UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


FORM 10-K


(Mark One)

☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2019

 

☐ 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 incorporation or organization)

(I.R.S. Employer Identification No.)

 

28040 West Harrison Parkway, Valencia, California 

91355

 (Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code: (661) 257-6060

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A common stock, $.001 par value

TAIT

NASDAQ Capital Market

 

Securities registered pursuant to Section 12(g) of the Act:      None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.              Yes ☐   No ☑

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.           Yes ☐   No ☑

 

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 ☑   No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).               Yes ☑   No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “larger accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐

Accelerated filer ☐

Non-accelerated filer ☑

Smaller reporting company ☑

 

Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.                          ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).          Yes ☐   No ☑

 

The aggregate market value of common stock held by non-affiliates of the registrant, based upon the closing price of the common stock as reported by The Nasdaq Capital Market, was approximately $5.1 million as of the last business day of the registrant’s most recently completed second fiscal quarter ended June 30, 2019.

 

Number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:

Class

Outstanding on March 15, 2020

Class A common stock, $.001 par value

5,035,235

Class B common stock, $.001 par value

762,612

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Portions of the registrant’s definitive proxy statement pursuant to Regulation 14A in connection with the 2019 annual meeting of shareholders are incorporated by reference into Part III of this Form 10-K. The proxy statement will be filed with the SEC not later than 120 days after the registrant’s fiscal year ended December 31, 2019.

 

 

 

TAITRON COMPONENTS INCORPORATED

2019 FORM 10-K ANNUAL REPORT

December 31, 2019

TABLE OF CONTENTS 

 

   

Page

PART I

 
     

Item 1.

Business

3

Item 1A.

Risk Factors

6

Item 1B.

Unresolved Staff Comments

12

Item 2.

Properties

12

Item 3.

Legal Proceedings

12

Item 4.

Mine Safety Disclosures

12

 

  

 

PART II

 

Item 5.

Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

13

Item 6.

Selected Financial Data

13

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

14

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

16

Item 8.

Financial Statements and Supplementary Data

17

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

35

Item 9A.

Controls and Procedures

35

Item 9B.

Other Information

35

 

  

 

PART III

 

Item 10.

Directors, Executive Officers and Corporate Governance

36

Item 11.

Executive Compensation

36

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

36

Item 13.

Certain Relationships, Related Transactions and Director Independence

36

Item 14.

Principal Accounting Fees and Services

36

     

PART IV

 

Item 15.

Exhibits, Financial Statement Schedules

37

Item 16.

Form 10-K Summary

37

     

Signatures

38

 

 

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Annual Report on Form 10-K contains statements which constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements represent our expectations or beliefs concerning future events, including the following: any statements regarding future sales, costs and expenses and gross profit percentages; any statements regarding the continuation of historical trends; any statements regarding expected capital expenditures; and any statements regarding the sufficiency of our cash balances and cash generated from operating and financing activities for future liquidity and capital resource needs, and are usually denoted by words or phrases such as “believes,” “plans,” “should,” “expects,” “thinks,” “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, some of which are discussed in this report in the Part I, Item 1A. Risk Factors and elsewhere in this report. Except as required by law, we undertake no obligation to update forward-looking statements.

 

References to “Taitron,” “the Company,” “we,” “our” and “us” refer to Taitron Components Incorporated and its majority-owned subsidiary, unless the context otherwise requires.

 

PART I

 

ITEM 1. BUSINESS.

 

General

 

We are primarily a supplier of original designed and manufactured (ODM) products that include value-added engineering and turn-key solutions. We focus on providing original equipment manufacturers (OEMs) and contract electronic manufacturers (CEMs) with ODM products for their multi-year turn-key projects (“ODM Projects”) and ODM electronic components (“ODM Components”). Our product offerings range from discrete semiconductors through small electronic devices. 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 subsidiary sales and distribution operations closed in May 2013) and two divisions in each of Taiwan and China.

 

Our Taiwan and China locations provide support for inventory sourcing, purchases and coordinating the manufacture of our ODM Projects and ODM Components (collectively we refer to as “ODM Products”). In 2019 and 2018, we offered approximately 22 and 29, respectively, different ODM Products that are manufactured to specifications developed as a result of our engineering support services. Our China location also serves as the engineering center responsible for making component datasheets and test specifications, arranging pre-production and mass production at our manufacturer partners, preparing samples, monitoring the quality of shipments, performing failure analysis reports, and designing circuits with partners for ODM Projects.

 

We have also developed a reputation for stocking a large selection of electronic component inventories to meet the rapid delivery requirements of our customers. At December 31, 2019, our inventory consisted of approximately 12,000 different products manufactured by more than 100 different suppliers. However, our core strategy has shifted to primarily focus on our ODM Products that require custom products designed for specific applications to OEM customers, and away from actively marketing our superstore strategy of maintaining a vast quantity of electronic components to fill customer orders immediately from available stock held in inventory.

 

ODM Projects

 

Our ODM Projects are custom made and are marketed in specific industries such as: wild animal feeders, timers for DC motors, public street light controllers, LED modules for swimming pools and water fountain lights, LED headlamps for vacuum cleaners, battery testers, universal remote-control devices and battery chargers.

 

Our distribution of ODM Projects originates from our 50,000 square-foot facility located in Valencia, California. We utilize a computerized inventory control/tracking system which enables us to quickly access inventory levels and trace product shipments. See Item 2 - “Properties.”

 

3

 

ODM Product Industry

 

ODM product providers have experienced rapid change and growth as an increasing number of OEMs outsource their manufacturing requirements. OEMs have continued to turn to outsourcing in order to reduce product cost; achieve accelerated time-to-market and time-to-volume production; access advanced design and manufacturing technologies; improve inventory management and purchasing power; and reduce their capital investment in manufacturing resources. This enables OEMs to concentrate on what they believe to be their core strengths, such as new product definition, design, marketing and sales. We believe further growth opportunities exist for ODM product providers to penetrate the worldwide market. By designing private brand products for OEM customers in the US, we are able to expand export sales to overseas CEM customers.

 

ODM Products Strategy

 

We offer value-added ODM products to our existing OEM and CEM customers utilizing our engineering design center in Shanghai, China. The sales of our ODM Products were $6,598,000 and $7,599,000 in 2019 and 2018, respectively. Strategic allies such as Teamforce Co. Ltd., Grand Shine Management (see Part II, Item 8: Note 4 – Other Assets) and Zowie Technology Corporation (see Part II, Item 8: Note 4 – Other Assets) provide us with engineering support services in our ODM projects in order to lower costs and to shorten the design cycle.

 

By offering application engineering service to current customers, we are often involved in reviewing their bill of materials (BOMs) and circuit diagrams. Based upon their credit history, type of products, production volume, profitability of the industry and circuit schematics, we offer different solutions for quality improvement, additional functions and cost savings throughout the re-design processes such as component replacement, digital circuit instead of analog circuit, microprocessor instead of logic circuit, integrated circuit instead of discrete components. Our preference is to target low but increasing volume, high margin, stable demand, profitable and specialty products, and financially stable customers who know how to market their products. Our strengths are microprocessor programming, power supply, power management, LED message sign, RF transmission and receiving, encoder and decoder, remote controller, DC motor control and power amplifier. In many cases, we have been able to take advantage of our component distribution capability by using current stock to reduce lead time and choosing the low-cost components we currently sell. We depend on our outsourcing partners in mold design, plastic injection, metal stamping, wire hardness and final assembly. We ask between 15% to 30% down payment before accepting a purchase order and offer customers 30 to 60 days payment terms. All purchasing orders must have a firm delivery schedule under a non-cancelable and non-returnable (NCNR) agreement. To reduce the manufacturing and handling cost, we arrange production of the same model once a year and keep product in our warehouse to be released according to the predetermined schedule.

 

“Superstore” Marketing Strategy Change

 

Since 1997, we have marketed ourselves as the “discrete components superstore,” with an in-depth focus on discrete semiconductors, passive and optoelectronic components and extensive inventory of a wide variety of these products. Our “superstore” strategy consists of carrying a large quantity and variety of components in inventory to meet the rapid delivery requirements of our customers. Recently, our core strategy has shifted to primarily focus on our ODM Products that require custom services designed for specific applications to OEM customers, and away from actively marketing our “superstore” strategy of maintaining a vast quantity of electronic components to fill customer orders immediately from available stock held in inventory. We will continue offering our existing wide variety of components for resale, but these products will be more passively marketed and distributed online for clearance through our website shopping portal, instead of actively through traditional sales agents and distributors.

 

Customers

 

We market our ODM products to OEMs and our electronic components inventory to distributors, OEMs and CEMs. During each of 2019 and 2018, we distributed our products to approximately 300 customers, however our two largest customers combined accounted for approximately 59% (individually by approximately 42% and 17%) of net sales during 2019 and approximately 57% (individually by approximately 48% and 9%) during 2018.

 

We believe that exceptional customer service and customer relations are key elements of our success, and train our sales force to provide prompt, efficient and courteous service to all customers. See “Business - Sales and Marketing Channels.” We have the ability to ship most orders the same day they are placed and, historically, most of our customers’ orders have been shipped within the requested delivery schedule.

 

4

 

Sales and Marketing Channels

 

As of March 15, 2020, our sales and marketing department consisted of 8 employees. We have centralized our sales order processing and customer service department into our headquarters at Valencia, California.

 

As a result of our marketing strategy change to focus primarily on ODM Products and away from our superstore inventory, we expect our remaining components inventory will be more passively marketed and distributed online for clearance through our internet sales portal, however at potentially lower rates due to the pricing pressures normally attributed with online shopping.

 

Suppliers

 

In connection with our ODM products, we have built special partnership agreements with a few selected system integration companies in China. These agreements ensure the quality of the products and services and also provide a warranty on our finished products. Most of the projects involve multiple years of cooperation among components suppliers, overseas partners and the end customers in the US, and therefore, increase business stability and reduce the financial risk of excess inventory.

 

We believe that it’s important to develop and maintain good relationships with our discrete electronic component suppliers, since we do not have long-term supply, distribution or franchise agreements with any of our suppliers. Instead, we cultivate strong working relationships with each of our suppliers.

 

Competition

 

The ODM products we provide are available from many independent sources as well as from the in-house manufacturing capabilities of current and potential customers. Our competitors may be more established in the industry and have substantially greater financial, manufacturing, or marketing resources than we do. In addition, in recent years, original design manufacturers that provide design and manufacturing services to OEMs have significantly increased their share of outsourced manufacturing services provided to OEMs in the consumer electronic product market. Competition from ODMs may increase if our business in these markets grows or if ODMs expand further into these markets. We believe that our principal competitive advantages in our targeted markets are our engineering capabilities, product quality, flexibility, cost and timeliness in responding to design and schedule changes, reliability in meeting product delivery schedules, pricing, technological sophistication and geographic location.

 

We operate our discrete electronic components business online in a highly competitive environment and face competition from numerous local, regional and national distributors (both in purchasing and selling inventory) and electronic component manufacturers, including some of our own suppliers. Many of our competitors are more established and have greater name recognition and financial and marketing resources than us.

 

Management Information Systems

 

We have made a significant investment in computer hardware, software and personnel. The Management Information Systems (MIS) department is responsible for software and hardware upgrades, maintenance of current software and related databases, and designing custom systems. We believe that our MIS department is crucial to our success and believe in continually upgrading our hardware and software. We also developed a vendor management inventory software program which allows participating customers to access and manage their own inventory through the internet. The web site also provides users with other current information about us.

 

Warehouse Management System

 

We utilize a wireless, fully bar-coded warehouse perpetual inventory tracking system that greatly enhances the processing speed, accuracy of product quantity and location control within the warehouse. It also reduces potential errors and accelerates the delivery of components to our customers. We continuously improve our warehouse management system with custom programming features.

 

Foreign Trade Regulation

 

A large portion of the products we distribute are manufactured in Asia, including Taiwan, Hong Kong, Japan, China, South Korea, Thailand and the Philippines. The purchase of goods manufactured in foreign countries is subject to a number of risks, including economic disruptions, including recent disruptions caused by the Covid-19 pandemic, 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.

 

5

 

Sales to Asian customers were 13% and 9.8% of our total sales in 2019 and 2018, respectively.

 

From time to time, protectionist pressures have influenced U.S. trade policy concerning the imposition of significant duties or other trade restrictions upon foreign products. We cannot predict whether additional U.S. customs quotas, duties, taxes or other charges or restrictions will be imposed upon the importation of foreign components in the future or what effect any of these actions would have on our business, financial condition or results of operations. During 2019, we remain impacted by tariff costs on certain products imported from China, which went into effect as of July 6, 2018. However, we also have been able to pass along a portion of these costs to our customers to mitigate these costs.

 

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 United States’ relationship with China, could have an adverse effect on our business. Our ability to remain competitive also could be affected by other governmental 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 assure you 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 have a material adverse impact on our business and results of operations.

 

Employees

 

As of March 15, 2020, we had 18 employees, all of whom are employed on a full-time basis. None of our employees are covered by a collective bargaining agreement and we consider our relations with employees to be good.

 

Website Availability of Our Reports Filed with the Securities and Exchange Commission

 

We maintain a website (http://www.taitroncomponents.com), but we are not including the information contained on this website as a part of, or incorporating it by reference into, this annual report on Form 10-K. We make available free of charge through this website our annual reports, quarterly reports and current reports on Form 8-K, and amendments to these reports, as soon as reasonably practicable after we electronically file that material with, or furnish the material to, the Securities and Exchange Commission.

 

ITEM 1A. RISK FACTORS. 

 

Certain factors may have a material adverse effect on our business, prospects, financial condition and results of operations. You should carefully consider the risks and uncertainties described below together with all of the other information contained in this Annual Report on Form 10-K, including our financial statements and the related notes, before deciding to invest in our common shares. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business. If any of the following risks actually occurs, our business, financial condition, results of operations and future prospects could be materially and adversely affected.

 

If our suppliers fail to meet our component and manufacturing needs, it could delay our production and our product shipments to customers and negatively affect our operations.

 

Our ODM Products comprise many components and subassemblies produced by outside suppliers. We depend greatly on these suppliers for items that are essential to the manufacture of our products, including printed circuit boards and integrated circuits. For certain items, we qualify only a single source, which magnifies the risk of shortages and decreases our ability to negotiate with that supplier on the basis of price. From time to time, we have been unable to obtain sufficient components t that we have needed due to shortages or quality issues from some of our suppliers. If our suppliers fail to meet our manufacturing needs, it would delay our production and our product shipments to customers and negatively affect our operations.

 

Our primary suppliers are located in Asia. If a manufacturer should be unable to deliver products to us on a timely basis or at all, our business could be adversely affected. Though we have had many years of favorable experience with these suppliers, there can be no assurance that circumstances might not change and compel one or more of these suppliers to curtail or terminate deliveries to us. Moreover, the use of contract manufacturers to provide components typically requires that we place production orders several months in advance of our expected need for the products. This in turn leads to risks that we may lack sufficient inventory to sell to our customers where our expectations were conservative, or that we may order excess product inventory where our expectations were optimistic. We have in the past, experienced shortages of some parts needed to manufacture our ODM Products.

 

6

 

In addition, since a significant number of the products we distribute are manufactured in Taiwan, Hong Kong, China, South Korea and the Philippines, we are subject to a number of risks associated with foreign operations, 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 company's lack of long-term sales contracts may have a material adverse effect on its business.

 

Most of the company's sales are made on an order-by-order basis, rather than through long-term sales contracts. The company generally works with its customers to develop non-binding forecasts for future orders. Based on such non-binding forecasts, the company makes commitments regarding the level of business that it will seek and accept, the inventory that it purchases, and the levels of utilization of personnel and other resources. A variety of conditions, both specific to each customer and generally affecting each customer's industry may cause customers to cancel, reduce, or delay orders that were either previously made or anticipated, file for bankruptcy protection, or default on their payments. Generally, customers cancel, reduce, or delay purchase orders and commitments without penalty. The company seeks to mitigate these risks, in some cases, by entering into noncancelable/nonreturnable sales agreements, but there is no guarantee that such agreements will adequately protect the company. Significant or numerous cancellations, reductions, delays in orders by customers, loss of customers, and/or customer defaults on payments could materially adversely affect the company's business.

 

Changes in demand or downturns in the markets we serve could affect our business and operating results.

 

The industries into which we market and sell our products are cyclical and may experience downturns. These industries also experience volatility, and future volatility as well as downturns, or any failure of these industries to recover from downturns, could materially harm our business and operating results. In addition, our business and financial position may be adversely affected by current and future economic conditions that cause a decline in business and consumer spending in the markets served by our or our customers’ products.

 

The competitive pressures the company faces, such as pricing and margin reductions, could have a material adverse effect on the company's business.

 

The company operates in a highly competitive international environment. The company competes with other large multinational and national electronic components and enterprise computing solutions distributors, as well as numerous other smaller, specialized competitors who generally focus on narrower market sectors, products, or industries. The company also competes for customers with its suppliers. The size of the company's competitors varies across market sectors, as do the resources the company has allocated to the sectors in which it does business. Therefore, some of the company's competitors may have a more extensive customer and/or supplier base than the company in one or more of its market sectors. There is significant competition within each market sector and geography that creates pricing and margin pressure and the need for constant attention to improve service and product offerings and increase market share. Other competitive factors include rapid technological changes, product availability, credit availability, speed of delivery, ability to tailor solutions to changing customer needs, and quality and depth of product lines and training, as well as service and support provided to the customer. The company also faces competition from companies in the logistics and product fulfillment, catalog distribution, and e-commerce supply chain services markets. The company expects to encounter increased competition from its current and/or new competitors, making it more difficult for the company to retain its market share. There is no guarantee that the company's response to competition will be successful. The company's failure to maintain and enhance its competitive position could have a material adverse effect on its business.

 

A small number of suppliers and customers account for a significant portion of the company’s business.

 

Grand Shine Management accounted for approximately 35% of the company’s net purchases for each of the fiscal years 2019 and 2018. Zowie Technology accounted for approximately 15% and 11% of the company’s net purchases for each of the fiscal years 2019 and 2018, respectively. The company does not regard any one supplier as essential to its operations, since equivalent replacements for most of the company’s products are available from one or more of the company’s other suppliers or are available from various other sources at competitive prices. However, a change in supplier may delay the delivery of inventory to the company and adversely impact its results of operations.

 

7

 

In 2019, the company had two customers accounting for more than 10% of its net sales, for approximately 42% and 17%. In 2018, the company had one customer accounting for more than 10% of its net sales, for approximately 48%. As of December 31, 2019, the company had two customers accounting for more than 10% of its trade accounts receivable, net of allowances, of approximately 63% and 25% and as of December 31, 2018 the company had one customer of approximately 64%. In the event the company’s largest customers were to decrease their demand for the company’s products or in the event such customers ceased to purchase products from the company, the company’s operations would be materially and adversely impacted.

