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 March 31, 2008
or
[ ] 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: 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 Identification No.)
incorporation or organization)
28040 West Harrison Parkway, Valencia, California 91355-4162
(Address of principal executive offices) (Zip Code)
(661) 257-6060
(Registrant's telephone number)
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. Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
Large accelerated filer [ ]
Non-accelerated filer [ ] (Do not check if a smaller reporting company)
Accelerated filer [ ]
Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Class Outstanding on April 30, 2008
------------------------------------- -----------------------------
Class A common stock, $.001 par value 4,777,144
Class B common stock, $.001 par value 762,612
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheet at March 31, 2008
Condensed Consolidated Statements of Operations for the three months
ended March 31, 2008 and 2007
Condensed Consolidated Statements of Cash Flows for the three months
ended March 31, 2008 and 2007
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
TAITRON COMPONENTS INCORPORATED
Condensed Consolidated Balance Sheet
March 31
-------------
Assets (Unaudited)
Current assets:
Cash and cash equivalents $ 1,106,000
Trade accounts receivable, net 1,131,000
Inventory, net 14,762,000
Prepaid expenses and other current assets 197,000
------------
Total current assets 17,196,000
Property and equipment, net 5,464,000
Other assets (Note 3) 731,000
------------
Total assets $ 23,391,000
============
Liabilities and Shareholders' Equity
Current liabilities:
Trade accounts payable $ 1,013,000
Accrued liabilities and other 235,000
Current portion of long-term debt 89,000
-----------
Total current liabilities 1,337,000
Long-term debt, less current portion (Note 4) 399,000
-----------
Total liabilities 1,736,000
===========
Commitments and contingencies (Note 6)
Minority interest in subsidiary 251,000
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; 5,000
issued and outstanding 4,777,144 shares.
Class B common stock, $.001 par value. Authorized, issued and outstanding 1,000
762,612 shares.
Additional paid-in capital 10,551,000
Accumulated other comprehensive income, net of tax 19,000
Retained earnings 10,828,000
------------
Total shareholders' equity 21,404,000
------------
Total liabilities and shareholders' equity $ 23,391,000
============
See accompanying notes to condensed consolidated financial statements.
1
TAITRON COMPONENTS INCORPORATED
Condensed Consolidated Statements of Operations
Three months ended March 31,
2008 2007
----------- ------------
(Unaudited) (Unaudited)
Net sales $ 2,005,000 $ 1,855,000
Cost of goods sold 1,395,000 1,355,000
----------- -----------
Gross profit 610,000 500,000
Selling, general and administrative expenses 687,000 691,000
----------- -----------
Operating loss (77,000) (191,000)
Interest income, net 4,000 11,000
Other income, net 46,000 (8,000)
----------- -----------
Loss before income taxes (27,000) (188,000)
Income tax provision -- (2,000)
----------- -----------
Net loss $ (27,000) $ (190,000)
=========== ===========
Other Comprehensive Loss:
Foreign currency translation adjustment (25,000) 16,000
----------- -----------
Comprehensive loss $ (52,000) $ (174,000)
=========== ===========
Net loss per share: Basic & Diluted $ (0.00) $ (0.03)
=========== ===========
Weighted average common shares outstanding: Basic & Diluted 5,539,423 5,519,701
=========== ===========
See accompanying notes to condensed consolidated financial statements.
2
TAITRON COMPONENTS INCORPORATED
Condensed Consolidated Statements of Cash Flows
Three months ended March 31,
2008 2007
----------- ------------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net loss $ (27,000) $ (190,000)
----------- -----------
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 68,000 56,000
Provision for sales returns and doubtful accounts 36,000 22,000
Stock based compensation 5,000 7,000
Changes in assets and liabilities:
Trade accounts receivable 283,000 (337,000)
Inventory 60,000 186,000
Prepaid expenses and other current assets (23,000) (114,000)
Other assets (18,000) (155,000)
Trade accounts payable (305,000) (153,000)
Accrued liabilities (59,000) (56,000)
Minority interest in subsidiary 20,000 124,000
----------- -----------
Total adjustments 67,000 (420,000)
----------- -----------
Net cash provided by (used in) operating activities 40,000 (610,000)
----------- -----------
Cash flows from investing activities:
Investments in marketable securities -- (305,000)
----------- -----------
Net cash used in investing activities -- (305,000)
----------- -----------
Cash flows from financing activities:
(Payments) on notes payable (22,000) (22,000)
Dividend payments -- (552,000)
Exercise of Class A common stock options 2,000 54,000
----------- -----------
Net cash used in financing activities (20,000) (520,000)
----------- -----------
Impact of exchange rates on cash (25,000) 16,000
----------- -----------
Net decrease in cash and cash equivalents (5,000) (1,419,000)
Cash and cash equivalents, beginning of year 1,111,000 2,727,000
----------- -----------
Cash and cash equivalents, end of year $ 1,106,000 $ 1,308,000
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 8,000 $ 10,000
=========== ===========
Cash paid for income taxes, net $ 1,000 $ 1,000
=========== ===========
See accompanying notes to condensed consolidated financial statements.
