WASHINGTON, D.C. 20549
Indicate by check mark if Registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act. Yes
o
No
x
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (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 the past 90 days. Yes
x
No
o
Indicate by check mark whether the Registrant has submitted electronically
and posted on its corporate Website, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405
of Regulation S-T during the preceding 12 months (or such shorter period that the Registrant was required to submit and post such
files).
o
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein 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-K or any amendment to this Form 10-K.
o
Indicate by check mark whether the Registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (check one):
State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and
asked price of such common equity, as of the last business day of the Registrant's most recently completed second fiscal quarter
(September 25, 2015): $10,055,669.70.
Indicate the number of shares outstanding of
each of the Registrant’s classes of common stock, as of the latest practicable date: On June 30, 2016, the Registrant had
2,303,468 shares of common stock issued and outstanding.
This report contains forward-looking statements within the meaning
of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Section 27A of the Securities
Act of 1933 (the “Securities Act”). Any statements contained in this report that are not statements of historical fact
may be forward-looking statements. When we use the words “anticipates,” “plans,” “expects,”
“believes,” “should,” “could,” “may,” “will” and similar expressions,
we are identifying forward-looking statements. All statements that express expectations, estimates, forecasts or projections are
forward-looking statements within the meaning of the Securities Act and the Exchange Act, respectively. We have based these forward-looking
statements largely on our current expectations and projections about future financial events and financial trends that we believe
may affect our financial condition, results of operations, business strategy and financial needs. Forward-looking statements involve
risks and uncertainties, which may cause our actual results, performance or achievements to be materially different from those
expressed or implied by forward-looking statements. These factors include our limited experience with our business plan;
pricing pressures on our product caused by competition; the risk that our products will not gain market acceptance; our ability
to obtain additional financing; our ability to protect intellectual property; and our ability to attract and retain key employees.
No forward-looking statement is a guarantee of future performance and you should not place undue reliance on any forward-looking
statements. Our actual results may differ materially from those projected in any forward-looking statements, as they will depend
on many factors about which we are unsure, including many factors beyond our control.
PART I
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 58
th
Street, Suite 8E, Brooklyn, New York 11220. The Company’s telephone number is (718) 492-4440;
Fax: 718-492-9898; its email address is
ieh@iehcorp.com
.
The majority of our customers require that we maintain
a quality system in strict accordance with ISO 9001. This is an International Standard Organization (ISO) specification and we
have been recently audited and have received certification to ISO 9001:2008. Our quality policy is: “Listening to our Customers
and meeting their needs, while continuously improving our processes and services.”
The Company has developed a web site that reflects the
standard catalog items produced along with custom offerings. The web site is currently undergoing a major expansion and addition
that will allow our customers to obtain information on our product line very quickly. Newsworthy information about the Company
will also be included on the web site. You can view it by going to:
http://www.iehcorp.com
.
The Company designs, develops and manufactures printed
circuit connectors for high performance applications. We have also developed a high performance plastic circular connector line.
All of our connectors utilize the HYPERBOLOID contact design, a rugged, high-reliability contact system ideally suited for high-stress
environments. We 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 16 independent sales representatives located in all regions of the United States, Canada, Israel, India, various
Pacific Rim countries, South Korea and the European Union (EU).
The customers we service are in the Government, Military,
Aerospace, Medical, Automotive, Industrial, Test Equipment and Commercial Electronics markets. We appear on the Military Qualified
Product Listing “QPL” to MIL-DTL-55302 and supply customer requested modifications to this specification. Sales to
the commercial electronic and military markets were 39% and 53%, respectively, of the Company’s net sales for the year ended
March 25, 2016. Our 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.
IEH CORPORATION
PART I
Item 1.
|
Business
(continued)
|
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 has
been added to the Company’s product offering. 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.”
Commitments
The Company has a collective bargaining multi-employer pension plan (“Multi-Employer Plan”) with the United Auto Workers of America, Local 259 (the “Union”). Contributions are made in accordance with a negotiated labor contract and are based on the number of covered employees employed per month. With the passage of the Multi-Employer Pension Plan Amendments Act of 1990 (the “1990 Act”), the Company may become subject to liabilities in excess of contributions made under the collective bargaining agreement. Generally, these liabilities are contingent upon the termination, withdrawal, or partial withdrawal from the Multi-Employer Plan. The 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 such Plan were $134,036 for the year ended March 25, 2016 and $122,668 for the year ended March 27, 2015.
IEH CORPORATION
PART I
Item 1.
|
Business
(continued)
|
Marketing and Sales
The market for connectors and interconnect 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 and interconnects. For example, connectors include: printed wiring board, rectangular I/O, circular, planar (IOC)
RF coaxial, IC socket and fiber optic. The Company has been servicing a niche in the market by manufacturing connectors containing
HYPERBOLOID contact designs in the printed wiring board style of connectors.