 

The company may not be able to adequately anticipate, prevent, or mitigate damage resulting from criminal and other illegal or fraudulent activities committed against it.

 

Global businesses are facing increasing risks of criminal, illegal, and other fraudulent acts. The evolving nature of such threats, considering new and sophisticated methods used by criminals, including phishing, misrepresentation, social engineering and forgery, is making it increasingly difficult for the company to anticipate and adequately mitigate these risks. In addition, designing and implementing measures to defend against, prevent, and detect these types of activities are increasingly costly and invasive into the operations of the business. As a result, the company could experience a material loss in the future to the extent that controls and other measures implemented to address these threats fail to prevent or detect such acts.

 

Products sold by the company may be found to be defective and, as a result, warranty and/or product liability claims may be asserted against the company, which may have a material adverse effect on the company.

 

The company's business could be materially adversely affected as a result of a significant quality or performance issue in the products or components sold by the company. Despite our efforts to revise and update our manufacturing and test processes, we may not be able to control and eliminate manufacturing flaws adequately. These flaws may include undetected software or hardware defects associated with new products, existing products or products that haves been integrated into a system or apparatus with the products of other vendors. If we fail to adequately monitor, develop and implement appropriate test and manufacturing processes we could experience a rate of product failure that results in substantial shipment delays, warranty costs or damage to our reputation. Product flaws may also consume our limited engineering resources and interrupt our development efforts. Significant product failures would increase our costs and result in the loss of future sales and be harmful to our business.

 

Declines in value of the company's inventory could materially adversely affect its business.

 

The market for the company's products and services is subject to rapid technological change, evolving industry standards, changes in end-market demand, evolving customer expectations, oversupply of product, and regulatory requirements, which can contribute to the decline in value or obsolescence of inventory. Many of the company's suppliers will not allow products to be returned after they have been held in inventory beyond a certain amount of time, and, in most instances, the return rights are limited to a certain percentage of the amount of product the company purchased in a particular time frame. As we continue to shift our primarily focus to our ODM Products and away from actively marketing our “superstore” strategy of maintaining a vast quantity of electronic components to fill customer orders immediately from available stock held in inventory, we expect the value of our existing inventory to decline. We had inventory balances in the amount of $3,588,000 and $4,597,000 at December 31, 2019 and 2018, respectively, which is presented net of valuation allowances of $5,893,000 and $7,189,000 at December 31, 2019 and 2018, respectively. Further declines in the value of the company’s inventory could have a material adverse effect on the company's business.

 

Tariffs may result in increased prices and could adversely affect the company's business and results of operations.

 

Recently, the U.S. government imposed tariffs on certain products imported into the U.S. and the Chinese government imposed tariffs on certain products imported into China, which have increased the prices of many of the products that the company purchases from its suppliers. The tariffs, along with any additional tariffs or trade restrictions that may be implemented by the U.S., China or other countries, could result in further increased prices. While the company intends to pass price increases on to its customers, the effect of tariffs on prices may impact sales and results of operations. Retaliatory tariffs imposed by other countries on U.S. goods have not yet had a significant impact, but the company cannot predict further developments. The tariffs and the additional operational costs incurred in minimizing the number of products subject to the tariffs could adversely affect the operating profits of the company and customer demand for certain products which could have an adverse effect on the company’s business and results of operations.

 

8

 

The company is subject to U.S. and certain foreign export and import controls, sanctions, embargoes, anti-corruption laws, and anti-money laundering laws and regulations. In the event of non-compliance, the company can face serious consequences, which can harm its business.

 

The company is subject to export control and import laws and regulations, including the U.S. Export Administration Regulations (“EAR”), U.S. Customs regulations, various economic and trade sanctions regulations administered by the U.S. Treasury Department's Office of Foreign Assets Controls (“OFAC”). Products the company sells which are either manufactured in the United States or based on U.S. technology ("U.S. Products") are subject to the EAR when exported and re-exported to and from all international jurisdictions, in addition to the local jurisdiction's export regulations applicable to individual shipments. Licenses or proper license exemptions may be required by local jurisdictions' export regulations, including EAR, for the shipment of certain U.S. Products to certain countries, including China, and other countries in which the company operates. Non-compliance with the EAR, OFAC regulations, or other applicable export regulations can result in a wide range of penalties including the denial of export privileges, fines, criminal penalties, and the seizure of inventories. In the event that any export regulatory body determines that any shipments made by the company violate the applicable export regulations, the company could be fined significant sums and/or its export capabilities could be restricted, which could have a material adverse effect on the company's business.

 

Further, the company is also subject to the U.S. Foreign Corrupt Practices Act of 1977, as amended, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, and other state and national anti-bribery and anti-money laundering laws in the countries in which it conducts business. Anti-corruption laws are interpreted broadly and prohibit companies and their employees, agents, contractors, and other collaborators from authorizing, promising, offering, or providing, directly or indirectly, improper payments or anything else of value to recipients in the public or private sector. The company engages third parties to provide services. The company can be held liable for the corrupt or other illegal activities of its employees, agents, and contractors, even if it does not explicitly authorize or have actual knowledge of such activities. Any violations of the laws and regulations described above may result in substantial civil and criminal fines and penalties, imprisonment, the loss of export or import privileges, debarment, tax reassessments, breach of contract and fraud litigation, reputational harm, and other consequences.

 

The company is subject to environmental laws and regulations that could materially adversely affect its business.

 

A number of jurisdictions in which the company's products are sold have enacted laws addressing environmental and other impacts from product disposal, use of hazardous materials in products, use of chemicals in manufacturing, recycling of products at the end of their useful life, and other related matters. These laws prohibit the use of certain substances in the manufacture of the company's products and impose a variety of requirements for modification of manufacturing processes, registration, chemical testing, labeling, and other matters. Failure to comply with these laws or any other applicable environmental regulations could result in fines or suspension of sales. Additionally, these directives and regulations may result in the company having non-compliant inventory that may be less readily salable or have to be written off. Some environmental laws impose liability, sometimes without fault, for investigating or cleaning up contamination on or emanating from the company's currently or formerly owned, leased, or operated property, as well as for damages to property or natural resources and for personal injury arising out of such contamination. The presence of environmental contamination could also interfere with ongoing operations or adversely affect the company's ability to sell or lease its properties. The discovery of contamination for which the company is responsible, the enactment of new laws and regulations, or changes in how existing regulations are enforced, could require the company to incur costs for compliance or subject it to unexpected liabilities.

 

The company may not have adequate or cost-effective liquidity or capital resources.

 

The company requires cash for general corporate purposes, such as funding its ongoing working capital, acquisitions, and capital expenditure needs. At December 31, 2019, the company had cash and cash equivalents of $5.3 million. The company believes that funds generated from operations, existing cash balances and, if necessary, related party short-term loans, are likely to be sufficient to finance its working capital and capital expenditure requirements for the foreseeable future. If these funds are not sufficient, the company may need to secure new sources of asset-based lending on accounts receivables or issue debt or equity securities. In the event the company requires additional capital to meet its business needs, there can be no assurance that additional funding will be available when needed or, if available, that it can be obtained on commercially reasonable terms.

 

9

 

The company’s revenues and operating results may fluctuate unexpectedly from quarter to quarter, which may in turn affect its stock price.

 

The company’s quarterly revenues and operating results have fluctuated in the past, and are likely to vary in the future due to the various factors, including:

 

● General economic conditions affecting spending and the rates of growth or decline in the markets the company services;

● Variations in product order backlogs, and reductions in the size, delays in the timing, or cancellation of significant customer orders;

● The timing of introductions and marketplace acceptance of new or enhanced products by the company or its competitors;

● Expansions or reductions in the company’s relationships with its OEM customers;

● Unforeseen warranty costs that exceed established reserves;

● Timing and levels of the company’s operating expenses; or

● Emerging new technologies that change the nature of or need for the company’s products and components held in inventory.

 

We believe that period-to-period comparisons of our operating results may not necessarily be reliable indicators of our future performance. It is likely that in some future period our operating results will not meet your expectations or those of public market analysts. Any unanticipated change in revenues or operating results is likely to cause the company’s stock price to fluctuate since such changes reflect new information available to investors and analysts. New information may cause investors and analysts to revalue the company’s stock and this, in the aggregate, may cause fluctuations in the company’s stock price.

 

If the company fails to maintain an effective system of internal controls or discovers material weaknesses in its internal controls over financial reporting, it may not be able to report its financial results accurately or timely or detect fraud,

which could have a material adverse effect on its business. 

 

An effective internal control environment is necessary for the company to produce reliable financial reports, safeguard assets, and is an important part of its effort to prevent financial fraud. The company is required to annually evaluate the effectiveness of the design and operation of its internal controls over financial reporting. Based on these evaluations, the company may conclude that enhancements, modifications, or changes to internal controls are necessary or desirable. While management evaluates the effectiveness of the company's internal controls on a regular basis, these controls may not always be effective. There are inherent limitations on the effectiveness of internal controls, including collusion, management override, and failure in human judgment. In addition, control procedures are designed to reduce rather than eliminate financial statement risk. If the company fails to maintain an effective system of internal controls, or if management or the company's independent registered public accounting firm discovers material weaknesses in the company's internal controls, it may be unable to produce reliable financial reports or prevent fraud, which could have a material adverse effect on the company's business. In addition, the company may be subject to sanctions or investigation by regulatory authorities, such as the SEC or NASDAQ. Any such actions could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of the company's financial statements, which could cause the market price of its common stock to decline or limit the company's access to capital.

 

The company's success depends upon its key executives.

 

Any failure to attract and retain necessary talent may materially and adversely affect the company's business, prospects, financial condition, and results of operations. The company's success depends, to a significant extent, on the capability, expertise, and continued services of its senior management team. The company relies on the expertise and experience of certain key executives in developing business strategies, business operations, and maintaining relationships with customers and suppliers. If the company were to lose any of its key executives, it may not be able to find a suitable replacement with comparable knowledge and experience. The company may also need to offer better remuneration and other benefits to attract and retain key executives and therefore cannot be assured that costs and expenses will not increase significantly as a result of increased talent acquisition and retention cost.

 

10

 

Cyber security and privacy breaches may hurt the company's business, damage its reputation, increase its costs, and cause losses.

 

The company's information technology systems could be subject to invasion, cyber-attack, or data privacy breaches by employees, others with authorized access, and unauthorized persons. Such attacks could result in disruption to the company's operations and/or loss or disclosure of, or damage to, the company's or any of its customer's or supplier's data, confidential information, or reputation. The company's information technology systems security measures may also be breached due to employee error, malfeasance, or otherwise. Additionally, outside parties may attempt to fraudulently induce employees, customers, or suppliers to disclose sensitive information in order to gain access to the company's data and information technology systems. Any such breach could result in significant legal and financial exposure, damage to the company's reputation, loss of competitive advantage, and a loss of confidence in the security of the company's information technology systems that could potentially have an impact on the company's business. Because the techniques used to obtain unauthorized access, disable or degrade, or sabotage the company's information technology systems change frequently and often are not recognized until launched, the company may be unable to anticipate these techniques or to implement adequate preventive measures. Further, third parties, such as hosted solution providers, that provide services for the company's operations, could also be a source of security risk in the event of a failure of their own security systems and infrastructure.

 

The company makes investments seeking to address risks and vulnerabilities, including ongoing monitoring, updating networks and systems, and personnel awareness training of potential cybersecurity threats to help ensure employees remain diligent in identifying potential risks. In addition, the company has deployed monitoring capabilities to support early detection, internal and external escalation, and effective responses to potential anomalies. As part of the company's review of potential risks, the company analyzes emerging cyber security threats as well as the company's plan and strategies to address them. Although the company has developed systems and processes that are designed to protect information and prevent data loss and other security breaches, including systems and processes designed to reduce the impact of a security breach, such measures cannot provide absolute security. Such breaches, whether successful or unsuccessful, could result in the company incurring costs related to, for example, rebuilding internal systems, defending against litigation, including litigation brought by governmental authorities, responding to regulatory inquiries or actions, paying damages, or taking other remedial steps. Also, global privacy legislation, enforcement, and policy activity are rapidly expanding and creating a complex compliance environment. The company's failure to comply with federal, state, or international privacy related or data protection laws and regulations could result in proceedings against the company by governmental entities or others and other fines or penalties that could have a material adverse effect on the company’s business.

 

The company relies heavily on its internal information systems, which, if not properly functioning, could materially adversely affect the company's business.

 

The company's current global operations reside on multiple technology platforms. The size and complexity of the company's computer systems make them potentially vulnerable to breakdown, malicious intrusion, and random attack. To date, the company has not experienced any identifiable significant issues. Failure to properly or adequately address any unaccounted for or unforeseen issues could impact the company's ability to perform necessary business operations, which could materially adversely affect the company's business.

 

The company may be subject to intellectual property rights claims, which are costly to defend, could require payment of damages or licensing fees and could limit the company's ability to use certain technologies in the future.

 

Certain of the company's products and services include intellectual property owned primarily by the company's third party suppliers and, to a lesser extent, the company itself. Substantial litigation and threats of litigation regarding intellectual property rights exist in the business in which the company operates. From time to time, third parties (including certain companies in the business of acquiring patents not for the purpose of developing technology but with the intention of aggressively seeking licensing revenue from purported infringers) may assert patent, copyright and/or other intellectual property rights to technologies that are important to the company's business. In some cases, depending on the nature of the claim, the company may be able to seek indemnification from its suppliers for itself and its customers against such claims, but there is no assurance that it will be successful in obtaining such indemnification or that the company is fully protected against such claims. In addition, the company is exposed to potential liability for technology that it develops itself or when it combines multiple technologies of its suppliers for which it may have limited or no indemnification protections. In any dispute involving products or services that incorporate intellectual property from multiple sources or is developed, licensed by the company, or obtained through acquisition, the company's customers could also become the targets of litigation. The company may be obligated in certain instances to indemnify and defend its customers if the products or services the company sells are alleged to infringe any third party's intellectual property rights. Any infringement claim brought against the company, regardless of the duration, outcome, or size of damage award, could result in substantial cost to the company; divert management’s attention and resources, be time consuming to defend, result in substantial damages or awards or cause product shipment delays.

 

11

 

Additionally, if an infringement claim is successful, the company may be required to pay damages or seek royalty or license arrangements, which may not be available on commercially reasonable terms. The payment of any such damages or royalties may significantly increase the company's operating expenses and harm the company's operating results and financial condition. Also, royalty or license arrangements may not be available at all. The company may have to stop selling certain products or using technologies, which could affect the company's ability to compete effectively.

 

Public health threats could have an adverse effect on our operations and financial results.

 

Public health threats could adversely affect the company’s ongoing business operations. In particular, a novel strain of coronavirus, SARS-CoV-2 (which causes the disease now called COVID-19), was reported to have surfaced in Wuhan, China in December 2019, and has since spread globally, including to every state in the United States. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020, the United States declared a national emergency with respect to COVID-19. The outbreak of COVID-19 has severely impacted global economic activity and caused significant volatility and negative pressure in financial markets. The global impact of the outbreak has been rapidly evolving and many countries, including the United States, have reacted by instituting quarantines, mandating business and school closures and restricting travel. As a result, the COVID-19 pandemic is negatively impacting almost every industry directly or indirectly. The company cannot presently predict the scope and severity of any potential business shutdowns or disruptions, but if the company or any of the third parties with whom it engages, including its suppliers, were to experience shutdowns or other business disruptions, the company’s ability to conduct its business in the manner and on the timelines presently planned could be materially and negatively impacted, which could have a material adverse effect on the company’s business and its results of operation and financial condition.

 

Trading in the company’s stock has historically been limited and the company’s stock price has been volatile, which may affect your ability to sell your shares.

 

The average trading volume in the company’s stock has been historically low, with little or no trading at all on some days. This, as well as other factors, has caused the price of the company’s stock to be volatile. Consequently, it may be difficult to sell your shares of the company’s stock at the price you paid for them or at a price equal to that quoted on the NASDAQ Stock Market. In addition, stock markets have experienced extreme price and volume volatility recently. This volatility has had a substantial effect on the market prices of securities of many smaller public companies for reasons frequently unrelated or disproportionate to the operating performance of the specific companies. These market fluctuations may adversely affect the market price of our common stock.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS.      Not applicable.

 

ITEM 2. PROPERTIES.

 

We own our headquarters and main distribution facility located in Valencia, California. This facility is approximately 50,000 total square feet, of which 40,000 square feet is warehouse space and 10,000 square feet is general office space. We also occasionally sublease approximately 3,500 square feet of our unused office space as rental property to others. We believe this facility is adequately covered by insurance (except earthquake coverage).

 

We also have the following properties: (1) we own 4,500 square feet of office space in Shanghai, China - this property is being used as our project design and engineering center and partially as rental property for lease to others and (2) we own 2,500 square feet of office space in Taipei, Taiwan. We believe these existing facilities are adequate for the foreseeable future and have no plans to renovate or expand them.

 

During 2019, we sold our 15,000 square foot building in Mexico used for office and warehouse distribution for the gross proceeds of $200,000.

 

ITEM 3. LEGAL PROCEEDINGS.

 

In the ordinary course of business, we may become involved in legal proceedings from time to time. As of the date of this report, we are not aware of any material pending legal proceedings.

 

ITEM 4. MINE SAFETY DISCLOSURES.         Not applicable.

 

12

 

PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

 

Market Information.     Our Class A common stock is traded on the The Nasdaq Capital Market under the symbol “TAIT”.

 

Number of Stockholders of Record. As of March 15, 2020, there were 15 holders of record of our Class A common stock and 1 holder of record of our Class B common stock, which is not traded. We are unable to estimate the total number of stockholders represented by these Class A holders of record, because many these shares are held by brokers on behalf of stockholders.

 

Dividends and Dividend Policy. The declaration and payment of future dividends will be at the discretion of the Board of Directors and will be dependent upon our financial condition, results of operations, capital requirements, and other factors the Board of Directors deems relevant. We are not aware of any contractual or similar restrictions that limit our ability to pay dividends, currently or in the future. See “Management’s Discussion and Analysis - Results of Operations; Liquidity and Capital Resources.”

 

Securities authorized for issuance under equity compensation plans.

