<PAGE>
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, 2000
/_/ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-25844
TAITRON COMPONENTS INCORPORATED
(Name of Registrant as specified in its charter)
CALIFORNIA 95-4249240
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
25202 ANZA DRIVE
SANTA CLARITA, CALIFORNIA 91355
(Address Of Principal Executive Offices)
(661) 257-6060
(Registrant's Telephone Number, Including Area Code)
NONE
(Former Name, Address and Fiscal Year, if Changed Since Last Report)
Check whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
YES ( X ) NO ( )
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date:
<TABLE>
<CAPTION>
CLASS OUTSTANDING ON SEPTEMBER 30, 2000
------------------------------------- ---------------------------------
<S> <C>
Class A Common Stock, $.001 par value 5,023,708
Class B Common Stock, $.001 par value 762,612
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TAITRON COMPONENTS INCORPORATED
Condensed Consolidated Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 2000 1999
------------------ ------------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 168 $ 274
Trade accounts receivable, net 5,128 4,055
Inventory, net 30,334 29,153
Prepaid expenses 310 391
Deferred income taxes 494 496
Other current assets 276 234
------------------ ------------------
Total current assets 36,710 34,603
Property and equipment, net 7,256 6,392
Other assets 283 86
------------------ ------------------
Total assets $ 44,249 $ 41,081
================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolving line of credit $ 12,530 $ 9,319
Current portion of long-term debt 22 21
Trade accounts payable 3,258 2,250
Accrued liabilities and other 1,402 617
------------------ ------------------
Total current liabilities 17,212 12,207
------------------ ------------------
Long-term debt, less current portion 417 3,434
------------------ ------------------
Commitments -- --
Shareholders' equity:
Preferred stock, $.001 par value. Authorized 5,000,000 shares;
none issued or outstanding -- --
Class A common stock, $.001 par value. Authorized 20,000,000
shares; issued and outstanding 5,023,708 and 5,085,026 shares as
of September 30, 2000 and December 31, 1999, respectively. 5 5
Class B common stock, $.001 par value. Authorized, issued and
outstanding 762,612 shares 1 1
Additional paid-in capital 11,171 11,457
Accumulated other comprehensive earnings, net of tax (19) 24
Retained earnings 15,462 13,953
------------------ ------------------
Total shareholders' equity 26,620 25,440
------------------ ------------------
Total liabilities and shareholders' equity $ 44,249 $ 41,081
================== ==================
</TABLE>
See accompanying notes to condensed consolidated financial statements
Page 2
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TAITRON COMPONENTS INCORPORATED
Condensed Consolidated Statements of Earnings and Comprehensive Earnings
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
--------------------------------------- ------------------------------------
2000 1999 2000 1999
---------------- ---------------- ---------------- ---------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $ 8,663 $ 7,750 $ 25,837 $ 22,051
Cost of goods sold 5,915 5,605 17,699 15,722
---------------- ---------------- ---------------- ---------------
Gross profit 2,748 2,145 8,138 6,329
Selling, general and
administrative expenses 1,711 1,506 5,047 4,449
---------------- ---------------- ---------------- ---------------
Operating earnings 1,037 639 3,091 1,880
Interest expense, net 243 220 659 651
Other expense (income), net (26) (39) (58) (155)
---------------- ---------------- ---------------- ---------------
Earnings before income taxes 820 458 2,490 1,384
Income tax expense 297 189 981 587
---------------- ---------------- ---------------- ---------------
Net earnings 523 269 1,509 797
---------------- ---------------- ---------------- ---------------
Other comprehensive earnings, net of tax:
Foreign currency translation adjustments (10) 5 (43) 21
---------------- ---------------- ---------------- ---------------
Comprehensive earnings 513 274 1,466 818
================ ================ ================ ===============
Basic net earnings per share $ .09 $ .04 $ .26 $ .13
================ ================ ================ ===============
Diluted net earnings per share $ .09 $ .04 $ .25 $ .13
================ ================ ================ ===============
Basic weighted average shares outstanding 5,781,310 6,000,000 5,809,372 6,024,000
================ ================ ================ ===============
Diluted weighted average shares outstanding 6,069,675 6,085,000 6,088,807 6,078,000