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 is continually reviewing product lines being sold in the connector and interconnector
marketplace. We are committed to expanding our product offering and we consider that many of our current or future custom designs
will become product lines.
The Company’s products are marketed to OEM’s
(original equipment manufacturers) directly and through authorized representatives and distributors serving primarily the Government,
Military, Aerospace, Medical, Automotive, Industrial, Test Equipment and Commercial Electronics markets. The Company is also involved
in developing new connectors for specific uses, which result from changes in technology. 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 96% of the Company’s net sales for
the years ended March 25, 2016 and March 27, 2015, 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.
In the fiscal year ended March 25, 2016, five customers
of the Company accounted for $5,569,000 constituting approximately 29% of the Company’s net sales. Two of those customers
accounted for 16% of the Company’s net sales. In the fiscal year ended March 27, 2015, five customers of the Company accounted
for $5,082,035 constituting approximately 31% of the Company’s net sales. Two of those customers accounted for 16% of the
Company’s net sales.
The Company currently employs 16 independent sales representatives
to market its products in all regions in the United States as well as in Canada, Israel, India, various Pacific Rim countries,
South Korea and the European Union (EU). These independent sales representatives also promote the product lines of other electronics
manufacturers; however, they do not promote the product lines of manufacturers which compete directly with the Company’s
products. These sales representatives accounted for approximately 95% of Company net sales for the year ended March 25, 2016 (with
the balance of Company net sales being generated via direct customer contact).
International sales accounted for approximately 8% of net
sales for the years ended March 25, 2016 and March 27, 2015, respectively.
IEH CORPORATION
PART I
Item 1.
|
Business
(continued)
|
Backlog of Orders/Capital Requirements
The backlog of orders for the Company’s products amounted to approximately $7,000,000 at March 25, 2016 as compared to $8,674,000 at March 27, 2015. A portion 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 by adapting certain technologies to meet specific product applications, producing connectors cost-effectively, and through its 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 for connectors and interconnectors. The Company’s bid can be for a new item that requires the item to perform
under harsh environment requirements or it can be for a standard catalog item. 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 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 and parts 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.
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
IEH CORPORATION
PART I
Item 1.
|
Business
(continued)
|
Research and Development
(continued)
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 designs during the years ended March 25, 2016 and March 27, 2015.
Employees
The Company presently employs approximately 160 people, two (2) of whom are executive officers; three (3) are engaged in management activities; nine (9) provide general and administrative services; and approximately 146 are employed in manufacturing and testing activities. The employees engaged in manufacturing and testing activities are covered by a collective bargaining agreement with the Union, which will expire on March 31, 2018. The Company believes that it has a good relationship with its employees and the Union.
Governmental Regulations
The Company is subject to federal regulations under the Occupational Safety and Health Act (“OSHA”) and the Defense Supply Command Columbus (“DSCC”).
OSHA provides federal guidelines and specifications to
companies in order to insure the health and safety of employees. DSCC oversees the quality and specifications of products and components
manufactured and sold to the government and the defense industry. DSCC’s primary customer is the U.S. military. Many of our
products appear on the DSCC Qualified Products Listing (“QPL”). To remain qualified, the Company submits its products
to an outside testing laboratory which performs all required testing. After review by the Company of the testing results the data
is then submitted to the DSCC. The Company and its products are only approved and remain on the QPL if the Company has passed all
testing requirements. Although DSCC 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.
We are a “smaller reporting company” as defined by Regulation S-K and as such, are not required to provide the information contained in this item pursuant to Regulation S-K.
Item 1B.
|
Unresolved Staff Comments
|
IEH CORPORATION
PART 1
The Company’s lease term for its manufacturing facility located at 140 58
th
Street, Suite 8E, Brooklyn, New York runs from December 1, 2010 through November 30, 2020. The basic minimum annual rentals remaining are as follows:
Fiscal year ending March:
|
|
|
|
|
2017
|
|
|
173,180
|
|
2018
|
|
|
178,360
|
|
2019
|
|
|
183,720
|
|
2020
|
|
|
189,200
|
|
Thereafter
|
|
|
128,640
|
|
|
|
$
|
853,100
|
|
The Company leases approximately 20,400 square 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, testing and plating operations.
The rental expense for
the years ended March 25, 2016 and March 27, 2015 was $162,403 and $162,840, respectively. In addition to the base rent, the Company
pays insurance premiums and utility charges relating to the use of the premises. The Company considers its present facilities to
be adequate for its present and anticipated future needs.
Item 3.
|
Legal Proceedings
|
The Company is not a party to or aware of any pending or threatened legal proceedings which, in the opinion of the Company’s management, would result in any material adverse effect on its results of operations or its financial condition.
Item 4.
|
Mine Safety Disclosure
|
Not applicable
PART II
Item 5.
|
Market for Registrant’s 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 Electronic Bulletin Board (OTCBB) and is quoted on the National Association of Securities Dealers Automated Quotation (“NASDAQ”) System Bulletin Board under the symbol “IEHC”).