 

Equity Compensation Plan Information

 

 

 

Number of securities to be issued upon exercise of outstanding options, warrants and rights

 

 

Weighted-average exercise price of outstanding options, warrants and rights

 

 

Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))

 

Plan Category

 

(a)

 

 

(b)

 

 

(c)

 

Equity compensation plans approved by security holders

 

 

381,500

 

 

$

1.65

 

 

 

732,500

 

Equity compensation plans not approved by security holders

 

 

-

 

 

 

-

 

 

 

-

 

Total

 

 

381,500

 

 

$

1.65

 

 

 

732,500

 

 

Recent Sales of Unregistered Sales of Equity Securities.         None.

 

Purchases of Equity Securities by the Issuer and Affiliated Purchasers.     None.

 

ITEM 6. SELECTED FINANCIAL DATA.          Not Applicable.

 

13

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

This discussion contains forward-looking statements that involve risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by such forward-looking statements as a result of many important factors, including those set forth in Part I of this Annual Report on Form 10-K under the caption “Risk Factors.” Please see “Cautionary Note Regarding Forward-Looking Statements” in Part I above. We do not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Annual Report. The following discussion should be read in conjunction with the consolidated financial statements, including the related notes, appearing in Item 8 of this Annual Report on Form 10-K.

 

Critical Accounting Policies and Estimates

 

Use of Estimates – We have 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 financial statements included in Item 8 of this Annual Report on Form 10-K in accordance with generally accepted accounting principles in the United States. These estimates have a significant impact on our valuation and reserve accounts relating to the allowance for sales returns and allowances, doubtful accounts, inventory reserves and deferred income taxes. Actual results could differ from these estimates.

 

Revenue Recognition – Revenue is recognized at the point at which control of the underlying products are transferred to the customer. Satisfaction of our performance obligations occur upon the transfer of control of products, either from our facilities or directly from suppliers to customers. We consider customer purchase orders to be the contracts with a customer. All revenue is generated from contracts with customers. Reserves for sales allowances and customer returns are established based upon historical experience and our estimates of future returns. Sales returns for the years ended December 31, 2019 and 2018 aggregated $5,000 and $12,000, respectively. The allowance for sales returns and allowances and doubtful accounts at December 31, 2019 and 2018 aggregated $19,000 and $38,000, respectively. We review the actual sales returns and bad debts for our customers and establish an estimate of future returns and an allowance for doubtful accounts.

 

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 net realizable value. We had inventory balances in the amount of $3,588,000 and $4,597,000 at December 31, 2019 and 2018, respectively, which is presented net of valuation allowances of $5,893,000 and $7,189,000 at December 31, 2019 and 2018, respectively. We increased our reserves by $405,000 and $180,000 during the years ended December 31, 2019 and 2018, respectively, while also applying $1,701,000 and $838,000 of our existing reserves to the underlying inventory values during the years ended December 31, 2019 and 2018, respectively. 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. 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.

 

Deferred Taxes – If determined that it is more likely than not that we will not realize all or part of our net deferred tax assets in the future, we record a valuation allowance against the deferred tax assets, which allowance will be charged to income tax expense in the period of such determination. We also consider the scheduled reversal of deferred tax liabilities, tax planning strategies and future taxable income in assessing if deferred tax assets could be realized. We also consider the weight of both positive and negative evidence in determining whether a valuation allowance is needed. However, due to a period of consistent losses through December 31, 2016, we have fully reserved a $2,587,000 and $2,691,000 allowance against our net deferred tax assets at December 31, 2019 and 2018, respectively.

 

14

 

Overview

 

We are primarily focused on supplying ODM products for our OEM customer’s multi-year turn-key projects. We also distribute discrete semiconductors, commodity Integrated Circuits (ICs), optoelectronic devices and passive components to other electronic distributors, CEMs and OEMs, who incorporate them in their products.

 

Our core strategy has shifted to primarily focus on higher margin ODM Projects that require custom products designed for specific applications to OEM customers, and away from actively marketing our superstore strategy of maintaining a vast quantity of electronic components to fill customer orders immediately from available stock held in inventory. As a result, we expect our components inventory will be more passively marketed and distributed online for clearance through our internet sales portal, however at potentially lower rates due to the pricing pressures normally attributed with online shopping. In 2019, we recorded a $405,000 increase to our inventory reserves.

 

In accordance with generally accepted accounting principles, we have classified inventory as a current asset in our December 31, 2019, consolidated financial statements representing approximately 35.9% of current assets and 26.4% 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.

 

Our gross profit margins are subject to a number of factors, including product demand, the relative strength of the U.S. dollar, provisions for inventory reserves, our ability to purchase inventory at favorable prices and our sales product mix.

 

Results of Operations

 

The Year Ended December 31, 2019 Compared to the Year Ended December 31, 2018

 

Net sales were $6,783,000 and $8,222,000 in 2019 and 2018, respectively, representing a decrease of $1,439,000 or 17.5%. The decrease was primarily in ODM Projects and owing to slowing demand by our customer inventory reductions and further from our component sales decreasing owing to our Samsung brand was disfranchised in September 2018. Key customers of our ODM Projects have variable life cycles and production demands. As some projects are accelerating and others approach end of life, the timing of new production creates a fluctuation in sales. In the first quarter of 2020, we do not expect net sales to be impacted significantly as a result of the outbreak of Covid-19 as a result of inventory on hand to fulfil customer orders. At this time, it is difficult for us to predict the impact the outbreak of Covid-19 will have on net sales beyond the first quarter of 2020.

 

Gross profit was $3,076,000 and $3,618,000 in 2019 and 2018, respectively, which represented 45.3% and 44% of net sales for those periods. The gross margin decrease was driven primarily by a decrease in ODM Project sales volume, offset by certain of these products being sold at higher profit margins. During 2019, we remained impacted by tariff costs on certain products imported from China, which went into effect as of July 6, 2018. However, we also were able to pass along a portion of these costs to our customers to mitigate these costs.

 

Selling, general and administrative expenses were $2,378,000 and $2,199,000 in 2019 and 2018, respectively, which represented 35.1% and 26.7% of net sales for those periods. The year-over-year increase of $179,000 was primarily due to travel expenses increasing and increases to our China office salaries and benefits, increases to property taxes and increases to professional fees.

 

Operating income was $698,000 and $1,419,000 in 2019 and 2018, respectively, which represented 10.3% and 17.3% of net sales for those periods.

 

Net interest income, primarily earned from certificates of deposits in banks was $28,000 and $9,000 in 2019 and 2018, respectively.

 

Income tax provision was $0 and $6,000 in 2019 and 2018, respectively. Our tax provision is primarily based upon our state income tax liabilities.

 

As result of the foregoing, we recognized net income of $773,000 and $1,378,000 in 2019 and 2018, respectively, which represented 11.4% and 16.8% of net sales for those periods.

 

15

 

Liquidity and Capital Resources

 

We historically have satisfied our liquidity requirements through cash generated from operations, short-term commercial loans, subordinated related party promissory notes and issuance of equity securities. A summary of our cash flows resulting from our operating, investing and financing activities for the years ended December 31, 2019 and 2018 were as follows:

 

   

Twelve Months Ended December 31,

 
   

2019

   

2018

 
                 

Operating activities

  $ 1,413,000     $ 2,294,000  

Investing activities

  $ (3,000 )   $ (5,000 )

Financing activities

  $ (591,000 )   $ (1,029,000 )

 

Cash provided by operating activities decreased to $1,413,000 during 2019, as compared to $2,294,000 in the prior year. The $881,000 decrease was primarily due to trade accounts payable decreasing by $510,000 and net income by $564,000 during 2019.

 

Cash used for investing activities was $3,000 during 2019, as compared to $5,000 in the prior year. The change primarily included gross proceeds from the sale of our Mexico building for gross proceeds of $200,000 offset by payments of $186,000 for an additional investment in Zowie Technology (see Item 8 - Note 4 – Other Assets) in 2019.

 

Cash used in financing activities was $591,000 during 2019, as compared to $1,029,000 in the prior year. The decrease was primarily due the $500,000 payoff of our notes payable in the prior year and increasing our dividend payments by $128,000.

 

We believe that funds generated from operations, existing cash balances and, if necessary, related party short-term loans, 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 asset-based lending on accounts receivables or issue debt or equity securities. Otherwise, we may need to liquidate assets to generate the necessary working capital.

 

Inventory is included and classified as a current asset. As of December 31, 2019, inventory represented approximately 35.9% of current assets and 26.4% of total assets. However, it is likely to take over one year for the inventory to turn and therefore is likely not saleable within a one-year time frame. Hence, inventory would not be as readily marketable or liquid as other items included in current assets, such as cash.

 

Recent Accounting Pronouncements

 

Refer to Note 1 of our consolidated financial statements for recent accounting pronouncements.

 

Off-Balance Sheet Arrangements

 

We had no material off-balance sheet arrangements that have, or are likely to have, a current or future material effect on our operations.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.     Not applicable.

 

16

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 
 

Page

   

Reports of Independent Registered Public Accounting Firms

18

Consolidated Balance Sheets at December 31, 2019 and 2018

20

Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 2019 and 2018

21

Consolidated Statement of Shareholders' Equity for the Years Ended December 31, 2019 and 2018

22

Consolidated Statements of Cash Flows for the Years Ended December 31, 2019 and 2018

23

Notes to Consolidated Financial Statements

24

   

 

 

 

17

  

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Shareholders
Taitron Components Incorporated

 

Opinion on the Consolidated Financial Statements

 

We have audited the accompanying consolidated balance sheet of Taitron Components Incorporated (the “Company”) as of December 31, 2019, the related consolidated statement of operations and comprehensive income, shareholders’ equity, and cash flows for the year then ended, and the related notes (collectively, the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2019, and the consolidated results of its operations and its cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.

 

/s/ TAAD LLP

 

We have served as the Company’s auditor since 2019.

 

Diamond Bar, California

March 30, 2020

 

18

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Shareholders
Taitron Components Incorporated

 

Opinion on the Consolidated Financial Statements

 

We have audited the accompanying consolidated balance sheet of Taitron Components Incorporated (the “Company”) as of December 31, 2018, the related consolidated statements of operations and comprehensive income, shareholders’ equity, and cash flows for the year then ended, and the related notes (collectively, the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2018, and the consolidated results of its operations and its cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.

 

/s/ HASKELL & WHITE LLP

 

We served as the Company’s auditor from 2017 to 2018.

 

Irvine, California

April 1, 2019

 

19

 

Taitron Components Incorporated AND SUBSIDIARY

 

Consolidated Balance Sheets

 

 

   

December 31,

   

December 31,

 
   

2019

   

2018

 

     Assets

               

Current assets:

               

Cash and cash equivalents

  $ 5,313,000     $ 4,494,000  

Accounts receivable, less allowances of $19,000 and $38,000, respectively

    1,022,000       901,000  

Inventories, less reserves for obsolescence of $5,893,000, and $7,189,000, respectively (Note 2)

    3,588,000       4,597,000  

Prepaid expenses and other current assets

    85,000       67,000  

Total current assets

    10,008,000       10,059,000  

Property and equipment, net

    3,386,000       3,710,000  

Other assets (Note 4)

    205,000       212,000  

Total assets

  $ 13,599,000     $ 13,981,000  
                 

Liabilities and Equity

               

Current liabilities:

               

Accounts payable

  $ 462,000     $ 972,000  

Accrued liabilities

    322,000       311,000  

Total current & total liabilities

    784,000       1,283,000  
                 

Commitments and contingencies (Note 6 )

               
                 

Equity:

               

Shareholders's equity:

               

Preferred stock, $0.001 par value. Authorized 5,000,000 shares;

    None issued or outstanding

    -       -  

Class A common stock, $0.001 par value. Authorized 20,000,000 shares;

   4,990,235 and 4,867,235 shares issued and outstanding, respectively

    5,000       5,000  

Class B common stock, $0.001 par value. Authorized, issued and

    outstanding 762,612 shares

    1,000       1,000  

Additional paid-in capital

    10,959,000       10,812,000  

Accumulated other comprehensive income

    38,000       128,000  

Retained earnings

    1,712,000       1,656,000  

Total shareholders’ equity - Taitron Components Inc

    12,715,000       12,602,000  

Noncontrolling interest in subsidiary

    100,000       96,000  

Total equity

    12,815,000       12,698,000  

Total liabilities and equity

  $ 13,599,000     $ 13,981,000  

 

See accompanying notes to consolidated financial statements.

 

20

 

Taitron Components Incorporated AND SUBSIDIARY

 

Consolidated Statements of Operations and Comprehensive Income

 

   

Twelve Months Ended December 31,

 
   

2019

   

2018

 
                 
                 

Net product revenue

  $ 6,783,000     $ 8,222,000  

Cost of products sold

    3,707,000       4,604,000  

Gross profit

    3,076,000       3,618,000  
                 

Selling, general and administrative expenses

    2,378,000       2,199,000  

Operating income

    698,000       1,419,000  
                 

Interest income, net

    28,000       9,000  

Loss on investments

    (193,000 )     (185,000 )

Other income, net

    273,000       133,000  

Income before income taxes

    806,000       1,376,000  
                 

Income tax provision

    -       (6,000 )
                 

Net income

    806,000       1,370,000  

Net income(loss) attributable to noncontrolling interests

    33,000       (8,000 )

Net income attributable to Taitron Components Inc.

  $ 773,000     $ 1,378,000  
                 

Net income per share:     Basic - Class A

  $ 0.14     $ 0.25  

                                        Basic - Class B

  $ 0.14     $ 0.25  

                                        Diluted - Class A

  $ 0.13     $ 0.24  

                                        Diluted - Class B

  $ 0.14     $ 0.25  
                 

Weighted average shares outstanding:  Basic - Class A

    4,961,610       4,834,943  

                                                               Basic - Class B

    762,612       762,612  

                                                               Diluted - Class A

    5,077,610       4,943,943  

                                                               Diluted - Class B

    762,612       762,612  
                 

Cash dividends declared per common share

  $ 0.125     $ 0.105  
                 

Net income

  $ 806,000     $ 1,370,000  

Other comprehensive income:

               

Foreign currency translation adjustment

    (90,000 )     (16,000 )

Comprehensive income

    716,000       1,354,000  

Comprehensive income(loss) attributable to noncontrolling interests

    4,000       (4,000 )

Comprehensive income attributable to Taitron Components Inc.

  $ 712,000     $ 1,358,000  

 

See accompanying notes to consolidated financial statements. 

 

21

 

Taitron Components Incorporated AND SUBSIDIARY

 

Consolidated Statement of Shareholders’ Equity

 

For the years ended December 31, 2019 and December 31, 2018

 

                                                           

Total

                 
                                           

Accumulated

           

Shareholders’

                 
   

Common Stock

           

Other

           

Taitron

                 
   

Class A

   

Class B

   

Additional

   

Comprehensive

   

Retained

   

Components

   

Noncontrolling

   

Total

 
   

Shares

   

Amount

   

Shares

   

Amount

   

Paid-in capital

   

Income (Loss)

   

Earnings

   

Equity

   

Interest in Sub

   

Equity

 
                                                                                 
                                                                                 

Balances at December 31, 2017

    4,808,235     $ 5,000       762,612     $ 1,000     $ 10,744,000     $ 144,000     $ 867,000     $ 11,761,000     $ 100,000     $ 11,861,000  

Consolidated net income (loss)

    -       -       -       -       -       -       1,378,000       1,378,000       (4,000 )   $ 1,374,000  

Other comprehensive income(loss)

    -       -       -       -       -       (16,000 )     -       (16,000 )     -     $ (16,000 )

Exercise stock options

    59,000       -       -       -       60,000       -       -       60,000       -     $ 60,000  

Amortization of stock based compensation

    -       -       -       -       8,000       -       -       8,000       -     $ 8,000  

Cash dividends

    -       -       -       -       -       -       (589,000 )     (589,000 )     -     $ (589,000 )

Balances at December 31, 2018

    4,867,235     $ 5,000       762,612     $ 1,000     $ 10,812,000     $ 128,000     $ 1,656,000     $ 12,602,000     $ 96,000     $ 12,698,000  

Consolidated net income (loss)

    -       -       -       -       -       -       773,000       773,000       4,000     $ 777,000  

Other comprehensive income

    -       -       -       -       -       (90,000 )     -       (90,000 )     -     $ (90,000 )

Exercise stock options

    123,000       -       -       -       126,000       -       -       126,000       -     $ 126,000  

Amortization of stock based compensation

    -       -       -       -       21,000       -       -       21,000       -     $ 21,000  

Cash dividends

    -       -       -       -       -       -       (717,000 )     (717,000 )     -     $ (717,000 )

Balances at December 31, 2019

    4,990,235     $ 5,000       762,612     $ 1,000     $ 10,959,000     $ 38,000     $ 1,712,000     $ 12,715,000     $ 100,000     $ 12,815,000  

 

See accompanying notes to consolidated financial statements.

 

22

 

Taitron Components Incorporated AND SUBSIDIARY

 

Consolidated Statements of Cash Flows

 

   

Twelve Months Ended December 31,

 
   

2019

   

2018

 
                 

Operating activities:

               

Net income

  $ 806,000     $ 1,370,000  

Adjustments to reconcile net income to net cash provided by operating activities:

               

Depreciation and amortization

    178,000       161,000  

Provision for inventory reserves

    405,000       180,000  

Reversal of inventory reserves

    (1,701,000 )     (838,000 )

Provision for sales returns and doubtful accounts

    5,000       11,000  

Stock based compensation

    21,000       8,000  

Loss on investments

    193,000       185,000  

Gain on sale of assets

    (160,000 )     -  

Changes in assets and liabilities:

               

Accounts receivable

    (126,000 )     66,000  

Inventories

    2,305,000       1,051,000  

Prepaid expenses and other current assets

    (18,000 )     13,000  

Accounts payable

    (510,000 )     124,000  

Accrued liabilities

    11,000       (48,000 )

Other assets and liabilities

    4,000       11,000  

Total adjustments

    607,000       924,000  

Net cash provided by operating activities

    1,413,000       2,294,000  
                 

Investing activities:

               

Acquisition of property and equipment

    (17,000 )     (5,000 )

Proceeds from sale of assets

    200,000       -  

Payment for investment in convertible securities

    (186,000 )     -  

Net cash used for investing activities

    (3,000 )     (5,000 )
                 

Financing activities:

               

Payments on notes payable

    -       (500,000 )

Dividend payments

    (717,000 )     (589,000 )

Proceeds from stock options exercised

    126,000       60,000  

Net cash used for financing activities

    (591,000 )     (1,029,000 )
                 

Impact of exchange rates on cash

    -       (16,000 )
                 

Net increase in cash and cash equivalents

    819,000       1,244,000  

Cash and cash equivalents, beginning of period

    4,494,000       3,250,000  

Cash and cash equivalents, end of period

  $ 5,313,000     $ 4,494,000  
                 

Supplemental disclosures of cash flow information:

               

Cash paid for interest

  $ -     $ 9,000  

Cash paid for income taxes, net

  $ 3,000     $ 3,000  

 

See accompanying notes to consolidated financial statements.

