UNITED STATES
SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30,
2022
☐ TRANSITION REPORT PURSUANT TO 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
(Exact name of registrant as specified in its
charter)
New York | | 13-5549348 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
140 58th Street, Suite 8E, Brooklyn, NY | | 11220 |
(Address of principal executive offices) | | (Zip Code) |
Registrant’s telephone number, including
area code: (718) 492-4440
Securities registered pursuant to Section 12(b)
of the Act: None
Securities registered pursuant to Section 12(g)
of the Act:
Title of Each Class: | | Trading Symbol(s) | | Name of Each Exchange on Which Registered: |
Shares of common stock, $0.01 par value | | IEHC | | OTC Pink Market |
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes ☐ No ☒
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§
232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such
files). Yes ☐ No ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated
filer,” “accelerated filer, “smaller reporting company” and “emerging growth company” in Rule
12b-2 of the Exchange Act.
Large accelerated filer | | ☐ | | Accelerated filer | | ☐ |
Non-accelerated filer | | ☒ | | Smaller reporting company | | ☒ |
Emerging growth company | | ☐ | | | | |
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of October 6, 2023, the registrant had 2,370,251
shares of its common stock, par value $0.01 per share, outstanding.
TABLE OF CONTENTS
CAUTIONARY NOTE FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning
of Section 21E of the Exchange Act and Section 27A of the Securities Act. Any statements contained in this report that are not statements
of historical fact may be forward-looking statements. When we use the words “anticipates,” “plans,” “estimates,”
“expects,” “believes,” “should,” “could,” “may,” “will” and similar
expressions, we are identifying forward-looking statements. We have based these forward-looking statements largely on our current expectations
and projections about future financial events and financial trends that we believe may affect our financial condition, results of operations,
business strategy and financial needs. Forward-looking statements involve risks and uncertainties described under “Risk Factors”
in Part II, Item 1A, and elsewhere in this Quarterly Report on Form 10-Q, and as set forth in Part I, Item 1A, Risk Factors, of our Form
10-K for the fiscal year ended March 31, 2022, filed on June 22, 2023, and may include statements related to, among other things: macroeconomic
factors, including inflationary pressures, supply shortages and recessionary pressures; accounting estimates and assumptions; pricing
pressures on our product caused by competition; the risk that our products will not gain market acceptance; our ability to obtain additional
financing; our ability to successfully prevent our registration with the SEC from being suspended or revoked and to timely file our SEC
reports; our ability to operate our accounting system and material weaknesses identified in connection with our migration to such accounting
system; our ability to protect intellectual property; our ability to integrate our satellite facility into our operations, and our ability
to attract and retain key employees. No forward-looking statement is a guarantee of future performance and you should not place undue
reliance on any forward-looking statements. Our actual results may differ materially from those projected in any forward-looking statements,
as they will depend on many factors about which we are unsure, including many factors beyond our control.
Except as may be required by applicable law, we do not undertake or
intend to update or revise our forward-looking statements, and we assume no obligation to update any forward-looking statements contained
in this report as a result of new information or future events or developments. Thus, you should not assume that our silence over time
means that actual events are bearing out as expressed or implied in such forward-looking statements. You should carefully review and consider
the various disclosures we make in this report and our other reports filed with the Securities and Exchange Commission (“SEC”)
that attempt to advise interested parties of the risks, uncertainties and other factors that may affect our business.
Important factors that could cause actual results
to differ materially from the results and events anticipated or implied by such forward-looking statements include, but are not limited
to:
|
● |
changes in the market acceptance of our products and services; |
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● |
increased levels of competition; |
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changes in political, economic or regulatory conditions generally and in the markets in which we operate; |
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our relationships with our key customers; |
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adverse conditions in the industries in which our customers operate; |
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our ability to retain and attract senior management and other key employees; |
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our ability to quickly and effectively respond to new technological developments; |
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our ability to protect our trade secrets or other proprietary rights, operate without infringing upon the proprietary rights of others and prevent others from infringing on our proprietary rights; and |
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other risks, including those described in the “Risk Factors” section of this Quarterly Report. |
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
IEH
CORPORATION
CONDENSED BALANCE SHEETS
| |
As of | |
| |
September 30,
2022 | | |
March 31,
2022 | |
| |
(Unaudited) | | |
| |
| |
| | |
| |
Assets | |
| | |
| |
Current assets: | |
| | |
| |
Cash | |
$ | 9,824,154 | | |
$ | 12,675,271 | |
Accounts receivable | |
| 2,295,569 | | |
| 3,039,468 | |
Inventories | |
| 9,727,361 | | |
| 9,728,387 | |
Corporate income taxes receivable | |
| 2,049,430 | | |
| 2,096,480 | |
Prepaid expenses and other current assets | |
| 137,883 | | |
| 112,173 | |
Total current assets | |
| 24,034,397 | | |
| 27,651,779 | |
| |
| | | |
| | |
Non-current assets: | |
| | | |
| | |
Property, plant and equipment, net | |
| 4,279,291 | | |
| 4,354,111 | |
Operating lease right-of-use assets | |
| 2,823,426 | | |
| 2,980,820 | |
Deferred income tax assets, net | |
| - | | |
| 806,380 | |
Security deposit | |
| 75,756 | | |
| 75,756 | |
Total assets | |
$ | 31,212,870 | | |
$ | 35,868,846 | |
| |
| | | |
| | |
Liabilities and Stockholders’ Equity | |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Accounts payable | |
$ | 720,526 | | |
$ | 808,631 | |
Customer advance payments | |
| 31,766 | | |
| 97,885 | |
Operating lease liabilities | |
| 300,995 | | |
| 285,275 | |
Other current liabilities | |
| 936,671 | | |
| 951,106 | |
Total current liabilities | |
| 1,989,958 | | |
| 2,142,897 | |
| |
| | | |
| | |
Non-current liabilities: | |
| | | |
| | |
Operating lease liabilities, non-current | |
| 2,752,536 | | |
| 2,906,455 | |
Total liabilities | |
| 4,742,494 | | |
| 5,049,352 | |
| |
| | | |
| | |
Commitments and Contingencies (Note 10) | |
| | | |
| | |
| |
| | | |
| | |
Stockholders’ Equity | |
| | | |
| | |
Common Stock, $0.01 par value; 10,000,000 shares authorized; 2,370,251 shares issued and outstanding at September 30, 2022 and March 31, 2022 | |
| 23,703 | | |
| 23,703 | |
Additional paid-in capital | |
| 7,566,324 | | |
| 7,566,324 | |
Retained earnings | |
| 18,880,349 | | |
| 23,229,467 | |
Total Stockholders’ Equity | |
| 26,470,376 | | |
| 30,819,494 | |
Total Liabilities and Stockholders’ Equity | |
$ | 31,212,870 | | |
$ | 35,868,846 | |
The accompanying notes are an integral part of these unaudited condensed financial statements.
