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As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 8/15/22 Taitron Components Inc. 10-Q 6/30/22 37:2.4M Federal Filings, LLC/FA |
Document/Exhibit Description Pages Size
1: 10-Q Quarterly Report HTML 568K
2: EX-31.1 Certification -- §302 - SOA'02 HTML 15K
3: EX-31.2 Certification -- §302 - SOA'02 HTML 15K
4: EX-32 Certification -- §906 - SOA'02 HTML 13K
10: R1 Document And Entity Information HTML 69K
11: R2 Condensed Consolidated Balance Sheets HTML 102K
12: R3 Condensed Consolidated Balance Sheets HTML 38K
(Parentheticals)
13: R4 Condensed Consolidated Statements of Operations HTML 93K
and Comprehensive Income
14: R5 Condensed Consolidated Statements of Shareholders' HTML 67K
Equity
15: R6 Condensed Consolidated Statements of Cash Flows HTML 95K
16: R7 Summary of Significant Accounting Policies HTML 63K
17: R8 Short-Term Investments HTML 15K
18: R9 Inventory HTML 15K
19: R10 Other Assets HTML 25K
20: R11 Share Based Compensation HTML 39K
21: R12 Commitments and Contingencies HTML 16K
22: R13 Accounting Policies, by Policy (Policies) HTML 32K
23: R14 Summary of Significant Accounting Policies HTML 52K
(Tables)
24: R15 Other Assets (Tables) HTML 24K
25: R16 Share Based Compensation (Tables) HTML 37K
26: R17 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES HTML 37K
(Details) - Disaggregation of Revenue
27: R18 Inventory (Details) HTML 16K
28: R19 Other Assets (Details) HTML 20K
29: R20 Other Assets (Details) - Schedule of Other Assets HTML 22K
30: R21 Share Based Compensation (Details) HTML 27K
31: R22 Share Based Compensation (Details) - Schedule of HTML 50K
Share-based Compensation, Stock Options, Activity
32: R23 Commitments and Contingencies (Details) HTML 15K
35: XML IDEA XML File -- Filing Summary XML 58K
33: XML XBRL Instance -- taitron20220630_10q_htm XML 463K
34: EXCEL IDEA Workbook of Financial Reports XLSX 49K
6: EX-101.CAL XBRL Calculations -- tait-20220630_cal XML 69K
7: EX-101.DEF XBRL Definitions -- tait-20220630_def XML 298K
8: EX-101.LAB XBRL Labels -- tait-20220630_lab XML 577K
9: EX-101.PRE XBRL Presentations -- tait-20220630_pre XML 301K
5: EX-101.SCH XBRL Schema -- tait-20220630 XSD 69K
36: JSON XBRL Instance as JSON Data -- MetaLinks 183± 256K
37: ZIP XBRL Zipped Folder -- 0001185185-22-000933-xbrl Zip 117K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM i 10-Q
i ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended i June 30, 2022
or
i ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: i 0-25844
i TAITRON COMPONENTS INCORPORATED
(Exact name of registrant as specified in its charter)
| i California | i 95-4249240 |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| i 28040 West Harrison Parkway, i Valencia, i California | i 91355-4162 |
| (Address of principal executive offices) | (Zip Code) |
( i 661) i 257-6060
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| i Class A common stock | i TAIT | i NASDAQ Capital Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. i Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). i Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| i Non-accelerated filer ☑ | Smaller reporting company i ☑ |
| Emerging growth company i ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ i No ☑
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
| Classes of common stock | Outstanding on July 31, 2022 |
| Class A | i 5,233,568 |
| Class B | i 762,612 |
TAITRON COMPONENTS INCORPORATED
INDEX
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Page |
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|
PART I - FINANCIAL INFORMATION |
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|
Item 1. |
||
|
1 |
||
|
Condensed Consolidated Statements of Operations and Comprehensive Income |
2 |
|
|
3 |
||
|
4 |
||
|
5 |
||
|
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
9 |
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Item 3. |
12 |
|
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Item 4. |
12 |
|
|
|
||
|
PART II - OTHER INFORMATION |
||
|
Item 1. |
13 |
|
|
Item 1A. |
13 |
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Item 2. |
13 |
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Item 3. |
13 |
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Item 4. |
13 |
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Item 5. |
13 |
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Item 6. |
13 |
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14 |
||
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
TAITRON COMPONENTS INCORPORATED
Condensed Consolidated Balance Sheets
See accompanying notes to condensed consolidated financial statements (unaudited).
