-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EcFvbNJZx/DjRAldk/w9qJ9VXOZc+IDRSBpuZiJIcuz/9dfxzLNHIaHVugh0q6yi Om66QwA2w6B2l+j2v+qMXw== 0000914317-02-000687.txt : 20020703 0000914317-02-000687.hdr.sgml : 20020703 20020703143813 ACCESSION NUMBER: 0000914317-02-000687 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020329 FILED AS OF DATE: 20020703 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IEH CORPORATION CENTRAL INDEX KEY: 0000050292 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC CONNECTORS [3678] IRS NUMBER: 135549345 STATE OF INCORPORATION: NY FISCAL YEAR END: 0330 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-05278 FILM NUMBER: 02696233 BUSINESS ADDRESS: STREET 1: 140 58TH ST BLDG B UNIT 8E CITY: BROOKLYN STATE: NY ZIP: 11220 BUSINESS PHONE: 7184924440 MAIL ADDRESS: STREET 1: 369 LEXINGTON AVE CITY: NEW YORK STATE: NY ZIP: 10017 FORMER COMPANY: FORMER CONFORMED NAME: INDUSTRIAL HEAT TREATING CO INC DATE OF NAME CHANGE: 19670926 FORMER COMPANY: FORMER CONFORMED NAME: INDUSTRIAL ELECTRONIC HARDWARE CORP DATE OF NAME CHANGE: 19890123 10KSB 1 form10ksb-45880_7202.txt U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB (Mark One) [ X ] Annual report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended March 29, 2002 [ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from __________ to__________ Commission file number 0-5278 ------ IEH CORPORATION ---------------------------------------------------------- (Name of Small Business Issuer in Its Charter) New York 13-5549348 - -------------------------------- ------------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 140 58th Street, Suite 8E, Brooklyn, New York 11220 - ---------------------------------------------- ---------- (Address of Principal Executive Offices) (Zip Code) (718) 492-9673 ----------------------------------------------- (Issuer's Telephone Number, Including Area Code) Securities registered under Section 12(b) of the Exchange Act: Title of each Class Name of Each Exchange on Which Registered None None Securities registered under Section 12(g) of the Exchange Act: Common Stock, $.01 Par Value ---------------------- (Title of Class) 1 Indicated by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports),and (2) has been subject to such filing requirements for past 90 days. Yes [ X ] No [ ] Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S- B is not contained in this form, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. Yes [ X ] No [ ] The Registrant's revenues for its most recent fiscal year ended March 29, 2002 were $4,338,012. On June 26, 2002, the aggregate market value of the voting stock of Registrant held by non- affiliates of Registrant (consisting of Common Stock, $.01 par value) computed by reference to the closing price at which the stock was sold on June 17, 2002 (the date of the last reported transaction) ($0.10) was approximately $103,418. On June 26, 2002, there were 2,303,468 shares of Common Stock, $.01 par value, issued and outstanding. 2 PART I Item I. Business IEH Corporation (hereinafter referred to as the "Company") was organized under the laws of the State of New York on March 22, 1943 under the name Industrial Heat Treating Company, Inc. On March 15, 1989, the Company changed its name to its current name. The Company's executive offices and manufacturing facilities are located at 140 58th Street, Suite 8E, Brooklyn, New York 11220. The Company's telephone number is (718) 492-4448; its email address is ieh@iehcorp.com. The Industry in Which the Company is Engaged The Company is engaged in the design, development, manufacture and distribution of high performance electronic printed circuit connectors and specialized interconnection devices. Electronic connectors and interconnection devices are used to provide connections between electronic component assemblies. The Company develops and manufactures connectors which are designed for a variety of high technological and high performance applications. These connectors are primarily utilized by those users who require highly efficient and dense (the space between connection pins within the connector) electrical connections. Printed circuit boards in computers contain the components necessary to perform specific system sub-functions. These functions require connections which relay information between electronic components and circuit boards, enabling the commands that are input by the user to be performed. Electronic connectors, in essence, enable circuit boards and electronic components to communicate with each other, via direct electrical connection. Connectors also are fundamental to modular construction of electronic assemblies enabling the disconnection and removal of circuit boards and other electronic components for testing, repair, and replacement. Connectors may be designed and manufactured in various shapes, sizes and specifications to meet specific customer requirements and applications. High performance connectors are designed to meet various density and pin count (the number of individual connection points within each connector) criteria and to provide low forces (the amount of pressure needed to make the connection) and electrically efficient connections. Constant advances in the design of solid state devices have resulted in significantly denser component packaging configurations on circuit boards. Historically, a 5" X 8" circuit board may have consisted of thousands of circuits with 10 to 30 lines of communication. Under those conditions, an insertion force of one pound per contact for each of the communication lines formed a common and acceptable standard in connection devices. As a result of technological developments in recent years, the same 5" X 8" circuit board may contain hundreds of thousands of circuits with hundreds of communication lines, and an insertion force of one (1) ounce per contact as the standard in the industry. The Company's Product Line The Company primarily manufactures printed circuit board connectors that meet military or individual customer specifications. Certain of the Company's manufacturing and sales involve the competitive bidding process because of the military and/or government status of customers. The Company also manufactures a line 3 of standard universal connectors which have common usage in the high technology and commercial electronics industries. The Company serves both the commercial and military marketplace, manufacturing connectors for avionics, electronics, satellite, radar systems, test equipment, medical electronic and related industries. The Company is continuously redesigning and adapting its connectors to keep pace with developments in the electronics industry, and has, for example, developed connectors for use with flex-circuits which are used in aerospace programs, computers, air-borne communication systems, testing systems and other areas. The Company also provides engineering services to its customers to assist in the development and design of connectors to meet specific product requirements. The Company's electronic printed circuit connectors are sold to original equipment manufacturers and distributors. The Company supplies its connectors to manufacturers who principally produce and distribute finished products as well as to distributors who resell the Company's products. Prior to the decrease in military and government spending over the last five (5) years, the Company's sales were made primarily to the government, military defense contractors and aerospace companies. However, since the decrease in military and government spending, the Company has modified its product line so as to concentrate its sales efforts to commercial electronics companies. The Company still continues to market its connectors for use in government and military computers; military defense equipment and information systems; terrestrial, airborne and aerospace communications products; avionics and guidance systems and instrumental and electronic testing equipment. With the continuing downturn in government contracts over the last few years, the Company has been striving the past several years to develop commercial accounts. Management has instituted several steps to increase productivity and increase sales such as downsizing the labor force, implementing material changes to make the Company's products more competitive and developing machinery and equipment to increase production rates. Management believes these initiatives have decreased costs and will continue to do so in the near future. For the fiscal year ended March 29, 2002, the Company's principal customers included manufacturers of commercial electronics products, military defense contractors and distributors who service these markets. Sales to the commercial electronics and military defense markets comprised 26% and 73%, respectively, of the Company's net sales for the year ended March 29, 2002. Approximately 1% of the Company's net sales for the year March 29, 2002, were made internationally. New Product Development The Company maintains a program to increase the efficiency and performance of its connectors to meet anticipated and specific market needs. Computer and electronics technology is continuously changing and requires the redesign and development of connectors to adapt to these changes. Primarily, new technology has dictated a decrease in the size of solid state electronic components and smaller and denser high performance connectors. Management believes that a key ingredient to the Company's success is its ability to assist customers with a new design effort and prepare necessary drawing packages in a short period of time. After the customer approves the design, prototypes are built, approved by the customer and production is released. As an example, six new connectors have been introduced to a major commercial account. The Company's design effort on this product line began mid-year 1994 and was recently completed. The new development process 4 with this commercial client has led to substantial repeat business in the past fiscal year. The Company now has the ability to introduce this line to other commercial accounts. The Company has also recently commenced production of two new connectors for the aerospace industry. To date early orders for pre-production units have been completed and the Company is awaiting commencement of production. One of the nation's leading radar system manufacturers has contracted with the Company for six new designs. The design work is complete, approvals have been obtained, and the Company is now in small-scale production. The Company anticipates full-scale production when the radar system is released for sale by the customer. Several years ago, the Company designed and developed a form of compliant termination connector, which is named, "COMTAC". This product, which utilizes technology known as "Solderless Pin Technology", does not require the soldering of connector pins, but instead utilizes a spring type locking system in attaching the connector to the printed circuit board. This technology was patented in the United States under patent No. 4,720,268 and assigned to the Company on January 19, 1988. During the fiscal year ended March 29, 2002 sales of the COMTAC connectors accounted for over 12% of the Company's total sales. The Company has sent pre-production units for evaluation to certain customers and potential customers. Although there can be no assurance of future sales, the Company is optimistic that this new technology will lead to an increase in sales. Commitments On July 22, 1992, the Company obtained a loan of $435,000 from the New York State Urban Development Corporation ("UDC"), collateralized by machinery and equipment. The loan is payable over ten years, with interest rates progressively increasing from 4% to 8% per annum. The balance remaining at March 29, 2002 was $25,289. Aggregate future principal payments are as follows: Fiscal Year Ending March 31: 2003 $ 25,289 ================ In April 1997, the Company was informed by the UDC that the loan was sold and conveyed to WAMCO XXIV, Ltd. All of the terms and conditions of the loan remained in effect. As of March 29, 2002, the Company had failed to meet one of the financial covenants of the loan