<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1997
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
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 (I.R.S. Employer
Incorporation Or Organization) Identification No.)
25202 ANZA DRIVE
SANTA CLARITA, CALIFORNIA 91355
(Address Of Principal Executive Offices)
(805) 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
----------- -----------
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date:
Class A Common Stock, $.001 par value, 6,010,091 shares outstanding as of April
30, 1997
Class B Common Stock, $.001 par value, 762,612 shares outstanding as of April
30, 1997
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE NO.
- ---- --------
<S> <C>
PART I. FINANCIAL INFORMATION 3
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 8
PART II. OTHER INFORMATION 11
Item 6. Exhibits 11
</TABLE>
Page 2 of 12
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TAITRON COMPONENTS INCORPORATED
Balance Sheets
(Dollars in Thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 1997 1996
------------- -------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 158 300
Trade accounts receivable, net 5,039 4,109
Inventory 33,043 35,168
Prepaid expenses and other current
assets 283 443
------------ -------------
Total current assets 38,523 40,020
Property and equipment, net 1,633 1,660
Deferred income taxes 612 612
Other assets 22 23
------------ -------------
Total assets $ 40,790 42,315
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt 9,117 10,017
Trade accounts payable 2,690 3,737
Accrued liabilities 846 948
Income taxes payable 378 7
------------ -------------
Total current liabilities 13,031 14,709
------------ -------------
Long-term debt, less current portion 3,490 3,493
------------ -------------
Shareholders' equity:
Preferred stock, $.001 par value.
Authorized 5,000,000 shares; none -- --
issued or outstanding
Common stock, no par value.
Authorized 10,000,000 shares; none -- --
issued and outstanding.
Class A common stock, $.001 par value.
Authorized 20,000,000 shares; issued
and outstanding 6,010,091 shares 6 6
Class B common stock, $.001 par value.
Authorized, issued and outstanding
762,612 shares 1 1
Additional paid-in capital 14,079 14,531
Retained earnings 10,183 9,575
------------ -------------
Total shareholders' equity 24,269 24,113
------------ -------------
Total liabilities and
shareholders' equity $ 40,790 42,315
============= =============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
Page 3 of 12
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TAITRON COMPONENTS INCORPORATED
Statements of Earnings
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1996
------------- -------------
(Unaudited)
<S> <C> <C>
Net sales $ 8,016 8,065
Cost of goods sold 5,571 5,388
------------- ------------
Gross profit 2,445 2,677
Selling, general and administrative
expenses 1,190 1,357
------------- ------------
Operating earnings 1,255 1,320
Interest expense, net 237 46
Other expense (income), net 1 4
------------- ------------
Earnings before income taxes 1,017 1,270
Income tax expense 408 510
------------- ------------
Net earnings $ 609 760
------------- ------------
Net earnings per share $ .09 .11
============= ============
Weighted average common shares
outstanding 6,944,000 6,974,000
============= ============
</TABLE>
See accompanying notes to financial statements
Page 4 of 12
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TAITRON COMPONENTS INCORPORATED
Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
-------------------------------
1997 1996
------------ ------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 609 $ 760
------------ ------------
Adjustments to reconcile net earnings
to net cash used in operating
activities:
Depreciation and amortization 39 28
Deferred income taxes (36)
Changes in:
Trade accounts receivable (930) 495
Inventory 2,125 (9,081)
Prepaid expenses and other current
assets 160 (59)
Other assets 1 -
Trade accounts payable (1,047) (2,767)
Accrued liabilities (102) (295)
Income taxes payable 370 431
------------ ------------
Total adjustments 616 (11,340)
------------ ------------
Net cash provided by (used in)
operating activities 1,225 (10,580)
------------ ------------
Cash flows from investing activities -
acquisitions of property and equipment (12) (30)
------------ ------------
Cash flows from financing activities:
Net borrowings (repayments) of notes
payable (900) 9,500
Repurchase of Class A Common Stock (452) -
------------ ------------
Payments on long-term debt (3) (3)
------------ ------------
Net cash provided by (used in)
financing activities (1,355) 9,497
------------ ------------
Net increase (decrease) in cash
and cash equivalents (142) (1,113)
Cash and cash equivalents, beginning of
period 300 1,145
------------ ------------
Cash and cash equivalents, end of period $ 158 32
============ ============
Supplemental disclosure of cash flow
information:
Cash paid for interest $ 179 164
============ ============
Cash paid for income taxes $ - 115
============ ============
</TABLE>
See accompanying notes to financial statements
Page 5 of 12
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TAITRON COMPONENTS INCORPORATED
Notes to Financial Statements
(All amounts are unaudited except the balance sheet as of December 31, 1996)
(1) BASIS OF PRESENTATION
The financial information furnished herein is unaudited, but, in the
opinion of the management of Taitron Components Incorporated, includes all
adjustments (all of which are normal, recurring adjustments) in conformity
with the accounting principles reflected in the financial statements
included in the Annual Report on Form 10-KSB filed with the Securities and
Exchange Commission for the year ended December 31, 1996. The results of
operations for interim periods are not necessarily indicative of results to
be achieved for full fiscal years.
