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 September 30, 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 October 15, 2001
----------------------------------- -------------------------------
Class A Common Stock, $.001 par value 4,890,037
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)
September 30, December 31,
2001 2000
------------------- -------------------
Assets (Unaudited)
Current assets:
Cash and cash equivalents $ 125 $ 190
Trade accounts receivable, net 2,748 4,809
Inventory, net 28,933 30,609
Prepaid expenses 277 355
Deferred income taxes 602 694
Other current assets 127 251
------------------- -------------------
Total current assets 32,812 36,908
Property and equipment, net 6,882 7,205
Other assets 296 287
------------------- -------------------
Total assets $ 39,990 $ 44,400
=================== ===================
Liabilities and Shareholders' Equity
Current liabilities:
Revolving line of credit $ 12,430 $ 13,930
Current portion of long term debt 23 22
Trade accounts payable 1,307 2,495
Accrued liabilities and other 189 902
------------------- -------------------
Total current liabilities 13,949 17,349
Long-term debt, less current portion 394 412
------------------- -------------------
Total liabilities 14,343 17,761
------------------- -------------------
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 4,891,837 and 4,983,975 shares as 5 5
of September 30, 2001 and December 31, 2000, respectively.
Class B common stock, $.001 par value. Authorized, issued and
outstanding 762,612, shares as of September 30, 2001 and 1 1
December 31, 2000.
Additional paid-in capital 10,823 11,062
Accumulated comprehensive income (53) (45)
Retained earnings 14,871 15,616
------------------- -------------------
Total shareholders' equity 25,647 26,639
------------------- -------------------
Total liabilities and shareholders' equity $ 39,990 $ 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 September 30, Nine months ended September 30,
2001 2000 2001 2000
-------------- -------------- ------------- --------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net sales $ 3,726 $ 8,663 $ 13,402 $ 25,837
Cost of goods sold 2,621 5,915 9,394 17,699
-------------- -------------- ------------- --------------
Gross profit 1,105 2,748 4,008 8,138
Selling, general and administrative
expenses 1,263 1,711 4,280 5,047
-------------- -------------- ------------- --------------
Operating earnings (loss) (158) 1,037 (272) 3,091
Interest expense, net 188 243 634 659
Other expense (income), net 24 (26) (29) (58)
-------------- -------------- ------------- --------------
Earnings (loss) before income
taxes (370) 820 (877) 2,490
Income tax provision (benefit) (63) 297 (132) 981
-------------- -------------- ------------- --------------
Net earnings (loss) $ (307) $ 523 $ (745) $ 1,509
============== ============== ============= ==============
Earnings (loss) per share
Basic $ (.05) $ .09 $ (.13) $ .26
============== ============== ============= ==============
Diluted $ (.05) $ .09 $ (.13) $ .25
============== ============== ============= ==============
Weighted average shares outstanding
Basic 5,664,460 5,781,310 5,690,161 5,809,372
============== ============== ============= ==============
Diluted 5,664,460 6,069,675 5,690,161 6,088,807
============== ============== ============= ==============
See accompanying notes to condensed consolidated financial statements.