IEH
CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
| |
For the Three Months Ended
September 30, | | |
For the Six Months Ended
September 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| |
| | |
| | |
| | |
| |
Revenue | |
$ | 4,193,646 | | |
$ | 6,561,872 | | |
$ | 8,272,230 | | |
$ | 13,072,449 | |
| |
| | | |
| | | |
| | | |
| | |
Costs and expenses: | |
| | | |
| | | |
| | | |
| | |
Cost of products sold | |
| 4,209,506 | | |
| 5,563,554 | | |
| 9,128,445 | | |
| 10,303,296 | |
Selling, general and administrative | |
| 1,230,748 | | |
| 1,180,275 | | |
| 2,239,755 | | |
| 2,464,381 | |
Depreciation and amortization | |
| 257,111 | | |
| 181,149 | | |
| 505,594 | | |
| 357,065 | |
Total operating expenses | |
| 5,697,365 | | |
| 6,924,978 | | |
| 11,873,794 | | |
| 13,124,742 | |
| |
| | | |
| | | |
| | | |
| | |
Operating loss | |
| (1,503,719 | ) | |
| (363,106 | ) | |
| (3,601,564 | ) | |
| (52,293 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other income (expense): | |
| | | |
| | | |
| | | |
| | |
Other income (for six months ended September 30, 2021, consists principally of $2,103,885 debt forgiveness income from the forgiveness of the PPP Loan, see Note 4) | |
| 53,977 | | |
| 50,839 | | |
| 54,053 | | |
| 2,181,445 | |
Interest income (expense), net | |
| 4,400 | | |
| 126 | | |
| 4,773 | | |
| 199 | |
Total other income (expense), net | |
| 58,377 | | |
| 50,965 | | |
| 58,826 | | |
| 2,181,644 | |
| |
| | | |
| | | |
| | | |
| | |
(Loss) income before benefit from (provision for) income taxes | |
| (1,445,342 | ) | |
| (312,141 | ) | |
| (3,542,738 | ) | |
| 2,129,351 | |
Benefit from (provision for) income taxes | |
| - | | |
| 69,914 | | |
| (806,380 | ) | |
| (27,990 | ) |
Net (loss) income | |
$ | (1,445,342 | ) | |
$ | (242,227 | ) | |
$ | (4,349,118 | ) | |
$ | 2,101,361 | |
| |
| | | |
| | | |
| | | |
| | |
(Net loss) earnings per common share: | |
| | | |
| | | |
| | | |
| | |
Basic | |
$ | (0.61 | ) | |
$ | (0.10 | ) | |
$ | (1.84 | ) | |
$ | 0.89 | |
Diluted | |
$ | (0.61 | ) | |
$ | (0.10 | ) | |
$ | (1.84 | ) | |
$ | 0.86 | |
| |
| | | |
| | | |
| | | |
| | |
Weighted-average number of common and common equivalent shares (in thousands): | |
| | | |
| | | |
| | | |
| | |
Basic | |
| 2,370 | | |
| 2,370 | | |
| 2,370 | | |
| 2,370 | |
Diluted | |
| 2,370 | | |
| 2,370 | | |
| 2,370 | | |
| 2,456 | |
The accompanying notes are an integral part of these unaudited condensed financial statements.
IEH
CORPORATION
CONDENSED
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
| |
Common Stock | | |
Additional Paid-in | | |
Retained | | |
Total Stockholders’ | |
| |
Shares | | |
Amount | | |
Capital | | |
Earnings | | |
Equity | |
| |
| | |
| | |
| | |
| | |
| |
Balance at March 31, 2021 | |
| 2,370,251 | | |
$ | 23,703 | | |
$ | 7,183,241 | | |
$ | 21,791,333 | | |
$ | 28,998,277 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Stock-based compensation expense | |
| - | | |
| - | | |
| 199,500 | | |
| - | | |
| 199,500 | |
Net income | |
| - | | |
| - | | |
| - | | |
| 2,343,588 | | |
| 2,343,588 | |
Balance at June 30, 2021 | |
| 2,370,251 | | |
$ | 23,703 | | |
$ | 7,382,741 | | |
$ | 24,134,921 | | |
$ | 31,541,365 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Stock-based compensation expense | |
| - | | |
| - | | |
| 66,500 | | |
| - | | |
| 66,500 | |
Net loss | |
| - | | |
| - | | |
| - | | |
| (242,227 | ) | |
| (242,227 | ) |
Balance at September 30, 2021 | |
| 2,370,251 | | |
$ | 23,703 | | |
$ | 7,449,241 | | |
$ | 23,892,694 | | |
$ | 31,365,638 | |
| |
Common Stock | | |
Additional Paid-in | | |
Retained | | |
Total Stockholders’ | |
| |
Shares | | |
Amount | | |
Capital | | |
Earnings | | |
Equity | |
| |
| | |
| | |
| | |
| | |
| |
Balance at March 31, 2022 | |
| 2,370,251 | | |
$ | 23,703 | | |
$ | 7,566,324 | | |
$ | 23,229,467 | | |
$ | 30,819,494 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss | |
| - | | |
| - | | |
| - | | |
| (2,903,776 | ) | |
| (2,903,776 | ) |
Balance at June 30, 2022 | |
| 2,370,251 | | |
$ | 23,703 | | |
$ | 7,566,324 | | |
$ | 20,325,691 | | |
$ | 27,915,718 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss | |
| - | | |
| - | | |
| - | | |
| (1,445,342 | ) | |
| (1,445,342 | ) |
Balance at September 30, 2022 | |
| 2,370,251 | | |
$ | 23,703 | | |
$ | 7,566,324 | | |
$ | 18,880,349 | | |
$ | 26,470,376 | |
The accompanying notes are an integral part of these unaudited condensed financial statements.
IEH
CORPORATION
CONDENSED
STATEMENTS OF CASH FLOWS
(Unaudited)
| |
For the Six Months Ended
September 30, | |
| |
2022 | | |
2021 | |
Cash flows from operating activities: | |
| | |
| |
Net (loss) income | |
$ | (4,349,118 | ) | |
$ | 2,101,361 | |
Adjustments to reconcile net (loss) income to | |
| | | |
| | |
Net cash (used in) provided by operating activities: | |
| | | |
| | |
Depreciation and amortization | |
| 505,594 | | |
| 357,065 | |
Stock-based compensation expense | |
| - | | |
| 266,000 | |
Inventory obsolescence provision | |
| 114,000 | | |
| (14,000 | ) |
Deferred income taxes, net | |
| 806,380 | | |
| (512,272 | ) |
Operating lease right-of-use assets | |
| 251,438 | | |
| 232,921 | |
Gain on forgiveness of PPP loan | |
| - | | |
| (2,103,885 | ) |
| |
| | | |
| | |
Changes in assets and liabilities: | |
| | | |
| | |
Accounts receivable | |
| 743,899 | | |
| 2,578,046 | |
Inventories | |
| (112,974 | ) | |
| 4,778 | |
Corporate income taxes receivable | |
| 47,050 | | |
| (883,356 | ) |
Prepaid expenses and other current assets | |
| (25,710 | ) | |
| (34,819 | ) |
Accounts payable | |
| (88,105 | ) | |
| (347,151 | ) |
Customer advance payments | |
| (66,119 | ) | |
| (9,028 | ) |
Operating lease liabilities | |
| (232,243 | ) | |
| (137,041 | ) |
Other current liabilities | |
| (14,435 | ) | |
| (377,422 | ) |
Net cash (used in) provided by operating activities | |
| (2,420,343 | ) | |
| 1,121,197 | |
| |
| | | |
| | |
Cash flows from investing activities: | |
| | | |
| | |
Acquisition of property, plant and equipment | |
| (430,774 | ) | |
| (412,158 | ) |
Net cash used in investing activities | |
| (430,774 | ) | |
| (412,158 | ) |
| |
| | | |
| | |
Net (decrease) increase in cash | |
| (2,851,117 | ) | |
| 709,039 | |
Cash - beginning of period | |
| 12,675,271 | | |
| 13,907,542 | |
Cash - end of period | |
$ | 9,824,154 | | |
$ | 14,616,581 | |
| |
| | | |
| | |
Supplemental disclosures of cash flow information: | |
| | | |
| | |
Cash paid during the period for: | |
| | | |
| | |
Interest | |
$ | 7 | | |
$ | 52 | |
Income Taxes | |
$ | - | | |
$ | 1,010,539 | |
The accompanying notes are an integral part of these unaudited condensed financial statements.
IEH CORPORATION
Notes to Unaudited Condensed
Financial Statements
Note 1 |
DESCRIPTION OF BUSINESS: |
Overview
IEH Corporation (hereinafter referred to as “IEH”
or the “Company”) began in New York, New York in 1941. IEH was incorporated in March, 1943.
The Company designs and manufactures HYPERBOLOID connectors
that not only accommodate, but exceed military and aerospace specification standards.
Note 2 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: |
Basis of Presentation
The accompanying condensed financial statements and the related
disclosures as of September 30, 2022 and for the three and six months ended September 30, 2022 and 2021 are unaudited and have been prepared
in accordance with accounting principles generally accepted in the United States, or U.S. GAAP, and the rules and regulations of the SEC
for interim financial statements. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete
financial statements. These interim condensed financial statements should be read in conjunction with the March 31, 2022 audited financial
statements and notes included in the Annual Report on Form 10-K filed on June 22, 2023. The March 31, 2022 balance sheet included herein
was derived from the audited financial statements as of that date but does not include all disclosures including notes required by U.S.