The accompanying unaudited 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 financial statements and
notes should, therefore, be read in conjunction with the financial
statements and notes thereto in the Annual Report on Form 10-KSB for the
year ended December 31, 1996.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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, 1997 and 1996 aggregated $219,000 and
$332,000, respectively.
ALLOWANCE FOR SALES RETURNS AND DOUBTFUL ACCOUNTS
The allowance for sales returns and doubtful accounts at March 31, 1997 and
December 31, 1996 aggregated $145,000 and $135,000, 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 $1,056,000 and $988,000 at
March 31, 1997 and December 31, 1996, respectively.
(2) NET EARNINGS PER SHARE
Net earnings per share is based on the weighted average number of shares of
common stock and common stock equivalents outstanding during each period.
Common stock equivalents consist of outstanding stock options and warrants
to purchase stock that have a dilutive effect on earnings per share. The
difference between primary and fully diluted earnings per share is
immaterial for all periods presented
Page 6 of 12
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(3) SHAREHOLDERS' EQUITY
In March 1995, the Board of Directors authorized the filing of a
registration statement for an initial public offering of the Company's
common stock. In connection with the initial public offering, the Company
recorded a .891-for-1 reverse stock split of its common stock outstanding
at December 31, 1994. Accordingly, all references to the number of shares
outstanding have been adjusted to give effect to the aforementioned reverse
stock split.
Additionally, the Company:
. Authorized the issuance of up to 5,000,000 shares of Preferred Stock, par
value $.001 per share. The terms of the shares are subject to the
discretion of the Board of Directors.
. Authorized the issuance of up to 20,000,000 shares of Class A Common
Stock, par value $.001 per share. Each holder of Class A Common Stock is
entitled to one vote for each share held.
. Authorized the issuance of 762,612 shares of Class B Common Stock, par
value $.001 per share. Each holder of Class B Common Stock is entitled to
ten votes for each share held. The shares of Class B common stock are
convertible at any time at the election of the shareholder into one share
of Class A common stock, subject to certain adjustments.
. Reclassified all of the shares of the Company's common stock outstanding
at December 31, 1994 for an equal number of shares of Class A Common
Stock.
. Authorized the exchange of all Class A Common Stock (762,612 shares) held
by the Chief Executive Officer/Director for an equal number of shares of
Class B Common Stock. This exchange was effected during 1995.
On April 19, 1995, the Company sold 2,530,000 shares of Class A Common
Stock at $5.25 per share in connection with its initial public offering.
The net proceeds from this offering aggregated approximately $11.3 million,
net of approximately $2 million of issuance costs, which proceeds were used
to pay off the previous bank line of credit, to retire long-term debt, to
expand inventory and for general corporate purposes.