agreement; namely that the "Company shall be obligated to maintain a tangible net worth of not less than $1,300,000 and the Company shall be obligated to maintain a ratio of current assets to current liabilities of 1.1 to 1.0". The Company reported tangible net worth of $809,357. The ratio of current assets to current liabilities was .99 to1.0. The Company has applied for additional waivers of this covenant. Neither the UDC or WAMCO XXIV has acted on these requests, nor has WACO declared an event of default. There are no assurances that the Company will receive any additional waivers of this covenant. Should the Company not receive any additional 5 waivers, then it will be deemed to be in default of this loan obligation and the loan plus interest will become due and payable. The Company has a collective bargaining multi-employer pension plan with the United Auto Workers of America, Local 259. Contributions are made in accordance with a negotiated labor contract and are based on the number of covered employees employed per month. With the passage of the Multi-Employer Pension Plan Amendments Act of 1990 (the "Act"), the Company may become subject to liabilities in excess of contributions made under the collective bargaining agreement. Generally, these liabilities are contingent upon the termination, withdrawal, or partial withdrawal from the Plan. The Company has not taken any action to terminate, withdraw or partially withdraw from the Plan nor does it intend to do so in the future. Under the Act, liabilities would be based upon the Company's proportional share of the Plan's unfunded vested benefits which is currently not available. The amount of accumulated benefits and net assets of such Plan also is not currently available to the Company. The total contributions charged to operations under this pension plan were $38,384 for the year ended March 29, 2002 and $35,707 for the year ended March 30, 2001. As of March 29, 2002, the Company reported arrears with respect to its contributions to the Union's health and welfare plan. The amount due the health and welfare plan was $73,828. The total amount due of $73,828 is reported on the accompanying balance sheet in as follows, $30,000 as a current liability and $43,828 as a long term liability. In December 1993, the Company and Local 259 entered into a verbal agreement whereby the Company would satisfy this debt by the following payment schedule: The sum of $2,500 will be paid by the Company each month in satisfaction of the current arrears until this total debt has been paid. Under this agreement, the projected payment schedule for arrears will satisfy the total debt in 30 months. On June 30, 1995, the Company applied to the Pension Benefit Guaranty Corporation ("PBGC") to have the PBGC assume all of the Company's responsibilities and liabilities under its Salaried Pension Plan. On April 26, 1996, the PBGC determined that the Salaried Pension Plan did not have sufficient assets available to pay benefits which were and are currently due under the terms of the Plan. The PBGC further determined that pursuant to the provisions of the Employment Retirement Income Security Act of 1974, as amended ("ERISA") that the Plan must be terminated in order to protect the interests of the Plan's participants. Accordingly, the PBGC proceeded pursuant to ERISA to have the Plan terminated and the PBGC appointed as statutory trustee, and to have July 31, 1995 established as the Plan's termination date. The PBGC further determined that pursuant to the provisions of the Employment Retirement Income Security Act of 1974, as amended ("ERISA") that the Plan must be terminated in order to protect the interests of the Plan's participants. Accordingly, the PBGC proceeded pursuant to ERISA to have the Plan terminated and the PBGC appointed as statutory trustee, and to have July 31, 1995 established as the Plan's termination date. The Company and the PBGC have agreed to the terms of a settlement of the matter. The agreement was effective July 2, 2001. Under the agreement, the Company and the PBGC agreed on a total sum of $244,000. The Company has agreed to make payments as follows: September 1, 2003 to August 1, 2004 $2,000 per month September 1, 2004 to August 1, 2006 $3,000 per month September 1, 2006 to August 1, 2007 $4,000 per month 6 In addition, the Company will make balloon payments of $25,000 each on the following dates: January 1, 2004 May 1, 2004 May 1, 2005 January 1, 2006 The Company also granted the PBGC a lien on the Company's machinery and equipment, subject to the preexisting liens in favor of the UDC. As a result of this agreement the amount due the PBGC has been restated to $244,000 and is reported as a long term liability. The resultant gain of $294,506 was reclassified and accounted for as a charge to opening retained earnings as follows: Opening retained earnings-March 31, 2000 $ 2,221,574 Gain on pension plan settlement 294,506 ----------- Adjusted opening retained earnings March 31, 2000 (1,927,068) Net income for the year ended March 30, 2001 26,826 ----------- Adjusted retained earnings balance at March 30, 2001 (1,900,242) Net loss for the year ended March 29, 2002 (58,009) ----------- Balance at March 29, 2002 $(1,958,251) =========== The market for connectors and interconnection devices, domestic and worldwide, is highly fragmented as a result of the manufacture by many companies of a multitude of different types and varieties of connectors. For example, connectors include: printed circuit, rectangular I/O, circular, planar (IOC) RF coax, IC socket and fiber optic. The Company has been servicing a niche in the market by manufacturing HYPERTAC (TM) connectors and innovative Company-designed printed circuit connectors, such as the COMTAC connectors. Previously, the Company was one of only three licensed manufacturers of the HYPERTAC (TM) design in the United States. In the fiscal year 1996, the Company learned that the other two licensees had merged. Moreover, the Company, based upon advice of counsel, determined that the HYPERTAC technology was no longer protected by a patent, and therefore was in the public domain. As a result, the Company notified the licensor that it would no longer be bound by the terms of its license agreement and the Company ceased making license payments. See Financial Statements and Notes thereto. The Company has received a brief notice from the licensor that it disputed the Company's interpretations and demanded return of certain equipment. No legal proceedings have been instituted by the licensor and the Company has not received any further notices. The Company does not anticipate manufacturing other types of connectors in the immediate future. The Company is continuously experimenting with innovative connection designs, which may cause it to alter its marketing plans in the future if a market should develop for any of its current or future innovative designs. The Company's products are marketed to original equipment manufacturers directly and through distributors serving primarily the government, military, aerospace and commercial electronics markets. The Company is also involved in developing new connectors for specific uses which result from changes in technology. The 7 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 94% of the Company's net sales for the years ended March 29, 2002 and March 30, 2001, respectively, were made directly to manufacturers of finished products with the balance of the Company's products sold to distributors. Distributors often purchase connectors for customers who do not require large quantities of connectors over a short period of time but rather require small allotments of connectors over an extended period of time. One (1) of the Company's customers accounted for 17% and 19% of the Company's net sales for the years ended March 29, 2002 and March 30, 2001, respectively. The Company currently employs 16 independent sales representatives to market its products in all regions in the United States. These independent sales representatives also promote the product lines of other electronics manufacturers; however, they do not promote the product lines of competitors which compete directly with the Company's products. These sales representatives accounted for approximately 94% of Company sales (with the balance of Company sales being generated via direct customer contact) for the year ended March 29, 2002. International sales accounted for less than 1% of sales for the years ended March 29, 2002 and March 30, 2001. Backlog of Orders/Capital Requirements The backlog of orders for the Company's products amounted to approximately $2,200,000 at March 29, 2002, as compared to $1,500,000 at March 30, 2001. A significant 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 with respect to their abilities to adapt certain technologies to meet specific product applications; in producing connectors cost-effectively; and in production capabilities. In addition, there are many companies who offer connectors with designs similar to those utilized by the Company and are direct competitors of the Company. The primary basis upon which the Company competes is product performance and production capabilities. The Company usually receives job orders after submitting bids pursuant to customer-issued specifications. The Company also offers engineering services to its customers in designing and developing connectors for specialized products and specific customer applications. This enables the Company to receive a competitive advantage over those companies who basically manufacture connectors based solely or primarily on cataloged specifications. Many of the Company's competitors have greater financial resources, market penetration and 8 experience than the Company and no assurances can be given that the Company will be able to compete effectively with these companies in the future. Suppliers of Raw Materials and Component Parts The Company utilizes a variety of raw materials and manufactured component parts which it purchases from various suppliers. These materials and components are available from numerous sources and the Company does not believe that it will have a problem obtaining such materials in the future. However, any delay in the Company's ability to obtain necessary raw materials and component parts may affect its ability to meet customer production needs. In anticipation of such delays, the Company carries an inventory of raw materials and component parts to avoid shortages and to insure continued production. Engineering/Research & Development The Company provides personalized engineering services to its customers by designing connectors for specific customer applications. The employment of electromechanical engineers is the anticipated cornerstone of the Company's future growth. The Company maintains a testing laboratory where its engineers experiment with new connector designs based on changes in technology and in an attempt to create innovative, more efficient connector designs. The Company expended $47,600 and $32,800 for the years ended March 29, 2002 and March 30, 2001, respectively, on Company sponsored research and development activities relating to the development of new designs, techniques and the improvement of existing designs. In addition, the Company received $47,600 in revenues for the year ended March 29, 2002 and no revenues for the year ended March 30, 2001, respectively, pursuant to customer sponsored research activities. Employees The Company presently employs approximately 68 people, three (2) of whom are executive officers; three (2) are engaged in management activities; four (4) provide general and administrative services and approximately 60 are employed in manufacturing and testing activities. The employees engaged in manufacturing and testing activities are covered by a collective bargaining agreement with the United Auto Workers of America, Local 259 (the "Union") which expires on March 31, 2002. The Company believes that it has a good relationship with its employees and the Union. Patents and Licenses Electrical connectors and interconnection devices are usually the subject of standard designs; therefore, only innovations of standards designs or the discovery of a new form of connector are patentable. The Company is continuously attempting to develop new forms of connectors or adaptations of current connector designs in an attempt to increase performance and decrease per unit costs. The Company has developed and designed the COMTAC connector which was patented on January 19, 1988, at which time the patent was assigned to the Company. 