Notes to Consolidated Financial Statements
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 services include value-added engineering and turn-key solutions, focusing on providing contract electronic manufacturers (CEMs) and original equipment manufacturers (OEMs) with ODM services 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 a majority-owned subsidiary in Mexico (our Mexico sales and distribution operations closed in May 2013) and divisions in Taiwan and China which were established in 1998, 1996 and 2005, respectively.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) as promulgated in the United States of America.
Principles of Consolidation
Our consolidated financial statements include the accounts of Taitron Components, its various divisions and its 60% majority-owned subsidiary, Taitron Components Mexico, SA de CV (“TCM”). All significant intercompany transactions and balances have been eliminated in consolidation. The ownership interests of the noncontrolling investors in TCM are recorded in the accompanying consolidated balance sheet as a part of shareholder’s equity with a balance of $104,000 as of both December 31, 2016 and 2015.
Concentration of Risk
A significant number of the products we distribute are manufactured in Taiwan, Hong Kong, China, South Korea and the Philippines. The purchase of goods manufactured in foreign countries is subject to a number of risks, including economic disruptions, transportation delays and interruptions, foreign exchange rate fluctuations, imposition of tariffs and import and export controls and changes in governmental policies, any of which could have a material adverse effect on our business and results of operations.
The ability to remain competitive with respect to the pricing of imported components could be adversely affected by increases in tariffs or duties, changes in trade treaties, strikes in air or sea transportation, and possible future U.S. legislation with respect to pricing and import quotas on products from foreign countries. For example, it is possible that political or economic developments in China, or with respect to the relationship of the United States with China, could have an adverse effect on our business. Our ability to remain competitive could also be affected by other government actions related to, among other things, anti-dumping legislation and international currency fluctuations. While we do not believe that any of these factors adversely impact our business at present, we cannot provide assurance that these factors will not materially adversely affect us in the future. Any significant disruption in the delivery of merchandise from our suppliers, substantially all of whom are foreign, could also have a material adverse impact on our business and results of operations. Management estimates that over 90% of our products purchased were produced in Asia.
Grand Shine Management (see Note 4) accounted for approximately 30% and 33% of our net purchases for fiscal years 2016 and 2015, respectively. Samsung Electro-Mechanics Co. accounted for approximately 5% of our net purchases for each fiscal year 2016 and 2015. However, we do not regard any one supplier as essential to our operations, since equivalent replacements for most of our products are either available from one or more of our other suppliers or are available from various other sources at competitive prices. We believe that, even if we lose our direct relationship with a supplier, there exist alternative sources for a supplier’s products.
In 2016, we had two customers accounting for more than 10% of our net sales, for approximately 44% and 10% and in 2015, for approximately 37% and 10%.
As of December 31, 2016, we had three customers accounting for more than 10% of our trade accounts receivable, net of allowances, ranging between approximately 13% and 85% and as of December 31, 2015 we had four customers ranging between approximately 12% and 16%.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and on deposit at banking institutions as well as all highly liquid short-term investments with original maturities of 90 days or less.
Our cash equivalents are comprised primarily of money market investments. Accounts on deposit at our primary domestic financial institution are non-interest-bearing transaction accounts with unlimited insurance coverage by the Federal Deposit Insurance Corporation through December 31, 2012. Our foreign deposit accounts are not insured, however, we do not believe there is a significant credit risk with respect to the non-performance of these institutions based on their respective creditworthiness and liquidity.
Revenue Recognition
We recognize revenue on arrangements in accordance with FASB ASC No. 605, “Revenue Recognition”. In all cases,
revenue is recognized when we have evidence of an arrangement, a determinable fee, and when collection is considered to be probable and products are delivered. This occurs 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 management’s estimates of future returns. Sales returns for the years ended December 31, 2016 and 2015 amounted to $84,000 and $96,000, respectively.
Allowances for Sales Returns and Doubtful Accounts
Sales Returns - We may, on a case-by-case basis, 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 may, on a case-by-case basis, accept returns of products upon payment of a restocking fee, which is generally 10% 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 our inventory.
Doubtful Accounts - Accounts receivable are recorded at net realizable value or the amount we expect to collect on gross customer trade receivables. We evaluate the collectability of our accounts receivable based on a combination of factors. If we become aware of a customer’s inability to meet its financial obligations after a sale has occurred, we records an allowance to reduce the net receivable to the amount it reasonably believes it will be able to collect from the customer. For all other customers, we recognize allowances for doubtful accounts based on the length of time the receivables are past due, the current business environment and historical experience. If the financial condition of our customers were to deteriorate or if economic conditions worsen, additional allowances may be required in the future. All of our accounts receivables are trade-related receivables.
