Company Quick10K Filing
Quick10K
Taitron Components
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$2.72 6 $16
10-Q 2019-09-30 Quarter: 2019-09-30
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-11-01 Regulation FD, Exhibits
8-K 2019-10-07 Accountant, Exhibits
8-K 2019-08-02 Regulation FD, Exhibits
8-K 2019-05-03 Regulation FD, Exhibits
8-K 2019-02-01 Regulation FD, Exhibits
8-K 2018-11-02 Regulation FD, Exhibits
8-K 2018-08-03 Regulation FD, Exhibits
8-K 2018-05-04 Regulation FD, Exhibits
8-K 2018-02-02 Regulation FD, Exhibits
TEL TE Connectivity 30,203
WDC Western Digital 16,009
ARW Arrow Electronics 5,741
AVT Avnet 4,426
CAMT Camtek 329
TESS Tessco Technologies 128
CYBE Cyberoptics 97
PRCP Perceptron 47
CUI CUI Global 17
AWSM Cool Holdings 14
TAIT 2019-09-30
Part I - Financial Information
Item 1. Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk. - Not Applicable.
Item 4. Controls and Procedures.
Part II - Other Information
Item 1. Legal Proceedings. - None
Item 1A. Risk Factors. - Not Applicable
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. - None
Item 3. Defaults Upon Senior Securities. - None
Item 4. Mine Safety Disclosures. - Not Applicable
Item 5. Other Information. - None
Item 6. Exhibits.
EX-31.1 ex_164931.htm
EX-31.2 ex_164932.htm
EX-32 ex_164933.htm

Taitron Components Earnings 2019-09-30

TAIT 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 taitron20190930_10q.htm FORM 10-Q taitron20190930_10q.htm

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, 2019

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For 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)

 

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 ☑

 

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 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 October 31, 2019

Class A

4,990,235

Class B

762,612

 

 

 

 

TAITRON COMPONENTS INCORPORATED

     

INDEX

   

Page

PART I - FINANCIAL INFORMATION

 
     

Item 1.

Financial Statements (Unaudited)

 
 

Condensed Consolidated Balance Sheets

1

 

Condensed Consolidated Statements of Operations and Comprehensive Income

2

 

Condensed Consolidated Statements of Shareholders' Equity

3

 

Condensed Consolidated Statements of Cash Flows

4

 

Notes to Condensed Consolidated Financial Statements

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

9

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

12

Item 4.

Controls and Procedures

12

 

  

 

PART II - OTHER INFORMATION

 
     

Item 1.

Legal proceedings

13

Item 1A.

Risk Factors

13

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

13

Item 3.

Defaults Upon Senior Securities

13

Item 4.

Mine Safety Disclosures

13

Item 5.

Other Information

13

Item 6.

Exhibits

13

 

Signatures

14

 

 

 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements (Unaudited)

 

TAITRON COMPONENTS INCORPORATED

 

Condensed Consolidated Balance Sheets

 

   

September 30,

   

December 31,

 
   

2019

   

2018

 

     Assets

 

(Unaudited)

         

Current assets:

               

Cash and cash equivalents

  $ 4,969,000     $ 4,494,000  

Accounts receivable, less allowances of $40,000 and $38,000, respectively

    750,000       901,000  

Inventories, less reserves for obsolescence of $7,319,000, and $7,189,000, respectively (Note 2)

    4,207,000       4,597,000  

Prepaid expenses and other current assets

    90,000       67,000  

Total current assets

    10,016,000       10,059,000  

Property and equipment, net

    3,435,000       3,710,000  

Other assets (Note 3)

    398,000       212,000  

Total assets

  $ 13,849,000     $ 13,981,000  
                 

Liabilities and Equity

               

Current liabilities:

               

Accounts payable

  $ 388,000     $ 972,000  

Accrued liabilities

    298,000       311,000  

Total current & total liabilities

    686,000       1,283,000  
                 

Commitments and contingencies (Note 6 )

               
                 

Equity:

               

Shareholders's 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;

   4,990,235 and 4,867,235 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

    10,952,000       10,812,000  

Accumulated other comprehensive income

    43,000       128,000  

Retained earnings

    2,062,000       1,656,000  

Total shareholders’ equity - Taitron Components Inc

    13,063,000       12,602,000  

Noncontrolling interest in subsidiary

    100,000       96,000  

Total equity

    13,163,000       12,698,000  

Total liabilities and equity

  $ 13,849,000     $ 13,981,000  

 

See accompanying notes to condensed consolidated financial statements (unaudited).

