. This has created many new products that are innovative designs and employ new technologies.
The Company continues to be successful because of its ability to assist its customers and create a new design, including engineering
drawing packages, in a relatively short period of time. We will continue to support our customers to the best of our ability.
The circular product line of connectors introduced several
years ago for the medical industry continues to be very rewarding for the Company. The line has been expanded to include connector
cable assemblies utilizing the circular connectors.
A new product line featuring high density connectors is
being added to the Company’s product offering. This offering should be available within the next few months. The Company
expects the new product line to bring additional revenue.
The standard printed circuit board connectors we produce
are continually being expanded and utilized in many of the military programs being built today. We have recently received approval
for additional products that we can offer under the Military Qualified Product Listing “QPL.”
Accounting Period:
The Company maintains an accounting period based upon a
52-53 week year, which ends on the nearest Friday in business days to March 31. The year ended March 28, 2014 was comprised of
52 weeks.
Note 2-
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
|
Revenue Recognition:
Revenues are recognized at the shipping date of the Company's
products. The Company has historically adopted the shipping terms that title to 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 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 invoice
its customers separately for these services.
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.
Note 2-
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (
continued
)
|
Concentration of Credit Risk:
Financial instruments which potentially subject the Company
to concentrations of credit risk consist primarily of cash, cash equivalents and accounts receivable.
Under the provisions of the Dodd-Frank Wall Street Reform
and Consumer Protection Act that was signed into law on July 21, 2010, the Federal Deposit Insurance Corporation (FDIC) will permanently
insure all accounts maintained with financial institutions up to $250,000 in the aggregate.
As of June 27, 2014, the Company had funds on deposit in
the amount of $1,438,582 in one financial institution comprised of the following:
Non-interest bearing accounts
|
|
$
|
952,368
|
|
Interest bearing account
|
|
|
486,214
|
|
|
|
$
|
1,438,582
|
|
The Company has not experienced any losses in such accounts
and believes its cash balances are not exposed to any significant risk.
Property, Plant and Equipment:
Property, plant and equipment are stated at cost less accumulated
depreciation and amortization. The Company provides for depreciation and amortization using the Double Declining Balance method
over the estimated useful lives (5-7 years) of the related assets.
Maintenance and repair expenditures are charged to operations,
and renewals and betterments are capitalized. Items of property, plant and equipment, which are sold, retired or otherwise disposed
of, are removed from the asset and accumulated depreciation or amortization accounts. Any gain or loss thereon is either credited
or charged to operations.
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 the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
Topic 740,
Income Taxes,
which includes the provisions of
Statement of Financial Accounting Standards (“SFAS”)
No. 109, “Accounting for Income Taxes.”
Note 2-
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (
continued
)
|
Net Income Per Share:
The Company has adopted the provisions of ASC Topic 260,
Earnings per Share,
which includes the provisions of SFAS No. 128, “Earnings Per Share,” which requires the
disclosure of “basic” and “diluted” earnings (loss) per share. Basic earnings per share is computed by
dividing net income by the weighted average number of common shares outstanding during each period. Diluted earnings per share
is similar to basic earnings per share except that the weighted average number of common shares outstanding is increased to reflect
the dilutive effect of potential common shares, such as those issuable upon the exercise of stock or warrants, as if they had been
issued. For the three months ended June 27, 2014 and June 28, 2013, respectively, 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
GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues
and expenses, and disclosure of contingent assets and liabilities at the date of the financial statements. Actual amounts could
differ from those estimates.
Impairment of Long-Lived Assets:
The Company has adopted the provisions of ASC Topic, 360,
Property, Plant and Equipment-Impairment or Disposal of Long-Lived Assets
which includes the provisions of
SFAS No.
144, “Accounting for The Impairment or Disposal of Long-Lived Assets,” and requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. The Company has adopted SFAS No. 144. There were no long-lived
asset impairments recognized by the Company for the three months ended June 27, 2014 and June 28, 2013, respectively.
Note 2-
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(continued)
|
Reporting Comprehensive Income:
The Company has adopted the provisions of ASC Topic, 220,
Comprehensive Income
which includes 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 balance sheet. There were no material
items of comprehensive income to report for the three months ended June 27, 2014 and June 28, 2013, respectively.
