SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
FORM 10-Q
| þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period
ended September 25, 2015
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________________
to _______________
Commission File No. 0-5278
IEH CORPORATION
(Exact name of registrant as specified in its
charter)
New York |
13-5549348 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
140 58th Street, Suite 8E, Brooklyn, New
York 11220
(Address of principal executive office)
Registrant's telephone number, including area
code: (718) 492-4440
____________________________________________
Former name, former address and former fiscal
year,
if changed since last report.
Indicate by check mark whether the registrant:
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes þ No
o
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes þ
No 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 the definitions
of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated filer o |
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Accelerated filer o |
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Non-accelerated filer o
(Do not check if a smaller reporting company) |
|
Smaller Reporting Company þ |
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). YES o NO þ
2,303,468 shares of Common Shares, par value $.01 per share, were
outstanding as of September 25, 2015.
IEH CORPORATION
TABLE OF CONTENTS
Exhibits
Exhibit 31.1 |
Certification Pursuant to Section 302 of the Sarbanes Oxley Act |
33 |
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Exhibit 31.2 |
Certification Pursuant to Section 302 of the Sarbanes Oxley Act |
34 |
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Exhibit 32.1 |
Certification Pursuant to Section 906 of the Sarbanes Oxley Act |
35 |
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Exhibit 101 |
Instance Document |
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Exhibit 101 |
Schema Document |
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Exhibit 101 |
Calculation Linkbase Document |
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Exhibit 101 |
Labels Linkbase Document |
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Exhibit 101 |
Presentation Linkbase Document |
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Exhibit 101 |
Definition Linkbase Document |
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IEH CORPORATION
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
IEH CORPORATION
BALANCE SHEETS
As of September 25, 2015 and March 27, 2015
| |
Sept. 25, | | |
March 27, | |
| |
2015 | | |
2015 | |
| |
(Unaudited) | | |
| |
| |
| | |
| |
ASSETS |
| |
| | |
| |
CURRENT ASSETS: | |
| | | |
| | |
Cash | |
$ | 1,247,423 | | |
$ | 1,721,410 | |
Accounts receivable, less allowances for doubtful accounts of $11,562 at September 25, 2015 and March 27, 2015 | |
| 2,631,859 | | |
| 2,226,707 | |
Inventories (Note 3) | |
| 6,918,335 | | |
| 6,749,659 | |
Excess payments to accounts receivable factor (Note 6) | |
| 865,829 | | |
| 43,041 | |
Prepaid expenses and other current assets (Note 4) | |
| 112,783 | | |
| 354,451 | |
| |
| | | |
| | |
Total Current Assets | |
| 11,776,229 | | |
| 11,095,268 | |
| |
| | | |
| | |
| |
| | | |
| | |
PROPERTY, PLANT AND EQUIPMENT, less accumulated depreciation
and amortization of $8,430,106 at September 25, 2015 and
$8,272,106 at March 27, 2015 (Note 5) | |
| 1,792,489 | | |
| 1,691,541 | |
| |
| 1,792,489 | | |
| 1,691,541 | |
| |
| | | |
| | |
OTHER ASSETS: | |
| | | |
| | |
Other assets | |
| 54,361 | | |
| 54,361 | |
| |
| 54,361 | | |
| 54,361 | |
| |
| | | |
| | |
Total Assets | |
$ | 13,623,079 | | |
$ | 12,841,170 | |
The accompanying notes should be read in
conjunction with the financial statements.
IEH CORPORATION
BALANCE SHEETS (Continued)
As of September 25, 2015 and March 27, 2015
| |
Sept. 25, | | |
March 27, | |
| |
2015 | | |
2015 | |
| |
(Unaudited) | | |
| |
| |
| | |
| |
LIABILITIES AND STOCKHOLDERS’ EQUITY |
| |
| | |
| |
CURRENT LIABILITIES: | |
| | | |
| | |
Accounts payable | |
$ | 122,425 | | |
$ | 138,653 | |
Accrued corporate income taxes | |
| 212,795 | | |
| 181,934 | |
Other current liabilities (Note 7) | |
| 515,376 | | |
| 630,125 | |
| |
| | | |
| | |
Total Current Liabilities | |
| 850,596 | | |
| 950,712 | |
| |
| | | |
| | |
Total Liabilities | |
| 850,596 | | |
| 950,712 | |
| |
| | | |
| | |
STOCKHOLDERS’ EQUITY: | |
| | | |
| | |
Common stock, $.01 par value; 10,000,000 shares authorized; 2,303,468 shares issued and outstanding at September 25, 2015 and March 27, 2015 | |
| 23,035 | | |
| 23,035 | |
Capital in excess of par value | |
| 2,744,573 | | |
| 2,744,573 | |
Retained earnings (Note 8) | |
| 10,004,875 | | |
| 9,122,850 | |
Total Stockholders’ Equity | |
| 12,772,483 | | |
| 11,890,458 | |
| |
| | | |
| | |
Total Liabilities and Stockholders’ Equity | |
$ | 13,623,079 | | |
$ | 12,841,170 | |
| |
| | | |
| | |
The accompanying notes should be read in
conjunction with the financial statements.