Page 3
TAITRON COMPONENTS INCORPORATED
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands
Nine months ended September 30,
--------------------------------------------
2001 2000
------------------- -------------------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net earnings (loss) $ (745) $ 1,509
------------------- -------------------
Adjustments to reconcile net earnings (loss) to net cash provided
by operating activities:
Depreciation and amortization 421 366
Gain on sale of assets (7) --
Deferred income taxes 92 2
Changes in Assets and Liabilities:
Trade accounts receivable 2,061 (1,073)
Inventory 1,676 (1,181)
Prepaid expenses 78 81
Other current assets 124 (42)
Other assets (9) (197)
Trade accounts payable (1,188) 1,008
Accrued and other liabilities (713) 785
------------------- -------------------
Total adjustments 2,535 (251)
------------------- -------------------
Net cash provided by operating activities 1,790 1,258
------------------- -------------------
Cash flows from investing activities:
Acquisitions of property and equipment (98) (1,230)
Proceeds from sale of assets 7 --
------------------- -------------------
Net cash used in investing activities (91) (1,230)
------------------- -------------------
Cash flows from financing activities:
Borrowings on long term debt 3,955 11,226
Payments on long term debt (5,472) (11,031)
Repurchase of Class A Common Stock (294) (383)
Exercise of stock options 55 97
------------------- -------------------
Net cash used in financing activities (1,756) (91)
------------------- -------------------
Impact of changes in exchange rates on cash (8) (43)
------------------- -------------------
Net decrease in cash and cash equivalents (65) (106)
Cash and cash equivalents, beginning of period 190 274
------------------- -------------------
Cash and cash equivalents, end of period $ 125 $ 168
=================== ===================
Supplemental disclosure of cash flow information:
Cash paid for interest (net of capitalized interest of none and
$31 in 2001 and 2000, respectively) $ 682 $ 749
=================== ===================
Cash paid for income taxes $ 309 $ 211
=================== ===================
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 September 30, 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 September 30, 2001 and 2000 aggregated to $89,000
and $175,000, respectively and for the nine months ended September 30, 2001
and 2000 aggregated to $280,000 and $421,000, respectively.
Allowance for Sales Returns and Doubtful Accounts
The allowance for sales returns and doubtful accounts at September 30, 2001
and December 31, 2000 aggregated $102,000 and $120,000, respectively.
Inventory
Inventory, consisting principally of products for resale, is stated at the
lower of cost or market, using the first-in, first-out method. The value
presented is net of valuation allowances of $1,436,000 and $1,326,000 at
September 30, 2001 and December 31, 2000, respectively.
Net Earnings (Loss) Per Share
Common equivalent shares are excluded from the computation of diluted
earnings (loss) per share for the three month period ended September 30,
2001 and for the nine month period ended September 30, 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
(3) Revolving Line of Credit
During the quarter ended September 30, 2001, the Company renewed its
revolving line of credit facility which provides up to $16 million for
operating purposes and up to an additional $4 million for business
acquisition purposes, extending the maturity date to May 18, 2003. The
agreement governing this credit facility contains covenants that require
the Company to be in compliance with certain financial ratios. Borrowings
on the line of credit are secured by substantially all of the Company's
assets.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
The following table sets forth, for the periods indicated, certain operating
amounts and ratios as a percentage of net sales.
Three Month Nine Month
Period Ended September 30, Period Ended September 30,
------------------------------- ------------------------------
2001 2000 2001 2000
------------- ------------- ------------- -------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
( Dollars in thousands) ( Dollars in thousands)
Net sales $ 3,726 $ 8,663 $ 13,402 $ 25,837
Cost of goods sold 2,621 5,915 9,394 17,699
Gross profit 1,105 2,748 4,008 8,138
% of net sales 29.7% 31.7% 29.9% 31.5%
Selling, general and administrative
expenses 1,263 1,711 4,280 5,047
% of net sales 33.9% 19.8% 31.9% 19.5%
Operating earnings (loss) (158) 1,037 (272) 3,091
% of net sales (4.2)% 12.0% (2.0)% 12.0%
Interest expense, net 188 243 634 659
% of net sales 5.0% 2.8% 4.7% 2.6%
Net earnings (loss) $ (307) $ 523 $ (745) $ 1,509
% of net sales (8.2%) 6.0% (5.6)% 5.8%
Page 6
Three month Period Ended September 30, 2001 Compared To The Three month Period
Ended September 30, 2000.