The allowances for sales returns and doubtful accounts at December 31, 2016 and 2015 amounted to $49,000 and $47,000, respectively.
Inventory
Inventory, consisting principally of products held for resale, is stated at the lower of cost, using the first-in, first-out method, or market. The amount presented in the accompanying consolidated balance sheet is net of valuation allowances of $8,537,000 and $5,674,000 at December 31, 2016 and 2015, respectively.
Based upon regular evaluations of inventory to identify costs in excess of the lower of cost or market, slow-moving inventory and potential obsolescence, we increased our reserves by $3,640,000 and $600,000 for the years ended December 31, 2016 and 2015, respectively (see Note 2 – Inventory).
Property and Equipment
Property and equipment are carried at cost less accumulated depreciation and amortization. Depreciation and amortization of property and equipment are computed principally using accelerated and straight-line methods using lives from 5 to 7 years for furniture, equipment, computer software and hardware and 31.5 years for building and building improvements. Property and equipment amortized using an accelerated method does not result in a material difference over the straight-line method. Renewals and betterments, which extend the life of an existing asset, are capitalized while normal repairs and maintenance costs are expensed as incurred.
Investments
Investments are accounted for using the equity method if the investment provides us the ability to exercise significant influence, but not control, over an investee. Significant influence is generally deemed to exist if we have an ownership interest in the voting stock of the investee between 20% and 50%, although other factors, such as representation on the investee’s Board of Directors, are considered in determining whether the equity method is appropriate.
All other equity investments, which consist of investments for which we do not possess the ability to exercise significant influence, are accounted for under the cost method. Under the cost method of accounting, investments are carried at cost and are adjusted only for other-than-temporary declines in realizable value and additional investments.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
In accordance with ASC 350-30, we evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that their net book value may not be recoverable. When such factors and circumstances exist, we compare the projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amount. Impairment, if any, is based on the excess of the carrying amount over the fair value, based on market value when available, or discounted expected cash flows, of those assets and is recorded in the period in which the determination is made. We currently believe there is no impairment of our long-lived assets. There can be no assurance, however, that market conditions will not change or demand for our products under development will continue. Either of these could result in future impairment of long-lived assets.
Marketing
Marketing costs consist primarily of payroll and related expenses for personnel engaged in marketing, business development, and selling activities. Advertising and other promotional costs, are expensed as incurred, and were $2,000 and $5,000 for the years ended December 31, 2016 and 2015, respectively.
Shipping Activities
Outbound shipping charges to customers are included in “Net sales.” Outbound shipping-related costs are included in “Cost of goods sold.”
Stock-Based Compensation
We account for our share-based compensation in accordance ASC 718-20. Stock-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the requisite vesting period.
Income Taxes
We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are recorded, when necessary, to reduce deferred tax assets to the amount expected to be realized.
As a result of the implementation of certain provisions of ASC 740,
Income
Taxes (“ASC 740”), which clarifies the accounting and disclosure for uncertainty in tax positions, as defined, ASC 740 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 ASC 740 as of January 1, 2007, and have analyzed filing positions in each of the federal and state jurisdictions where we are required to file income tax returns, as well as all open tax years in these jurisdictions. We have identified the U.S. federal and California as our “major” tax jurisdiction. With limited exceptions, we remain subject to Internal Revenue Service (“IRS”) examination of our income tax returns filed within the last three (3) years, and to California Franchise Tax Board examination of our income tax returns filed within the last four (4) years. 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.
We 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. Therefore, no reserves for uncertain income tax positions have been recorded pursuant to ASC 740. In addition, we did not record a cumulative effect adjustment related to the adoption of ASC 740. Our policy for recording interest and penalties associated with income-based tax audits is to record such items as a component of income taxes.
Fair Value Measurements
When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, we consider the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. We use the following three levels of inputs in determining the fair value of our assets and liabilities, focusing on the most observable inputs when available:
·
|
Level 1 -
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
|
·
|
Level 2 -
Quoted prices in markets that are not active; or other inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability.
|
·
|
Level 3 -
Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable.
|
To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed is determined based on the lowest level input that is significant to the fair value measurement.