Market Information
The range of high and low bid prices for the Company’s common stock, for the periods indicated as set forth below as 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.
IEH CORPORATION
PART II
Item 5.
|
Market for Registrant’s Common Equity and Related Stockholder Matters
(
continued)
|
Market Information
(continued)
Year
|
|
High Bid
|
|
|
Low Bid
|
|
Fiscal Year ended March 25, 2016 (*)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st Quarter
|
|
$
|
6.49
|
|
|
$
|
5.40
|
|
2nd Quarter
|
|
$
|
7.77
|
|
|
$
|
6.40
|
|
3rd Quarter
|
|
$
|
8.70
|
|
|
$
|
6.50
|
|
4th Quarter
|
|
$
|
7.30
|
|
|
$
|
5.37
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year ended March 27, 2015 (*)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
st
Quarter
|
|
$
|
4.09
|
|
|
$
|
3.28
|
|
2
nd
Quarter
|
|
$
|
4.09
|
|
|
$
|
3.00
|
|
3
rd
Quarter
|
|
$
|
3.50
|
|
|
$
|
2.02
|
|
4
th
Quarter
|
|
$
|
2.95
|
|
|
$
|
2.10
|
|
(*) 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.
On July 7, 2016 (the last day prior to
the filing of this report on which trading in the common stock occurred), the high bid for the common stock was $6.65
and the low bid was $6.55.
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.
Approximate Number of Equity Security Holders
The number of record holders of the Company’s common stock as of June 22, 2016 was approximately 352. Such number of record owners was determined from the Company’s shareholder 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.
Transfer Agent
The transfer agent for our common stock is Computer Share located in Canton, Massachusetts.
IEH CORPORATION
PART II
Item 6.
|
Selected Financial Data
|
We are a “smaller reporting company” as defined
by Regulation S-K and as such, are not required to provide the information contained in this item pursuant to Regulation S-K.
Item 7.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
Statements contained in this report, which are not historical
facts, may be considered forward-looking information with respect to plans, projections, or future performance of the Company as
defined under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties,
which could cause actual results to differ materially from those projected. The words “anticipate,” “believe”,
“estimate”, “expect,” “objective,” and “think” or similar expressions used herein
are intended to identify forward-looking statements. The forward-looking statements are based on the Company’s current views
and assumptions and involve risks and uncertainties that include, among other things, the effects of the Company’s business,
actions of competitors, changes in laws and regulations, including accounting standards, employee relations, customer demand, prices
of purchased raw material and parts, domestic economic conditions, including housing starts and changes in consumer disposable
income, and foreign economic conditions, including currency rate fluctuations. Some or all of the facts are beyond the Company’s
control.
The following discussion and analysis should be read in conjunction with our audited financial statements and related footnotes included elsewhere in this report, which provide additional information concerning the Company’s financial activities and condition.
Overview
The Company designs, develops and manufactures printed
circuit connectors for high performance applications.
We have also developed a high performance plastic circular
connector line. All of our connectors utilize the HYPERBOLOID contact design, a rugged, high-reliability contact system ideally
suited for high-stress environments. We 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 16 independent sales representatives located in all regions of the United States, Canada, Israel, India, various
Pacific Rim countries, South Korea and the European Union (EU).
The customers we service are in the Government, Military, Aerospace, Medical, Automotive, Industrial, Test Equipment and Commercial Electronics markets. We appear on the Military Qualified Product Listing “QPL” to MIL-DTL-55302 and supply customer requested modifications to this specification. Sales to the commercial electronic and military markets were 39% and 53%, respectively, of the Company’s net sales for the year ended March 25, 2016. Our offering of “QPL” items has recently been expanded to include additional products.
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.
IEH CORPORATION
PART II
Item 7.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(continued)
|
|
|
Critical Accounting Policies
(continued)
|
|
·
|
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.
|
|
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.
|
|
|
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.
|
|
|
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 a 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 not repairable,
the Company will either offer an allowance against payment or will reimburse the customer for the total cost of the product deemed
defective.
|
|
|
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.
|
IEH CORPORATION
PART II
Item 7.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(continued)
|
|
|
Critical Accounting Policies
(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 itse ngineers 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 designs during the years ended March 25, 2016 and March 27, 2015, respectively.