IEH CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
For the Six and Three Months Ended September
25, 2015 and September 26, 2014
| |
Six Months Ended | | |
Three Months Ended | |
| |
Sept. 25, | | |
Sept. 26, | | |
Sept. 25, | | |
Sept. 26, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
| |
| | |
| | |
| | |
| |
REVENUE, net sales | |
$ | 10,269,162 | | |
$ | 7,837,233 | | |
$ | 5,094,267 | | |
$ | 3,901,586 | |
| |
| | | |
| | | |
| | | |
| | |
COSTS AND EXPENSES | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
Cost of products sold | |
| 6,624,149 | | |
| 4,935,901 | | |
| 3,407,514 | | |
| 2,435,144 | |
Selling, general and administrative | |
| 1,466,634 | | |
| 1,259,849 | | |
| 788,811 | | |
| 618,598 | |
Interest expense | |
| 10,120 | | |
| 8,030 | | |
| 5,620 | | |
| 4,516 | |
Depreciation | |
| 158,000 | | |
| 157,100 | | |
| 75,000 | | |
| 75,000 | |
| |
| 8,258,903 | | |
| 6,360,880 | | |
| 4,276,945 | | |
| 3,133,258 | |
| |
| | | |
| | | |
| | | |
| | |
OPERATING INCOME | |
| 2,010,259 | | |
| 1,476,353 | | |
| 817,322 | | |
| 768,328 | |
| |
| | | |
| | | |
| | | |
| | |
OTHER INCOME | |
| 455 | | |
| 355 | | |
| 226 | | |
| 188 | |
| |
| | | |
| | | |
| | | |
| | |
INCOME BEFORE INCOME TAXES | |
| 2,010,714 | | |
| 1,476,708 | | |
| 817,548 | | |
| 768,516 | |
| |
| | | |
| | | |
| | | |
| | |
PROVISION FOR INCOME TAXES | |
| 1,128,689 | | |
| 669,298 | | |
| 682,126 | | |
| 348,319 | |
| |
| | | |
| | | |
| | | |
| | |
NET INCOME | |
$ | 882,025 | | |
$ | 807,410 | | |
$ | 135,422 | | |
$ | 420,197 | |
| |
| | | |
| | | |
| | | |
| | |
BASIC AND DILUTED EARNINGS PER SHARE
(Note 2) | |
$ | .38 | | |
$ | .35 | | |
$ | .06 | | |
$ | .18 | |
| |
| | | |
| | | |
| | | |
| | |
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING (in thousands) | |
| 2,303 | | |
| 2,303 | | |
| 2,303 | | |
| 2,303 | |
The accompanying notes should be read in
conjunction with the financial statements.
IEH CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months Ended September 25, 2015
and September 26, 2014
| |
Six Months Ended | |
| |
Sept. 25, | | |
Sept. 26, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
| |
| | |
| |
CASH FLOWS FROM OPERATING ACTIVITIES: | |
| | | |
| | |
Net income | |
$ | 882,025 | | |
$ | 807,410 | |
| |
| | | |
| | |
Adjustments to reconcile net income to net cash provided by operating activities: | |
| | | |
| | |
Depreciation | |
| 158,000 | | |
| 157,100 | |
| |
| | | |
| | |
Changes in assets and liabilities: | |
| | | |
| | |
(Increase) in accounts receivable | |
| (405,152 | ) | |
| (295,708 | ) |
(Increase) in inventories | |
| (168,676 | ) | |
| (525,968 | ) |
Decrease in prepaid expenses and other current assets | |
| 241,670 | | |
| 88,890 | |
(Increase) in other assets | |
| — | | |
| (6,018 | ) |
(Decrease) in accounts payable | |
| (16,230 | ) | |
| (109,737 | ) |
(Decrease) in other current liabilities | |
| (114,749 | ) | |
| (76,631 | ) |
Increase in accrued corporate income taxes | |
| 30,861 | | |
| 163,939 | |
| |
| | | |
| | |
Total adjustments | |
| (274,276 | ) | |
| (604,133 | ) |
| |
| | | |
| | |
NET CASH PROVIDED BY OPERATING ACTIVITIES | |
| 607,749 | | |
| 203,277 | |
| |
| | | |
| | |
CASH FLOWS FROM INVESTING ACTIVITIES: | |
| | | |
| | |
| |
| | | |
| | |
Acquisition of fixed assets | |
| (258,948 | ) | |
| (296,428 | ) |
| |
| | | |
| | |
NET CASH (USED) BY INVESTING ACTIVITIES | |
$ | (258,948 | ) | |
$ | (296,428 | ) |
The accompanying notes should be read in
conjunction with the financial statements.