Segment Information:
The Company has adopted the provisions of ASC Topic, 280,
Segment Reporting
which includes 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 ASC Topic 280 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 did not expend any funds on nor receive any
revenues related to customer sponsored research and development activities relating to the development of new designs, techniques
and the improvement of existing design during the three months ended June 27, 2014 and June 28, 2013, respectively.
Note 2-
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(continued)
|
Effect of New Accounting Pronouncements:
In February 2013, the FASB issued
ASU 2013-02, "Comprehensive Income (Topic 220), Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income".
The amendments do not change the current requirements for reporting net income or other comprehensive income in financial statements.
However, the amendments require an entity to provide information about the amounts reclassified out of accumulated other comprehensive
income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented
or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of
net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in
the same reporting period. For other amounts that are not required under U.S.GAAP to be reclassified in their entirety to net income,
an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those
amounts. The pronouncement is effective for fiscal years and interim periods ending after December 15, 2012. The adoption of this
pronouncement did not have a material effect on our Company's financial position or results of operations.
In October 2012, the FASB issued
ASU 2012-04 "Technical corrections and improvements." This ASU makes certain technical correction to the FASB Accounting
Standards Codification. The new guidance will be effective for fiscal years beginning after December 15, 2012. The adoption of
the new amendments did not have a significant impact on our financial statements.
In July, 2012, the FASB issued ASU 2012-02, "Intangibles
- Goodwill and Other (Topic). ASU 2012-02 amends the required annual impairment testing of indefinite-lived intangible assets by
providing an entity an option to first assess qualitative factors to determine whether it is more likely than not that the fair
value of the indefinite-lived asset is less than its carrying amount. If, after assessing the totality of events and circumstances,
an entity determines it is not more likely than not that the fair value of the indefinite-lived asset is less than its carrying
amount, then performing the two-step impairment test under Topic 350-30 is unnecessary. However, if an entity concludes otherwise,
then it is required to perform the impairment testing under Topic 350-30-35-18F by calculating the fair value of the reporting
unit and comparing the results with the carrying amount. If the fair value exceeds the carrying amount, then the entity must perform
the second step test of measuring the amount of the impairment test under Topic 350-30-35-19. An entity has the option to bypass
the qualitative assessment and proceed directly to the two step goodwill impairment test. Additionally, the entity has the option
to resume with the qualitative testing in any subsequent period.
The pronouncement is effective
for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012 and early adoption is permitted.
Our Company's adoption of the new standard did not have a material effect on our Company's financial position or results of operations.
Note 2-
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(continued)
|
Effect of New Accounting Pronouncements:
(continued)
In December 2011, the FASB issued
ASU 2011-11 "Disclosures about offsetting assets and liabilities". Under the new guidance entities must disclose both
gross information and net information on instruments and transactions eligible for offset on the balance sheet in accordance with
the offsetting guidance in ASC 210-20-45 or ASC 815-10-45, and instruments and transactions subject to an agreement similar to
a master netting arrangement. The new guidance will be effective for the Company beginning April 1, 2013. The adoption of these
amendments did not have a significant impact on our Company’s financial statements.
Other accounting standards that
have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are
not expected to have a material impact on our Company's financial statements upon adoption.
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.