 

1

 

TAITRON COMPONENTS INCORPORATED

 

Condensed Consolidated Statements of Operations and Comprehensive Income

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2019

   

2018

   

2019

   

2018

 
   

(Unaudited)

   

(Unaudited)

   

(Unaudited)

   

(Unaudited)

 
                                 

Net product revenue

  $ 1,658,000     $ 1,902,000     $ 4,814,000     $ 5,707,000  

Cost of products sold

    770,000       1,056,000       2,408,000       3,228,000  

Gross profit

    888,000       846,000       2,406,000       2,479,000  
                                 

Selling, general and administrative expenses

    566,000       544,000       1,712,000       1,654,000  

Operating income

    322,000       302,000       694,000       825,000  
                                 

Interest income(expense), net

    7,000       -       21,000       (4,000 )

Loss on investments

    -       (50,000 )     -       (185,000 )

Other income, net

    188,000       29,000       244,000       106,000  

Income before income taxes

    517,000       281,000       959,000       742,000  
                                 

Income tax provision

    (2,000 )     (2,000 )     (4,000 )     (5,000 )
                                 

Net income

    515,000       279,000       955,000       737,000  

Net income(loss) attributable to noncontrolling interests

    37,000       (2,000 )     33,000       (6,000 )

Net income attributable to Taitron Components Inc.

  $ 478,000     $ 281,000     $ 922,000     $ 743,000  
                                 
                                 

Net income per share: Basic

  $ 0.08     $ 0.05     $ 0.16     $ 0.13  

Net income per share: Diluted

  $ 0.08     $ 0.05     $ 0.16     $ 0.13  

Cash dividends declared per common share

  $ 0.030     $ 0.025     $ 0.090     $ 0.075  
                                 

Weighted average common shares outstanding: Basic

    5,752,847       5,615,347       5,714,680       5,586,791  

Weighted average common shares outstanding: Diluted

    5,825,847       5,741,474       5,826,680       5,702,456  
                                 

Net income

  $ 515,000     $ 279,000     $ 955,000     $ 737,000  

Other comprehensive income:

                               

Foreign currency translation adjustment

    (100,000 )     (8,000 )     (85,000 )     (6,000 )

Comprehensive income

    415,000       271,000       870,000       731,000  

Comprehensive income(loss) attributable to noncontrolling interests

    9,000       (2,000 )     4,000       (5,000 )

Comprehensive income attributable to Taitron Components Inc.

  $ 406,000     $ 273,000     $ 866,000     $ 736,000  

 

See accompanying notes to condensed consolidated financial statements (unaudited).

 

2

 

TAITRON COMPONENTS INCORPORATED

 

Condensed Consolidated Statements of Shareholders’ Equity

 

                                           

Accumulated

                         
   

Common Stock

     Additional    

Other

                   

Total

 
   

Class A

   

Class B

   

Paid-in

    Comprehensive    

Retained

   

Noncontrolling

   

Shareholders’

 
   

Shares

   

Amount

   

Shares

   

Amount

   

capital

   

Income (Loss)

   

Earnings

   

Interest in Sub

   

Equity

 
                                                                         
Three months ending March 31, 2019, June 30, 2019 and September 30, 2019 (unaudited):                           

Balance at December 31, 2018

    4,867,235     $ 5,000       762,612     $ 1,000     $ 10,812,000     $ 128,000     $ 1,656,000     $ 96,000     $ 12,698,000  

Consolidated net income (loss)

    -       -       -       -       -       -       186,000       (2,000 )     184,000  

Other comprehensive income(loss)

    -       -       -       -       -       13,000       -       (1,000 )     12,000  

Exercise stock options

    70,000       -       -       -       76,000       -       -       -       76,000  

Amortization of stock based compensation

    -       -       -       -       4,000       -       -       -       4,000  

Cash dividends

    -       -       -       -       -       -       (171,000 )     -       (171,000 )

Balance at March 31, 2019

    4,937,235     $ 5,000       762,612     $ 1,000     $ 10,892,000     $ 141,000     $ 1,671,000     $ 93,000     $ 12,803,000  

Consolidated net income (loss)

    -       -       -       -       -       -       258,000       (2,000 )     256,000  

Other comprehensive income

    -       -       -       -       -       2,000       -       -       2,000  

Exercise stock options

    53,000       -       -       -       50,000       -       -       -       50,000  

Amortization of stock based compensation

    -       -       -       -       5,000       -       -       -       5,000  

Cash dividends

    -       -       -       -       -       -       (172,000 )     -       (172,000 )