IEH CORPORATION
STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
For the Six Months Ended September 25, 2015
and September 26, 2014
| |
Six Months Ended | |
| |
Sept. 25, | | |
Sept. 26, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | | |
| | |
(Increase) in excess payments to accounts receivable factor | |
$ | (822,788 | ) | |
$ | (139,542 | ) |
| |
| | | |
| | |
NET CASH (USED) BY FINANCING ACTIVITIES | |
| (822,788 | ) | |
| (139,542 | ) |
| |
| | | |
| | |
(DECREASE) IN CASH | |
| (473,987 | ) | |
| (232,693 | ) |
| |
| | | |
| | |
CASH, beginning of period | |
| 1,721,410 | | |
| 1,733,460 | |
| |
| | | |
| | |
CASH, end of period | |
$ | 1,247,423 | | |
$ | 1,500,767 | |
| |
| | | |
| | |
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the six months for: | |
| | | |
| | |
| |
| | | |
| | |
Interest | |
$ | 9,120 | | |
$ | 8,030 | |
| |
| | | |
| | |
Income Taxes | |
$ | 863,000 | | |
$ | 402,000 | |
The accompanying 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 September
25, 2015 and September 26, 2014 and for the six 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 September
25, 2015 and September 26, 2014 and the results of operations and cash flows for the six 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 six months ended September 25, 2015, are not necessarily indicative of the results to be expected for any subsequent
quarter or the entire fiscal year. The balance sheet at March 27, 2015 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
27, 2015 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).
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 2- |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued) |
Description of Business: (continued)
The customers of the Company services are in the following
markets: Government, Military, Aerospace, Medical, Automotive, Industrial, Test Equipment and Commercial Electronics. 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 37% and 55%, respectively, of the Company’s
net sales for the year ended March 27, 2015. 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 27, 2015 was comprised of
52 weeks.
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 2- |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued) |
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.
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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 each financial institution up to $250,000 in the aggregate.
As of September 25, 2015, the Company had funds on deposit
in the amount of $1,247,423 in one financial institution comprised of the following:
Non-interest bearing accounts | |
$ | 455,028 | |
Interest bearing account | |
| 792,395 | |
| |
$ | 1,247,423 | |
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.”
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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 six months ended September 25, 2015 and September 26, 2014, 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 six months ended September 25, 2015 and September 26, 2014, respectively.
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 2- |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued) |
Reporting Comprehensive Income:
The Company has adopted the provisions of 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 six months ended September 25, 2015 and September 26, 2014, 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 six months ended September 25, 2015 and September 26, 2014, respectively.
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
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.
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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:
| |
Sept. 25, | | |
March 27, | |
| |
2015 | | |
2015 | |
| |
| | |
| |
Raw materials | |
$ | 4,871,073 | | |
$ | 4,752,311 | |
Work in progress | |
| 1,004,928 | | |
| 980,427 | |
Finished goods | |
| 1,042,334 | | |
| 1,016,921 | |
| |
| | | |
| | |
| |
$ | 6,918,335 | | |
$ | 6,749,659 | |
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 4- |
PREPAID EXPENSES AND OTHER CURRENT ASSETS: |
Prepaid expenses and other current assets were comprised
of the following:
| |
Sept. 25, | | |
March 27, | |
| |
2015 | | |
2015 | |
| |
| | |
| |
Prepaid insurance | |
$ | 8,951 | | |
$ | 15,791 | |
Prepaid corporate taxes | |
| 103,832 | | |
| 338,660 | |
| |
$ | 112,783 | | |
$ | 354,451 | |
Note 5- |
PROPERTY, PLANT AND EQUIPMENT: |
Property, plant and equipment were comprised of
the following:
| |
Sept. 25, | | |
March 27, | |
| |
2015 | | |
2015 | |
| |
| | |
| |
Computers | |
$ | 391,517 | | |
$ | 382,698 | |
Leasehold improvements | |
| 840,317 | | |
| 830,442 | |
Machinery and equipment | |
| 5,660,332 | | |
| 5,520,429 | |
Tools and dies | |
| 3,150,735 | | |
| 3,050,384 | |
Furniture and fixture | |
| 170,644 | | |
| 170,644 | |
Website development cost | |
| 9,050 | | |
| 9,050 | |
| |
| 10,222,595 | | |
| 9,963,647 | |
| |
| | | |
| | |
Less: accumulated depreciation and amortization | |
| (8,430,106 | ) | |
| (8,272,106 | ) |
| |
| | | |
| | |
| |
$ | 1,792,489 | | |
$ | 1,691,541 | |
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.