 

23

 

Taitron Components Incorporated AND SUBSIDIARY

 

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 products include value-added engineering and turn-key solutions, focusing on providing contract electronic manufacturers (CEMs) and original equipment manufacturers (OEMs) with ODM products 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 sheets as a part of shareholders’ equity with a balance of $100,000 and $96,000 as of December 31, 2019 and 2018, respectively.

 

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 also Note 4 – Other Assets) accounted for approximately 35% of our net purchases for each of the fiscal years 2019 and 2018. Zowie Technology (see also Note 4 – Other Assets) accounted for approximately 15% and 11% of our net purchases for each of the fiscal years 2019 and 2018, respectively. 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 2019, we had two customers accounting for more than 10% of our net sales, for approximately 42% and 17%. In 2018, we had one customer accounting for more than 10% of our net sales, for approximately 48%.

 

24

 

As of December 31, 2019, we had two customers accounting for more than 10% of our trade accounts receivable, net of allowances of approximately 63% and 25% and as of December 31, 2018 we had one customer of approximately 64%.

 

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. Our 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 from contracts with customers in accordance with Financial Accounting Standards Board (“FASB”) ASC Topic 606, “Revenue from Contracts with Customers” (“ASC 606”). Revenue is recognized at the point at which control of the underlying products are transferred to the customer. Satisfaction of our performance obligations occur upon the transfer of control of products, either from our facilities or directly from suppliers to customers. We consider customer purchase orders to be the contracts with a customer. All revenue is generated from contracts with customers. 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, 2019 and 2018 amounted to $5,000 and $12,000, respectively.

 

Business Segments 

 

 

We operate in one industry, the business of supplying ODM products and 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 13 to the consolidated financial statements Geographic Information, for additional information.

 

Nature of products

 

We are primarily a supplier of original designed and manufactured (ODM) products that include value-added engineering and turn-key solutions. The following is a description of major products lines from which we generate our revenue:

 

ODM Projects - Our custom made small devices for original equipment manufacturers (OEMs) and contract electronic manufacturers (CEMs) in their multi-year turn-key projects and marketed in specific industries such as: wild animal feeders, timers for DC motors, public street light controllers, and battery chargers.

 

ODM Components - Our private labeled electronic components.

 

Distribution Components - Our name brand electronic components.

 

Disaggregation of revenue

 

In the following table, revenue is disaggregated by primary geographical market, major product line, and timing of revenue recognition.

 

   

Twelve Months Ended December 31,

 
   

2019

   

2018

 

Primary geographical markets:

               

United States

  $ 5,809,000     $ 7,377,000  

Asia

    950,000       806,000  

Other

    24,000       39,000  
      6,783,000       8,222,000  

Major product lines:

               

ODM projects

  $ 4,012,000     $ 4,890,000  

ODM components

    2,586,000       2,709,000  

Distribution components

    185,000       623,000  
      6,783,000       8,222,000  

Timing of revenue recognition:

               

Products transferred at a point in time

  $ 6,783,000     $ 8,222,000  

 

25

 

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 record an allowance to reduce the net receivable to the amount we reasonably believe we 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, 2019 and 2018 amounted to $19,000 and $38,000, 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 net realizable value. The amount presented in the accompanying consolidated balance sheet is net of valuation allowances of $5,893,000 and $7,189,000 at December 31, 2019 and 2018, respectively.

 

Based upon regular evaluations of inventory to identify costs in excess of the lower of cost or net realizable value, slow-moving inventory and potential obsolescence, we increased our reserves by $405,000 and $180,000 during the years ended December 31, 2019 and 2018, respectively, while also applying $1,701,000 and $838,000 of our existing reserves to the underlying inventory values during the years ended December 31, 2019 and 2018, 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 360, 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.

 

26

 

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 $4,000 and $2,000 for the years ended December 31, 2019 and 2018, 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 all 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.

 

ASC 740, Income Taxes (“ASC 740”), which clarifies the accounting and disclosure for uncertainty in tax positions, as defined, 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 jurisdictions. 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. 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 we would transact and consider 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.

 

27

 

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 Income Per Share

 

We apply the two-class method for calculating and presenting net income per share. The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock according to dividends declared or accumulated and participation rights in undistributed earnings. Under this method:

 

 

(a)

Net income is reduced by the amount of dividends declared in the current period for each class of stock and by the contractual amount of dividends that must be paid for the current period.

 

(b)

The remaining earnings (“undistributed earnings”) are allocated to Class A Common Stock (“CLA”) and Class B Common Stock (“CLB”) to the extent each security may share in earnings as if all the earnings for the period had been distributed. The total earnings allocated to each security is determined by adding together the amount allocated for dividends and the amount allocated for a participation feature.

 

(c)

The total earnings allocated to each security is then divided by the number of outstanding shares of the security to which the earnings are allocated to determine the earnings per share for the security.

 

(d)

Basic and diluted net income per share data are presented for each class of common stock.

 

In applying the two-class method, we determined undistributed earnings should be allocated proportionally on a per share basis between the CLA and CLB due to the aggregate participation rights of the CLB (i.e., the voting and conversion rights) and our history of paying cash dividends equally on a per share basis on the CLA and CLB.

 

The CLB is entitled to ten (10) votes per share and the CLA is entitled to one (1) vote per share with respect to each matter to be voted upon by the stockholders. Except as otherwise required by law, the holders of both classes vote together as a single class on all matters submitted to our stockholders, including the election of the Board of Directors. As a result, the holders of the CLB control approximately 60% of the total voting power of the stockholders and control the election of the Board of Directors. Each class has participated equally in all cash dividends declared and paid.

 

The CLB is convertible into CLA on a one-for-one per share basis at any time at the option of the holder. Accordingly, the holders of the CLB can participate equally in any dividends declared on the CLA by exercising their conversion rights.

 

Basic net income per share excludes potential common shares that were dilutive and is computed by dividing net income available for common stockholders by the weighted average number each class of shares outstanding. Diluted net income per share for each class gives effect to all securities representing potential common shares that were dilutive and outstanding during the period.

 

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.

 

28

 

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 income taxes, the allowance for sales returns and allowances, doubtful accounts and inventory reserves. Actual results could differ from these estimates.

 

New Accounting Pronouncements

 

In February 2016, the FASB issued a new accounting standard on leasing. The new standard will require companies to record most leased assets and liabilities on the balance sheet, and also proposes a dual model for recognizing expense. This guidance was effective in our first quarter of 2019. We have evaluated the impact of adopting this guidance and the adoption of these accounting changes have not impacted our assets and liabilities nor our net income or equity, as we currently do not lease any assets.

 

In May 2017, the FASB issued a new accounting standard which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in ASC Topic 718. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. This guidance was effective in our first quarter of 2019. The adoption of this guidance has not had a material effect on our consolidated financial statements.

 

 

 

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 net realizable value. The amount presented in the accompanying consolidated balance sheet is net of valuation allowances of $5,893,000 and $7,189,000 at December 31, 2019 and 2018, respectively.

 

Based upon regular evaluations of inventory to identify costs in excess of the lower of cost or net realizable value and slow-moving inventory, we increased our reserves by $405,000 and $180,000 for the years ended December 31, 2019 and 2018, respectively, while also applying $1,701,000 and $838,000 of our existing reserves to the underlying inventory values during the years ended December 31, 2019 and 2018, respectively.

 

3 - PROPERTY AND EQUIPMENT

 

Property and equipment, at cost, is summarized as follows:

 

   

December 31,

 
   

2019

   

2018

 

Land

  $ 1,284,000     $ 1,297,000  

Buildings and improvements

    4,867,000       5,096,000  

Furniture and equipment

    794,000       783,000  

Computer software and hardware

    563,000       557,000  

    Total Property and Equipment

    7,508,000       7,733,000  

Less: Accumulated depreciation and amortization

    (4,122,000 )     (4,023,000 )

Property and Equipment, net

  $ 3,386,000     $ 3,710,000  

 

Depreciation expense for the years ended December 31, 2019 and 2018 was $178,000 and $161,000, respectively.

 

During 2019, we sold our 15,000 square foot of office and distribution space in Mexico for $200,000

 

29

 

4 - OTHER ASSETS

 

The following table presents a summary roll-forward of other assets:

 

   

Investment in

securities -

Zowie Technology

   

Investment in

joint venture -

Grand

Shine Mgmt

   

Other

   

Other Assets Total

 
                                 

Balance at December 31, 2017

  $ 193,000     $ 185,000     $ 25,000     $ 403,000  

Net investment losses during the year

    -       (185,000 )     -       (185,000 )

Other changes

    -       -       (6,000 )     (6,000 )

Balance at December 31, 2018

    193,000       -       19,000       212,000  

Investment

    186,000       -       -       186,000  

Net investment losses during the year

    (193,000 )     -       -       (193,000 )

Balance at December 31, 2019

  $ 186,000     $ -     $ 19,000     $ 205,000  

 

Our $186,000 investment in securities as of December 31, 2019 relates to 317,428 shares of preferred convertible debt of Zowie Technology Corporation (Taipei Hsien, Taiwan), a supplier of electronic component products (see Part I: Item 1 – Business – Suppliers) with our option after 3 (three) years to convert the investment into common stock or refundable bearing 7% annual interest rate. Our investment represents approximately 7.9% of their total outstanding shares although we do not have significant influence or control. This investment is accounted for under the cost (plus impairment) 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 2019, due to our estimated valuation assessment, we recognized an impairment loss of $193,000.

 

In 2018, we sold our interests in Grand Shine Management.

 

5 - LONG-TERM DEBT FROM RELATED PARTY

 

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 – Related Party Transactions). On August 11, 2016, we renewed and extended maturities to June 30, 2017 and beyond. Credit was previously available in $500,000 advances, each advance payable in monthly interest only installments, at the rate of Prime + 0.25% per annum (Prime was 4.50% at December 31, 2017). In 2018, we fully repaid the loan and terminated the credit facility.

 

6 - RELATED PARTY TRANSACTIONS

 

We received professional services and had credit available (See also Note 5) from K.S. Best International Co. Ltd., a company controlled by the brother of our Chief Executive Officer. For their professional services, we paid $0 and $24,000 for 2019 and 2018, respectively, in fees related to the operational management of our Taiwan office. In addition, we made payments of $0 and $9,000 during 2019 and 2018, respectively, for interest expense incurred on our outstanding borrowings (See also Note 5).

 

We purchase electronic component products from Princeton Technology Corporation (“PTC”), a company controlled by Mr. Richard Chiang, one of the directors on our board. During the years ended December 31, 2019 and 2018, we purchased products in the amount of $7,000 and $5,000, 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.

 

30

 

7 - SHARE BASED COMPENSATION

 

Our 2018 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 values of options was estimated using the Black-Scholes option-pricing model at their respective grant date using the following assumptions:

 

   

Year Ended December 31,

 
   

2019

   

2018

 

Weighted-average grant date fair value per share

 

$0.40 - $0.48

   

$0.25 - $0.28

 

Risk-free interest rate

    1.47 %     3.15 %

Dividend yield

    4.7 %     6.0 %

Expected term (in years)

    10       10  

Volatility

    31 %     33 %

 

Stock option activity during the periods indicated is as follows:

 

   

Number of Shares

   

Weighted Average

Exercise Price

   

Weighted Average

Years Remaining

Contractual Term

   

Aggregate

Intrinsic

Value

 
                                 

Outstanding at December 31, 2017

    331,000     $ 1.08       3.5     $ 204,400  

Grants

    215,000       1.90       7.3          

Exercised

    (59,000 )     1.02                  

Forfeited

    (34,000 )     1.48                  

Outstanding at December 31, 2018

    453,000       1.35       5.0     $ 182,400  

Grants

    52,500     $ 2.78       8.0       -  

Exercised

    (123,000 )     1.03       -       -  

Forfeited

    (1,000 )     0.84       -       -  

Outstanding at December 31, 2019

    381,500     $ 1.65       5.6     $ 429,000  

Exercisable at December 31, 2019

    186,000     $ 1.30       4.3     $ 250,000  

 

At December 31, 2019, the range of individual weighted average exercise prices was $.98 to $1.62 and the unamortized compensation expense was approximately $50,000.

 

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 4,990,235 and 4,867,235 issued and outstanding as of December 31, 2019 and 2018, respectively. Each holder of Class A common stock is entitled to one vote for each share held. During 2019, we issued 123,000 shares of our Class A common stock. During 2018, we issued 59,000 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, 2019 and 2018. 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 the nine months ended September 30, 2018, we declared and paid quarterly dividends at $.025 per share. For the quarter ended December 31, 2018 and for the nine months ended September 30, 2019, we paid quarterly dividends of $0.03 per share. For the quarter ended December 31, 2019, we declared and paid quarterly dividends at $.035 per share.

 

31

 

9 - INCOME TAXES

 

Income tax provision is summarized as follows:

 

   

Year Ended December 31,

 
   

2019

   

2018

 

Current:

               

Federal

  $ -     $ -  

Foreign

    -       -  

State

    -       6,000  
      -       6,000  

Deferred:

               

Federal

    97,000       216,000  

State

    7,000       103,000  

Decrease in valuation allowance

    (104,000 )     (319,000 )
      -       -  
                 

Income tax provision

  $ -     $ 6,000  

 

The actual income tax provision differs from the “expected” tax computed by applying the Federal corporate tax rate of 21% to the loss before income taxes as follows:

 

   

Year Ended December 31,

 
   

2019

   

2018

 

“Expected” income tax benefit

  $ 204,000     $ 288,000  

State tax expense, net of Federal benefit

    -       5,000  

Foreign loss

    (30,000 )     -  

Decrease in valuation allowance

    (104,000 )     (319,000 )

Foreign tax expense

    -       (4,000 )

Other

    (70,000 )     36,000  

Income tax provision

  $ -     $ 6,000  

 

The tax effects of temporary differences which give rise to significant portions of the deferred taxes are summarized as follows:

 

   

December 31,

 
   

2019

   

2018

 

Deferred tax assets:

               

Inventory reserves

  $ 1,758,000     $ 2,146,000  

Allowances for bad debts and returns

    5,000       11,000  

Accrued expenses

    21,000       19,000  

Asset valuation reserve

    539,000       481,000  

Net operating loss carry forwards

    283,000       136,000  

Other

    160,000       152,000  

Total deferred tax assets

    2,766,000       2,945,000  

Valuation allowance

    (2,587,000 )     (2,691,000 )
      179,000       254,000  

Deferred tax liabilities:

               

Inventory overhead deferred tax liability

    -       (73,000 )

Deferred state taxes

    (179,000 )     (181,000 )

Total deferred tax liabilities

    (179,000 )     (254,000 )
                 

Net deferred tax assets

  $ -     $ -  

 

32

 

As of December 31, 2019, we had approximately $800,000 and $1,298,000 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, 2019 and 2018, we have $2,587,000 and $2,691,000 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 our statements of operations. We have incurred no interest or penalties as of December 31, 2019 and 2018.

 

10 - NET INCOME PER SHARE

 

The following table sets forth the computation of basic and diluted net income per share under the two-class method. See Note 1 for additional information related to net income per share.

 

   

Year ended December 31,

 
   

2019

   

2018

 

Numerator for basic and diluted net income per Class A common stock and Class B common stock share:

               

Net income attributable to Taitron Components Inc.

  $ 773,000     $ 1,378,000  

Less cash dividends:

               

Class A common stock

  $ 620,000     $ 508,000  

Class B common stock

  $ 95,000     $ 80,000  

Total undistributed earnings

  $ 58,000     $ 790,000  
                 

Class A common stock undistributed earnings - basic and diluted

  $ 50,000     $ 682,000  

Class B common stock undistributed earnings - basic and diluted

  $ 8,000     $ 108,000  

Total undistributed earnings - basic and diluted

  $ 58,000     $ 790,000  
                 

Numerator for basic and diluted net income per share:

               

Class A common stock

  $ 670,000     $ 1,190,000  

Class B common stock

  $ 103,000     $ 188,000  
    $ 773,000     $ 1,378,000  

 

   

Year ended December 31,

 
   

2019

   

2018

 

Denominator for basic and diluted net income per Class A common stock and Class B common stock share:

               

Weighted average number of common shares used in basic income per share (Class A common stock )

    4,961,610       4,834,943  

Weighted average number of common shares used in basic income per share (Class B common stock )

    762,612       762,612  
      5,724,222       5,597,555  
                 

Weighted average number of common shares used in diluted income per share (Class A common stock )

    5,077,610       4,943,943  

Weighted average number of common shares used in diluted income per share (Class B common stock )

    762,612       762,612  
      5,840,222       5,706,555  
                 

Basic net income per share:

               

Class A common stock

  $ 0.14     $ 0.25  

Class B common stock

  $ 0.14     $ 0.25  
                 

Diluted net income per share:

               

Class A common stock

  $ 0.13     $ 0.24  

Class B common stock

  $ 0.14     $ 0.25  

 

33

 

 

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, 2019 and 2018, employer matching contributions aggregated approximately $28,000.

 

Participants in the Plan, through self-directed brokerage accounts, held 487,159 and 929,203 shares in Class A common stock of Taitron Components as of December 31, 2019 and 2018, 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 $780,000 and $1,200,000 as of December 31, 2019 and December 31, 2018, respectively.

 

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,

 
   

2019

   

2018

   

2019

   

2018

 
                   

Long-lived

   

Long-lived

 
   

Revenues

   

Revenues

   

Assets

   

Assets

 

United States

  $ 5,809,000     $ 7,377,000     $ 2,411,000     $ 2,679,000  

South Korea

    650,000       509,000       -       -  

China

    228,000       237,000       789,000       831,000  

Taiwan

    45,000       55,000       186,000       200,000  

Other foreign countries

    51,000       44,000       -       -  

Total

  $ 6,783,000     $ 8,222,000     $ 3,386,000     $ 3,710,000  

 

14 - SUBSEQUENT EVENTS

 

On January 30, 2020, the World Health Organization has declared the novel coronavirus 2019 (“COVID-19”) outbreak to constitute a “Public Health Emergency of International Concern.” The COVID-19 outbreak is disrupting supply chains and affecting production and sales across a range of industries. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020, the United States declared a national emergency with respect to COVID-19. The outbreak of COVID-19 has severely impacted global economic activity and caused significant volatility and negative pressure in financial markets. The global impact of the outbreak has been rapidly evolving and many countries, including the United States, have reacted by instituting quarantines, mandating business and school closures and restricting travel. The extent of the impact of COVID-19 on our operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, impact on our customers, employees and vendors all of which are uncertain and cannot be predicted. At this point, the extent to which COVID-19 may impact our financial condition or results of operations is uncertain.

