IEH Corp 10-Q for FY2023 Q2
IEH Corp (IEHC)
About this 10-Q
IEH Corp filed this 10-Q on October 6, 2023, covering the quarter ended September 30, 2022 (FY2023 Q2).
Headline figures
Quarter ended September 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $4.19M
- down 36.1% from $6.56M a year earlier
- Net loss
- $1.45M
- compared with a net loss of $242.23K a year earlier
- Diluted EPS
- -$0.61
- compared with -$0.10 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
For the transition period from ____________ to ____________
Commission file number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| | ||
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including
area code:
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: | ||
| 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 ☐
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 ☐
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 | ☐ | |||
| ☒ | 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
TABLE OF CONTENTS
i
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; | |
| ● | increased levels of competition; | |
| ● | changes in political, economic or regulatory conditions generally and in the markets in which we operate; | |
| ● | our relationships with our key customers; | |
| ● | adverse conditions in the industries in which our customers operate; | |
| ● | our ability to retain and attract senior management and other key employees; | |
| ● | our ability to quickly and effectively respond to new technological developments; | |
| ● | 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 | |
| ● | other risks, including those described in the “Risk Factors” section of this Quarterly Report. |
ii
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 | $ | $ | ||||||
| Accounts receivable | ||||||||
| Inventories | ||||||||
| Corporate income taxes receivable | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Non-current assets: | ||||||||
| Property, plant and equipment, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Deferred income tax assets, net | ||||||||
| Security deposit | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Customer advance payments | ||||||||
| Operating lease liabilities | ||||||||
| Other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Non-current liabilities: | ||||||||
| Operating lease liabilities, non-current | ||||||||
| Total liabilities | ||||||||
| Commitments and Contingencies (Note 10) | ||||||||
| Stockholders’ Equity | ||||||||
| Common Stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
1
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 | $ | $ | $ | $ | ||||||||||||
| Costs and expenses: | ||||||||||||||||
| Cost of products sold | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Other income (for six months ended September 30, 2021, consists principally of $ | ||||||||||||||||
| Interest income (expense), net | ||||||||||||||||
| Total other income (expense), net | ||||||||||||||||
| (Loss) income before benefit from (provision for) income taxes | ( | ) | ( | ) | ( | ) | ||||||||||
| Benefit from (provision for) income taxes | ( | ) | ( | ) | ||||||||||||
| Net (loss) income | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
| (Net loss) earnings per common share: | ||||||||||||||||
| Basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
| Diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
| Weighted-average number of common and common equivalent shares (in thousands): | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
2
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 | $ | $ | $ | $ | ||||||||||||||||
| Stock-based compensation expense | - | |||||||||||||||||||
| Net income | - | |||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | $ | $ | ||||||||||||||||
| Stock-based compensation expense | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance at September 30, 2021 | $ | $ | $ | $ | ||||||||||||||||
| Common Stock | Additional Paid-in | Retained | Total Stockholders’ | |||||||||||||||||
| Shares | Amount | Capital | Earnings | Equity | ||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | $ | ||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | $ | ||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | $ | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
3
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 | $ | ( | ) | $ | ||||
| Adjustments to reconcile net (loss) income to | ||||||||
| Net cash (used in) provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Stock-based compensation expense | ||||||||
| Inventory obsolescence provision | ( | ) | ||||||
| Deferred income taxes, net | ( | ) | ||||||
| Operating lease right-of-use assets | ||||||||
| Gain on forgiveness of PPP loan | ( | ) | ||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | ||||||||
| Inventories | ( | ) | ||||||
| Corporate income taxes receivable | ( | ) | ||||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Accounts payable | ( | ) | ( | ) | ||||
| Customer advance payments | ( | ) | ( | ) | ||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Other current liabilities | ( | ) | ( | ) | ||||
| Net cash (used in) provided by operating activities | ( | ) | ||||||
| Cash flows from investing activities: | ||||||||
| Acquisition of property, plant and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Net (decrease) increase in cash | ( | ) | ||||||
| Cash - beginning of period | ||||||||
| Cash - end of period | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | $ | ||||||
| Income Taxes | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
4
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.
5
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.
| For the Three Months Ended September 30, | For the Six Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Domestic | $ | $ | $ | $ | ||||||||||||
| International | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
Approximately
Approximately
| For the Three Months Ended September 30, | For the Six Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Industry | % | % | % | % | ||||||||||||
| Defense | ||||||||||||||||
| Commercial Aerospace | ||||||||||||||||
| Space | ||||||||||||||||
| Other | ||||||||||||||||
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 $
6
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.
| For the Three Months Ended September 30, | For the Six Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Net (loss) income | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
| (Net loss) earnings per common share: | ||||||||||||||||
| Basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
| Diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
| Weighted average number of common shares outstanding-basic (in thousands) | ||||||||||||||||
| Dilutive effect of options to the extent that such options are determined to be in the money for the period (in thousands) | ||||||||||||||||
| Weighted average number of common shares outstanding-fully diluted (in thousands) | ||||||||||||||||
7
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 | ||||||||||||||||
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.
