UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017March 31, 2023
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from __________ to __________
Commission File Number: 0-25844
TAITRON COMPONENTS INCORPORATED
(Exact name of registrant as specified in its charter)
California | 95-4249240 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
28040 West Harrison Parkway, Valencia, California | 91355-4162 |
(Address of principal executive offices) | (Zip Code) |
(661) 257-6060
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Class A common stock | TAIT | NASDAQ Capital Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒☑ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ☒☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ | |
Non-accelerated filer | Smaller reporting company | |
Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒☑
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
Classes of common stock | Outstanding on |
Class A | 5,233,568 |
Class B | 762,612 |
TAITRON COMPONENTS INCORPORATED
INDEX
Page | ||
PART I - FINANCIAL INFORMATION | ||
Item 1. | ||
1 | ||
2 | ||
3 | ||
4 | ||
5 | ||
Item 2. | 8 | |
Item 3. | 10 | |
Item 4. | 10 | |
PART II - OTHER INFORMATION | ||
Item 1. | 11 | |
Item 1A. | 11 | |
Item 2. | 11 | |
Item 3. | 11 | |
Item 4. | 11 | |
Item 5. | 11 | |
Item 6. | 11 | |
12 | ||
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
TAITRON COMPONENTS INCORPORATED
Condensed Consolidated Balance Sheets
| September 30, | December 31, | |||||||
| 2017 | 2016 | |||||||
| Assets | (Unaudited) | |||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | 3,692,000 | $ | 4,018,000 | ||||
| Accounts receivable, less allowances of $46,000 and $49,000, respectively | 581,000 | 233,000 | ||||||
| Inventories, less reserves for obsolescence of $8,676,000, and $8,537,000, respectively (Note 3) | 5,513,000 | 5,055,000 | ||||||
| Prepaid expenses and other current assets | 339,000 | 227,000 | ||||||
| Total current assets | 10,125,000 | 9,533,000 | ||||||
| Property and equipment, net | 3,910,000 | 4,032,000 | ||||||
| Other assets (Note 4) | 459,000 | 471,000 | ||||||
| Total assets | $ | 14,494,000 | $ | 14,036,000 | ||||
| Liabilities and Shareholders’ Equity | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | 968,000 | $ | 857,000 | ||||
| Accrued liabilities | 569,000 | 492,000 | ||||||
| Current portion, long-term debt (Note 5) | 500,000 | - | ||||||
| Total current liabilities | 2,037,000 | 1,349,000 | ||||||
| Long-term debt from related party (Note 5) | 500,000 | 1,000,000 | ||||||
| Total Liabilities | 2,537,000 | 2,349,000 | ||||||
| Commitments and contingencies (Notes 6 and 8) | ||||||||
| Shareholders’ Equity: | ||||||||
Preferred stock, $0.001 par value. Authorized 5,000,000 shares; None issued or outstanding | - | - | ||||||
Class A common stock, $0.001 par value. Authorized 20,000,000 shares; 4,808,235 and 4,768,235 shares issued and outstanding, respectively | 5,000 | 5,000 | ||||||
| Class B common stock, $0.001 par value. Authorized, issued and outstanding 762,612 shares | 1,000 | 1,000 | ||||||
| Additional paid-in capital | 10,744,000 | 10,701,000 | ||||||
| Accumulated other comprehensive income | 142,000 | 156,000 | ||||||
| Retained earnings | 965,000 | 720,000 | ||||||
| Total Shareholders’ Equity - Taitron Components Inc | 11,857,000 | 11,583,000 | ||||||
| Noncontrolling interest in subsidiary | 100,000 | 104,000 | ||||||
| Total Shareholders’ Equity | 11,957,000 | 11,687,000 | ||||||
| Total Liabilities and Shareholders’ Equity | $ | 14,494,000 | $ | 14,036,000 | ||||
March 31, | December 31, | |||||||
2023 | 2022 | |||||||
Assets | (Unaudited) | |||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 4,857,000 | $ | 5,217,000 | ||||
Accounts receivable, less allowances of $7,000 | 1,204,000 | 683,000 | ||||||
Short-term investments (Note 2) | 3,197,000 | 2,034,000 | ||||||
Inventories, less reserves for obsolescence of $5,115,000, and $5,069,000, respectively (Note 3) | 3,170,000 | 3,900,000 | ||||||
Prepaid expenses and other current assets | 226,000 | 148,000 | ||||||
Total current assets | 12,654,000 | 11,982,000 | ||||||
Property and equipment, net | 2,880,000 | 2,922,000 | ||||||
Deferred taxes | 2,052,000 | 2,047,000 | ||||||
Other assets (Note 4) | 186,000 | 186,000 | ||||||
Total assets | $ | 17,772,000 | $ | 17,137,000 | ||||
Liabilities and Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 152,000 | $ | 211,000 | ||||
Accrued liabilities | 1,021,000 | 790,000 | ||||||
Total current liabilities | 1,173,000 | 1,001,000 | ||||||
Commitments and contingencies (Note 6) | ||||||||
Equity: | ||||||||
Shareholders' equity: | ||||||||
Preferred stock, $0.001 par value. Authorized 5,000,000 shares; None issued or outstanding | - | - | ||||||
Class A common stock, $0.001 par value. Authorized 20,000,000 shares; 5,233,568 shares issued and outstanding | 5,000 | 5,000 | ||||||
Class B common stock, $0.001 par value. Authorized, issued and outstanding 762,612 shares | 1,000 | 1,000 | ||||||
Additional paid-in capital | 11,409,000 | 11,407,000 | ||||||
Accumulated other comprehensive income | (59,000 | ) | (58,000 | ) | ||||
Retained earnings | 5,243,000 | 4,781,000 | ||||||
Total equity | 16,599,000 | 16,136,000 | ||||||
Total liabilities and equity | $ | 17,772,000 | $ | 17,137,000 | ||||
See accompanying notes to condensed consolidated financial statements (unaudited).