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. Diluted loss per share includes potentially dilutive securities such as outstanding options and warrants, using various methods such as the treasury stock or modified treasury stock method in the determination of dilutive shares outstanding during each reporting period. Common equivalent shares, consisting primarily of stock options, of approximately 354,000 and 341,000 for the years ended December 31, 2016 and 2015, respectively, are excluded from the computation of diluted loss per share as their effect is anti-dilutive.
Foreign Currency Translation
The financial statements of our majority-owned subsidiary in Mexico and divisions in Taiwan and China are translated from the Mexican Peso, the Taiwanese Dollar and the Chinese Yuan, respectively, into U.S. dollars for financial reporting purposes. Balance sheet accounts are translated at year-end or historical rates while income and expenses are translated at weighted-average exchange rates for the year. Translation gains or losses related to net assets are shown as a separate component of shareholders’ equity as accumulated other comprehensive income. Gains and losses resulting from realized foreign currency transactions (transactions denominated in a currency other than the entities’ functional currency) are included in operations. The transactional gains and losses are not significant to the consolidated financial statements.
Use of Estimates
Our 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 financial statements in conformity with accounting principles generally accepted in the United States of America. These estimates have a significant impact on our valuation and reserve accounts relating to the allowance for sales returns and allowances, doubtful accounts and inventory reserves. Actual results could differ from these estimates.
Reclassifications
Certain reclassifications have been made to the prior years’ financial statements in order to conform to the current year presentation. Such reclassifications are immaterial to both current and all previously issued financial statements taken as a whole and had no effect on previously reported results of operations.
Business Segments
We operate in one industry, the business of supplying ODM products and the distribution of electronic components. Management designates the internal reporting used by the chief executive officer for making decisions and assessing performance as the source of our reportable segments. See Note 12 to the consolidated financial statements Geographic Information, for additional information.
2 - INVENTORY
Inventory, consisting principally of products held for resale, is stated at the lower of cost, using the first-in, first-out method, or market. The amount presented in the accompanying consolidated balance sheet is net of valuation allowances of $8,537,000 and $5,674,000 at December 31, 2016 and 2015, respectively.
Based upon regular evaluations of inventory to identify costs in excess of the lower of cost or market and slow-moving inventory, we increased our reserves by $3,640,000 and $600,000 for the years ended December 31, 2016 and 2015, respectively.
In 2016, we recorded a $3,640,000 increase to our inventory reserves. We believe this significant increase was a reasonable estimate to allow for the potential obsolescence and lower valuation of our vast inventory of electronic component products as a result of the shift in our marketing focus. Historically, under our superstore strategy, these types of products were intentionally held in large quantities for the rapid delivery distribution requirements of our customers. However, with the shift in our marketing strategy to primarily focus on our custom products designed for specific applications to OEM customers, and away from marketing our superstore strategy, our remaining component inventory will be more passively marketed and distributed online through our website shopping portal at potentially lower rates due to the pricing pressures normally attributed with online shopping. Based upon this change to our primary ongoing marketing efforts, we believe the reserve increase for existing inventory was necessary for 2016.
3 - PROPERTY AND EQUIPMENT
Property and equipment, at cost, is summarized as follows:
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Land
|
|
$
|
1,297,000
|
|
|
$
|
1,297,000
|
|
Buildings and improvements
|
|
|
5,096,000
|
|
|
|
5,096,000
|
|
Furniture and equipment
|
|
|
749,000
|
|
|
|
748,000
|
|
Computer software and hardware
|
|
|
549,000
|
|
|
|
546,000
|
|
Total Property and Equipment
|
|
|
7,691,000
|
|
|
|
7,687,000
|
|
Less: Accumulated depreciation and amortization
|
|
|
(3,659,000
|
)
|
|
|
(3,484,000
|
)
|
Property and Equipment, net
|
|
$
|
4,032,000
|
|
|
$
|
4,203,000
|
|
4 - OTHER ASSETS
The following table presents a summary rollforward of other assets:
|
|
Investment in securities -
Zowie Technology
|
|
|
Investment in joint venture - Grand Shine Mgmt
|
|
|
Other
|
|
|
Other Assets Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2014
|
|
$
|
100,000
|
|
|
$
|
868,000
|
|
|
$
|
20,000
|
|
|
$
|
988,000
|
|
Net unrealized investment losses during the period
|
|
|
-
|
|
|
|
(297,000
|
)
|
|
|
-
|
|
|
|
(297,000
|
)
|
Other changes
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,000
|
)
|
|
|
(3,000
|
)
|
Balance at December 31, 2015
|
|
|
100,000
|
|
|
|
571,000
|
|
|
|
17,000
|
|
|
|
688,000
|
|
Net unrealized investment losses during the period
|
|
|
-
|
|
|
|
(224,000
|
)
|
|
|
-
|
|
|
|
(224,000
|
)
|
Other changes
|
|
|
-
|
|
|
|
-
|
|
|
|
7,000
|
|
|
|
7,000
|
|
Balance at December 31, 2016
|
|
$
|
100,000
|
|
|
$
|
347,000
|
|
|
$
|
24,000
|
|
|
$
|
471,000
|
|
Our $100,000 investment in securities as of December 31, 2016 relates to our ownership of 1,037,739 common shares of Zowie Technology Corporation (Taipei Hsien, Taiwan), a supplier of electronic component products (see Part I: Item 1 – Business – Suppliers). Our investment relates to approximately 9.2% of their total outstanding shares although we do not have significant influence or control. This investment is accounted for under the cost method 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. In 2014, due to our estimated valuation assessment, we recognized an impairment loss of $305,000.
