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, 2002
[_] 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 March 31, 2002
------------------------------------- -----------------------------
Class A Common Stock, $.001 par value 4,964,107
Class B Common Stock, $.001 par value 762,612
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TAITRON COMPONENTS INCORPORATED
Condensed Consolidated Balance Sheets
(Dollars in Thousands)
March 31, December 31,
2002 2001
----------- ------------
Assets (Unaudited)
Current assets:
Cash and cash equivalents $ 154 $ 182
Trade accounts receivable, net 2,320 2,024
Income tax receivable 773 781
Inventory, net 27,413 27,895
Prepaid expenses 246 248
Deferred income taxes 498 528
Other current assets 289 103
---------- ----------
Total current assets 31,693 31,761
Property and equipment, net 6,640 6,768
Other assets 312 305
---------- ----------
Total assets $ 38,645 $ 38,834
========== ==========
Liabilities and Shareholders' Equity
Current liabilities:
Revolving line of credit $ 10,765 $ 11,685
Current portion of long term debt 24 24
Trade accounts payable 1,983 1,171
Accrued liabilities and other 478 449
---------- ----------
Total current liabilities 13,250 13,329
Long-term debt, less current portion 381 388
---------- ----------
Total liabilities 13,631 13,717
---------- ----------
Commitments and contingencies - -
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 4,964,107 and 4,880,682 shares as of
March 31, 2002 and December 31, 2001, respectively. 5 5
Class B common stock, $.001 par value. Authorized, issued and
outstanding 762,612, shares as of March 31, 2002 and
December 31, 2001. 1 1
Additional paid-in capital 10,894 10,802
Accumulated other comprehensive loss, net of tax (55) (53)
Retained earnings 14,169 14,362
---------- ----------
Total shareholders' equity 25,014 25,117
---------- ----------
Total liabilities and shareholders' equity $ 38,645 $ 38,834
========== ==========
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,
------------------------------
2002 2001
----------- -----------
(Unaudited) (Unaudited)
Net sales $ 3,706 $ 5,524
Cost of goods sold 2,683 3,887
----------- ------------
Gross profit 1,023 1,637
Selling, general and administrative expenses 1,196 1,535
----------- ------------
Operating (loss) earnings (173) 102
Interest expense, net 124 247
Other income, net (89) (47)
----------- ------------
Loss before income taxes (208) (98)
Income tax benefit (15) (24)
----------- ------------
Net loss $ (193) $ (74)
=========== ============
Loss Per Share:
Basic $ (.03) $ (.01)
=========== ============
Diluted $ (.03) $ (.01)
=========== ============
Weighted average common shares outstanding:
Basic 5,653,468 5,722,573
=========== ============
Diluted 5,653,468 5,722,573
=========== ============
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,
----------------------------
2002 2001
------------ -----------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net loss $ (193) $ (74)
--------- -----------
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization 134 138
Provision for inventory reserves 75 30
Provision for sales returns and doubtful accounts 117 127
Gain on sale of assets - (7)
Deferred income taxes 30 -
Changes in Assets and Liabilities:
Trade accounts receivable (413) 1,357
Income tax receivable 8 (206)
Inventory 407 102
Prepaid expenses and other current assets (184) 65
Other assets (7) 3
Trade accounts payable 812 (911)
Accrued liabilities and other 29 (99)
--------- -----------
Total adjustments 1,008 599
--------- -----------
Net cash provided by operating activities 815 525
--------- -----------
Cash flows from investing activities:
Acquisitions of property and equipment (7) (72)
Proceeds from sale of assets - 7
--------- -----------
Net cash used in investing activities (7) (65)
--------- -----------
Cash flows from financing activities:
Borrowings on revolving line of credit and note payable 625 2,155
Proceeds from exercise of stock options and issuance of stock 119 42
Payments on revolving line of credit and notes payable (1,552) (2,500)
Repurchase of common stock (26) (178)
--------- -----------
Net cash used in financing activities (834) (481)
--------- -----------
Impact of exchange rates changes on cash (2) 9
--------- -----------
Net decrease in cash and cash equivalents (28) (12)
Cash and cash equivalents, beginning of period 182 190
--------- -----------
Cash and cash equivalents, end of period $ 154 178
========= ===========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 79 $ 265
========= ===========
Cash paid for income taxes $ 1 $ 182
========= ===========
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 ending March 31, 2002
(All amounts are unaudited, except for the balance sheet as of
December 31, 2001)
(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, 2001. 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 consolidated financial
statements and notes thereto in the Annual Report on Form 10-K for the year
ended December 31, 2001.