GAAP for complete financial statements. In the opinion of management, the condensed financial statements reflect all adjustments, consisting
of normal and recurring adjustments, necessary for the fair presentation of the Company’s financial position and results of operations
for the three and six months ended September 30, 2022 and 2021. The results of operations for the interim periods are not necessarily
indicative of the results to be expected for the fiscal year ended March 31, 2023 or any other interim period or future year or period.
Revenue Recognition
The core principle underlying Accounting Standards Codification
ASC 606 “Revenue from Contracts with Customers” (“ASC 606”), is to recognize revenue to depict the transfer of promised
goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for
those goods or services. ASC 606 sets out the following steps for an entity to follow when applying the core principle to its revenue
generating transactions:
| ● | Identify
the contract with a customer |
| ● | Identify
the performance obligations in the contract |
| ● | Determine
the transaction price |
| ● | Allocate
the transaction price to the performance obligations |
| ● | Recognize
revenue when (or as) each performance obligation is satisfied |
The Company recognizes revenue and the related cost of products
sold when the performance obligations are satisfied. The performance obligations are typically satisfied upon shipment of physical goods.
In addition to the satisfaction of the performance obligations, the following conditions are required for revenue recognition: an arrangement
exists, there is a fixed price, and collectability is reasonably assured.
IEH CORPORATION
Notes to Unaudited Condensed Financial Statements
Note 2 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued): |
The Company does not offer any discounts, credits or other
sales incentives. Historically, the Company has not had an issue with uncollectible accounts receivable.
The Company will accept a return of defective products 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 provide a replacement at its own cost.
The Company’s disaggregated revenue by geographical location
is as follows:
| |
For the Three Months Ended
September 30, | | |
For the Six Months Ended
September 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| |
| | |
| | |
| | |
| |
Domestic | |
$ | 3,392,280 | | |
$ | 5,132,645 | | |
$ | 6,405,074 | | |
$ | 9,695,840 | |
International | |
| 801,366 | | |
| 1,429,227 | | |
| 1,867,156 | | |
| 3,376,609 | |
Total | |
$ | 4,193,646 | | |
$ | 6,561,872 | | |
$ | 8,272,230 | | |
$ | 13,072,449 | |
Approximately 46.2% and 70.6% of the international net sales
for the three months ended September 30, 2022 and 2021, respectively, represent sales to customers located in China.
Approximately 56.8% and 75.5% of the international net sales
for the six months ended September 30, 2022 and 2021, respectively, represent sales to customers located in China.
The Company’s aggregated revenue by industry as a percentage
of total revenue is provided below:
| |
For the Three Months Ended
September 30, | | |
For the Six Months Ended
September 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
Industry | |
% | | |
% | | |
% | | |
% | |
Defense | |
| 46.2 | | |
| 57.5 | | |
| 51.0 | | |
| 56.8 | |
Commercial Aerospace | |
| 24.7 | | |
| 12.8 | | |
| 22.6 | | |
| 13.7 | |
Space | |
| 13.5 | | |
| 18.5 | | |
| 15.2 | | |
| 20.0 | |
Other | |
| 15.6 | | |
| 11.2 | | |
| 11.2 | | |
| 9.5 | |
Inventories
Inventories are comprised of raw materials, work-in-process
and finished goods, and are stated at cost, on an average basis, which does not exceed net realizable value. The Company manufactures
products pursuant to specific technical and contractual requirements.
The Company reviews its purchase and usage activity of its
inventory of parts as well as work in process and finished goods to determine which items of inventory have become obsolete within the
framework of current and anticipated orders. The Company estimates which materials may be obsolete and which products in work in process
or finished goods may be sold at less than cost. A periodic adjustment, based upon historical experience is made to inventory in recognition
of this impairment. The Company’s allowance for obsolete inventory was $325,000 and $211,000 as of September 30, 2022 and March
31, 2022, respectively, and was reflected as a reduction of inventory.
IEH CORPORATION
Notes to Unaudited Condensed Financial Statements
Note 2 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued): |
Concentration of Credit Risk
Financial instruments which potentially subject the Company
to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable.
At times, the Company’s cash in banks was in excess
of the Federal Deposit Insurance Corporation insurance limits. The Company has not experienced any loss as a result of these deposits.
(Net Loss) Earnings Per Share
The Company accounts for earnings per share pursuant to ASC
Topic 260, “Earnings per Share”, which requires disclosure on the financial statements of “basic” and “diluted”
earnings per share. Basic (net loss) earnings per common share are computed by dividing net (loss) income by the weighted average number
of common shares outstanding for the reporting period. Diluted (net loss) earnings per share is computed by dividing net (loss) income
by the weighted average number of common shares outstanding plus common stock equivalents (if dilutive) for the reporting period.
Basic and diluted (net loss) earnings per share is calculated
as follows:
| |
For the Three Months Ended
September 30, | | |
For the Six Months Ended
September 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| |
| | |
| | |
| | |
| |
Net (loss) income | |
$ | (1,445,342 | ) | |
$ | (242,227 | ) | |
$ | (4,349,118 | ) | |
$ | 2,101,361 | |
| |
| | | |
| | | |
| | | |
| | |
(Net loss) earnings per common share: | |
| | | |
| | | |
| | | |
| | |
Basic | |
$ | (0.61 | ) | |
$ | (0.10 | ) | |
$ | (1.84 | ) | |
$ | 0.89 | |
| |
| | | |
| | | |
| | | |
| | |
Diluted | |
$ | (0.61 | ) | |
$ | (0.10 | ) | |
$ | (1.84 | ) | |
$ | 0.86 | |
| |
| | | |
| | | |
| | | |
| | |
Weighted average number of common shares outstanding-basic (in thousands) | |
| 2,370 | | |
| 2,370 | | |
| 2,370 | | |
| 2,370 | |
| |
| | | |
| | | |
| | | |
| | |
Dilutive effect of options to the extent that such options are determined to be in the money for the period (in thousands) | |
| - | | |
| - | | |
| - | | |
| 86 | |
| |
| | | |
| | | |
| | | |
| | |
Weighted average number of common shares outstanding-fully diluted (in thousands) | |
| 2,370 | | |
| 2,370 | | |
| 2,370 | | |
| 2,456 | |
| |
| | | |
| | | |
| | | |
| | |
IEH CORPORATION
Notes to Unaudited Condensed Financial Statements
Note 2 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued): |
(Net Loss) Earnings Per Share, continued
Potentially dilutive securities outlined in the table below
have been excluded from the computation of diluted (net loss) earnings per share because the effect of their inclusion would have been
anti-dilutive.
| |
For the Three Months Ended
September 30, | | |
For the Six Months Ended
September 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
Potentially dilutive options to purchase common shares | |
| 467,217 | | |
| 472,217 | | |
| 467,217 | | |
| 234,158 | |
Fair Value of Financial Instruments
The carrying value of the Company’s financial instruments,
consisting of accounts receivable and accounts payable, approximate their fair value due to the relatively short maturity of these instruments.
The Company is exposed to credit risk through its cash but mitigates this risk by keeping these deposits at major financial institutions.
ASC 820, “Fair Value Measurements and Disclosures”,
provides the framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical
assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements).
Fair value is defined as an exit price, representing the amount
that would be received upon the sale of an asset or payment to transfer a liability in an orderly transaction between market participants.
Fair value is a market-based measurement that is determined
based on assumptions that market participants would use in pricing an asset or liability. A three-tier fair value hierarchy is used to
prioritize the inputs in measuring fair value as follows:
Level 1 - Quoted prices in active markets for identical assets
or liabilities.
Level 2 - Quoted prices for similar assets or liabilities in
active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are
observable, either directly or indirectly.
Level 3- Significant unobservable inputs that cannot be corroborated
by market data and inputs that are derived principally from or corroborated by observable market data or correlation by other means.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, revenues and expenses, and disclosure of contingent assets and liabilities at the date of the financial
statements. The Company utilizes estimates with respect to determining the useful lives of fixed assets, the fair value of stock based
instruments, an incremental borrowing rate for determining for its leases the present value of lease payments, the calculation of inventory
obsolescence, as well as determining the amount of the valuation allowance for deferred income tax assets, net. Actual amounts could differ
from those estimates.