9 Governmental Regulations The Company is subject to federal regulations under the Occupational Safety and Health Act ("OSHA") and the Defense Electrical Supply Command ("DESC"). OSHA provides federal guidelines and specifications to companies in order to insure the health and safety of employees. DESC oversees the quality and specifications of products and components manufactured and sold to the government and the defense industry. Although DESC continuously requires suppliers to meet changing specifications, the Company has not encountered any significant problems meeting such specifications and its products have, in the past, been approved. The Company is unaware of any changes in the government's regulations which are expected to materially affect the Company's business. 10 Item 2. Properties The Company exercised its option to renew its lease on the premises for 10 years. The original lease ran through August 23, 2001. The Company is obligated under this renewal through August 23, 2011, at minimum annual rentals as follows: Fiscal year ending March: 2003 $111,600 2004 111,600 2005 111,600 2006 111,600 2007 111,600 2008 111,600 2009 111,600 2010 111,600 2011 74,400 -------- $967,200 ======== The terms of the renewal are presently being negotiated by the Company and its landlord, Apple Industrial Development, Corp. The Company leases approximately 20,400 feet of space, of which it estimates; 6,000 square feet are used as executive, sales and administrative offices, 14,400 square feet are used for its manufacturing and plating. The rental expense for the year ended March 29, 2002 for this lease was $111,482. In addition to the base rent, the Company pays real estate taxes, insurance premiums and utility charges relating to the use of the premises. The Company considers its present facilities to be adequate for its present and anticipated future needs. See "Legal Proceedings" for certain matters involving the Company's operating facility and offices. Item 3. Legal Proceedings The Company is not a party to or aware of any pending or threatened legal proceedings which would result in any material adverse effect on its operations or its financial condition. As previously reported, the Company reached an agreement with its landlord, Apple Industrial Development Corp. to settle certain matters related to the lease of its principal offices located in Brooklyn, New York, including a lawsuit brought by the landlord against the Company. The landlord claimed that IEH had not paid the proper rent due under its lease for the period from September 1, 1992 through April 1997. The landlord claimed damages of $236,000 plus interest of approximately $41,000. The Company determined it was in its best interest to settle the lawsuit. The parties agreed to a settlement, effective as of May, 1997 whereby the Company agreed to a repayment schedule for the amount due payable with interest at 8.25% per year. The monthly installments equalled approximately $5,790 per month. The settlement provided for the entity, following notice and a cure period, of a default judgement by the landlord in the event the Company fails to pay amounts due under the lease and the settlement in a timely fashion. The total amount was paid in full June 2000. 11 Item 4. Submission of Matters to Vote ofSecurity Holders No matters were submitted to shareholders during the fourth quarter for the fiscal year ended March 29, 2002. Item 5. Market for Common Equity and Related Stockholder Matters Principal Market The Common Stock of the Registrant (the "Common Stock") is traded in the Over-The-Counter Market and is quoted on the National Association of Securities Dealers Automated Quotation ("NASDAQ") System Bulletin Board under the symbol "IEHC"). On January 11, 1993, the Company's Common Stock was deleted from listing on the NASDAQ SmallCap Market System because of the Company's failure to maintain the minimum asset and shareholders equity requirements. On January 12, 1993, the Company's Common Stock was first quoted over the Electronic Bulletin Board (OTCBB). Market Information The range of high and low bid prices for the Company's Common Stock, for the periods indicated as set forth below. For the period to October 29, 1991, the Company was listed on the NASDAQ National Market System. On October 29, 1991, the Company's Common Stock was delisted from the NASDAQ National Market System and from October 29, 1991 to January 11, 1993, the Company's Common Stock was listed on the NASDAQ SmallCap Market System. On January 11, 1993, the Company's Common Stock was delisted from the NASDAQ SmallCap Market System and on January 13, 1993, the Company's Common Stock was first quoted over the Electronic Bulletin Board (OTCBB). Set forth below is a table indicating the high and low prices of the Common Stock during the periods indicated. Year High Low Fiscal Year ended March 29, 2002 1st Quarter $.20 $.11 2nd Quarter .23 .14 3rd Quarter .15 .14 4th Quarter .20 .13 Fiscal Year ended March 30, 2001 (1) 1st Quarter .6875 .1562 2nd Quarter .875 .25 3rd Quarter .25 .125 4th Quarter .6875 .1250 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 June 17, 2002 the high price for the Common Stock was $.10 and the low bid was $.10. 12 Dividends The Company has not paid any cash dividends on its Common Stock during the last five (5) fiscal years. At present, the Company does not anticipate issuing any cash dividends on its Common Stock in the foreseeable future by reason of its contemplated future financial requirements and business plans. The Company will retain earnings, to the extent that there are any, to finance the development of its business. Approximated Number of Equity Security Holders The number of record holders of the Company's Common Stock as of June 25, 2002 was approximately 773. Such number of record owners was determined from the Company's stockholder records, and does not include the beneficial owners of the Company's Common Stock whose shares are held in the names of various security holders, dealers and clearing agencies. Equity Compensation Plan Information The Board of Directors unanimously approved adoption of the 2001 Employee Stock Option Plan (the "2001 Plan") to provide for the grant of options to purchase up to 750,000 shares of the Company's common stock to all employees, including senior management and other eligible persons. Under the terms of the proposed 2001 Plan, options granted thereunder may be designated as options which qualify for incentive stock option treatment ("ISOs") under Section 422 of the Code, or options which do not so qualify ("Non-ISO's"). The 2001 Plan was approved by shareholders at the annual meeting held on September 21, 2002. No options have been issued under the Plan. The Company has no other equity compensation plan under which equity securities are authorized for issuance and no equity securities have been issued as compensation during the fiscal year ended March 29, 2002. 13 Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations Statements contained in this report which are not historical facts may be considered forward looking information with respect to plans, projections, or future performance of the Company as defined under the Private Securities litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from those projected. The words "anticipate," "believe", "estimate", "expect," "objective," and "think" or similar expressions used herein are intended to identify forward-looking statements. The forward-looking statements are based on the Company's current views and assumptions and involve risks and uncertainties that include, among other things, the effects of the Company's business, actions of competitors, changes in laws and regulations, including accounting standards, employee relations, customer demand, prices of purchased raw material and parts, domestic economic conditions, including housing starts and changes in consumer disposable income, and foreign economic conditions, including currency rate fluctuations. Some or all of the facts are beyond the Company's control. The following discussion and analysis should be read in conjunction with the consolidated financial statements and related footnotes which provide additional information concerning the Company's financial activities and condition. Accounting Policies Accounting Period: The Company maintains an accounting period based upon a 52-53 week year which ends on the nearest Friday in business days to March 31st. The year ended March 29, 2002 was comprised of 52 weeks and the year ended March 30, 2001 was comprised of 53 weeks. Revenue Recognition: Revenues are recognized at the shipping date of the Company's products. The Company's policy with respect to customer returns and allowances as well as product warranty is as follows: The Company will accept a return of defective product within one year from shipment for repair or replacement at the Company's option. If the product is repairable, the Company at its own cost will repair and return it to the customer. If unrepairable, the Company will either offer an allowance against payment or will reimburse the customer for the total cost of the product. Most of the Company's products are custom ordered by customers for a specific use. The Company provides engineering services as part of the relationship with its customers in developing the custom product. The Company is not obligated to provide such engineering service to its customers. The Company does not charge separately for these services. Inventories: 14 Inventories are stated at cost, on a first-in, first-out basis, which does not exceed market value. Concentration of Credit Risk: The Company maintains cash balances at one bank. Amounts on deposit are insured by the Federal Deposit Insurance Corporation up to $100,000 in aggregate. There were no uninsured balances at either March 29, 2002 or March 30, 2001. Property, Plant and Equipment: Property, plant and equipment is stated at cost less accumulated depreciation and amortization. The Company provides for depreciation and amortization using the Modified Accelerated Cost Recovery System (MACRS) method over the estimated useful lives (5-7 years) of the related assets. Maintenance and repair expenditures are charged to operations, and renewals and betterments are capitalized. Items of property, plant and equipment which are sold, retired or otherwise disposed of are removed from the asset and accumulated depreciation or amortization account. Any gain or loss thereon is either credited or charged to operations. Income Taxes: The Company follows the policy of treating investment tax credits as a reduction in the provision for federal income tax in the year in which the credit arises or may be utilized. Deferred income taxes arise from temporary differences resulting from different depreciation methods used for financial and income tax purposes. The Company has adopted Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes". Net Income Per Share: The Company has adopted the provisions of SFAS No. 128, "Earnings Per Share", which requires the disclosure of "basic" and "diluted" earnings (loss) per share. Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during each period. Net Income Per Share: 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 29, 2002 and March 30, 2001, 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. 