Our $347,000 investment in joint venture as of December 31, 2016, relates to our 49% ownership of Grand Shine Management Limited (Dong Guan, China), an electronic device contract manufacturer, and joint venture with its 51% owner, Teamforce Company Limited. This joint venture is not considered to be a “Variable Interest Entity”, and as such, is accounted for under the equity method basis of accounting.
5 - LONG-TERM DEBT FROM RELATED PARTY
Long-term debt consists of the following:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Secured credit facility from related party
|
|
$
|
1,000,000
|
|
|
$
|
1,500,000
|
|
Less current portion
|
|
|
-
|
|
|
|
(500,000
|
)
|
Long-term debt, less current portion
|
|
$
|
1,000,000
|
|
|
$
|
1,000,000
|
|
Secured credit facility - On April 21, 2008 we entered into a $3,000,000 credit facility, collateralized by real property, from K.S. Best International Co. Ltd., a company controlled by the brother of our Chief Executive Officer (see Note 6). On August 11, 2016 we renewed and extended maturities to June 30, 2017 and beyond. Credit is available in $500,000 advances, each advance payable in monthly interest only installments, at the rate of Prime + 0.25% per annum. The current outstanding balance advance history of the credit line is such that April 3, 2009, we borrowed $500,000 (due June 30, 2018) and on April 1, 2010, we borrowed $500,000 (due June 30, 2019).
6 – RELATED PARTY TRANSACTIONS
We receive professional services and have credit available from K.S. Best International Co. Ltd., a company controlled by the brother of our Chief Executive Officer.
We made payments to
K.S. Best International Co. Ltd
during each of the years 2016 and 2015, in the amount of $24,000 annually for professional fees related to the operational management of our Taiwan office. In addition, during each of the years 2016 and 2015, we made payments of $53,000 annually, for interest expense incurred on our outstanding line of credit balance. S
ee also Note 5.
We purchase el
ectronic component products from Princeton Technology Corporation (“PTC”), a company controlled by Mr. Richard Chiang, one of the directors on our board. During the years ending December 31, 2016 and 2015, we purchased products in the amount of $206,000 and $71,000, respectively, from PTC. All of these purchases were for products we carry 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 also entered into a distributor agreement with PTC, and accordingly, we expect to continue purchasing from PTC in the future.
7 - SHARE BASED COMPENSATION
Our 2005 Stock Incentive Plan (the “Plan”) authorizes the issuance of up to 1,000,000 shares pursuant to options or awards granted under the plan. Under the Plan, incentive stock and nonstatutory options were granted at prices equal to at least the fair market value of our Class A common stock at the date of grant. Outstanding options vest in three equal annual installments beginning one year from the date of grant and are subject to termination provisions as defined in the Plan. The fair value of options was determined using the Black-Scholes option-pricing model with the following weighted average assumptions as follows for 2015: dividend yield of 0%; expected volatility of 10%; a risk free interest rate of approximately 1.68% and an expected holding period of five years and for 2014: dividend yield of 0%; expected volatility of 20%; a risk free interest rate of approximately 2.65% and an expected holding period of five years.
