UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
[_] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-25844
TAITRON COMPONENTS INCORPORATED
(Name of Registrant as specified in its charter)
California 95-4249240
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
28040 West Harrison Parkway
Valencia, California 91355-4162
(Address Of Principal Executive Offices)
(661) 257-6060
(Registrant's Telephone Number, Including Area Code)
NONE
(Former Name, Address and Fiscal Year, if Changed Since Last Report)
Check 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 (X) NO ( )
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date:
Class Outstanding on April 20, 2001
------------------------------------- -----------------------------
Class A Common Stock, $.001 par value 4,927,170
Class B Common Stock, $.001 par value 762,612
Page 1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TAITRON COMPONENTS INCORPORATED
Condensed Consolidated Balance Sheets
(Dollars in Thousands)
March 31, December 31,
2001 2000
----------- ------------
Assets (Unaudited)
Current assets:
Cash and cash equivalents $ 178 $ 190
Trade accounts receivable, net 3,325 4,809
Inventory, net 30,477 30,609
Prepaid expenses 345 355
Deferred income taxes 694 694
Other current assets 196 251
-------- --------
Total current assets 35,215 36,908
Property and equipment, net 7,139 7,205
Other assets 284 287
-------- --------
Total assets $ 42,638 $ 44,400
======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Revolving line of credit $ 13,590 $ 13,930
Current portion of long term debt 23 22
Trade accounts payable 1,584 2,495
Accrued liabilities and other 597 902
-------- --------
Total current liabilities 15,794 17,349
-------- --------
Long-term debt, less current portion 406 412
-------- --------
Commitments -- --
Shareholders' equity:
Preferred stock, $.001 par value. Authorized 5,000,000 shares.
None issued or outstanding. -- --
Class A common stock, $.001 par value. Authorized 20,000,000
shares; issued and outstanding 4,936,570 and 4,983,975 shares as
of March 31, 2001 and December 31, 2000, respectively. 5 5
Class B common stock, $.001 par value. Authorized, issued and
outstanding 762,612, shares as of March 31, 2001 and
December 31, 2000. 1 1
Additional paid-in capital 10,926 11,062
Accumulated comprehensive income (36) (45)
Retained earnings 15,542 15,616
-------- --------
Total shareholders' equity 26,438 26,639
-------- --------
Total liabilities and shareholders' equity $ 42,638 $ 44,400
======== ========
See accompanying notes to condensed consolidated financial statements.
Page 2
TAITRON COMPONENTS INCORPORATED
Condensed Consolidated Statements of Operations
(Dollars in thousands, except per share amounts)
Three months ended March 31,
----------------------------
2001 2000
----------- -----------
(Unaudited) (Unaudited)
Net sales $ 5,524 $ 8,348
Cost of goods sold 3,857 5,786
--------- ---------
Gross profit 1,667 2,562
Selling, general and administrative expenses 1,535 1,624
--------- ---------
Operating earnings 132 938
Interest expense, net 247 200
Other income, net (17) (10)
--------- ---------
Earnings (loss) before income taxes (98) 748
Income tax provision (benefit) (24) 311
--------- ---------
Net earnings (loss) $ (74) $ 437
========= =========
Earnings (loss) Per Share:
Basic $ (.01) $ .07
========= =========
Diluted $ (.01) $ .07
========= =========
Weighted average common shares outstanding:
Basic 5,722,573 5,833,805
========= =========
Diluted 5,722,573 6,124,017
========= =========
See accompanying notes to condensed consolidated financial statements.