15 Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and disclosure of contingent assets and liabilities at the date of the financial statements. Actual amounts could differ from those estimates. Impairment of Long-Lived Assets: SFAS No. 121, "Accounting For The Impairment of Long-Lived Assets To Be Disposed Of", requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company has adopted SFAS No. 121. There were no long-lived asset impairments recognized by the Company for the years ended March 29, 2002 and March 30, 2001. Reporting Comprehensive Income: The Company has adopted the provisions of SFAS No. 130, "Reporting Comprehensive Income". This statement established standards for reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in an entity's financial statements. This Statement requires an entity to classify items of other comprehensive income by their nature in a financial statement and display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. There were no material items of comprehensive income to report for the years ended March 29, 2002 and March 30, 2001. Segment Information: The Company has adopted the provisions of SFAS No. 131, "Disclosures About Segment of An Enterprise and Related Information." This Statement requires public enterprises to report financial and descriptive information about its reportable operating segments and establishes standards for related disclosures about product and services, geographic areas, and major customers. The adoption of SFAS No. 131 did not affect the Company's presentation of its results of operations or financial position. 16 Results of Operations The following table sets forth for the periods indicated, percentages for certain items reflected in the financial data as such items bear to the revenues of the Company: Relationship to Total Revenues March 29, March 30, 2002 2001 -------- -------- Operating Revenues (in thousands) $ 4,338 $ 4,594 -------- -------- Operating Expenses: (as a percentage of Operating Revenues) Costs of Products Sold 73.9% 71.0% Selling, General and Administrative 18.7% 19.0% Interest Expense 3.3% 3.4% Depreciation and amortization 5.6% 6.0% -------- -------- TOTAL COSTS AND EXPENSES 101.5% 99.4% -------- -------- Operating Income (loss) (1.5%) .6% Other Income .2 .1% -------- -------- Income (loss) before Income Taxes (1.3%) .7% Income Taxes -- (.1%) -------- -------- Net Income (loss) (1.3%) .6% ======== ======== Year End Results: March 29, 2002 vs. March 30, 2001 Operating revenues for the year ended March 29, 2002 amounted to $4,338,012 reflecting a 5.6% decrease versus prior year 2001 revenues of $4,593,840. The decrease in revenues is a direct result of the down turn in the economy. The Company is primarily a manufacturer and its products are essentially basic components of larger assemblies of finished goods. Approximately 94% of the Company's net sales for the fiscal year ended March 29, 2002 and March 30, 2001 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. 17 For the fiscal year ended March 29, 2002, one of the Company's customers accounted for approximately 17% of total sales. The same customer accounted for approximately 19% of sales in the fiscal year ended March 30, 2001. The Company currently employs 16 independent sales representatives to market its products in all regions of the United States. These sales representatives accounted for approximately 94% of the Company's sales, with the balance of sales being generated by direct customer contact. For the fiscal year ended March 29, 2002, the Company's principal customers included manufacturers of commercial electronic products, military defense contractors and distributors who service these markets. Sales to the commercial electronic and military defense markets comprised 26% and 73% of the Company's net sales for the years ended March 29, 2002 and March 30, 2001 respectively. Approximately 1% of net sales were made to international customers. Cost of products sold amounted to $3,207,645 for the fiscal year ended March 29, 2002, or 73.9% of operating revenues. This reflected a $53,548 or 1.6% decrease in the cost of products sold from $3,261,193 or 71.0% of operating revenues for the fiscal year ended March 30, 2001. This marginal decrease is due primarily to the reduction in sales. Selling, general and administrative expenses were $808,935 and $871,844 or 18.7% and 19.0% of operating revenues for the fiscal years ended March 29, 2002 and March 30, 2001, respectively. This category of expense decreased by $62,909 or 7.2% from the prior year. The decrease can be attributed to a reduction in sales commissions. Interest expense was $143,909 for the fiscal year ended March 29, 2002 or 3.3% of operating revenues. For the fiscal year ended March 30, 2001, interest expense was $154,874 or 3.4% of operating revenues. The decrease of $10,965 or 7.1% reflects less equipment loans entered into during the year ended March 29, 2002. Year End Results: March 29, 2002 vs. March 30, 2001 Depreciation and amortization of $244,350 or 5.6% of operating revenues was reported for the fiscal year ended March 29, 2002. This reflects a decrease of $31,387 or 11.38% from the prior year ended March 30, 2001 of $275,737 or 6.0% of operating revenues. The decrease is the result of several fixed assets being fully depreciated during the current fiscal year. The Company reported a net loss of $58,009 for the year ended March 29, 2002 representing basic loss of $.03 per share as compared to a net income of $26,826 or $.012 per share for the year ended March 30, 2001. The net income decrease for the current year can, in part, be attributed to a down turn in the economy. Liquidity and Capital Resources The Company reported a working capital deficit of $23,592 as of March 29, 2002 compared to a working capital deficit of $70,828. The increase in working capital of $47,236 was attributable to the following items: Net income (loss) (excluding depreciation and amortization) 186,341 Capital expenditures (153,166) Other transactions 14,061 18 As a result of the above, the current ratio (current assets to current liabilities) was .99 to 1 at March 29, 2002 as compared to .96 to 1 at March 30, 2001. Current liabilities at March 29, 2002 were $1,851,735 compared to $1,835,816 at March 30, 2001. The Company reported $153,166 in capital expenditures in fiscal 2001 and reported depreciation of $209,499 for the year ended March 29, 2002. The net loss of $58,009 for the year ended March 29, 2002 reduced stockholders' equity to $809,357 as compared to stockholders' equity of $867,366 at March 30, 2001. The Company has an accounts receivable financing agreement with a factor which bears interest at 2.5% above prime with a maximum of 12% per annum. At March 29, 2002 the amount outstanding with the factor was $676,181 as compared to $759,937 at March 30, 2001. On July 22, 1992, the Company obtained a loan of $435,000 from the New York State Urban Development Corporation ("UDC"), collateralized by machinery and equipment. The loan is payable over ten years, with interest rates progressively increasing from 4% to 8% per annum. The balance remaining at March 29, 2002 was $25,289. Aggregate future principal payments are as follows: Fiscal Year Ending March 31: 2003 $ 25,289 ================= In April 1997, the Company was informed by the UDC that the loan was sold and conveyed to WAMCO XXIV, Ltd. All the terms and conditions of the loan remained in effect. As of March 29, 2002, the Company had failed to meet one of the financial covenants of the loan agreement; namely that the "Company shall be obligated to maintain a tangible net worth of not less than $1,300,000 and the Company shall be obligated to maintain a ratio of current assets to current liabilities of 1.1 to 1.0. The Company reported tangible net worth of $809,357. The ratio of current assets to current liabilities was .99 to 1.0. The Company has applied for additional waivers of this covenant. Neither the UDC or WAMCO XXIV has acted on these requests. There are no assurances that the Company will receive any additional waivers of this covenant. Should the Company not receive any additional waivers, then it will be deemed to be in default of this loan obligation and the loan plus interest will become due and payable, accordingly the entire balance has been classified as a current liability in the accompanying balance sheet. The Company has a collective bargaining multi-employer pension plan with the United Auto Workers of America, Local 259. Contributions are made in accordance with a negotiated labor contract and are based on the number of covered employees employed per month. With the passage of the Multi-Employer Pension Plan Amendments Act of 1990 ("The Act"), the Company may become subject to liabilities in excess of contributions made under the collective bargaining agreement. Generally, these liabilities are contingent upon the termination, withdrawal, or partial withdrawal from the Plan. The Company has not taken any action to 19 terminate, withdraw or partially withdraw from the Plan nor does it intend to do so in the future. Under the Act, liabilities would be based upon the Company's proportional share of the Plan's unfunded vested benefits which is currently not available. The amount of accumulated benefits and net assets of such Plan also is not currently available to the Company. The total contributions charged to operations under this pension plan were $38,384 for the year ended March 29, 2002 and $35,707 for the year ended March 30, 2001. As of March 29, 2002, the Company reported arrears with respect to its contributions to the Union's health and welfare plan. The amount due the health and welfare plan was $73,828. This amount is reported in two parts on the accompanying balance sheet as follows, $30,000 as a current liability and $43,828 as a long term liability. In December 1993, the Company and Local 259 entered into a verbal agreement whereby the Company would satisfy this debt by the following payment schedule: The sum of $2,500 will be paid by the Company each month in satisfaction of the current arrears until this total debt has been paid. Under this agreement , the projected payment schedule for arrears will satisfy the total debt in 30 months. Additionally, both parties have agreed that current obligatory funding for the Pension Plan will be made on a timely current basis. On June 30, 1995, the Company applied to the Pension Benefit Guaranty Corporation ("PBGC") to have the PBGC assume all of the Company's responsibilities and liabilities under its Salaried Pension Plan. On April 26, 1996, the PBGC determined that the Salaried Pension Plan did not have sufficient assets available to pay benefits which were and are currently due under the terms of the Plan. The PBGC further determined that pursuant to the provisions of the Employment Retirement Income Security Act of 1974, as amended ("ERISA") that the Plan must be terminated in order to protect the interests of the Plan's participants. Accordingly, the PBGC proceeded pursuant to ERISA to have the Plan terminated and the PBGC appointed as statutory trustee, and to have July 31, 1995 established as the Plan's termination date. The Company and the PBGC have agreed to the terms of a settlement of the matter. The agreement is effective July 2, 2001. Under the agreement, the Company and the PBGC agreed on a total sum of $244,000. The Company has agreed to make payments as follows: September 1, 2003 to August 1, 2004 $2,000 per month September 1, 2004 to August 1, 2006 $3,000 per month September 1, 2006 to August 1, 2007 $4,000 per month In addition, the Company will make balloon payments of $25,000 each on the following dates: January 1, 2004 May 1, 2004 May 1, 2005 January 1, 2006 The Company will also grant the PBGC a lien on the Company's machinery and equipment, subject to the preexisting liens in favor of the UDC. As a result of this agreement the amount due the PBGC has been restated to $244,000 and is reported as a long term liability. The resultant gain of $294,506 was reclassified and accounted for as a charge to opening retained 20 earnings as follows: Opening retained earnings-March 31, 2000 $(2,221,574) Gain on pension plan settlement 294,506 ----------- Adjusted opening retained earnings March 31, 2000 (1,927,068) Net income for the year ended March 30, 2001 26,826 ----------- Adjusted retained earnings balance at March 30, 2001 (1,900,242) Net loss for the year ended March 29, 2002 (58,009) ----------- Balance at March 29, 2002 $(1,958,251) =========== The Company's shareholders voted on September 21, 2001 to change the par value of the Company's common stock from $.50 par value per share to $.01 par value per share. As a result of the above change the