================ ================ ================ ===============
</TABLE>
See accompanying notes to condensed consolidated financial statements
Page 3
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TAITRON COMPONENTS INCORPORATED
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------
2000 1999
------------------ ------------------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,509 $ 797
------------------ ------------------
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization 366 302
Deferred income taxes 2 --
Changes in Assets and Liabilities:
Trade accounts receivable (1,073) 176
Inventory (1,181) 4,665
Prepaid expenses 81 (32)
Other current assets (42) (88)
Other assets (197) 280
Trade accounts payable 1,008 (1,510)
Accrued and other liabilities 785 (35)
------------------ ------------------
Total adjustments (251) 3,758
------------------ ------------------
Net cash provided by operating activities 1,258 4,555
------------------ ------------------
Cash flows from investing activities:
Acquisitions of property and equipment (1,230) (3,654)
------------------ ------------------
Cash flows from financing activities:
Borrowings on long term debt 11,226 6,455
Payments on long term debt (11,031) (7,070)
Repurchase of Class A Common Stock (383) (606)
Exercise of stock options 97 --
------------------ ------------------
Net cash used in financing activities (91) (1,221)
------------------ ------------------
Impact of changes in exchange rates on cash (43) 21
------------------ ------------------
Net decrease in cash and cash equivalents (106) (299)
Cash and cash equivalents, beginning of period 274 364
------------------ ------------------
Cash and cash equivalents, end of period $ 168 $ 65
================== ==================
Supplemental disclosure of cash flow information:
Cash paid for interest $ 780 $ 786
================== ==================
Cash paid for income taxes $ 211 $ 618
================== ==================
</TABLE>
See accompanying notes to condensed consolidated financial statements
Page 4
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TAITRON COMPONENTS INCORPORATED
Notes to Condensed Consolidated Financial
Statements As of and for the quarterly period ending September 30, 2000
(All amounts are unaudited, except for the
balance sheet as of December 31, 1999)
(1) BASIS OF PRESENTATION
The condensed consolidated financial information furnished herein is
unaudited and, in the opinion of management, includes all adjustments
(consisting of normal recurring adjustments and accruals) in conformity
with the accounting principles reflected in the financial statements
included in the Annual Report on Form 10-K filed with the Securities and
Exchange Commission for the year ended December 31, 1999. The results of
operations for interim periods are not necessarily indicative of results to
be achieved for full fiscal years.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q and,
therefore, do not include all information and footnotes necessary for a
fair presentation of financial position, results of operations and cash
flows in conformity with generally accepted accounting principles. The
unaudited condensed consolidated financial statements and notes should,
therefore, be read in conjunction with the financial statements and notes
thereto in the Annual Report on Form 10-K for the year ended December 31,
1999.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The unaudited condensed consolidated financial statements include the
accounts of the Company and its majority-owned subsidiary. All significant
intercompany transactions have been eliminated in consolidation.
REVENUE RECOGNITION
Revenue is recognized upon shipment of the merchandise. Reserves for sales
allowances and customer returns are established based upon historical
experience and management's estimates as shipments are made. Sales returns
for the quarters ended September 30, 2000 and 1999 aggregated to $175,000
and $298,000, respectively and for the nine months ended September 30, 2000
and 1999 aggregated to $421,000 and $692,000, respectively.
ALLOWANCE FOR SALES RETURNS AND DOUBTFUL ACCOUNTS
The allowance for sales returns and doubtful accounts at September 30, 2000
and December 31, 1999 was $140,000 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 $1,042,000 and $1,054,000 at
September 30, 2000 and December 31, 1999, respectively.
SUBORDINATED DEBENTURE
During the third quarter ending September 30, 2000, the Company paid in its
entirety, the $3,000,000 principal balance, including accrued interest
payable, of the subordinated debenture note payable originally due May 18,
2001.
