-----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, LWFCXrVc6g6i7RrQHi1aPCbFYqGbOZf0FNZl759GtyCx4Fvn9s/X/dJqh/8z+Qwv XwcwsaHB06GdoiKvB7EO4w== 0000914317-02-000797.txt : 20020812 0000914317-02-000797.hdr.sgml : 20020812 20020809184211 ACCESSION NUMBER: 0000914317-02-000797 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020812 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: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-05278 FILM NUMBER: 02725635 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 10QSB 1 form10qsb-45892_8502.txt SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _______________________ FORM 10-QSB QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 28, 2002 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________________ to _______________ Commission File No. O-5258 IEH CORPORATION (Exact name of registrant as specified in its charter) New York 1365549348 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 140 58th Street, Suite 8E, Brooklyn, New York 11220 (Address of principal executive office) Registrant's telephone number, including area code: (718) 492-4440 - --------------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report. Check whether the Issuer: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] 2,303,468 shares of Common Shares, par value $.01 per share, were outstanding as of July 30, 2002. IEH CORPORATION CONTENTS Page Number Part I - FINANCIAL INFORMATION ITEM 1- FINANICAL STATEMENTS Balance Sheet as of June 28, 2002 (Unaudited) and March 29, 2002 3 Statement of Operations (Unaudited) for the three months ended June 28, 2002 and June 29, 2001. 5 Statement of Cash Flows (Unaudited) for the three months ended June 28, 2002 and June 29, 2001. 6 Notes to Financial Statements (Unaudited) 8 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 17 2
IEH CORPORATION BALANCE SHEETS As of June 28, 2002 and March 29, 2002 June 28, March 29, 2002 2002 ---------- ---------- (Unaudited) (Note 1) ASSETS CURRENT ASSETS: Cash $ 3,839 $ 2,875 Accounts receivable, less allowances for doubtful accounts of $10,062 at June 28, 2002 and March 29, 2002 961,247 770,884 Inventories (Note 3) 993,700 1,015,539 Prepaid expenses and other current assets (Note 4) 35,082 38,845 ---------- ---------- Total current assets 1,993,868 1,828,143 ---------- ---------- PROPERTY, PLANT AND EQUIPMENT, less accumulated depreciation and amortization of $5,635,095 at June 28, 2002 and $5,584,695 at March 29, 2002 1,107,734 1,100,731 ---------- ---------- OTHER ASSETS: Other assets 44,565 44,819 ---------- ---------- 44,565 44,819 ---------- ---------- Total assets $3,146,167 $2,973,693 ========== ==========
See accompanying notes to financial statements 3
IEH CORPORATION BALANCE SHEETS As of June 28, 2002 and March 29, 2002 June 28, March 29, 2002 2002 ----------- ----------- (Unaudited) (Note 1) LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts receivable financing $ 788,937 $ 676,181 Notes payable, equipment, current portion (Note 7) 24,134 25,332 Loans payable (Note 6) 10,116 25,289 Accrued corporate income taxes 4,200 -- Union pension plan, current portion (Note 9) 30,000 30,000 Accounts payable 998,354 950,503 Other current liabilities (Note 5) 130,969 144,430 ----------- ----------- Total current liabilities 1,986,710 1,851,735 ----------- ----------- LONG-TERM LIABILITIES: Pension Plan payable (Note 9) 244,000 244,000 Notes payable, equipment, less current portion (Note 7) 19,635 24,773 Union pension plan, less current portion (Note 9) 36,328 43,828 ----------- ----------- Total long-term liabilities 299,963 312,601 ----------- ----------- Total liabilities 2,286,673 2,164,336 ----------- ----------- STOCKHOLDERS' EQUITY: Common stock, $.01 par value; 10,000,000 shares authorized; 2,303,468 shares issued and outstanding at June 28, 2002 and March 29, 2002 23,035 23,035 Capital in excess of par value 2,744,573 2,744,573 Retained earnings (Deficit) (1,908,114) (1,958,251) ----------- ----------- Total stockholders' equity 859,494 809,357 ----------- ----------- Total liabilities and stockholders' equity $ 3,146,167 $ 2,973,693 =========== ===========
See accompanying notes to financial statements 4
IEH CORPORATION STATEMENT OF OPERATIONS (Unaudited) Three Months Ended ------------------------------------ June 28, June 29, 2002 2001 ---------- ---------- REVENUE, net sales $1,211,693 $1,147,345 ---------- ---------- COSTS AND EXPENSES Cost of products sold 874,743 839,612 Selling, general and administrative 197,683 199,731 Interest expense 34,650 40,377 Depreciation and amortization 50,400 58,800 ---------- ---------- 1,157,476 1,138,520 ---------- ---------- OPERATING INCOME 54,217 8,825 OTHER INCOME 120 162 ---------- ---------- INCOME BEFORE INCOME TAXES 54,337 8,987 ---------- ---------- PROVISION FOR INCOME TAXES 4,200 4,200 ---------- ---------- NET INCOME $ 50,137 $ 4,787 ========== ========== BASIC AND DILUTED EARNINGS PER SHARE $ .022 $ .002 ========== ========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (in thousands) 2,303 2,303 ========== ==========
See accompanying notes to financial statements 5