Company reduced the book value of it's common stock and increased capital in excess of par as follows: Par Value Par Value $.50 Change $.01 ----------- ----------- ----------- Common Stock $ 1,151,734 $(1,128,699) $ 23,035 Capital in excess of par 1,615,874 1,128,699 2,744,573 ----------- ----------- ----------- Total equity $ 2,767,608 $ 0 $ 2,767,608 =========== =========== =========== On September 21, 2001 the Company's shareholders approved the adoption of the Company's 2001 Employees Stock Option Plan to provide for the grant of options to purchase up to 750,000 shares of the Company's common stock to all employees, including senior management. Options granted to employees under this plan may be designated as options which qualify for incentive stock option treatment under Section 422A of the Internal Revenue Code, or option which do not so qualify. Under this plan, the exercise price of an option designated as an Incentive Stock Option shall not be less than the fair market value of the Company's common stock on the day the option is granted. In the event an option designated as an incentive stock option is granted to a ten percent (10%) share holder, such exercise price shall be at least 110 Percent (110%) of the fair market value or the Company's common stock and the option must not be exercisable after the expiration of five years from the day of the grant. Exercise prices of non incentive stock options may be less than the fair market value of the Company's common stock. The aggregate fair market value of shares subject to options granted to a participants, which are designated as incentive stock options, and which become exercisable in any calendar year, shall not exceed $100,000. As of March 29, 2002 no options had been granted under the plan. 21 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, military subcontractor spending has provided excess production capacity in the industry which in turn has tightened pricing margins. Item 7. Financial Statements See Index to Financial Statements attached hereto. Item 8. Changes in and Disagreements with Accountants on Accounting Financial Disclosure. The Company had no disagreements with its accountants during the last two fiscal years. PART III Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16 (a) of the Exchange Act The executive officers and directors of the Company are as follows: Name Age Office Michael Offerman 61 Chairman of the Board of Directors and President Robert Knoth 60 Secretary and Treasurer Murray Sennet 79 Director Allen Gottlieb 61 Director Robert Pittman 77 Director All directors serve for a term of two years and until their successors are duly elected. All officers serve at the discretion of the Board of Directors. Executive Officers and Directors Michael Offerman has been a member of the Board of Directors since 1973. In May, 1987, Mr. Offerman was 22 elected President of the Company and has held that position since that date. Prior to his becoming President, Mr. Offerman served as Executive Vice-President of the Company. Robert Knoth joined the Company as Controller in January, 1990 and was elected treasurer of the Company in March, 1990. Mr. Knoth was elected as Secretary of the Company in September 1992 and Mr. Knoth has held these positions since said dates. From 1986 to January, 1990, Mr. Knoth was employed as controller by G&R Preuss, Inc., a company engaged in the business of manufacturing truck bodies and accessories. Murray Sennet has been a member of the Company's Board of Directors since 1970. Mr. Sennet was the Secretary and the Treasurer of the Company at the time of his retirement in April, 1986. Allen Gottlieb has been a member of the Company's Board of Directors since 1992. Mr. Gottlieb has been an attorney in private practice for over five (5) years. Robert Pittman has been a member of the Board of Directors since 1987. Mr. Pittman retired in October 1992, at which time he had held the position of Vice-President of Engineering and Secretary of the Company. Significant Employees Joan Prideaux joined the Company in July 1995 as national sales manager and also served as a vice president. Ms. Prideaux resigned as an executive officer in January 2002 but continues to serve as national sales manager. Mark Iskin is the Director of Purchasing, a position he has held since September 2000. Prior to joining the Company, Mr. Iskin worked as a materials and purchasing specialist in manufacturing and distribution companies. In his last position with an industrial distributor, Mr. Iskin was responsible for purchasing and managing vendors for the cutting tool section of the catalog. In addition he participated in setting up and developing the company's forecasting/planning software related to that department procedures. Jeff (Yefim) Berenstein is the quality control manager, a position he started on April 16, 2001. Prior to joining the Company Mr. Berenstein worked as a quality assurance specialist for various manufacturing companies where he was responsible for the implementation of quality systems - ISI-9000, Mil-I-45208A writing quality manuals, quality procedures, work instructions, design special gigs, testing equipment to improve quality of the manufacturing products, maintaining and supervising calibration and calibration recall systems. Certain Reports Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors and officers and persons who own, directly or indirectly, more than 10% of a registered class of the Corporation's equity securities, to file with the Securities and Exchange Commission ("SEC") reports of ownership and reports of changes in ownership of Common Stock of the Corporation. Officers, directors and greater than 10% shareholders are required to furnish the Company with copies of all Section 16(a) reports that they file. Based solely on review of the copies of such reports received by the Company, the Company believes that filing requirements applicable to officers, directors and 10% shareholders were complied with during the fiscal year. 23 The following table sets forth below the summary compensation paid or accrued by the Corporation during the fiscal years ended March 29, 2002, March 30, 2001, and March 31, 2000 for the Corporation's Chief Executive Officer:
Other Annual Name and Principal Position Year Salary Bonus Compensation --------------- --------- -------- --------------- Michael Offerman, Chief Executive Officer, President (1) March 29, 2002 $ 95,500 -- 0 March 30, 2001 91,431 -- 0 March 31, 2000 77,788 -- 0
During the years ended March 29, 2002, March 30, 2001 and March 31, 2000, the Corporation provided automobile allowances to Mr. Offerman. This does not include the aggregate incremental cost to the Corporation of such automobile or automobile allowances. The Corporation is unable to determine without unreasonable effort and expense the specific amount of such benefit, however, the Corporation has concluded that the aggregate amounts of such personal benefit for Mr. Offerman does not exceed $25,000 or 10% of the compensation reported as total salary and bonus reported. Effective January 1, 1995, Mr. Offerman entered into an employment agreement with the Company to increase his salary to $100,000 per annum. Mr. Offerman agreed that, not withstanding the terms of his new employment agreement, he was paid at the rate of $95,500 for fiscal 2002. This agreement expired in fiscal year 2000 and as of March 29, 2002 the Company has not negotiated a new contract with Mr. Offerman. No other officer of the Corporation received compensation (salary and bonus) in excess of $100,000 during the fiscal years ended March 29, 2002, or March 30, 2001 or March 31, 2000. Pension/Benefit Incentive Plan In 1964, the Corporation's Shareholders and Board of Directors adopted a contributory pension plan (the "Salaried Pension Plan") effective April 1, 1964, for salaried employees of the Corporation. The Salaried Pension Plan as revised on April 1, 1987, provides for retirement benefits for qualified employees upon or prior to retirement. For early retirement, employees are eligible to receive a portion of their retirement benefits, starting 10 years prior to the employees anticipated normal retirement age (age 65), if the employee has completed 15 years of service to the Corporation. The employee is eligible to receive reduced retirement benefits based on an actuarial table for a period not exceeding ten (10) years of his lifetime. In no event would benefits exceed $12,000 per year. For normal retirement at the age of sixty-five (65) the employee is entitled to receive full retirement benefits for a period not exceeding ten (10) years of his lifetime. If the employee should die prior to the ten-year period, his beneficiaries will continue to receive the full benefit for the remainder of the ten-year term. In no event will benefits exceed $12,000 per year. If payment is made on the "joint and survivor basis" as elected by the employee, benefits will be provided to both the employee and spouse on a reduced basis over the life of both the employee and his spouse. If the employee should die prior to the guaranteed ten year period, the spouse will receive the employee benefit for 24 the remainder of the term, after which, the spouse will received the reduced spousal benefit for the life of the spouse. In no event will the benefits pursuant to the joint and survivor basis exceed $12,000 per year. On June 30, 1995, the Company applied to the Pension Benefit Guaranty Corporation ("PBGC") to have the PBGC assume all of the Company's responsibilities and liabilities under its Salaried Pension Plan. On April 26, 1996, the PBGC determined that the Salaried Pension Plan did not have sufficient assets available to pay benefits which were and are currently due under the terms of the Plan. The PBGC further determined that pursuant to the provisions of the Employment Retirement Income Security Act of 1974, as amended ("ERISA"), that the Plan must be terminated in order to protect the interests of the Plan's participants. Accordingly, the PBGC proceeded pursuant to ERISA to have the Plan terminated and the PBGC appointed as statutory trustee, and to have July 31, 1995 established as the Plan's termination date. The Company and the PBGC negotiated a settlement on the entire matter and on July 2, 2001, an agreement was reached whereby the Company's liability to the PBGC was reduced to $244,000. The Company will make monthly payments to the PBGC as follows: September 1, 2003 to August 1, 2004 $2,000 per month September 1, 2004 to August 1, 2006 $3,000 per month September 1, 2006 to August 1, 2007 $4,000 per month In addition, to the above referenced monthly payments, the Company will make balloon payments of $25,000 each on the following dates: January 1, 2004 May 1, 2004 May 1, 2005 January 1, 2006 The Company will also grant the PBGC a lien on the Company's machinery and equipment, subject to the pre- existing liens in favor of the UDC. As a result of this agreement the amount due the PBGC has been restated to $244,000 and is reported as a long term liability. The resultant gain of $294,506 was reclassified and accounted for as a charge to opening retained earnings as follows: Opening retained earnings-March 31, 2000 $ (2,221,574) Gain on pension plan settlement 294,506 --------------- Adjusted opening retained earnings March 31, 2000 (1,927,068) Net income for the year ended March 30, 2001 26,826 --------------- Adjusted retained earnings balance at March 30, 2001 (1,900,242) Net loss for the Year ended March 29, 2002 (58,009) --------------- Balance at March 29, 2002 (1,958,251) =============== 25 Cash Bonus Plan In 1987, the Company adopted a cash bonus plan ("Cash Bonus Plan") for Executive Officers. Contributions to the Bonus Plan are made by the Company only after pre-tax operating profits exceed $150,000 for a fiscal year, and then to the extent of 10% of the excess of the greater of $150,000 of 25% of pre-tax operating profits. There were no contributions to the Bonus Plan for the fiscal years ended March 29, 2002, March 30, 2001, and March 31, 2000. 