Stock option activity during the periods indicated is as follows:
|
|
Number of
Shares
|
|
|
Weighted Average
Exercise Price
|
|
|
Weighted Average Remaining Contractual Term (Years)
|
|
|
Aggregate
Intrinsic Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2014
|
|
|
392,500
|
|
|
$
|
1.24
|
|
|
|
4.8
|
|
|
$
|
13,400
|
|
Grants
|
|
|
79,000
|
|
|
|
1.04
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(15,500
|
)
|
|
|
1.34
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2015
|
|
|
456,000
|
|
|
|
1.20
|
|
|
|
4.6
|
|
|
$
|
17,000
|
|
Grants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(80,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2016
|
|
|
376,000
|
|
|
|
1.07
|
|
|
|
4.1
|
|
|
$
|
71,639
|
|
Exercisable at December 31, 2016
|
|
|
298,333
|
|
|
$
|
1.08
|
|
|
|
3.7
|
|
|
$
|
44,044
|
|
At December 31, 2016, the range of individual weighted average exercise prices was $.98 to $1.10 and the unamortized compensation expense was approximately $10,000.
8 - SHAREHOLDER’S EQUITY
Preferred Stock - There are 5,000,000 shares of authorized preferred stock, par value $0.001 per share, with no shares of preferred stock issued or outstanding. The terms of the shares are subject to the discretion of the Board of Directors.
Class A Common Stock - There are 20,000,000 shares of authorized Class A common stock, par value $0.001 per share, with 4,768,235 issued and outstanding as of December 31, 2016 and 2015. Each holder of Class A common stock is entitled to one vote for each share held. During 2016 we did not repurchase, nor issue, any shares of our Class A common stock. During 2015, we repurchased and cancelled 8,909 shares of our Class A common stock.
Class B Common Stock - There are 762,612 shares of authorized Class B common stock, par value $0.001 per share, with 762,612 shares issued and outstanding as of December 31, 2016 and 2015. Each holder of Class B common stock is entitled to ten votes for each share held. The shares of Class B common stock are convertible at any time at the election of the shareholder into one share of Class A common stock, subject to certain adjustments. Our Chief Executive Officer is the sole beneficial owner of all the outstanding shares of Class B common stock.
Dividends – During 2016 we declared and paid quarterly dividends at $.025 per share. During 2015, we did not declare any dividends.
9 - INCOME TAXES
Income tax provision is summarized as follows:
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Current:
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
Foreign
|
|
|
18,000
|
|
|
|
-
|
|
State
|
|
|
2,000
|
|
|
|
1,000
|
|
|
|
|
20,000
|
|
|
|
1,000
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(955,000
|
)
|
|
|
(176,000
|
)
|
State
|
|
|
(265,000
|
)
|
|
|
(39,000
|
)
|
Increase in valuation allowance
|
|
|
1,220,000
|
|
|
|
215,000
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
$
|
20,000
|
|
|
$
|
1,000
|
|
|
|
|
|
|
|
|
|
|
The actual income tax provision differs from the “expected” tax computed by applying the Federal corporate tax rate of 34% to the loss before income taxes as follows:
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
“Expected” income tax benefit
|
|
$
|
(1,059,000
|
)
|
|
$
|
(202,000
|
)
|
State tax expense, net of Federal benefit
|
|
|
1,000
|
|
|
|
1,000
|
|
Foreign loss
|
|
|
6,000
|
|
|
|
6,000
|
|
Increase in valuation allowance
|
|
|
1,220,000
|
|
|
|
215,000
|
|
Foreign tax expense
|
|
|
18,000
|
|
|
|
-
|
|
Other
|
|
|
(166,000
|
)
|
|
|
(19,000
|
)
|
Income tax provision
|
|
$
|
20,000
|
|
|
$
|
1,000
|
|
The tax effects of temporary differences which give rise to significant portions of the deferred taxes are summarized as follows:
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Inventory reserves
|
|
$
|
3,657,000
|
|
|
$
|
2,431,000
|
|
Section 263a adjustment
|
|
|
69,000
|
|
|
|
74,000
|
|
Allowances for bad debts and returns
|
|
|
21,000
|
|
|
|
20,000
|
|
Accrued expenses
|
|
|
29,000
|
|
|
|
22,000
|
|
Asset valuation reserve
|
|
|
542,000
|
|
|
|
187,000
|
|
State net operating loss carry forward
|
|
|
521,000
|
|
|
|
526,000
|
|
Other
|
|
|
96,000
|
|
|
|
365,000
|
|
Total deferred tax assets
|
|
|
4,935,000
|
|
|
|
3,625,000
|
|
Valuation allowance
|
|
|
(4,585,000
|
)
|
|
|
(3,365,000
|
)
|
|
|
|
350,000
|
|
|
|
260,000
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Deferred state taxes
|
|
|
(350,000
|
)
|
|
|
(260,000
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
As of December 31, 2016, we had approximately $1,197,000 and $1,286,000 in net operating loss carryforwards for federal and state income tax purposes, respectively. In assessing the realizability of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. We consider the scheduled reversal of deferred tax assets, the level of historical taxable income and tax planning strategies in making the assessment of the realizability of deferred tax assets. We have identified the U.S. federal and California as our “major” tax jurisdiction. With limited exceptions, we remain subject to IRS examination of our income tax returns filed within the last three (3) years, and to California Franchise Tax Board examination of our income tax returns filed within the last four (4) years.
