<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 JUNE 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:
Class Outstanding on June 30, 2000
------------------------------------- ----------------------------
Class A Common Stock, $.001 par value 5,020,710
Class B Common Stock, $.001 par value 762,612
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TAITRON COMPONENTS INCORPORATED
Condensed Consolidated Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
ASSETS 2000 1999
------------------ ------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 138 $ 274
Trade accounts receivable, net 5,042 4,055
Inventory, net 29,049 29,153
Prepaid expenses 279 391
Deferred income taxes 412 496
Other current assets 274 234
---------------------------------------
Total current assets 35,194 34,603
Property and equipment, net 7,050 6,392
Other assets 162 86
------------------ ------------------
Total assets $ 42,406 $ 41,081
================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolving line of credit $ 8,052 $ 9,319
Current portion of long-term debt 3,022 21
Trade accounts payable 3,873 2,250
Accrued liabilities and other 877 617
------------------ ------------------
Total current liabilities 15,824 12,207
------------------ ------------------
Long-term debt, less current portion 423 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 5,020,710 and 5,085,026 shares as
of June 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 11,223 11,457
Accumulated comprehensive income (9) 24
Retained earnings 14,939 13,953
------------------ ------------------
Total shareholders' equity 26,159 25,440
------------------ ------------------
Total liabilities and shareholders' equity $ 42,406 $ 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
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
2000 1999 2000 1999
----------------- ---------------- ---------------- ----------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $ 8,826 $ 7,491 $ 17,174 $ 14,300
Cost of goods sold 5,998 5,368 11,784 10,107
----------------- ---------------- ---------------- ----------------
Gross profit 2,828 2,123 5,390 4,193
Selling, general and administrative
expenses 1,712 1,459 3,336 2,849
----------------- ---------------- ---------------- ----------------
Operating earnings 1,116 664 2,054 1,344
Interest expense, net 216 210 416 430
Other expense (income), net (22) (11) (32) (13)
----------------- ---------------- ---------------- ----------------
Earnings before income taxes 922 465 1,670 927
Income tax expense 373 200 684 398
----------------- ---------------- ---------------- ----------------
Net earnings $ 549 $ 265 $ 986 $ 529
================= ================ ================ ================
Basic earnings per share $ .09 $ .04 $ .17 $ .09
================= ================ ================ ================
Diluted earnings per share $ .09 $ .04 $ .16 $ .09
================= ================ ================ ================
Basic weighted average shares
outstanding 5,810,541 6,099,000 5,821,923 6,111,000
================= ================ ================ ================
Diluted weighted average shares
outstanding 6,143,128 6,220,000 6,151,356 6,191,000
================= ================ ================ ================
</TABLE>
See accompanying notes to condensed consolidated financial statements
Page 3
<PAGE>
TAITRON COMPONENTS INCORPORATED
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------------------
2000 1999
------------------ ------------------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 986 $ 529
------------------ ------------------
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization 235 208
Deferred income taxes 84 --
Changes in Assets and Liabilities:
Trade accounts receivable (987) 161
Inventory 104 3,720
Prepaid expenses 112 (145)
Other current assets (40) (177)
Other assets (76) 259
Trade accounts payable 1,623 (2,269)
Accrued and other liabilities 260 (41)
------------------ ------------------
Total adjustments 1,315 1,716
------------------ ------------------
Net cash provided by operating activities 2,301 2,245
------------------ ------------------
Cash flows from investing activities:
Acquisitions of property and equipment (893) (3,539)
------------------ ------------------
Cash flows from financing activities:
Borrowings on long term debt 4,415 4,800
Payments on long term debt (5,692) (3,610)
Repurchase of Class A Common Stock (261) (179)
Exercise of stock options 27 --
------------------ ------------------
Net cash (used in) provided by financing activities (1,511) 1,011
------------------ ------------------
Impact of changes in exchange rates on cash (33) 15
Net decrease in cash and cash equivalents (136) (268)
Cash and cash equivalents, beginning of period 274 364
------------------ ------------------
Cash and cash equivalents, end of period $ 138 $ 96
================== ==================
Supplemental disclosure of cash flow information:
Cash paid for interest $ 572 $ 516
================== ==================
Cash paid for income taxes $ 211 $ 343
================== ==================
</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 June 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 June 30, 2000 and 1999 aggregated to $102,000 and
$212,000, respectively and for the six months ended June 30, 2000 and 1999
aggregated to $245,000 and $394,000, respectively.
