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, 2000
| | 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.)
25202 ANZA DRIVE
SANTA CLARITA, CALIFORNIA 91355
(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 21, 2000
- ------------------------------------- -----------------------------
Class A Common Stock, $.001 par value 5,073,610
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,
ASSETS 2000 1999
----------------- -----------------
(Unaudited)
Current assets:
Cash and cash equivalents $ 42 $ 274
Trade accounts receivable, net 4,769 4,055
Inventory, net 27,955 29,153
Prepaid expenses 321 391
Deferred income taxes 445 496
Other current assets 253 234
----------------- -----------------
Total current assets 33,785 34,603
Property and equipment, net 6,734 6,392
Other assets 134 86
----------------- -----------------
Total assets $ 40,653 $ 41,081
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolving line of credit $ 8,141 $ 9,319
Current portion of long term debt 21 21
Trade accounts payable 2,685 2,250
Accrued liabilities and other 578 617
----------------- -----------------
Total current liabilities 11,425 12,207
----------------- -----------------
Long-term debt, less current portion 3,428 3,434
----------------- -----------------
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 5,066,026 and 5,085,026 shares as of 5 5
March 31, 2000 and December 31, 1999, respectively.
Class B common stock, $.001 par value. Authorized, issued and
outstanding 762,612, shares as of March 31, 2000 and 1 1
December 31, 1999.
Additional paid-in capital 11,407 11,457
Accumulated comprehensive income (3) 24
Retained earnings 14,390 13,953
----------------- -----------------
Total shareholders' equity 25,800 25,440
----------------- -----------------
Total liabilities and shareholders' equity $ 40,653 $ 41,081
================= =================
See accompanying notes to condensed consolidated financial statements
Page 2
TAITRON COMPONENTS INCORPORATED
Condensed Consolidated Statements of Earnings
(Dollars in thousands, except per share amounts)
THREE MONTHS ENDED MARCH 31,
-----------------------------------------
2000 1999
------------------- ------------------
(Unaudited) (Unaudited)
Net sales $ 8,348 $ 6,809
Cost of goods sold 5,786 4,775
------------------- ------------------
Gross profit 2,562 2,034
Selling, general and administrative expenses 1,624 1,389
------------------- ------------------
Operating earnings 938 645
Interest expense, net 200 219
Other expense (income), net (10) (23)
------------------- ------------------
Earnings before income taxes 748 449
Income tax expense 311 185
------------------- ------------------
Net earnings $ 437 $ 264
=================== ==================
Earnings Per Share:
Basic $ .07 $ .04
=================== ==================
Diluted $ .07 $ .04
=================== ==================
Weighted average common shares outstanding:
Basic 5,833,805 6,118,608
=================== ==================
Diluted 6,124,017 6,118,608
=================== ==================
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,
---------------------------------------
2000 1999
------------------ ------------------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net earnings $ 437 $ 264
------------------ ------------------
Adjustments to reconcile net earnings to net cash used in operating
activities:
Depreciation and amortization 118 111
Deferred income taxes 51 --
Changes in Assets and Liabilities:
Trade accounts receivable (714) 651
Inventory 1,198 1,637
Prepaid expenses 70 23
Other current assets (19) (272)
Other assets (48) (26)
Trade accounts payable 435 (1,968)
Accrued and other liabilities (39) 117
------------------ ------------------
Total adjustments 1,052 273
------------------ ------------------
Net cash provided by operating activities 1,489 537
------------------ ------------------
Cash flows from investing activities -
Acquisitions of property and equipment (460) (14)
------------------ ------------------
Cash flows from financing activities:
Borrowings on long term debt 1,216 600
Payments on long term debt (2,400) (1,397)
Repurchase of Class A Common Stock (50) (40)
------------------ ------------------
Net cash used in financing activities (1,234) (837)
------------------ ------------------
Impact of changes in exchange rates on cash (27) --
Net decrease in cash and cash equivalents (232) (314)
Cash and cash equivalents, beginning of period 274 364
------------------ ------------------
Cash and cash equivalents, end of period $ 42 $ 50
================== ==================
Supplemental disclosure of cash flow information:
Cash paid for interest $ 170 $ 150
================== ==================
Cash paid for income taxes $ 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 ending March 31, 2000
(All amounts are unaudited, except for the balance sheet
as of December 31, 1999)
(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, 1999. 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,
1999.
(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, 2000 and 1999 aggregated
$143,000 and $211,000, respectively.
ALLOWANCE FOR SALES RETURNS AND DOUBTFUL ACCOUNTS
The allowance for sales returns and doubtful accounts at March 31, 2000
and December 31, 1999 aggregated $127,000 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 $1,058,000 and $1,054,000 at March 31, 2000 and
December 31, 1999, respectively.
RECLASSIFICATION
Certain amounts in the 1999 financial statements have been reclassified
to conform with the current 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 condensed consolidated statements of earnings.
THREE MONTH PERIOD ENDED
MARCH 31,
--------------------------------
2000 1999
-------------- -------------
(Dollars in Thousands)
Net sales $ 8,348 6,809
Cost of goods sold 5,786 4,775
Gross profit 2,562 2,034
% of net sales 30.7% 29.9%
Selling, general and administrative expenses 1,624 1,389
% of net sales 19.5% 20.4%
Operating earnings 938 645
% of net sales 11.2% 9.5%
Interest expense, net 200 219
% of net sales 2.4% 3.2%
Net earnings 437 264
% of net sales 5.2% 3.9%
COMPARISON OF THE THREE MONTH PERIODS ENDING MARCH 31, 2000 WITH MARCH 31, 1999.