2001 Employee Stock option Plan During the fiscal year ended March 29, 2002 the Board of Directors unanimously approved the adoption of the 2001 Employee Stock Option Plan (the "2001 Plan") to provide for the grant of options to purchase up to 750,000 shares of the Company's common stock to all employees, including senior management and other eligible persons. Under the terms of the proposed 2001 Plan, options granted thereunder may be designated as options which qualify for incentive stock option treatment ("ISOs") under Section 422 of the Code, or options which do not so qualify ("Non-ISO's"). The 2001 Plan was submitted to, and approved by, the shareholders of the Corporation at the Annual Meeting held on September 21, 2002. The 2001 Plan is administered by the Board of Directors. The Board has the discretion to determine the eligible employees to whom, and the times and the price at which, options will be granted; whether such options shall be ISOs or Non-ISOs; the periods during which each option will be exercisable; and the number of shares subject to each option. The Board has full authority to interpret the 2001 Plan and to establish and amend rules and regulations relating thereto. An ISO may only be granted to an employee. An optionee must remain an employee through the exercise date. An ISO must terminate within 10 years from the date of grant and the ISO plan must terminate within 10 years from the date that the plan is adopted. Under the 2001 Plan, the exercise price of an option designated as an ISO shall not be less than the fair market value of the common stock on the date the option is granted. However, in the event an option designated as an ISO is granted to a ten percent (10%) shareholder, such exercise price shall be at least 110% of such fair market value and the option must not be exercisable after the expiration of five years from the date of grant. Exercise prices of Non-ISO options may be less than such fair market value. The aggregate fair market value of shares subject to options granted to a participant, which are designated as ISOs and which become exercisable in any calendar year, shall not exceed $100,000. As of March 29, 2002 and June 29, 2002 no options had been awarded under the 2001 Plan. Item 11. Security Ownership of Certain Beneficial Owners and Management The following table sets forth certain information as of June 28, 2002 with respect to (i) the persons (including any "group" as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934), known by the Company to be the beneficial owner of more than five percent (5%) of any class of the Company's voting securities; (ii) each Executive Officer and Director who owns Common Stock in the Company; and (iii) all Executive Officers and Directors as a group. As of June 28, 2002, there were 2,303,468 shares of Common Stock issued and outstanding. 26
Amount of and Nature of Name and Address of Beneficial Percentage of Class Title of Class Beneficial Owner Ownership Common Stock Michael Offerman 946,784 41% $.50 Par Value 140 58th Street Brooklyn, NY 11220(1) Murray Sennet 24,500 1.1% 1900 Manor Lane Plano, TX 75093 Allen Gottlieb 0 0 325 Coral Way Ft. Lauderdale, FL 33301 Robert Pittman 20,000 * 45 Ocean Avenue Monmouth Beach NJ 07750 David Lopez and Nancy 278,000 12.1% Lopez Edge of Woods P.O. Box 323 Southampton, NY 11968 All Officers & Directors as a Group (4 in number) 991,284 43%
______________________ * Less than 1%. 1. 43,600 shares of Common Stock are jointly owned by Mr. Offerman and his wife, Gail Offerman. All shares set forth above are directly by the named individual unless otherwise stated. Item 12. Certain Relationships and Related Transactions None. Item 13. Exhibits, Lists and Reports on Form 8-K (a) Exhibits filed with Form 10-KSB: The following Exhibits have previously been filed with the Securities and Exchange Commission and, pursuant to 17 C.F.R. Secs. 201.24 and 240.12b-32, are incorporated by reference to the document referenced in 27 brackets following the descriptions of such Exhibits. Those Exhibits designated by an asterisk (*) are filed herewith. Exhibit No. Description 3.1 Amended and Restated Certificate of Incorporation of the Company [Exhibit C-4 to Current Report filed on From 8-K, dated February 27, 1991]. 3.2 By-Laws of the Company Filed as Exhibit 3.2 on Report on Form 10-KSB for the fiscal year ended March 27, 1994. 4.1 Form of Common Stock Certificate of Company. Filed as Exhibit 4.1 on Report on Form 10-KSB for the fiscal year ended March 27, 1994. 4.2 Form of Secured Promissory Note payable, New York State Urban Development Corporation [Exhibit 10B to Current Report on Form 8-K, dated July 22, 1992]. 10.1 License Agreement between the Company and Brevetron, S.A., Lugano, Switzerland, dated January 1, 1979. Filed as Exhibit 10.1 on Report on Form 10-KSB for the fiscal year ended March 27, 1994. 10.2 Amendment to License Agreement between the Company and Brevetron, S.A. dated September 28, 1982. Filed as Exhibit 10.2 on Report on Form 10-KSB for the fiscal year ended March 27, 1994. 10.3 Amendment to License Agreement between the Company and Brevetron, S.A. dated September 20, 1991. Filed as Exhibit 10.3 on Report on Form 10-KSB for the fiscal year ended March 27, 1994. 10.4 Lease for premises 140 58th Street, Brooklyn, New York 11220 [Exhibit A to Current Report filed on Form 8-K, dated August 23, 1991]. 10.5 Form of Loan Agreement between the Company and the New York State Urban Development Corporation [Exhibit 10A to Current Report filed on Form 8-K, dated July 22, 1992]. 10.6 Form of Security Agreement between the Registrant and New York State Urban Development Corporation [Exhibit 10C to Current Report filed on Form 8-K, dated July 22, 1992]. 10.7 Form of financing agreement between the Company and Milberg Factors, Inc. [Exhibit C- 1 to the Current Report filed on Form 8-K, dated March 1, 1990]. 10.8 Form of Collective Bargaining Agreement between Company and Local 259 of the United Auto Workers Union, dated October 1, 1991. 28 10.9 Form of Employment Agreement between Company and Michael Offerman together with Amendment No. 1 dated November 27,1997. [filed as Exhibit 10.9 to Form 10KSB for the fiscal year ended March 28, 1997] 10.10 Form of Employment Agreement between the Company and Ralph Acello together with Amendment No. 1 dated November 27,1997.[filed as Exhibit 10.10 to Form 10KSB for the fiscal year ended March 28, 1997] 10.11 Form of Employment Agreement between the Company and Robert Knoth together with Amendment No. 1 dated November 27,1997.[filed as Exhibit 10.11 to Form 10KSB for the fiscal year ended March 28, 1997] 10.12 Form of Employment Agreement between the Company and Joan Prideaux. [filed as Exhibit 10.12 to Form 10KSB for the fiscal year ended March 28, 1997] 21 Subsidiaries: None 23.1* Consent of Jerome Rosenberg CPA, independent auditor of the Company (b) Reports on Form 8-K The Company did not file any Reports on Form 8-K during the last quarter of the period covered by this Report. 29 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. IEH CORPORATION By: /s/ Michael Offerman --------------------------- Michael Offerman, President Dated: July 1, 2002 Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ Michael Offerman July 1, 2002 - ---------------------------------- Michael Offerman, Chairman of the Board and President /s/ Robert Knoth July 1, 2002 - ---------------------------------- Robert Knoth, Secretary and Treasurer /s/ Murray Sennet July 1, 2002 - ---------------------------------- Murray Sennet, Director /s/ Robert Pittman July 1, 2002 - ---------------------------------- Robert Pittman, Director July 1, 2002 - ---------------------------------- Alan Gottlieb, Director 31 IEH CORPORATION FINANCIAL STATEMENTS EXHIBIT (ITEM 7) Contents March 29, 2002 and March 30, 2001 Page Number ------ Report of Independent Certified Public Accountant Financial Statements: Balance Sheets as of March 29, 2002 and March 30, 2001 Statement of Operations for the twelve months ended March 29, 2002 and March 30, 2001 Statement of Stockholders' Equity as of March 29, 2002 and March 30, 2001 Statement of Cash Flows for the years ended March 29, 2002 and March 30, 2001 Notes to Financial Statements 32 Report of Independent Certified Public Accountant ------------------------------------------------- Board of Directors IEH Corporation 140 58th Street Brooklyn, New York 11220 We have audited the accompanying balance sheets of IEH Corporation as of March 29, 2002 and March 30, 2001 and the related statements of operations, stockholders' equity, and cash flows for each of the two years in the period ended March 29, 2002 and March 30, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based upon our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of IEH Corporation as of March 29, 2002 and March 30, 2001 and the results of its operations and its cash flows for each of the two years ended March 29, 2002 and March 30, 2001 in conformity with generally accepted accounting principles. /s/ Jerome Rosenberg ------------------------------- Jerome Rosenberg, CPA, P.C. Melville, New York June 17, 2002 33 IEH CORPORATION BALANCE SHEETS As of March 29, 2002 and March 30, 2001
March 29, March 30, 2002 2001 ---------- ---------- ASSETS CURRENT ASSETS: Cash $ 2,875 $ 11,833 Accounts receivable, less allowances for doubtful accounts of $10,062 at March 29, 2002 and March 30, 2001 770,884 732,150 Inventories (Note 2) 1,015,539 990,420 Prepaid expenses and other current assets (Note 3) 38,845 30,585 ---------- ---------- Total current assets 1,828,143 1,764,988 ---------- ---------- PROPERTY, PLANT AND EQUIPMENT, less accumulated depreciation and amortization of $5,584,695 at March 29, 2002 and $5,351,591 at March 30, 2001 (Note 4) 1,100,731 1,191,915 ---------- ---------- OTHER ASSETS: Other assets 44,819 47,075 ---------- ---------- 44,819 47,075 ---------- ---------- Total assets $2,973,693 $3,003,978 ========== ==========
See accompanying notes to financial statements 34 IEH CORPORATION BALANCE SHEETS As of March 29, 2002 and March 30, 2001
March 29, March 30, 2002 2001 ----------- ----------- (Note 1) LIABILITIES AND STOCKHOLDERS' EQUITY Restated (Note 8) CURRENT LIABILITIES: Accounts receivable financing (Note 5) $ 676,181 $ 759,937 Notes payable, equipment, current portion (Note 8) 25,332 25,355 Notes payable, current portion (Note 7) -- 5,750 Loans payable, current portion (Note 9) 25,289 83,130 Accrued corporate income taxes -- 4,912 Union health & welfare, current portion (Note 14) 30,000 96,000 Accounts payable 950,503 719,309 Other current liabilities (Note 6) 144,430 141,423 ----------- ----------- Total current liabilities 1,851,735 1,835,816 ----------- ----------- LONG-TERM LIABILITIES: Pension Plan payable (Note 11) 244,000 244,000 Notes payable, equipment, less current portion (Note 8) 24,773 50,107 Union health & welfare, less current portion (Note 14) 43,828 6,689 ----------- ----------- Total long-term liabilities 312,601 300,796 ----------- ----------- Total liabilities 2,164,336 2,136,612 ----------- ----------- STOCKHOLDERS' EQUITY: Common stock, $.01 par value; 10,000,000 shares authorized; 2,303,468 shares issued and outstanding at March 29, 2002 Common stock, $.50 par value; 10,000,000 shares authorized; 2,303,468 shares issued and outstanding at March 30, 2001 23,035 1,151,734 Capital in excess of par value 2,744,573 1,615,874 Retained earnings (Deficit) (1,958,251) (1,900,242) ----------- ----------- Total stockholders' equity 809,357 867,366 ----------- ----------- Total liabilities and stockholders' equity $ 2,973,693 $ 3,003,978 =========== ===========
See accompanying notes to financial statements 35 IEH CORPORATION STATEMENT OF OPERATIONS For the Years ended March 29, 2002 and March 30, 2001
March 29, March 30, 2002 2001 ----------- ----------- REVENUE, net sales (Note 15) $ 4,338,012 $ 4,593,840 ----------- ----------- COSTS AND EXPENSES: Cost of products sold 3,207,645 3,261,193 Selling, general and administrative 808,935 871,844 Interest expense 143,909 154,874 Depreciation and amortization 244,350 275,737 ----------- ----------- 4,404,839 4,563,648 ----------- ----------- OPERATING INCOME (LOSS) (66,827) 30,192 OTHER INCOME 10,372 734 ----------- ----------- INCOME (LOSS) BEFORE INCOME TAXES (56,455) 30,926 PROVISION FOR INCOME TAXES (1,554) (4,100) ----------- ----------- NET INCOME (LOSS) $ (58,009) $ 26,826 =========== =========== Basic and Diluted Earnings per common share (Note 1) $ (.03) $ .012 =========== =========== Weighted average number of common shares outstanding (in thousands) 2,303 2,303 =========== ===========