ALLOWANCE FOR SALES RETURNS AND DOUBTFUL ACCOUNTS
The allowance for sales returns and doubtful accounts was $120,000 at June
30, 2000 and December 31, 1999.
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 $1,126,000 and $1,054,000 at
June 30, 2000 and December 31, 1999, respectively.
RECLASSIFICATION
The 2000 balances have been reclassified to conform with the 1999 balances
where appropriate. In addition, during the second quarter ending June 30,
2000, the Company reclassified the $3,000,000 subordinated debenture note
payable from long-term debt to a current liability in anticipation of its
principal due date of May 18, 2001.
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 Six Month
Period Ended June 30, Period Ended June 30,
--------------------- ---------------------
2000 1999 2000 1999
---------------- ------------- -------------- ----------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
( Dollars in thousands) ( Dollars in thousands)
<S> <C> <C> <C> <C>
Net sales $ 8,826 $ 7,491 $ 17,174 $ 14,300
Cost of goods sold 5,998 5,368 11,784 10,107
Gross profit 2,828 2,123 5,390 4,193
% of net sales 32.0% 28.3% 31.4% 29.3%
Selling, general and administrative expenses
1,712 1,459 3,336 2,849
% of net sales 19.4% 19.5% 19.4% 19.9%
Operating earnings 1,116 664 2,054 1,344
% of net sales 12.6% 8.9% 12.0% 9.4%
Interest expense, net 216 210 416 430
% of net sales 2.4% 2.8% 2.4% 3.0%
Net earnings $ 549 $ 265 $ 986 $ 529
% of net sales 6.2% 3.5% 5.7% 3.7%
</TABLE>
Page 6
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THREE MONTH PERIOD ENDED JUNE 30, 2000 COMPARED TO THE THREE MONTH PERIOD ENDED
JUNE 30, 1999
Net sales for the three months ended June 30, 2000 were $8,826,000,
compared with net sales for the three months ended June 30, 1999 of $7,491,000,
an increase of $1,335,000 or 17.8%. This increase was primarily attributable to
growth in our domestic passive components sales volume by $1,144,000 or 256%
when compared to passive sales for the second quarter ended June 30, 1999.
Domestic sales increased by $1,177,000 for the current three month period and
export sales by $158,000 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 $630,000 to $5,998,000 for the three
month period ended June 30, 2000, an increase of 11.7% from the same period in
1999. Consistent with the increase in net sales, cost of goods sold increased,
however at a slower rate, resulting in gross profits increasing as a percentage
of net sales to 32.0% for the current three month period this year from 28.3%
for the same period last year. Gross profits increased by $705,000 to $2,828,000
for the three months ended June 30, 2000 from $2,123,000 for the same period in
1999.
Selling, general and administrative ("SG&A") expenses increased by
$253,000 or 17.3% for the three months ended June 30, 2000 compared to the same
period of 1999. The increase is primarily attributable to increased payroll and
new operating costs incurred from opening our four new sales offices in the
United States during the three most recent quarters. SG&A expenses, as a
percentage of net sales, decreased to 19.4% for the three months ended June 30,
2000 from 19.5% for the same period in 1999.
Operating earnings increased by $452,000 or 68.1% between the three
month period ended June 30, 2000 and 1999, an increase as a percentage of net
sales to 12.6% from 8.9%. Operating earnings increased primarily due to
increased net sales.
Interest expense, net of interest income for the three months ended June
30, 2000 increased by $6,000 compared to the three months ended June 30, 1999.
The increase is due to higher interest rates during the current quarter compared
to the same period last year.
Income taxes were $373,000 in the three months ended June 30, 2000,
representing an effective tax rate of 41%, compared to $200,000 for the same
period in 1999, an effective tax rate of 43%.
Net earnings increased to $549,000 for the three months ended June 30,
2000 as compared with net earnings of $265,000 for the three months ended June
30, 1999, an increase of $284,000 or 107% for the reasons discussed above. Net
earnings as a percentage of net sales increased to 6.2% from 3.5% over these
same periods.