(5) BORROWINGS
Long-term debt consists of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
--------- ------------
1997 1996
---- ----
<S> <C> <C>
Second trust deed loan payable,
bearing interest at 6.359%, due
December 1, 2013 $ 507,000 $ 510,000
Unsecured revolving line of credit,
maximum of $15.3 million,
Expires June, 1997 9,100,000 10,000,000
Convertible subordinated debentures,
bearing interest at 8%, due
May 18, 2001 3,000,000 3,000,000
-------------- -----------
12,607,000 13,510,000
-------------- -----------
Less current portion 9,118,000 10,017,000
-------------- -----------
$ 3,489,000 $ 3,493,000
============== ===========
</TABLE>
In June, 1995 the Company entered into an unsecured revolving line of
credit agreement which provided the Company up to $10 million for operating
purposes and up to an additional $5 million for business acquisition
purposes. In March, 1996, the $5 million business acquisition component of
the agreement was changed to a second revolving line of credit. In March,
1997, the second line of credit was amended again to provide $5.3 million
which expires on June 2, 1997. The Company's $10 million line of credit
remains unchanged.
Item 2. Management's Discussion and Analysis Of Financial Condition And
Results Of Operations
Page 7 of 12
<PAGE>
Results of Operations
The Company distributes a wide variety of transistors, diodes and other
semiconductors and optoelectronic devices and beginning in 1997 passive
components to other electronic distributors and to original equipment
manufacturers who incorporate them in their products.
The following table sets forth, for the periods indicated, certain operating
amounts and ratios as a percentage of net sales.
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED
MARCH 31,
-----------------------------------
1997 1996
--------------- ---------------
(Dollars in thousands)
- ----------------------
<S> <C> <C>
Net sales $ 8,016 8,065
Cost of goods sold 5,571 5,388
Gross profit 2,445 2,677
% of net sales 30.5% 33.2%
Selling, general and administrative
expenses 1,190 1,357
% of net sales 14.8% 16.8%
Operating earnings 1,255 1,320
% of net sales 15.7% 16.4%
Interest expense, net 237 46
% of net sales 3.0% .6%
Net earnings 609 760
% of net sales 7.6% 9.4%
</TABLE>
Page 8 of 12
<PAGE>
Three Month Period Ended March 31, 1997 Compared To The Three Month Period Ended
March 31, 1996
Net sales for the three months ended March 31, 1997 were $8,016,000,
compared with net sales for the three months ended March 31, 1996 of $8,065,000,
a decrease of $49,000 or less than 1%. This sales decrease was attributable to a
slight decline in volume and prices of domestic sales, offset somewhat by an
increase in the volume of export sales over the three months ended March 31,
1996. The strong demand experienced by the Company for discrete semiconductors
throughout 1995 continued into the three months ended March 31, 1996. The
competition for the available supply of discrete semiconductors during the three
months ended March 31, 1996 allowed the Company to sell its products for prices
that were higher than normal market conditions. For the three months ended March
31, 1997, the weighted average unit sales price was approximately 3.8% less than
for the three months ended March 31, 1996.
Cost of goods sold increased by $183,000 to $5,571,000 for the three month
period ended March 31, 1997, an increase of 3.3% from the three month period
ended March 31, 1996. As a result of the Comany's FIFO method of accounting for
inventories, such increase reflects the higher prices paid by the Company for
inventory acquired during 1995 and the beginning of 1996. Gross profits
decreased by $232,000 to $2,445,000 for the three months ended March 31, 1997
from $2,677,000 for the same period in 1996. Cost of goods sold as a percentage
of net sales was 69.5% in the first three months of 1997, an increase from 66.8%
in the first three months of 1996.
Selling, general and administrative expenses decreased by $167,000 or 14.0%
for the three months ended March 31, 1997 compared to the same period of 1996.
These costs, as a percentage of net sales, decreased to 14.8% for the three
months ended March 31, 1997 from 16.8% for the three months ended March 31,
1996. The Company was able to reduce selling, general and administrative
expenses during 1996, principally by eliminating non-essential expenditures and
not replacing employees who left the Company.
For the reasons discussed above, operating earnings decreased by $65,000 or
5.2% between the three month periods ended March 31, 1997 and 1996, and declined
as a percentage of sales from 16.4% to 15.7%.
Interest expense, net of interest income for the three months ended March
31, 1997 increased $198,000 compared to the three months ended March 31, 1996.
This increase is due to increased borrowings made to finance the increase in
inventory for the three months ended March 31, 1997 compared to three months
ended March 31, 1996.
Income taxes were $408,000 in the three months of 1996, representing an
effective tax rate of 40.1%, compared to $510,000 for the three months of 1996,
an effective tax rate of 40.2%.