TAITRON COMPONENTS INCORPORATED
Condensed Consolidated Statements of Operations and Comprehensive Income
|
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
|
2021 |
2022 |
2021 |
||||||||||||||
|
(Unaudited) |
(Unaudited) |
(Unaudited) |
(Unaudited) |
|||||||||||||
|
Net product revenue |
$ | i 2,790,000 | $ | i 1,925,000 | $ | i 4,342,000 | $ | i 3,889,000 | ||||||||
|
Cost of products sold |
i 1,300,000 | i 995,000 | i 2,049,000 | i 2,098,000 | ||||||||||||
|
Gross profit |
i 1,490,000 | i 930,000 | i 2,293,000 | i 1,791,000 | ||||||||||||
|
Selling, general and administrative expenses |
i 531,000 | i 520,000 | i 1,088,000 | i 1,060,000 | ||||||||||||
|
Operating income |
i 959,000 | i 410,000 | i 1,205,000 | i 731,000 | ||||||||||||
|
Interest income, net |
i 4,000 | i 6,000 | i 8,000 | i 9,000 | ||||||||||||
|
Other (expense)income, net |
( i 310,000 | ) | i 175,000 | ( i 393,000 | ) | i 189,000 | ||||||||||
|
Income before income taxes |
i 653,000 | i 591,000 | i 820,000 | i 929,000 | ||||||||||||
|
Income tax benefit(provision) |
( i 40,000 | ) | ( i 1,000 | ) | i 1,835,000 | ( i 2,000 | ) | |||||||||
|
Net income |
$ | i 613,000 | $ | i 590,000 | $ | i 2,655,000 | $ | i 927,000 | ||||||||
|
Net income per share: Basic |
$ | i 0.10 | $ | i 0.10 | $ | i 0.45 | $ | i 0.16 | ||||||||
|
Diluted |
$ | i 0.10 | $ | i 0.10 | $ | i 0.45 | $ | i 0.16 | ||||||||
|
Weighted average shares outstanding: Basic |
i 5,936,180 | i 5,824,847 | i 5,906,180 | i 5,824,847 | ||||||||||||
|
Diluted |
i 5,994,180 | i 5,914,847 | i 5,950,180 | i 5,909,847 | ||||||||||||
|
Cash dividends declared per common share |
$ | i 0.145 | $ | i 0.040 | $ | i 0.190 | $ | i 0.080 | ||||||||
|
Net income |
$ | i 613,000 | $ | i 590,000 | $ | i 2,655,000 | $ | i 927,000 | ||||||||
|
Other comprehensive income: |
||||||||||||||||
|
Foreign currency translation adjustment |
i 12,000 | ( i 3,000 | ) | ( i 5,000 | ) | ( i 16,000 | ) | |||||||||
|
Comprehensive income |
$ | i 625,000 | $ | i 587,000 | $ | i 2,650,000 | $ | i 911,000 | ||||||||
See accompanying notes to condensed consolidated financial statements (unaudited).
TAITRON COMPONENTS INCORPORATED
Condensed Consolidated Statements of Shareholders’ Equity
|
Accumulated |
||||||||||||||||||||||||||||||||
|
Common Stock |
Additional |
Other |
||||||||||||||||||||||||||||||
|
Class A |
Class B |
Paid-in |
Comprehensive |
Retained |
Total |
|||||||||||||||||||||||||||
|
Shares |
Amount |
Shares |
Amount |
capital |
Income (Loss) |
Earnings |
Equity |
|||||||||||||||||||||||||
|
Three months ending March 31, 2022 and June 30, 2022 (unaudited) |
||||||||||||||||||||||||||||||||
|
Balance at December 31, 2021 |
i 5,113,568 | $ | i 5,000 | i 762,612 | $ | i 1,000 | $ | i 11,176,000 | $ | ( i 73,000 | ) | $ | i 3,276,000 | $ | i 14,385,000 | |||||||||||||||||
|
Consolidated net income |
- | - | - | - | - | - | i 2,042,000 | i 2,042,000 | ||||||||||||||||||||||||