SIX MONTH PERIOD ENDED JUNE 30, 2000 COMPARED TO THE SIX MONTH PERIOD ENDED
JUNE 30, 1999
Net sales for the six months ended June 30, 2000 were $17,174,000 compared
with the six months ended June 30, 1999 of $14,300,000, an increase of
$2,874,000 or 20.1%. This increase was primarily attributable to growth in our
domestic passive components sales volume by $1,985,000 or 261% when compared to
passive sales for the six months ended June 30, 1999. Domestic sales increased
by $2,345,000 for the current six month period and export sales increased by
$529,000 over the six months ended June 30, 1999. We believe the overall
increase in net sales is a result of industry wide increase in demand for
passive and discrete semiconductors.
Page 7
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Cost of goods sold increased by $1,677,000 to $11,784,000 for the six
months ended June 30, 2000, an increase of 16.6% from the same period in 1999.
Consistent with the increase in net sales, cost of goods sold increased, however
at a slower rate, resulting in gross profits increasing as a percentage of net
sales to 31.4% for the first six months of this year from 29.3% for the same
period last year. Gross profits increased by $1,197,000 to $5,390,000 for the
six months ended June 30, 2000 from $4,193,000 for the same period in 1999.
SG&A expenses increased by $487,000 or 17.1% for the six months ended June
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 new sales offices in the United States during the three most recent
quarters. SG&A expenses, as a percentage of net sales, decreased to 19.4% for
the six months ended June 30, 2000 from 19.9% for the same period in 1999.
Operating earnings from operations increased by $710,000 or 52.8% for the
six months ended June 30, 2000 as compared to the same period in 1999 and also
increased as a percentage of net sales to 12% from 9.4%. The increase is
primarily due to higher overall sales as discussed above.
Interest expense, for the six months ended June 30, 2000 decreased by
$14,000 compared to the six months ended June 30, 1999. The decrease is due to
lower borrowings as smaller purchases of inventory were made during the current
six month period as compared to the same period last year. Income taxes were
$684,000 for the six months ended June 30, 2000, representing an effective tax
rate of 41% compared to $398,000 for the six months ended June 30, 1999, an
effective tax rate of 42.9%.
Net earnings of $986,000 for the six months ended June 30, 2000 compared to
net earnings of $529,000 for the same period in 1999, an increase of $457,000 or
86.4% for the same reasons discussed above. Net earnings as a percentage of net
sales increased to 5.7% for the six months ended June 30, 2000 compared to 3.7%
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 $29 million of inventory on
hand as of June 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
six months ended June 30, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------------------
(Dollars in thousands) 2000 1999
------------------ ---------------
(Unaudited) (Unaudited)
<S> <C> <C>
Operating activities......................................... $ 2,301 $ 2,245
Investing activities......................................... (893) (3,539)
Financing activities......................................... (1,511) 1,011
</TABLE>
Cash flows provided by operating activities increased to $2,301,000 during
the six months ended June 30, 2000, as compared to $2,245,000 during the six
months ended June 30, 1999. The change is primarily due to higher net earnings
offset by an increase in accounts receivable. Also, during the first six months
of 1999, inventory decreased by $3.7 million and accounts payable decreased by
$2.3 million which generated net cash of $1.4 million. During the first six
months of 2000, inventory decreased by $100,000 and accounts payable increased
by $1.6 million, which generated net cash of $1.7 million, thus partially
attributing to the increase in cash flows during the first six months of 2000
compared to last year.
Cash flows used in investing activities was $893,000 during the six months
ended June 30, 2000 compared to $3,539,000 during the six months ended June 30,
1999. The decrease is due to the purchase of our new warehouse and headquarters
in the amount of $3.3 million during the quarter ended June 30, 1999 and current
construction of interior improvements during the current period ending June 30,
2000. We expect the improvements to be completed during the third 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 $1,511,000 during the six
months ended June 30, 2000 compared to $1,011,000 provided by financing
activities during the six months ended June 30, 1999. The change resulted,
primarily due to higher net re-payments to our bank revolving line of credit
during the current six months ended June 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
second quarter ending June 30,2000, we reclassified the $3,000,000 subordinated
debenture note payable from long-term debt to a current liability in
anticipation of its principal due date of May 18, 2001.
As of the date of this Report, we had no commitments for other equity or
debt financing or other capital expenditures.
Page 9
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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. 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: July 31, 2000 By: /s/ STEWART WANG
--------------------------------
Stewart Wang
Chief Executive Officer
and Director
Date: July 31, 2000 By: /s/ STEVEN H. DONG
--------------------------------
Steven H. Dong
Chief Financial Officer
(Principal Accounting Officer)
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