 

34

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.     None.

 

ITEM 9A. CONTROLS AND PROCEDURES.

 

Evaluation of Disclosure Controls and Procedures.

 

Our management, with the participation of our principal executive and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934 (“Exchange Act”) as of the end of the period covered by this report. Based on that evaluation, our principal executive and principal financial officers concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective such that the information required to be disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

 

Internal Control over Financial Reporting.

 

a) Management’s Annual Report on Internal Control over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) for the Company. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. Because of its inherent limitations, internal control over financial reporting may not prevent nor detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.

 

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 (2013 framework) 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.

 

Based on such criteria, our management, with the participation of our principal executive and principal financial officer, evaluated the effectiveness of our internal control over financial reporting and concluded that it was effective as of December 31, 2019.

 

As a smaller reporting company, management's assessment of our internal control over financial reporting is not subject to attestation by our independent registered public accounting firm and as such, no attestation was performed by our independent registered public accounting firm.

 

b) Changes in Internal Control over Financial Reporting. There has been no change in our internal control over financial reporting that occurred in our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

ITEM 9B. OTHER INFORMATION. None.

 

35

 

PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

 

The information required by this item will appear in our definitive proxy statement to be filed within 120 days after the close of the fiscal year-end in connection with our 2019 Annual Meeting of Shareholders (“the Proxy Statement”), and is incorporated herein by reference.

 

ITEM 11. EXECUTIVE COMPENSATION.

 

The information required by this item will appear in our Proxy Statement and is incorporated herein by reference.

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

 

The information required by this item will appear in our Proxy Statement and is incorporated herein by reference.

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE.

 

The information required by this item will appear in our Proxy Statement and is incorporated herein by reference.

 

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.

 

The information required by this item will appear in our Proxy Statement and is incorporated herein by reference.

 

36

 

PART IV

 

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

 

a) The following documents are filed as a part of this Annual Report:

 

(1) Financial Statements

 

The list of consolidated financial statements and notes required by this Item 15(a)(1) is set forth in the “Index to Financial Statements” within this Annual Report.

 

(2) Financial Statement Schedules

 

All schedules have been omitted because the required information is included in the financial statements or notes thereto.

 

(b) Exhibits

 

The exhibits listed on the Exhibit Index below are filed as part of this Annual Report.

 

Exhibits No. 

Description

10.1+

2018 Omnibus Incentive Plan. Incorporated by reference from Appendix A to the registrant’s Definitive Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on April 30, 2018.

21.1

List of Subsidiaries. Incorporated by reference from Exhibit 21.1 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2009 filed with the Securities and Exchange Commission on March 31, 2010.

23.1*

Consent of Independent Registered Public Accounting Firm – TAAD LLP

23.2*

Consent of Independent Registered Public Accounting Firm – Haskell & White LLP

24.1*

Power of Attorney (contained on the signature page hereof)

31.1*

Principal Executive Officer - Section 302 Certification

31.2*

Principal Financial Officer - Section 302 Certification

32*

Principal Executive and Principal Financial Officers - Section 906 Certification

101.INS*

XBRL Instance Document

101.SCH*

XBRL Taxonomy Extension Schema

101.CAL*

XBRL Taxonomy Extension Calculation Linkbase

101.DEF*

XBRL Taxonomy Extension Definition Linkbase

101.LAB*

XBRL Taxonomy Extension Label Linkbase

101.PRE*

XBRL Taxonomy Extension Presentation Linkbase


 

*          Filed herewith.

**        Furnished herewith.

+          Each a management contract or compensatory plan or arrangement.

 

ITEM 16. FORM 10-K SUMMARY.     None

 

37

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

TAITRON COMPONENTS INCORPORATED

 

 

 

 

Dated:  March 30, 2020

By:

/s/ Stewart Wang

 

 

 

Stewart Wang

 

 

 

Chief Executive Officer

 

 

 

 

 

 

 

 

 

Dated:  March 30, 2020

 

 

 

 

By: 

/s/ David Vanderhorst

 

 

 

David Vanderhorst

 

 

 

Chief Financial Officer

 

 

 

 

 

 

POWER OF ATTORNEY

 

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Stewart Wang and David Vanderhorst and each of them singly, as attorneys-in-fact and agents, with full power of substitution, for him in any and all capacities, to sign any amendments to this Annual Report, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorneys-in-fact, or his substitutes, may do or cause to be done by virtue hereof.

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

 

Signature

 

Title

 

Date

 

 

 

 

 

/s/ Johnson Ku

 

Chairman of the Board

 

March 30, 2020

Johnson Ku

 

 

 

 

 

 

 

 

 

/s/ Stewart Wang

 

Director, Chief Executive Officer and President

 

March 30, 2020

Stewart Wang

 

(Principal Executive Officer)

 

 

 

 

 

 

 

/s/ Richard Chiang

 

Director

 

March 30, 2020

Richard Chiang

 

 

 

 

 

 

 

 

 

/s/ Craig Miller

 

Director

 

March 30, 2020

Craig Miller

 

 

 

 

 

 

 

 

 

/s/ Chi-Lin Chung

 

Director

 

March 30, 2020

Chi-Lin Chung

 

 

 

 

 

 

 

 

 

/s/ David Vanderhorst

 

Chief Financial Officer

 

March 30, 2020

David Vanderhorst

 

(Principal Financial and Accounting Officer)

 

 

 

 

38
 

 

 

 

 

ex_179448.htm

Exhibit 23.1 Consent of Independent Registered Public Accounting Firm – TAAD LLP

 

 

 

Consent of Independent Registered Public Accounting Firm

 

 

We consent to the incorporation by reference in the Registration Statement on Form S-8 (Registration No. 333-134889) of Taitron Components Incorporated of our report dated March 30, 2020, appearing in the Annual Report on Form 10-K of Taitron Components Incorporated for the year ended December 31, 2019.

 

 

 

/s/ TAAD LLP

 

Diamond Bar, California

March 30, 2020

 

ex_179449.htm

Exhibit 23.2 Consent of Independent Registered Public Accounting Firm – HASKELL & WHITE LLP

 

 

 

Consent of Independent Registered Public Accounting Firm

 

 

We consent to the incorporation by reference in the Registration Statement on Form S-8 (Registration No. 333-134889) of Taitron Components Incorporated of our report dated April 1, 2019, appearing in the Annual Report on Form 10-K of Taitron Components Incorporated for the year ended December 31, 2019.

 

 

 

/s/ HASKELL & WHITE LLP

 

Irvine, California

March 30, 2020

 

ex_179450.htm

Exhibit 31.1 Principal Executive Officer - Section 302 Certification

 

 

Certification of

Principal Executive Officer

Of Taitron Components Incorporated

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

I, Stewart Wang, certify that:

 

1. I have reviewed this Annual Report on Form 10-K of Taitron Components Incorporated;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

 

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

 

Dated: March 30, 2020 

By:

/s/ Stewart Wang

 

 

 

Stewart Wang

 

 

 

Chief Executive Officer and President

 

   

(Principal Executive Officer)

 

 

 

 

 

 

ex_179451.htm

Exhibit 31.2 Principal Financial Officer - Section 302 Certification

 

 

Certification of

Principal Financial Officer

Of Taitron Components Incorporated

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

I, David Vanderhorst, certify that:

 

1. I have reviewed this Annual Report on Form 10-K of Taitron Components Incorporated;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

 

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

 

Dated: March 30, 2020  

By:

/s/ David Vanderhorst

 
   

David Vanderhorst

 
   

Chief Financial Officer

 
   

(Principal Financial Officer)

 

 

 

 

 

ex_179452.htm

Exhibit 32

 

 

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

 

In connection with the Annual Report of Taitron Components Incorporated (the “Company”) on Form 10-K for the fiscal year ended December 31, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of the Company certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to such officer’s knowledge:

 

 

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

 

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.

 

 

 

Dated: March 30, 2020 

By:

/s/ Stewart Wang

 

 

 

Stewart Wang

 

 

 

Chief Executive Officer and President

 

    (Principal Executive Officer)  
       
       
Dated: March 30, 2020   By: /s/ David Vanderhorst  
    David Vanderhorst  
    Chief Financial Officer  
    (Principal Financial and Accounting Officer)  

 

 

 

 

v3.20.1
GEOGRAPHIC INFORMATION (Tables)
12 Months Ended
Dec. 31, 2019
Segment Reporting [Abstract]  
Schedule of Revenue from External Customers and Long-Lived Assets, by Geographical Areas [Table Text Block]
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,

 
   

2019

   

2018

   

2019

   

2018

 
                   

Long-lived

   

Long-lived

 
   

Revenues

   

Revenues

   

Assets

   

Assets

 

United States

  $ 5,809,000     $ 7,377,000     $ 2,411,000     $ 2,679,000  

South Korea

    650,000       509,000       -       -  

China

    228,000       237,000       789,000       831,000  

Taiwan

    45,000       55,000       186,000       200,000  

Other foreign countries

    51,000       44,000       -       -  

Total

  $ 6,783,000     $ 8,222,000     $ 3,386,000     $ 3,710,000  
v3.20.1
OTHER ASSETS (Tables)
12 Months Ended
Dec. 31, 2019
Disclosure Text Block Supplement [Abstract]  
Schedule of Other Assets [Table Text Block]
The following table presents a summary roll-forward of other assets:

   

Investment in

securities -

Zowie Technology

   

Investment in

joint venture -

Grand

Shine Mgmt

   

Other

   

Other Assets Total

 
                                 

Balance at December 31, 2017

  $ 193,000     $ 185,000     $ 25,000     $ 403,000  

Net investment losses during the year

    -       (185,000 )     -       (185,000 )

Other changes

    -       -       (6,000 )     (6,000 )

Balance at December 31, 2018

    193,000       -       19,000       212,000  

Investment

    186,000       -       -       186,000  

Net investment losses during the year

    (193,000 )     -       -       (193,000 )

Balance at December 31, 2019

  $ 186,000     $ -     $ 19,000     $ 205,000  
v3.20.1
Consolidated Balance Sheets (Parentheticals) - USD ($)
Dec. 31, 2019
Dec. 31, 2018
Accounts receivable, allowances (in Dollars) $ 19,000 $ 38,000
Inventories, reserves for obsolescence (in Dollars) $ 5,893,000 $ 7,189,000
Preferred stock, par value (in Dollars per share) $ 0.001 $ 0.001
Preferred stock, shares authorized 5,000,000 5,000,000
Preferred stock, shares issued 0 0
Preferred stock, shares outstanding 0 0
Common Class A [Member]    
Common stock par value (in Dollars per share) $ 0.001 $ 0.001
Common stock, shares authorized 20,000,000 20,000,000
Common stock, shares issued 4,990,235 4,867,235
Common stock, shares outstanding 4,990,235 4,867,235
Common Class B [Member]    
Common stock par value (in Dollars per share) $ 0.001 $ 0.001
Common stock, shares authorized 762,612 762,612
Common stock, shares issued 762,612 762,612
Common stock, shares outstanding 762,612 762,612
v3.20.1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
12 Months Ended
Dec. 31, 2019
Accounting Policies [Abstract]  
Significant Accounting Policies [Text Block]

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 products include value-added engineering and turn-key solutions, focusing on providing contract electronic manufacturers (CEMs) and original equipment manufacturers (OEMs) with ODM products 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 sheets as a part of shareholders’ equity with a balance of $100,000 and $96,000 as of December 31, 2019 and 2018, respectively.


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 also Note 4 – Other Assets) accounted for approximately 35% of our net purchases for each of the fiscal years 2019 and 2018. Zowie Technology (see also Note 4 – Other Assets) accounted for approximately 15% and 11% of our net purchases for each of the fiscal years 2019 and 2018, respectively. 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 2019, we had two customers accounting for more than 10% of our net sales, for approximately 42% and 17%. In 2018, we had one customer accounting for more than 10% of our net sales, for approximately 48%.


As of December 31, 2019, we had two customers accounting for more than 10% of our trade accounts receivable, net of allowances of approximately 63% and 25% and as of December 31, 2018 we had one customer of approximately 64%.


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. Our 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 from contracts with customers in accordance with Financial Accounting Standards Board (“FASB”) ASC Topic 606, “Revenue from Contracts with Customers” (“ASC 606”). Revenue is recognized at the point at which control of the underlying products are transferred to the customer. Satisfaction of our performance obligations occur upon the transfer of control of products, either from our facilities or directly from suppliers to customers. We consider customer purchase orders to be the contracts with a customer. All revenue is generated from contracts with customers. 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, 2019 and 2018 amounted to $5,000 and $12,000, respectively.


Business Segments 


We operate in one industry, the business of supplying ODM products and 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 13 to the consolidated financial statements Geographic Information, for additional information.


Nature of products


We are primarily a supplier of original designed and manufactured (ODM) products that include value-added engineering and turn-key solutions. The following is a description of major products lines from which we generate our revenue:


ODM Projects - Our custom made small devices for original equipment manufacturers (OEMs) and contract electronic manufacturers (CEMs) in their multi-year turn-key projects and marketed in specific industries such as: wild animal feeders, timers for DC motors, public street light controllers, and battery chargers.


ODM Components - Our private labeled electronic components.


Distribution Components - Our name brand electronic components.


Disaggregation of revenue


In the following table, revenue is disaggregated by primary geographical market, major product line, and timing of revenue recognition.


   

Twelve Months Ended December 31,

 
   

2019

   

2018

 

Primary geographical markets:

               

United States

  $ 5,809,000     $ 7,377,000  

Asia

    950,000       806,000  

Other

    24,000       39,000  
      6,783,000       8,222,000  

Major product lines:

               

ODM projects

  $ 4,012,000     $ 4,890,000  

ODM components

    2,586,000       2,709,000  

Distribution components

    185,000       623,000  
      6,783,000       8,222,000  

Timing of revenue recognition:

               

Products transferred at a point in time

  $ 6,783,000     $ 8,222,000  

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 record an allowance to reduce the net receivable to the amount we reasonably believe we 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, 2019 and 2018 amounted to $19,000 and $38,000, 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 net realizable value. The amount presented in the accompanying consolidated balance sheet is net of valuation allowances of $5,893,000 and $7,189,000 at December 31, 2019 and 2018, respectively.


Based upon regular evaluations of inventory to identify costs in excess of the lower of cost or net realizable value, slow-moving inventory and potential obsolescence, we increased our reserves by $405,000 and $180,000 during the years ended December 31, 2019 and 2018, respectively, while also applying $1,701,000 and $838,000 of our existing reserves to the underlying inventory values during the years ended December 31, 2019 and 2018, 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 360, 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 $4,000 and $2,000 for the years ended December 31, 2019 and 2018, 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 all 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.


ASC 740, Income Taxes (“ASC 740”), which clarifies the accounting and disclosure for uncertainty in tax positions, as defined, 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 jurisdictions. 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. 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 we would transact and consider 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 Income Per Share


We apply the two-class method for calculating and presenting net income per share. The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock according to dividends declared or accumulated and participation rights in undistributed earnings. Under this method:


 

(a)

Net income is reduced by the amount of dividends declared in the current period for each class of stock and by the contractual amount of dividends that must be paid for the current period.


 

(b)

The remaining earnings (“undistributed earnings”) are allocated to Class A Common Stock (“CLA”) and Class B Common Stock (“CLB”) to the extent each security may share in earnings as if all the earnings for the period had been distributed. The total earnings allocated to each security is determined by adding together the amount allocated for dividends and the amount allocated for a participation feature.


 

(c)

The total earnings allocated to each security is then divided by the number of outstanding shares of the security to which the earnings are allocated to determine the earnings per share for the security.


 

(d)

Basic and diluted net income per share data are presented for each class of common stock.


In applying the two-class method, we determined undistributed earnings should be allocated proportionally on a per share basis between the CLA and CLB due to the aggregate participation rights of the CLB (i.e., the voting and conversion rights) and our history of paying cash dividends equally on a per share basis on the CLA and CLB.


The CLB is entitled to ten (10) votes per share and the CLA is entitled to one (1) vote per share with respect to each matter to be voted upon by the stockholders. Except as otherwise required by law, the holders of both classes vote together as a single class on all matters submitted to our stockholders, including the election of the Board of Directors. As a result, the holders of the CLB control approximately 60% of the total voting power of the stockholders and control the election of the Board of Directors. Each class has participated equally in all cash dividends declared and paid.


The CLB is convertible into CLA on a one-for-one per share basis at any time at the option of the holder. Accordingly, the holders of the CLB can participate equally in any dividends declared on the CLA by exercising their conversion rights.


Basic net income per share excludes potential common shares that were dilutive and is computed by dividing net income available for common stockholders by the weighted average number each class of shares outstanding. Diluted net income per share for each class gives effect to all securities representing potential common shares that were dilutive and outstanding during the period.


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 income taxes, the allowance for sales returns and allowances, doubtful accounts and inventory reserves. Actual results could differ from these estimates.


New Accounting Pronouncements


In February 2016, the FASB issued a new accounting standard on leasing. The new standard will require companies to record most leased assets and liabilities on the balance sheet, and also proposes a dual model for recognizing expense. This guidance was effective in our first quarter of 2019. We have evaluated the impact of adopting this guidance and the adoption of these accounting changes have not impacted our assets and liabilities nor our net income or equity, as we currently do not lease any assets.