IEH CORPORATION
Notes to Unaudited Condensed Financial Statements
Note 2 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued): |
Segment Information
The Company identifies its operating segments in accordance
with ASC 280, Segment Reporting (“ASC 280”). Operating segments are defined as components of an enterprise about which separate
discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding
how to allocate resources and in assessing performance. The Company’s chief operating decision maker, its Chief Executive Officer,
manages the Company’s operations on a combined basis for the purposes of allocating resources. Accordingly, the Company has determined
it operates and manages its business in a single reportable operating segment.
Depreciation
The Company provides for depreciation and amortization on a
straight-line basis over the estimated useful lives (5-7 years) of the related assets. Depreciation expense for the three months ended
September 30, 2022 and 2021 was $257,111 and $181,149 respectively. Depreciation expense for the six months ended September 30, 2022 and
2021 was $505,594 and $357,065 respectively.
Stock-Based Compensation
Compensation expense for stock options granted to directors,
officers and key employees is based on the fair value of the award on the measurement date, which is the date of the grant. The expense
is recognized ratably over the service period of the award. The fair value of stock options is estimated using the Black-Scholes valuation
model. The fair value of any other non-vested stock awards is generally the market price of the Company’s common stock on the date
of the grant.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13 – Financial
Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which
was subsequently revised by ASU 2018-19 and ASU 2020-02. The ASU introduces a new model for assessing impairment on most financial assets.
Entities will be required to use a forward-looking expected loss model, which will replace the current incurred loss model, which will
result in earlier recognition of allowance for losses. The ASU will be effective for the Company’s first interim period of the fiscal
year ended March 31, 2024. The Company has evaluated the impact of the adoption of ASU 2016-13, and related updates, and has determined
that the impact would not be material to its financial statements and disclosures.
The Company has evaluated other recently issued accounting
pronouncements and has concluded that the impact of recently issued standards that are not yet effective will not have a material impact
on the Company’s financial position or results of operations upon adoption.
Subsequent Events
The Company evaluated subsequent events and transactions that
occurred after the balance sheet date up to the date that the financial statements were available to be issued. The Company did not identify
any subsequent events that would have required adjustment or disclosure in the financial statements.
IEH CORPORATION
Notes to Unaudited Condensed Financial Statements
Inventories are stated at cost, on a moving average basis that
does not exceed net realizable value.
Inventories are comprised of the following:
| |
As of | |
| |
September 30, 2022 | | |
March 31, 2022 | |
Raw materials | |
$ | 8,370,682 | | |
$ | 7,875,015 | |
Work in progress | |
| 1,100,083 | | |
| 1,505,614 | |
Finished goods | |
| 581,596 | | |
| 558,758 | |
Allowance for obsolete inventory | |
| (325,000 | ) | |
| (211,000 | ) |
| |
$ | 9,727,361 | | |
$ | 9,728,387 | |
Note 4 |
PPP LOAN AND NOTE: |
On April 13, 2020, the Company entered into an unsecured note
(the “PPP Note”) evidencing an unsecured loan (“PPP Loan”) in the principal amount of $2,103,885 pursuant to the
Payment Protection Program (“PPP”) under the Coronavirus Aid Relief and Economic Security Act (“CARES Act”).
On April 21, 2021, the Company received notice that the PPP
Loan was forgiven. The Company recorded the forgiveness of the principal balance of $2,103,885 as debt forgiveness income in the quarter
ended June 30, 2021.
Note 5 |
OTHER CURRENT LIABILITIES: |
Other current liabilities are comprised of the following:
| |
As of | |
| |
September 30, 2022 | | |
March 31,
2022 | |
Payroll and vacation accruals | |
$ | 840,178 | | |
$ | 871,117 | |
Sales commissions | |
| 40,891 | | |
| 48,681 | |
Other current liabilities | |
| 55,602 | | |
| 31,308 | |
| |
$ | 936,671 | | |
$ | 951,106 | |
IEH CORPORATION
Notes to Unaudited Condensed Financial Statements
Operating leases
Leases classified as operating leases are included in operating
lease right-of use, or ROU, assets, operating lease liabilities and operating lease liabilities, non-current, in the Company’s condensed
balance sheets.
Condensed balance sheet information related
to our leases is presented below:
| |
| |
As of | |
| |
Condensed Balance Sheet Location | |
September 30,
2022 | | |
March 31,
2022 | |
Operating leases: | |
| |
| | |
| |
| |
| |
| | |
| |
Right-of-use assets | |
Operating lease right-of-use assets | |
$ | 2,823,426 | | |
$ | 2,980,820 | |
| |
| |
| | | |
| | |
Right-of-use liability, current | |
Operating lease liabilities, current | |
$ | 300,995 | | |
$ | 285,275 | |
| |
| |
| | | |
| | |
Right-of-use lease liability, long-term | |
Operating lease liabilities, non-current | |
$ | 2,752,536 | | |
$ | 2,906,455 | |
The lease expense for the three months ended September 30,
2022 and 2021 was $143,157 and $154,898, which was included in selling, general and administrative expense on the Company’s condensed
statements of operations, respectively, and for six months ended September 30, 2022 and 2021 was $281,879 and $285,902, which was included
in selling, general and administrative expense on the Company’s condensed statements of operations, respectively. In addition to
the base rent, the Company pays insurance premiums and utility charges relating to the use of the premises. The Company considers its
present facilities to be adequate for its present and anticipated future needs.
IEH CORPORATION
Notes to Unaudited Condensed Financial Statements
Note 6 |
LEASES (continued): |
The basic minimum annual rental remaining on these leases is
$3,818,455 as of September 30, 2022.
The weighted-average remaining lease term and the weighted
average discount rate for operating leases were:
| |
As of | |
| |
September 30,
2022 | | |
March 31,
2022 | |
Other information | |
| | |
| |
Weighted-average discount rate – operating leases | |
| 6.00 | % | |
| 6.00 | % |
Weighted-average remaining lease term – operating lease (in years) | |
| 7.3 | | |
| 7.8 | |
The total remaining operating lease payments included in the
measurement of lease liabilities on the Company’s condensed balance sheet as of September 30, 2022 was as follows:
For the years ended March 31,: | |
Operating
Lease Payments | |
(Six months ending) March 31, 2023 | |
$ | 236,867 | |
2024 | |
| 483,184 | |
2025 | |
| 497,684 | |
2026 | |
| 519,036 | |
2027 | |
| 547,460 | |
Thereafter | |
| 1,534,224 | |
Total gross operating lease payments | |
| 3,818,455 | |
Less: imputed interest | |
| (764,924 | ) |
Total lease liabilities, reflecting present value of future minimum lease payments | |
$ | 3,053,531 | |
IEH CORPORATION
Notes to Unaudited Condensed Financial Statements
The effective tax rates for the three months ended September 30, 2022 and 2021 were a provision of 0% on a loss before provision for income taxes of $1,445,342 and a benefit of 22.4% on a loss before benefit from income taxes of $312,141, respectively. The effective tax rates for the six months ended September 30, 2022 and 2021 were a provision of 22.8% on a loss before provision for income taxes of $3,542,738 and a provision of 1.3% on income before provision for income taxes of $2,129,351, respectively. The tax provision of $806,380 for the six months ended September 30, 2022 represents a charge to record a full valuation of the Company’s deferred tax asset as of April 1, 2022. The lower effective income tax rate for the six months ended September 30, 2021 was due the effect of the $2,103,885 gain on forgiveness of debt, which was not subject to income tax.
Note 8 | EQUITY INCENTIVE PLANS: |
2011 Equity Incentive Plan
On August 31, 2011, the Company’s stockholders approved
the adoption of the Company’s 2011 Equity Incentive Plan (“2011 Plan”) to provide for the grant of stock options and
restricted stock awards to purchase up to 750,000 shares of the Company’s common stock to all employees, consultants and other eligible
participants including senior management and members of the Board of Directors of the Company. The 2011 Equity Incentive Plan expired
on August 31, 2021 after which no further awards will be granted under such plan.