The Company had net earnings of $609,000 for the three months ended March
31, 1997 as compared with net earnings of $760,000 for the three months ended
March 31, 1996, a decrease of $151,000 or 24.8% for reasons discussed above.
Net earnings as a percentage of net sales decreased to 7.6% from 9.4%.
Supply and Demand Issues
For most of 1995 and continuing into early 1996, the demand for discrete
semiconductors, in general, was greater than the supply. This resulted in
intense competition for the available supply of discrete semiconductors and
therefore higher prices. However, beginning in 1996 and continuing through the
three months ended March 31, 1997 the supply of most discrete semiconductors has
been more than sufficient to meet the Company's demand for these products.
Page 9 of 12
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Liquidity and Capital Resources
Since 1993, the Company has satisfied its liquidity requirements
principally through cash generated from operations, short-term commercial loans
and the sale of equity securities, including its initial public offering in
April 1995. A summary of the Company's cash flows provided by (used in)
operating, investing and financing activities for the three months ended March
31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1996
---- ----
(In thousands)
<S> <C> <C>
Operating activities.................. $ 1,225 $(10,580)
Investing activities.................. (12) (30)
Financing activities.................. (1,355) 9,497
</TABLE>
In positioning itself as a "Discrete Superstore", the Company has been
required to significantly increase its inventory levels over the past several
years. The Company expects that inventory levels may increase as the Company
adds new lines of product, such as passive components, and new suppliers.
The discrete semiconductor products distributed by the Company are mature
products, used in a wide range of commercial and industrial applications. As a
result, the Company has never experienced any material amounts of product
obsolescence. The Company also attempts to control its inventory risks by
matching large customer orders with simultaneous orders to suppliers.
Nonetheless, the high levels of inventory carried by the Company increase the
risks of price fluctuations and product obsolescence.
In June, 1995 the Company entered into an unsecured revolving line of credit
agreement which provided the Company up to $10 million for operating purposes
and up to an additional $5 million for business acquisition purposes. In March,
1996, the $5 million business acquisition component of the agreement was changed
to a second revolving line of credit. In March, 1997, the second line of credit
was amended to provide $5.3 million which expires on June 2, 1997. The
Company's $10 million line of credit remains unchanged.
As of March 31, 1997, the Company's unused sources of funds consisted of
approximately $6.4 million in cash and borrowing capacity under the Company's
$10 million and $5.3 million revolving lines of credit, both of which are
provided by Union Bank and expire on June 2, 1997. The revolving lines of credit
bear interest rates based on Union Bank's prime or "Reference Rate" as set by
the bank from time to time, or at the option of the Company at a fixed rate in
excess of LIBOR. Both lines of credit are secured by substantially all of the
Company's assets, other than real property, which is subject to a Trust Deed.
The Company believes that funds generated from operations and the amended
bank revolving lines of credit will be sufficient to finance its working capital
and capital expenditure requirements for the foreseeable future.
Page 10 of 12
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K:
On February 22, 1997, the Company filed a Form 8-K to report that
it has begun to repurchase shares of its Class A Common stock as approved by its
Board of Directors on November 22, 1996.
Page 11 of 12
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TAITRON COMPONENTS INCORPORATED
Date: May 8, 1997 By: /s/ David M. Batt
--------------------------------
David M. Batt
Chief Financial Officer
(Principal Financial Officer)
(Chief Accounting Officer)
Page 12 of 12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 158
<SECURITIES> 0
<RECEIVABLES> 5,258
<ALLOWANCES> 219
<INVENTORY> 33,043
<CURRENT-ASSETS> 38,523
<PP&E> 1,853
<DEPRECIATION> 581
<TOTAL-ASSETS> 40,790
<CURRENT-LIABILITIES> 13,031
<BONDS> 3,000
0
0
<COMMON> 7
<OTHER-SE> 24,269
<TOTAL-LIABILITY-AND-EQUITY> 40,790
<SALES> 8,016
<TOTAL-REVENUES> 8,016
<CGS> 5,571
<TOTAL-COSTS> 5,571
<OTHER-EXPENSES> 1,191
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 408
<INCOME-PRETAX> 1,017
<INCOME-TAX> 408
<INCOME-CONTINUING> 609
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 609
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