Page 3
TAITRON COMPONENTS INCORPORATED
Condensed Consolidated Statements of Cash Flows
(Dollars in Thousands)
Three months ended March 31,
-------------------------------
2001 2000
----------- -----------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net earnings (loss) $ (74) $ 437
------- -------
Adjustments to reconcile net earnings(loss) to net cash provided
by operating activities:
Depreciation and amortization 138 118
Gain on sale of assets (7) --
Deferred income taxes -- 51
Changes in Assets and Liabilities:
Trade accounts receivable 1,484 (714)
Inventory 132 1,198
Prepaid expenses 10 70
Other current assets 55 (19)
Other assets 3 (48)
Trade accounts payable (911) 435
Accrued and other liabilities (305) (39)
------- -------
Total adjustments 599 1,052
------- -------
Net cash provided by operating activities 525 1,489
------- -------
Cash flows from investing activities:
Acquisitions of property and equipment (72) (460)
Proceeds from sale of assets 7 --
------- -------
Net cash used in investing activities (65) (460)
------- -------
Cash flows from financing activities:
Borrowings on long term debt 2,155 1,216
Proceeds from exercise of stock options 42 --
Payments on long term debt (2,500) (2,400)
Repurchase of Class A Common Stock (178) (50)
------- -------
Net cash used in financing activities (481) (1,234)
------- -------
Impact of changes in exchange rates on cash 9 (27)
Net decrease in cash and cash equivalents (12) (232)
Cash and cash equivalents, beginning of period 190 274
------- -------
Cash and cash equivalents, end of period $ 178 $ 42
======= =======
Supplemental disclosure of cash flow information:
Cash paid for interest (net of capitalized interest of none
and $22 in 2001 and 2000, respectively) $ 265 $ 148
======= =======
Cash paid for income taxes $ 182 $ 207
======= -======
See accompanying notes to condensed consolidated financial statements.
Page 4
TAITRON COMPONENTS INCORPORATED
Notes to Condensed Consolidated Financial Statements
As of and for the quarterly period ended March 31, 2001
(All amounts are unaudited, except for the balance sheet as of December 31,
2000)
(1) Basis of Presentation
The condensed consolidated financial information furnished herein is
unaudited and, in the opinion of management, includes all adjustments
(consisting of normal recurring adjustments and accruals) in conformity
with the accounting principles reflected in the financial statements
included in the Annual Report on Form 10-K filed with the Securities and
Exchange Commission for the year ended December 31, 2000. The results of
operations for interim periods are not necessarily indicative of results to
be achieved for full fiscal years.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q and,
therefore, do not include all information and footnotes necessary for a
fair presentation of financial position, results of operations and cash
flows in conformity with generally accepted accounting principles. The
unaudited condensed consolidated financial statements and notes should,
therefore, be read in conjunction with the financial statements and notes
thereto in the Annual Report on Form 10-K for the year ended December 31,
2000.
(2) Summary of Significant Accounting Policies
Principles of Consolidation
The unaudited condensed consolidated financial statements include the
accounts of the Company and its majority-owned subsidiary. All significant
intercompany transactions have been eliminated in consolidation.
Revenue Recognition
Revenue is recognized upon shipment of the merchandise. Reserves for sales
allowances and customer returns are established based upon historical
experience and management's estimates as shipments are made. Sales returns
for the quarters ended March 31, 2001 and 2000 aggregated $112,000 and
$143,000, respectively.
Allowance for Sales Returns and Doubtful Accounts
The allowance for sales returns and doubtful accounts at March 31, 2001 and
December 31, 2000 aggregated $105,000 and $120,000, respectively.
Inventory
Inventory, consisting principally of products held for resale, is stated at
the lower of cost or market, using the first-in, first-out method. The
amount presented in the accompanying financial statements is net of
valuation allowances of $1,474,000 and $1,326,000 at March 31, 2001 and
December 31, 2000, respectively.
Net Income (Loss) Per Share
Common equivalent shares are excluded from the computation of diluted
earnings per share for the three-month period ended March 31, 2001, as
their effect is anti-dilutive.
Reclassification
Certain amounts in the 2000 financial statements have been reclassified to
conform with the current 2001 financial statement presentation.
Page 5
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
The following table sets forth certain amounts and ratios, as a percentage of
net sales, included in the unaudited condensed consolidated statements of
operations.