(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, 2002 and 2001 aggregated to $94,000 and
$112,000, respectively.
Allowance for Sales Returns and Doubtful Accounts
The allowance for sales returns and doubtful accounts at March 31, 2002 and
December 31, 2001 aggregated $131,000 and $110,000, respectively.
Inventory
Inventory consists principally of products for resale and is stated at the
lower of cost, using the first-in, first-out method, or market. Inventory
is presented net of valuation allowances of $1,384,000 and $1,309,000 at
March 31, 2002 and December 31, 2001, respectively.
Net Loss Per Share
Common equivalent shares of 433,470 and 644,800 for the three month periods
ended March 31, 2002 and 2001, respectively, are excluded from the
computation of diluted loss per share as their effect is anti-dilutive.
Reclassification
Certain amounts in the 2001 consolidated financial statements have been
reclassified to conform with the current 2002 financial statement
presentation.
Use Of Estimates
The Company's management has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. These estimates
have a significant impact on the Company's valuation and reserve accounts
relating to the allowance for sales returns, doubtful accounts and
inventory reserves. Actual results could differ from these estimates.
(3) Revolving Line of Credit
Page 5
On March 21, 2002, the Company signed a commitment letter which allows
the Company to renew its $15 million revolving line of credit to a new
maturity date of May 18, 2004. The agreement governing the renewed
credit facility contains security agreements covering essentially all
assets of the Company and covenants that require the Company to be in
compliance with certain financial ratios. Borrowings under the renewed
revolving line of credit bears interest at the bank's prime rate (4.75%
at March 31, 2002) or at the option of the Company, at LIBOR (weighted
average of 2.37% at March 31, 2002) plus 2.35% (if the Company meets
certain financial results, the interest may change to LIBOR plus 2.00%).
Borrowing under the renewed credit facility is limited to a certain
formula, essentially consisting of a portion of the Company's account
receivables, inventory and fixed assets.
(4) Changes in Securities
On March 31, 2002, the Company issued one hundred thousand (100,000)
unregistered shares of it's Class A Common Stock for an amount of
$118,670 to an unrelated company of which the proceeds of $118,670 from
the issuance are for general working capital purposes.
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,
-------------------------
2002 2001
---------- -----------
(Dollars in Thousands)
Net sales $ 3,706 $ 5,524
Cost of goods sold 2,683 3,887
% of net sales 72.4% 70.4%
Gross profit 1,023 1,637
% of net sales 27.6% 29.6%
Selling, general and administrative expenses 1,196 1,535
% of net sales 32.3% 27.8%
Operating (loss)earnings (173) 102
% of net sales (4.7)% 1.8%
Interest expense, net 124 247
% of net sales 3.3% 4.5%
Net loss (193) (74)
% of net sales (5.2)% (1.3)%
Page 6
Three month Period Ended March 31, 2002 Compared To The Three month Period Ended
March 31, 2001.
Net sales for the three months ended March 31, 2002 were $3,706,000,
compared with net sales for the three months ended March 31, 2001 of $5,524,000,
a decrease of $1,818,000 or 32.9%. The decrease is primarily due to an industry
wide decrease in demand for discrete semiconductors. Discrete component sales
decreased by $1,501,000 during the quarter ended March 31, 2002 and export sales
decreased by $292,000 compared to prior year. The average unit selling price
decreased to 2.0 cents for the current period from 2.1 cents during the same
period last year. The decrease was primarily attributable to selling more
passive components which have a lower average per unit sales price.