Year End Results: March 25, 2016 vs March 27, 2015
|
|
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,
2016
|
|
|
March 27,
2015
|
|
|
|
|
|
|
|
|
Operating revenues (in thousands)
|
|
$
|
19,358
|
|
|
$
|
16,392
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
(as a percentage of operating revenues)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of products sold
|
|
|
66.3
|
%
|
|
|
62.9
|
%
|
Selling, general and administrative
|
|
|
15.7
|
%
|
|
|
16.0
|
%
|
Interest expense
|
|
|
.1
|
%
|
|
|
.1
|
%
|
Depreciation and amortization
|
|
|
1.7
|
%
|
|
|
2.0
|
%
|
|
|
|
|
|
|
|
|
|
TOTAL COSTS AND EXPENSES
|
|
|
83.8
|
%
|
|
|
81.0
|
%
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
16.2
|
%
|
|
|
19.0
|
%
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
16.2
|
%
|
|
|
19.0
|
%
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
(7.4
|
%)
|
|
|
(8.0
|
%)
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
8.8
|
%
|
|
|
11.0
|
%
|
IEH CORPORATION
PART II
Item 7.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(continued)
|
|
|
Results of Operations
(continued)
|
|
|
Year End Results: March 25, 2016 vs. March 27, 2015
(continued)
|
Net sales for the year ended March 25, 2016 amounted to
$19,358,246 reflecting a $2,966,029 increase versus the year ended March 27, 2015 which amounted to $16,392,217. The increase in
net sales is a direct result of the Company’s efforts in increasing sales in both the commercial and international sectors.
|
|
The Company is primarily a manufacturer and its products are essentially basic components of larger assemblies of finished
goods. Approximately 96% of the Company’s net sales for the fiscal years ended March 25, 2016 and March 27, 2015, 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.
|
|
|
During the fiscal year ended March 25, 2016, five customers accounted for $5,569,000 constituting 29% of the Company’s
net sales. Two of those customers accounted for 16% of the Company’s net sales. In the fiscal year ended March 27, 2015,
five customers of the Company accounted for $5,082,035 constituting approximately 31% of the Company’s net sales. Two of
those customers accounted for 16% of the Company’s net sales.
|
|
|
The Company currently employs 16 independent sales representatives to market its products in all regions of the United States
as well as in Canada, Israel, India, various Pacific Rim countries, South Korea and the European Union (EU). These sales representatives
accounted for approximately 95% of the Company’s net sales for the year ended March 25, 2016, with the balance of net sales
being generated by direct customer contact.
|
|
|
For the fiscal year ended March 25, 2016, 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 government
markets comprised 92% of the Company’s net sales for the years ended March 25, 2016 and March 27, 2015, respectively. Approximately
8% of net sales were made to international customers for the years ended March 25, 2016 and March 27, 2015, respectively.
|
|
|
Cost of products sold amounted to $12,831,775 for the fiscal year ended March 25, 2016, or 66.3% of operating revenues. This
reflected a $2,529,135 or 24.5% increase in the cost of products sold of $10,302,640 or 62.9% of operating revenues for the fiscal
year ended March 27, 2015. This increase in cost of products sold is due primarily to the increased cost of production associated
with the increase necessary to support the increase in sales.
|
|
|
Selling, general and administrative expenses were $3,047,556 and $2,617,212 or 15.7% and 16.0% of net sales for the fiscal
years ended March 25, 2016 and March 27, 2015, respectively. This category of expenses increased by $430,344 or 16.4% from the
prior year. The increase can be attributed to an increase in travel and sales commissions.
|
|
|
For the fiscal year ended March 25, 2016, interest expense was $25,193 or .1% of net sales. Interest expense was $17,782 for
the fiscal year ended March 27, 2015 or 0.1% of net sales. The increase of $7,411 or 41.7% reflects the increased borrowings from
the Factor during the year.
|
IEH CORPORATION
PART II
Item 7.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(continued)
|
|
|
Results of Operations
(continued)
|
|
|
Year End Results: March 25, 2016 vs. March 27, 2015
(continued)
|
|
|
Depreciation and amortization of $331,786 or 1.7% of net sales was reported for the fiscal year ended March 25, 2016 as
compared to $333,000 or 2% of net sales for the prior period.
|
The Company reported net income of $1,690,110 for
the year ended March 25, 2016 representing basic earnings of $.73 per share as compared to net income of $1,809,555 or $.79
per share for the year ended March 27, 2015. The decrease in net income for the current year can be attributed primarily to
the reported increase in general and administrative expenses.
|
|
Liquidity and Capital Resources
|
|
|
The Company reported working capital of $11,659,016 as of March 25, 2016 compared to working capital of $10,144,556 as of March
27, 2015. The increase in working capital of $1,514,460 was attributable to the following items:
|
Net income
|
|
$
|
1,690,110
|
|
Depreciation and amortization
|
|
|
331,786
|
|
Capital expenditures
|
|
|
(507,436
|
)
|
|
|
$
|
1,514,460
|
|
|
|
As a result of the above, the current ratio (current assets to current liabilities) was 11.40 to 1 at March 25, 2016 as compared
to 11.67 to 1 at March 27, 2015. Current liabilities at March 25, 2016 were $1,121,523 as compared to $950,712 at March 27, 2015.
|
|
|
The Company reported $507,436 in capital expenditures for the year ended March 25, 2016 and recorded depreciation expense of
$331,786 for the year ended March 25, 2016.
|
|
|
The net income of $1,690,110 for the year ended March 25, 2016 resulted in an increase in stockholders’ equity to $13,580,568
as compared to stockholders’ equity of $11,890,458 at March 27, 2015.
|
|
|
The Company has 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 ½%
above JP Morgan Chase’s publicly announced rate with a minimum interest 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. As of March
25, 2016, the Company had reported excess payments to the Factor of $186,114 as compared to March 27, 2015 when the Company had
reported excess payments to the Factor of $43,041. These excess payments are reported in the accompanying financial statements
as “Excess payments to accounts receivable factor.”