Three Months Period Ended
March 31,
------------------------------
2001 2000
------ ------
(Dollars in Thousands)
Net sales $5,524 8,348
Cost of goods sold 3,857 5,786
Gross profit 1,667 2,562
% of net sales 30.2% 30.7%
Selling, general and administrative expenses 1,535 1,624
% of net sales 27.8% 19.5%
Operating earnings 132 938
% of net sales 2.4% 11.2%
Interest expense, net 247 200
% of net sales 4.5% 2.4%
Net earnings (74) 437
% of net sales (1.3)% 5.2%
Comparison of the Three Month Periods Ended March 31, 2001 with March 31, 2000.
Net sales for the quarter ended March 31, 2001 decreased to $5,524,000 from
$8,348,000 for the same period last year, a decrease of 33.8% or $2,824,000.
The decrease is primarily due to a recent industry wide decrease in demand for
discrete semiconductors. Export sales decreased to $685,000 from $718,000, a
decrease of 4.6% or $33,000. The average unit selling price decreased to 2.1
cents for the current period from 2.2 cents during the same period last year.
Cost of goods sold for the current period ended March 31, 2001 decreased to
$3,857,000 from $5,786,000 for the same period last year, a decrease of 33.3% or
$1,929,000. Cost of goods sold decreased with the decline in net sales,
however, at a slightly slower rate with gross profit decreasing by $895,000 or
30.2% during the three months ended March 31, 2001, as compared to $2,562,000 or
30.7% during the same period last year.
Page 6
Selling, general and administrative expenses decreased by $89,000 or 5.5%
for the current period ended March 31, 2001 compared to the same period of 2000.
These costs, as a percentage of net sales, increased to 27.8% for the three
months ended March 31, 2001 as compared to 19.5% for the three months ended
March 31, 2000, which was attributable to the overall decrease in net sales.
However, these costs, as a dollar amount, decreased to $1,535,000 during the
three months ended March 31, 2001 as compared to $1,624,000 during the same
period last year. The decrease is primarily attributable to reducing personnel-
related expenses, telephones and commissions paid to independent sales
representatives.
Operating earnings decreased by $806,000 or 85.9% between the three month
period ended March 31, 2001 and 2000, and decreased as a percentage of net sales
to 2.4% from 11.2%. Operating earnings decreased primarily due to the decrease
in net sales, as discussed above.
Interest expense, net of interest income for the current period ended March
31, 2001 increased by $47,000 compared to the same period last year. The
increase is due to increased borrowing levels as larger purchases of inventory
were made during last year, partially offset by lower interest rates during the
current quarter compared to the same period last year.
Income tax benefit was $24,000 in the current period ended March 31, 2001,
representing an effective tax benefit rate of 40% of US domestic pre-tax income,
as compared to income tax expense of $311,000 for the same period in 2000, an
effective tax rate of 40% of US domestic pre-tax income.
Net loss was $74,000 for the current period ended March 31, 2001 as
compared with net earnings of $437,000 for the same period last year, a decrease
of $511,000, for the reasons discussed above.
Supply and Demand Issues
The demand for discrete semiconductors in the U.S. market decreased from
1996 through the middle of 1999. Since then until late 2000, demand had
increased as a result of industry wide shortages creating significant price
increases. However, the industry wide shortage began to diminish towards the
end of 2000 and continuing in 2001 resulting in weaker demand.
The Company's core strategy is to maintain a substantial inventory of
discrete semiconductors purchased at prices generally lower than those commonly
available to its competitors. This strategy allows the Company to fill customer
orders immediately from stock held in inventory. During 2000, the Company took
advantage of the strong demand in the discrete semiconductor market, as such,
inventory levels increased throughout the year to $30,609,000 at December 31,
2000. Since demand started to weaken towards the end of 2000, the Company
expects to lower inventory balances throughout 2001. There are no assurances
that demand in the discrete semiconductor market will increase and that market
conditions will improve in 2001.
Readers are cautioned that the foregoing statements are forward looking and
are necessarily speculative. There can be no guarantee that a recovery in the
discrete semiconductor market will take place. Also, if prices of components
held in our inventory decline or if new technology is developed that displaces
products distributed by us and held in inventory, our business could be
materially adversely affected. See "-Cautionary Statement Regarding Forward
Looking Information".
