<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, 1998
/ / 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, 5,513,362 shares outstanding as of
April 30, 1998
Class B Common Stock, $.001 par value, 762,612 shares outstanding as of
April 30, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE NO.
- ---- --------
<S> <C> <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 9
PART II. OTHER INFORMATION 12
Item 6. Exhibits and Reports on Form 8-K 12
</TABLE>
Page 2 of 13
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TAITRON COMPONENTS INCORPORATED
Balance Sheets
(Dollars in Thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
ASSETS ------------ -----------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 73 163
Trade accounts receivable, net 5,471 5,398
Inventory 37,541 35,757
Prepaid expenses 178 169
Other current assets 267 436
------------ -----------
Total current assets 43,530 41,923
Property and equipment, net 2,502 2,309
Deferred income taxes 749 716
Other assets 45 37
------------ -----------
Total assets $ 46,826 44,985
------------ -----------
------------ -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt 12,119 12,969
Trade accounts payable 5,622 3,235
Accrued liabilities 1,091 935
------------ -----------
Total current liabilities 18,832 17,139
------------ -----------
Long-term debt, less current portion 3,470 3,475
------------ -----------
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 6,318,374 shares 5 5
Class B common stock, $.001 par value. Authorized, issued and
outstanding 762,612 shares 1 1
Additional paid-in capital 12,647 12,997
Accumulated comprehensive income (57) (57)
Retained earnings 11,928 11,425
------------ -----------
Total shareholders' equity 24,524 24,371
------------ -----------
Total liabilities and shareholders' equity $ 46,826 44,985
------------ -----------
------------ -----------
</TABLE>
See accompanying notes to financial statements
Page 3 of 13
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TAITRON COMPONENTS INCORPORATED
Statements of Earnings
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------
1998 1997
------------- -------------
(Unaudited)
<S> <C> <C>
Net sales $ 8,574 $ 8,016
Cost of goods sold 6,074 5,571
------------- -------------
Gross profit 2,500 2,445
Selling, general and administrative expenses 1,364 1,190
------------- -------------
Operating earnings 1,136 1,255
Interest expense, net 290 237
Other expense (income), net 8 1
------------- -------------
Earnings before income taxes 838 1,017
Income tax expense 335 408
------------- -------------
Net earnings $ 503 $ 609
------------- -------------
Earnings Per Share:
Basic $ .08 $ .09
------------- -------------
Diluted $ .08 $ .09
------------- -------------
------------- -------------
Weighted average common shares outstanding:
Basic 6,366,141 6,867,536
------------- -------------
Diluted 6,393,702 6,939,087
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to financial statements
Page 4 of 13
<PAGE>
TAITRON COMPONENTS INCORPORATED
Statements of Shareholders' Equity
Three Months Ended March 31, 1998 and 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
(Unaudited)
- -----------
CLASS A CLASS B ADDITIONAL TOTAL
COMMON COMMON PAID-IN RETAINED COMPREHENSIVE SHAREHOLDERS'
STOCK STOCK CAPITAL EARNINGS INCOME EQUITY
------- ------- ---------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1998 $5 $1 $12,997 $11,425 $(57) $24,371
Repurchase of Class A Common (350) (350)
Foreign currency translation - -
Net earnings 503 503
Balance at March 31, 1998 $5 $1 $12,647 $11,928 $(57) $24,524
------- ------- ---------- -------- ------------- -------------
------- ------- ---------- -------- ------------- -------------
Balance at January 1, 1997 $6 $1 $14,531 $9,575 - $24,113
Repurchase of Class A Common (404) (404)
Net earnings 609 609
Balance at March 31, 1997 $6 $1 $14,127 $10,184 - $24,318
------- ------- ---------- -------- ------------- -------------
------- ------- ---------- -------- ------------- -------------
</TABLE>
Page 5 of 13
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Taitron Components Incorporated
Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
---------------------------
1998 1997
----------- -----------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 503 $ 609
----------- -----------
Adjustments to reconcile net earnings to net cash used in
operating activities:
Depreciation and amortization 44 39
Deferred income taxes (33)
Changes in:
Trade accounts receivable (340) (930)
Inventory (1,785) 2,125
Prepaid expenses and other current assets 307 160
Other assets (7) 1
Trade accounts payable 2,387 (1,047)
Accrued liabilities (85) (102)
Income taxes payable 361 370
----------- -----------
Total adjustments 849 616
----------- -----------
Net cash provided by (used in) operating activities 1,352 1,225
----------- -----------
Cash flows from investing activities - acquisitions of
property and equipment (238) (12)
----------- -----------
Cash flows from financing activities:
Net borrowings (repayments) of notes payable (850) (900)
Repurchase of Class A Common Stock (349) (452)
Payments on long-term debt (5) (3)
----------- -----------
Net cash provided by (used in) financing activities (1,204) (1,355)
----------- -----------
Net increase (decrease) in cash and cash equivalents (90) (142)
Cash and cash equivalents, beginning of period 163 300
----------- -----------
Cash and cash equivalents, end of period $ 73 $ 158
----------- -----------
----------- -----------
Supplemental disclosure of cash flow information:
Cash paid for interest $ 217 $ 179
----------- -----------
----------- -----------
Cash paid for income taxes $ 8 $ -
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to financial statements
Page 6 of 13
<PAGE>
TAITRON COMPONENTS INCORPORATED
Notes to Financial Statements
(All amounts are unaudited except the balance sheet as of December 31, 1997)
(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-K filed with the Securities and
Exchange Commission for the year ended December 31, 1997. 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-K for the year
ended December 31, 1997.