TAITRON COMPONENTS INCORPORATED
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
| Net sales | $ | 1,679,000 | $ | 1,621,000 | $ | 5,778,000 | $ | 5,223,000 | ||||||||
| Cost of goods sold | 911,000 | 1,036,000 | 3,450,000 | 3,382,000 | ||||||||||||
| Gross profit | 768,000 | 585,000 | 2,328,000 | 1,841,000 | ||||||||||||
| Selling, general and administrative expenses | 534,000 | 511,000 | 1,618,000 | 1,596,000 | ||||||||||||
| Operating income | 234,000 | 74,000 | 710,000 | 245,000 | ||||||||||||
| Interest expense, net | (9,000 | ) | (17,000 | ) | (29,000 | ) | (39,000 | ) | ||||||||
| Loss on investments | (34,000 | ) | (62,000 | ) | (107,000 | ) | (196,000 | ) | ||||||||
| Other income, net | 25,000 | 22,000 | 85,000 | 49,000 | ||||||||||||
| Income before income taxes | 216,000 | 17,000 | 659,000 | 59,000 | ||||||||||||
| Income tax provision | (2,000 | ) | (4,000 | ) | (3,000 | ) | (10,000 | ) | ||||||||
| Net income | 214,000 | 13,000 | 656,000 | 49,000 | ||||||||||||
| Net loss attributable to noncontrolling interest in subsidiary | (1,000 | ) | (2,000 | ) | (4,000 | ) | (6,000 | ) | ||||||||
| Net income attributable to Taitron Components Inc. | $ | 215,000 | $ | 15,000 | $ | 660,000 | $ | 55,000 | ||||||||
| Net income per share: Basic | $ | 0.04 | $ | 0.01 | $ | 0.12 | $ | 0.01 | ||||||||
| Net income per share: Diluted | $ | 0.04 | $ | 0.01 | $ | 0.11 | $ | 0.01 | ||||||||
| Cash dividends declared per common share | $ | 0.025 | $ | 0.025 | $ | 0.075 | $ | 0.050 | ||||||||
| Weighted average common shares outstanding: Basic | 5,540,847 | 5,530,847 | 5,550,847 | 5,530,847 | ||||||||||||
| Weighted average common shares outstanding: Diluted | 5,845,747 | 5,902,847 | 5,907,847 | 5,940,847 | ||||||||||||
| Net income | $ | 214,000 | $ | 13,000 | $ | 656,000 | $ | 49,000 | ||||||||
| Other comprehensive income : | ||||||||||||||||
| Foreign currency translation adjustment | 11,000 | 23,000 | (14,000 | ) | (5,000 | ) | ||||||||||
| Comprehensive income | 225,000 | 36,000 | 642,000 | 44,000 | ||||||||||||
| Comprehensive loss attributable to noncontrolling interests | (5,000 | ) | (1,000 | ) | (4,000 | ) | - | |||||||||
| Comprehensive income attributable to Taitron Components Inc. | $ | 230,000 | $ | 37,000 | $ | 646,000 | $ | 44,000 | ||||||||
Three Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
(Unaudited) | (Unaudited) | |||||||
Net product revenue | $ | 2,086,000 | $ | 1,552,000 | ||||
Cost of products sold | 933,000 | 749,000 | ||||||
Gross profit | 1,153,000 | 803,000 | ||||||
Selling, general and administrative expenses | 590,000 | 557,000 | ||||||
Operating income | 563,000 | 246,000 | ||||||
Interest income, net | 19,000 | 4,000 | ||||||
Other income(expense), net | 221,000 | (83,000 | ) | |||||
Income before income taxes | 803,000 | 167,000 | ||||||
Income tax (provision)benefit | (41,000 | ) | 1,875,000 | |||||
Net income | $ | 762,000 | $ | 2,042,000 | ||||
Net income per share: Basic | $ | 0.13 | $ | 0.35 | ||||
Diluted | $ | 0.13 | $ | 0.34 | ||||
Weighted average shares outstanding: Basic | 5,996,180 | 5,876,180 | ||||||
Diluted | 6,034,180 | 5,957,180 | ||||||
Cash dividends declared per common share | $ | 0.050 | $ | 0.045 | ||||
Net income | $ | 762,000 | $ | 2,042,000 | ||||
Other comprehensive income: | ||||||||
Foreign currency translation adjustment | (1,000 | ) | (17,000 | ) | ||||
Comprehensive income | 761,000 | 2,025,000 | ||||||
See accompanying notes to condensed consolidated financial statements (unaudited).