IEH CORPORATION
PART II
Item 7.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(continued)
|
|
|
Results of Operations
(continued)
|
|
|
Year End Results: March 25, 2016 vs. March 27, 2015
(continued)
|
|
|
Liquidity and Capital Resources
|
|
|
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.
|
|
|
The Company has a collective bargaining multi-employer pension plan (“Multi-Employer 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 1990 Act the Company may become subject to liabilities in excess of contributions made under the collective
bargaining agreement. Generally, these liabilities are contingent upon the termination, withdrawal, or partial withdrawal from
the Multi-Employer Plan. The 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 such 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 Plan
were $134,036 for the year ended March 25, 2016 and $122,668 for the year ended March 27, 2015.
|
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).
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 ten 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.
IEH CORPORATION
PART II
Item 7.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(continued)
|
|
|
Results of Operations
(continued)
|
|
|
Year End Results: March 25, 2016 vs. March 27, 2015
(continued)
|
Liquidity and Capital Resources (
continued
)
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.
On July 1, 2015, our Board of Directors
granted 245,000 non-qualified options to purchase shares of the Company’s common stock under the 2011 Plan,
including, without limitation, as follows: (i) Michael Offerman, our Chief Executive Officer, was granted 75,000 options;
(ii) Robert Knoth, our Chief Financial Officer, was granted 50,000 options; (iii) four non-executive officer key employees
were granted 110,000 options; and (iv) each of our non-management directors, Allen Gottlieb and Gerald Chafetz, was granted
5,000 options. The stock options (i) have a ten-year term; (ii) have an exercise price equal to the fair market value of
the Company’s common stock as determined under the 2011 Plan, as reported in the OTCBB, on the date of grant
($6.00), except that the options granted to Michael Offerman has an exercise price equal to 110% of such fair market value
because he owns ten percent (10%) or greater of the Company’s outstanding common stock; and (iii) were all immediately
vested. In the event of the termination of each recipient’s employment by, or association with, the Company (as
applicable), the options will remain exercisable in accordance with the terms of the 2011 Plan.
The table below summarizes the option awards for
the named executive officers and non-management directors:
Name
|
Stock Option Grants
|
Michael Offerman
|
75,000
|
Robert Knoth
|
50,000
|
Allen Gottlieb
|
5,000
|
Gerald Chafetz
|
5,000
|
IEH CORPORATION
PART II
Item 7.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(continued)
|
|
|
Results of Operations
(continued)
|
|
|
Year End Results: March 25, 2016 vs. March 27, 2015
(continued)
|
Liquidity and Capital Resources (
continued
)
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. Accordingly,
the Company has accrued a contribution provision of $227,700 for the year ended March 25, 2016.
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
have 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 7A.
|
Quantitative and Qualitative Disclosure About Market Risk
|
|
|
We are a “smaller reporting company” as defined by Regulation S-K and as such, are not required to provide the
information contained in this item pursuant to Regulation S-K.
|
We do not believe that any of our financial instruments
have significant risk associated with market sensitivity. For more information on these investments see Note 2 to our financial
statements included in this Form 10-Q.
We are not exposed to significant financial market risks
from changes in foreign currency exchange rates and are only minimally impacted by changes in interest rates. We have not used,
and currently do not contemplate using, any derivative financial instruments.
Interest Rate Risk
At any time, fluctuations in interest rates could affect
interest earnings on our cash and marketable securities. We believe that the effect, if any, of reasonably possible near term changes
in interest rates on our financial position, results of operations, and cash flows would not be material. Currently, we do not
hedge these interest rate exposures. The primary objective of our investment activities is to preserve capital. We have not used
derivative financial instruments in our investment portfolio.
As of March 25, 2016, our unrestricted
cash was $1,753,749 of which $1,117,793 was in an interest bearing money market account with and the balance of $635,956 was maintained
in non-interest bearing checking accounts used to pay operating expenses.
IEH CORPORATION
PART II
Item 8.
|
Financial Statements and Supplementary Data
|
|
|
See our audited Financial Statements for the fiscal year ended March 25, 2016 which follows Item 15 of this Annual Report on
Form 10-K.
|
Item 9.
|
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
|
None.