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 6- |
ACCOUNTS RECEIVABLE FINANCING: (continued) |
At September 25, 2015, the Company had reported excess payments
to the Factor resulting in overpayments of $865,829, which the Company will apply against future borrowings. These excess payments
are reported in the accompanying financial statements as of September 25, 2015 as “Excess payments to accounts receivable
factor.” As of March 27, 2015, the Company had reported excess payments to the Factor of $43,041.
Note 7- |
OTHER CURRENT LIABILITIES: |
Other current liabilities were comprised of the following:
| |
Sept. 25, | | |
March 27, | |
| |
2015 | | |
2015 | |
| |
| | |
| |
Payroll and vacation accruals | |
$ | 448,933 | | |
$ | 569,725 | |
Sales commissions | |
| 51,986 | | |
| 44,844 | |
Insurance | |
| 12,137 | | |
| 10,556 | |
Other | |
| 2,320 | | |
| 5,000 | |
| |
$ | 515,376 | | |
$ | 630,125 | |
Note 8- |
CHANGES IN STOCKHOLDERS’ EQUITY: |
The accumulated retained earnings increased by $882,025,
which represents the net income for the six months ended September 25, 2015. Accordingly, the Company reported accumulated retained
earnings of $10,004,875 as of September 25, 2015.
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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 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.
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 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
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 9- |
2011 EQUITY INCENTIVE PLAN: (continued) |
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 2015 annual meeting of stockholders.
Note 10- |
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. Accordingly, the Company has accrued a contribution provision of $171,800 for the six months ended September
25, 2015. For the year ended March 27, 2015, the Company’s contribution was $288,000.
Note 11- |
COMMITMENTS AND CONTINGENCIES: |
The Company leases space for its corporate offices (including
its manufacturing facility) at 140 58th 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 | |
$ | 84,900 | |
2016 | |
| 168,120 | |
2017 | |
| 173,180 | |
2018 | |
| 178,360 | |
2019 | |
| 183,720 | |
Thereafter | |
| 317,840 | |
| |
$ | 1,106,120 | |
The rental expense for the six months ended September 25,
2015 was $83,220 and $80,820 for the six months ended September 26, 2014.
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 $61,977 for the six
months ended September 25, 2015 and $51,541 for the six months ended September 26, 2014.
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 12- |
SUBSEQUENT EVENTS: |
The Company has evaluated all other subsequent events through
November 16, 2015, the date the financial statements were available to be issued. Based on this evaluation, the Company has determined
that no subsequent events have occurred which require disclosure through the date that these financial statements were available
to be issued.
PART I: FINANCIAL INFORMATION
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.
IEH CORPORATION
PART I: FINANCIAL INFORMATION
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Critical Accounting Policies (continued)
Inventories 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.
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 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.
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 customer sponsored
research and development activities for the quarter ended September 25, 2015 and September 26, 2014, respectively, relating to
the development of new designs, techniques and the improvement of existing designs.
IEH CORPORATION
PART I: FINANCIAL INFORMATION
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Comparative Analysis-Six Months Ended September 25, 2015 and
September 26, 2014
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 |
| |
Sept. 25, | | |
Sept. 26, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Operating Revenues (in thousands) | |
$ | 10,269 | | |
$ | 7,837 | |
| |
| | | |
| | |
Operating Expenses: | |
| | | |
| | |
(as a percentage of Operating Revenues) | |
| | | |
| | |
| |
| | | |
| | |
Costs of Products Sold | |
| 64.51% | | |
| 62.98% | |
Selling, General and Administrative | |
| 14.28% | | |
| 16.08% | |
Interest Expense | |
| .10% | | |
| .10% | |
Depreciation and amortization | |
| 1.54% | | |
| 2.00% | |
| |
| | | |
| | |
TOTAL COSTS AND EXPENSES | |
| 80.43% | | |
| 81.16% | |
| |
| | | |
| | |
Operating Income | |
| 19.57% | | |
| 18.84% | |
| |
| | | |
| | |
Other Income | |
| — | | |
| — | |
| |
| | | |
| | |
Income (loss) before Income Taxes | |
| 19.57% | | |
| 18.84% | |
| |
| | | |
| | |
Income Taxes | |
| (10.99% | ) | |
| (8.54% | ) |
| |
| | | |
| | |
Net Income | |
| 8.58% | | |
| 10.30% | |
Operating revenues for the six months ended September 25, 2015 amounted
to $10,269,162 reflecting a 31% increase versus $7,837,233 for the six months ended September 26, 2014. The increase in revenues
can be attributed to an increase in commercial orders during the six months ended September 25, 2015.