As a result of the implementation of ASC 740, we recognized no material adjustment to unrecognized tax benefits. At the adoption date of January 1, 2007, we had $795,000 of unrecognized tax benefits, all of which would affect our effective tax rate if recognized. At December 31, 2016 and 2015, we have $4,585,000 and $3,365,000 of unrecognized tax benefits, respectively. We will continue to classify income tax penalties and interest, if any, as part of interest and other expenses in its statements of operations. We have incurred no interest or penalties as of December 31, 2016 and 2015.
10 - NET LOSS PER SHARE
The following data shows a reconciliation of the numerators and the denominators used in computing loss per share and the weighted average number of shares of potentially dilutive common stock.
|
|
Year ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Net loss available to common shareholders used in basic and diluted loss per share
|
|
$
|
(3,118,000
|
)
|
|
$
|
(595,000
|
)
|
Weighted average number of common shares used in basic loss per share (Class A and B shares)
|
|
|
5,539,385
|
|
|
|
5,539,385
|
|
Basic loss per share (Class A and B shares)
|
|
$
|
(0.56
|
)
|
|
$
|
(0.11
|
)
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
Options
|
|
|
-
|
|
|
|
-
|
|
Weighted average number of common shares and dilutive potential common shares used in diluted loss per share (Class A and B shares)
|
|
|
5,539,385
|
|
|
|
5,539,385
|
|
Diluted loss per share
|
|
$
|
(0.56
|
)
|
|
$
|
(0.11
|
)
|
11 - EMPLOYEE BENEFIT PLANS
We have a defined contribution profit sharing plan pursuant to Section 401(k) of the Internal Revenue Code (“the Plan) covering only our U.S. based employees. Participants once eligible, as defined by the Plan, may contribute up to the maximum allowed under the Internal Revenue Code. The Plan also provides for safe harbor matching contributions, vesting immediately, at our discretion. For each year ended December 31, 2016 and 2015, employer matching contributions aggregated approximately $28,000.
Participants in the Plan, through self-directed brokerage accounts, held 929,203 (or 19.5%) and 850,833 (or 17.8%) shares in Class A common stock of Taitron Components as of December 31, 2016 and 2015, respectively. The Plan does not offer new issues of Taitron Components common stock as an investment option.
12 - COMMITMENTS AND CONTINGENCIES
Legal and Regulatory Proceedings
We are engaged in various legal and regulatory proceedings incidental to our normal business activities, none of which, individually or in the aggregate, are deemed to be a material risk to our financial condition.
Inventory Purchasing
Outstanding commitments to purchase inventory from suppliers aggregated $1,400,000 as of December 31, 2016.
13 - GEOGRAPHIC INFORMATION
The following table presents summary geographic information about revenues and long-lived assets (land and property, net of accumulated depreciation) attributed to countries based upon location of our customers or assets:
|
|
Year ended December 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
Long-lived
|
|
|
Long-lived
|
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Assets
|
|
|
Assets
|
|
United States
|
|
$
|
6,342,000
|
|
|
$
|
4,952,000
|
|
|
$
|
2,717,000
|
|
|
$
|
2,883,000
|
|
Mexico
|
|
|
36,000
|
|
|
|
15,000
|
|
|
|
169,000
|
|
|
|
155,000
|
|
Brazil
|
|
|
16,000
|
|
|
|
21,000
|
|
|
|
-
|
|
|
|
-
|
|
Taiwan
|
|
|
27,000
|
|
|
|
195,000
|
|
|
|
228,000
|
|
|
|
242,000
|
|
China
|
|
|
324,000
|
|
|
|
268,000
|
|
|
|
918,000
|
|
|
|
923,000
|
|
Canada
|
|
|
12,000
|
|
|
|
13,000
|
|
|
|
-
|
|
|
|
-
|
|
Other foreign countries
|
|
|
158,000
|
|
|
|
210,000
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
6,915,000
|
|
|
$
|
5,674,000
|
|
|
$
|
4,032,000
|
|
|
$
|
4,203,000
|
|