8
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 (
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.
9
IEH CORPORATION
Notes to Unaudited Condensed Financial Statements
| Note 3 | INVENTORIES: |
Inventories are stated at cost, on a moving average basis that does not exceed net realizable value.
| As of | ||||||||
September 30, 2022 | March 31, 2022 | |||||||
| Raw materials | $ | $ | ||||||
| Work in progress | ||||||||
| Finished goods | ||||||||
| Allowance for obsolete inventory | ( | ) | ( | ) | ||||
| $ | $ | |||||||
| 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 $
On April 21, 2021, the Company received notice that the PPP
Loan was forgiven. The Company recorded the forgiveness of the principal balance of $
| Note 5 | OTHER CURRENT LIABILITIES: |
| As of | ||||||||
| September 30, 2022 | March 31, 2022 | |||||||
| Payroll and vacation accruals | $ | $ | ||||||
| Sales commissions | ||||||||
| Other current liabilities | ||||||||
| $ | $ | |||||||
10
IEH CORPORATION
Notes to Unaudited Condensed Financial Statements
| Note 6 | LEASES: |
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.
| As of | ||||||||||
| Condensed Balance Sheet Location | September 30, 2022 | March 31, 2022 | ||||||||
| Operating leases: | ||||||||||
| Right-of-use assets | Operating lease right-of-use assets | $ | $ | |||||||
| Right-of-use liability, current | Operating lease liabilities, current | $ | $ | |||||||
| Right-of-use lease liability, long-term | Operating lease liabilities, non-current | $ | $ | |||||||
The lease expense for the three months ended September 30,
2022 and 2021 was $
11
IEH CORPORATION
Notes to Unaudited Condensed Financial Statements
| Note 6 | LEASES (continued): |
The basic minimum annual rental remaining on these leases is
$
| As of | ||||||||
September 30, | March 31, 2022 | |||||||
| Other information | ||||||||
| Weighted-average discount rate – operating leases | % | % | ||||||
| Weighted-average remaining lease term – operating lease (in years) | ||||||||
| For the years ended March 31,: | Operating Payments | |||
| (Six months ending) March 31, 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total gross operating lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Total lease liabilities, reflecting present value of future minimum lease payments | $ | |||
12
IEH CORPORATION
Notes to Unaudited Condensed Financial Statements
| Note 7 | INCOME TAXES: |
The effective tax rates for the three months ended September 30, 2022 and 2021 were a provision of
| 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
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
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 (
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 $
13
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 and $
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 options granted during the three or six months ended September 30, 2022 or 2021.
| 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 | $ | $ | $ | |||||||||||||||||
| Granted | ||||||||||||||||||||
| Exercised | ||||||||||||||||||||
| Forfeited or Expired | ( | ) | ||||||||||||||||||
| Balance as of September 30, 2022 | $ | $ | $ | |||||||||||||||||
| Exercisable as of September 30, 2022 | $ | $ | $ | |||||||||||||||||
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.
| Note 9 | CASH BONUS PLAN: |
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 $
14
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 $
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 $
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 $
| Note 11 | CONCENTRATIONS: |
During the three months ended September 30, 2022, there were
no customers with concentrations of net sales greater than
During the three months ended September 30, 2021, two customers
accounted for
During the six months ended September 30, 2022, there were
no customers with concentrations of net sales greater than
15
IEH CORPORATION
Notes to Unaudited Condensed Financial Statements
| Note 11 | CONCENTRATIONS (continued): |
During the six months ended September 30, 2021, three customers
accounted for
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
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
During the six months ended September 30, 2022, one vendor
accounted for
During the six months ended September 30, 2021, one vendor
accounted for
As of September 30, 2022 and March 31, 2022 one vendor accounted
for
16
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.
17
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.
18
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.
19
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.
20
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.
21
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.
22
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.
23
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. |
24
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) | ||
25
Exhibit 31.1
CERTIFICATIONS
I, David Offerman, certify that:
| 1. | I have reviewed this report on Form 10-Q for the quarter ended September 30, 2022 of IEH Corporation; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: October 6, 2023 | |
| /s/ David Offerman | |
| David Offerman | |
| Chairman of the Board | |
| President and Chief Executive Officer | |
| (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATIONS
I, Subrata Purkayastha, certify that:
| 1. | I have reviewed this report on Form 10-Q for the quarter ended September 30, 2022 of IEH Corporation; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: October 6, 2023 | |
| /s/ Subrata Purkayastha | |
| Subrata Purkayastha | |
| Interim Chief Financial Officer | |
| (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
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:
| (1) | This Report on Form 10-Q fully complies with the requirements of the Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: October 6, 2023
| /s/ David Offerman | /s/ Subrata Purkayastha | |
| David Offerman | Subrata Purkayastha | |
| Chairman of the Board, President and Chief Executive Officer |
Interim Chief Financial Officer (Principal Financial Officer) | |
| (Principal Executive Officer) |
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.