Cost of goods sold for the quarter ended March 31, 2002 decreased to
$2,683,000 from $3,887,000 for the same period last year, a decrease of 31% or
$1,204,000. Consistent with the decrease in net sales, cost of goods sold
declined, however at a slower rate, resulting in gross profits decreasing as a
percentage of net sales to 27.6% for the quarter ended March 31, 2002 from 29.6%
for the same period last year. Gross profits decreased by $614,000 to $1,023,000
for the quarter ended March 31, 2002 from $1,637,000 for the same period in
2001. Also contributing the decrease in gross profit was a provision for
inventory reserves of $75,000 and $30,000 during the quarters ended March 31,
2002 and 2001, respectively.
Selling, general and administrative ("SG&A") expenses decreased by $339,000
or 22.1% for the quarter period ended March 31, 2002 compared to the same period
of 2001. The decrease is primarily attributable to reducing personnel-related
expenses and commissions paid to independent sales representatives resulting
from lower net sales and cost reduction programs. These costs, as a percentage
of net sales, increased to 32.3% for the three months ended March 31, 2002 as
compared to 27.8% for the three months ended March 31, 2001, which was primarily
attributable to the overall decrease in net sales.
Operating loss was $173,000 for the quarter ended March 31, 2002 as
compared to operating earnings of $102,000 for the same period ended March 31,
2001. Operating earnings decreased primarily due to the decrease in net sales,
as discussed above.
Interest expense, net of interest income for the quarter ended March 31,
2002 decreased by $123,000 compared to the same period last year. The decrease
is primarily due to decreased borrowing levels and lower effective average
borrowing rates incurred during the current quarter at 4.3%, when compared to
7.1% for the same period last year.
Income tax benefit was $15,000 in the current period ended March 31, 2002,
representing an effective tax benefit rate of 9.3% (net of provision for
deferred tax asset reserve in the amount of $30,000 for the three months ended
March 31, 2002) of US domestic pre-tax income, as compared to income tax benefit
of $24,000 for the same period in 2001, an effective tax rate of 40% of US
domestic pre-tax income.
Net loss was $193,000 for the quarter ended March 31, 2002 as compared with
net loss of $74,000 for the same period last year, resulting from the reasons
discussed above.
Page 7
Supply and Demand Issues
Background
In 1996, suppliers increased capacity and the weak demand left suppliers
with large amounts of uncommitted products. During 1996 and continuing into
1997, the Company decided to take advantage of this situation by intensifying
its long standing purchasing strategy by making opportunistic purchases of
suppliers' uncommitted capacity, at favorable pricing. The Company believed this
strategy of opportunistic purchasing postured the Company to be price
competitive, while still maintaining acceptable profit margins for the prior
periods.
The demand for discrete semiconductors in the U.S. market decreased from
1996 through the middle of 1999. From 1999 throughout 2000, demand had increased
as a result of industry wide shortages. Since then, the industry wide shortage
began to diminish towards the end of 2000 and demand through the end of 2001 has
drastically declined resulting from an overall economic slowdown and excess
product availability.
Current Issues
--------------
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. Since demand remains weak
resulting from an overall economic slowdown and excess product availability, the
Company continued to focus on lowering its inventory balances. As such,
inventory levels decreased throughout the quarter from $27,895,000 to
$27,413,000 as of December 31, 2001 and March 31, 2002, respectively, including
a non-cash provision of approximately $75,000 during the quarter ended March 31,
2002 to increase the Company's inventory reserves. Since demand continued to be
weak towards the end of the quarter, the Company expects to continue to lower
inventory balances throughout 2002. There are no assurances that demand in the
discrete semiconductor market will increase and that market conditions will
improve in 2002.