Item 9A.
|
Controls and Procedures
|
|
|
Evaluations of Disclosure Controls and Procedures
|
|
|
As of the end of the period covered by this report, we carried out an evaluation, under the supervision
and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness
of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). In designing and evaluating
the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply
its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
|
|
|
Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure
controls and procedures were effective at the reasonable level as of the end of the year to ensure that information we are required
to disclose in the reports that we file and submit under the Exchange Act is: (i) recorded, processed, summarized and reported
within the time periods specified in the SEC’s rules and forms; and (ii) accumulated and communicated to our management,
including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding
disclosure.
|
Under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer, we conducted an assessment of the effectiveness
of our internal control over financial reporting based upon the framework in
Internal Control – Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based upon assessment, our management concluded
that our internal control over financial reporting is effective as of March 25, 2016.
Management’s Report on Internal Control over Financial
Reporting
Our management, under the supervision of our Chief Executive
Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting
(as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Our internal control over financial reporting is a process
designed by, or under the supervision of our principal executive officer and principal financial officer, or persons performing
similar functions, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures
that:
Management’s Report on Internal
Control over Financial Reporting (continued)
(i) pertain to the maintenance of records that,
in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
IEH CORPORATION
PART II
Item 9A.
|
Controls and Procedures
(continued)
|
(ii) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors
of the Company; and
(iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have
a material effect on the financial statements.
|
|
Management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness
of our internal control over financial reporting as of March 25, 2016. In making this evaluation, management used the framework
in
Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Based on our evaluation under the framework in
Internal Control—Integrated Framework
, our management has concluded
that our internal control over financial reporting was effective as of March 25, 2016.
|
|
|
This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm
regarding our internal control over financial reporting. Management’s report was not subject to attestation by our registered
public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this
Annual Report.
|
|
|
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
|
|
|
Changes in Internal Control over Financial Reporting
|
|
|
There was no change in our system of internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f)
under the Exchange Act) during our fiscal year ended March 25, 2016 that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
|
Inherent Limitations on Effectiveness of Controls
|
|
We do not expect that internal controls over financial reporting will prevent all errors or all instances of fraud. A control
system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s
objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and
the benefits of controls must be considered relative to their costs.
|
Inherent Limitations on Effectiveness of Controls
(Continued)
Because of the inherent limitations in all control systems,
no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within its company
have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons,
by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in
part upon certain assumptions about the likelihood of future events, and any design may not succeed in achieving its stated goals
under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration
in the degree of compliance with
IEH CORPORATION
PART II
Item 9A.
|
Controls and Procedures
(continued)
|
policies or procedures. Because of the inherent limitation
of a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
|
|
Other Information Related to Internal Controls
|
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.
|
In connection with their review and assessment of
our disclosure controls and procedures, the Company’s management has retained the services of an outside consultant to
further assist management in its annual evaluation of such controls and procedures. There have been no changes in our
internal control over financial reporting (as defined in Rules 13a – 15(f) and 15d-15(f) under the Exchange Act) during
the year ended March 25, 2016 that have been materially affected, or are reasonably likely to materially affect our internal
controls over financial reporting.
Item 9.
|
Other Information
|
None
NOTES TO FINANCIAL
STATEMENTS
Note 1 -
|
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 connectors 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.
The Company’s customers consist of OEM’s (Original
Equipment Manufacturers), companies manufacturing medical equipment, and distributors who resell the Company’s products to
OEMs. The Company sells its 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).
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 39% and 53%, respectively, of the Company’s net sales for the
year ended March 25, 2016. 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 productively. During the fiscal
year ended March 25, 2016, we 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.”
IEH CORPORATION
NOTES TO FINANCIAL
STATEMENTS
Note 1 -
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
:
|
Accounting Period:
The Company maintains an accounting period based upon a
52-53 week year, which ends on the nearest Friday in business days to March 31
st
. The year ended March 25, 2016 was
comprised of 52 weeks and the year ended March 27, 2015 was 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 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 a 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 the defective 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
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.
Concentration of Credit Risk:
Financial instruments which potentially subject the Company
to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable.
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 1 -
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
:
|
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 March 25, 2016, the Company had funds on deposit in
the amount of $1,753,749 in one financial institution comprised of the following:
Non-interest bearing accounts
|
|
$
|
635,956
|
|
Interest bearing account
|
|
|
1,117,793
|
|
|
|
$
|
1,753,749
|
|
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 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 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”.
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 years ended March 25, 2016 and March 27, 2015, respectively, there were no items of potential dilution that would impact on
the computation of diluted earnings or loss per share.
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 1 -
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
:
|
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:
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 of Long-Lived Assets And Long-Lived Assets To Be Disposed Of”, 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 years ended March 25, 2016 and March 27, 2015, respectively.
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 financial position. There were no material items
of comprehensive income to report for the years ended March 25, 2016 and March 27, 2015.