2020 Equity Incentive Plan
On November 18, 2020, the Board of Directors approved the Company’s
2020 Equity Incentive Plan (the “2020 Plan”) for submission to stockholders at the next annual meeting. On December 16, 2020,
the Company’s stockholders approved the adoption of the 2020 Plan, which provides for options and restricted stock awards to purchase
up to 750,000 shares of Common Stock to award in the future as employee incentive compensation to employees, management and directors
of the Company.
Options granted to employees under the 2020 Plan may be designated
as options which qualify for incentive stock option treatment under Section 422A of the Internal Revenue Code, or options which do not
qualify (non-qualified stock options).
Under the 2020 Plan, the exercise price of an option designated
as an incentive stock option shall not be less than the fair market value of the Company’s common stock on the day the option is
granted. In the event an option designated as an incentive stock option is granted to a ten percent (10%) or greater stockholder, such
exercise price shall be at least 110 percent (110%) of the fair market value of the Company’s common stock and the option must not
be exercisable after the expiration of ten years from the day of the grant. The 2020 Plan also provide that holders of options that wish
to pay for the exercise price of their options with shares of the Company’s common stock must have beneficially owned such stock
for at least six months prior to the exercise date.
Exercise prices of non-incentive stock options may not be less
than the fair market value of the Company’s common stock.
The aggregate fair market value of shares subject to options
granted to a participant(s), which are designated as incentive stock options, and which become exercisable in any calendar year, shall
not exceed $100,000.
IEH CORPORATION
Notes to Unaudited Condensed Financial Statements
Note 8 |
EQUITY INCENTIVE PLANS (continued): |
Stock-based compensation expense
Stock-based compensation expense is recorded in selling, general
and administrative expenses included in the condensed statements of operations. For the three months ended September 30, 2022 and 2021,
stock-based compensation expense was $0 and $66,500, respectively. For the six months ended September 30, 2022 and 2021, stock-based compensation
expense was $0 and $266,000, respectively.
As of September 30, 2022 there was no unrecognized compensation
expense related to unamortized stock options. It is the Company’s policy that any unrecognized stock-based compensation cost would
be adjusted for actual forfeitures as they occur.
There were no options granted during the three or six months
ended September 30, 2022 or 2021.
The following table provides the stock option activity:
| |
Shares | | |
Weighted
Avg. Grant Date
Fair Value | | |
Weighted Avg.
Exercise Price | | |
Remaining Contractual Term (Years) | | |
Aggregate Intrinsic Value (in thousands) | |
Balance as of March 31, 2022 | |
| 482,217 | | |
$ | 7.91 | | |
$ | 14.69 | | |
| 6.56 | | |
$ | 865 | |
Granted | |
| - | | |
| - | | |
| - | | |
| | | |
| | |
Exercised | |
| - | | |
| - | | |
| - | | |
| | | |
| | |
Forfeited or Expired | |
| (15,000 | ) | |
| 6.76 | | |
| 13.70 | | |
| | | |
| | |
Balance as of September 30, 2022 | |
| 467,217 | | |
$ | 7.94 | | |
$ | 14.72 | | |
| 6.01 | | |
$ | 602 | |
Exercisable as of September 30, 2022 | |
| 467,217 | | |
$ | 7.94 | | |
$ | 14.72 | | |
| 6.01 | | |
$ | 602 | |
The aggregate intrinsic value in the table above represents
the total pretax intrinsic value (i.e., the difference between the Company’s closing stock price on the last trading day of the
period and the exercise price, times the number of shares) that would have been received by the option holders had all option holders
exercised their in-the-money options on those dates.
In 1987, the Company adopted a cash bonus plan (the “Cash
Bonus Plan”) for non-union, management and administration staff. Unless otherwise approved by the Company’s Board of Directors,
contributions to the Cash Bonus Plan are made by the Company only when the Company is profitable for the fiscal year. As of September
30, 2022 and March 31, 2022, the Company’s accrued bonus was $478,142 and $408,000, respectively. Bonus expense recorded for each
of the three months ended September 30, 2022 and 2021 was $100,500, respectively. Bonus expense recorded for each of the six months ended
September 30, 2022 and 2021 was $201,000, respectively.
IEH CORPORATION
Notes to Unaudited Condensed Financial Statements
Note 10 |
COMMITMENTS AND CONTINGENCIES: |
The Company maintains its operations in facilities located
in both New York and Pennsylvania.
On December 1, 2020, the Company entered into a 120 month extension
of its lease agreement for an industrial building in Brooklyn, NY, expiring December 1, 2030. Monthly rent at inception was $20,400, such
monthly rent escalates annually to a monthly rent of $28,426 for the final year of the lease term. The Company maintains a security deposit
of $40,800, which is included in other assets on the accompanying condensed balance sheet.
On January 29, 2021, the Company entered into an 87 month lease
agreement for an industrial building in Allentown, Pennsylvania, expiring March 30, 2028. Monthly rent at inception was $18,046, such
that the monthly rent escalates annually to a monthly rent of $20,920 for the final year of the lease term. The Company maintains a security
deposit of $35,040, which is included in other assets on the accompanying condensed balance sheet.
The Company has a collective bargaining multi-employer pension
plan (“Multi-Employer Plan”) with the United Auto Workers of America, Local 259 (ID No. 136115077). The Multi-Employer Plan
is covered by a collective bargaining agreement with the Company, which expires on March 31, 2024. Contributions are made in accordance
with a negotiated labor contract and are based on the number of covered employees employed per month. With the passage of the Multi-Employer
Pension Plan Amendments Act of 1990 (the “1990 Act”), the Company may become subject to liabilities in excess of contributions
made under the collective bargaining agreement. Generally, these liabilities are contingent upon the termination, withdrawal, or partial
withdrawal from the Multi-Employer Plan. The risks of participating in a multiemployer plan are different from single-employer plans,
for example, assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating
employers, if a participating employer stops contributing to the multiemployer plan, the unfunded obligations of the plan may become the
obligation of the remaining participating employers, and if a participating employer chooses to stop participating in these multiemployer
plans, the employer may be required to pay those plans an amount based on the underfunded status of the plan.
The total contributions charged to operations under the provisions
of the Multi-Employer Plan were $14,617 and $14,763 for the three months ended September 30, 2022 and 2021, respectively. The total contributions
charged to operations under the provisions of the Multi-Employer Plan were $24,145 and $28,094 for the six months ended September 30,
2022 and 2021, respectively.
During the three months ended September 30, 2022, there were
no customers with concentrations of net sales greater than 10% of the total sales per the financial statements.
During the three months ended September 30, 2021, two customers
accounted for 22.9% of the Company’s net sales, each represented 11.5% and 11.4%, respectively.
During the six months ended September 30, 2022, there were
no customers with concentrations of net sales greater than 10% of total sales per the financial statements.
IEH CORPORATION
Notes to Unaudited Condensed Financial Statements
Note 11 |
CONCENTRATIONS (continued): |
During the six months ended September 30, 2021, three customers
accounted for 38.4% of the Company’s net sales, each represented 14.0%, 13.0%, and 11.4%, respectively.
As of September 30, 2022 and March 31, 2022 there were no highly
concentrated customers of accounts receivable.
As of March 31, 2022, one customer accounted for 15.0% of accounts
receivable.
During the three months ended September 30, 2022, there were
no highly concentrated vendors of the Company’s purchases.
During the three months ended September 30, 2021, one vendor
accounted for 10.7% of the Company’s purchases.
During the six months ended September 30, 2022, one vendor
accounted for 12.0% of the Company’s purchases.
During the six months ended September 30, 2021, one vendor
accounted for 11.1% of the Company’s purchases.
As of September 30, 2022 and March 31, 2022 one vendor accounted
for 12.1% and two vendors accounted for 21.4% of accounts payable, respectively.
Item 2. 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 performance of the Company’s business, actions of competitors, changes in laws and regulations,
including accounting standards, employee relations, customer demand, prices of purchased raw materials and parts, domestic economic conditions,
and foreign economic conditions, including currency rate fluctuations.
The following discussion and analysis should be read in
conjunction with our audited financial statements and related footnotes included elsewhere in this report, which provide additional information
concerning the Company’s financial activities and condition.
Overview
The Company designs, develops and manufactures printed circuit
board connectors and custom interconnects for high performance applications.