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".
Liquidity and Capital Resources
The Company historically has satisfied its liquidity requirements
principally through cash generated from operations, short-term commercial loans
and sale of equity securities. A summary of cash flows resulting from the
operating, investing and financing activities for the three months ended March
31, 2002 and 2001 are as follows:
Three months ended March 31,
--------------------------------
(Dollars in thousands) 2002 2001
----------- -----------
(Unaudited) (Unaudited)
Operating activities ............ $ 815 $ 525
Investing activities ............ (7) (65)
Financing activities ............ (834) (481)
Cash flows provided by operating activities increased to $815,000 during
the three months ended March 31, 2002, as compared to $525,000 during the three
months ended March 31, 2001. The change is primarily due to an increase in
accounts payable and accrued and other liabilities of $841,000 during the period
ended March 31, 2002, as compared to a decrease of $1,010,000 during the same
period last year.
Page 8
Also, inventory declined by $407,000 during the three months ended March 31,
2002, as compared to a decrease of $102,000 during the same period last year,
again contributing to the overall increase in operating cash flow. Conversely,
the overall increase in operating cash flow was partially offset by a increase
in accounts receivable of $413,000 as compared to a decrease of $1,357,000
during the first three months of 2001.
Cash flows used in investing activities was $7,000 during the three months
ended March 31, 2002 compared to $65,000 during the three months ended March 31,
2001. The decrease is primarily due to the reduction in purchases of equipment.
Cash flows used in financing activities increased to $834,000 from $481,000
during the three months ended March 31, 2002, as compared to the same period in
2001, primarily due to increased net re-payments to our bank revolving line of
credit during the current period in 2002, as compared to the same period in
2001. Also, offsetting the increase is the issuance of common shares in the
aggregate amount of $119,000 during the three months ended March 31, 2002, where
as in the same period last year the company repurchased common shares in the
aggregate amount of $178,000.
Inventory is included in current assets. However, if all or a substantial
portion of the inventory was required to be immediately liquidated, the
inventory would not be as readily marketable or liquid as other items included
in current assets, such as cash.
On March 21, 2002, the Company signed a commitment letter which allows the
Company to renew its $15 million revolving line of credit to a new maturity date
of May 18, 2004. The agreement governing the renewed credit facility contains
security agreements covering essentially all assets of the Company and covenants
that require the Company to be in compliance with certain financial ratios.
Borrowings under the renewed revolving line of credit bears interest at the
bank's prime rate (4.75% at March 31, 2002) or at the option of the Company, at
LIBOR (weighted average of 2.37% at March 31, 2002) plus 2.35% (if the Company
meets certain financial results, the interest may change to LIBOR plus 2.00%).
Borrowing under the renewed credit facility will be limited to a certain
formula, essentially consisting of a portion of the Company's account
receivables, inventory and fixed assets.
The Company believes that funds generated from operations, our bank
revolving line of credit and sale of equity securities should be sufficient to
finance our working capital and capital expenditure requirements for the
foreseeable future.
As of the date of this Report, we had no commitments for other equity or
debt financing or other capital expenditures.
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, 2001 under the heading "Cautionary Statements and Risk Factors."
Page 9
PART II. OTHER INFORMATION
Item 1. Not applicable
Item 2. Changes In Securities And Use Of Proceeds
On March 31, 2002, the Company issued one hundred thousand (100,000)
unregistered shares of it's Class A Common Stock for an amount of $118,670 to an
unrelated company of which the proceeds of $118,670 from the issuance are for
general working capital purposes.
Item 3. through Item 5. Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K:
None
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
TAITRON COMPONENTS INCORPORATED
Date: May 14, 2002 By: /s/ Stewart Wang
------------------------------------
Stewart Wang
Chief Executive Officer
and Director
Date: May 14, 2002 By: /s/ Steven H. Dong
------------------------------------
Steven H. Dong
Chief Financial Officer
Page 10