In May 2017, the FASB issued a new accounting standard which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in ASC Topic 718. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. This guidance was effective in our first quarter of 2019. The adoption of this guidance has not had a material effect on our consolidated financial statements.


v3.20.1
SUBSEQUENT EVENTS
12 Months Ended
Dec. 31, 2019
Subsequent Events [Abstract]  
Subsequent Events [Text Block]

14 - SUBSEQUENT EVENTS


On January 30, 2020, the World Health Organization has declared the novel coronavirus 2019 (“COVID-19”) outbreak to constitute a “Public Health Emergency of International Concern.” The COVID-19 outbreak is disrupting supply chains and affecting production and sales across a range of industries. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020, the United States declared a national emergency with respect to COVID-19. The outbreak of COVID-19 has severely impacted global economic activity and caused significant volatility and negative pressure in financial markets. The global impact of the outbreak has been rapidly evolving and many countries, including the United States, have reacted by instituting quarantines, mandating business and school closures and restricting travel. The extent of the impact of COVID-19 on our operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, impact on our customers, employees and vendors all of which are uncertain and cannot be predicted. At this point, the extent to which COVID-19 may impact our financial condition or results of operations is uncertain.


v3.20.1
SHAREHOLDER'S EQUITY (Details) - $ / shares
3 Months Ended 9 Months Ended 12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Sep. 30, 2018
Dec. 31, 2019
Dec. 31, 2018
SHAREHOLDER'S EQUITY (Details) [Line Items]          
Preferred Stock, Shares Authorized 5,000,000 5,000,000   5,000,000 5,000,000
Preferred Stock, Par or Stated Value Per Share (in Dollars per share) $ 0.001 $ 0.001   $ 0.001 $ 0.001
Common Stock, Voting Rights       ten votes for each share held  
Convertible Common Stock Terms of Conversion       convertible at any time at the election of the shareholder into one share of Class A common stock  
Common Stock, Dividends, Per Share, Cash Paid (in Dollars per share) $ 0.035 $ 0.03 $ 0.025    
Common Class A [Member]          
SHAREHOLDER'S EQUITY (Details) [Line Items]          
Common Stock, Shares Authorized 20,000,000 20,000,000   20,000,000 20,000,000
Common Stock, Par or Stated Value Per Share (in Dollars per share) $ 0.001 $ 0.001   $ 0.001 $ 0.001
Common Stock, Shares, Issued 4,990,235 4,867,235   4,990,235 4,867,235
Common Stock, Shares, Outstanding 4,990,235 4,867,235   4,990,235 4,867,235
Common Stock, Voting Rights       one vote for each share held  
Stock Issued During Period, Shares, New Issues       123,000 59,000
Common Class B [Member]          
SHAREHOLDER'S EQUITY (Details) [Line Items]          
Common Stock, Shares Authorized 762,612 762,612   762,612 762,612
Common Stock, Par or Stated Value Per Share (in Dollars per share) $ 0.001 $ 0.001   $ 0.001 $ 0.001
Common Stock, Shares, Issued 762,612 762,612   762,612 762,612
Common Stock, Shares, Outstanding 762,612 762,612   762,612 762,612
v3.20.1
INCOME TAXES (Details) - Schedule of Deferred Tax Assets and Liabilities - USD ($)
Dec. 31, 2019
Dec. 31, 2018
Deferred tax assets:    
Inventory reserves $ 1,758,000 $ 2,146,000
Allowances for bad debts and returns 5,000 11,000
Accrued expenses 21,000 19,000
Asset valuation reserve 539,000 481,000
Net operating loss carry forwards 283,000 136,000
Other 160,000 152,000
Total deferred tax assets 2,766,000 2,945,000
Valuation allowance (2,587,000) (2,691,000)
179,000 254,000
Deferred tax liabilities:    
Inventory overhead deferred tax liability 0 (73,000)
Deferred state taxes (179,000) (181,000)
Total deferred tax liabilities (179,000) (254,000)
Net deferred tax assets $ 0 $ 0
v3.20.1
GEOGRAPHIC INFORMATION (Details) - Schedule of Revenue from External Customers and Long-Lived Assets, by Geographical Areas - USD ($)
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Revenues from External Customers and Long-Lived Assets [Line Items]    
Revenues $ 6,783,000 $ 8,222,000
Long-lived Assets 3,386,000 3,710,000
UNITED STATES    
Revenues from External Customers and Long-Lived Assets [Line Items]    
Revenues 5,809,000 7,377,000
Long-lived Assets 2,411,000 2,679,000
KOREA, REPUBLIC OF    
Revenues from External Customers and Long-Lived Assets [Line Items]    
Revenues 650,000 509,000
Long-lived Assets 0 0
CHINA    
Revenues from External Customers and Long-Lived Assets [Line Items]    
Revenues 228,000 237,000
Long-lived Assets 789,000 831,000
TAIWAN, PROVINCE OF CHINA    
Revenues from External Customers and Long-Lived Assets [Line Items]    
Revenues 45,000 55,000
Long-lived Assets 186,000 200,000
Other Foreign Countries [Member]    
Revenues from External Customers and Long-Lived Assets [Line Items]    
Revenues 51,000 44,000
Long-lived Assets $ 0 $ 0
v3.20.1
INVENTORY (Details) - USD ($)
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Inventory Disclosure [Abstract]    
Inventory Valuation Reserves $ 5,893,000 $ 7,189,000
Provision for Other Losses 405,000 180,000
Reversal of Inventory Reserves $ 1,701,000 $ 838,000
v3.20.1
OTHER ASSETS (Details) - Schedule of Other Assets - USD ($)
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
OTHER ASSETS (Details) - Schedule of Other Assets [Line Items]      
Investments Balance $ 205,000 $ 212,000 $ 403,000
Investment 186,000 0  
Net investment losses during the year (193,000) (185,000)  
Other changes   (6,000)  
Zowie Technology [Member]      
OTHER ASSETS (Details) - Schedule of Other Assets [Line Items]      
Investments Balance 186,000 193,000 193,000
Investment 186,000    
Net investment losses during the year (193,000) 0  
Other changes   0  
Grand Shine Mgmt [Member]      
OTHER ASSETS (Details) - Schedule of Other Assets [Line Items]      
Investments Balance 0 0 185,000
Investment 0    
Net investment losses during the year 0 (185,000)  
Other changes   0  
Other Investments [Member]      
OTHER ASSETS (Details) - Schedule of Other Assets [Line Items]      
Investments Balance 19,000 19,000 $ 25,000
Investment 0    
Net investment losses during the year $ 0 0  
Other changes   $ (6,000)  
v3.20.1
SHARE BASED COMPENSATION (Details) - Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions - $ / shares
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
SHARE BASED COMPENSATION (Details) - Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Line Items]    
Risk-free interest rate 1.47% 3.15%
Dividend yield 4.70% 6.00%
Expected term (in years) 10 years 10 years
Volatility 31.00% 33.00%
Minimum [Member]    
SHARE BASED COMPENSATION (Details) - Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Line Items]    
Weighted-average grant date fair value per share (in Dollars per share) $ 0.40 $ 0.25
Maximum [Member]    
SHARE BASED COMPENSATION (Details) - Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Line Items]    
Weighted-average grant date fair value per share (in Dollars per share) $ 0.48 $ 0.28
v3.20.1
NET INCOME PER SHARE
12 Months Ended
Dec. 31, 2019
Earnings Per Share [Abstract]  
Earnings Per Share [Text Block]

10 - NET INCOME PER SHARE


The following table sets forth the computation of basic and diluted net income per share under the two-class method. See Note 1 for additional information related to net income per share.


   

Year ended December 31,

 
   

2019

   

2018

 

Numerator for basic and diluted net income per Class A common stock and Class B common stock share:

               

Net income attributable to Taitron Components Inc.

  $ 773,000     $ 1,378,000  

Less cash dividends:

               

Class A common stock

  $ 620,000     $ 508,000  

Class B common stock

  $ 95,000     $ 80,000  

Total undistributed earnings

  $ 58,000     $ 790,000  
                 

Class A common stock undistributed earnings - basic and diluted

  $ 50,000     $ 682,000  

Class B common stock undistributed earnings - basic and diluted

  $ 8,000     $ 108,000  

Total undistributed earnings - basic and diluted

  $ 58,000     $ 790,000  
                 

Numerator for basic and diluted net income per share:

               

Class A common stock

  $ 670,000     $ 1,190,000  

Class B common stock

  $ 103,000     $ 188,000  
    $ 773,000     $ 1,378,000  

   

Year ended December 31,

 
   

2019

   

2018

 

Denominator for basic and diluted net income per Class A common stock and Class B common stock share:

               

Weighted average number of common shares used in basic income per share (Class A common stock )

    4,961,610       4,834,943  

Weighted average number of common shares used in basic income per share (Class B common stock )

    762,612       762,612  
      5,724,222       5,597,555  
                 

Weighted average number of common shares used in diluted income per share (Class A common stock )

    5,077,610       4,943,943  

Weighted average number of common shares used in diluted income per share (Class B common stock )

    762,612       762,612  
      5,840,222       5,706,555  
                 

Basic net income per share:

               

Class A common stock

  $ 0.14     $ 0.25  

Class B common stock

  $ 0.14     $ 0.25  
                 

Diluted net income per share:

               

Class A common stock

  $ 0.13     $ 0.24  

Class B common stock

  $ 0.14     $ 0.25  

v3.20.1
RELATED PARTY TRANSACTIONS
12 Months Ended
Dec. 31, 2019
Related Party Transactions [Abstract]  
Related Party Transactions Disclosure [Text Block]

6 - RELATED PARTY TRANSACTIONS


We received professional services and had credit available (See also Note 5) from K.S. Best International Co. Ltd., a company controlled by the brother of our Chief Executive Officer. For their professional services, we paid $0 and $24,000 for 2019 and 2018, respectively, in fees related to the operational management of our Taiwan office. In addition, we made payments of $0 and $9,000 during 2019 and 2018, respectively, for interest expense incurred on our outstanding borrowings (See also Note 5).


We purchase electronic component products from Princeton Technology Corporation (“PTC”), a company controlled by Mr. Richard Chiang, one of the directors on our board. During the years ended December 31, 2019 and 2018, we purchased products in the amount of $7,000 and $5,000, 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.


v3.20.1
SHARE BASED COMPENSATION (Details)
12 Months Ended
Dec. 31, 2019
USD ($)
$ / shares
shares
SHARE BASED COMPENSATION (Details) [Line Items]  
Share-based Payment Arrangement, Nonvested Award, Option, Cost Not yet Recognized, Amount | $ $ 50,000
2018 Stock Incentive Plan [Member]  
SHARE BASED COMPENSATION (Details) [Line Items]  
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized | shares 1,000,000
Share-based Compensation Arrangement by Share-based Payment Award, Terms of Award 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.
Share-based Payment Arrangement, Option, Exercise Price Range, Upper Range Limit | $ / shares $ 1.62
v3.20.1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - Disaggregation of Revenue - USD ($)
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Disaggregation of Revenue [Line Items]    
Revenue $ 6,783,000 $ 8,222,000
ODM Projects [Member]    
Disaggregation of Revenue [Line Items]    
Revenue 4,012,000 4,890,000
ODM Components [Member]    
Disaggregation of Revenue [Line Items]    
Revenue 2,586,000 2,709,000
Distribution Components [Member]    
Disaggregation of Revenue [Line Items]    
Revenue 185,000 623,000
UNITED STATES    
Disaggregation of Revenue [Line Items]    
Revenue 5,809,000 7,377,000
Asia [Member]    
Disaggregation of Revenue [Line Items]    
Revenue 950,000 806,000
Other [Member]    
Disaggregation of Revenue [Line Items]    
Revenue 24,000 39,000
Products Transferred at a Point in Time [Member]    
Disaggregation of Revenue [Line Items]    
Revenue $ 6,783,000 $ 8,222,000
v3.20.1
OTHER ASSETS (Details) - Zowie Technology [Member]
12 Months Ended
Dec. 31, 2019
USD ($)
shares
OTHER ASSETS (Details) [Line Items]  
Equity Method Investments $ 186,000
Investment Owned, Balance, Shares (in Shares) | shares 317,428
Equity Method Investment, Ownership Percentage 7.90%
Other than Temporary Impairment Losses, Investments $ 193,000
v3.20.1
EMPLOYEE BENEFIT PLANS
12 Months Ended
Dec. 31, 2019
Disclosure Text Block Supplement [Abstract]  
Compensation and Employee Benefit Plans [Text Block]

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, 2019 and 2018, employer matching contributions aggregated approximately $28,000.


Participants in the Plan, through self-directed brokerage accounts, held 487,159 and 929,203 shares in Class A common stock of Taitron Components as of December 31, 2019 and 2018, respectively. The Plan does not offer new issues of Taitron Components common stock as an investment option.


v3.20.1
SHARE BASED COMPENSATION
12 Months Ended
Dec. 31, 2019
Share-based Payment Arrangement [Abstract]  
Share-based Payment Arrangement [Text Block]

7 - SHARE BASED COMPENSATION


Our 2018 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 values of options was estimated using the Black-Scholes option-pricing model at their respective grant date using the following assumptions:


   

Year Ended December 31,

 
   

2019

   

2018

 

Weighted-average grant date fair value per share

 

$0.40 - $0.48

   

$0.25 - $0.28

 

Risk-free interest rate

    1.47 %     3.15 %

Dividend yield

    4.7 %     6.0 %

Expected term (in years)

    10       10  

Volatility

    31 %     33 %

Stock option activity during the periods indicated is as follows:


   

Number of Shares

   

Weighted Average

Exercise Price

   

Weighted Average

Years Remaining

Contractual Term

   

Aggregate

Intrinsic

Value

 
                                 

Outstanding at December 31, 2017

    331,000     $ 1.08       3.5     $ 204,400  

Grants

    215,000       1.90       7.3          

Exercised

    (59,000 )     1.02                  

Forfeited

    (34,000 )     1.48                  

Outstanding at December 31, 2018

    453,000       1.35       5.0     $ 182,400  

Grants

    52,500     $ 2.78       8.0       -  

Exercised

    (123,000 )     1.03       -       -  

Forfeited

    (1,000 )     0.84       -       -  

Outstanding at December 31, 2019

    381,500     $ 1.65       5.6     $ 429,000  

Exercisable at December 31, 2019

    186,000     $ 1.30       4.3     $ 250,000  

At December 31, 2019, the range of individual weighted average exercise prices was $.98 to $1.62 and the unamortized compensation expense was approximately $50,000.


v3.20.1
Consolidated Balance Sheets - USD ($)
Dec. 31, 2019
Dec. 31, 2018
Current assets:    
Cash and cash equivalents $ 5,313,000 $ 4,494,000
Accounts receivable, less allowances of $19,000 and $38,000, respectively 1,022,000 901,000
Inventories, less reserves for obsolescence of $5,893,000, and $7,189,000, respectively (Note 2) 3,588,000 4,597,000
Prepaid expenses and other current assets 85,000 67,000
Total current assets 10,008,000 10,059,000
Property and equipment, net 3,386,000 3,710,000
Other assets (Note 4) 205,000 212,000
Total assets 13,599,000 13,981,000
Current liabilities:    
Accounts payable 462,000 972,000
Accrued liabilities 322,000 311,000
Total current & total liabilities 784,000 1,283,000
Commitments and contingencies (Note 6 )
Shareholders's equity:    
Preferred stock, $0.001 par value. Authorized 5,000,000 shares; None issued or outstanding 0 0
Additional paid-in capital 10,959,000 10,812,000
Accumulated other comprehensive income 38,000 128,000
Retained earnings 1,712,000 1,656,000
Total shareholders’ equity - Taitron Components Inc 12,715,000 12,602,000
Noncontrolling interest in subsidiary 100,000 96,000
Total equity 12,815,000 12,698,000
Total liabilities and equity 13,599,000 13,981,000
Common Class A [Member]    
Shareholders's equity:    
Common Stock, value, issued 5,000 5,000
Common Class B [Member]    
Shareholders's equity:    
Common Stock, value, issued $ 1,000 $ 1,000
v3.20.1
SHARE BASED COMPENSATION (Tables)
12 Months Ended
Dec. 31, 2019
Share-based Payment Arrangement [Abstract]  
Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]
Our 2018 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 values of options was estimated using the Black-Scholes option-pricing model at their respective grant date using the following assumptions:

   

Year Ended December 31,

 
   

2019

   

2018

 

Weighted-average grant date fair value per share

 

$0.40 - $0.48

   

$0.25 - $0.28

 

Risk-free interest rate

    1.47 %     3.15 %

Dividend yield

    4.7 %     6.0 %

Expected term (in years)

    10       10  

Volatility

    31 %     33 %
Share-based Payment Arrangement, Option, Activity [Table Text Block]
Stock option activity during the periods indicated is as follows:

   

Number of Shares

   

Weighted Average

Exercise Price

   

Weighted Average

Years Remaining

Contractual Term

   

Aggregate

Intrinsic

Value

 
                                 

Outstanding at December 31, 2017

    331,000     $ 1.08       3.5     $ 204,400  

Grants

    215,000       1.90       7.3          

Exercised

    (59,000 )     1.02                  

Forfeited

    (34,000 )     1.48                  

Outstanding at December 31, 2018

    453,000       1.35       5.0     $ 182,400  

Grants

    52,500     $ 2.78       8.0       -  

Exercised

    (123,000 )     1.03       -       -  

Forfeited

    (1,000 )     0.84       -       -  

Outstanding at December 31, 2019

    381,500     $ 1.65       5.6     $ 429,000  

Exercisable at December 31, 2019

    186,000     $ 1.30       4.3     $ 250,000  
v3.20.1
Accounting Policies, by Policy (Policies)
12 Months Ended
Dec. 31, 2019
Accounting Policies [Abstract]  
Basis of Accounting, Policy [Policy Text Block]

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.

Consolidation, Policy [Policy Text Block]

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 sheets as a part of shareholders’ equity with a balance of $100,000 and $96,000 as of December 31, 2019 and 2018, respectively.

Concentration Risk, Credit Risk, Policy [Policy Text Block]

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 also Note 4 – Other Assets) accounted for approximately 35% of our net purchases for each of the fiscal years 2019 and 2018. Zowie Technology (see also Note 4 – Other Assets) accounted for approximately 15% and 11% of our net purchases for each of the fiscal years 2019 and 2018, respectively. 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 2019, we had two customers accounting for more than 10% of our net sales, for approximately 42% and 17%. In 2018, we had one customer accounting for more than 10% of our net sales, for approximately 48%.


As of December 31, 2019, we had two customers accounting for more than 10% of our trade accounts receivable, net of allowances of approximately 63% and 25% and as of December 31, 2018 we had one customer of approximately 64%.

Cash and Cash Equivalents, Policy [Policy Text Block]

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. Our 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 from Contract with Customer [Policy Text Block]

Revenue Recognition


We recognize revenue from contracts with customers in accordance with Financial Accounting Standards Board (“FASB”) ASC Topic 606, “Revenue from Contracts with Customers” (“ASC 606”). Revenue is recognized at the point at which control of the underlying products are transferred to the customer. Satisfaction of our performance obligations occur upon the transfer of control of products, either from our facilities or directly from suppliers to customers. We consider customer purchase orders to be the contracts with a customer. All revenue is generated from contracts with customers. 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, 2019 and 2018 amounted to $5,000 and $12,000, respectively.

Segment Reporting, Policy [Policy Text Block]

Business Segments 


We operate in one industry, the business of supplying ODM products and 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 13 to the consolidated financial statements Geographic Information, for additional information.