TAITRON COMPONENTS INCORPORATED
Condensed Consolidated Statements of Cash FlowsShareholders’ Equity
| Nine Months Ended September 30, | ||||||||
| 2017 | 2016 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Operating activities: | ||||||||
| Net income | $ | 656,000 | $ | 49,000 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 157,000 | 138,000 | ||||||
| Provision for sales returns and doubtful accounts | 154,000 | 74,000 | ||||||
| Stock based compensation | 3,000 | (1,000 | ) | |||||
| Loss on investments | 107,000 | 196,000 | ||||||
| Changes in assets and liabilities: | ||||||||
| Trade accounts receivable | (502,000 | ) | (451,000 | ) | ||||
| Inventories | (458,000 | ) | 891,000 | |||||
| Prepaid expenses and other current assets | (112,000 | ) | (49,000 | ) | ||||
| Trade accounts payable | 111,000 | (241,000 | ) | |||||
| Accrued liabilities | 77,000 | 147,000 | ||||||
| Other assets and liabilities | (3,000 | ) | 6,000 | |||||
| Total adjustments | (466,000 | ) | 710,000 | |||||
| Net cash provided by operating activities | 190,000 | 759,000 | ||||||
| Investing activities: | ||||||||
| Acquisition of property & equipment | (35,000 | ) | (6,000 | ) | ||||
| Investment in securities | (93,000 | ) | - | |||||
| Net cash used for investing activities | (128,000 | ) | (6,000 | ) | ||||
| Financing activities: | ||||||||
| Repayment on notes payable | - | (500,000 | ) | |||||
| Dividend payments | (414,000 | ) | (276,000 | ) | ||||
| Proceeds from stock options exercised | 40,000 | - | ||||||
| Net cash used for financing activities | (374,000 | ) | (776,000 | ) | ||||
| Impact of exchange rates on cash | (14,000 | ) | (5,000 | ) | ||||
| Net decrease in cash and cash equivalents | (326,000 | ) | (28,000 | ) | ||||
| Cash and cash equivalents, beginning of period | 4,018,000 | 3,692,000 | ||||||
| Cash and cash equivalents, end of period | $ | 3,692,000 | $ | 3,664,000 | ||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for interest | $ | 32,000 | $ | 42,000 | ||||
| Cash paid for income taxes, net | $ | 3,000 | $ | 1,000 | ||||
Accumulated | ||||||||||||||||||||||||||||||||
Common Stock | Additional | Other | ||||||||||||||||||||||||||||||
Class A | Class B | Paid-in | Comprehensive | Retained | Total | |||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | capital | Income (Loss) | Earnings | Equity | |||||||||||||||||||||||||
Three months ending March 31, 2023 | ||||||||||||||||||||||||||||||||
Balance at December 31, 2022 | 5,233,568 | $ | 5,000 | 762,612 | $ | 1,000 | $ | 11,407,000 | $ | (58,000 | ) | $ | 4,781,000 | $ | 16,136,000 | |||||||||||||||||
Consolidated net income | - | - | - | - | - | - | 762,000 | $ | 762,000 | |||||||||||||||||||||||
Other comprehensive loss | - | - | - | - | - | (1,000 | ) | - | $ | (1,000 | ) | |||||||||||||||||||||
Amortization of stock based compensation | - | - | - | - | 2,000 | - | - | $ | 2,000 | |||||||||||||||||||||||
Cash dividends | - | - | - | - | - | - | (300,000 | ) | $ | (300,000 | ) | |||||||||||||||||||||
Balance at March 31, 2023 | 5,233,568 | $ | 5,000 | 762,612 | $ | 1,000 | $ | 11,409,000 | $ | (59,000 | ) | $ | 5,243,000 | $ | 16,599,000 | |||||||||||||||||
Three months ending March 31, 2022 | ||||||||||||||||||||||||||||||||
Balance at December 31, 2021 | 5,113,568 | $ | 5,000 | 762,612 | $ | 1,000 | $ | 11,176,000 | $ | (73,000 | ) | $ | 3,276,000 | $ | 14,385,000 | |||||||||||||||||
Consolidated net income | - | - | - | - | - | - | 2,042,000 | $ | 2,042,000 | |||||||||||||||||||||||
Other comprehensive loss | - | - | - | - | - | (17,000 | ) | - | $ | (17,000 | ) | |||||||||||||||||||||
Amortization of stock based compensation | - | - | - | - | 5,000 | - | - | $ | 5,000 | |||||||||||||||||||||||
Cash dividends | - | - | - | - | - | - | (264,000 | ) | $ | (264,000 | ) | |||||||||||||||||||||
Balance at March 31, 2022 | 5,113,568 | $ | 5,000 | 762,612 | $ | 1,000 | $ | 11,181,000 | $ | (90,000 | ) | $ | 5,054,000 | $ | 16,151,000 | |||||||||||||||||
See accompanying notes to condensed consolidated financial statements (unaudited).