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.
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 1 -
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
:
|
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 designs during the years ended March 25, 2016 and March 27, 2015, respectively.
Recent Accounting Pronouncements:
The Financial Accounting Standards Board (“FASB”)
has issued certain accounting standards updates as of March 25, 2016 that will become effective in subsequent periods. The Company
believes that none of those updates would have significantly affected the Company’s financial accounting measures or disclosures
had they been in effect during the fiscal years ended March 25, 2016 or March 27, 2015, and it does not believe that any of those
pronouncements will have a significant impact on the Company’s financial statements at the time that they become effective.
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
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 are comprised of the following:
|
|
March 25,
|
|
|
March 27,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
4,844,510
|
|
|
$
|
4,752,311
|
|
Work in progress
|
|
|
596,371
|
|
|
|
980,427
|
|
Finished goods
|
|
|
1,809,419
|
|
|
|
1,016,921
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,250,300
|
|
|
$
|
6,749,659
|
|
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 3 -
|
PREPAID EXPENSES AND OTHER CURRENT ASSETS:
|
Prepaid expenses and other current assets are
comprised of the following:
|
|
March 25,
|
|
|
March 27,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Prepaid insurance
|
|
$
|
22,834
|
|
|
$
|
15,791
|
|
Prepaid corporate taxes
|
|
|
1,345,459
|
|
|
|
338,660
|
|
Prepaid other
|
|
|
9,575
|
|
|
|
—
|
|
|
|
$
|
1,377,868
|
|
|
$
|
354,451
|
|
Note 4 -
|
PROPERTY, PLANT AND EQUIPMENT:
|
Property, plant and equipment are as follows:
|
|
March 25,
|
|
|
March 27,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Computers
|
|
$
|
394,175
|
|
|
$
|
382,698
|
|
Leasehold improvements
|
|
|
845,589
|
|
|
|
830,442
|
|
Machinery and equipment
|
|
|
5,767,672
|
|
|
|
5,520,429
|
|
Tools and dies
|
|
|
3,283,953
|
|
|
|
3,050,384
|
|
Furniture and fixture
|
|
|
170,644
|
|
|
|
170,644
|
|
Website development cost
|
|
|
9,050
|
|
|
|
9,050
|
|
|
|
|
10,471,083
|
|
|
|
9,963,647
|
|
|
|
|
|
|
|
|
|
|
Less: accumulated depreciation and amortization
|
|
|
(8,603,892
|
)
|
|
|
(8,272,106
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,867,191
|
|
|
$
|
1,691,541
|
|
Note 5 -
|
ACCOUNTS RECEIVABLE FINANCING:
|
The Company has 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 ½% 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 automatically renews 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. As of March 25, 2016,
the Company reported in the accompanying financial statements, excess payments to the Factor of $186,114 compared to March 27,
2015, when the Company had reported excess payments to the Factor of $43,041.
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 6 -
|
OTHER CURRENT LIABILITIES:
|
Other current liabilities are comprised of the
following:
|
|
March 25,
|
|
|
March 27,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Payroll and vacation accruals
|
|
$
|
560,995
|
|
|
$
|
569,725
|
|
Sales commissions
|
|
|
50,357
|
|
|
|
44,844
|
|
Insurance
|
|
|
17,014
|
|
|
|
10,556
|
|
Other
|
|
|
2,914
|
|
|
|
5,000
|
|
|
|
$
|
631,280
|
|
|
$
|
630,125
|
|
The Company accounts for income taxes under the provisions
of ASC Topic 740, Income Taxes which includes the provisions of SFAS No. 109 (“SFAS 109”). Under SFAS 109, deferred
income tax assets or liabilities are computed based upon the temporary differences between the financial statement and income tax
bases of assets and liabilities using the currently enacted marginal income tax rates. Deferred income tax expenses or credits
are based on the changes in the deferred income tax assets or liabilities from period to period.
The provision for income taxes consists of the following:
|
|
March 25,
|
|
|
|
2016
|
|
Current:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
639,476
|
|
State and local
|
|
|
406,379
|
|
Total current tax provision
|
|
|
1,045,855
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
236,519
|
|
State and local
|
|
|
150,305
|
|
Total deferred tax benefit
|
|
|
386,824
|
|
|
|
|
|
|
Total provision (benefit)
|
|
$
|
1,432,679
|
|
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 7 -
|
INCOME TAXES
(continued)
:
|
The
components of the Company’s deferred taxes at March 25, 2016 are as follows:
Deferred tax assets:
|
|
|
|
|
Accounts receivable reserves
|
|
$
|
11,562
|
|
Accrued expenses
|
|
|
611,355
|
|
Prepaid expenses
|
|
|
1,345,459
|
|
|
|
|
1,968,376
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
Depreciation
|
|
|
221,715
|
|
|
|
|
|
|
Net deferred tax assets before valuation allowance
|
|
|
2,190,091
|
|
Valuation allowance
|
|
|
(2,190,091
|
)
|
Net deferred tax assets
|
|
$
|
—
|
|
The Company has fully utilized its net operating loss carryovers
in prior years.