IEH CORPORATION STATEMENT OF CASH FLOWS Increase (Decrease) in Cash (Unaudited) Three Months Ended ------------------------------ June 28, June 29, 2002 2001 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 50,137 $ 4,787 --------- --------- Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 50,400 58,800 Changes in assets and liabilities: (Increase) decrease in accounts receivable (190,363) (49,403) (Increase) decrease inventories 21,839 10,720 (Increase) decrease in prepaid expenses and other current assets 3,763 4,217 (Increase) decrease in other assets 254 1,309 Increase (decrease) in accounts payable 47,851 58,486 Increase (decrease) in other current liabilities (13,461) (59,573) Increase (decrease) in accrued corporate income taxes 4,200 5,116 Increase (decrease) in due to pension plan (7,500) (7,500) --------- --------- Total adjustments (83,017) 22,172 --------- --------- NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (32,880) 26,959 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of fixed assets (57,403) (31,675) --------- --------- NET CASH USED IN INVESTING ACTIVITIES $ (57,403) $ (31,675) ========= =========
See accompanying notes to financial statements 6
IEH CORPORATION STATEMENT OF CASH FLOWS Increase (Decrease) in Cash (Unaudited) Three Months Ended --------------------------------- June 28, June 29, 2002 2001 --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase (decrease) in notes payable - Net $ (6,336) $ (12,089) Proceeds from accounts receivable financing 112,756 19,855 Increase (decrease) on loan payable (15,173) (13,462) --------- --------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 91,247 (5,696) --------- --------- INCREASE (DECREASE) IN CASH 964 (10,412) CASH, beginning of period 2,875 11,833 --------- --------- CASH, end of period $ 3,839 $ 1,421 ========= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION, cash paid during the three months for: Interest $ 26,348 $ 32,554 ========= ========= Income Taxes $ -- $ 4,200 ========= =========
See accompanying notes to financial statements 7 IEH CORPORATION NOTES TO FINANCIAL STATEMENTS (Unaudited) Note 1- INTERIM RESULTS AND BASIS OF PRESENTATION The accompanying unaudited financial statements as of June 28, 2002 and for the three month periods then ended have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Items 303 and 310 of Regulation S-B. In the opinion of management, the unaudited financial statements have been prepared on the same basis as the annual financial statements and reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the financial position as of June 28, 2002 and the results of operations and cash flows for the three month periods then ended. The financial data and other information disclosed in these notes to the interim financial statements related to these periods are unaudited. The results for the three months ended June 28, 2002 are not necessarily indicative of the results to be expected for any subsequent quarter or the entire fiscal year. The balance sheet at March 29, 2002 has been derived from the audited financial statements at that date. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the Securities and Exchange Commission's rules and regulations. The Company believes, however, that the disclosures in this report are adequate to make the information presented not misleading in any material respect. The accompanying financial statements should be read in conjunction with the audited financial statements of IEH Corporation as of March 29, 2002 and notes thereto included in the Company's report on Form 10-KSB as filed with the Securities and Exchange Commission. Note 2 - 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. 8 IEH CORPORATION NOTES TO FINANCIAL STATEMENTS (Unaudited) Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) Accounting Period: The Company maintains an accounting period based upon a 52-53 week year which ends on the nearest Friday in business days to March 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. 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 June 28, 2002 or March 29, 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 9 IEH CORPORATION NOTES TO FINANCIAL STATEMENTS Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) 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 three months ended June 28, 2002 and June 29, 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. 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. 10 IEH CORPORATION NOTES TO FINANCIAL STATEMENTS Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) There were no long-lived asset impairments recognized by the Company for the three months ended June 28, 2002 and June 29, 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 three months ended June 28, 2002 and June 29, 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: The Company does not believe that any recently issued but not yet effective accounting standards, have a material effect on the Company's financial position, results of operations or cash flows. Note 3 - INVENTORIES: Inventories are comprised of the following: June 28, March 29, 2002 2002 ------------- ------------ Raw materials $ 660,910 $ 675,446 Work in progress 223,980 228,912 Finished goods 108,810 111,181 ------------- ------------ $ 993,700 $ 1,015,539 ============= ============ 11 IEH CORPORATION NOTES TO FINANCIAL STATEMENTS (Unaudited) Note 3 - INVENTORIES: (CONTINUED) Inventories are priced at the lower of cost (first-in, first-out method) or market, whichever is lower. The Company has established a reserve for obsolescence to reflect