|
Other comprehensive loss |
- | - | - | - | - | ( i 17,000 | ) | - | ( i 17,000 | ) | ||||||||||||||||||||||
|
Amortization of stock based compensation |
- | - | - | - | i 5,000 | - | - | i 5,000 | ||||||||||||||||||||||||
|
Cash dividends |
- | - | - | - | - | - | ( i 264,000 | ) | ( i 264,000 | ) | ||||||||||||||||||||||
|
Balance at March 31, 2022 |
i 5,113,568 | $ | i 5,000 | i 762,612 | $ | i 1,000 | $ | i 11,181,000 | $ | ( i 90,000 | ) | $ | i 5,054,000 | $ | i 16,151,000 | |||||||||||||||||
|
Consolidated net income |
- | - | - | - | - | - | i 613,000 | i 613,000 | ||||||||||||||||||||||||
|
Other comprehensive loss |
- | - | - | - | - | i 12,000 | - | i 12,000 | ||||||||||||||||||||||||
|
Exercise stock options |
i 120,000 | - | - | - | i 208,000 | - | - | i 208,000 | ||||||||||||||||||||||||
|
Amortization of stock based compensation |
- | - | - | - | i 6,000 | - | - | i 6,000 | ||||||||||||||||||||||||
|
Cash dividends |
- | - | - | - | - | - | ( i 870,000 | ) | ( i 870,000 | ) | ||||||||||||||||||||||
|
Balance at June 30, 2022 |
i 5,233,568 | $ | i 5,000 | i 762,612 | $ | i 1,000 | $ | i 11,395,000 | $ | ( i 78,000 | ) | $ | i 4,797,000 | $ | i 16,120,000 | |||||||||||||||||
|
Three months ending March 31, 2021 and June 30, 2021 (unaudited): |
||||||||||||||||||||||||||||||||
|
Balance at December 31, 2020 |
i 5,062,235 | $ | i 5,000 | i 762,612 | $ | i 1,000 | $ | i 11,071,000 | $ | ( i 66,000 | ) | $ | i 2,231,000 | $ | i 13,242,000 | |||||||||||||||||
|
Consolidated net income |
- | - | - | - | - | - | i 337,000 | i 337,000 | ||||||||||||||||||||||||
|
Other comprehensive loss |
- | - | - | - | - | ( i 13,000 | ) | - | ( i 13,000 | ) | ||||||||||||||||||||||
|
Amortization of stock based compensation |
- | - | - | - | i 8,000 | - | - | i 8,000 | ||||||||||||||||||||||||
|
Cash dividends |
- | - | - | - | - | - | ( i 233,000 | ) | ( i 233,000 | ) | ||||||||||||||||||||||
|
Balance at March 31, 2021 |
i 5,062,235 | $ | i 5,000 | i 762,612 | $ | i 1,000 | $ | i 11,079,000 | $ | ( i 79,000 | ) | $ | i 2,335,000 | $ | i 13,341,000 | |||||||||||||||||
|
Consolidated net income |
- | - | - | - | - | - | i 590,000 | i 590,000 | ||||||||||||||||||||||||
|
Other comprehensive loss |
- | - | - | - | - | ( i 3,000 | ) | - | ( i 3,000 | ) | ||||||||||||||||||||||
|
Exercise stock options |
i 31,333 | - | - | - | i 46,000 | - | - | i 46,000 | ||||||||||||||||||||||||
|
Amortization of stock based compensation |
- | - | - | - | i 6,000 | - | - | i 6,000 | ||||||||||||||||||||||||
|
Cash dividends |
- | - | - | - | - | - | ( i 233,000 | ) | ( i 233,000 | ) | ||||||||||||||||||||||
|
Balance at June 30, 2021 |
i 5,093,568 | $ | i 5,000 | i 762,612 | $ | i 1,000 | $ | i 11,131,000 | $ | ( i 82,000 | ) | $ | i 2,692,000 | $ | i 13,747,000 | |||||||||||||||||
See accompanying notes to condensed consolidated financial statements (unaudited).