3
TAITRON COMPONENTS INCORPORATED
Notes to Condensed Consolidated Financial Statements
March 31, 2008
(All amounts are unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of
Taitron Components Incorporated ("the Company") were prepared in
accordance with accounting principles generally accepted in the United
States of America and reflect all adjustments, consisting of normal
recurring accruals and adjustments, which are, in the opinion of
management, necessary for a fair presentation of the consolidated
financial position and results of operations at and for the periods
presented. Such financial statements do not include all the information or
notes necessary for a complete presentation. Therefore, they should be
read in conjunction with our Annual Report on Form 10-KSB for the fiscal
year ended December 31, 2007, and the notes thereto, which include
significant accounting policies and estimates. The results of operations
for the interim periods are not necessarily indicative of results for the
full year.
Note 2 - Summary of Significant Accounting Policies and Estimates
Principles of Consolidation
The unaudited condensed consolidated financial statements includes our 60%
majority-owned subsidiary, Taitron Components Mexico SA de CV. All
significant intercompany transactions and balances have been eliminated in
consolidation.
Revenue Recognition
Revenue is typically recognized upon shipment of merchandise and sales are
recorded net of discounts, rebates, and returns. 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, 2008 and 2007 were $30,000 and $17,000,
respectively.
Allowance for Sales Returns and Doubtful Accounts
On a case-by-case basis, we accept returns of products from our customers,
without restocking charges, when they can demonstrate an acceptable cause
for the return. Requests by a distributor to return products purchased for
its own inventory generally are not included under this policy. We will,
on a case-by-case basis, accept returns of products upon payment of a
restocking fee, which is generally 15% to 30% of the net sales price. We
will not accept returns of any products that were special-ordered by a
customer or that otherwise are not generally included in inventory. The
allowance for sales returns and doubtful accounts at March 31, 2008
aggregated $86,000.
Inventory
Inventory, consisting principally of products held for resale, is recorded
at the lower of cost (determined using the first in-first out method) or
estimated market value. Inventory is presented net of valuation allowances
of $2,657,000 at March 31, 2008.
Income Taxes
In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes--an interpretation of FASB Statement No. 109
("FIN 48"), which clarifies the accounting and disclosure for uncertainty
in tax positions, as defined. FIN 48 seeks to reduce the diversity in
practice associated with certain aspects of the recognition and
measurement related to accounting for income taxes. We adopted the
provisions of FIN 48 as of January 1, 2007, and have analyzed filing
positions in each of the federal and state jurisdictions where required to
file income tax returns, as well as all open tax years in these
jurisdictions. The following tax years that remain subject to examination
by major tax jurisdictions are as follows: Federal - 2005, 2006 and 2007;
and California (State) - 2004, 2005, 2006 and 2007. However, we have
certain tax attribute carryforwards which will remain subject to review
and adjustment by the relevant tax authorities until the statute of
limitations closes with respect to the year in which such attributes are
utilized.
4
Net Loss Per Share
Basic loss per share is computed by dividing net loss available to common
shareholders by the weighted average number of common shares outstanding
during the period. Common equivalent shares, consisting primarily of stock
options, of approximately 370,000 and 381,000 for the three months ended
March 31, 2008 and 2007, respectively, are excluded from the computation
of diluted loss per share as their effect is anti-dilutive.
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 these 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.