(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, 1998 and 1997 aggregated $285,000 and
$219,000, respectively.
ALLOWANCE FOR SALES RETURNS AND DOUBTFUL ACCOUNTS
The allowance for sales returns and doubtful accounts at March 31, 1998 and
December 31, 1997 aggregated $160,000 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 $1,400,000 and $1,291,000 at
March 31, 1998 and December 31, 1997, respectively.
(2) NET EARNINGS PER SHARE
On December 31, 1997, the Company adopted the provisions of SFAS No. 128,
"Earnings Per Share" which replaces the presentation of primary earnings
per share with a presentation of basic earnings per share and replaces the
presentation of fully diluted earnings per share with diluted earnings per
share. Basic earnings per share is computed by dividing net income
available to common shareholders by the weighted-average number of common
shares outstanding during the period. Diluted earnings per share reflects
the potential dilution that could occur if securities or other contracts to
issue common stock that then were exercised or converted into common stock
or resulted in the issuance of common stock that then shared in earnings of
the Company. Diluted earnings per share is computed similarly to fully
diluted earnings per share pursuant to APB Opinion No. 15. Earnings per
share for the period ended March 31, 1998 have been restated to comply with
SFAS No. 128.
Page 7 of 13
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(3) SHAREHOLDERS' EQUITY
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,
--------- ------------
1998 1997
---- ----
<S> <C> <C>
Second trust deed loan payable, bearing interest at 6.359%, due
December 1, 2013 $ 470,000 $ 494,000
Revolving line of credit, maximum of $16 million,
expires June, 2000 12,100,000 12,950,000
8% convertible subordinated debentures, due May 18, 2001 3,000,000 3,000,000
------------- -------------
15,570,000 16,444,000
Less current portion 12,118,000 12,969,000
------------- -------------
$ 3,452,000 $ 3,475,000
------------- -------------
------------- -------------
</TABLE>
On May 6, 1997, the Company replaced its $15 million revolving line of credit
with a new revolving line of credit facility which provides the Company with
up to $16 million for operating purposes and up to an additional $4 million
for business acquisition purposes, which matures on June 2, 1999. The
agreement governing these credit facilities 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.
Both the old and new revolving lines of credit contain security agreements
which essentially cover all assets of the Company and bear interest at the
bank's prime rate (8.5% at March 31, 1998 and 1997) or at the option of the
Company, at LIBOR plus 1.35 % after May 6, 1997 and 1.5% prior to that date.
(6) COMPREHENSIVE INCOME
On January 1, 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income". SFAS No. 130 establishes standards for reporting comprehensive
income and its components in the financial statements. The adoption of SFAS
No. 130 has no impact on the Company's balance sheets, statements of earnings
or statements of cash flows for the three months ended March 31, 1998 and
1997 as there were no reportable transactions in these periods.
Page 8 of 13
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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,
-------------------------
( Dollars in thousands) 1998 1997
--------------------- ---------- ----------
<S> <C> <C>
Net sales $ 8,574 8,016
Cost of goods sold 6,074 5,571
Gross profit 2,500 2,445
% of net sales 29.2% 30.5%
Selling, general and administrative expenses 1,364 1,190
% of net sales 15.9% 14.8%
Operating earnings 1,136 1,255
% of net sales 15.9% 15.7%
Interest expense, net 290 237
% of net sales 3.4% 3.0%
Net earnings 503 609
% of net sales 5.9% 7.6%
</TABLE>
Page 9 of 13
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THREE MONTH PERIOD ENDED MARCH 31, 1998 COMPARED TO THE THREE MONTH PERIOD ENDED
MARCH 31, 1997
Net sales for the three months ended March 31, 1998 were $8,574,000,
compared with net sales for the three months ended March 31, 1997 of
$8,016,000, an increase of $558,000 or 7.0%. This sales increase was
attributable to an increase in the volume of units sold and partially offset
by per unit price reductions on domestic sales and an increase of $66,000 in
sales returns and allowances. Export sales also increased by $400,000 over
the three months ended March 31, 1997. For the three months ended March 31,
1998, the average unit selling price was approximately 16.3% less than for
the three months ended March 31, 1997. This decrease is a result of market
pressure on selling prices and the beginning of selling passive components in
the second quarter of 1997. Passive components have a lower unit selling
price than other products sold by the Company.
