Add
TAIT to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| TAIT > SEC Filings for TAIT > Form 10-Q on 14-Aug-2009 | All Recent SEC Filings |
14-Aug-2009
Quarterly Report
The following discussion should be read in conjunction with the condensed consolidated financial statements, including the related notes, appearing in Item 1 of Part 1of 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, 2008. 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. We do not undertake any duty to update forward-looking statements after the date they are made or to conform them to actual results or to changes in circumstances or expectations.
References to "Taitron," the "Company," "we," "our" and "us" refer to Taitron Components Incorporated and its majority-owned subsidiary, unless the context otherwise specifically defines.
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 June 30, 2009 and 2008 were $13,000 and $24,000, respectively and the six months ended June 30, 2009 and 2008 were $22,000 and $54,000, respectively. The allowance for sales returns and doubtful accounts at June 30, 2009 aggregated $90,000.
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 $12,929,000 at June 30, 2009, which is presented net of valuation allowances of $3,409,000. 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 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.
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). We also offer commodity Integrated Circuits (ICs) as an extension of current discrete semiconductor lines, since 2007.
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 June 30, 2009, condensed consolidated financial statements representing approximately 82% of current assets and 61% 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
Second quarter of 2009 versus second quarter of 2008.
Net sales in the second quarter of 2009 totaled $1,363,000 versus $2,029,000 in the comparable period for 2008, a decrease of $666,000 or 32.8% over the same period last year. Our declining sales results continued to be negatively impacted by the global economic slowdown.
Gross profit for the second quarter of 2009 was $321,000 versus $553,000 in the comparable period for 2008, and gross margin percentage of net sales was 23.6% in the second quarter of 2009 versus 27.3% in the comparable period for 2008. The overall decrease came from selling at lower product prices to our customers resulting in lower margins as compared to the same period last year.
Selling, general and administrative ("SG&A") expenses in the second quarter of 2009 totaled $610,000 versus $698,000 in the comparable period for 2008. The decrease of $88,000 or 12.6% was primarily attributed to decreases in salaries and benefit expenses by $38,000 and trade commissions by $11,000.
Interest expense, net of interest income, was $4,000 for the second quarter of 2009 versus $0 in the comparable period for 2008.
Other income, net of other expense, in the second quarter of 2009 was $21,000 versus $44,000 in the comparable period for 2008. Other income was primarily derived from the rental income of available excess office space within our headquarters' facility.
Income tax provision was $1,000 for both the second quarter of 2009 and in the comparable period for 2008, as we do not expect significant taxable income for fiscal year 2009.
Net loss was $261,000 for the second quarter of 2009 versus $102,000 in the comparable period for 2008, an increase of $159,000 resulting from the reasons discussed above.
Six Months Ended June 30, 2009 versus Six Months Ended June 30, 2008.
Net sales in the six months ended June 30, 2009 was $2,627,000 versus $4,034,000 in the comparable period for 2008, a decrease of $1,407,000 or 34.9% over the same period last year. Our declining sales results continued to be negatively impacted by the global economic slowdown.
Gross profit for the six months ended June 30, 2009 was $587,000 versus $1,163,000 in the comparable period for 2008, and gross margin percentage of net sales was approximately 22.3% for the six months ended June 30, 2009 and 28.8% for 2008, respectively.
Selling, general and administrative ("SG&A") expenses in the six months ended June 30, 2009 totaled $1,237,000 versus $1,385,000 in the comparable period for 2008. The decrease of $148,000 or 10.7% was primarily attributed to decreases to salaries and benefits by $73,000, trade commissions by $33,000 and supplies by $14,000.
Interest expense, net of interest income, was $3,000 for the six months ended June 30, 2009 versus $4,000 net interest income in the comparable period for 2008.
Other income, net of other losses, in the six months ended June 30, 2009 was $48,000 versus $90,000 in the comparable period for 2008.
Income tax provision was $2,000 for the six months ended June 30, 2009 versus $1,000 in the comparable period for 2008.
Net loss was $593,000 for the six months ended June 30, 2009 versus $129,000 in the comparable period for 2008, an increase of $464,000 resulting from the reasons discussed above.
Liquidity and Capital Resources
We have financed our operations with funds generated from operating activities and borrowings under our revolving credit facility.
Cash flows provided by operating activities were $272,000 and $251,000 for the six months ending June 30, 2009 and 2008, respectively. The increase of $21,000 in cash flows provided by operations compared with the prior period resulted from changes in operating assets and liabilities, primarily reduction of inventory.
Cash flows (used in) provided by financing activities were $(197,000) and $180,000 for the six months ending June 30, 2009 and 2008, respectively. The 2009 outflows came primarily from our $421,000 repayment of the bank note. See Note 6.
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 June 30, 2009, we had no off-balance sheet arrangements.
|
|