Inventories were comprised of the following:
|
|
June 27,
|
|
|
March 28,
|
|
|
|
2014
|
|
|
2014
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
2,794,464
|
|
|
$
|
2,655,600
|
|
Work in progress
|
|
|
1,243,361
|
|
|
|
1,181,575
|
|
Finished goods
|
|
|
783,175
|
|
|
|
744,257
|
|
|
|
$
|
4,821,000
|
|
|
$
|
4,581,432
|
|
Note 4-
|
PREPAID EXPENSES AND OTHER CURRENT ASSETS:
|
Prepaid expenses and other current assets were comprised
of the following:
|
|
June 27,
|
|
|
March 28,
|
|
|
|
2014
|
|
|
2014
|
|
|
|
|
|
|
|
|
Prepaid insurance
|
|
$
|
18,643
|
|
|
$
|
5,735
|
|
Prepaid corporate taxes
|
|
|
802,933
|
|
|
|
774,438
|
|
Other current assets
|
|
|
25,699
|
|
|
|
—
|
|
|
|
$
|
847,275
|
|
|
$
|
780,173
|
|
Note 5-
|
PROPERTY, PLANT AND EQUIPMENT:
|
Property, plant and equipment were comprised of
the following:
|
|
June 27,
|
|
|
March 28,
|
|
|
|
2014
|
|
|
2014
|
|
|
|
|
|
|
|
|
Computers
|
|
$
|
377,237
|
|
|
$
|
315,500
|
|
Leasehold improvements
|
|
|
792,657
|
|
|
|
792,657
|
|
Machinery and equipment
|
|
|
5,403,642
|
|
|
|
5,341,123
|
|
Tools and dies
|
|
|
2,934,426
|
|
|
|
2,887,274
|
|
Furniture and fixture
|
|
|
169,978
|
|
|
|
169,978
|
|
Website development cost
|
|
|
9,050
|
|
|
|
9,050
|
|
|
|
|
9,686,990
|
|
|
|
9,515,582
|
|
Less: accumulated depreciation and amortization
|
|
|
(8,021,206
|
)
|
|
|
(7,939,106
|
)
|
|
|
$
|
1,665,784
|
|
|
$
|
1,576,476
|
|
Note 6-
|
ACCOUNTS RECEIVABLE FINANCING:
|
The Company entered into an accounts receivable financing
agreement with a non-bank lending institution (“Factor”) whereby it can borrow up to 80 percent of its eligible receivables
(as defined in such financing agreement) at an interest rate of 2.5% above JP Morgan Chase’s publicly announced rate with
a minimum rate of 12% per annum. The financing agreement has an initial term of one year and will automatically renew for successive
one-year terms, unless terminated by the Company or the Factor upon receiving 60 days prior notice. Funds advanced by the Factor
are secured by the Company’s accounts receivable and inventories.
At June 27, 2014, the Company had reported excess payments
to the Factor resulting in overpayments of $631,769, which the Company will apply against future borrowings. These excess payments
are reported in the accompanying financial statements as of June 27, 2014 as “Excess payments to accounts receivable factor.”
As of March 28, 2014, the Company had reported excess payments to the Factor of $630,059.
Note 7-
|
OTHER CURRENT LIABILITIES:
|
Other current liabilities were comprised of the following:
|
|
June 27,
|
|
|
March 28,
|
|
|
|
2014
|
|
|
2014
|
|
|
|
|
|
|
|
|
Payroll and vacation accruals
|
|
$
|
495,463
|
|
|
$
|
496,388
|
|
Sales commissions
|
|
|
55,290
|
|
|
|
46,758
|
|
Insurance
|
|
|
40,160
|
|
|
|
6,487
|
|
Other
|
|
|
9,300
|
|
|
|
9,510
|
|
|
|
$
|
600,213
|
|
|
$
|
559,143
|
|
Note 8-
|
WORKERS COMPENSATION INSURANCE ASSESSMENT:
|
On September 15, 2008, the Company was notified by the State
of New York Workers’ Compensation Board (the “Board”) that the Trade Industry Workers’ Compensation Trust
for Manufacturers (the “Trust”) had defaulted. As a member of this self-insured group, the Company was assessed on
an estimated basis by the Board for its allocable share necessary to discharge all liabilities of the Trust.
The assessed amount for the years 2002 through 2006 was
$101,362. The assessed amount for each year is detailed as follows:
2002
|
|
$
|
16,826
|
|
2003
|
|
|
24,934
|
|
2004
|
|
|
31,785
|
|
2005
|
|
|
14,748
|
|
2006
|
|
|
13,069
|
|
|
|
$
|
101,362
|
|
The Company did have the option of paying this assessment
as a lump sum amount or paying off the assessment over a 60 month period. The Company elected the deferral option, and was obligated
to making monthly payments of $1,689 for 59 months, and $1,711 for the 60
th
and final month. The Company had recorded
this assessment as a charge to Cost of Sales in the quarter ended December 26, 2008.