Balance at June 30, 2019

    4,990,235     $ 5,000       762,612     $ 1,000     $ 10,947,000     $ 143,000     $ 1,757,000     $ 91,000     $ 12,944,000  

Consolidated net income

    -       -       -       -       -       -       478,000       37,000       515,000  

Other comprehensive loss

    -       -       -       -       -       (100,000 )     -       (28,000 )     (128,000 )

Amortization of stock based compensation

    -       -       -       -       5,000       -       -       -       5,000  

Cash dividends

    -       -       -       -       -       -       (173,000 )     -       (173,000 )

Balance at September 30, 2019

    4,990,235     $ 5,000       762,612     $ 1,000     $ 10,952,000     $ 43,000     $ 2,062,000     $ 100,000     $ 13,163,000  
                                                                         
Three months ending March 31, 2018, June 30, 2018 and September 30, 2018 (unaudited):                           

Balance at December 31, 2017

    4,808,235     $ 5,000       762,612     $ 1,000     $ 10,744,000     $ 144,000     $ 867,000     $ 100,000     $ 11,861,000  

Consolidated net income (loss)

    -       -       -       -       -       -       61,000       (2,000 )     59,000  

Other comprehensive income (loss)

    -       -       -       -       -       (7,000 )     -       1,000       (6,000 )

Amortization of stock based compensation

    -       -       -       -       1,000       -       -       -       1,000  

Cash dividends

    -       -       -       -       -       -       (139,000 )     -       (139,000 )

Balance at March 31, 2018

    4,808,235     $ 5,000       762,612     $ 1,000     $ 10,745,000     $ 137,000     $ 789,000     $ 99,000     $ 11,776,000  

Consolidated net income (loss)

    -       -       -       -       -       -       401,000       (2,000 )     399,000  

Other comprehensive income

    -       -       -       -       -       9,000       -       -       9,000  

Exercise stock options

    20,000       -       -       -       18,000       -       -       -       18,000  

Amortization of stock based compensation

    -       -       -       -       1,000       -       -       -       1,000  

Cash dividends

    -       -       -       -       -       -       (139,000 )     -       (139,000 )

Balance at June 30, 2018

    4,828,235     $ 5,000       762,612     $ 1,000     $ 10,764,000     $ 146,000     $ 1,051,000     $ 97,000     $ 12,064,000  

Consolidated net income (loss)

    -       -       -       -       -       -       281,000       (2,000 )     279,000  

Other comprehensive loss

    -       -       -       -       -       (8,000 )     -       -       (8,000 )

Exercise stock options

    39,000       -       -       -       42,000       -       -       -       42,000  

Amortization of stock based compensation

    -       -       -       -       -       -       -       -       -  

Cash dividends

    -       -       -       -       -       -       (138,000 )     -       (138,000 )

Balance at September 30, 2018

    4,867,235     $ 5,000       762,612     $ 1,000     $ 10,806,000     $ 138,000     $ 1,194,000     $ 95,000     $ 12,239,000  

 

See accompanying notes to condensed consolidated financial statements (unaudited).

 

3

 

 TAITRON COMPONENTS INCORPORATED

 

Condensed Consolidated Statements of Cash Flows

 

   

Nine Months Ended September 30,

 
   

2019

   

2018

 
   

(Unaudited)

   

(Unaudited)

 

Operating activities:

               

Net income

  $ 955,000     $ 737,000  

Adjustments to reconcile net income to net cash provided by operating activities:

               

Depreciation and amortization

    124,000       121,000  

Provision for sales returns and doubtful accounts

    4,000       3,000  

Stock based compensation

    14,000       2,000  

Loss on investments

    -       185,000  

Gain on sale of assets

    (160,000 )     -  

Changes in assets and liabilities:

               

Accounts receivable

    147,000       255,000  

Inventories

    390,000       252,000  

Prepaid expenses and other current assets

    (23,000 )     4,000  

Accounts payable

    (584,000 )     (137,000 )

Accrued liabilities

    (13,000 )     (25,000 )

Other assets and liabilities

    4,000       12,000  

Total adjustments

    (97,000 )     672,000  

Net cash provided by operating activities

    858,000       1,409,000  
                 

Investing activities:

               

Acquisition of property and equipment

    (12,000 )     (5,000 )

Proceeds from sale of assets

    200,000       -  

Payment for investment in convertible securities

    (186,000 )     -  

Net cash provided by (used for) investing activities

    2,000       (5,000 )
                 