TAITRON COMPONENTS INCORPORATED
Condensed Consolidated Statements of Cash Flows
|
Six Months Ended June 30, |
||||||||
|
2021 |
||||||||
|
Operating activities: |
||||||||
|
Net income |
$ | i 2,655,000 | $ | i 927,000 | ||||
|
Adjustments to reconcile net income to net cash (used for)provided by operating activities: |
||||||||
|
Depreciation and amortization |
i 61,000 | i 89,000 | ||||||
|
Provision for sales returns and doubtful accounts |
i - | i - | ||||||
|
Stock based compensation |
i 11,000 | i 14,000 | ||||||
|
Forgiveness of PPP loan |
i - | ( i 163,000 | ) | |||||
|
Deferred income taxes |
( i 1,922,000 | ) | i - | |||||
|
Loss on short-term investments |
i 444,000 | i - | ||||||
|
Changes in assets and liabilities: |
||||||||
|
Accounts receivable |
( i 183,000 | ) | ( i 336,000 | ) | ||||
|
Inventories |
i 220,000 | i 69,000 | ||||||
|
Prepaid expenses and other current assets |
( i 55,000 | ) | ( i 74,000 | ) | ||||
|
Accounts payable |
( i 1,009,000 | ) | i 280,000 | |||||
|
Accrued liabilities |
( i 466,000 | ) | i 23,000 | |||||
|
Other assets and liabilities |
i 7,000 | ( i 1,000 | ) | |||||
|
Total adjustments |
( i 2,892,000 | ) | ( i 99,000 | ) | ||||
|
Net cash (used for)provided by operating activities |
( i 237,000 | ) | i 828,000 | |||||
|
Investing activities: |
||||||||
|
Acquisition of property and equipment |
( i 3,000 | ) | ( i 16,000 | ) | ||||
|
Purchase of short-term investments |
( i 1,029,000 | ) | i - | |||||
|
Net cash used for investing activities |
( i 1,032,000 | ) | ( i 16,000 | ) | ||||
|
Financing activities: |
||||||||
|
Dividend payments |
( i 1,134,000 | ) | ( i 466,000 | ) | ||||
|
Proceeds from stock options exercised |
i 208,000 | i 46,000 | ||||||
|
Net cash used for financing activities |
( i 926,000 | ) | ( i 420,000 | ) | ||||
|
Impact of exchange rates on cash |
( i 5,000 | ) | ( i 16,000 | ) | ||||
|
Net (decrease)increase in cash and cash equivalents |
( i 2,200,000 | ) | i 376,000 | |||||
|
Cash and cash equivalents, beginning of period |
i 5,974,000 | i 6,652,000 | ||||||
|
Cash and cash equivalents, end of period |
$ | i 3,774,000 | $ | i 7,028,000 | ||||
|
Supplemental disclosures of cash flow information: |
||||||||
|
Cash paid for interest |
$ | i - | $ | i - | ||||
|
Cash paid for income taxes, net |
$ | i 386,000 | $ | i 4,000 | ||||
|
Supplemental disclosures of non-cash financing activities: |
||||||||
|
On June 4, 2021, PPP loan was forgiven in full by SBA |
$ | i - | $ | i 163,200 | ||||
See accompanying notes to condensed consolidated financial statements (unaudited).
TAITRON COMPONENTS INCORPORATED
Notes to Condensed Consolidated Financial Statements (Unaudited)
1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Overview of Business
We are primarily a supplier of original designed and manufactured (“ODM”) electronic components (“ODM Components”) with our product offerings ranging from discrete semiconductors through small electronic devices. Our products include value-added engineering and turn-key solutions, focusing on providing contract electronic manufacturers (“CEMs”) and original equipment manufacturers (“OEMs”) with ODM products for their multi-year turn-key projects (“ODM Projects”). We also distribute brand name electronic components with a vast inventory available on hand. We are incorporated in California and were originally formed in 1989. We maintain divisions in Taiwan and China which were established in 1996 and 2005, respectively.
Basis of Presentation
The unaudited condensed consolidated interim financial statements include the accounts of the Company and all wholly owned divisions. All significant intercompany accounts and transactions have been eliminated in consolidation.
These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments of a normal recurring nature and considered necessary for a fair presentation of its financial condition and results of operations for the interim periods presented in this Quarterly Report on Form 10-Q have been included. Operating results for the interim periods are not necessarily indicative of financial results for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. In preparing these financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the condensed consolidated financial statements and the reported amount of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Significant estimates and assumptions included in the Company’s condensed consolidated financial statements relate to the allowance for sales returns, doubtful accounts, inventory reserves, accrued liabilities and deferred income taxes.
New Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, “Simplifying the Accounting for Income Taxes”. The pronouncement simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC Topic 740, “Income Taxes”. The pronouncement also improves consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. ASU 2019-12 was effective for us beginning in the first quarter of fiscal 2021, with early adoption permitted. The adoption of this guidance has not had a material effect on our consolidated financial statements.