net realizable inventory value. The balance of this reserve as of June 28, 2002 was $12,000. At March 29, 2002, the balance of this reserve was $0. Inventories at June 28, 2002 and March 29, 2002 are recorded net of this reserve. Note 4 - PREPAID EXPENSES AND OTHER CURRENT ASSETS: Prepaid expenses and other current assets are comprised of the following: June 28, March 29, 2002 2002 ------------- ------------- Prepaid insurance $ 16,052 $ 32,574 Prepaid corporate taxes 3,925 3,925 Other current assets 15,105 2,346 ------------- ------------- $ 35,082 $ 38,845 ============= ============= Note 5 - OTHER CURRENT LIABILITIES: Other current liabilities are comprised of the following: June 28, March 29, 2002 2002 ----------- ------------ Payroll and vacation accruals $ 80,469 $ 67,920 Sales commissions 9,579 14,339 Other 40,921 62,171 ----------- ------------ $130,969 $144,430 =========== ============ Note 6 - 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 June 28, 2002 was $10,116. 12 IEH CORPORATION NOTES TO FINANCIAL STATEMENTS (Unaudited) Note 6 - LOAN PAYABLE (continued): Aggregate future principal payments are as follows: Fiscal Year Ending March 31, 2003 $ 10,116 ---------- $ 10,116 ========== 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 June 28, 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. At June 28, 2002, the Company reported tangible net worth of $859,494. The ratio of current assets to current liabilities was 1.0 to 1.0. The Company had previously received a waiver of this covenant from the UDC through the period ending March 31, 1994 and has applied for additional waivers of this covenant. Neither the UDC nor WAMCO XXVI, Ltd. 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 in default of this loan obligation and the entire loan plus interest will become due and payable. Because of this clause the entire loan is shown as a current liability on the accompanying balance sheet. Note 7 - 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 June 28, 2002 amounted to $43,769. Aggregate future principal payments are as follows: Fiscal year ended March 31, 2003 $ 18,994 2004 16,979 2005 6,744 2006 1,052 -------------- $ 43,769 ============== 13 IEH CORPORATION NOTES TO FINANCIAL STATEMENTS (Unaudited) Note 8- 2001 EMPLOYEE STOCK OPTION PLAN: 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. 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 June 28, 2002 no options had been granted under the plan. Note 9 - 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 31, 2003 $ 83,700 2004 111,600 2005 111,600 2006 111,600 2007 111,600 2008 111,600 2009 111,600 2010 111,600 2011 74,400 ------------ $ 939,300 ============ The rental expense for the three months ended June 28, 2002 for this lease was $28,191. 14 Note 9 - COMMITMENTS (continued): The terms of the renewal are presently being negotiated by the Company and its landlord Apple Industrial Development Corporation. IEH CORPORATION NOTES TO FINANCIAL STATEMENTS (Unaudited) 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 $11,674 for the three months ended June 28, 2002 and $10,808 for the three months ended June 29, 2001. As of March 29, 2002, the Company reported arrears with respect to its contributions to the Union's pension plan. The amount due the pension plan was $66,328. The total amount due of $66,328 is reported on the accompanying balance sheet as follows: $30,000 as a current liability and $36,328 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 27 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. 15 IEH CORPORATION NOTES TO FINANCIAL STATEMENTS (Unaudited) Note 9 - COMMITMENTS (continued): 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. Note 10 - CHANGES IN STOCKHOLDERS' EQUITY: Retained earnings (deficit) decreased by $50,137, which represents the net income for the three months ended June 28, 2002. 16 IEH CORPORATION 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 or purchased raw material and parts, domestic economic conditions, and foreign economic conditions. 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. CRITICAL 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. 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: 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 June 28, 2002 or March 29, 2002. 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. 17 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 three months ended June 28, 2002 and June 29, 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. 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 three months ended June 28, 2002 and June 29, 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 18 (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 three months ended June 28, 2002 and June 29, 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. Quarter ended June 30, 2002 compared to Quarter ended June 30, 2001 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:
Three Months Ended --------------------------- June 28, June 29, 2002 2001 -------- -------- Operating Revenues (in thousands) $ 1,212 $ 1,147 -------- -------- Operating Expenses: (as a percentage of operating revenues) Cost of Products Sold 72.2% 73.2% Selling, General and Administrative 16.3% 17.4% Interest Expense 2.9% 3.5% Depreciation and Amortization 4.2% 5.1% -------- -------- Total Costs and Expenses 95.6% 99.2% -------- -------- Operating Income (loss) 4.4% .8% Other Income -- -- -------- -------- Income (loss) before Income Taxes 4.4% .8% Income Taxes .3% .3% -------- -------- Net Income (loss) 4.1% .5% ======== ========