IEH CORPORATION
PART I: FINANCIAL INFORMATION
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Comparative Analysis - Six Months Ended September 25, 2015 and
September 26, 2014 (continued)
Cost of products sold amounted to $6,624,149 for the six months
ended September 25, 2015, or 64.51% of operating revenues. This reflected a $1,688,248 or 34.20% increase in the cost of products
sold from $4,935,901 or 62.98% of operating revenues for the six months ended September 26, 2014. The increase in cost of products
sold can be attributed to the cost necessary to support the increase in production associated with the higher sales for the six
months ended September 25, 2015.
Selling, general and administrative expenses were $1,466,634 or
14.28% of operating revenues for the six months ended September 25, 2015 compared to $1,259,849 or 16.08% of operating revenues
for the six months ended September 26, 2014. This category of expense increased by $206,785 or 16.41% from the prior six month
period. The increase can be attributed to an increase in sales commissions.
Interest expense was $10,120 for the six months ended September
25, 2015 or .10% of operating revenues. For the fiscal six months ended September 26, 2014, interest expense was $8,030 or .10%
of operating revenues. Interest expense remained fairly steady in the two periods being compared.
Depreciation and amortization of $158,000 or 1.54% of operating
revenues was reported for the six months ended September 25, 2015 as compared to the six month period ended September 26, 2014
of $157,100 or 2.00% of operating revenues.
The Company reported net income of $882,025 for the six months ended
September 25, 2015 representing basic earnings of $.38 per share as compared to net income of $807,410 or $.35 per share for the
six months ended September 26, 2014. The increase in net income for the current six month period can be attributed primarily to
an increase in commercial orders during the period.
IEH CORPORATION
PART I: FINANCIAL INFORMATION
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Comparative Analysis-Three Months Ended September 25, 2015 and
September 26, 2014
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 |
|
| |
Sept 25, | | |
Sept 26, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Operating Revenues (in thousands) | |
$ | 5,094 | | |
$ | 3,902 | |
| |
| | | |
| | |
Operating Expenses: | |
| | | |
| | |
(as a percentage of Operating Revenues) | |
| | | |
| | |
| |
| | | |
| | |
Costs of Products Sold | |
| 66.89% | | |
| 62.41% | |
Selling, General and Administrative | |
| 15.48% | | |
| 15.86% | |
Interest Expense | |
| .11% | | |
| .12% | |
Depreciation and amortization | |
| 1.47% | | |
| 1.92% | |
| |
| | | |
| | |
TOTAL COSTS AND EXPENSES | |
| 83.95% | | |
| 80.31% | |
| |
| | | |
| | |
Operating Income | |
| 16.05% | | |
| 19.69% | |
| |
| | | |
| | |
Other Income | |
| — | | |
| — | |
| |
| | | |
| | |
Income (loss) before Income Taxes | |
| 16.05% | | |
| 19.69% | |
| |
| | | |
| | |
Income Taxes | |
| (13.39% | ) | |
| (8.93% | ) |
| |
| | | |
| | |
Net Income | |
| 2.66% | | |
| 10.76% | |
Operating revenues for the three months ended September 25, 2015
amounted to $5,094,267 reflecting a 30.57% increase versus $3,901,586 for the three months ended September 26, 2014. The increase
in revenues can be attributed to an increase in commercial orders during the three months ended September 25, 2015.
Cost of products sold amounted to $3,407,514 for the three months
ended September 25, 2015, or 66.89% of operating revenues. This reflected a $972,370 or 39.93% increase in the cost of products
sold from $2,435,144 or 62.41% of operating revenues for the three months ended September 26, 2014. The increase in cost of products
sold can be attributed to the cost necessary to support the increase in production associated with the higher sales for the three
months ended September 25, 2015.