In October 2020, the FASB issued ASU No. 2020-10 Codification Improvements, to make incremental improvements to U.S. GAAP and address stakeholder suggestions, including, among other things, clarifying that the requirement to provide comparative information in the financial statements extends to the corresponding disclosures section. The amendments in this update was effective for us beginning with fiscal year 2021, with early adoption permitted. The amendments in this update should be applied retrospectively and at the beginning of the period that includes the adoption date. The adoption of the amendments in this update has not had a material impact on our consolidated financial position and results of operations.
Revenue recognition
Revenue is recognized at the point at which control of the underlying products are transferred to the customer. Satisfaction of our performance obligations occur upon the transfer of control of products, either from our facilities or directly from suppliers to customers. We consider customer purchase orders to be the contracts with a customer. All revenue is generated from contracts with customers.
In determining the transaction price, we evaluate whether the price is subject to refund or adjustment to determine the net consideration to which we expect to receive.
Taxes assessed by a governmental authority on revenue-producing transactions are excluded from revenue.
Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as fulfillment costs and are included in cost of products sold.
Based upon the nature of our contracts with customers and our performance obligations within those contracts, we have no contract assets or liabilities as of June 30, 2022 and December 31, 2021.
Nature of products
We are primarily a supplier of original designed and manufactured (“ODM”) products that include value-added engineering and turn-key solutions. The following is a description of major products lines from which we generate our revenue:
ODM Projects - Our custom made small devices for original equipment manufacturers (“OEMs”) and contract electronic manufacturers (CEMs) in their multi-year turn-key projects and marketed in specific industries such as: wild animal feeders, timers for DC motors, public street light controllers, and battery chargers.
ODM Components - Our private labeled electronic components.
Distribution Components - Our name brand electronic components.
Disaggregation of revenue
In the following table, revenue is disaggregated by primary geographical market, major product line, and timing of revenue recognition.
2 – SHORT-TERM INVESTMENTS
Short-term investments, consisting principally of marketable U.S. equity securities and fixed income investments, are classified as short-term based on the nature of the securities and their availability for use in current operations. Measurement is based on fair value with gains and losses recognized in other income/(expense), net.
3 – INVENTORY
Inventory – Inventory, consisting principally of products held for resale, is recorded at the lower of cost (determined using the first in-first out method) and net realizable value. We had inventory balances in the amount of $ i 5,041,000 and $ i 5,261,000 at June 30, 2022 and December 31, 2021, respectively, which is presented net of valuation allowances of $ i 4,984,000 and $ i 4,892,000, respectively. We evaluate inventories to identify excess, high-cost, slow-moving or other factors rendering inventories as unmarketable at normal profit margins. Due to the complexity of managing and maintaining a large inventory of product offerings, estimates are made regarding adjustments to the carrying values of inventories. Based on our assumptions about future demand and market conditions, inventories are carried at the lower of cost and net realizable value. If our assumptions about future demand change, or market conditions are less favorable than those projected, additional write-downs of inventories or valuation allowances may be required. In any case, actual amounts could be different from those estimated.
4 – OTHER ASSETS
|
Investment in securities - Zowie Technology |
Other |
Other Assets Total |
||||||||||
|
Balance at December 31, 2021 |
$ | i 186,000 | $ | i 7,000 | $ | i 193,000 | ||||||
|
Other changes |
i - | ( i 7,000 | ) | ( i 7,000 | ) | |||||||
|
Balance at June 30, 2022 |
$ | i 186,000 | $ | i - | $ | i 186,000 | ||||||
/
Our $ i 186,000 investment in securities as of June 30, 2022 and December 31, 2021 relates to i 317,428 shares of preferred convertible debt of Zowie Technology Corporation (Taipei Hsien, Taiwan), a supplier of electronic component products, with our option after three (3) years to convert into common stock or refundable bearing 7% annual interest rate. Our investment represents approximately i 7.9% of their total outstanding shares, although we do not have significant influence or control. This investment is accounted for under the cost (plus impairment) basis of accounting, however when facts and circumstances indicate that the carrying value of this asset may not be recoverable, we recognize an impairment loss. The impairment loss recognized is the amount by which the carrying amount exceeds the estimated fair value.