Net sales for the three months ended September 30, 2001 were $3,726,000,
compared with net sales for the three months ended September 30, 2000 of
$8,663,000, a decrease of $4,937,000 or 57%. The decrease is primarily due to
an industry wide decrease in demand for discrete semiconductors. Passive
component sales decreased by $1,255,000 during the quarter ended September 30,
2001 and export sales decreased to $441,000 from $847,000, comparing the same
periods. The average unit selling price increased to 2.2 cents for the current
period from 1.6 cents during the same period last year.
Cost of goods sold for the quarter ended September 30, 2001 decreased to
$2,621,000 from $5,915,000 for the same period last year, a decrease of 55.7% or
$3,294,000. Consistent with the decrease in net sales, cost of goods sold
decreased, however at a slower rate, resulting in gross profits decreasing as a
percentage of net sales to 29.7% for the quarter ended September 30, 2001 from
31.7% for the same period last year. Gross profits decreased by $1,643,000 to
$1,105,000 for the quarter ended September 30, 2001 from $2,748,000 for the same
period in 2000.
Selling, general and administrative ("SG&A") expenses decreased by $448,000
or 26.2% for the quarter period ended September 30, 2001 compared to the same
period of 2000. The decrease is primarily attributable to reducing personnel-
related expenses and commissions paid to independent sales representatives
resulting from lower net sales. These costs, as a percentage of net sales,
increased to 33.9% for the three months ended September 30, 2001 as compared to
19.8% for the three months ended September 30, 2000, which was primarily
attributable to the overall decrease in net sales.
Operating loss was $158,000 for the quarter ended September 30, 2001 as
compared to operating earnings of $1,037,000 for the same period ended September
30, 2000. Operating earnings decreased primarily due to the decrease in net
sales, as discussed above.
Interest expense, net of interest income for the quarter ended September
30, 2001 decreased by $55,000 compared to the same period last year. The
decrease is primarily due to lower effective average borrowing rates incurred
during the current quarter at 5.6%, when compared to 8.0% for the same period
last year.
Income tax benefit was $63,000 during the quarter ended September 30, 2001,
as compared to income tax expense of $297,000 for the same period in 2000. The
change is a direct result of the Company recording operating losses during the
quarter ended September 30, 2001 as compared to operating earnings during the
same period last year.
Net loss was $307,000 for the quarter ended September 30, 2001 as compared
with net earnings of $523,000 for the same period last year, resulting from the
reasons discussed above.
Page 7
Nine month Period Ended September 30, 2001 Compared To The Nine month Period
Ended September 30, 2000.
Net sales for the nine months ended September 30, 2001 were $13,402,000
compared with net sales for the nine months ended September 30, 2000 of
$25,837,000, a decrease of $12,435,000 or 48.1%. The decrease is primarily due
to an industry wide decrease in demand for discrete semiconductors. Passive
component sales decreased by $1,951,000 during the nine months ended September
30, 2001 and export sales decreased to $1,493,000 from $2,270,000, comparing the
same periods. The average unit selling price increased to 2.2 cents for the
current nine month period from 1.8 cents during the same period last year.
Cost of goods sold decreased by $8,305,000 to $9,394,000 for the nine months
ended September 30, 2001, a decrease of 46.9% from the same period in 2000.
Consistent with the decrease in net sales, cost of goods sold decreased, however
at a slower rate, resulting in gross profits decreasing as a percentage of net
sales to 29.9% for the first nine months of this year from 31.5% for the same
period last year. Gross profits decreased by $4,130,000 to $4,008,000 for the
nine months ended September 30, 2001 from $8,138,000 for the same period in
2000.
SG&A expenses decreased by $767,000 or 15.2% for the nine months ended
September 30, 2001 compared to the same period in 2000. The decrease is
primarily attributable to reducing personnel-related expenses and commissions
paid to independent sales representatives resulting from lower net sales. SG&A
expenses, as a percentage of net sales, increased to 31.9% for the nine months
ended September 30, 2001 from 19.5% for the same period in 2000, due from the
overall decrease in net sales.
