Taitron ponents rporated(TAIT) - 2022 Q4 - Annual Report

Part I Business The company supplies Original Designed and Manufactured (ODM) products, shifting focus from its prior "superstore" distribution model - The company's core strategy has shifted to primarily focus on ODM Products, which require custom services for OEM customers, and away from its "superstore" strategy of maintaining a large inventory of electronic components[15][21][88] ODM Product Sales | Year | ODM Product Sales | | :--- | :--- | | 2022 | $8,282,000 | | 2021 | $8,434,000 | - The company experiences significant customer concentration, with its two largest customers accounting for approximately 70% of net sales in 2022, an increase from 59% in 2021[22] - A large portion of the products distributed by the company are manufactured in Asia, exposing the business to risks associated with foreign trade[32] Risk Factors The company faces material risks from supplier and customer concentration, inventory obsolescence, tariffs, and reliance on key executives - The company depends heavily on suppliers in Asia for components and manufacturing, and a failure to deliver could negatively affect operations[39][40] - A small number of customers account for a significant portion of business; in 2022, two customers accounted for 46% and 24% of net sales[46] - The shift away from the "superstore" strategy could lead to declines in the value of the company's existing inventory, which was $3.9 million at year-end 2022, net of a $5.07 million valuation allowance[49] - The company is impacted by U.S. tariffs on certain products imported from China, which could adversely affect operating profits and customer demand[50] - The company's success is highly dependent on its senior management team, and the loss of key executives could adversely affect the business[58] Unresolved Staff Comments The company reports no unresolved staff comments Properties The company owns its primary facilities in California, Shanghai, and Taipei, which management believes are adequate for the foreseeable future - Owns a 50,000 sq. ft. headquarters and distribution facility in Valencia, California[66] - Owns a 4,500 sq. ft. office in Shanghai, China, and a 2,500 sq. ft. office in Taipei, Taiwan[67] Legal Proceedings As of the report date, the company is not aware of any material pending legal proceedings Mine Safety Disclosures This section is not applicable Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's stock trades on Nasdaq, and it maintains a policy of paying quarterly dividends, which were increased in 2022 - The company's Class A common stock is traded on the Nasdaq Capital Market with the symbol "TAIT"[72] - In 2022, the company paid quarterly dividends, increasing the rate to $0.05 per share in Q4 and paying a special one-time dividend of $0.10 per share[74][75] Equity Compensation Plan Information | Plan Category | Number of securities to be issued upon exercise | Weighted-average exercise price | Number of securities remaining available for future issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 224,567 | $3.10 | 521,767 | [Reserved] This item is reserved Management's Discussion and Analysis of Financial Condition and Results of Operations Net sales decreased slightly in 2022, but improved gross margins and a significant tax benefit drove a surge in net income Critical Accounting Policies and Estimates Critical accounting policies involve significant estimates for inventory valuation, revenue recognition, and deferred taxes - Inventory valuation requires significant estimates; the company increased its inventory reserves by $180,000 in 2022 and held a total reserve of $5,069,000 at year-end[85] - The company fully reversed the $1,915,000 valuation allowance against its net deferred tax assets during 2022 due to its recent history of profitability[86] Results of Operations Net sales decreased 2.5% in 2022, while gross profit, operating income, and net income all increased significantly Year-over-Year Performance Comparison | Metric | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $8,423,000 | $8,643,000 | -2.5% | | Gross Profit | $4,393,000 | $4,121,000 | +6.6% | | Gross Margin | 52.2% | 47.7% | +4.5 p.p. | | Operating Income | $2,235,000 | $2,092,000 | +6.8% | | Net Income | $3,208,000 | $2,010,000 | +59.6% | - The decrease in net sales was primarily attributed to lower demand in ODM Projects due to fluctuating customer project life cycles[91] - The income tax line shifted from a $388,000 provision in 2021 to a $1,382,000 benefit in 2022, mainly due to the reversal of the deferred tax asset valuation allowance[94] Liquidity and Capital Resources The company generated strong operating cash flow in 2022 and believes its existing capital is sufficient for future requirements Summary of Cash Flows | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Operating activities | $1,691,000 | $1,741,000 | | Investing activities | $(968,000) | $(1,523,000) | | Financing activities | $(1,495,000) | $(889,000) | - The increase in cash used for financing activities was due to dividend payments of $1,703,000 in 2022 compared to $965,000 in 2021[98] - Management notes that inventory, representing 22.8% of total assets, is not readily liquid and is likely to take over one year to turn[100] Quantitative and Qualitative Disclosures About Market Risk This section is not applicable Financial Statements and Supplementary Data This section presents the audited consolidated financial statements, with the auditor highlighting inventory reserves as a critical audit matter Report of Independent Registered Public Accounting Firm The independent auditor issued an unqualified opinion, identifying the assessment of inventory reserves as a critical audit matter - The auditor issued an unqualified opinion on the consolidated financial statements[109] - The assessment of inventory reserves for slow-moving or obsolete stock was identified as a critical audit matter[115] Consolidated Balance Sheets Total assets remained stable in 2022, while total liabilities decreased significantly and shareholders' equity increased Consolidated Balance Sheet Highlights (as of Dec 31) | Account | 2022 | 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $5,217,000 | $5,974,000 | | Inventories, net | $3,900,000 | $5,261,000 | | Total Assets | $17,137,000 | $17,122,000 | | Accounts payable | $211,000 | $1,813,000 | | Total Liabilities | $1,001,000 | $2,737,000 | | Total Equity | $16,136,000 | $14,385,000 | Consolidated Statements of Operations The company reported slightly lower revenue in 2022 but achieved substantially higher net income and diluted EPS Consolidated Statement of Operations Highlights | Account | 2022 | 2021 | | :--- | :--- | :--- | | Net product revenue | $8,423,000 | $8,643,000 | | Gross profit | $4,393,000 | $4,121,000 | | Operating income | $2,235,000 | $2,092,000 | | Net income | $3,208,000 | $2,010,000 | | Diluted EPS - Class A | $0.53 | $0.34 | Notes to Consolidated Financial Statements The notes detail significant customer and supplier concentrations, revenue disaggregation, and geographic operations - Customer Concentration: In 2022, two customers accounted for 46% and 24% of net sales, and one customer represented 78% of trade accounts receivable at year-end[135][136] - Supplier Concentration: Two suppliers accounted for approximately 49.1% of net purchases in 2022[134] Revenue by Product Line (2022) | Product Line | Revenue | | :--- | :--- | | ODM projects | $5,986,000 | | ODM components | $2,296,000 | | Distribution components | $141,000 | Revenue by Geography (2022) | Geography | Revenue | | :--- | :--- | | United States | $8,099,000 | | Asia | $298,000 | | Other | $26,000 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None reported Controls and Procedures Management concluded that the company's disclosure controls, procedures, and internal controls over financial reporting were effective - Management concluded that disclosure controls and procedures were effective as of the end of the period[190] - Management evaluated the internal control over financial reporting and concluded that it was effective as of December 31, 2022[193] Other Information None reported Disclosure Regarding Foreign Jurisdictions that Prevent Inspections None reported Part III This section incorporates information by reference from the company's definitive proxy statement, to be filed separately Directors, Executive Officers and Corporate Governance The required information is incorporated by reference from the company's definitive proxy statement Executive Compensation The required information is incorporated by reference from the company's definitive proxy statement Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The required information is incorporated by reference from the company's definitive proxy statement Certain Relationships, Related Transactions and Director Independence The required information is incorporated by reference from the company's definitive proxy statement Principal Accounting Fees and Services The required information is incorporated by reference from the company's definitive proxy statement Part IV Exhibits, Financial Statement Schedules This section lists the documents filed as part of the Annual Report, including financial statements and various required certifications - All financial statement schedules have been omitted because the required information is included in the financial statements or the notes thereto[205] - Filed exhibits include the Consent of Independent Registered Public Accounting Firm, Section 302 and 906 Certifications, and Inline XBRL documents[207] Form 10-K Summary None provided