Stock-Based Compensation
Accounting for stock options issued to employees follows the provisions of
SFAS No. 123R, "Share-Based Payment". This statement requires an entity to
measure 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 will be recognized over the period during which an employee is
required to provide service in exchange for the award. We use the
Black-Scholes option pricing model to measure the fair value of options
granted to employees. This model requires significant estimates related to
the award's expected life and future stock price volatility.
Stock option activity during the three months ended March 31, 2008 is as
follows:
Weighted
Average
Weighted Years
Average Remaining Aggregate
Number Exercise Contractual Intrinsic
of Shares Price Term Value
--------- ----- ---- -----
Outstanding at December 31, 2007 414,167 $ 1.84 4.41 $ 106,000
Granted 51,000 1.63 8.01
Exercised (2,000) 1.00 --
Forfeited (1,167) 2.45 --
-------
Outstanding at March 31, 2008 462,000 1.82 3.78 26,300
=======
Exercisable at March 31, 2008 368,668 1.76 3.53 26,300
=======
At March 31, 2008, the range of individual outstanding weighted average
exercise prices was $1.74 to $2.45.
Recent Accounting Pronouncements
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests
in Consolidated Financial Statements, which is an amendment of Accounting
Research Bulletin ("ARB") No. 51. This statement clarifies that a
noncontrolling interest in a subsidiary is an ownership interest in the
consolidated entity that should be reported as equity in the consolidated
financial statements. This statement changes the way the consolidated
income statement is presented, thus requiring consolidated net income to
be reported at amounts that include the amounts attributable to both
parent and the noncontrolling interest. This statement is effective for
the fiscal years, and interim periods within those fiscal years, beginning
on or after December 15, 2008. We are currently assessing the impact that
SFAS No. 160 will have on our financial statements.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business
Combinations. This statement replaces FASB Statement No. 141, Business
Combinations. This statement retains the fundamental requirements in SFAS
141 that the acquisition method of accounting (which SFAS 141 called the
purchase method) be used for all business
5
combinations and for an acquirer to be identified for each business
combination. This statement defines the acquirer as the entity that
obtains control of one or more businesses in the business combination and
establishes the acquisition date as the date that the acquirer achieves
control. This statement requires an acquirer to recognize the assets
acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree at the acquisition date, measured at their fair values as of that
date, with limited exceptions specified in the statement. This statement
applies prospectively to business combinations for which the acquisition
date is on or after the beginning of the first annual reporting period
beginning on or after December 15, 2008. We do not expect the adoption of
SFAS 141R to have a significant impact on our results of operations or
financial position.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities, an amendment to FASB Statement No.
133, which changes the disclosure requirements for derivative instruments
and hedging activities. SFAS No. 161 requires entities to provide enhanced
disclosures on how and why the entity uses derivative instruments, how
derivative instruments and related hedging items are accounted for under
SFAS No. 133, and how derivative instruments and related hedging items
affect an entity's financial position, financial performance, and cash
flows. The provisions of SFAS No. 161 are effective for fiscal years and
interim periods beginning after November 15, 2008. We do not expect the
adoption of SFAS No. 161 to have a significant impact on our results of
operations or financial position.
Note 3 - Other Assets
3/31/2008
---------
Investment in securities $ 400,000
Investment in land purchase contract 147,000
Investment in joint venture 147,000
Other 37,000
---------
Other Assets $ 731,000
=========
Our $400,000 investment in securities as of March 31, 2008 relates to
approximately 4.5% of the outstanding shares of Zowie Technology
Corporation, a manufacturer of discrete semiconductors and also a supplier
of our electronic component products. This investment is accounted for
under the cost method basis of accounting.
Our $147,000 investment in land purchase contract as of March 31, 2008,
represents a deposit on land in Yangzhou, China.
Our $147,000 investment in joint venture as of March 31, 2008, relates to
our 49% ownership of Taiteam (Yangzhou) Technology Corporation Limited, a
joint venture with its 51% owner, Full Harvest Development Limited. This
joint venture is not considered to be a "Variable Interest Entity", as
defined under FAS Interpretation No. 46R, and as such, is accounted for
under the equity method basis of accounting.