Financing activities:

               

Payments on notes payable

    -       (500,000 )

Dividend payments

    (516,000 )     (418,000 )

Proceeds from stock options exercised

    126,000       60,000  

Net cash used for financing activities

    (390,000 )     (858,000 )
                 

Impact of exchange rates on cash

    5,000       (6,000 )
                 

Net increase in cash and cash equivalents

    475,000       540,000  

Cash and cash equivalents, beginning of period

    4,494,000       3,250,000  

Cash and cash equivalents, end of period

  $ 4,969,000     $ 3,790,000  
                 

Supplemental disclosures of cash flow information:

               

Cash paid for interest

  $ -     $ 9,000  

Cash paid for income taxes, net

  $ 3,000     $ 3,000  

 

See accompanying notes to condensed consolidated financial statements (unaudited).

 

4

 

 TAITRON COMPONENTS INCORPORATED

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Overview of Business

 

In 1989, we were formed and incorporated in California. We maintain a majority-owned subsidiary in Mexico (since 1998) and two divisions in each of Taiwan (since 1997) and China (since 2005). Our Mexico location closed all operations in May 2013 (final closure is planned for the fourth quarter of 2019) and our Taiwan and China locations are for supporting overseas customers, inventory sourcing, purchases and coordinating the manufacture of our products. Our China location also serves as the engineering design support center responsible for 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.

 

Basis of Presentation

 

The unaudited condensed consolidated interim financial statements include the accounts of the Company and all wholly owned divisions, including its 60% majority-owned subsidiary, Taitron Components Mexico, S.A. de C.V. 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 consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. 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.

 

New Accounting Pronouncements

 

In February 2016, the FASB issued a new accounting standard on leasing. The new standard will require companies to record most leased assets and liabilities on the balance sheet, and also proposes a dual model for recognizing expense. This guidance was effective in our first quarter of 2019. We have evaluated the impact of adopting this guidance and the adoption of these accounting changes have not impacted our assets and liabilities nor our net income or equity, as we currently do not lease any assets.

 

In May 2017, the FASB issued a new accounting standard which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in ASC Topic 718. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. This guidance was effective in our first quarter of 2019. The adoption of this guidance has not had a material effect on our consolidated financial statements.

 

5

 

Revenue recognition

 

Revenue is recognized at the point 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 September 30, 2019 and December 31, 2018.

 

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 September 30,

   

Nine Months Ended September 30,

 
   

2019

   

2018

   

2019

   

2018

 

Primary geographical markets:

                               

United States

  $ 1,509,000     $ 1,622,000     $ 4,186,000     $ 5,003,000  

Asia

    145,000       257,000       610,000       627,000  

Other

    4,000       23,000       18,000       77,000  
      1,658,000       1,902,000       4,814,000       5,707,000  

Major product lines:

                               

ODM projects

  $ 1,103,000     $ 1,006,000     $ 2,705,000     $ 3,077,000  

ODM components

    539,000       719,000       2,018,000       2,147,000  

Distribution components

    16,000       177,000       91,000       483,000  
      1,658,000       1,902,000       4,814,000       5,707,000  

Timing of revenue recognition:

                               

Products transferred at a point in time

  $ 1,658,000     $ 1,902,000     $ 4,814,000     $ 5,707,000  

 

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2INVENTORY

 

Inventory, consisting principally of products held for resale, is recorded at the lower of cost (determined using the first in-first out method) or net realizable value. We had inventory balances in the amount of $4,207,000 and $4,597,000 at September 30, 2019 and December 31, 2018, respectively, which is presented net of valuation allowances of $7,319,000 and $7,189,000, 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 complexity of managing and maintaining a large inventory of product offerings, estimates are made regarding adjustments to the carrying values of inventories. Based on our assumptions about future demand and market conditions, inventories are carried at the lower of cost or 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.

 

3 – OTHER ASSETS

 

   

Investment in securities - Zowie Technology

   

Other

   

Other Assets Total

 
                         

Balance at December 31, 2018

  $ 193,000     $ 19,000     $ 212,000  

Investment

    186,000       -       186,000  

Balance at September 30, 2019

  $ 379,000     $ 19,000     $ 398,000  

 

Our $379,000 investment in securities as of September 30, 2019 relates to the following investments in Zowie Technology (“ZT”), a supplier of electronic component products located in Taipei City, Taiwan R.O.C.:

 

(a)

$193,000 relates to 1,322,552 common shares of ZT and represents approximately 9% of their total outstanding shares although we do not have significant influence or control.