The Company was subsequently notified that it was being
assessed an additional $146,073 covering the years 2002 through 2007, bringing the total deficit allocation assessment to $247,435.
Note 8-
|
WORKERS COMPENSATION INSURANCE ASSESSMENT:
(continued)
|
The total revised assessment for the years 2002 to 2007
was as follows:
2002
|
|
$
|
23,445
|
|
2003
|
|
|
43,797
|
|
2004
|
|
|
51,381
|
|
2005
|
|
|
38,309
|
|
2006
|
|
|
46,477
|
|
2007
|
|
|
44,026
|
|
|
|
$
|
247,435
|
|
Effective as of May 31, 2013, the Company and the WC Board
executed a settlement agreement pursuant to which the Company entered into a final settlement of the outstanding liability to the
Trust and paid a lump-sum settlement amount equal to $7,771. The Company has no further liability to the Trust. In connection with
this final settlement, the WC Board executed and issued a general release to the Company.
Note 9-
|
CHANGES IN STOCKHOLDERS’ EQUITY:
|
The accumulated retained earnings increased by $387,212,
which represents the net income for the three months ended June 27, 2014. Accordingly, the Company reported accumulated retained
earnings of $7,700,507 as of June 27, 2014.
Note 10-
|
2011 EQUITY INCENTIVE PLAN:
|
On August 31, 2011, the Company’s shareholders approved
the adoption of the Company’s 2011 Equity Incentive Plan (“2011 Plan”) to provide for the grant of stock options
and restricted stock awards to purchase up to 750,000 shares of the Company’s common stock to all employees, consultants
and other eligible participants including senior management and members of the Board of Directors of the Company. The 2011 Plan
replaced the prior 2002 Employee Stock Option Plan which had expired in accordance with its terms.
Options granted to employees under the 2011 Plan may be
designated as options which qualify for incentive stock option treatment under Section 422A of the Internal Revenue Code, or options
which do not qualify (non-qualified stock options).
Note 10-
|
2011 EQUITY INCENTIVE PLAN:
(continued)
|
Under the 2011 Plan, the exercise price of an option designated
as an incentive stock option shall not be less than the fair market value of the Company’s common stock on the day the option
is granted. In the event an option designated as an incentive stock option is granted to a ten percent (10%) or greater shareholder,
such exercise price shall be at least 110 percent (110%) of the fair market value of the Company’s common stock and the option
must not be exercisable after the expiration of five years from the day of the grant. The 2011 Plan also provides that holders
of options that wish to pay for the exercise price of their options with shares of the Company’s common stock must have beneficially
owned such stock for at least six months prior to the exercise date.
Exercise prices of non-incentive stock options may 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), that are designated as incentive stock options, and which become exercisable in any calendar year,
shall not exceed $100,000. As of June 27, 2014, no options or restricted stock awards had been granted under the 2011 Plan.
Note 11-
|
CASH BONUS PLAN:
|
In 1987, the Company adopted a cash bonus plan (“Cash
Bonus Plan”) for executive officers. Contributions to the Cash 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. The Company accrued $50,400 for the three months ended June 27, 2014. For the year ended March 28, 2014, the
Company’s contribution was $189,600.
Note 12-
|
COMMITMENTS AND CONTINGENCIES:
|
The Company leases space for its corporate offices (including
its manufacturing facility) at 140 58
th
Street, Suite 8E, Brooklyn, New York. The lease term runs from December 1, 2010
through November 30, 2020. The basic minimum annual rentals are as follows:
Fiscal year ending March:
|
|
|
|
|
|
|
|
2015
|
|
$
|
163,240
|
|
2016
|
|
|
168,120
|
|
2017
|
|
|
173,180
|
|
2018
|
|
|
178,360
|
|
2019
|
|
|
183,720
|
|
Thereafter
|
|
|
317,840
|
|
|
|
$
|
1,184,460
|
|
Note 12-
|
COMMITMENTS AND CONTINGENCIES:
(continued)
|
The rental expense for the three months ended June 27, 2014
and June 28, 2013 was $40,410 and $39,225, respectively.