TAITRON COMPONENTS INCORPORATED
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
Operating activities: | ||||||||
Net income | $ | 762,000 | $ | 2,042,000 | ||||
Adjustments to reconcile net income to net cash provided by (used for) operating activities: | ||||||||
Depreciation and amortization | 43,000 | 33,000 | ||||||
Provision for sales returns and doubtful accounts | - | 1,000 | ||||||
Stock based compensation | 2,000 | 5,000 | ||||||
Deferred income taxes | (5,000 | ) | (1,922,000 | ) | ||||
Changes in values of marketable securities | (163,000 | ) | 87,000 | |||||
Changes in assets and liabilities: | ||||||||
Accounts receivable | (521,000 | ) | 166,000 | |||||
Inventories | 730,000 | 198,000 | ||||||
Prepaid expenses and other current assets | (78,000 | ) | (49,000 | ) | ||||
Accounts payable | (59,000 | ) | (1,421,000 | ) | ||||
Accrued liabilities | 231,000 | (21,000 | ) | |||||
Other assets and liabilities | - | 7,000 | ||||||
Total adjustments | 180,000 | (2,916,000 | ) | |||||
Net cash provided by(used for) operating activities | 942,000 | (874,000 | ) | |||||
Investing activities: | ||||||||
Acquisition of property and equipment | (1,000 | ) | (5,000 | ) | ||||
Purchase of marketable securities | (1,000,000 | ) | - | |||||
Net cash used for investing activities | (1,001,000 | ) | (5,000 | ) | ||||
Financing activities: | ||||||||
Dividend payments | (300,000 | ) | (264,000 | ) | ||||
Net cash used for financing activities | (300,000 | ) | (264,000 | ) | ||||
Impact of exchange rates on cash | (1,000 | ) | (17,000 | ) | ||||
Net decrease in cash and cash equivalents | (360,000 | ) | (1,160,000 | ) | ||||
Cash and cash equivalents, beginning of period | 5,217,000 | 5,974,000 | ||||||
Cash and cash equivalents, end of period | $ | 4,857,000 | $ | 4,814,000 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid for interest | $ | - | $ | - | ||||
Cash paid for income taxes, net | $ | - | $ | - | ||||
See accompanying notes to condensed consolidated financial statements (unaudited).
TAITRON COMPONENTS INCORPORATED
Notes to Condensed Consolidated Financial Statements (Unaudited)
1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Overview of Business
We are primarily a supplier of original designed and manufactured (“ODM”) electronic components (“ODM Components”) with our product offerings ranging from discrete semiconductors through small electronic devices. Our products include value-added engineering and turn-key solutions, focusing on providing contract electronic manufacturers (“CEMs”) and original equipment manufacturers (“OEMs”) with ODM products for their multi-year turn-key projects (“ODM Projects”). We also distribute brand name electronic components with a vast inventory available on hand. We are incorporated in California.California and were originally formed in 1989. We maintain a majority-owned subsidiarydivisions in Mexico (since 1998) and two subsidiaries in each of Taiwan (since 1998) and China (since 2005). Our Mexico location closed all operations in May 2013 (final closure is pending sale of our local 15,000 sqft office and warehouse facility) and our Taiwan and China locations are for supporting overseas customers, inventory sourcing, purchaseswhich were established in 1996 and coordinating the manufacture2005, respectively.