RECLASSIFICATION
The 2000 balances have been reclassified to conform with the 1999 balances
where appropriate.
Page 5
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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.
<TABLE>
<CAPTION>
Three Month Nine Month
Period Ended September 30, Period Ended September 30,
--------------------------------- ----------------------------------
2000 1999 2000 1999
---------------- ------------- -------------- ----------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
( Dollars in thousands) ( Dollars in thousands)
<S> <C> <C> <C> <C>
Net sales $ 8,663 $ 7,750 $ 25,837 $ 22,051
Cost of goods sold 5,915 5,605 17,699 15,722
Gross profit 2,748 2,145 8,138 6,329
% of net sales 31.7% 27.7% 31.5% 28.7%
Selling, general and administrative expenses 1,711 1,506 5,047 4,449
% of net sales 19.8% 19.4% 19.5% 20.2%
Operating earnings 1,037 639 3,091 1,880
% of net sales 12.0% 8.2% 12.0% 8.5%
Interest expense, net 243 220 659 651
% of net sales 2.8% 2.8% 2.6% 3.0%
Net earnings $ 523 $ 269 $ 1,509 $ 797
% of net sales 6.0% 3.5% 5.8% 3.6%
</TABLE>
Page 6
<PAGE>
THREE MONTH PERIOD ENDED SEPTEMBER 30, 2000 COMPARED TO THE THREE MONTH PERIOD
ENDED SEPTEMBER 30, 1999
Net sales for the quarterly period ended September 30, 2000 were
$8,663,000, compared with $7,750,000 during the same period last year, an
increase of $913,000 or 11.8%. This increase was primarily attributable to
growth in our domestic passive components sales volume by $1,655,000 or 328%
when comparing $2,159,000 and $504,000 of passive sales, for the three months
ended September 30, 2000 and 1999, respectively. Domestic sales increased by
$1,134,000 for the current three-month period, offset by export sales decreasing
by $221,000 over the same period last year. We believe the overall increase in
net sales is a result of industry-wide increase in demand for passive and
discrete semiconductors.
Cost of goods sold increased by $310,000 to $5,915,000 for the quarterly
period ended September 30, 2000, an increase of 5.5% from the same period in
1999. Cost of goods sold increased with the increase in net sales, however at a
slower rate due to increases in sales prices, resulting in gross profits
increasing as a percentage of net sales to 31.7% for the current three month
period this year from 27.7% for the same period last year. Gross profits
increased by $603,000 to $2,748,000 for the three months ended September 30,
2000 from $2,145,000 for the same period in 1999.
Selling, general and administrative ("SG&A") expenses increased by $205,000
or 13.6% for the three months ended September 30, 2000 compared to the same
period of 1999. The increase is primarily attributable to increased payroll
costs incurred from opening our four most recent sales offices in the United
States (Florida; Arizona; Orange County, California; Massachusetts) during the
four most recent quarters. We have continued to invest in sales and marketing
personnel, which we believe is required for continued growth. SG&A expenses, as
a percentage of net sales, increased to 19.8% for the three months ended
September 30, 2000 from 19.4% for the same period in 1999.
Operating earnings increased by $398,000 or 62.3% between the three month
period ended September 30, 2000 and 1999, an increase as a percentage of net
sales to 12.0% from 8.2%. Operating earnings increased primarily due to
increased net sales.
Interest expense, net of interest income for the three months ended
September 30, 2000 increased by $23,000 compared to the three months ended
September 30, 1999.
Income taxes were $297,000 in the three months ended September 30, 2000,
representing an effective tax rate of 36.2%, compared to $189,000 for the same
period in 1999, an effective tax rate of 41.3%.
Net earnings increased to $523,000 for the three months ended September 30,
2000 as compared with net earnings of $269,000 for the three months ended
September 30, 1999, an increase of $254,000 or 94.4% for the reasons discussed
above. Net earnings as a percentage of net sales increased to 6% from 3.5% over
these same periods.