The Company has a collective bargaining multi-employer pension
plan (“Multi-Employer Plan”) with the United Auto Workers of America, Local 259 (“UAW”). Contributions
are made by the Company in accordance with a negotiated labor contract and are based on the number of covered employees employed
per month. With the passage of the Multi-Employer Pension Plan Amendment Act of 1990 (the “1990 Act”), the Company
may become subject to liabilities in excess of contributions made under the collective bargaining agreement. Generally, these are
contingent upon termination, withdrawal, or partial withdrawal from the Multi-Employer Plan.
The Company has not taken any action to terminate, withdraw
or partially withdraw from the Multi-Employer Plan, nor does it intend to do so in the future. Under the 1990 Act, liabilities
would be based upon the Company’s proportional share of the Multi-Employer Plan’s unfunded vested benefits 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 the provisions of the Multi-Employer Plan were $32,083 and $29,431
for the three months ended June 27, 2014 and June 28, 2013, respectively.
Item 2. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This report contains forward-looking statements within the meaning
of Section 21E of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”) and Section 27A of the Securities
Act of 1933 (the “Securities Act”). Statements contained in this report which are not statements of historical facts
may be considered forward-looking information with respect to plans, projections, or future performance of the Company as defined
under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties
which could cause actual results to differ materially from those projected. The words “anticipate”, “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.
Except as may be required by applicable law, we do not undertake
or intend to update or revise our forward-looking statements, and we assume no obligation to update any forward-looking statements
contained in this report as a result of new information or future events or developments. Thus, you should not assume that our
silence over time means that actual events are bearing out as expressed or implied in such forward-looking statements. You should
carefully review and consider the various disclosures we make in this report and our other reports filed with the SEC that attempt
to advise interested parties of the risks, uncertainties and other factors that may affect our business.
The following discussion
and analysis should be read in conjunction with the financial statements and related footnotes included elsewhere in this quarterly
report 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.
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.
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(continued)
Critical Accounting Policies
(continued)
Inventory Valuation:
Raw materials and supplies are stated at cost on first-in,
first-out basis, which does not exceed market value. 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.
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.
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.
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.
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(continued)
Critical Accounting Policies
(continued)
The Company did not expend any funds on customer sponsored
research and development activities for the quarter ended June 27, 2014 and June 28, 2013, respectively, relating to the development
of new designs, techniques and the improvement of existing designs.
Comparative Analysis-Three Months Ended
June 27, 2014 and June 28, 2013
Results of Operations
The following table sets forth for the periods indicated,
percentages for certain items reflected in the financial data as such items relate to the revenues of the Company:
Relationship to Total Revenues
|
|
|
June 27,
|
|
|
June 28,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
Operating Revenues (in thousands)
|
|
$
|
3,936
|
|
|
$
|
4,091
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
(as a percentage of Operating Revenues)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of Products Sold
|
|
|
63.5%
|
|
|
|
60.8%
|
|
Selling, General and Administrative
|
|
|
16.3%
|
|
|
|
15.6%
|
|
Interest Expense
|
|
|
.1%
|
|
|
|
.2%
|
|
Depreciation and amortization
|
|
|
2.1%
|
|
|
|
1.5%
|
|
|
|
|
|
|
|
|
|
|
TOTAL COSTS AND EXPENSES
|
|
|
82.0%
|
|
|
|
78.1%
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
|
18.0%
|
|
|
|
21.9%
|
|
|
|
|
|
|
|
|
|
|
Other Income
|
|
|
—%
|
|
|
|
1.3%
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before Income Taxes
|
|
|
18.0%
|
|
|
|
23.2%
|
|
|
|
|
|
|
|
|
|
|
Income Taxes
|
|
|
(8.2%
|
)
|
|
|
(10.4%
|
)
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
9.8%
|
|
|
|
12.8%
|
|
Operating revenues for the three months ended June 27,
2014 amounted to $3,935,647 reflecting a 3.8% decrease versus the three months ended June 28, 2013 revenues of $4,090,639. The
decrease in revenues can be attributed to a decrease in commercial orders during the current quarter.