The foregoing amounts are management’s estimates and
the actual results could differ from those estimates. Future profitability in this competitive industry depends on continually
obtaining and fulfilling net profitable contracts or the failure of the Company’s engineering development efforts could reduce
estimates of future profitability, which could affect the Company’s ability to realize the deferred tax assets.
A reconciliation of the income tax benefit at the statutory
Federal tax rate of 34 % to the income tax benefit recognized in the financial statements is as follows:
|
|
March 25,
|
|
|
|
2016
|
|
|
|
|
|
Income tax expense (benefit) – statutory rate
|
|
|
34
|
%
|
Income tax expenses – state and local, net of federal benefit
|
|
|
12
|
%
|
|
|
|
|
|
Income tax expense (benefit)
|
|
|
46
|
%
|
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 8 -
|
CHANGES IN STOCKHOLDERS’ EQUITY:
|
Stockholders’ equity increased by $1,690,110 which
represented the reported net income for the year ended March 25, 2016.
Note 9 -
|
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).
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 ten 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.
On July 1, 2015, our Board of Directors granted
245,000 options to purchase shares of the Company’s common stock under the 2011 Plan, including
without limitation, as follows: (i) Michael Offerman, our Chief Executive Officer, was granted 75,000 options; (ii) Robert
Knoth, our Chief Financial Officer, was granted 50,000 options; (iii) four non-executive officer key employees were granted
110,000 options; and (iv) each of our non-management directors, Allen Gottlieb and Gerald Chafetz, was granted 5,000 options.
The stock options (i) have a ten-year term; (ii) have an exercise price equal to the fair market value of the Company’s
common stock as determined under the 2011 Plan, as reported in the OTCBB, on the date of grant ($6.00), except that the
options granted to Michael Offerman has an exercise price equal to 110% of such fair market value because he owns ten percent
(10%) or greater of the Company’s outstanding common stock; and (iii) were all immediately vested. In the event of
the termination of each recipient’s employment by, or association with, the Company (as applicable), the options
will remain exercisable in accordance with the terms of the 2011 Plan.
The table below summarizes the option awards for the
named executive officers and non-management directors:
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 9 -
|
2011 EQUITY INCENTIVE PLAN
(continued)
:
|
Name
|
Stock Option Grants
|
Michael Offerman
|
75,000
|
Robert Knoth
|
50,000
|
Allen Gottlieb
|
5,000
|
Gerald Chafetz
|
5,000
|
Note 10 -
|
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. For the year ended March 25, 2016, the Company’s contribution was $227,700. For the year ended March 27,
2015, the Company’s contribution was $288,000.
Note 11 -
|
COMMITMENTS AND CONTINGENCIES:
|
The Company’s lease term for its manufacturing facility
located at 140 58
th
Street, Suite E, Brooklyn, New York, runs from December 1, 2010 through November 30, 2020. The basic
minimum annual rentals are as follows:
Fiscal year ending March:
|
|
|
|
|
|
|
|
|
|
2017
|
|
$
|
173,180
|
|
2018
|
|
|
178,360
|
|
2019
|
|
|
183,720
|
|
2020
|
|
|
189,200
|
|
Thereafter
|
|
|
128,640
|
|
|
|
$
|
853,100
|
|
The rental expense for the years ended March 25, 2016 and
March 27, 2015, was $162,403 and $162,840, respectively.
The Company has a collective bargaining multi-employer pension plan (“Multi-Employer 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 “1990 Act”), the Company may become subject to liabilities in excess of contributions made under the collective bargaining agreement. Generally, these liabilities are contingent upon the termination, withdrawal, or partial withdrawal from the Multi-Employer Plan.
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 11 -
|
COMMITMENTS AND CONTINGENCIES
(continued)
:
|
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 this pension plan were $134,036 for the year ended March 25, 2016 and $122,668
for the year ended March 27, 2015.
Note 12 -
|
REVENUES FROM MAJOR CUSTOMERS:
|
During the year ended March 25, 2016 five customers accounted for $5,569,000 constituting approximately 29% of the Company’s revenues. Two of such customers accounted for 16% of such revenues. In the fiscal year ended March 27, 2015 five customers accounted for $5,082,035 constituting approximately 31% of revenues. Two of such customers accounted for 16% of such revenues.
As of March 25, 2016, amounts due from
four customers represented approximately 46% of the total amount of accounts receivable.
The Company intends to provide additional information
regarding the compensation awarded to the named executive officers and non-management directors in respect of and during the fiscal
year ended March 25, 2016, in the proxy statement for the Company’s 2016 annual meeting of stockholders.
IEH CORPORATION