Note 4 - Note Payable
3/31/2008
---------
Bank loan collateralized by real property, payable
in fixed monthly principal installments of $7,381,
plus interest at the rate of one year LIBOR + 1.8%
per annum, due September 20, 2013. $488,000
Less current portion (89,000)
--------
Long-term debt, less current portion $399,000
========
On September 21, 2006, we borrowed $620,000 in connection with our
acquisition of approximately 4,500 square feet of office space (consisting
of 2 separate units on the same floor) in Shanghai, China with a total
purchase price of $1,240,000. The investment will be used as rental
property for lease to others and for our project design and engineering
center.
6
Note 5 - Related Party Transactions
During the period ended March 31, 2008, we purchased electronic component
products of approximately $288,000 from Princeton Technology Corporation
("PTC"), a company controlled by Mr. Chiang, one of our directors. All of
these purchases were for products we carried in inventory and we consider
these purchases to be in the normal course of business and negotiated on
an arm's length basis. We have entered into a distributor agreement with
PTC, and accordingly, we expect to continue purchasing from PTC in the
future.
During the period ended March 31, 2008, we made payments of $6,000, to
K.S. Best International Co. Ltd., a company controlled by our Chief
Executive Officer. These payments were for professional fees related to
the operational management of our Taiwan office.
Note 6 - Commitments and Contingencies
Inventory Purchasing
Outstanding commitments to purchase inventory from suppliers aggregated
$713,000 as of March 31, 2008.
Cash Dividend
On March 28, 2008 we declared an annual cash dividend of $0.05 per share
of Class A Common Stock and Class B Common Stock, payable on April 22,
2008, to shareholders of record at the close of business on April 15,
2008. Outstanding commitment to fund this cash dividend payment aggregated
$277,000 as of March 31, 2008.
Regulation
On July 1, 2006, the European Union ("EU") directive relating to the
Restriction of Certain Hazardous Substance ("RoHS") restricted the
distribution of products within the EU containing certain substances,
including lead. Further, many of our suppliers are not yet supplying RoHS
compliant products. The legislation is effective and some of our inventory
has become obsolete. Management has estimated the impact of the
legislation and has written down or reserved for related inventories based
on amounts expected to be realized given all available current
information. Actual amounts realized from the ultimate disposition of
related inventories could be different from those estimated.
Legal and Regulatory Proceedings
None.
Note 7 - Subsequent Events
On April 21, 2008, we entered into a credit facility from K.S. Best
International Co. Ltd., a company controlled by the brother of our Chief
Executive Officer, providing up to $3 million for operating purposes at an
interest rate of Prime + 0.25%, secured by our real property located in
Valencia, California. As of the date of this Report, we have not yet used
this credit facility.
7
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 this report as well as our most recent annual report on Form 10-KSB
for the year ended December 31, 2007. Also, several of the matters discussed in
this document contain forward-looking statements as defined in the Private
Securities Litigation Reform Act of 1995 that involve risks and uncertainties.
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. 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-KSB. In addition to the other information contained in this
document, readers should carefully consider the information contained in our
most recent annual report on Form 10-KSB under the heading "Cautionary
Statements and Risk Factors."
References to "Taitron," "the Company," "we," "our" and "us" refer to
Taitron Components Incorporated and its majority-owned subsidiary, 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
merchandise, which is when legal transfer of title occurs. Reserves for sales
allowances and customer returns are established based upon historical experience
and our estimates of future returns. Sales returns for the quarters ended March
31, 2008 were $30,000 and $17,000, respectively. The allowance for sales returns
and doubtful accounts at March 31, 2008 aggregated $86,000.
Inventory - Inventory, consisting principally of products held for resale,
is recorded at the lower of cost (determined using the first in-first out
method) or estimated market value. We had inventory balances in the amount of
$14,762,000 at March 31, 2008, which is presented net of valuation allowances of
$2,657,000. 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. Based on our assumptions about future
demand and market conditions, inventories are carried at the lower of cost or
estimated market value. 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.
Impact of Governmental Regulation - Our worldwide operations are subject
to local laws and regulations. As such, of particular interest is the European
Union ("EU") directive relating to the Restriction of Certain Hazardous
Substance ("RoHS"). On July 1, 2006, this directive restricted the distribution
of products within the EU containing certain substances, including lead. At the
present time, much of our inventory contains substances prohibited by the RoHS
directive. Further, many of our suppliers are not yet supplying RoHS compliant
products. The legislation is effective and some of our inventory has become
obsolete. Management has estimated the impact of the legislation and have
written down or reserved for related inventories based on amounts expected to be
realized given all available current information. Actual amounts realized from
the ultimate disposition of related inventories could be different from those
estimated.