See accompanying notes to financial statements 36 IEH CORPORATION STATEMENT OF STOCKHOLDERS' EQUITY For the Years Ended March 29, 2002 and March 30, 2001
Capital in Retained Excess of Earnings Common Stock Par Value (Deficit) ------------------------------ ----------- ----------- Shares Amount ----------- ----------- Balances, March 31, 2000 2,303,468 $ 1,151,734 $ 1,615,874 $(2,221,574) Gain on pension plan settlements 294,506 ----------- ----------- ----------- ----------- Adjusted balances at March 31, 2000 2,303,468 1,151,734 1,615,874 (1,927,068) Net Income: Year ended March 30, 2001 26,826 ----------- ----------- ----------- ----------- Balances, March 30, 2001 2,303,468 1,151,734 1,615,874 (1,900,242) Reduction in par value of common stock (1,128,699) 1,128,699 -- Net income: year ended March 29, 2002 (58,009) ----------- ----------- ----------- ----------- Balances, March 29, 2002 2,303,468 $ 23,035 $ 2,744,573 $(1,958,251)
See accompanying notes to financial statements 37 IEH CORPORATION STATEMENT OF CASH FLOWS Increase (Decrease) in Cash For the Years Ended March 29, 2002 and March 30, 2001
Years Ended March 29, March 30, 2002 2001 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (58,009) $ 26,826 --------- --------- Adjustments to reconcile net income to net cash used in operating activities Depreciation and amortization 244,350 275,737 Changes in assets and liabilities: (Increase) decrease in accounts receivable (38,734) 40,484 (Increase) decrease inventories (25,119) (14,251) (Increase) decrease in prepaid expenses and other current assets (8,260) (14,373) (Increase) decrease in other assets 2,256 (697) (Decrease) increase in accounts payable 231,194 (60,377) (Decrease) increase in other current liabilities 3,007 47,770 Increase in accrued corporate income taxes (4,912) (11,108) (Decrease) in due to union pension & health & welfare (28,861) (30,000) --------- --------- Total adjustments 374,921 233,185 --------- --------- NET CASH PROVIDED BY (USED) FOR OPERATING ACTIVITIES 316,912 260,011 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property, plant and equipment (153,166) (209,499) --------- --------- NET CASH USED IN INVESTING ACTIVITIES $(153,166) $(209,499) --------- ---------
See accompanying notes to financial statements 38 IEH CORPORATION STATEMENT OF CASH FLOWS Increase (Decrease) in Cash For the Years Ended March 29, 2002 and March 30, 2001
March 29, March 30, 2002 2001 --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on notes payable $ (31,107) $ (60,960) Proceeds from accounts receivable financing (83,756) 70,162 Principal payments on loan payable (57,841) (51,926) --------- --------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (172,704) (42,724) --------- --------- INCREASE (DECREASE) IN CASH (8,958) 7,788 CASH, beginning of period 11,833 4,045 --------- --------- CASH, end of period $ 2,875 $ 11,833 ========= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION, cash paid during the year for: Interest $ 134,740 $ 149,273 ========= ========= Income Taxes $ 4,175 $ 4,100 ========= =========
See accompanying notes to financial statements 39 IEH CORPORATION NOTES TO FINANCIAL STATEMENTS Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Description of Business: The Company is engaged in the design, development, manufacture and distribution of high performance electronic printed circuit connectors and specialized interconnection devices. Electronic connectors and interconnection devices are used in providing electrical connections between electronic component assemblies. The Company develops and manufactures connectors which are designed for a variety of high technology and high performance applications, and are primarily utilized by those users who require highly efficient and dense (the space between connection pins with the connector) electrical connections. The Company is continuously redesigning and adapting its connectors to meet and keep pace with developments in the electronics industry and has, for example, developed connectors for use with flex-circuits now being used in aerospace programs, computers, air-borne communications systems, testing systems and other areas. The Company also services its connectors to meet specified product requirements. Accounting Period: The Company maintains an accounting period based upon a 52-53 week year which ends on the nearest Friday in business days to March 31st. The year ended March 29, 2002 was comprised of 52 weeks and the year ended March 30, 2001 was comprised of 53 weeks. Revenue Recognition: Revenues are recognized at the shipping date of the Company's products. The Company's policy with respect to customer returns and allowances as well as product warranty is as follows: The Company will accept a return of defective product within one year from shipment for repair or replacement at the Company's option. If the product is repairable, the Company at its own cost will repair and return to the customer. If unrepairable, the Company will either offer an allowance against payment or will reimburse the customer for the total cost of product. Most of the Company's products are custom ordered by customers for a specific use. The Company provides engineering services as part of the relationship with its customers in developing the custom product. The Company is not obligated to provide such engineering service to its customers. The Company does not charge separately for these services. Inventories: Inventories are stated at cost, on a first-in, first-out basis, which does not exceed market value. 40 IEH CORPORATION NOTES TO FINANCIAL STATEMENTS Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued): Concentration of Credit Risk: The Company maintains cash balances at one bank. Amounts on deposit are insured by the Federal Deposit Insurance Corporation up to $100,000 in aggregate. There were no uninsured balances at either March 29, 2002 or March 30, 2001. Property, Plant and Equipment: Property, plant and equipment is stated at cost less accumulated depreciation and amortization. The Company provides for depreciation and amortization using the Modified Accelerated Cost Recovery System (MACRS) method over the estimated useful lives (5-7 years) of the related assets. Maintenance and repair expenditures are charged to operations, and renewals and betterments are capitalized. Items of property, plant and equipment which are sold, retired or otherwise disposed of are removed from the asset and accumulated depreciation or amortization account. Any gain or loss thereon is either credited or charged to operations. Income Taxes: The Company follows the policy of treating investment tax credits as a reduction in the provision for federal income tax in the year in which the credit arises or may be utilized. Deferred income taxes arise from temporary differences resulting from different depreciation methods used for financial and income tax purposes. The Company has adopted Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes". Net Income Per Share: The Company has adopted the provisions of SFAS No. 128, "Earnings Per Share", which requires the disclosure of "basic" and "diluted" earnings (loss) per share. Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during each period. Diluted earnings per share is similar to basic earnings per share except that the weighted average number of common shares outstanding is increased to reflect the dilutive effect of potential common shares, such as those issuable upon the exercise of stock or warrants, as if they had been issued. For the years ended March 29, 2002 and March 30, 2001, 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. 41 IEH CORPORATION NOTES TO FINANCIAL STATEMENTS Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and disclosure of contingent assets and liabilities at the date of the financial statements. Actual amounts could differ from those estimates. Impairment of Long-Lived Assets: SFAS No. 121, "Accounting For The Impairment of Long-Lived Assets To Be Disposed Of", requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company has adopted SFAS No. 121. There were no long-lived asset impairments recognized by the Company for the years ended March 29, 2002 and March 30, 2001. Reporting Comprehensive Income: The Company has adopted the provisions of SFAS No. 130, "Reporting Comprehensive Income". This statement established standards for reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in an entity's financial statements. This Statement requires an entity to classify items of other comprehensive income by their nature in a financial statement and display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. There were no material items of comprehensive income to report for the years ended March 29, 2002 and March 30, 2001. Segment Information: The Company has adopted the provisions of SFAS No. 131, "Disclosures About Segment of An Enterprise and Related Information." This Statement requires public enterprises to report financial and descriptive information about its reportable operating segments and establishes standards for related disclosures about product and services, geographic areas, and major customers. The adoption of SFAS No. 131 did not affect the Company's presentation of its results of operations or financial position. Effect of New Accounting Pronouncements: In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 ("SAB No. 101"), Revenue Recognition in Financial Statements, which summarizes certain of the staff's views on revenue recognition. The Company's revenue recognition policies are in accordance with SAB No. 101. 42 IEH CORPORATION NOTES TO FINANCIAL STATEMENTS Note 2 - INVENTORIES: Inventories are comprised of the following: March 29, March 30, 2002 2001 ---------- ---------- Raw materials $ 675,446 $ 714,634 Work in progress 228,912 159,741 Finished goods 111,181 116,045 ---------- ---------- $1,015,539 $ 990,420 ========== ========== Note 3 - PREPAID EXPENSES AND OTHER CURRENT ASSETS: Prepaid expenses and other current assets are comprised of the following: March 29, March 30, 2002 2001 ------- ------- Prepaid insurance $32,574 $18,571 Prepaid corporate taxes 3,925 3,640 Other current assets 2,346 8,374 ------- ------- $38,845 $30,585 ======= ======= Note 4 - PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are as follows: March 29, March 30, 2002 2001 ---------- ---------- Computers $ 189,288 $ 187,248 Leasehold improvements 585,831 585,831 Machinery and equipment 4,175,282 4,050,066 Tools and dies 1,580,217 1,554,307 Furniture and fixture 154,808 154,808 Transportation equipment -- 11,246 ---------- ---------- 6,685,426 6,543,506 Less: accumulated depreciation and amortization 5,584,695 5,351,591 ---------- ---------- $1,100,731 $1,191,915 ========== ========== 43 Note 5 - ACCOUNTS RECEIVABLE FINANCING: The Company entered into an accounts receivable financing agreement whereby it can borrow up to eighty percent of its eligible receivables (as defined in the agreement) at an interest rate of 2 1/2 % above The Chase Manhattan Bank's publicly announced rate 4.75% at March 29, 2002, with a maximum of 12% per annum. The agreement has an initial term of one year and will automatically renew for successive one year terms, unless terminated by the Company or Lender upon receiving sixty days prior notice. The loan is secured by the Company's accounts receivable and inventories. Note 6 - OTHER CURRENT LIABILITIES: Other current liabilities are comprised of the following: March 29, March 30, 2002 2001 -------- -------- Payroll and vacation accruals $ 67,920 $ 66,448 Sales commissions 14,339 10,611 Other 62,171 64,364 -------- -------- $144,430 $141,423 ======== ======== Note 7 - NOTES PAYABLE: The Company was in arrears in the amount of $236,000 to the Apple Industrial Development Corp. formerly New York City Economic Development Corporation ("NYCEDC") for rent due for its offices and manufacturing facilities. In May 1997, the Company and the NYCEDC negotiated an agreement for the Company to pay off its indebtedness over a 48 month period, by the Company issuing notes payable to NYCEDC. The note bore interest at the rate of 8.25% per annum. The Company had repaid this note in full as of June 29, 2001. 