 

(b)

$186,000 relates to 317,428 shares of preferred convertible debt of ZT with our option after 3 (three) years to convert the investment into common stock or refundable bearing 7% annual interest rate.

 

Both investments in ZT are accounted for under the cost (plus impairment) basis of accounting.

 

4RELATED PARTY TRANSACTIONS

 

We made payments to K.S. Best International Co. Ltd., a company controlled by the brother of our Chief Executive Officer of approximately $0 and $6,000 for the three months ended September 30, 2019 and 2018, respectively and $0 and $18,000 for the nine months ended September 30, 2019 and 2018, respectively. These payments were for professional fees related to the operational management of our Taiwan office. In addition, we also made interest expense payments on our prior credit facility of approximately $0 and $9,000 for the nine months ended September 30, 2019 and 2018, respectively.

 

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5 – SHARE BASED COMPENSATION

 

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 year from the date of grant and are subject to termination provisions as defined in our 2005 Stock Incentive Plan and 2018 Omnibus Incentive Plan (collectively referred to as “the Plans”). The Options activity during the nine months ended September 30, 2019 is as follows:

 

   

Number of Shares

   

Weighted Average Exercise Price

   

Weighted Average Years Remaining Contractual Term

   

Aggregate Intrinsic Value

 
                                 

Outstanding at December 31, 2018

    453,000     $ 1.35       5.0     $ 182,000  

Grants

    52,500     $ 2.78       8.0       -  

Exercised

    (123,000 )     1.03       -       -  

Forfeited

    (1,000 )     0.84       -       -  

Outstanding at September 30, 2019

    381,500     $ 1.65       5.8     $ 428,000  

Exercisable at September 30, 2019

    114,000     $ 1.05       3.3     $ 192,000  

 

At September 30, 2019, the range of individual outstanding weighted average exercise prices was $1.02 to $2.68.

 

6COMMITMENTS AND CONTINGENCIES

 

Inventory Purchasing

Outstanding commitments to purchase inventory from suppliers aggregated $980,000 as of September 30, 2019.

 

 

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Item 2. Management’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 1 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, 2018.

 

This document contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 which are subject to risks and uncertainties. Forward-looking statements usually are 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 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 not undertake any duty 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.

 

References to “Taitron,” the “Company,” “we,” “our” and “us” refer to Taitron Components Incorporated and its wholly owned and majority-owned subsidiaries, unless the context otherwise specifically defines.

 

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 products, which is when legal transfer of title 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 the three months ended September 30, 2019 and 2018 were $0 and $2,000, respectively and for the nine months ended September 30, 2019 and 2018 were $4,000 and $5,000, respectively. The allowance for sales returns and doubtful accounts at September 30, 2019 and December 31, 2018 aggregated $40,000 and $38,000, respectively.

 

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 net realizable value. We had inventory balances in the amount of $4,207,000 and $4,597,000 at September 30, 2019 and December 31, 2018, respectively, which is presented net of valuation allowances of $7,319,000 and $7,189,000, 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. 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.

 

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.

 

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In accordance with generally accepted accounting principles, we have classified inventory as a current asset in our September 30, 2019, condensed consolidated financial statements representing approximately 42% of current assets and 30% 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

 

Third quarter of 2019 versus 2018.

 

Net sales in the third quarter of 2019 totaled $1,658,000 versus $1,902,000 in the comparable period for 2018, a decrease of $244,000 or 12.8% over the same period last year. The decrease was primarily driven by a decrease of ODM project sales volume.

 

Gross profit for the third quarter of 2019 was $888,000 versus $846,000 in the comparable period for 2018, and gross margin percentage of net sales was 53.6% in the third quarter of 2019 versus 44.5% in the comparable period for 2018. The approximately 9.1% gross profit margin increase were driven by shipments of higher gross margin ODM projects despite the lower sales volume.

 

Selling, general and administrative expenses in the third quarter of 2019 totaled $566,000 versus $544,000 in the comparable period for 2018. The $22,000 increase was primarily driven by an increase in salaries.

 

Other income, net of other expense, in the third quarter of 2019 was $188,000 versus $29,000 in the comparable period for 2018. Other income for the three months ended September 30, 2019 was primarily derived from the gain on sale of our Mexico property of $160,000 and rental income of excess office space at our headquarters in Valencia, CA.

 

Income tax provision was $2,000 for both the third quarter of 2019 and 2018, as we do not expect significant taxable income for the year ending December 31, 2019.