COMPARATIVE ANALYSIS Operating revenues for the three months ended June 28, 2002 amounted to $1,211,693, 19 reflecting a 6% increase versus the comparative three months operating revenues of $1,147,345. The increase is a direct result of an inprovement in the electronics industry. Cost of products sold amounted to $874,743 for the three months ended June 28, 2002 or 72.2% of operating revenues. This reflected an increase of $35,131 or 4% of the cost of products sold of $839,612 for the three months ended June 29, 2001. The increase represents the additional cost necessary to support the increase in sales. Selling, general and administrative expenses for the three months ended June 28, 2002 were $197,683 or 16.3% of revenues compared to $199,731 or 17.4% of revenues for the comparable three-month period ended June 29, 2001. This reflected a decrease of $2,048 and reflects a reduction in travel as well as a reduction in legal fees. Interest expense was $34,650 or 2.9% of revenues for the period ended June 28, 2002 as compared to $40,377 or 3.5% of revenues in the three-month period ended June 29, 2001. Depreciation and amortization of $50,400 or 4.2% of revenues was reported for the three-month period ended June 28, 2002. This reflects a decrease of $8,400 or 14% from the comparable three-month period ended June 29, 2001 of $58,800 or 5.1% of revenues. The decrease is a result of some fixed assets becoming fully depreciated and a leveling off on new acquisitions. The Company reported net income of $50,137 for the three months ended June 28, 2002, representing basic earnings per common share of $.022 as compared to basic income of $4,787 or $.002 per common share for the three months ended June 29, 2001. LIQUIDITY AND CAPITAL RESOURCES The Company reported working capital as of June 28, 2002 of $7,158 as compared to a working capital deficit of $23,592 at March 29, 2002. The increase in working capital of $30,750 was attributable to the following items: Net income (loss) (excluding depreciation and amortization) $ 50,137 Capital expenditures (57,403) Other transactions 38,016 -------- $ 30,750 ======== As a result of the above, the current ratio (current assets to current liabilities) was 1.0 to 1.0 as of June 28, 2002 as compared to .95 to 1.0 at March 29, 2002. Current liabilities at June 28, 2002 were $1,986,710 compared to $1,851,735 at March 29, 2002. The Company expended $57,403 in capital expenditures in the three months ended June 28, 2002. Depreciation and amortization for the three months ended June 28, 2002 was $50,400. 20 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 at June 28, 2002, with a maximum of 12% per annum. The agreement had 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. At June 28, 2002 the amount outstanding was $788,937 as compared to $676,181 at March 29, 2002. 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 June 28, 2002 was $10,116. Aggregate future principal payments are as follows: Fiscal Year Ending March 31, 2003 $ 10,116 ---------- $ 10,116 ========== 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 June 28, 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. At June 28, 2002, the Company reported tangible net worth of $859,494. The ratio of current assets to current liabilities was 1.0 to 1.0. The Company has applied for additional waivers of this covenant. Neither the UDC nor 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 obligations and the loan plus interest will become due and payable. Accordingly the entire amount of the loan is 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 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 21 total contributions charged to operations under this pension plan were $11,674 for the three months ended June 28, 2002 and $10,808 for the three months ended June 29, 2001. As of June 28, 2002, the Company reported arrears with respect to its contributions to the Union's pension plan. The amount due the pension plan was $66,328. The total amount due of $66,328 is reported on the accompanying balance sheet as follows: $30,000 as a current liability and $36,328 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 27 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 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. 22 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 relative competitive price position. However, significant decreases in government, military subcontractor spending has provided excess production capacity in the industry which has tightened pricing margins. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 99.1 Certification Pursuant to Section 906 of the Sarbines-Oxley Act of 2002. (b) Reports on Form 8-K during Quarter None SIGNATURES In accordance with the requirements of the Exchange Act, the Registrant has duly cause this report on Form 10QSB to be signed on its behalf by the undersigned, thereunto duly authorized. IEH CORPORATION (Registrant) August 7, 2002 /s/ Michael Offerman ---------------------- Michael Offerman President August 7, 2002 /s/ Robert Knoth ---------------------- Robert Knoth Chief Financial Officer 23 -----END PRIVACY-ENHANCED MESSAGE-----