Page 7
Liquidity and Capital Resources
We have satisfied our liquidity requirements principally through cash
generated from operations and short-term commercial loans. A summary of our
cash flows resulting from the operating, investing and financing activities for
the three months ended March 31, 2001 and 2000 are as follows:
Three months ended March 31,
-------------------------------
2001 2000
---- ----
(Dollars in Thousands)
Operating activities.......................................... $ 525 $ 1,489
Investing activities.......................................... (65) (460)
Financing activities.......................................... (481) (1,234)
Cash flows provided by operating activities decreased by $964,000 to
$525,000 from $1,489,000 during the three months ended March 31, 2001 and 2000,
respectively. The decrease is primarily attributable to decreased business and
net sales which caused a decrease in net income by $511,000 to a net loss of
$74,000. Also, a smaller decline in inventory of $132,000 during the three
months ended March 31, 2001, as compared to $1,198,000 decrease in inventory
during the same period last year, contributed to the decrease in operating cash
flow. Also, accounts payable declined by $911,000 during the current period
ended March 31, 2001, as compared to an increase of $435,000 during the same
period last year, again contributing to the overall decrease in operating cash
flow. Conversely, the overall decrease in operating cash flow was partially
offset by an decrease in accounts receivable of $1,484,000, again caused by the
decrease in overall business and net sales.
Cash flows used in investing activities decreased to $65,000 from $460,000
during the three months ended March 31, 2001, as compared to the same period in
2000, primarily due to completion of construction in December 2000 of interior
improvements to our new 55,000 square foot warehouse and headquarters.
Cash flows used in financing activities decreased to $481,000 from
$1,234,000 during the three months ended March 31, 2001, as compared to the same
period in 2000, primarily due to lower net re-payments to our bank revolving
line of credit during the current quarter ended March 31, 2001, as compared to
the quarter ended March 31, 2000.
We believe that funds generated from operations and our bank revolving line
of credit will be sufficient to finance our working capital and capital
expenditure requirements for the foreseeable future.
As of the date of this Report, we have no commitments for other equity or
debt financing or other capital expenditures.
Page 8
Cautionary Statement Regarding Forward Looking Information
Several of the matters discussed in this document contain forward looking
statements that involve risks and uncertainties. Such forward looking
statements are usually denoted by words or phrases such as "believes,"
"expects," "projects," "estimates," "anticipates," "will likely result," or
similar expressions. We wish to caution readers that all forward looking
statements are necessarily speculative and not to place undue reliance on such
forward looking statements, which speak only as of the date made, and to advise
readers that actual results could vary due to a variety of risks and
uncertainties. Factors associated with the forward looking statements that
could cause the forward looking statements to be inaccurate and could otherwise
impact our future results are set forth in detail in our most recent annual
report on Form 10-K. In addition to the other information contained in this
document, readers should carefully consider the information contained in our
Form 10-K for the year ended December 31, 2000 under the heading "Cautionary
Statements and Risk Factors."
Year 2000
In 1999, we completed our remediation and testing of our systems. Because
of those planning and implementation efforts, we experienced no significant
disruptions in critical information technology and non-information technology
systems and those systems have successfully responded to the Year 2000 date
change. We did not incur any significant expenses during 1999 in connection
with remediating our systems. We are not aware of any material problems
resulting from Year 2000 issues, either with our products, internal systems, or
the products and services of our third parties. We will continue to monitor our
critical computer applications and those of our suppliers and vendors throughout
the year 2001 to ensure any latent Year 2000 matters arising are addressed
promptly.
PART II. OTHER INFORMATION
Item 1. through Item 5.
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K:
None
Page 9
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, we caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
TAITRON COMPONENTS INCORPORATED
Date: May 10, 2001 By: /s/ Stewart Wang
--------------------------------------
Stewart Wang
Chief Executive Officer
and Director
Date: May 10, 2001 By: /s/ Steven H. Dong
--------------------------------------
Steven H. Dong
Chief Financial Officer
(Principal Accounting Officer)
Page 10