All of our connectors utilize the HYPERBOLOID contact design,
a rugged, high-reliability contact system ideally suited for high-stress environments. We believe we are the only independent producer
of HYPERBOLOID printed circuit board connectors in the United States.
Our customers consist of OEMs (Original Equipment Manufacturers)
and distributors who resell our products to OEMs. We sell our products directly and through 22 independent sales representatives and distributors
located in all regions of the United States, Canada, the European Union, Southeast Asia, Central Asia and the Middle East.
The customers we service are in the Defense, Aerospace, Space,
Medical, Oil and Gas, Industrial, Test Equipment and Commercial Electronics markets. We appear on the Military Qualified Product Listing
(“QPL”) MIL-DTL-55302 and supply customer requested modifications to this specification. Our offering of “QPL”
items has recently been expanded to include additional products.
The customers
we service by industry as a percentage of total revenue is provided below:
| |
For the Three Months Ended
September
30, | | |
For the Six Months Ended
September 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
Industry | |
% | | |
% | | |
% | | |
% | |
Defense | |
| 46.2 | | |
| 57.5 | | |
| 51.0 | | |
| 56.8 | |
Commercial Aerospace | |
| 24.7 | | |
| 12.8 | | |
| 22.6 | | |
| 13.7 | |
Space | |
| 13.5 | | |
| 18.5 | | |
| 15.2 | | |
| 20.0 | |
Other | |
| 15.6 | | |
| 11.2 | | |
| 11.2 | | |
| 9.5 | |
Financial Overview
Critical Accounting Policies
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America (US GAAP) requires management to make estimates and assumptions
about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their effects
cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results
inevitably will differ from those estimates, and such differences may be material to the financial statements. The most significant accounting
estimates inherent in the preparation of our financial statements include estimates associated with revenue recognition, valuation of
inventories, accounting for income taxes and stock-based compensation expense.
Our financial position, results of operations and cash flows
are impacted by the accounting policies we have adopted. In order to get a full understanding of our financial statements, one must have
a clear understanding of the accounting policies employed. It is important that the discussion of our operating results that follow be
read in conjunction with these critical accounting policies which have been disclosed in our Annual Report on Form 10-K for the fiscal
year ended March 31, 2022 filed with the SEC on June 22, 2023.
Results of Operations
Comparison of the Three
Months Ended September 30, 2022 and 2021
The following table summarizes
our results of operations for the three months ended September 30, 2022 and 2021:
| |
For the Three-Months Ended
September
30, | | |
Period-to-Period | |
| |
2022 | | |
2021 | | |
Change | |
| |
| | |
| | |
| |
Revenue | |
$ | 4,193,646 | | |
$ | 6,561,872 | | |
$ | (2,368,226 | ) |
| |
| | | |
| | | |
| | |
Operating expenses: | |
| | | |
| | | |
| | |
Cost of products sold | |
| 4,209,506 | | |
| 5,563,554 | | |
| (1,354,048 | ) |
Selling, general and administrative | |
| 1,230,748 | | |
| 1,180,275 | | |
| 50,473 | |
Depreciation and amortization | |
| 257,111 | | |
| 181,149 | | |
| 75,962 | |
Total operating expenses | |
| 5,697,365 | | |
| 6,924,978 | | |
| (1,227,613 | ) |
Operating loss | |
| (1,503,719 | ) | |
| (363,106 | ) | |
| (1,140,613 | ) |
Other income (expense): | |
| | | |
| | | |
| | |
Other income | |
| 53,977 | | |
| 50,839 | | |
| 3,138 | |
Interest income (expense), net | |
| 4,400 | | |
| 126 | | |
| 4,274 | |
Total other income (expense), net | |
| 58,377 | | |
| 50,965 | | |
| 7,412 | |
| |
| | | |
| | | |
| | |
Loss before benefit from income taxes | |
| (1,445,342 | ) | |
| (312,141 | ) | |
| (1,133,201 | ) |
Benefit from income taxes | |
| - | | |
| 69,914 | | |
| (69,914 | ) |
Net loss | |
$ | (1,445,342 | ) | |
$ | (242,227 | ) | |
$ | (1,203,115 | ) |
Revenue for the three months ended September 30, 2022 was
$4,193,646, reflecting a decrease of $2,368,226, or 36.1%, as compared to $6,561,872 for the three months ended September 30, 2021. The
decline in revenue for the period was principally on account of softness in orders from our defense and space customers. Our revenues
continue to be negatively impacted by reduced government spending in these sectors for programs in which we participate. The decline in
defense and space customer revenue was offset somewhat by increases in commercial aerospace revenues. The commercial aerospace programs
in which we participate have seen recoveries. We are seeing increases in commercial aerospace, generally, as consumer aviation traffic
has been returning to pre COVID-19 levels, and from the Boeing 737-Max program, in particular, as Boeing has resumed its production after
having earlier grounded the production of this aerospace program.
Cost of products sold for the three months ended September
30, 2022 was $4,209,506, reflecting a decrease of $1,354,048, or 24.3%, as compared to $5,563,554 for the three months ended September
30, 2021. The decrease was principally attributable to the 36.1% decrease in revenue, offset by additional costs we have incurred in staffing
the Pennsylvania location, the costs of maintaining our highly trained labor force through periods of reduced production and the impacts
of inflation.
Selling, general and administrative expenses for the three
months ended September 30, 2022 was $1,230,748, reflecting an increase of $50,473, or 4.3%, as compared to $1,180,275 for the three months
ended September 30, 2021. The increase was principally due to additional accounting and legal fees.
Depreciation and amortization for the three months ended
September 30, 2022 was $257,111, reflecting an increase of $75,962, or 41.9%, as compared to $181,149 for the three months ended September
30, 2021. The increase was primarily attributable to an increase in capitalized leasehold improvements related to our new Pennsylvania
facility, as well as increases in capitalized molds and dies for new products.
Total other income (expense) for the three months ended September
30, 2022 was income of $58,377, reflecting an increase of $7,412, as compared to an income of $50,965 for the three months ended September
30, 2021. The increase was primarily attributable to an increase in interest income of $4,274 and an increase in other income of $3,138.
Provision for income taxes for the three months ended September
30, 2022 was $0, reflecting a decrease in income tax benefit of $69,914 as compared to a benefit of $69,914 for the three months ended
September 30, 2021. The decrease in income tax benefit was primarily attributable to fully impairing the deferred income tax assets, net.
During the three months ended June 30, 2022, we determined to record a full valuation allowance on our deferred income tax assets, net.
As such, during the three months ended June 30, 2022, we recorded a full valuation allowance for the opening period deferred income tax
asset, net and then beginning on June 30, 2022, recorded an adjustment to fully impair any increase in the deferred income tax asset,
net. As such, for the three months ended September 30, 2022, the effect of recording a full valuation allowance resulted in an income
tax provision of $0.
Comparison of the Six Months Ended September 30, 2022
and 2021
The following table summarizes
our results of operations for the six months ended September 30, 2022 and 2021:
| |
For the Six-Months Ended
September 30, | | |
Period-to-Period | |
| |
2022 | | |
2021 | | |
Change | |
| |
| | |
| | |
| |
Revenue | |
$ | 8,272,230 | | |
$ | 13,072,449 | | |
$ | (4,800,219 | ) |
| |
| | | |
| | | |
| | |
Operating expenses: | |
| | | |
| | | |
| | |
Cost of products sold | |
| 9,128,445 | | |
| 10,303,296 | | |
| (1,174,851 | ) |
Selling, general and administrative | |
| 2,239,755 | | |
| 2,464,381 | | |
| (224,626 | ) |
Depreciation and amortization | |
| 505,594 | | |
| 357,065 | | |
| 148,529 | |
Total operating expenses | |
| 11,873,794 | | |
| 13,124,742 | | |
| (1,250,948 | ) |
Operating loss | |
| (3,601,564 | ) | |
| (52,293 | ) | |
| (3,549,271 | ) |
Other income (expense): | |
| | | |
| | | |
| | |
Other income (a) | |
| 54,053 | | |
| 2,181,445 | | |
| (2,127,392 | ) |
Interest income (expense), net | |
| 4,773 | | |
| 199 | | |
| 4,574 | |
Total other income (expense), net | |
| 58,826 | | |
| 2,181,644 | | |
| (2,122,818 | ) |
| |
| | | |
| | | |
| | |
(Loss) income before provision for income taxes | |
| (3,542,738 | ) | |
| 2,129,351 | | |
| (5,672,089 | ) |
Provision for income taxes | |
| (806,380 | ) | |
| (27,990 | ) | |
| (778,390 | ) |
Net (loss) income | |
$ | (4,349,118 | ) | |
$ | 2,101,361 | | |
$ | (6,450,479 | ) |
| (a) | For the six months ended September
30, 2021, other income consists of $2,103,885 of debt forgiveness income from the forgiveness of the PPP Loan (See Note 4 – PPP
Loan and Note). |
Revenue for the six months ended September 30, 2022 was $8,272,230,
reflecting a decrease of 4,800,219, or 36.7%, as compared to $13,072,449 for the six months ended September 30, 2021. The decline in revenue
for the period was principally on account of softness in orders from our defense and space customers. Our revenues continue to be negatively
impacted by reduced government spending in these sectors for programs in which we participate. The decline in defense and space customer
revenue was offset somewhat by increases in commercial aerospace revenues. The commercial aerospace programs in which we participate have
seen recoveries. We are seeing increases in commercial aerospace, generally, as consumer aviation traffic has been returning to pre COVID-19
levels, and from the Boeing 737-Max program, in particular, as Boeing has resumed its production after having earlier grounded the production
of this aerospace program.
