Taitron ponents rporated(TAIT) - 2021 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Unaudited financial statements for Q3 and nine months ended September 30, 2021, reflect significant growth in revenue, net income, and total assets Condensed Consolidated Balance Sheets Total assets increased to $15.75 million by September 30, 2021, driven by current assets, while equity rose to $14.20 million Condensed Consolidated Balance Sheet Highlights (Unaudited) | Account | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Current Assets | $12,461,000 | $10,855,000 | | Total Assets | $15,753,000 | $14,261,000 | | Total Current Liabilities | $1,553,000 | $856,000 | | Long-term debt | $0 | $163,000 | | Total Liabilities | $1,553,000 | $1,019,000 | | Total Equity | $14,200,000 | $13,242,000 | - The increase in total assets was primarily due to rises in accounts receivable (from $639,000 to $985,000), short-term investments (from $0 to $1,423,000), and inventories (from $3,518,000 to $3,948,000)[9] Condensed Consolidated Statements of Operations and Comprehensive Income Net revenue for Q3 2021 grew 24.8% to $2.49 million, and for the nine months, it increased 33.7% to $6.37 million, driving substantial net income growth Q3 2021 vs Q3 2020 Performance (Unaudited) | Metric | Q3 2021 | Q3 2020 | | :--- | :--- | :--- | | Net product revenue | $2,485,000 | $1,991,000 | | Gross profit | $1,178,000 | $967,000 | | Operating income | $711,000 | $425,000 | | Net income | $678,000 | $443,000 | | Diluted EPS | $0.11 | $0.08 | Nine Months 2021 vs 2020 Performance (Unaudited) | Metric | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | | Net product revenue | $6,374,000 | $4,766,000 | | Gross profit | $2,969,000 | $2,257,000 | | Operating income | $1,442,000 | $598,000 | | Net income | $1,605,000 | $652,000 | | Diluted EPS | $0.27 | $0.11 | - Cash dividends declared per common share increased to $0.040 in Q3 2021 from $0.035 in Q3 2020[11] Condensed Consolidated Statements of Shareholders' Equity Total shareholders' equity increased from $13.24 million at year-end 2020 to $14.20 million by September 30, 2021, driven by net income - Total equity grew from $13,242,000 at the end of 2020 to $14,200,000 as of September 30, 2021[14] - The increase in equity was primarily due to retained earnings from net income, which was partially offset by cash dividends paid to shareholders[14] Condensed Consolidated Statements of Cash Flows Net cash from operations was $1.42 million for the nine months ended September 30, 2021, with significant cash used in investing activities for short-term investments Cash Flow Summary (Nine Months Ended Sep 30) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash from operating activities | $1,423,000 | $1,467,000 | | Net cash used for investing activities | ($1,439,000) | ($13,000) | | Net cash used for financing activities | ($645,000) | ($385,000) | | Net change in cash | ($686,000) | $1,064,000 | - The significant use of cash in investing activities was due to a $1,423,000 purchase of short-term investments in 2021[16] - On June 4, 2021, the company's Paycheck Protection Program (PPP) loan of $163,200 was fully forgiven by the SBA, reflected as a non-cash financing activity[16][36] Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, revenue sources primarily from US-based ODM projects, inventory composition, and the forgiveness of the PPP loan - The company's primary business is supplying ODM electronic components, with a focus on providing turn-key solutions for contract electronic manufacturers (CEMs) and original equipment manufacturers (OEMs)[18] Revenue Disaggregation (Nine Months Ended Sep 30, 2021) | Category | Revenue | % of Total | | :--- | :--- | :--- | | By Geography | | | | United States | $5,700,000 | 89.4% | | Asia | $653,000 | 10.2% | | Other | $21,000 | 0.3% | | By Product Line | | | | ODM projects | $4,069,000 | 63.8% | | ODM components | $2,129,000 | 33.4% | | Distribution components | $176,000 | 2.8% | - As of September 30, 2021, the company had outstanding commitments to purchase inventory from suppliers aggregating approximately $3,800,000[39] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes strong 2021 financial performance to a strategic shift towards higher-margin ODM projects, with liquidity supported by operations despite illiquid inventory - The company's core strategy has shifted to focus primarily on higher-margin ODM Projects for OEM customers, moving away from its previous 'superstore' strategy of maintaining a vast inventory of electronic components[48] Results of Operations Net sales for Q3 2021 increased 24.8% to $2.49 million, and for the nine months, grew 33.7% to $6.37 million, driven by ODM project sales and PPP loan forgiveness - Q3 2021 net sales increased 24.8% YoY to $2,485,000, primarily driven by an increase in ODM project sales volume[52] - Net sales for the first nine months of 2021 increased 33.7% YoY to $6,374,000, also driven by higher ODM project sales[56] - Other income for the nine months ended September 30, 2021, increased by $122,000 compared to the prior year, primarily due to the $163,000 forgiveness of the PPP loan[59] Liquidity and Capital Resources Liquidity is primarily from operations, with $1.42 million cash flow for nine months, though significant inventory is noted as not readily liquid - The company believes that funds from operations, existing cash balances, and short-term investments are likely sufficient to finance working capital and capital expenditure requirements for the foreseeable future[65] - Inventory represented approximately 31.7% of current assets as of September 30, 2021, but is considered not readily marketable or liquid[66] - The increase in cash used for financing activities was partly due to a 14.3% increase in the quarterly cash dividend, from $0.035 to $0.04 per share[64] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company has indicated that this item is not applicable for this reporting period - The company states that this section is 'Not applicable'[69] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2021, with no material changes in internal control - Based on an evaluation, the principal executive and financial officers concluded that the company's disclosure controls and procedures were effective as of the end of the period[69] - No changes in internal control over financial reporting occurred during the period that have materially affected, or are reasonably likely to materially affect, internal controls[70] PART II - OTHER INFORMATION Item 1. Legal Proceedings As of the date of this report, the company is not aware of any material pending legal proceedings - The company reports that it is not aware of any material pending legal proceedings[72] Item 1A. Risk Factors The company highlights key risks including the ongoing COVID-19 pandemic's impact on supply chains and international tariffs increasing product costs - The COVID-19 pandemic continues to negatively impact the global economy and supply chains, resulting in increased logistics costs, lower product demand, longer lead times, and shipping delays for the company[74] - Tariffs imposed by the U.S. and China have increased the prices of products the company purchases, which could adversely affect operating profits and customer demand if these costs cannot be passed on to customers[75] Other Items (Items 2, 3, 4, 5, 6) The company reported 'None' for several items, with Item 4 'Not Applicable', and listed CEO/CFO certifications and XBRL data files as exhibits - The company reported no unregistered sales of equity securities, defaults upon senior securities, or other material information during the period[76][78] - The exhibits filed with the report include certifications from the CEO and CFO pursuant to the Sarbanes-Oxley Act and Inline XBRL documents[80]