Page 7
<PAGE>
NINE MONTH PERIOD ENDED SEPTEMBER 30, 2000 COMPARED TO THE NINE MONTH PERIOD
ENDED SEPTEMBER 30, 1999
Net sales for the nine months ended September 30, 2000 were $25,837,000
compared with the nine months ended September 30, 1999 of $22,051,000, an
increase of $3,786,000 or 17.2%. This increase was primarily attributable to
growth in our domestic passive components sales volume by $3,639,000 or 288%
when comparing $4,904,000 and $1,265,000 of passive sales, for the nine months
ended September 30, 2000 and 1999, respectively. Domestic sales increased by
$3,479,000 for the current nine-month period and export sales increased by
$307,000 over the nine months ended September 30, 1999. We believe the overall
increase in net sales is a result of industry-wide increase in demand for
passive and discrete semiconductors.
Cost of goods sold increased by $1,977,000 to $17,699,000 for the nine
months ended September 30, 2000, an increase of 12.6% from the same period in
1999. Cost of goods sold increased with the increase in net sales, however at a
slower rate due to higher sales prices, resulting in gross profits increasing as
a percentage of net sales to 31.5% for the first nine months of this year from
28.7% for the same period last year. Gross profits increased by $1,809,000 to
$8,138,000 for the nine months ended September 30, 2000 from $6,329,000 for the
same period in 1999.
SG&A expenses increased by $598,000 or 13.4% for the nine months ended
September 30, 2000 compared to the same period in 1999. The increase is
primarily attributable to increased payroll and new opening costs incurred from
opening our four most recent sales offices in the United States (Florida;
Arizona; Orange County, California; Massachusetts) during the four most recent
quarters. We have continued to invest in sales and marketing personnel, which we
believe is required for continued growth. SG&A expenses, as a percentage of net
sales, decreased to 19.5% for the nine months ended September 30, 2000 from
20.2% for the same period in 1999.
Operating earnings from operations increased by $1,211,000 or 64.4% for the
nine months ended September 30, 2000 as compared to the same period in 1999 and
also increased as a percentage of net sales to 12% from 8.5%. The increase is
primarily due to higher overall net sales as discussed above.
Interest expense, for the nine months ended September 30, 2000 increased by
$8,000 compared to the nine months ended September 30, 1999.
Income taxes were $981,000 for the nine months ended September 30, 2000,
representing an effective tax rate of 39.4%, compared to $587,000 for the nine
months ended September 30, 1999, an effective tax rate of 42.4%.
Net earnings of $1,509,000 for the nine months ended September 30, 2000
compared to net earnings of $797,000 for the same period in 1999, an increase of
$712,000 or 89.3% for the same reasons discussed above. Net earnings as a
percentage of net sales increased to 5.8% for the nine months ended September
30, 2000 compared to 3.6% for the same period in 1999 over these same periods.
SUPPLY AND DEMAND ISSUES
During the first half of 2000, demand for discrete semiconductors increased
which caused shortages and price increases. With $30 million of inventory on
hand as of September 30, 2000, we expect to assist our customers in absorbing
some of the price increases and still benefit from increasing profit margins.
Readers are cautioned that the foregoing statements are forward looking and are
necessarily speculative. There can be no guarantee that the recent shortages in
the discrete semiconductor market will continue. Also, if prices of components
held in our inventory decline or if new technology is developed that displaces
products distributed by us and held in inventory, our business could be
materially adversely affected. See "Cautionary Statement Regarding Forward
Looking Information".
Page 8
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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, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------
(Dollars in thousands) 2000 1999
------------------ ---------------
(Unaudited) (Unaudited)
<S> <C> <C>
Operating activities $ 1,258 $ 4,555
Investing activities (1,230) (3,654)
Financing activities (91) (1,221)
</TABLE>
Cash flows provided by operating activities decreased to $1,258,000 during
the nine months ended September 30, 2000, as compared to $4,555,000 during the
nine months ended September 30, 1999. The decrease is primarily attributable to
an increase in inventory and accounts receivable resulting from increased
business and higher net sales during the current nine months ending September
30, 2000 which was partially offset by an increase in accounts payable.