Revenue [Policy Text Block]

Nature of products


We are primarily a supplier of original designed and manufactured (ODM) products that include value-added engineering and turn-key solutions. The following is a description of major products lines from which we generate our revenue:


ODM Projects - Our custom made small devices for original equipment manufacturers (OEMs) and contract electronic manufacturers (CEMs) in their multi-year turn-key projects and marketed in specific industries such as: wild animal feeders, timers for DC motors, public street light controllers, and battery chargers.


ODM Components - Our private labeled electronic components.


Distribution Components - Our name brand electronic components.


Disaggregation of revenue


In the following table, revenue is disaggregated by primary geographical market, major product line, and timing of revenue recognition.


   

Twelve Months Ended December 31,

 
   

2019

   

2018

 

Primary geographical markets:

               

United States

  $ 5,809,000     $ 7,377,000  

Asia

    950,000       806,000  

Other

    24,000       39,000  
      6,783,000       8,222,000  

Major product lines:

               

ODM projects

  $ 4,012,000     $ 4,890,000  

ODM components

    2,586,000       2,709,000  

Distribution components

    185,000       623,000  
      6,783,000       8,222,000  

Timing of revenue recognition:

               

Products transferred at a point in time

  $ 6,783,000     $ 8,222,000  
Receivable [Policy Text Block]

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 record an allowance to reduce the net receivable to the amount we reasonably believe we 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, 2019 and 2018 amounted to $19,000 and $38,000, respectively

Inventory, Policy [Policy Text Block]

Inventory


Inventory, consisting principally of products held for resale, is stated at the lower of cost, using the first-in, first-out method, or net realizable value. The amount presented in the accompanying consolidated balance sheet is net of valuation allowances of $5,893,000 and $7,189,000 at December 31, 2019 and 2018, respectively.


Based upon regular evaluations of inventory to identify costs in excess of the lower of cost or net realizable value, slow-moving inventory and potential obsolescence, we increased our reserves by $405,000 and $180,000 during the years ended December 31, 2019 and 2018, respectively, while also applying $1,701,000 and $838,000 of our existing reserves to the underlying inventory values during the years ended December 31, 2019 and 2018, respectively (see Note 2 – Inventory).

Property, Plant and Equipment, Policy [Policy Text Block]

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.

Investment, Policy [Policy Text Block]

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 or Disposal of Long-Lived Assets, Policy [Policy Text Block]

Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of


In accordance with ASC 360, 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

Advertising Cost [Policy Text Block]

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 $4,000 and $2,000 for the years ended December 31, 2019 and 2018, respectively.

Cost of Goods and Service [Policy Text Block]

Shipping Activities


Outbound shipping charges to customers are included in “Net sales.” Outbound shipping-related costs are included in “Cost of goods sold.”

Share-based Payment Arrangement [Policy Text Block]

Stock-Based Compensation


We account for all 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 Tax, Policy [Policy Text Block]

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.


ASC 740, Income Taxes (“ASC 740”), which clarifies the accounting and disclosure for uncertainty in tax positions, as defined, 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 jurisdictions. 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. 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 Measurement, Policy [Policy Text Block]

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 we would transact and consider 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.

Earnings Per Share, Policy [Policy Text Block]

Net Income Per Share


We apply the two-class method for calculating and presenting net income per share. The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock according to dividends declared or accumulated and participation rights in undistributed earnings. Under this method:


 

(a)

Net income is reduced by the amount of dividends declared in the current period for each class of stock and by the contractual amount of dividends that must be paid for the current period.


 

(b)

The remaining earnings (“undistributed earnings”) are allocated to Class A Common Stock (“CLA”) and Class B Common Stock (“CLB”) to the extent each security may share in earnings as if all the earnings for the period had been distributed. The total earnings allocated to each security is determined by adding together the amount allocated for dividends and the amount allocated for a participation feature.


 

(c)

The total earnings allocated to each security is then divided by the number of outstanding shares of the security to which the earnings are allocated to determine the earnings per share for the security.


 

(d)

Basic and diluted net income per share data are presented for each class of common stock.


In applying the two-class method, we determined undistributed earnings should be allocated proportionally on a per share basis between the CLA and CLB due to the aggregate participation rights of the CLB (i.e., the voting and conversion rights) and our history of paying cash dividends equally on a per share basis on the CLA and CLB.


The CLB is entitled to ten (10) votes per share and the CLA is entitled to one (1) vote per share with respect to each matter to be voted upon by the stockholders. Except as otherwise required by law, the holders of both classes vote together as a single class on all matters submitted to our stockholders, including the election of the Board of Directors. As a result, the holders of the CLB control approximately 60% of the total voting power of the stockholders and control the election of the Board of Directors. Each class has participated equally in all cash dividends declared and paid.


The CLB is convertible into CLA on a one-for-one per share basis at any time at the option of the holder. Accordingly, the holders of the CLB can participate equally in any dividends declared on the CLA by exercising their conversion rights.


Basic net income per share excludes potential common shares that were dilutive and is computed by dividing net income available for common stockholders by the weighted average number each class of shares outstanding. Diluted net income per share for each class gives effect to all securities representing potential common shares that were dilutive and outstanding during the period.

Foreign Currency Transactions and Translations Policy [Policy Text Block]

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, Policy [Policy Text Block]

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 income taxes, the allowance for sales returns and allowances, doubtful accounts and inventory reserves. Actual results could differ from these estimates.

New Accounting Pronouncements, Policy [Policy Text Block]

New Accounting Pronouncements


In February 2016, the FASB issued a new accounting standard on leasing. The new standard will require companies to record most leased assets and liabilities on the balance sheet, and also proposes a dual model for recognizing expense. This guidance was effective in our first quarter of 2019. We have evaluated the impact of adopting this guidance and the adoption of these accounting changes have not impacted our assets and liabilities nor our net income or equity, as we currently do not lease any assets.


In May 2017, the FASB issued a new accounting standard which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in ASC Topic 718. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. This guidance was effective in our first quarter of 2019. The adoption of this guidance has not had a material effect on our consolidated financial statements.

v3.20.1
Consolidated Statements of Cash Flows - USD ($)
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Operating activities:    
Net income $ 806,000 $ 1,370,000
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 178,000 161,000
Provision for inventory reserves 405,000 180,000
Reversal of inventory reserves (1,701,000) (838,000)
Provision for sales returns and doubtful accounts 5,000 11,000
Stock based compensation 21,000 8,000
Loss on investments 193,000 185,000
Gain on sale of assets (160,000) 0
Changes in assets and liabilities:    
Accounts receivable (126,000) 66,000
Inventories 2,305,000 1,051,000
Prepaid expenses and other current assets (18,000) 13,000
Accounts payable (510,000) 124,000
Accrued liabilities 11,000 (48,000)
Other assets and liabilities 4,000 11,000
Total adjustments 607,000 924,000
Net cash provided by operating activities 1,413,000 2,294,000
Investing activities:    
Acquisition of property and equipment (17,000) (5,000)
Proceeds from sale of assets 200,000 0
Payment for investment in convertible securities (186,000) 0
Net cash used for investing activities (3,000) (5,000)
Financing activities:    
Payments on notes payable 0 (500,000)
Dividend payments (717,000) (589,000)
Proceeds from stock options exercised 126,000 60,000
Net cash used for financing activities (591,000) (1,029,000)
Impact of exchange rates on cash 0 (16,000)
Net increase in cash and cash equivalents 819,000 1,244,000
Cash and cash equivalents, beginning of period 4,494,000 3,250,000
Cash and cash equivalents, end of period 5,313,000 4,494,000
Supplemental disclosures of cash flow information:    
Cash paid for interest 0 9,000
Cash paid for income taxes, net $ 3,000 $ 3,000
v3.20.1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - USD ($)
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) [Line Items]    
Stockholders' Equity Attributable to Noncontrolling Interest $ 100,000 $ 96,000
Revenue Recognition, Sales Returns, Reserve for Sales Returns $ 5,000 12,000
Allowance for sales returns, restocking fee, description 10% to 30% of the net sales price  
Accounts Receivable, Allowance for Credit Loss $ 19,000 38,000
Inventory Valuation Reserves 5,893,000 7,189,000
Provision for Other Losses 405,000 180,000
Reversal of Inventory Reserves $ 1,701,000 838,000
Property, Plant and Equipment, Useful Life 31 years 6 months  
Advertising Expense $ 4,000 $ 2,000
Geographic Concentration Risk [Member]    
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) [Line Items]    
Concentration Risk, Percentage 90.00%  
Furniture Machinery and Equipment [Member] | Minimum [Member]    
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) [Line Items]    
Property, Plant and Equipment, Useful Life 5 years  
Furniture Machinery and Equipment [Member] | Maximum [Member]    
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) [Line Items]    
Property, Plant and Equipment, Useful Life 7 years  
Customer1 [Member] | Customer Concentration Risk [Member] | Sales [Member]    
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) [Line Items]    
Concentration Risk, Percentage 42.00% 48.00%
Customer1 [Member] | Credit Concentration Risk [Member] | Accounts Receivable [Member]    
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) [Line Items]    
Concentration Risk, Percentage 63.00% 64.00%
Customer2 [Member] | Customer Concentration Risk [Member] | Sales [Member]    
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) [Line Items]    
Concentration Risk, Percentage 17.00%  
Customer2 [Member] | Credit Concentration Risk [Member] | Accounts Receivable [Member]    
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) [Line Items]    
Concentration Risk, Percentage 25.00%  
Supplier 1 [Member] | Supplier Concentration Risk [Member] | Cost of Goods and Service Benchmark [Member]    
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) [Line Items]    
Concentration Risk, Percentage 35.00% 35.00%
Supplier2 [Member] | Supplier Concentration Risk [Member] | Cost of Goods and Service Benchmark [Member]    
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) [Line Items]    
Concentration Risk, Percentage 15.00% 11.00%
v3.20.1
COMMITMENTS AND CONTINGENCIES (Details) - USD ($)
Dec. 31, 2019
Dec. 31, 2018
Commitments and Contingencies Disclosure [Abstract]    
Purchase Commitment, Remaining Minimum Amount Committed $ 780,000 $ 1,200,000
v3.20.1
SHARE BASED COMPENSATION (Details) - Schedule of Share-based Compensation, Stock Options, Activity - USD ($)
12 Months Ended
Dec. 31, 2017
Dec. 31, 2019
Dec. 31, 2018
Schedule of Share-based Compensation, Stock Options, Activity [Abstract]      
Options Outstanding, Number of Shares 331,000 453,000  
Options Outstanding, Weighted Average Exercise Price $ 1.08 $ 1.35  
Options Outstanding, Weighted Average Remaining Contractual Term (Years) 3 years 6 months 5 years 219 days 5 years
Options Outstanding, Aggregate Intrinsic Value $ 204,400 $ 182,400  
Options Exercisable, Number of Shares   186,000  
Options Exercisable, Weighted Average Exercise Price   $ 1.30  
Options Exercisable, Weighted Average Years Remaining Contractual Term   4 years 109 days  
Options Exercisable, Aggregate Intrinsic Value   $ 250,000  
Options Granted, Number of Shares   52,500 215,000
Options Granted, Weighted Average Exercise Price   $ 2.78 $ 1.90
Options Granted, Weighted Average Years Remaining Contractual Term   8 years 7 years 109 days
Options Exercised, Number of Shares   (123,000) (59,000)
Options Exercised, Weighted Average Exercise Price   $ 1.03 $ 1.02
Options Forfeited, Number of Shares   (1,000) (34,000)
Options Forfeited, Weighted Average Exercise Price   $ 0.84 $ 1.48
Options Outstanding, Number of Shares   381,500 453,000
Options Outstanding, Weighted Average Exercise Price   $ 1.65 $ 1.35
Options Outstanding, Aggregate Intrinsic Value   $ 429,000 $ 182,400
v3.20.1
INCOME TAXES (Details) - Schedule of Effective Income Tax Rate Reconciliation - USD ($)
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Schedule of Effective Income Tax Rate Reconciliation [Abstract]    
“Expected” income tax benefit $ 204,000 $ 288,000
State tax expense, net of Federal benefit 0 5,000
Foreign tax expense (30,000) (4,000)
Other (70,000) 36,000
Income tax provision 0 6,000
Increase in valuation allowance $ (104,000) $ (319,000)
v3.20.1
GEOGRAPHIC INFORMATION
12 Months Ended
Dec. 31, 2019
Segment Reporting [Abstract]  
Segment Reporting Disclosure [Text Block]

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,

 
   

2019

   

2018

   

2019

   

2018

 
                   

Long-lived

   

Long-lived

 
   

Revenues

   

Revenues

   

Assets

   

Assets

 

United States

  $ 5,809,000     $ 7,377,000     $ 2,411,000     $ 2,679,000  

South Korea

    650,000       509,000       -       -  

China

    228,000       237,000       789,000       831,000  

Taiwan

    45,000       55,000       186,000       200,000  

Other foreign countries

    51,000       44,000       -       -  

Total

  $ 6,783,000     $ 8,222,000     $ 3,386,000     $ 3,710,000  

v3.20.1
INCOME TAXES
12 Months Ended
Dec. 31, 2019
Income Tax Disclosure [Abstract]  
Income Tax Disclosure [Text Block]

9 - INCOME TAXES


Income tax provision is summarized as follows:


   

Year Ended December 31,

 
   

2019

   

2018

 

Current:

               

Federal

  $ -     $ -  

Foreign

    -       -  

State

    -       6,000  
      -       6,000  

Deferred:

               

Federal

    97,000       216,000  

State

    7,000       103,000  

Decrease in valuation allowance

    (104,000 )     (319,000 )
      -       -  
                 

Income tax provision

  $ -     $ 6,000  

The actual income tax provision differs from the “expected” tax computed by applying the Federal corporate tax rate of 21% to the loss before income taxes as follows:


   

Year Ended December 31,

 
   

2019

   

2018

 

“Expected” income tax benefit

  $ 204,000     $ 288,000  

State tax expense, net of Federal benefit

    -       5,000  

Foreign loss

    (30,000 )     -  

Decrease in valuation allowance

    (104,000 )     (319,000 )

Foreign tax expense

    -       (4,000 )

Other

    (70,000 )     36,000  

Income tax provision

  $ -     $ 6,000  

The tax effects of temporary differences which give rise to significant portions of the deferred taxes are summarized as follows:


   

December 31,

 
   

2019

   

2018

 

Deferred tax assets:

               

Inventory reserves

  $ 1,758,000     $ 2,146,000  

Allowances for bad debts and returns

    5,000       11,000  

Accrued expenses

    21,000       19,000  

Asset valuation reserve

    539,000       481,000  

Net operating loss carry forwards

    283,000       136,000  

Other

    160,000       152,000  

Total deferred tax assets

    2,766,000       2,945,000  

Valuation allowance

    (2,587,000 )     (2,691,000 )
      179,000       254,000  

Deferred tax liabilities:

               

Inventory overhead deferred tax liability

    -       (73,000 )

Deferred state taxes

    (179,000 )     (181,000 )

Total deferred tax liabilities

    (179,000 )     (254,000 )
                 

Net deferred tax assets

  $ -     $ -  

As of December 31, 2019, we had approximately $800,000 and $1,298,000 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, 2019 and 2018, we have $2,587,000 and $2,691,000 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 our statements of operations. We have incurred no interest or penalties as of December 31, 2019 and 2018.


v3.20.1
LONG-TERM DEBT FROM RELATED PARTY
12 Months Ended
Dec. 31, 2019
Debt Disclosure [Abstract]  
Debt Disclosure [Text Block]

5 - LONG-TERM DEBT FROM RELATED PARTY


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 – Related Party Transactions). On August 11, 2016, we renewed and extended maturities to June 30, 2017 and beyond. Credit was previously available in $500,000 advances, each advance payable in monthly interest only installments, at the rate of Prime + 0.25% per annum (Prime was 4.50% at December 31, 2017). In 2018, we fully repaid the loan and terminated the credit facility.


v3.20.1
PROPERTY AND EQUIPMENT (Details)
12 Months Ended
Dec. 31, 2019
USD ($)
ft²
Dec. 31, 2018
USD ($)
Property, Plant and Equipment [Abstract]    
Depreciation $ 178,000 $ 161,000
Area of Real Estate Property (in Square Feet) | ft² 15,000  
Proceeds from Sale of Property, Plant, and Equipment $ 200,000  
v3.20.1
LONG-TERM DEBT FROM RELATED PARTY (Details) - USD ($)
Aug. 11, 2016
Dec. 31, 2017
Apr. 01, 2008
Debt Disclosure [Abstract]      
Line of Credit Facility, Maximum Borrowing Capacity     $ 3,000,000
Proceeds from Lines of Credit $ 500,000    
Debt Instrument, Basis Spread on Variable Rate 0.25%    
Long-term Debt, Percentage Bearing Variable Interest, Percentage Rate   4.50%  
v3.20.1
NET INCOME PER SHARE (Tables)
12 Months Ended
Dec. 31, 2019
Earnings Per Share [Abstract]  
Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]
The following table sets forth the computation of basic and diluted net income per share under the two-class method. See Note 1 for additional information related to net income per share.

   

Year ended December 31,

 
   

2019

   

2018

 

Numerator for basic and diluted net income per Class A common stock and Class B common stock share:

               

Net income attributable to Taitron Components Inc.