Net sales for the quarter ending March 31, 2000 increased to $8,348,000
from $6,809,000 for the same period last year, an increase of 22.6% or
$1,539,000. The growth is primarily due to a recent industry wide increase in
demand for discrete semiconductors. The sales increase was also partially due to
an increase in export sales to $718,000 from $397,000, an increase of 80.9% or
$321,000. The average unit selling price decreased to 2.2 cents for the current
period from 2.9 cents during the same period last year mainly due to an increase
in passive components sales which typically have a lower average selling price .
While the average unit selling price decreased, an increase in gross profit
margins to 30.7% from 29.9% for the comparable prior period contributed to the
overall net sales increase.
Cost of goods sold for the current period ending March 31, 2000
increased to $5,786,000 from $4,775,000 for the comparable prior period, an
increase of 21.2% or $1,011,000. Cost of goods sold increased primarily as a
result of the increase in the number of units sold. Gross profit increased by
$528,000 to $2,562,000 for the current period ending March 31, 2000 from
$2,034,000 for the comparable prior period.
Page 6
Selling, general and administrative expenses increased by $235,000 or
16.9% for the current period ending March 31, 2000 compared to the same period
of 1999. These costs, as a percentage of net sales, were 19.5% for the three
months ended March 31, 2000 and 20.4% for the three months ended March 31, 1999.
The increase is primarily attributable to increased payroll and new operating
costs incurred from opening our three new sales offices in the United States
during the fourth quarter of 1999 and additional selling, general and
administrative expenses from our subsidiary in Mexico. Also, contributing to the
increase are additional expenses related to the purchase of our new warehouse
and headquarters. At the end of June, 1999, we purchased our new facilities for
$3.3 million which increased depreciation and maintenance fees. There was no
such purchase or related depreciation during the first quarter of last year.
Operating earnings increased by $293,000 or 45.4% between the three
month period ending March 31, 2000 and 1999, and increased as a percentage of
net sales to 11.2% from 9.5%. Operating earnings increased primarily due to
increased net sales.
Interest expense, net of interest income for the current period ending
March 31, 2000 decreased by $19,000 compared to the same period last year. The
decrease is due to decreased borrowings as smaller purchases of inventory were
made during the current quarter as compared to the same quarter last year.
Additionally, the decrease in borrowings were partially offset by higher
interest rates during the current quarter compared to the same period last year.
Income taxes were $311,000 in the current period ending March 31, 2000,
representing an effective tax rate of 41.6%, as compared to $185,000 for the
same period in 1999, an effective tax rate of 41.2%.
Net earnings were $437,000 for the current period ending March 31, 2000
as compared with net earnings of $264,000 for the same period last year, an
increase of $173,000 or 65.5% for the reasons discussed above. Net earnings as a
percentage of net sales increased to 5.2% from 3.9%.
SUPPLY AND DEMAND ISSUES
Since 1996, the demand for discrete semiconductors in the U.S. market
had continued to decrease through the middle of 1999. During 1999, our focus was
to maintain or gradually reduce our inventory while keeping adequate stock to
accommodate our future growth. During the first quarter of 2000, demand for
discrete semiconductors has increased with recent shortages creating significant
price increases. We believe that with $27.9 million of inventory on hand as of
March 31, 2000, we can help customers absorb some of the price increases and
still benefit from increasing profit margins.
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, 2000 and 1999 are as follows:
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
---- ----
(Dollars in Thousands)
Operating activities.......................................... $ 1,489 $ 537
Investing activities.......................................... (460) (14)
Financing activities.......................................... (1,234) (837)
Cash flows provided by operating activities increased to $1,489,000 from
$537,000 during the three months ended March 31, 2000 and 1999, respectively,
which is partially due to the overall increase in sales during the current
quarter as compared to the same quarter last year. Moreover, in positioning
ourselves as a "discrete components superstore," we have been required to carry
large inventory levels. However, since 1997, our focus has been on utilizing our
current inventory, thereby reducing inventory through the first quarter of 2000.
As a result, inventory has decreased from $29.1 million at December 31, 1999 to
$27.9 million at March 31, 2000, in turn, contributing to an increase in cash
flow provided by operating activities during the current period ending March 31,
2000 as compared to the same period last year. Also, cash flows generated by the
decrease in inventory was partially offset by an increase in accounts receivable
during the current quarter ended March 31, 2000, compared to the same quarter
last year.
The discrete semiconductor products distributed by us are mature
products, used in a wide range of commercial and industrial products and
industries. As a result, we have never experienced any material amounts of
product obsolescence. We also attempt to control our inventory risks by matching
large customer orders with simultaneous orders to suppliers. Nonetheless, the
high levels of inventory carried by us increase the risks of price fluctuations
and product obsolescence.
Cash flows used in investing activities increased to $460,000 from
$14,000 during the three months ended March 31, 2000, as compared to 1999,
primarily due to current construction of interior improvements to our new 55,000
square foot warehouse and headquarters. We expect the improvements to be
completed during the second quarter of 2000.
Cash flows used in financing activities increased to $1,234,000 from
$837,000 during the three months ended March 31, 2000, as compared to 1999,
primarily due to higher net re-payments to our bank revolving line of credit
during the current quarter ended March 31, 2000, as compared to the quarter
ended March 31, 1999.
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, 1999 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 2000 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:
27 Financial Data Schedule
(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: April 30, 2000 By: /s/ STEWART WANG
-------------------------------
Stewart Wang
Chief Executive Officer
and Director
Date: April 30, 2000 By: /s/ STEVEN H. DONG
--------------------------------
Steven H. Dong
Chief Financial Officer
(Principal Accounting Officer)