5 – SHARE BASED COMPENSATION
Accounting for stock options issued to employees measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost is recognized over the period during which an employee is required to provide service in exchange for the award. Outstanding options to purchase Class A common stock (“the Options”) i vest in three equal annual installments beginning one (1) year from the date of grant and are subject to termination provisions as defined in our 2005 Stock Incentive Plan and 2018 Omnibus Incentive Plan (collectively referred to as “the Plans”). The Options activity during the six months ended June 30, 2022 is as follows:
/
|
Number of Shares |
Weighted Average Exercise Price |
Weighted Average Years Remaining Contractual Term |
Aggregate Intrinsic Value |
|||||||||||||
|
Outstanding at December 31, 2021 |
i 294,067 | $ | i 2.45 | i 5.0 | $ | i 492,000 | ||||||||||
|
Grants |
i 60,500 | i 3.54 | i 4.9 | |||||||||||||
|
Exercised |
( i 120,000 | ) | i 1.74 | - | ||||||||||||
|
Forfeited |
( i 10,000 | ) | i 3.40 | - | ||||||||||||
|
Outstanding at June 30, 2022 |
i 224,567 | $ | i 3.10 | i 6.3 | $ | i 173,000 | ||||||||||
|
Exercisable at June 30, 2022 |
i 79,934 | $ | i 2.15 | i 4.7 | $ | i 120,000 | ||||||||||
At June 30, 2022, the range of individual outstanding weighted average exercise prices was $ i 0.96 to $ i 3.95 and the unamortized compensation expense was approximately $ i 46,000. Stock based compensation recorded in the three and six months ended June 30, 2022 was $ i 6,000 and $ i 11,000, respectively, and is included in selling, general and administrative expenses on the accompanying Condensed Consolidated Statements of Operations and Comprehensive Income.
6 – COMMITMENTS AND CONTINGENCIES
Inventory Purchasing
Outstanding commitments to purchase inventory from suppliers aggregated approximately $ i 1,400,000 as of June 30, 2022.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with the condensed consolidated financial statements, including the related notes, appearing in Item 1 of Part 1 of this quarterly report on Form 10-Q, as well as our most recent annual report on Form 10-K for the year ended December 31, 2021.
This document contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) with respect to the financial condition, results of operations and business of the Company. Forward-looking statements usually are denoted by words or phrases such as “believes,” “expects,” “projects,” “estimates,” “anticipates,” “will likely result” or similar expressions. We wish to caution readers that all forward-looking statements are necessarily speculative and not to place undue reliance on forward-looking statements, which speak only as of the date made, and to advise readers that actual results could vary due to a variety of risks and uncertainties, including the risks described in our Annual Report on Form 10-K for the year ended December 31, 2021 and other reports we file with the Securities and Exchange Commission. Except as required by law, we undertake no obligation to update forward-looking statements.
References to “Taitron,” the “Company,” “we,” “our” and “us” refer to Taitron Components Incorporated and its wholly owned and majority-owned subsidiaries or divisions, unless the context otherwise requires.
Critical Accounting Policies and Estimates
Use of Estimates - Management has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare our condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States. These estimates have a significant impact on our valuation and reserve accounts relating to the allowance for sales returns, doubtful accounts, inventory reserves and deferred income taxes. Actual results could differ from these estimates.
Revenue Recognition – Revenue is recognized upon shipment of the products, which is when legal transfer of title occurs and control of the product is transferred to the customer. Reserves for sales allowances and customer returns are established based upon historical experience and our estimates of future returns. Sales returns for each of the three and six months ended June 30, 2022 and 2021 were $0. The allowance for sales returns and doubtful accounts at June 30, 2022 and December 31, 2021 aggregated $7,000.
Inventory – Inventory, consisting principally of products held for resale, is recorded at the lower of cost (determined using the first in-first out method) and net realizable value. We had inventory balances in the amount of $5,041,000 and $5,261,000 at June 30, 2022 and December 31, 2021, respectively, which is presented net of valuation allowances of $4,984,000 and $4,892,000, respectively. We evaluate inventories to identify excess, high-cost, slow-moving or other factors rendering inventories as unmarketable at normal profit margins. Due to the large number of transactions and the complexity of managing and maintaining a large inventory of product offerings, estimates are made regarding adjustments to the cost of inventories. If our assumptions about future demand change, or market conditions are less favorable than those projected, additional write-downs of inventories may be required. In any case, actual amounts could be different from those estimated.