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(continued)
Comparative Analysis-Three Months Ended June 27, 2014 and June
28, 2013
(continued)
Cost of products sold amounted to $2,500,757 for the three months
ended June 27, 2014, or 63.5% of operating revenues. This reflected a $11,932 or .5% increase in the cost of products sold from
$2,488,825 or 60.8% of operating revenues for the three months ended June 28, 2013. Cost of products sold remained comparable to
the same quarter last year.
Selling, general and administrative expenses were $641,252 or 16.3%
of operating revenues for the three months ended June 27, 2014 compared to $636,240 or 15.6% of operating revenues for the three
months ended June 28, 2013. This category of expense increased by $5,012 or .8% from the prior three month period. Selling, general
and administrative expenses also remained comparable to the same quarter of the prior year.
Interest expense was $3,514 for the three months ended June 27,
2014 or .1% of operating revenues. For the fiscal three months ended June 28, 2013, interest expense was $7,673 or .2% of operating
revenues. The decrease of $4,159 or 54.2% reflects a decrease in the Company’s borrowings during the quarter ended
June 27, 2014.
Depreciation and amortization of $82,100 or 2.1% of operating revenues
was reported for the three months ended June 27, 2014 as compared to the three month period ended June 28, 2013, in which depreciation
and amortization of $62,800 or 1.5% of operating revenues was reported. The increase was attributable to new assets being put in
service during the current quarter.
The Company reported net income of $387,212 for the three months
ended June 27, 2014 representing basic earnings of $.17 per share as compared to net income of $524,319 or $.23 per share for the
three months ended June 28, 2013. The decrease in net income for the current three month period can be attributed primarily to
a decrease in commercial orders during the current quarter.
Liquidity and Capital Resources
The Company reported working capital of $8,753,047 as of June 27,
2014 compared to a working capital of $8,458,143 as of March 28, 2014. The increase in working capital of $294,904 was attributable
to the following items:
Net income
|
|
$
|
387,212
|
|
Depreciation and amortization
|
|
|
82,100
|
|
Capital expenditures
|
|
|
(171,408
|
)
|
Other transactions
|
|
|
(3,000
|
)
|
|
|
$
|
294,904
|
|
As a result of the above, the current ratio (current assets to current
liabilities) was 9.5 to 1 at June 27, 2014 as compared to 10.16 to 1 at March 28, 2014. Current liabilities at June 27, 2014 were
$1,029,602 compared to $922,911 at March 28, 2014.
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(continued)
Liquidity and Capital Resources
(continued)
For the three months ended June 27, 2014, the Company reported $171,408
in capital expenditures and depreciation of $82,100.
The net income of $387,212 for the
three months ended June 27, 2014 resulted in an increase in stockholders’ equity to $10,468,115 as compared to stockholders’
equity of $10,080,903
at March 28, 2014.
The Company has an accounts receivable financing agreement with
non-bank lending institution (“Factor”) whereby it can borrow up to 80 percent of its eligible receivables (as defined
in such financing agreement) at an interest rate of 2.5% above JP Morgan Chase’s publicly announced prime rate with a minimum
rate of 12% per annum.
The financing agreement has an initial term of one year and will
automatically renew for successive one-year terms, unless terminated by the Company or its lender upon receiving 60 days prior
notice.
Funds advanced by the Factor are secured by the Company’s
accounts receivable and inventories. At June 27, 2014, the Company reported excess payments to the Factor resulting in overpayments
of $631,769. These excess payments are reported in the accompanying financial statements as “Excess payments to accounts
receivable factor.” The Company reported excess payment to the Factor of $630,059 at March 28, 2014.
Management is constantly 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.
The Company has the Multi-Employer Plan with the UAW. Contributions
are made by the Company in accordance with a negotiated labor contract and are based on the number of covered employees employed
per month. With the passage of the 1990 Act, the Company may become subject to liabilities in excess of contributions made under
the collective bargaining agreement. Generally, these are contingent upon termination, withdrawal, or partial withdrawal from the
Multi-Employer Plan. The Company has not taken any action to terminate, withdraw or partially withdraw from the Multi-Employer
Plan, nor does it intend to do so in the future. Under the 1990 Act, liabilities would be based upon the Company’s proportional
share of the Multi-Employer Plan’s unfunded vested benefits 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
the provisions of the Multi-Employer Plan were $32,083 and $29,431 for the three months ended June 27, 2014 and June 28, 2013,
respectively.