Basis of our products. Our China location also serves as the engineering center responsible for designing circuits, arranging pre-production scheduling and mass production runs with joint venture partners for our projects, making component datasheets and test specifications, preparing samples, monitoring quality of shipments and performing failure analysis reports.Presentation
The unaudited condensed consolidated interim financial statements include the accounts of the Company and all wholly owned subsidiaries, including its 60% majority-owned subsidiary, Taitron Components Mexico, S.A. de C.V.divisions. All significant intercompany accounts and transactions have been eliminated in consolidation.
These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments of a normal recurring nature and considered necessary for a fair presentation of its financial condition and results of operations for the interim periods presented in this Quarterly Report on Form 10-Q have been included. Operating results for the interim periods are not necessarily indicative of financial results for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with the audited condensed consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2022. In preparing these financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the condensed consolidated financial statements and the reported amount of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Significant estimates and assumptions included in the Company’s condensed consolidated financial statements relate to the allowance for sales returns, doubtful accounts, inventory reserves, accrued liabilities and deferred income taxes. Certain amounts in
Revenue recognition
Revenue is recognized at the prior year condensed consolidated financial statements have been reclassified to conformpoint at which control of the underlying products are transferred to the customer. Satisfaction of our performance obligations occur upon the transfer of control of products, either from our facilities or directly from suppliers to customers. We consider customer purchase orders to be the contracts with a customer. All revenue is generated from contracts with customers.
In determining the transaction price, we evaluate whether the price is subject to refund or adjustment to determine the net consideration to which we expect to receive.
Taxes assessed by a governmental authority on revenue-producing transactions are excluded from revenue.
Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as fulfillment costs and are included in cost of products sold.
Based upon the nature of our contracts with customers and our performance obligations within those contracts, we have no contract assets or liabilities as of March 31, 2023 and December 31, 2022.
Nature of products
We are primarily a supplier of original designed and manufactured (“ODM”) products that include value-added engineering and turn-key solutions. The following is a description of major products lines from which we generate our revenue:
ODM Projects - Our custom made small devices for original equipment manufacturers (“OEMs”) and contract electronic manufacturers (CEMs) in their multi-year turn-key projects and marketed in specific industries such as: wild animal feeders, timers for DC motors, public street light controllers, and battery chargers.
ODM Components - Our private labeled electronic components.
Distribution Components - Our name brand electronic components.
Disaggregation of revenue
In the following table, revenue is disaggregated by primary geographical market, major product line, and timing of revenue recognition.
Three Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
Primary geographical markets: | ||||||||
United States | $ | 2,035,000 | $ | 1,461,000 | ||||
Asia | 37,000 | 84,000 | ||||||
Other | 14,000 | 7,000 | ||||||
| 2,086,000 | 1,552,000 | |||||||
Major product lines: | ||||||||
ODM projects | $ | 1,465,000 | $ | 872,000 | ||||
ODM components | 582,000 | 631,000 | ||||||
Distribution components | 39,000 | 49,000 | ||||||
| 2,086,000 | 1,552,000 | |||||||
Timing of revenue recognition: | ||||||||
Products transferred at a point in time | $ | 2,086,000 | $ | 1,552,000 | ||||
2 – SHORT-TERM INVESTMENTS
Short-term investments, consisting principally of marketable U.S. equity securities, are classified as short-term based on the nature of the securities and their availability for use in current year presentation.operations. Measurement is based on fair value with gains and losses recognized in other income/(expense), net.
3 – INVENTORY
Inventory – Inventory, consisting principally of products held for resale, is recorded at the lower of cost (determined using the first in-first out method) or estimated marketand net realizable value. We had inventory balances in the amount of $5,513,000$3,170,000 and $5,055,000$3,900,000 at September 30, 2017March 31, 2023 and December 31, 2016,2022, respectively, which is presented net of valuation allowances of $8,676,000$5,115,000 and $8,537,000,$5,069,000, respectively. We evaluate inventories to identify excess, high-cost, slow-moving or other factors rendering inventories as unmarketable at normal profit margins. Due to the large number of transactions and the complexity of managing and maintaining a large inventory of product offerings, estimates are made regarding adjustments to the costcarrying values of inventories. Based on our assumptions about future demand and market conditions, inventories are carried at the lower of cost or estimated marketand net realizable value. If our assumptions about future demand change, or market conditions are less favorable than those projected, additional write-downs of inventories or valuation allowances may be required. In any case, actual amounts could be different from those estimated.