Deferred Taxes – If determined that it is more likely than not that we will not realize all or part of our net deferred tax assets in the future, we record a valuation allowance against the deferred tax assets, which allowance will be charged to income tax expense in the period of such determination. We also consider the scheduled reversal of deferred tax liabilities, tax planning strategies and future taxable income in assessing if deferred tax assets could be realized. We also consider the weight of both positive and negative evidence in determining whether a valuation allowance is needed. However, we have fully reduced by $1,915,000 the entire valuation allowance against our net deferred tax assets at June 30, 2022 primarily as a result of our recent history of net income.
Overview
We are primarily focused on supplying ODM products for our OEM customer’s multi-year turn-key projects. We also distribute discrete semiconductors, commodity Integrated Circuits (ICs), optoelectronic devices and passive components to other electronic distributors, CEMs and OEMs, who incorporate them in their products.
Our core strategy has shifted to primarily focus on higher margin ODM Projects that require custom products designed for specific applications to OEM customers, and away from actively marketing our superstore strategy of maintaining a vast quantity of electronic components to fill customer orders immediately from available stock held in inventory. As a result, we expect our components inventory will be more passively marketed and distributed online for clearance through our internet sales portal, however at potentially lower rates due to the pricing pressures normally attributed with online shopping.
In accordance with generally accepted accounting principles, we have classified inventory as a current asset in our June 30, 2022, condensed consolidated financial statements representing approximately 36% of current assets and 29% of total assets. However, if all or a substantial portion of the inventory was required to be immediately liquidated, the inventory would not be as readily marketable or liquid as other items included or classified as a current asset, such as cash. We cannot assure you that demand in the discrete semiconductor market will increase and that market conditions will improve. Therefore, it is possible that further declines in our carrying values of inventory may result.
Our gross profit margins are subject to a number of factors, including product demand, the relative strength of the U.S. dollar, provisions for inventory reserves, our ability to purchase inventory at favorable prices and our sales product mix.
Results of Operations
Significant Risks and Uncertainties
See the Risk Factors included in our Annual report on Form 10-K for the year ended December 31, 2021 as filed with the Securities and Exchange Commission as well as the additional Risk Factor included in Part II—Item 1A of this quarterly report regarding the impacts of the COVID-19 outbreak.
Second quarter of 2022 versus 2021.
Net sales in the second quarter of 2022 totaled $2,790,000 versus $1,925,000 in the comparable period for 2021, an increase of $865,000 or 44.9% over the same period last year. The increase was primarily driven by an increase of ODM project sales volume.
Gross profit for the second quarter of 2022 was $1,490,000 versus $930,000 in the comparable period for 2021, and gross margin percentage of net sales was 53.4% in the second quarter of 2022 versus 48.3% in the comparable period for 2021. The approximately 5.1% gross margin percentage increase was driven by selling higher margin products.
Selling, general and administrative expenses in the second quarter of 2022 totaled $531,000 versus $520,000 in the comparable period for 2021.
Other (expense)income, net, in the second quarter of 2022 was ($310,000) versus $175,000 in the comparable period for 2021. Other expense was primarily short-term investment losses in 2022, compared to other income primarily $163,000 from PPP loan forgiveness in 2021.
Income tax benefit(provision) was ($40,000) for the second quarter of 2022 versus ($1,000) in the comparable period for 2021.
Net income was $613,000 for the second quarter of 2022 versus $590,000 in the comparable period for 2021, an increase of $23,000 resulting from the reasons discussed above.
Six Months Ended June 30, 2022 versus Six Months Ended June 30, 2021.
Net sales in the six months ended June 30, 2022 was $4,342,000 versus $3,889,000 in the comparable period for 2021, an increase of $453,000 or 11.6% over the same period last year. The increase was driven by an increase of ODM project sales volume.
Gross profit for the six months ended June 30, 2022 was $2,293,000 versus $1,791,000 in the comparable period for 2021, and gross margin percentage of net sales was approximately 52.8% for the six months ended June 30, 2022 and 46.1% for 2021, respectively.
Selling, general and administrative expenses in the six months ended June 30, 2022 totaled $1,088,000 versus $1,060,000 in the comparable period for 2021, an increase of $28,000 over the same period last year. The $28,000 increase was primarily driven by higher salaries and personnel related costs.
Other (expense)income, net, in the six months ended June 30, 2022 was ($393,000) versus $189,000 in the comparable period for 2021. Other expense was primarily short-term investment losses.
Income tax benefit(provision) was $1,835,000 for the six months ended June 30, 2022 versus ($2,000) in the comparable period for 2021. The increase was due to reducing by $1,915,000 our entire valuation allowance against our deferred tax assets.