Deferred Taxes - In June 2006, FASB issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes (FIN48), which defines the threshold
for recognizing the benefits of tax return positions in the financial statements
as "more-likely-than-not" to be sustained by the taxing authority. A tax
position that meet the "more-likely-than-not" criterion shall be measured at the
largest amount of benefit that is more than 50% likely of being realized upon
ultimate settlement. FIN48 applies to all tax positions accounted for under SFAS
No. 109, Accounting for Income Taxes. FIN48 is effective for fiscal years
beginning after December 15, 2006. We adopted FIN48 as of January 1, 2007. Based
on our preliminary analysis, we
8
believe that our income tax filing positions and deductions will be sustained on
audit and do not anticipate any adjustments that will result in a material
change to our financial position including our effective tax rate. Therefore, no
reserves for uncertain income tax positions have been recorded pursuant to FIN
48 and we did not record a cumulative effect adjustment related to the adoption
of FIN 48. In addition, we have not recorded any accrued interest nor penalties
related to income tax. It is our policy to classify interest and penalties
related to income tax as income taxes in our financial statements. The following
tax years that remain subject to examination by major tax jurisdictions are as
follows: Federal - 2005, 2006 and 2007; and California (State) - 2004, 2005,
2006 and 2007.
Overview
We distribute discrete semiconductors, optoelectronic devices and passive
components to other electronic distributors, CEMs and OEMs, who incorporate them
in their products and supply ODM products for our customer's multi-year turn-key
projects.
We continue to be impacted by the severe decline in demand for discrete
semiconductors from the U.S. market, which began in late 2000. As a result, we
have experienced declining sales in such components since early 2001. In
response to this declining demand, we placed emphasis on increasing our sales to
existing customers through further expansion of the number of different types of
discrete components and other integrated circuits in our inventory and by
attracting additional contract electronic manufacturers (CEMs), original
equipment manufacturers (OEMs) and electronics distributor customers. In
addition, over the last four years we have developed our ODM service
capabilities and added products developed through partnership agreements with
offshore solution providers (OEMs and CEMs). Looking forward, we plan to offer
commodity Integrated Circuits (ICs) as an extension of current discrete
semiconductor lines in 2008.
Our core strategy of electronic components fulfillment, however, consists
of carrying a substantial quantity and variety of products in inventory to meet
the rapid delivery requirements of our customers. This strategy allows us to
fill customer orders immediately from stock on hand. Although we believe better
market conditions may return, we are focused on lowering our inventory balances
and increasing our cash holdings. Our long-term strategy is to rely not only on
our core strategy of component fulfillment service, but also the value-added
engineering and turn-key services.
In accordance with Generally Accepted Accounting Principles, we have
classified inventory as a current asset in our March 31, 2008, consolidated
financial statements representing approximately 86% of current assets and 63% 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.
Since the beginning of 2001, our gross profit margins in general have been
stable. Our gross profit margins are subject to a number of factors, including
product demand, strength of the U.S. dollar, our ability to purchase inventory
at favorable prices and our sales product mix.
Results of Operations
First quarter of 2008 versus first quarter of 2007.
Net sales in the first quarter of 2008 totaled $2,005,000 versus
$1,855,000 in the comparable period for 2007, an increase of $150,000 or 8.1%
over the same period last year. The overall increase came from our ODM Product
sales increasing by $210,000, when comparing $210,000 for the first quarter of
2008 with $0 in the same period last year.
Gross profit for the first quarter of 2008 was $610,000 versus $500,000 in
the comparable period for 2007, and gross margin percentage of net sales was
30.4% in the first quarter of 2008 versus 26.9% in the comparable period for
2007. The increase was attributed to the increase in our ODM product sales,
which earn a higher average gross margin relative to our component product sales
mix.
Selling, general and administrative ("SG&A") expenses in the first quarter
of 2008 totaled $687,000 versus $691,000 in the comparable period for 2007.
Effective January 1, 2006, we adopted SFAS 123(R) and such had a $5,000
financial impact to our SG&A for the first quarter of 2008, as compared to
$7,000 financial impact for the same period last year.
9
Interest income, net of interest expense, was $4,000 for the first quarter
of 2008 versus $11,000 in the comparable period for 2007.