On September 15, 2008, the Company was notified by the State of
New York Workers’ Compensation Board (the “Board”) that the Trade Industry Workers’ Compensation Trust
for Manufacturers (the “Trust”) had defaulted. As a member of this self-insured group, the Company was assessed on
an estimated basis by the Board for its allocable share necessary to discharge all liabilities of the Trust.
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(continued)
Liquidity and Capital Resources
(continued)
The assessed amount for the years 2002 through 2006 was $101,362.
The assessed amount for each year is detailed as follows:
2002
|
|
$
|
16,826
|
|
2003
|
|
|
24,934
|
|
2004
|
|
|
31,785
|
|
2005
|
|
|
14,748
|
|
2006
|
|
|
13,069
|
|
|
|
$
|
101,362
|
|
The Company did have the option of paying this assessment as a lump
sum amount or paying off the assessment over a 60 month period. The Company elected the deferral option, and was obligated to making
monthly payments of $1,689 for 59 months, and $1,711 for the 60
th
and final month. The Company had recorded this assessment
as a charge to Cost of Sales in the quarter ended December 26, 2008.
The Company was subsequently notified that it was being assessed
an additional $146,073 covering the years 2002 through 2007, bringing the total deficit allocation assessment to $247,435.
The total revised assessment for the years 2002 to 2007 is as follows:
2002
|
|
$
|
23,445
|
|
2003
|
|
|
43,797
|
|
2004
|
|
|
51,381
|
|
2005
|
|
|
38,309
|
|
2006
|
|
|
46,477
|
|
2007
|
|
|
44,026
|
|
|
|
$
|
247,435
|
|
Effective as of May 31, 2013, the Company and the WC Board executed
a settlement agreement pursuant to which the Company entered into a final settlement of the outstanding liability to the Trust
and paid a lump-sum settlement amount equal to $7,771. The Company has no further liability to the Trust. In connection with this
final settlement, the WC Board executed and issued a general release to the Company.
On August 31, 2011, the Company’s shareholders approved the
adoption of the Company’s 2011 Equity Incentive Plan (“2011 Plan”) to provide for the grant of stock options
and restricted stock awards to purchase up to 750,000 shares of the Company’s common stock to all employees, consultants
and other eligible participants including senior management and members of the Board of Directors of the Company. The 2011 Plan
replaced the prior 2002 Employee Stock Option Plan which had expired on its terms.
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(continued)
Liquidity and Capital Resources
(continued)
Options granted to employees under the 2011 Plan may be designated
as options which qualify for incentive stock option treatment under Section 422A of the Internal Revenue Code, or options which
do not qualify (non-qualified stock options).
Under the 2011 Plan, the exercise price of an option designated
as an incentive stock option shall not be less than the fair market value of the Company’s common stock on the day the option
is granted. In the event an option designated as an incentive stock option is granted to a ten percent (10%) or greater shareholder,
such exercise price shall be at least 110 percent (110%) of the fair market value of the Company’s common stock and the option
must not be exercisable after the expiration of five years from the day of the grant. The 2011 Plan also provides that holders
of options that wish to pay for the exercise price of their options with shares of the Company’s common stock must have beneficially
owned such stock for at least six months prior to the exercise date.
Exercise prices of non-incentive stock options may be less than
the fair market value of the Company’s common stock. The aggregate fair market value of shares subject to options granted
to a participant(s), which are designated as incentive stock options, and which become exercisable in any calendar year, shall
not exceed $100,000. As of June 27, 2014, no options or restricted stock awards had been granted under the 2011 Plan.
In 1987, the Company adopted the Cash Bonus Plan for executive officers.
Contributions to the Cash 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. The Company accrued
$50,400 for the three months ended June 27, 2014. For the year ended March 28, 2014, the Company’s contribution was $189,600.