Cost of products sold for the six months ended September
30, 2022 was $9,128,445, reflecting a decrease of $1,174,851, or 11.4%, as compared to $10,303,296 for the six months ended September
30, 2021. The decrease was principally attributable to the 36.7% decrease in revenue, offset by additional costs we have incurred in staffing
the Pennsylvania location, the costs of maintaining our highly trained labor force through periods of reduced production and the impacts
of inflation.
Selling, general and administrative expenses for the six
months ended September 30, 2022 was $2,239,755, reflecting a decrease of $224,626 or 9.1%, as compared to $2,464,381 for the six months
ended September 30, 2021. The increase was principally due to additional accounting and legal fees.
Depreciation and amortization for the six months ended September
30, 2022 was $505,594, reflecting an increase of $148,529, or 41.6%, as compared to $357,065 for the six months ended September 30, 2021.
The increase was primarily due to an increase in capitalized leasehold improvements related to our new Pennsylvania facility, as well
as increases in capitalized molds and dies for new products.
Total other income (expense) for the six months ended September
30, 2022 was income of $58,826, reflecting a decrease of $2,122,818, as compared to income of $2,181,644 for the six months ended September
30, 2021. The decrease was primarily attributable to the gain on the forgiveness of the PPP loan of $2,103,885 recorded in the first quarter
of the fiscal year ended March 31, 2022.
Provision for income taxes for the six months ended September
30, 2022 was $806,380, reflecting an increase of $778,390 as compared to a provision of $27,990 for the six months ended September 30,
2021. The increase was primarily attributable to fully impairing the deferred income tax assets, net. During the three months ended June
30, 2022, we determined to record a full valuation allowance on our deferred income tax assets, net. As such, during the three months
ended June 30, 2022, we recorded a full valuation allowance for the opening period deferred income tax asset, net and then beginning on
June 30, 2022, recorded an adjustment to fully impair any increase in the deferred income tax asset, net. As such, for the six months
ended September 30, 2022, the effect of recording a full valuation allowance resulted in an income tax provision of $806,380.
Liquidity and Capital Resources:
Our primary requirements for liquidity and capital are working
capital, inventory, capital expenditures, public company costs and general corporate needs. We expect these needs to continue as we further
develop and grow our business. For the three and six months ended September 30, 2022, our primary sources of liquidity came from existing
cash. Based on our current plans and business conditions, we believe that existing cash, together with cash generated from operations
will be sufficient to satisfy our anticipated cash requirements, and we are not aware of any trends or demands, commitments, events or
uncertainties that are reasonably likely to result in a decrease in liquidity of our assets. We may require additional capital to respond
to technological advancements, competitive dynamics or technologies, business opportunities, challenges, acquisitions or unforeseen circumstances
and in either the short-term or long-term may determine to engage in equity or debt financings or enter into credit facilities for other
reasons. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue
to grow or support our business and to respond to business challenges could be significantly limited. In particular, inflationary pressures
and interest rates, and the conflict between Russia and Ukraine have resulted in, and may continue to result in, significant disruption
and volatility in the global financial markets, reducing our ability to access capital. If we are unable to raise additional funds when
or on the terms desired, our business, financial condition and results of operations could be adversely affected.
As of September 30, 2022 and March 31, 2022, the Company’s
cash on hand was $9,824,154 and $12,675,271, respectively. The Company has recorded net loss of $1,445,342 and $242,227 for the three
months ended September 30, 2022 and 2021. The Company has recorded a net loss of $4,349,118 for the six months ended September 30, 2022
and net income of $2,101,361 for the six months ended September 30, 2021, respectively. As of September 30, 2022 and March 31, 2022, the
Company had working capital of $22,044,439 and $25,508,882 and stockholders’ equity of $26,470,376 and $30,819,494, respectively.
Our principal source of liquidity has been from
cash flows generated by operating activities.
Cash Flow Activities for the Six
Months Ended September 30, 2022 Compared to the Six Months Ended September 30, 2021
The following table summarizes
our sources and uses of cash for the six months ended September 30, 2022 and 2021:
| |
For the Six Months Ended September 30, | | |
Period-to-Period | |
| |
2022 | | |
2021 | | |
Change | |
| |
| | |
| | |
| |
Cash flow (used in) provided by | |
| | |
| | |
| |
Operating activities | |
$ | (2,420,343 | ) | |
$ | 1,121,197 | | |
$ | (3,541,540 | ) |
Investing activities | |
| (430,774 | ) | |
| (412,158 | ) | |
| (18,616 | ) |
Net (decrease) increase in cash and cash equivalents | |
$ | (2,851,117 | ) | |
$ | 709,039 | | |
$ | (3,560,156 | ) |
Net cash used in operating activities was $2,420,343 for
the six months ended September 30, 2022 compared to net cash provided by operating activities was $1,121,197 for the six months ended
September 30, 2021. The period over period decrease in cash of $3,541,540 was primarily due the decrease in net income (loss) (as adjusted
for the non-cash gain on forgiveness of debt) of $4,346,594, offset principally by the non-cash charge to fully impair the deferred income
tax asset, net.
Net cash used in investing activities was $430,774 for the
six months ended September 30, 2022 compared to $412,158 for the six months ended September 30, 2021. The increase in cash used in investing
activities was due to an increase in purchases of molds and dies and machinery and equipment during the six months ended September 30,
2022, partially offset by buildout of our Pennsylvania facility during the six months ended September 30, 2021.
There were no financing activities during the six months
ended September 30, 2022 or 2021.
PPP Loan and Note
On April 13, 2020, the Company entered into an unsecured
note (the “PPP Note”) evidencing an unsecured loan (“PPP Loan”) in the principal amount of $2,103,885 pursuant
to the Payment Protection Program (“PPP”) under the Coronavirus Aid Relief and Economic Security Act (“CARES Act”).
On April 21, 2021, the Company received notice that the PPP
Loan was forgiven. The Company recorded the forgiveness of the principal balance of $2,103,885 as debt forgiveness income in the quarter
ended June 30, 2021.
Backlog of Orders
The backlog of orders for the Company’s products amounted
to approximately $11,358,000 at September 30, 2022 as compared to $7,909,000 at March 31, 2022. The orders in backlog at September 30,
2022 are expected to ship and/or services are expected to be performed over the next 12 months depending on customer requirements and
product availability.
Inflation
In the opinion of management, inflation has begun to impact
the costs of our operations and depending upon the current duration and degree of higher inflation levels, is expected to have an impact
upon our operations in the future. Management will continue to monitor inflation and evaluate the possible future effects of inflation
on our business and operations.
Item 3. Qualitative and Quantitative Disclosures
about Market Risk
Not applicable.