  $ 773,000     $ 1,378,000  

Less cash dividends:

               

Class A common stock

  $ 620,000     $ 508,000  

Class B common stock

  $ 95,000     $ 80,000  

Total undistributed earnings

  $ 58,000     $ 790,000  
                 

Class A common stock undistributed earnings - basic and diluted

  $ 50,000     $ 682,000  

Class B common stock undistributed earnings - basic and diluted

  $ 8,000     $ 108,000  

Total undistributed earnings - basic and diluted

  $ 58,000     $ 790,000  
                 

Numerator for basic and diluted net income per share:

               

Class A common stock

  $ 670,000     $ 1,190,000  

Class B common stock

  $ 103,000     $ 188,000  
    $ 773,000     $ 1,378,000  
   

Year ended December 31,

 
   

2019

   

2018

 

Denominator for basic and diluted net income per Class A common stock and Class B common stock share:

               

Weighted average number of common shares used in basic income per share (Class A common stock )

    4,961,610       4,834,943  

Weighted average number of common shares used in basic income per share (Class B common stock )

    762,612       762,612  
      5,724,222       5,597,555  
                 

Weighted average number of common shares used in diluted income per share (Class A common stock )

    5,077,610       4,943,943  

Weighted average number of common shares used in diluted income per share (Class B common stock )

    762,612       762,612  
      5,840,222       5,706,555  
                 

Basic net income per share:

               

Class A common stock

  $ 0.14     $ 0.25  

Class B common stock

  $ 0.14     $ 0.25  
                 

Diluted net income per share:

               

Class A common stock

  $ 0.13     $ 0.24  

Class B common stock

  $ 0.14     $ 0.25  
v3.20.1
PROPERTY AND EQUIPMENT (Tables)
12 Months Ended
Dec. 31, 2019
Property, Plant and Equipment [Abstract]  
Property, Plant and Equipment [Table Text Block]
Property and equipment, at cost, is summarized as follows:

   

December 31,

 
   

2019

   

2018

 

Land

  $ 1,284,000     $ 1,297,000  

Buildings and improvements

    4,867,000       5,096,000  

Furniture and equipment

    794,000       783,000  

Computer software and hardware

    563,000       557,000  

    Total Property and Equipment

    7,508,000       7,733,000  

Less: Accumulated depreciation and amortization

    (4,122,000 )     (4,023,000 )

Property and Equipment, net

  $ 3,386,000     $ 3,710,000  
v3.20.1
Consolidated Statements of Operations and Comprehensive Income - USD ($)
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Net product revenue $ 6,783,000 $ 8,222,000
Cost of products sold 3,707,000 4,604,000
Gross profit 3,076,000 3,618,000
Selling, general and administrative expenses 2,378,000 2,199,000
Operating income 698,000 1,419,000
Interest income, net 28,000 9,000
Loss on investments (193,000) (185,000)
Other income, net 273,000 133,000
Income before income taxes 806,000 1,376,000
Income tax provision 0 (6,000)
Net income 806,000 1,370,000
Net income(loss) attributable to noncontrolling interests 33,000 (8,000)
Net income attributable to Taitron Components Inc. $ 773,000 $ 1,378,000
Weighted average shares outstanding: Basic (in Shares) 5,724,222 5,597,555
Weighted average shares outstanding: Diluted (in Shares) 5,840,222 5,706,555
Cash dividends declared per common share (in Dollars per share) $ 0.125 $ 0.105
Net income $ 806,000 $ 1,370,000
Other comprehensive income:    
Foreign currency translation adjustment (90,000) (16,000)
Comprehensive income 716,000 1,354,000
Comprehensive income(loss) attributable to noncontrolling interests 4,000 (4,000)
Comprehensive income attributable to Taitron Components Inc. $ 712,000 $ 1,358,000
Common Class A [Member]    
Net income per share: Basic (in Dollars per share) $ 0.14 $ 0.25
Net income per share: Diluted (in Dollars per share) $ 0.13 $ 0.24
Weighted average shares outstanding: Basic (in Shares) 4,961,610 4,834,943
Weighted average shares outstanding: Diluted (in Shares) 5,077,610 4,943,943
Common Class B [Member]    
Net income per share: Basic (in Dollars per share) $ 0.14 $ 0.25
Net income per share: Diluted (in Dollars per share) $ 0.14 $ 0.25
Weighted average shares outstanding: Basic (in Shares) 762,612 762,612
Weighted average shares outstanding: Diluted (in Shares) 762,612 762,612
v3.20.1
INVENTORY
12 Months Ended
Dec. 31, 2019
Inventory Disclosure [Abstract]  
Inventory Disclosure [Text Block]

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 net realizable value. The amount presented in the accompanying consolidated balance sheet is net of valuation allowances of $5,893,000 and $7,189,000 at December 31, 2019 and 2018, respectively.


Based upon regular evaluations of inventory to identify costs in excess of the lower of cost or net realizable value and slow-moving inventory, we increased our reserves by $405,000 and $180,000 for the years ended December 31, 2019 and 2018, respectively, while also applying $1,701,000 and $838,000 of our existing reserves to the underlying inventory values during the years ended December 31, 2019 and 2018, respectively.


v3.20.1
INCOME TAXES (Details) - USD ($)
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
INCOME TAXES (Details) [Line Items]    
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent 21.00%  
Unrecognized Tax Benefits that Would Impact Effective Tax Rate $ 795,000  
Unrecognized Tax Benefits 2,587,000 $ 2,691,000
Domestic Tax Authority [Member]    
INCOME TAXES (Details) [Line Items]    
Operating Loss Carryforwards 800,000  
State and Local Jurisdiction [Member]    
INCOME TAXES (Details) [Line Items]    
Operating Loss Carryforwards $ 1,298,000  
v3.20.1
NET INCOME PER SHARE (Details) - Schedule of Earnings Per Share, Basic and Diluted - USD ($)
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Numerator for basic and diluted net income per Class A common stock and Class B common stock share:    
Net income available to common shareholders used in basic and diluted income per share $ 773,000 $ 1,378,000
Less cash dividends:    
Total undistributed earnings 58,000 790,000
Total undistributed earnings - basic and diluted 58,000 790,000
Numerator for basic and diluted net income per share:    
Common stock $ 773,000 $ 1,378,000
Denominator for basic and diluted net income per Class A common stock and Class B common stock share:    
Weighted average number of common shares used in basic income per share (in Shares) 5,724,222 5,597,555
Weighted average number of common shares and dilutive potential common shares used in diluted income per share (in Shares) 5,840,222 5,706,555
Common Class A [Member]    
Less cash dividends:    
Dividends $ 620,000 $ 508,000
Total undistributed earnings - basic and diluted 50,000 682,000
Numerator for basic and diluted net income per share:    
Common stock $ 670,000 $ 1,190,000
Denominator for basic and diluted net income per Class A common stock and Class B common stock share:    
Weighted average number of common shares used in basic income per share (in Shares) 4,961,610 4,834,943
Weighted average number of common shares and dilutive potential common shares used in diluted income per share (in Shares) 5,077,610 4,943,943
Basic net income per share:    
Basic income per share (in Dollars per share) $ 0.14 $ 0.25
Diluted net income per share:    
Diluted income per share (in Dollars per share) $ 0.13 $ 0.24
Common Class B [Member]    
Less cash dividends:    
Dividends $ 95,000 $ 80,000
Total undistributed earnings - basic and diluted 8,000 108,000
Numerator for basic and diluted net income per share:    
Common stock $ 103,000 $ 188,000
Denominator for basic and diluted net income per Class A common stock and Class B common stock share:    
Weighted average number of common shares used in basic income per share (in Shares) 762,612 762,612
Weighted average number of common shares and dilutive potential common shares used in diluted income per share (in Shares) 762,612 762,612
Basic net income per share:    
Basic income per share (in Dollars per share) $ 0.14 $ 0.25
Diluted net income per share:    
Diluted income per share (in Dollars per share) $ 0.14 $ 0.25
v3.20.1
PROPERTY AND EQUIPMENT
12 Months Ended
Dec. 31, 2019
Property, Plant and Equipment [Abstract]  
Property, Plant and Equipment Disclosure [Text Block]

3 - PROPERTY AND EQUIPMENT


Property and equipment, at cost, is summarized as follows:


   

December 31,

 
   

2019

   

2018

 

Land

  $ 1,284,000     $ 1,297,000  

Buildings and improvements

    4,867,000       5,096,000  

Furniture and equipment

    794,000       783,000  

Computer software and hardware

    563,000       557,000  

    Total Property and Equipment

    7,508,000       7,733,000  

Less: Accumulated depreciation and amortization

    (4,122,000 )     (4,023,000 )

Property and Equipment, net

  $ 3,386,000     $ 3,710,000  

Depreciation expense for the years ended December 31, 2019 and 2018 was $178,000 and $161,000, respectively.


During 2019, we sold our 15,000 square foot of office and distribution space in Mexico for $200,000


v3.20.1
INCOME TAXES (Tables)
12 Months Ended
Dec. 31, 2019
Income Tax Disclosure [Abstract]  
Schedule of Components of Income Tax Expense (Benefit) [Table Text Block]
Income tax provision is summarized as follows:

   

Year Ended December 31,

 
   

2019

   

2018

 

Current:

               

Federal

  $ -     $ -  

Foreign

    -       -  

State

    -       6,000  
      -       6,000  

Deferred:

               

Federal

    97,000       216,000  

State

    7,000       103,000  

Decrease in valuation allowance

    (104,000 )     (319,000 )
      -       -  
                 

Income tax provision

  $ -     $ 6,000  
Schedule of Effective Income Tax Rate Reconciliation [Table Text Block]
The actual income tax provision differs from the “expected” tax computed by applying the Federal corporate tax rate of 21% to the loss before income taxes as follows:

   

Year Ended December 31,

 
   

2019

   

2018

 

“Expected” income tax benefit

  $ 204,000     $ 288,000  

State tax expense, net of Federal benefit

    -       5,000  

Foreign loss

    (30,000 )     -  

Decrease in valuation allowance

    (104,000 )     (319,000 )

Foreign tax expense

    -       (4,000 )

Other

    (70,000 )     36,000  

Income tax provision

  $ -     $ 6,000  
Schedule of Deferred Tax Assets and Liabilities [Table Text Block]
The tax effects of temporary differences which give rise to significant portions of the deferred taxes are summarized as follows:

   

December 31,

 
   

2019

   

2018

 

Deferred tax assets:

               

Inventory reserves

  $ 1,758,000     $ 2,146,000  

Allowances for bad debts and returns

    5,000       11,000  

Accrued expenses

    21,000       19,000  

Asset valuation reserve

    539,000       481,000  

Net operating loss carry forwards

    283,000       136,000  

Other

    160,000       152,000  

Total deferred tax assets

    2,766,000       2,945,000  

Valuation allowance

    (2,587,000 )     (2,691,000 )
      179,000       254,000  

Deferred tax liabilities:

               

Inventory overhead deferred tax liability

    -       (73,000 )

Deferred state taxes

    (179,000 )     (181,000 )

Total deferred tax liabilities

    (179,000 )     (254,000 )
                 

Net deferred tax assets

  $ -     $ -  
v3.20.1
Document And Entity Information - USD ($)
12 Months Ended
Dec. 31, 2019
Mar. 15, 2020
Jun. 30, 2019
Document Information Line Items      
Entity Registrant Name TAITRON COMPONENTS INC    
Document Type 10-K    
Current Fiscal Year End Date --12-31    
Entity Public Float     $ 5,100,000
Amendment Flag false    
Entity Central Index Key 0000942126    
Entity Current Reporting Status Yes    
Entity Voluntary Filers No    
Entity Filer Category Non-accelerated Filer    
Entity Well-known Seasoned Issuer No    
Document Period End Date Dec. 31, 2019    
Document Fiscal Year Focus 2019    
Document Fiscal Period Focus FY    
Entity Small Business true    
Entity Emerging Growth Company false    
Entity Shell Company false    
Entity Interactive Data Current Yes    
Common Class A [Member]      
Document Information Line Items      
Entity Common Stock, Shares Outstanding   5,035,235  
Common Class B [Member]      
Document Information Line Items      
Entity Common Stock, Shares Outstanding   762,612  
v3.20.1
Consolidated Statements of Shareholders' Equity - USD ($)
Common Stock [Member]
Common Class A [Member]
Common Stock [Member]
Common Class B [Member]
Additional Paid-in Capital [Member]
AOCI Attributable to Parent [Member]
Retained Earnings [Member]
Noncontrolling Interest [Member]
Parent [Member]
Common Class A [Member]
Common Class B [Member]
Total
Balance at Dec. 31, 2017 $ 5,000 $ 1,000 $ 10,744,000 $ 144,000 $ 867,000 $ 100,000 $ 11,861,000     $ 11,761,000
Balance (in Shares) at Dec. 31, 2017 4,808,235 762,612                
Consolidated net income (loss)         1,378,000 (4,000) 1,374,000     1,378,000
Other comprehensive income (loss)       (16,000)     (16,000)     (16,000)
Exercise stock options     60,000       60,000     $ 60,000
Exercise stock options (in Shares) 59,000                 59,000
Amortization of stock based compensation     8,000       8,000     $ 8,000
Cash dividends         (589,000)   (589,000)     (589,000)
Balance at Dec. 31, 2018 $ 5,000 $ 1,000 10,812,000 128,000 1,656,000 96,000 12,698,000     12,602,000
Balance (in Shares) at Dec. 31, 2018 4,867,235 762,612           4,867,235 762,612  
Consolidated net income (loss)         773,000 4,000 777,000     773,000
Other comprehensive income (loss)       (90,000)     (90,000)     (90,000)
Exercise stock options     126,000       126,000     $ 126,000
Exercise stock options (in Shares) 123,000                 123,000
Amortization of stock based compensation     21,000       21,000     $ 21,000
Cash dividends         (717,000)   (717,000)     (717,000)
Balance at Dec. 31, 2019 $ 5,000 $ 1,000 $ 10,959,000 $ 38,000 $ 1,712,000 $ 100,000 $ 12,815,000     $ 12,715,000
Balance (in Shares) at Dec. 31, 2019 4,990,235 762,612           4,990,235 762,612  
v3.20.1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)
12 Months Ended
Dec. 31, 2019
Accounting Policies [Abstract]  
Disaggregation of Revenue [Table Text Block]
In the following table, revenue is disaggregated by primary geographical market, major product line, and timing of revenue recognition.

   

Twelve Months Ended December 31,

 
   

2019

   

2018

 

Primary geographical markets:

               

United States

  $ 5,809,000     $ 7,377,000  

Asia

    950,000       806,000  

Other

    24,000       39,000  
      6,783,000       8,222,000  

Major product lines:

               

ODM projects

  $ 4,012,000     $ 4,890,000  

ODM components

    2,586,000       2,709,000  

Distribution components

    185,000       623,000  
      6,783,000       8,222,000  

Timing of revenue recognition:

               

Products transferred at a point in time

  $ 6,783,000     $ 8,222,000  
v3.20.1
INCOME TAXES (Details) - Schedule of Components of Income Tax Expense (Benefit) - USD ($)
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Current:    
Federal $ 0 $ 0
Foreign 0 0
State 0 6,000
0 6,000
Deferred:    
Federal 97,000 216,000
State 7,000 103,000
Increase in valuation allowance (104,000) (319,000)
0 0
Income tax provision $ 0 $ 6,000
v3.20.1
EMPLOYEE BENEFIT PLANS (Details)
12 Months Ended
Dec. 31, 2019
USD ($)
shares
EMPLOYEE BENEFIT PLANS (Details) [Line Items]  
Defined Benefit Plan, Plan Assets, Contributions by Employer | $ $ 28,000
Defined Benefit Plan, Plan Assets, Employer, Related Party, Number of Shares | shares 929,203
Defined Contribution Profit Sharing Plan [Member] | Common Class A [Member]  
EMPLOYEE BENEFIT PLANS (Details) [Line Items]  
Defined Benefit Plan, Plan Assets, Investment within Plan Asset Category, Percentage 487159.00%
v3.20.1
SHAREHOLDER'S EQUITY
12 Months Ended
Dec. 31, 2019
Stockholders' Equity Note [Abstract]  
Stockholders' Equity Note Disclosure [Text Block]

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 4,990,235 and 4,867,235 issued and outstanding as of December 31, 2019 and 2018, respectively. Each holder of Class A common stock is entitled to one vote for each share held. During 2019, we issued 123,000 shares of our Class A common stock. During 2018, we issued 59,000 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, 2019 and 2018. 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 the nine months ended September 30, 2018, we declared and paid quarterly dividends at $.025 per share. For the quarter ended December 31, 2018 and for the nine months ended September 30, 2019, we paid quarterly dividends of $0.03 per share. For the quarter ended December 31, 2019, we declared and paid quarterly dividends at $.035 per share.


v3.20.1
OTHER ASSETS
12 Months Ended
Dec. 31, 2019
Disclosure Text Block Supplement [Abstract]  
Other Assets Disclosure [Text Block]

4 - OTHER ASSETS


The following table presents a summary roll-forward of other assets:


   

Investment in

securities -

Zowie Technology

   

Investment in

joint venture -

Grand

Shine Mgmt

   

Other

   

Other Assets Total

 
                                 

Balance at December 31, 2017

  $ 193,000     $ 185,000     $ 25,000     $ 403,000  

Net investment losses during the year

    -       (185,000 )     -       (185,000 )

Other changes

    -       -       (6,000 )     (6,000 )

Balance at December 31, 2018

    193,000       -       19,000       212,000  

Investment

    186,000       -       -       186,000  

Net investment losses during the year

    (193,000 )     -       -       (193,000 )

Balance at December 31, 2019

  $ 186,000     $ -     $ 19,000     $ 205,000  

Our $186,000 investment in securities as of December 31, 2019 relates to 317,428 shares of preferred convertible debt of Zowie Technology Corporation (Taipei Hsien, Taiwan), a supplier of electronic component products (see Part I: Item 1 – Business – Suppliers) with our option after 3 (three) years to convert the investment into common stock or refundable bearing 7% annual interest rate. Our investment represents approximately 7.9% of their total outstanding shares although we do not have significant influence or control. This investment is accounted for under the cost (plus impairment) 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 2019, due to our estimated valuation assessment, we recognized an impairment loss of $193,000.


In 2018, we sold our interests in Grand Shine Management.


v3.20.1
COMMITMENTS AND CONTINGENCIES
12 Months Ended
Dec. 31, 2019
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies Disclosure [Text Block]

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 $780,000 and $1,200,000 as of December 31, 2019 and December 31, 2018, respectively.


v3.20.1
PROPERTY AND EQUIPMENT (Details) - Property, Plant and Equipment - USD ($)
Dec. 31, 2019
Dec. 31, 2018
Property, Plant and Equipment [Line Items]    
Property and Equipment, gross $ 7,508,000 $ 7,733,000
Less: Accumulated depreciation and amortization (4,122,000) (4,023,000)
Property and Equipment, net 3,386,000 3,710,000
Land [Member]    
Property, Plant and Equipment [Line Items]    
Property and Equipment, gross 1,284,000 1,297,000
Building and Building Improvements [Member]    
Property, Plant and Equipment [Line Items]    
Property and Equipment, gross 4,867,000 5,096,000
Furniture and Fixtures [Member]    
Property, Plant and Equipment [Line Items]    
Property and Equipment, gross 794,000 783,000
Computer Software and Equipment [Member]    
Property, Plant and Equipment [Line Items]    
Property and Equipment, gross $ 563,000 $ 557,000
v3.20.1
RELATED PARTY TRANSACTIONS (Details) - USD ($)
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
RELATED PARTY TRANSACTIONS (Details) [Line Items]    
Related Party Transaction, Description of Transaction fees related to the operational management of our Taiwan office  
Related Party Transaction, Amounts of Transaction $ 0 $ 24,000
Immediate Family Member of Management or Principal Owner [Member]    
RELATED PARTY TRANSACTIONS (Details) [Line Items]    
Related Party Transaction, Amounts of Transaction 7,000 5,000
Interest Paid, Including Capitalized Interest, Operating and Investing Activities $ 0 $ 9,000