Additionally, during the first nine months of 1999, inventory decreased by $4.7
million, which also contributed to the overall decrease in cash flows when
compared to last year.
Cash flows used in investing activities was $1,230,000 during the nine
months ended September 30, 2000 compared to $3,654,000 during the nine months
ended September 30, 1999. The decrease is due to the purchase of our new
warehouse and headquarters in the amount of $3.3 million during the nine month
period ended September 30, 1999 and current construction of interior
improvements during the current period ending September 30, 2000. We expect the
improvements to be completed during the fourth quarter of 2000. As of the date
of this Report, our interior improvements remain in the final stages of
completion.
Cash flows used in financing activities was $91,000 during the nine months
ended September 30, 2000 compared to $1,221,000 during the nine months ended
September 30, 1999. The change resulted, primarily due to lower net re-payments
to our bank revolving line of credit and less repurchasing of our Class A Common
Stock during the current nine months ended September 30, 2000, as compared to
the same period last year.
We believe that funds generated from operations and our bank revolving
lines of credit will be sufficient to finance our working capital and capital
expenditure requirements for the foreseeable future. In addition, during the
third quarter ending September 30, 2000, we paid in its entirety, the $3,000,000
principal balance, including accrued interest payable, of the subordinated
debenture note payable originally due May 18, 2001.
During the quarter ending September 30, 2000, our Board Of Directors
approved an additional stock repurchase of up to $1 million.
As of the date of this Report, we have no additional commitments for other
equity or debt financing or other significant capital expenditures.
Page 9
<PAGE>
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION
Several of the matters discussed in this document contain forward looking
statements that involve risks and uncertainties. Such forward looking statements
are usually denoted by words or phrases such as "believes," "expects,"
"projects," "estimates," "anticipates," "will likely result," or similar
expressions. We wish to caution readers that all forward looking statements are
necessarily speculative and not to place undue reliance on such forward looking
statements, which speak only as of the date made, and to advise readers that
actual results could vary due to a variety of risks and uncertainties. Factors
associated with the forward looking statements that could cause the forward
looking statements to be inaccurate and could otherwise impact our future
results are set forth in detail in our most recent annual report on Form 10-K.
In addition to the other information contained in this document, readers should
carefully consider the information contained in our Form 10-K for the year ended
December 31, 1999 under the heading "Cautionary Statements and Risk Factors."
YEAR 2000
In 1999, we completed our remediation and testing of our systems. Because
of those planning and implementation efforts, we experienced no significant
disruptions in critical information technology and non-information technology
systems and those systems have successfully responded to the Year 2000 date
change. We did not incur any significant expenses during 1999 in connection with
remediating our systems. We are not aware of any material problems resulting
from Year 2000 issues, either with our products, internal systems, or the
products and services of our third parties. We will continue to monitor our
critical computer applications and those of our suppliers and vendors throughout
the year 2000 to ensure any latent Year 2000 matters arising are addressed
promptly.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In March 1999, the Company filed a lawsuit in Los Angeles Superior Court
against QT Optoelectronic ("QT")(formerly known as Questus Corporation), a
manufacturer of optoelectronic semiconductors. In October 2000, the Company and
QT entered into a confidential settlement agreement resolving all claims
asserted in the lawsuit. In accordance with the terms of the settlement
agreement, the Company expects to dismiss the lawsuit with prejudice in November
2000, if QT complies with all the terms of the settlement agreement.
Item 2. through Item 5.
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K:
None
Page 10
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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: November 9, 2000 By: /s/ STEWART WANG
------------------------------------
Stewart Wang
Chief Executive Officer
and Director
Date: November 9, 2000 By: /s/ STEVEN H. DONG
-----------------------------------
Steven H. Dong
Chief Financial Officer
(Principal Accounting Officer)