Item 4. Controls and Procedures
Management’s Evaluation of our Disclosure Controls
and Procedures
We maintain disclosure controls and procedures (as defined
in paragraph (e) of Rules 13a-15 and 15d-15 under the Exchange Act) designed to ensure that the information we are required to disclose
in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified
under the rules and forms of the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed
to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief
Financial Officer, as appropriate to allow timely decisions regarding required disclosures.
As required by paragraph (b) of Rules 13a-15 and 15d-15 under
the Exchange Act, our management, with the participation of our Chief Executive Officer (our principal executive officer) and our Chief
Financial Officer (our principal financial officer) carried out an evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures as of as of the end of the period covered by this Quarterly Report on Form 10-Q. Our management recognizes
that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives,
and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our principal
executive and principal financial officer have concluded based upon the evaluation described above that, as of September 30, 2022, our
disclosure controls and procedures were not effective at the reasonable assurance level.
Management has used the framework set forth in the report
entitled Internal Control—Integrated Framework published by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework), known as COSO, to evaluate the effectiveness of our internal control over financial reporting. As of March 31, 2022,
the following material weaknesses were identified. Management is working diligently on steps to remediate these weaknesses. However, until
such time as management is able to fully document, implement, test, validate and repeat its steps for remediation, the Company has determined
that the below material weaknesses continue to be in effect as of September 30, 2022:
|
● |
Certain of the Company’s controls associated with reconciliations of inventory, cost of products sold and income taxes, as well as for the calculation of stock-based compensation awards, were not operating effectively. These deficiencies, combined with inadequate compensating review controls, resulted in material misstatements, individually in the financial statements and represented a material weakness in the Company’s internal control over financial reporting. |
| ● | The Company has not established an effective control environment due to the ineffective design and implementation of Information Technology
General Controls (“ITGC”). The Company’s ITGC deficiencies included improperly designed controls pertaining to user
access rights over systems that are critical to the Company’s system of financial reporting. The ITGC deficiencies, combined with
a lack of properly designed management review controls to compensate for these deficiencies, represent a material weakness in the Company’s
internal control over financial reporting. |
Management is actively engaged in the planning for and implementation
of remediation efforts to address the identified material weaknesses. The remediation plan includes (i) the engaging of additional experienced
financial resources, (ii) the development and implementation of enhanced controls designed to evaluate the appropriateness of policies
and procedures, (iii) the implementation of review and monitoring of transactions to ensure compliance with the new policies and procedures,
(iv) improvements in the design and implementation of enhanced monitoring of ITGC controls, and (v) the enhanced training of personnel.
Changes in Internal Controls Over Financial Reporting
There were no changes in our internal controls over financial
reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) identified in connection with the evaluation of our internal
controls that occurred during the fiscal quarter ended September 30, 2022 that materially affected, or are reasonably likely to materially
affect our internal controls over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
There are no legal proceedings that have occurred within
the past year concerning our directors, or control persons which involved a criminal conviction, a criminal proceeding, an administrative
or civil proceeding limiting one’s participation in the securities or banking industries, or a finding of securities or commodities
law violations.
On August 17, 2022, the SEC issued an Order Instituting Administrative
Proceedings and Notice of Hearing pursuant to Section 12(j) of the Exchange Act. The stated purpose of the administrative proceeding is
for the Commission to determine whether it is necessary and appropriate for the protection of investors to suspend for a period not exceeding
twelve months, or revoke the registration of each class of securities registered pursuant to Section 12 of the Exchange Act of the Company.
The Company filed an Answer in the proceeding on October 3, 2022 and on October 13, 2022 we conducted a prehearing conference with SEC
staff in the Division of Enforcement. On March 1, 2023 the SEC’s Division of Enforcement filed a Motion for Summary Disposition,
on March 15, 2023, IEH filed an opposition brief to the SEC Division of Enforcement’s Motion for Summary Disposition, and on March
29, 2023, the SEC’s Division of Enforcement filed a Reply in Support of its Motion for Summary Disposition. The Commission will
issue a decision on the basis of the record in the proceeding.
Item 1A. Risk Factors
Our operations and financial results are subject to various
risks and uncertainties, including those described in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for
the year ended March 30, 2022 which could adversely affect our business, financial condition, results of operations, cash flows, and the
trading price of our common and capital stock. Except as set forth below, as of the date of this Quarterly Report, there have been no
material changes to our risk factors previously disclosed in our Exchange Act Reports.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
Item 6. Exhibits
The exhibits filed as part of this Quarterly Report on Form
10-Q are set forth on the Exhibit Index, which Exhibit Index is incorporated herein by reference.
EXHIBIT INDEX
Exhibit No. |
|
Description |
|
|
|
3.1 |
|
Amended and Restated Certificate of Incorporation of the Company (filed as Exhibit C-4 to Current Report on Form 8-K, dated February 27, 1991). |
|
|
|
3.2 |
|
By-Laws of the Company (filed as Exhibit 3.2 on Annual Report on Form 10-KSB for the fiscal year ended March 27, 1994). |
|
|
|
4.1 |
|
Form of Common Stock Certificate of the Company (filed as Exhibit 4.1 on Annual Report on Form 10-KSB for the fiscal year ended March 27, 1994). |
|
|
|
4.2 |
|
Description of Securities (filed as Exhibit 4.2 on Annual Report on Form 10-K for the fiscal year ended March 31, 2022 on June 22, 2023). |
|
|
|
10.1(†) |
|
2020 Equity Stock Based Compensation Plan (filed as Annex A to definitive Proxy Statement dated November 23, 2020). |
|
|
|
10.2(†) |
|
Employment Agreement between the Company and David Offerman, dated as of July 31, 2019 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 31, 2019). |
|
|
|
10.3(†) |
|
Employment Agreement between the Company and William H. Craig dated as of September 21, 2022 and effective as of July 1, 2022 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 21, 2022). |
|
|
|
31.1* |
|
Certification of Chief Executive Officer pursuant to Section 17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a) pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
31.2* |
|
Certification of Principal Financial Officer pursuant to Section 17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a) pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
32.1** |
|
Certifications by Chief Executive Officer and Principal Financial Officer, pursuant to 17 CFR 240.13a-14(b) or 17 CFR 240.15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
101.1* |
|
The following information from IEH Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, formatted in Inline XBRL (Extensible Business Reporting language) and filed electronically herewith: (i) the Balance Sheets; (ii) the Statements of Operations; (iii) the Statements of Stockholders’ Equity; (iv) the Statements of Cash Flow; and (v) the Notes to Financial Statements. |
|
|
|
101.INS* |
|
Interactive Data Files pursuant to Rule 405 of Regulation S-T formatted in Inline Extensible Business Reporting Language (“Inline XBRL”) |
|
|
|
101.SCH* |
|
Inline XBRL Taxonomy Extension Schema Document |
|
|
|
101.CAL* |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
101.DEF* |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
101.LAB* |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
101.PRE* |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
104 |
|
Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101) |
* |
Exhibits filed herewith. |
** |
Exhibits furnished herewith. |
† |
Indicates management contract or compensatory plan or arrangement. |
SIGNATURES
Pursuant to the requirements 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 |
|
|
|
Dated: October 6, 2023 |
By: |
/s/ David Offerman |
|
|
David Offerman |
|
|
Chairman of the Board, President and Chief Executive Officer (Principal
Executive Officer)
/s/ Subrata Purkayastha
Subrata Purkayastha, Interim Chief Financial Officer
(Principal Financial Officer) |
NONE
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In connection with the Quarterly Report of IEH Corporation
(the “Company”) on Form 10-Q for the quarter ended September 30, 2022 as filed with the Securities and Exchange Commission
on the date hereof (the “Report”), the undersigned, being, David Offerman, President and Chief Executive Officer (Principal
Executive Officer), and Subrata Purkayastha, Interim Chief Financial Officer (Principal Financial Officer), of the Company, respectfully
certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002, that:
This Certification is being furnished solely to accompany the Report
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed
“filed” by the Company for purposes of Section 18 of the Securities Act of 1933, as amended, or the Securities Exchange
Act of 1934, as amended, whether made before or after the date of the Report, irrespective of any general incorporation language contained
in such filing. A signed original of the written statement required by Section 906 has been provided to the Company and will be retained
by the Company and furnished to the Securities and Exchange Commission or its staff upon request.