| September 30, | December 31, | |||||||
| 2017 | 2016 | |||||||
| (Unaudited) | ||||||||
| Investment in securities - Zowie Technology | $ | 193,000 | $ | 100,000 | ||||
| Investment in joint venture - Grand Shine Mgmt | 240,000 | 347,000 | ||||||
| Other | 26,000 | 24,000 | ||||||
| Other Assets | $ | 459,000 | $ | 471,000 | ||||
4 – OTHER ASSETS
Investment in securities - Zowie Technology | Other | Other Assets Total | ||||||||||
Balance at December 31, 2022 | $ | 186,000 | $ | - | $ | 186,000 | ||||||
Other changes | - | - | - | |||||||||
Balance at March 31, 2023 | $ | 186,000 | $ | - | $ | 186,000 | ||||||
Our $193,000$186,000 investment in securities as of September 30, 2017March 31, 2023 relates to our ownership317,428 shares of 1,322,552 common sharespreferred convertible debt of Zowie Technology Corporation (New Taipei City,(Taipei Hsien, Taiwan), a supplier of electronic component products.products, with our option after three (3) years to convert into common stock or refundable bearing 7% annual interest rate. Our investment relates torepresents approximately 8.9%6% of their total outstanding shares, although we do not have significant influence or control. This investment is accounted for under the cost method(plus impairment) basis of accounting.
5 – LONG-TERM DEBT FROM RELATED PARTY
Accounting for stock options issued to employees measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost is recognized over the period during which an employee is required to provide service in exchange for the award. Outstanding options to purchase Class A common stock (“the Options”) vest in three equal annual installments beginning one (1) year from the date of grant and are subject to termination provisions as defined in our 2005 Stock Incentive Plan. Plan and 2018 Omnibus Incentive Plan (collectively referred to as “the Plans”). The optionOptions activity during the ninethree months ended September 30, 2017March 31, 2023 is as follows:
| Number of Shares | Weighted Average Exercise Price | Weighted Average Years Remaining Contractual Term | Aggregate Intrinsic Value | |||||||||||||
| Outstanding at December 31, 2016 | 376,000 | $ | 1.07 | 4.1 | $ | 72,000 | ||||||||||
| Grants | - | - | - | - | ||||||||||||
| Exercised | (40,000 | ) | ||||||||||||||
| Forfeited | (5,000 | ) | - | - | - | |||||||||||
| Outstanding at September 30, 2017 | 331,000 | 1.08 | 3.8 | $ | 170,000 | |||||||||||
| Exercisable at September 30, 2017 | 304,666 | $ | 1.08 | 3.7 | $ | 136,000 | ||||||||||
Number of Shares | Weighted Average Exercise Price | Weighted Average Years Remaining Contractual Term | Aggregate Intrinsic Value | |||||||||||||
Outstanding at December 31, 2022 | 224,567 | $ | 3.10 | 5.8 | $ | 148,000 | ||||||||||
Forfeited | (1,000 | ) | ||||||||||||||
Outstanding at March 31, 2023 | 223,567 | $ | 3.10 | 5.7 | $ | 162,000 | ||||||||||
Exercisable at March 31, 2023 | 120,400 | $ | 2.57 | 4.4 | $ | 140,000 | ||||||||||
At September 30, 2017March 31, 2023, the range of individual outstanding weighted average exercise prices was $0.98 to $1.10.$3.95 and the unamortized compensation expense was approximately $23,000. Stock based compensation recorded in the three months ended March 31, 2023 and March 31, 2022 was $2,000 and $5,000, respectively, and is included in selling, general and administrative expenses on the accompanying Condensed Consolidated Statements of Operations and Comprehensive Income.
6 – COMMITMENTS AND CONTINGENCIES
Inventory Purchasing
Outstanding commitments to purchase inventory from suppliers aggregated $1,100,000approximately $700,000 as of September 30, 2017.March 31, 2023.
Item 2. Management’sManagement’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with the condensed consolidated financial statements, including the related notes, appearing in Item 1 of Part 1of1 of this quarterly report on Form 10-Q, as well as our most recent annual report on Form 10-K for the year ended December 31, 2016.2022.
This document contains forward-looking statements as defined inwithin the Privatemeaning of Section 27A of the Securities Litigation Reform Act of 1995 which are subject1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) with respect to risksthe financial condition, results of operations and uncertainties.business of the Company. Forward-looking statements usually are denoted by words or phrases such as “believes,“believes,” “expects,“expects,” “projects,“projects,” “estimates,“estimates,” “anticipates,“anticipates,” “will“will likely result”result” or similar expressions. We wish to caution readers that all forward-looking statements are necessarily speculative and not to place undue reliance on 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. We do notuncertainties, including the risks described in our Annual Report on Form 10-K for the year ended December 31, 2022 and other reports we file with the Securities and Exchange Commission. Except as required by law, we undertake any dutyno obligation to update forward-looking statements after the date they are made or to conform them to actual results or to changes in circumstances or expectations.statements.