IEH CORPORATION
PART I: FINANCIAL INFORMATION
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Comparative Analysis- Three Months Ended September 25, 2015 and
September 26, 2014 (continued)
Selling, general and administrative expenses were $788,811, or 15.48%
of operating revenues for the three months ended September 25, 2015 compared to $618,598 or 15.86% of operating revenues for the
three months ended September 26, 2014. This category of expense increased by $170,113 or 27.50% from the prior three month period.
The increase is primarily due to an increase in sales commissions.
Interest expense was $5,620 for the three months ended September
25, 2015 or .12% of operating revenues. For the fiscal three months ended September 26, 2014, interest expense was $4,516 or .12%
of operating revenues. Interest expense remained fairly steady in the two periods being compared.
Depreciation and amortization of $75,000 or 1.47% of operating revenues
was reported for the three months ended September 25, 2015 as compared to the three month period ended September 26, 2014 of $75,000
or 1.92% of operating revenues. There was no change in the amount of depreciation taken in the comparable periods.
The Company reported net income of $135,422 the three months ended
September 25, 2015 representing basic earnings of $.06 per share as compared to net income of $420,197 or $.18 per share for the
three months ended September 26, 2014. The decrease in net income for the current three month period can be attributed primarily
to an increase in the provision for income taxes.
Liquidity and Capital Resources
The Company reported working capital of $10,925,633 as of September
25, 2015 compared to a working capital of $10,144,556 as of March 27, 2015. The increase in working capital of $781,077 was attributable
to the following items:
Net income | |
$ | 882,025 | |
Depreciation and amortization | |
| 158,000 | |
Capital expenditures | |
| (258,948 | ) |
| |
$ | 781,077 | |
As a result of the above, the current ratio (current assets to current
liabilities) was 13.84 to 1 at September 25, 2015 as compared to 11.67 to 1 at March 27, 2015. Current liabilities at September
25, 2015 were $850,596 compared to $950,712 at March 27, 2015.
For the three months ended September 25, 2015, the Company reported
$258,948 in capital expenditures and depreciation of $158,000.
The net income of $882,025 for the three months ended September
25, 2015 resulted in an increase in stockholders’ equity to $12,772,483 as compared to stockholders’ equity of $11,890,458
at March 27, 2015.
IEH CORPORATION
PART I: FINANCIAL INFORMATION
Item 2. Management’s Discussion
and Analysis of Financial Condition and Results of Operations (continued)
Liquidity and Capital Resources (continued)
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. Funds advanced by the Factor are secured by the Company’s accounts receivable and inventories. At
September 25, 2015, the Company reported excess payments to the Factor of $865,829. These excess payments are reported in the accompanying
financial statements as “Excess payments to accounts receivable factor.” The Company reported excess payments to the
Factor of $43,041 at March 27, 2015.
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 1% 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 $61,977 for the six months ended September 25, 2015 and $51,541 for the six months
ended September 26, 2014.
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.
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.
IEH CORPORATION
PART I: FINANCIAL INFORMATION
Item 2. Management’s Discussion
and Analysis of Financial Condition and Results of Operations (continued)
Liquidity and Capital Resources (continued)
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 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 |
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 2015 annual meeting of stockholders.
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 $171,800 for the six months ended September 25, 2015. For the year ended March
27, 2015, the Company’s contribution was $288,000.
IEH CORPORATION
PART I: FINANCIAL INFORMATION
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
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 September 25, 2015,
our unrestricted cash was $1,247,423 of which $792,395 was in an interest bearing money market account with and the balance of
$455,028 was maintained in non-interest bearing checking accounts used to pay operating expenses.
Item 4. Controls and Procedures
Based on an evaluation of the effectiveness of the Company’s
“disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), the Company’s
Chief Executive Officer (who is also our President) and its Chief Financial Officer (who is also our controller and principal accounting
officer) have concluded that, as of the end of the period covered by this Report on Form 10-Q, the Company’s disclosure controls
and procedures were effective at the reasonable assurance level to ensure that information required to be disclosed by the Company
in this Report that it files or submit under the Exchange Act is, recorded, processed, summarized and reported within the time
periods specified within the SEC’s rules and forms and that such information is accumulated and communicated to our management,
including our Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required disclosure.
Our management, including our Chief Executive Officer and our Chief
Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors
and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are 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. 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 our Company have been detected. Our management, however, believes our disclosure controls and procedures are in
fact effective to provide reasonable assurance that the objectives of the control system are met. In connection with their review
and assessment of our disclosure controls and procedures, the Company 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 Rule 13a – 15(f) under the Exchange Act) during the quarter ended September 25, 2015
that have been materially affected, or are reasonably likely to materially affect our internal controls over financial reporting.