 

Net income was $515,000 for the third quarter of 2019 versus $279,000 in the comparable period for 2018, an increase of $236,000 resulting from the reasons discussed above.

 

Nine Months Ended September 30, 2019 versus Nine Months Ended September 30, 2018.

 

Net sales in the nine months ended September 30, 2019 was $4,814,000 versus $5,707,000 in the comparable period for 2018, a decrease of $893,000 or 15.6% over the same period last year. The decrease was driven by a decrease of ODM project sales volume.

 

Gross profit for the nine months ended September 30, 2019 was $2,406,000 versus $2,479,000 in the comparable period for 2018, and gross margin percentage of net sales was approximately 50% for the nine months ended September 30, 2018 and 43.4% for 2018, respectively. The approximately 6.6% gross profit increase was driven by shipments of new higher gross margin ODM projects.

 

Selling, general and administrative expenses in the nine months ended September 30, 2019 totaled $1,712,000 versus $1,654,000 in the comparable period for 2018, an increase of $58,000 or 3.5% over the same period last year.   The $58,000 increase was primarily driven by an increase of $81,000 in salaries primarily for severance pay incurred during the second quarter of 2019, offset by a decrease of $18,000 in professional fees paid for engineering design services.

 

Other income, net of other expenses, in the nine months ended September 30, 2019 was $244,000 versus $106,000 in the comparable period for 2018. Other income for the nine months ended September 30, 2019 was primarily derived from the gain on sale of our Mexico property of $160,000 and rental income of excess office space at our headquarters in Valencia, CA.

 

10

 

Income tax provision was $4,000 for the nine months ended September 30, 2019 versus $5,000 in 2018, as we do not expect significant taxable income for the year ending December 31, 2019.

 

Net income was $955,000 for the nine months ended September 30, 2019 versus $737,000 in the comparable period for 2018, an increase of $236,000 resulting from the reasons discussed above.

 

Liquidity and Capital Resources

 

We historically have satisfied our liquidity requirements through cash generated from operations, short-term commercial loans, subordinated related party promissory notes and issuance of equity securities.

 

Cash flows provided by operating activities were $858,000 and $1,409,000 in the nine months ended September 30, 2019 and 2018, respectively. The decrease of $551,000 in cash flows provided by operations compared with the prior period resulted from changes in operating assets and liabilities, primarily from inventory and accounts payable compared to the prior period.

 

Cash flows provided by investing activities were $2,000 for the nine months ended September 30, 2019 and cash flows used in investing activities was $5,000 in the nine months ended September 30, 2018.

 

Cash flows used for financing activities were $390,000 and $858,000 for the nine months ended September 30, 2019 and 2018, respectively. The decrease of $468,000 compared with the prior period was primarily due to $500,000 from payments on notes payable in the prior year and a $98,000 increase in dividend payments in the current year. The increase to our cash dividends was based upon our November 2, 2018 announcement that our quarterly cash dividends increased by 20% from $0.025 per share to $0.03 per share.

 

We believe that funds generated from operations, 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 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 September 30, 2019, inventory represented approximately 42% of current assets and 30% of total assets. However, it is likely to take over one year for the inventory to turn and therefore is likely not saleable within a one-year 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 September 30, 2019, we had no off-balance sheet arrangements.

 

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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.

 

 

 

 

 

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PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings. – None

 

Item 1A. Risk Factors. - Not Applicable

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. - None

 

Item 3. Defaults Upon Senior Securities. - None

 

Item 4. Mine Safety Disclosures. – Not Applicable

 

Item 5. Other Information. - None

 

Item 6. Exhibits.

 

Exhibit

Number

 

Description of Document

     

31.1 *

 

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 *

 

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32 *   Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 USC. Section 1350).
     
101.INS*   XBRL Instance Document
101.SCH*   XBRL Taxonomy Extension Schema
101.CAL*   XBRL Taxonomy Extension Calculation Linkbase
101.DEF*   XBRL Taxonomy Extension Definition Linkbase
101.LAB*   XBRL Taxonomy Extension Label Linkbase

101.PRE*

 

XBRL Taxonomy Extension Presentation Linkbase

     

*

 

Filed herewith.

 

 

 

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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: November 14, 2019 

/s/ Stewart Wang               

Stewart Wang,

Chief Executive Officer and President

(Principal Executive Officer)

   
 

/s/ David Vanderhorst                     

David Vanderhorst

Chief Financial Officer and Secretary

(Principal Financial Officer)

                                           

 

 

 

 

 

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