References to “Taitron,” the “Company,” “we,” “our” and “us” refer to Taitron Components Incorporated and its wholly owned and majority-owned subsidiaries or divisions, unless the context otherwise specifically defines.requires.
Critical Accounting Policies and Estimates
Use of Estimates - 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 our condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States. These estimates have a significant impact on our valuation and reserve accounts relating to the allowance for sales returns, doubtful accounts, inventory reserves and deferred income taxes. Actual results could differ from these estimates.
Revenue Recognition – Revenue is recognized upon shipment of the merchandise,products, which is when legal transfer of title occurs.occurs and control of the product is transferred to the customer. Reserves for sales allowances and customer returns are established based upon historical experience and our estimates of future returns. Sales returns for each of the three months ended September 30, 2017March 31, 2023 and 20162022 were $6,000$0 and $3,000, respectively and for the nine months ended September 30, 2017 and 2016 were $154,000 and $69,000,$1,000, respectively. The allowance for sales returns and doubtful accounts at September 30, 2017March 31, 2023 and December 31, 20162022 aggregated $46,000 and $49,000, respectively.$7,000.
Inventory – Inventory, consisting principally of products held for resale, is recorded at the lower of cost (determined using the first in-first out method) or estimated marketand net realizable value. We had inventory balances in the amount of $5,513,000$3,170,000 and $5,055,000$3,900,000 at September 30, 2017March 31, 2023 and December 31, 2016,2022, respectively, which is presented net of valuation allowances of $8,676,000$5,115,000 and $8,537,000,$5,069,000, respectively. We evaluate inventories to identify excess, high-cost, slow-moving or other factors rendering inventories as unmarketable at normal profit margins. Due to the large number of transactions and the complexity of managing and maintaining a large inventory of product offerings, estimates are made regarding adjustments to the cost of inventories. Based on our assumptions about future demand and market conditions, inventories are carried at the lower of cost or estimated market value. If our assumptions about future demand change, or market conditions are less favorable than those projected, additional write-downs of inventories may be required. In any case, actual amounts could be different from those estimated.
Deferred Taxes – If determined that it is more likely than not that we will not realize all or part of our net deferred tax assets in the future, we record a valuation allowance against the deferred tax assets, which allowance will be charged to income tax expense in the period of such determination. We also consider the scheduled reversal of deferred tax liabilities, tax planning strategies and future taxable income in assessing if deferred tax assets could be realized. We also consider the weight of both positive and negative evidence in determining whether a valuation allowance is needed. However, we have fully reduced by $1,915,000 the entire valuation allowance against our net deferred tax assets during the year ended December 31, 2022 primarily as a result of our recent history of net income.
Overview
We are primarily focused on supplying ODM products for our OEM customer’s multi-year turn-key projects. We also distribute discrete semiconductors, commodity Integrated Circuits (ICs), optoelectronic devices and passive components to other electronic distributors, CEMs and OEMs, who incorporate them in their products.
Our core strategy has shifted to primarily focus on higher margin ODM Projects that require custom products designed for specific applications to OEM customers, and away from actively marketing our superstore strategy of maintaining a vast quantity of electronic components to fill customer orders immediately from available stock held in inventory. As a result, we expect our components inventory will be more passively marketed and distributed online for clearance through our internet sales portal, however at potentially lower rates due to the pricing pressures normally attributed with online shopping.
In accordance with generally accepted accounting principles, we have classified inventory as a current asset in our September 30, 2017,March 31, 2023, condensed consolidated financial statements representing approximately 54%25% of current assets and 38%18% of total 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 or classified as a current asset, such as cash. We cannot assure you that demand in the discrete semiconductor market will increase and that market conditions will improve. Therefore, it is possible that further declines in our carrying values of inventory may result.
Our gross profit margins are subject to a number of factors, including product demand, the relative strength of the U.S. dollar, provisions for inventory reserves, our ability to purchase inventory at favorable prices and our sales product mix.
Results of Operations
Significant Risks and Uncertainties
See the Risk Factors included in our Annual report on Form 10-K for the year ended December 31, 2022 as filed with the Securities and Exchange Commission as well as the additional Risk Factor included in Part II—Item 1A of this quarterly report regarding the impacts of the COVID-19 outbreak.
First quarter of 20172023 versus 2016.2022.