IEH CORPORATION
PART II: OTHER INFORMATION
Item 1. 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 1a. Risk Factors
You should carefully consider the risks described
below, together with all of following risk factors and the other information included in this report, in considering our business
herein as well as the information included in other reports and prospects. The risks and uncertainties described below are not
the only ones facing our Company. Additional risks and uncertainties not presently known to us or that we currently deem immaterial
also may impair our business operations, financial condition and/or operating results. If any of the matters or events described
in the following risks actually occurs, our business, financial condition or results of operations could be harmed. In such case,
the trading price of our common stock could decline, and you may lose all or part of your investment due to any of these risks.
Risks Related to Our Business
Failure to increase our revenue and keep our expenses consistent
with revenues could prevent us from achieving and maintaining profitability.
We have generated net income of $1,809,555, $1,453,707 and $929,930,
respectively, for the fiscal years ended
March 27, 2015, March 26, 2014 and March 29, 2013, and $882,025
for the six months ended September 25, 2015. We have expended, and will continue to be required to expend, substantial funds to
pursue product development projects, enhance our marketing and sales efforts and to effectively maintain business operations. Therefore,
we will need to generate higher revenues to achieve and maintain profitability and cannot assure you that we will be profitable
in any future period.
Our capital requirements are significant and we have historically
partially funded our operations through the financing of our accounts receivable.
We have an existing accounts receivable financing agreement with
a non-lending institution (“Factor”) whereby we can borrow up to 80 percent of our eligible receivables at an interest
rate of 2.5% above JP Morgan Chase’s publicly announced prime rate. No assurances can be given that this financing agreement
will continue into the future. If we are unable to continue with this agreement, our cash flow might adversely be affected.
Our success is dependent on the performance of our management
and the cooperation, performance and retention of our executive officers and key employees.
Our business and operations are substantially dependent on the performance
of our senior management team and executive officers. If our management team is unable to perform it may adversely impact our results
of operations and financial condition. We do not maintain “key person” life insurance on any of our executive officers.
The loss of one or several key employees could seriously harm our business. Any reorganization or reduction in the size of our
employee base could harm our ability to attract and retain other valuable employees critical to the success of our business.
IEH CORPORATION
PART II: OTHER INFORMATION
Item 1a. Risk Factors (continued)
If we lose key personnel or fail to
integrate replacement personnel successfully, our ability to manage our business could be impaired.
Our future success depends upon the continued service of our key
management, technical, sales, finance, and other critical personnel. We cannot assure you that we will be able to retain them.
Key personnel have left our Company in the past and there likely will be additional departures of key personnel from time to time
in the future. The loss of any key employee could result in significant disruptions to our operations, including adversely affecting
the timeliness of product releases, the successful implementation and completion of Company initiatives, the effectiveness of our
disclosure controls and procedures and our internal control over financial reporting, and the results of our operations. In addition,
hiring, training, and successfully integrating replacement sales and other personnel could be time consuming, may cause additional
disruptions to our operations, and may be unsuccessful, which could negatively impact future revenues.
Our reported financial results could be adversely affected by
changes in financial accounting standards or by the application of existing or future accounting standards to our business as it
evolves.
As a result of the enactment of the Sarbanes-Oxley Act and the review
of accounting policies by the SEC and national and international accounting standards bodies, the frequency of accounting policy
changes may accelerate. Possible future changes to accounting standards, could adversely affect our reported results of operations.
Risks Related to Our Common Stock
Our stock price is volatile and could decline; we have a very
limited trading market.
The price of our common stock has been, and is likely to continue
to be, volatile. For example, our stock price during the fiscal year ended March 27, 2015 traded as low as $2.76 per share and
as high as $5.99 per share. During the six month period ended September 25, 2015, our common stock traded in the range of $5.40
per share to $7.77 per share. We cannot assure you that your initial investment in our common stock will not decline.