Cost of goods sold increased by $503,000 to $6,074,000 for the three
month period ended March 31, 1998, an increase of 9.0% from the three month
period ended March 31, 1997. Cost of goods sold increased principally as a
result of the increase in the number of units sold. Gross profits increased
by $55,000 to $2,500,000 for the three months ended March 31, 1998 from
$2,445,000 for the same period in 1997. Cost of goods sold as a percentage of
net sales was 70.9% in the first three months of 1998, an increase from 69.5%
in the first three months of 1997.
Selling, general and administrative expenses increased by $174,000 or
14.6% for the three months ended March 31, 1998 compared to the same period
of 1997. These costs, as a percentage of net sales, increased to 15.9% for
the three months ended March 31, 1998 from 14.8% for the three months ended
March 31, 1997. The increase was attributable to increased payroll costs
principally as a result of the geographic expansion of the Company's direct
sales force and the addition of sales support staff.
Operating earnings decreased by $119,000 or 9.5% between the three month
period ended March 31, 1998 and 1997, and decreased as a percentage of net
sales to 13.3% from 15.7%. Operating earnings decreased principally as a
result of increased cost of sales and increases in selling, general and
administrative expenses described above.
Interest expense, net of interest income for the three months ended March
31, 1998 increased $52,000 compared to the three months ended March 31, 1997.
This increase is due to increased borrowings made to purchase inventory, the
Oracle Applications System and to repurchase shares of the Company's Class A
Common Stock.
Income taxes were $335,000 in the three months ended March 31, 1998,
representing an effective tax rate of 40.0%, compared to $408,000 for the same
period in 1997, an effective tax rate of 40.1%.
The Company had net earnings of $503,000 for the three months ended March
31, 1998 as compared with net earnings of $609,000 for the three months ended
March 31, 1997, a decrease of $106,000 or 17.4% for the reasons discussed
above. Net earnings as a percentage of net sales decreased to 5.9% from 7.6%.
Page 10 of 13
<PAGE>
SUPPLY AND DEMAND ISSUES
Beginning in 1996 and continuing through the three months ended March 31,
1998 the supply of most products distributed by the Company has been more
than sufficient to meet customers demand for these products. The weak demand
left suppliers with large amounts of uncommitted products. During the last
several years the Company has taken advantage of this situation by
intensifying its long standing purchasing strategy by making opportunistic
purchases of suppliers' uncommitted capacity, at favorable pricing. The
Company believes this strategy of opportunistic purchasing will posture the
Company to be price competitive, while still maintaining acceptable profit
margins. The Company's competitive edge is its ability to fill customer
orders immediately from stock held in inventory. Thus, management has
structured inventory levels in such a way as to poise the Company to take
advantage of a recovery in the discrete semiconductor market. At the same
time, if the market recovery is slow in taking place, inventory levels should
not impose an unwarranted financial burden on the Company's earnings.
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 inventory by the Company decline or if new technology is
developed that displaces products distributed by the Company and held in
inventory, the Company's business could be materially adversely affected.
See "-Cautionary Statement Regarding Forward Looking Information".
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, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1997
---------- ----------
(In thousands)
<S> <C> <C>
Operating activities.............. $ 1,352 $ 1,225
Investing activities.............. (238) (12)
Financing activities.............. (1,204) (1,355)
</TABLE>
In positioning itself as a "Discrete Components 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.
Page 11 of 13
<PAGE>
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 May 1997, the Company replaced its $15 million revolving line of credit
that had been in place since March 1996. The new revolving line of credit
provides the Company with up to $16 million for operating purposes and up to an
additional $4 million for business acquisition purposes. Both facilities mature
on June 2, 1999. The agreement governing these credit facilities contains
covenants that require the Company to be in compliance with certain financial
ratios.
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.
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. The Company wishes to caution readers that
all forward looking statements are necessarily speculative and do not 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 the Company's future results are set
forth in detail in the Company's 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 the Company's Form 10-K for
the year ended December 31, 1997 under the heading "Cautionary Statements and
Risk Factors."
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:
None
Page 12 of 13
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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 11, 1998 By: /s/ David M. Batt
--------------------------
David M. Batt
Chief Financial Officer
(Principal Financial Officer)
(Chief Accounting Officer)
Page 13 of 13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 73
<SECURITIES> 0
<RECEIVABLES> 5,631
<ALLOWANCES> 160
<INVENTORY> 37,541
<CURRENT-ASSETS> 43,530
<PP&E> 3,274
<DEPRECIATION> 773
<TOTAL-ASSETS> 46,826
<CURRENT-LIABILITIES> 18,832
<BONDS> 3,470
0
0
<COMMON> 6
<OTHER-SE> 24,524
<TOTAL-LIABILITY-AND-EQUITY> 46,826
<SALES> 8,574
<TOTAL-REVENUES> 8,574
<CGS> 6,074
<TOTAL-COSTS> 6,074
<OTHER-EXPENSES> 1,364
<LOSS-PROVISION> 9
<INTEREST-EXPENSE> 290
<INCOME-PRETAX> 838
<INCOME-TAX> 335
<INCOME-CONTINUING> 503
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 503
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