Net sales in the thirdfirst quarter of 20172023 totaled $1,679,000$2,086,000 versus $1,621,000$1,552,000 in the comparable period for 2016,2022, an increase of $58,000$534,000 or 3.6%34.4% over the same period last year
Gross profit for the thirdfirst quarter of 20172023 was $768,000$1,153,000 versus $585,000$803,000 in the comparable period for 2017,2022, and gross margin percentage of net sales was 45.7%55.3% in the thirdfirst quarter of 20172023 versus 36.1%51.7% in the comparable period for 2016.2022. The approximately 3.6% gross margin percentage increase was driven by margins on ODM project sales.
Selling, general and administrative expenses in the thirdfirst quarter of 20172023 totaled $534,000$590,000 versus $511,000$557,000 in the comparable period for 2016.2022. The $33,000 increase was primarily driven by higher personnel benefits.
Other income(expense), net, of interest income, was $9,000 forin the thirdfirst quarter of 2017 and $17,0002023 was $221,000 versus $(83,000) in the comparable period for 2016.
Income tax (provision)benefit was $(41,000) for the first quarter of 20172023 and $1,875,000 for the comparable period for 2022. The decrease was $25,000primarily due to reducing by $1,922,000 our entire valuation allowance against our deferred tax assets in the prior year.
Net income was $762,000 for the first quarter of 2023 versus $22,000$2,042,000 in the comparable period for 2016. Other income was primarily derived from the rental income2022, a decrease of excess space at our headquarters’ facility in Valencia, CA.
Liquidity and Capital Resources
We historically have financedsatisfied our operations with fundsliquidity requirements through cash generated from operating activitiesoperations, short-term commercial loans, subordinated related party promissory notes and borrowings under our revolving credit facility.issuance of equity securities.
Cash flows provided by operating activities were $190,000$942,000 as opposed to $759,000used for $874,000 in the ninethree months ending September 30, 2017ended March 31, 2023 and 2016,2022, respectively. The decreaseincrease of $569,000$1,816,000 in cash flows used inprovided by operations compared with the prior period resulted from changes in operating assets and liabilities, primarily from net incomeaccounts payable and reductions of accounts payables compared to the prior period.inventory.
Cash flows used infor investing activities were $128,000$1,001,000 and $6,000$5,000 for the ninethree months ending September 30, 2017ended March 31, 2023 and 2016,2022, respectively.
Cash flows used infor financing activities were $374,000$300,000 and $776,000$264,000 for the ninethree months ending September 30, 2017ended March 31, 2023 and 2016,2022, respectively.
We believe that funds generated from or used in operations, in addition to existing cash balances and, if necessary, related party short-term loans, are likely to be sufficient to finance our working capital and capital expenditure requirements for the foreseeable future. If these funds are not sufficient, we may secure new sources of short-term commercial loans, asset-based lending on accounts receivables or issue debt or equity securities. Otherwise, we may need to liquidate assets to generate the necessary working capital.
Inventory is included and classified as a current asset. As of March 31, 2023, inventory represented approximately 25% of current assets and 18% of total assets. However, it is likely to take over one (1) year for the inventory to turn and therefore is likely not saleable within this time frame. Hence, inventory would not be as readily marketable or liquid as other items included in current assets, such as cash.
Off-Balance Sheet Arrangements
As of November 14, 2017,March 31, 2023, we had no off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk. - Not applicable.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management has evaluated, under the supervision and with the participation of our principal executive and principal financial officers, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (the “Exchange Act”). Based on that evaluation, our principal executive and principal financial officers concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective in ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner, and (2) accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. - None
In the ordinary course of business, we may become involved in legal proceedings from time to time. As of the date of this report, we are not aware of any material pending legal proceedings.
Item 1A. Risk Factors.
The discussion of our business and operations should be read together with the risk factor set forth below and the risk factors contained in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022, which describe various risks and uncertainties to which we are or may become subject. These risks and uncertainties have the potential to affect our business, financial condition, results of operations, cash flows, strategies or prospects in a material and adverse manner. As of May 15, 2023, there have been no material changes to the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. - None None.
Item 3. Defaults Upon Senior Securities. - NoneNone.
Item 4. [Removed and Reserved]Mine Safety Disclosures. Not Applicable.
Item 5. Other Information. – None None.
Item 6. Exhibits.
Exhibit Number | DescriptionofDocument | |
31.1 * | ||
31.2 * | ||
32 | ||
101.INS* | Inline XBRL Instance Document | |
101.SCH* | Inline XBRL Taxonomy Extension Schema | |
101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase | |
101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase | |
101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase | |
101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |
* | Filed herewith. | |
** | ||
Furnished herewith. |
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.
TAITRON COMPONENTS INCORPORATED | ||
Date: | /s/ Stewart Wang Stewart Wang Chief Executive Officer and President (Principal Executive Officer) | |
/s/ David Vanderhorst Chief Financial Officer and Secretary (Principal |