Item 2. Unregistered Sales of Equity Securities
and Use of Proceeds
Not applicable
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosure
None
Item 5. Other Information
None
IEH CORPORATION
PART II: OTHER INFORMATION
Item 6. Exhibits
(a) Exhibits:
Exhibit 31.1 |
Certification Pursuant to Section 302 of the Sarbanes Oxley Act* |
Exhibit 31.2 |
Certification Pursuant to Section 302 of the Sarbanes Oxley Act* |
Exhibit 32.1 |
Certification Pursuant to Section 906 of the Sarbanes Oxley Act* |
Exhibit 101.INS |
XBRL Instance Document* |
Exhibit 101.SCH |
XBRL Taxonomy Extension Schema* |
Exhibit 101.CAL |
XBRL Taxonomy Extension Calculation Linkbase Document* |
Exhibit 101.LAB |
XBRL Taxonomy Extension Label Linkbase Document* |
Exhibit 101.PRE |
XBRL Taxonomy Extension Presentation Linkbase Document* |
Exhibit 101.DEF |
XBRL Taxonomy Extension Definition Label Document* |
*Submitted electronically herewith.
Attached as Exhibit 101 to this Quarterly Report on Form 10-Q
are the following formatted in XBRL (Extensible Business Reporting Language): (i) Statement of Operations for the six months
ended September 25, 2015 and September 26, 2014; (ii) Balance Sheets as of September 25, 2015 and March 27, 2015; (iii)
Statement of Cash Flows for the six months ended September 25, 2015 and September 26, 2014; and (iv) Notes to Financial
Statements for the six months ended September 25, 2015 and September 26, 2014.
In accordance with Rule 406T of Regulation S-the XBRL related information
in Exhibit 101 to the Quarterly Report on Form 10-Q shall not be deemed to be “filed” for purposes of Section 18 of
the Exchange Act or otherwise subject to the liability of that section and shall not be part of any registration statement or other
document filed under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such
filing.
(b) Reports on Form 8-K during Quarter:
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.
|
IEH CORPORATION |
|
(Registrant) |
|
|
|
|
November 16, 2015 |
/s/ Michael Offerman |
|
Michael Offerman |
|
President (Principal Executive Officer) |
|
|
|
|
November 16, 2015 |
/s/ Robert Knoth |
|
Robert Knoth |
|
Chief Financial Officer (Principal Accounting Officer) |
|
|
|
|
Exhibit 31.1
CERTIFICATION
I, Michael Offerman, certify that:
1. I
have reviewed this quarterly report of Form 10-Q of IEH Corporation for the quarter ended September 25, 2015.
2. Based
on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this quarterly report.
3. Based
on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this quarterly report.
4. The
registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange
Act Rules 13-a-15(f) and 15d-15(f)) for the registrant and we have:
a) designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries is made known to me by
others within those entities, particularly during the period in which this quarterly report is being prepared; and
b) designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, 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; and
c) evaluated
the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based
upon such evaluation; and
d) disclosed
in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The
registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons
performing the equivalent function);
a) all
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
b) any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: November 16, 2015
/s/ Michael Offerman
Michael Offerman
President and Chief Executive Officer (Principal Executive Officer)
Exhibit 31.2
CERTIFICATION
I, Robert Knoth, certify that:
1. I
have reviewed this quarterly report of Form 10-Q of IEH Corporation for the quarter ended September 25, 2015.
2. Based
on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this quarterly report.
3. Based
on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this quarterly report.
4. The
registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:
a) designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant including its consolidated subsidiaries, is made known to me by
others within those entities, particularly during the period in which this quarterly report is being prepared; and
b) designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, 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; and
c) evaluated
the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based
upon such evaluation; and
d) disclosed
in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The
registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons
performing the equivalent function);
a) all
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
b) any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: November 16, 2015
/s/ Robert Knoth
Robert Knoth
Chief Financial Officer (Principal Accounting Officer)
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION
1350
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2004
In connection with the Quarterly Report of IEH Corporation (the
“Company”) on Form 10-Q for the quarter ending September 25, 2015, as filed with the Securities and Exchange
Commission on the date hereof (the “Report”), I, Michael Offerman, President and Chief Executive Office (Principal
Executive Officer) and Robert Knoth, Chief Financial Officer (Principal Accounting Officer) of the Company, respectfully certify,
pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2004, that:
1. |
The Report fully complies with the requirements of the Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
/s/ Michael Offerman |
/s/ Robert Knoth |
Michael Offerman |
Robert Knoth |
President and Chief Executive Officer |
Chief Financial Officer |
(Principal Executive Officer) |
(Principal Accounting Officer) |
Dated: November 16, 2015
This Certification is being furnished solely to accompany the
Report pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and
shall not be deemed “filed” by the Company for purposes of Section 18 of the Securities Act of 1933, as amended,
or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Report, irrespective of any general
incorporation language contained in such filing. A signed original of this written statement required by Section 906 has been
provided to IEH Corporation and will be retained by IEH Corporation and furnished to the Securities and Exchange Commission or
its staff upon request.
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