Operating loss was $272,000 for the nine months ended September 30, 2001 as
compared to operating earnings of $3,091,000 for the same period ended September
30, 2000. Operating earnings decreased primarily due to the decrease in net
sales, as discussed above.
Interest expense, net of interest income for the nine months ended September
30, 2001 decreased by $25,000 compared to the nine months ended Sept 30, 2000.
The decrease is due to a decrease in borrowing levels as compared to the same
period last year and lower effective average borrowing interest rates incurred
during the nine month period of 6.2%, compared to 7.8% for the same period last
year.
Income tax benefit was $132,000 in the current nine month period ended
September 30, 2001, as compared to income tax expense of $981,000 for the same
period in 2000. The change is a direct result of the Company recording
operating losses during the nine months ended September 30, 2001 as compared to
operating earnings during the same period last year.
Net loss was $745,000 for the nine months ended September 30, 2001 compared
to net earnings of $1,509,000 for the same period in 2000, a decrease of
$2,254,000 resulting from the same reasons discussed above.
Page 8
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
with economic conditions worsening resulting in weaker demand in 2001.
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 and continued to be
weak through the end of September 30, 2001, the Company expects to continue
lowering 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".
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 our operating, investing and financing activities for
the nine months ended September 30, 2001 and 2000 are as follows:
Nine months ended September 30,
-------------------------------
(Dollars in thousands) 2001 2000
----------- -----------
(Unaudited) (Unaudited)
Operating activities........................... $ 1,790 $ 1,258
Investing activities........................... (91) (1,230)
Financing activities........................... (1,756) (91)
Cash flows provided by operating activities increased to $1,790,000 during
the nine months ended September 30, 2001, as compared to $1,258,000 during the
nine months ended September 30, 2000. The change is primarily due to the
overall decline in business and net sales which caused a decrease in net income
by $2,254,000 to a net loss of $745,000. Also contributing to the increase in
operating cash flow was a decrease in accounts receivable and inventory of
$2,061,000 and $1,676,000, respectively, during the first nine months of 2001,
as compared to an increase of $1,073,000 and $1,181,000, respectively, during
the same period last year. Conversely, the overall increase in operating cash
flow was partially offset by a decrease in accounts payable and accrued and
other liabilities of $1,188,000 and $713,000, respectively, during the first
nine months of 2001, as compared to an increase of $1,008,000 and $785,000,
respectively, during the same period last year.
Cash flows used in investing activities was $91,000 during the nine months
ended September 30, 2001 compared to $1,230,000 during the nine months ended
September 30, 2000. The decrease is primarily due to the completion of
construction in December 2000 of interior improvements to our new 55,000 square
foot warehouse and headquarters.
Page 9
Cash flows used in financing activities increased to $1,756,000 from
$91,000 during the nine months ended September 30, 2001, as compared to the same
period in 2000, primarily due to increased net re-payments to our bank revolving
line of credit during the current period in 2001, as compared to the same period
in 2000.
During the quarter ended September 30, 2001, the Company renewed its
revolving line of credit facility which provides up to $16 million for operating
purposes and up to an additional $4 million for business acquisition purposes,
extending the maturity date to May 18, 2003. The agreement governing this credit
facility contains covenants that require the Company to be in compliance with
certain financial ratios. Borrowings on the line of credit are secured by
substantially all of the Company's assets.
We believe that funds generated from operations and our bank revolving
lines of credit 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, 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.
Page 10
PART II. OTHER INFORMATION
Item 1. through Item 5.
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.18 Amendment to Business Loan Agreement and Master Revolving Note,
dated May 18, 2001, between the Registrant and Comerica Bank -
California.
(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: November 08, 2001 By: /s/ Stewart Wang
-----------------
Stewart Wang
Chief Executive Officer
and Director
Date: November 08, 2001 By: /s/ Steven H. Dong
-------------------
Steven H. Dong
Chief Financial Officer
(Principal Accounting Officer)
Page 11