44 IEH CORPORATION NOTES TO FINANCIAL STATEMENTS Note 8 - NOTES PAYABLE EQUIPMENT: The Company financed the acquisition of new computer equipment and software with notes payable. The notes are payable over a sixty month period. The balance remaining at March 29, 2002 amounted to $50,105. Aggregate future principal payments are as follows: Fiscal Year Ending March: 2003 $ 25,332 2004 16,978 2005 6,745 2006 1,050 ---- ---------- $ 50,105 ========== Note 9 - LOAN PAYABLE: On July 22, 1992, the Company obtained a loan of $435,000 from the New York State Urban Development Corporation ("UDC"), collateralized by machinery and equipment. The loan is payable over ten years, with interest rates progressively increasing from 4% to 8% per annum. The balance remaining at March 29, 2002 was $25,289. Aggregate future principal payments are as follows: Fiscal Year Ending March 31: 2003 $ 25,289 ========== In April 1997, the Company was informed by the UDC that the loan was sold and conveyed to WAMCO XXIV, Ltd. All the terms and conditions of the loan remained in effect. As of March 29, 2002, the Company had failed to meet one of the financial covenants of the loan agreement; namely that the "Company shall be obligated to maintain a tangible net worth of not less than $1,300,000 and the Company shall be obligated to maintain a ratio of current assets to current liabilities of 1.1 to 1.0. The Company reported tangible net worth of $809,357. The ratio of current assets to current liabilities was .99 to 1.0. The Company has applied for additional waivers of this covenant. Neither the UDC or WAMCO XXIV has acted on these requests. There are no assurances that the Company will receive any additional waivers of this covenant. Should the Company not receive any additional waivers, then it will be deemed to be in default of this loan obligation and the loan plus interest will become due and payable, accordingly the entire balance has been classified as a current liability in the accompanying balance sheet. 45 IEH CORPORATION NOTES TO FINANCIAL STATEMENTS Note 10 - INCOME TAXES: The components of the deferred tax assets and liabilities are as follows:
March 29, March 30, 2002 2001 ----------- ----------- Deferred tax assets: Net operating loss carryforwards $ 2,085,929 $ 2,112,755 ----------- ----------- Gross deferred assets tax assets 2,085,929 2,112,755 Deferred tax liabilities: State income taxes (82,397) (83,557) ----------- ----------- Net deferred tax assets before valuation allowance 2,003,532 2,029,198 Valuation allowance (2,003,532) (2,029,198) ----------- ----------- Net deferred tax assets $ 0 $ 0 =========== ===========
At March 31, 2000 , the Company established a 100% valuation allowance for the net deferred tax assets, as management could not determine that it was more likely than not that the deferred tax assets could be realized. The change in valuation allowance amounted to $25,666 for the year ended March 29, 2002. As of March 29, 2002, the Company has available Federal net operating loss carryforwards (NOL's) totaling approximately $2,085,929 which expire at various times through March 31, 2010, for State and Local purposes, the company has available NOL's approximating $2,019,544 which expire at various times through March 31, 2010. Utilization of the NOL's may be limited pursuant to Internal Revenue Code Section 382 should significant changes to the existing ownership of the Company occur. 46 IEH CORPORATION NOTES TO FINANCIAL STATEMENTS Note 10 - INCOME TAXES: (continued) A reconciliation of income taxes computed at the Federal statutory rate as compared to income tax expense at the effective income tax is as follows: March 29, March 30, 2002 2001 ---------- ---------- Federal statutory income tax (benefit) rate (34.0)% (34.0) % State tax benefit, net of Federal liability (12.2)% (12.2) % Net change in valuation allowance 46.2% 46.2 % Effective income tax (benefit) rate ( - )% ( - ) % Note 11 - PENSION PLAN-SALARIED PERSONNEL: On June 30, 1995, the Company applied to the Pension Benefit Guaranty Corporation ("PBGC") to have the PBGC assume all of the Company's responsibilities and liabilities under its Salaried Pension Plan. On April 26, 1996, the PBGC determined that the Salaried Pension Plan did not have sufficient assets available to pay benefits which were and are currently due under the terms of the Plan. The PBGC further determined that pursuant to the provisions of the Employment Retirement Income Security Act of 1974, as amended ("ERISA"), that the Plan must be terminated in order to protect the interests of the Plan's participants. Accordingly, the PBGC proceeded pursuant to ERISA to have the Plan terminated and the PBGC appointed as statutory trustee, and to have July 31, 1995 established as the Plan's termination date. The Company and the PBGC negotiated a settlement on the entire matter and on July 2, 2001, an agreement was reached whereby the Company's liability to the PBGC was reduced to $244,000. The Company will make monthly payments to the PBGC as follows: September 1, 2003 to August 1, 2004 $2,000 per month September 1, 2004 to August 1, 2006 $3,000 per month September 1, 2006 to August 1, 2007 $4,000 per month In addition, to the above referenced monthly payments, the Company will make balloon payments of $25,000 each on the following dates: January 1, 2004 May 1, 2004 May 1, 2005 January 1, 2006 47 The Company will also grant the PBGC a lien on the Company's machinery and equipment, subject to the pre- existing liens in favor of the UDC. IEH CORPORATION NOTES TO FINANCIAL STATEMENTS Note 11 - PENSION PLAN-SALARIED PERSONNEL (continued) As a result of this agreement the amount due the PBGC has been restated to $244,000 and is reported as a long term liability. The resultant gain of $294,506 was reclassified and accounted for as a charge to opening retained earnings as follows: Opening retained earnings-March 31, 2000 $(2,221,574) Gain on pension plan settlement 294,506 ----------- Adjusted opening retained earnings March 31, 2000 (1,927,068) Net income for the year ended March 30, 2001 26,826 ----------- Adjusted retained earnings balance at March 30, 2001 (1,900,242) Net loss for the Year ended March 29, 2002 (58,009) ----------- Balance at March 29, 2002 (1,958,251) =========== Note 12 - CHANGES IN STOCKHOLDERS' EQUITY: Retained earnings (deficit) increased by $58,009, which represents the loss for the year. The Company's shareholders voted on September 21, 2001 to change the par value of the Company's common stock from $.50 par value per share to $.01 par value per share. As a result of the above change the Company reduced the book value of it's common stock and increased capital in excess of par as follows: Par Value Par Value $.50 Change $.01 ----------- ----------- ----------- Common Stock $ 1,151,734 $(1,128,699) $ 23,035 Capital in excess of par 1,615,874 1,128,699 2,744,573 ----------- ----------- ----------- Total equity $ 2,767,608 $ 0 $ 2,767,608 =========== =========== =========== Note 13- 2001 EMPLOYEE STOCK OPTION PLAN: 48 On September 21, 2001 the Company's shareholders approved the adoption of the Company's 2001 Employees Stock Option Plan to provide for the grant of options to purchase up to 750,000 shares of the Company's common stock to all employees, including senior management. Options granted to employees under this plan may be designated as options which qualify for incentive stock option treatment under Section 422A of the Internal Revenue Code, or options which do not so qualify. IEH CORPORATION NOTES TO FINANCIAL STATEMENTS Note 13- 2001 EMPLOYEE STOCK OPTION PLAN (continued) Under this plan, the exercise price of an option designated as an Incentive Stock Option shall not be less than the fair market value of the Company's common stock on the day the option is granted. In the event an option designated as an incentive stock option is granted to a ten percent (10%) shareholder, such exercise price shall be at least 110 Percent (110%) of the fair market value or the Company's common stock and the option must not be exercisable after the expiration of five years from the day of the grant. Exercise prices of non incentive stock options may be less than the fair market value of the Company's common stock. The aggregate fair market value of shares subject to options granted to a participant(s), which are designated as incentive stock options, and which become exercisable in any calendar year, shall not exceed $100,000. As of March 29, 2002 no options had been granted under the plan. Note 14 - COMMITMENTS: The Company exercised its option to renew its lease on the premises for 10 years. The original lease ran through August 23, 2001. The Company is obligated under this renewal through August 23, 2011, at minimum annual rentals as follows: Fiscal year ending March: 2003 $111,600 2004 111,600 2005 111,600 2006 111,600 2007 111,600 2008 111,600 2009 111,600 2010 111,600 2011 74,400 -------- $967,200 ======== 49 The rental expense for the year ended March 29, 2002 for this lease was $ 111,482. The terms of the renewal are presently being negotiated by the Company and its landlord, Apple Industrial Development, Corp. (See Note 7 - Notes Payable relating to rent arrears agreement) The Company has a collective bargaining multi-employer pension plan with the United Auto Workers of America, Local 259. Contributions are made in accordance with a negotiated labor contract and are based on the number of covered employees employed per month. With the passage of the Multi-Employer Pension Plan 50 IEH CORPORATION NOTES TO FINANCIAL STATEMENTS Note 14 - COMMITMENTS (continued) Amendments Act of 1990 (The "Act"), the Company may become subject to liabilities in excess of contributions made under the collective bargaining agreement. Generally, these liabilities are contingent upon the termination, withdrawal, or partial withdrawal from the Plan. The Company has not taken any action to terminate, withdraw or partially withdraw from the Plan nor does it intend to do so in the future. Under the Act, liabilities would be based upon the Company's proportional share of the Plan's unfunded vested benefits which is currently not available. The amount of accumulated benefits and net assets of such Plan also is not currently available to the Company. The total contributions charged to operations under this pension plan were $38,384 for the year ended March 29, 2002 and $35,707 for the year ended March 30, 2001. As of March 29, 2002, the Company reported arrears with respect to its contributions to the Union's health and welfare plan. The amount due the health and welfare plan was $73,828. The total amount due of $73,828 is reported on the accompanying balance sheet as follows: $30,000 as a current liability and $43,828 as a long term liability. In December 1993, the Company and Local 259 entered into a verbal agreement whereby the Company would satisfy this debt by the following payment schedule: The sum of $2,500 will be paid by the Company each month in satisfaction of the current arrears until this total debt has been paid. Under this agreement, the projected payment schedule for arrears will satisfy the total debt in 30 months. Note 15 - REVENUES FROM MAJOR CUSTOMERS: In the fiscal year ended March 29, 2002, approximately 17% of the Company's total revenues were earned from one customer. Total sales to this customer were approximately $730,000. No other customer accounted for over 10% of the Company's sales. Accounts receivable as of March 29, 2002, included a receivable from one customer which amounted to 10% or more of the total accounts receivable. 51 EX-23.1 3 exhibit23-1.txt EXHIBIT 23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT I consent to the reference to my firm under the caption "Experts" and to the use of my report dated June 17,2002 in the form 10-KSB for the periods March 29, 2002 and March 30, 2001. /s/ Jerome Rosenberg, CPA ------------------------- Jerome Rosenberg, CPA Melville, New York June 25, 2002 -----END PRIVACY-ENHANCED MESSAGE-----