Net income was $2,655,000 for the six months ended June 30, 2022 versus $927,000 in the comparable period for 2021, an increase of $1,728,000 resulting from the reasons discussed above.
Liquidity and Capital Resources
We historically have satisfied our liquidity requirements through cash generated from operations, short-term commercial loans, subordinated related party promissory notes and issuance of equity securities.
Cash flows used for operating activities were $237,000 as opposed to provided by $828,000 in the six months ended June 30, 2022 and 2021, respectively. The decrease of $1,065,000 in cash flows provided by operations compared with the prior period resulted from changes in operating assets and liabilities, primarily from accounts payable and accrued liabilities and deferred income taxes.
Cash flows used for investing activities were $1,032,000 and $16,000 for the six months ended June 30, 2022 and 2021, respectively. The increase was primarily from $1,029,000 in purchases of short-term investments (see Note 2).
Cash flows used for financing activities were $926,000 and $420,000 for the six months ended June 30, 2022 and 2021, respectively. The increase of $506,000 compared with the prior period was due increased cash dividend payments of $668,000. The increase to our cash dividends was based upon our April 29, 2022 announcement of our one-time special cash dividend of $0.10 per share.
We believe that funds generated from operations, existing cash balances and, if necessary, related party short-term loans, are likely to be sufficient to finance our working capital and capital expenditure requirements for the foreseeable future. If these funds are not sufficient, we may secure new sources of asset-based lending on accounts receivables or issue debt or equity securities. Otherwise, we may need to liquidate assets to generate the necessary working capital.
Inventory is included and classified as a current asset. As of June 30, 2022, inventory represented approximately 36% of current assets and 29% of total assets. However, it is likely to take over one (1) year for the inventory to turn and therefore is likely not saleable within this time frame. Hence, inventory would not be as readily marketable or liquid as other items included in current assets, such as cash.
Off-Balance Sheet Arrangements
As of June 30, 2022, we had no off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk. - Not applicable.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management has evaluated, under the supervision and with the participation of our principal executive and principal financial officers, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (the “Exchange Act”). Based on that evaluation, our principal executive and principal financial officers concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective in ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner, and (2) accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
In the ordinary course of business, we may become involved in legal proceedings from time to time. As of the date of this report, we are not aware of any material pending legal proceedings.
Item 1A. Risk Factors.
The discussion of our business and operations should be read together with the risk factor set forth below and the risk factors contained in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021, which describe various risks and uncertainties to which we are or may become subject. These risks and uncertainties have the potential to affect our business, financial condition, results of operations, cash flows, strategies or prospects in a material and adverse manner. As of August 15, 2022, there have been no material changes to the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. None.
Item 3. Defaults Upon Senior Securities. None.
Item 4. Mine Safety Disclosures. Not Applicable.
Item 5. Other Information. None.
Item 6. Exhibits.
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Exhibit Number |
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Description of Document |
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31.1 * |
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Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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31.2 * |
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Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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32 ** |
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101.INS* 101.SCH* 101.CAL* 101.DEF* 101.LAB* 101.PRE* |
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Inline XBRL Instance Document Inline XBRL Taxonomy Extension Schema Inline XBRL Taxonomy Extension Calculation Linkbase Inline XBRL Taxonomy Extension Definition Linkbase Inline XBRL Taxonomy Extension Label Linkbase Inline XBRL Taxonomy Extension Presentation Linkbase |
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104 |
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Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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* |
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** |
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Furnished herewith. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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TAITRON COMPONENTS INCORPORATED |
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Date: August 15, 2022 |
By: |
/s/ Stewart Wang |
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Chief Executive Officer and President (Principal Executive Officer) |
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By: |
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Chief Financial Officer and Secretary (Principal Financial Officer) |
| This ‘10-Q’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
 | ||||
| 12/31/22 | ||||
| Filed on: | 8/15/22 | |||
| 7/31/22 | ||||
| For Period end: | 6/30/22 | |||
| 4/29/22 | 8-K, DEF 14A | |||
| 3/31/22 | 10-K, 10-Q | |||
| 12/31/21 | 10-K, 5 | |||
| 6/30/21 | 10-Q, 4 | |||
| 6/4/21 | ||||
| 3/31/21 | 10-K, 10-Q | |||
| 12/31/20 | 10-K | |||
| List all Filings | ||||