Income tax provision was $0 for the first quarter of 2008 and $2,000 in
the comparable period for 2007, as we do not expect significant taxable income
for fiscal year 2008.
Net loss was $27,000 for the first quarter of 2008 versus $190,000 in the
comparable period for 2007, a decrease of $163,000 resulting from the reasons
discussed above.
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
three months ended March 31, 2008 are as follows:
Three months ended March 31,
--------------------------------
2008 2007
------------ ------------
(Unaudited) (Unaudited)
Operating activities.............. 40,000 (610,000)
Investing activities.............. -- (305,000)
Financing activities.............. (20,000) (520,000)
Cash flows provided by (used in) operating activities were $40,000 and
$(610,000) for the three months ended March 31, 2008 and 2007, respectively. The
increase of $650,000 in cash flows provided by operations compared with the
prior period resulted from changes in operating assets and liabilities,
primarily collections of accounts receivable.
Cash flows used in investing activities were $0 and $305,000 for the three
months ended March 31, 2008 and 2007, respectively. The 2007 outflows came from
our $305,000 investment in the preferred stock of Zowie Technology Corporation.
Cash flows used in financing activities were $20,000 and $520,000 for the
three months ended March 31, 2008 and 2007, respectively. The 2007 outflows came
primarily from our cash dividend payment $552,000 paid in the first quarter of
2007.
Inventory is included in current assets; however, it will take over one
year for the inventory to turn. Hence, inventory would not be as readily
marketable or liquid as other items included in current assets, such as cash.
We believe that funds generated from, or used in operations, in addition
to existing cash balances 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 short-term
commercial loans, asset-based lending on accounts receivables or issue debt or
equity securities.
Off-Balance Sheet Arrangements
As of March 31, 2008, we had no off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
None.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management,
including our Chief Executive and Chief Financial Officer, we evaluated the
effectiveness of our disclosure controls and procedures (as defined in the Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) required by Exchange Act
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Rules 13a-15(b) or 15d-15(b), as of the end of the period covered by this
report. Based upon that evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures were
effective as of that date to provide reasonable assurance that information we
are required to disclose in reports that we file or submit under the Exchange
Act is recorded, processed, summarized and reported within the time periods
specified in SEC rules and forms, and include controls and procedures designed
to ensure that information required to be disclosed by us in such reports is
accumulated and communicated to our management, including the principal
executive officer and principal financial officer, as appropriate to allow
timely decisions regarding required disclosures.
Evaluation of Changes in Internal Control over Financial Reporting
Pursuant to Rule 13a-15(d) or Rule 15d-15(d) of the Exchange Act, our
management, including our Chief Executive and Chief Financial Officer, is
responsible for evaluating any change in our internal control over financial
reporting (as defined in Rule 13a-15(f) or Rule 15d-15(f) under the Exchange
Act), that occurred during each of our fiscal quarters that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
Our internal control over financial reporting is designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles and includes those policies and
procedures that: (i) Pertain to the maintenance of records that in reasonable
detail accurately and fairly reflect the transactions and dispositions of our
assets; (ii) Provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that our receipts and expenditures
are being made only in accordance with authorizations of our management and
directors; and (iii) Provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of our assets that
could have a material effect on the financial statements. Our internal controls
framework is based on the criteria set forth in the Internal Control -
Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).
Under the supervision and with the participation of our management,
including our Chief Executive and Chief Financial Officer, we have determined
that, during the period covered by this report, there were no changes in our
internal control over financial reporting 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.
None.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
There were no issuances or sales of our securities by us during the
quarter ended March 31, 2008 that were not registered under the Securities Act.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits.
Exhibit
Number Description of Document
------------ ------------------------------------------------------------------
31 * Rule 13a-14(a)/ 15d-14(a) Certification pursuant to Section 302
of the Sarbanes-Oxley Act
32 * 18 U.S.C. section 1350 Certification pursuant to Section 906 of
the Sarbanes-Oxley Act
* File herewith.
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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.
TAITRON COMPONENTS INCORPORATED
Date: May 15, 2008 By: /s/ Stewart Wang
----------------
Stewart Wang
Chief Executive Officer, President,
Chief Financial Officer and Director
(Principal Executive, Financial and
Accounting Officer)
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